National Flood Insurance Program

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The National Flood Insurance Program (NFIP) is a program created by the Congress of the United States in 1968 through the National Flood Insurance Act of 1968 (P.L. 90-448). The program enables property owners in participating communities to purchase insurance protection, administered by the government, against losses from flooding, and requires flood insurance for all loans or lines of credit that are secured by existing buildings, manufactured homes, or buildings under construction, that are located in a community that participates in the NFIP.

This NFIP is designed to provide an insurance alternative to disaster assistance to meet the escalating costs of repairing damage to buildings and their contents caused by floods.[1] As of August 2017, the program insured about 5 million homes (down from about 5.5 million homes in April 2010), the majority of which are in Texas and Florida.[2][3] The cost of the insurance program was fully covered by its premiums until the end of 2004, but has had to steadily borrow funds since (primarily due to Hurricane Katrina and Hurricane Sandy), accumulating $25 billion of debt by August 2017.[2][4]


Participation in the NFIP is based on an agreement between local communities and the federal government that states that if a community will adopt and enforce a floodplain management ordinance to reduce future flood risks to new construction in Special Flood Hazard Areas (SFHA), the federal government will make flood insurance available within the community as a financial protection against flood losses. The SFHAs and other risk premium zones applicable to each participating community are depicted on Flood Insurance Rate Maps (FIRMs). The Mitigation Division within the Federal Emergency Management Agency manages the NFIP and oversees the floodplain management and mapping components of the Program.

The intent was to reduce future flood damage through community floodplain management ordinances and provide protection for property owners against potential losses through an insurance mechanism that requires a premium to be paid for the protection. In 2003, the GAO found that repetitive-loss properties cost the program about $200 million annually.[5] Congress originally intended that operating expenses and flood insurance claims be paid for through the premiums collected for flood insurance policies.[6] NFIP borrows from the U.S. Treasury for times when losses are heavy, and these loans are paid back with interest.

Between 1978 and year-end 2014, the U.S. Federal Government has paid more than $51 billion in claims under the National Flood Insurance Program.[7]


The program was first amended by the Flood Disaster Protection Act of 1973, which made the purchase of flood insurance mandatory for the protection of property within SFHAs. In 1982, the Act was amended by the Coastal Barrier Resources Act (CBRA). The CBRA enacted a set of maps depicting the John H. Chafee Coastal Barrier Resources System (CBRS) in which federal flood insurance is unavailable for new or significantly improved structures. The National Flood Insurance Reform Act of 1994 codified the Community Rating System (an incentive program that encourages communities to exceed the minimal federal requirements for development within floodplains) within the NFIP. The program was further amended by the Flood Insurance Reform Act of 2004, with the goal of reducing "losses to properties for which repetitive flood insurance claim payments have been made."

The Biggert–Waters Flood Insurance Reform Act of 2012 (Biggert-Waters) modified the NFIP. At the conclusion of 2011, as Congress passed Biggert-Waters, the NFIP cumulative debt was over $17 billion.[8] A core principle of Biggert-Waters was to change the NFIP premiums to match actuarial risk-based premiums that better reflected the expected losses and real risk of flooding. These changes included removing discounts to many policies which were being sold below actual actuarial risk targets and eliminating "grandfathering" of older rates.[8][9]

In January 2014, the United States Senate passed the Homeowner Flood Insurance Affordability Act of 2014. This bill changed the process used to alter subsidized premiums and reinstated grandfathering of lower rates; effectively delaying the increases in flood insurance premiums to obtain risk-based premiums under Biggert-Waters and spreading the cost of the lost premiums over all of the remaining policy holders.[8][10][11]

The National Flood Insurance Program was $24 billion in debt at the beginning of 2014 as a result of Hurricanes Katrina, Rita and Sandy. The passage of the HFIAA described above has concerned insurance and environmental observers that the delay in implementation of actuarial rates will leave taxpayers exposed to additional losses.[9]

Floodplain Status Determination Appeals and Changes[edit]

Letter of Map Amendment[edit]

Insufficient map topographic detail or accuracy can result in the unwarranted determination of Special Flood Hazard Area (SFHA). An application for a Letter of Map Amendment (LOMA) uses an Elevation Certificate (prepared by a Registered Land Surveyor or Registered Professional Engineer) to ask FEMA to remove the flood insurance requirement on individual properties.[12]

Letter of Map Revision[edit]

For multiple properties or a larger area, an application for a Letter of Map Revision [13] can be submitted when the landscape topography is different from that shown on the floodplain boundary and/or flood heights shown on the FIRM and the Flood Insurance Study. A Letter of Map Revision based on Fill (LOMR-F) is used when landscape topography is altered by humans, usually to increase the land elevation and remove land from the floodplain. A Conditional Letter of Map Revision (CLOMR) and Conditional Letter of Map Revision Based on Fill (CLOMR-F) are strongly advised as a mechanism to obtain FEMA feedback on the project before site changes are made, especially in light of the increasing attention on the nexus between the NFIP and the Endangered Species Act.[14]


Before 1950 flood insurance was part of the standard homeowners' insurance policy. During the 1950s increasingly high correlation of losses by holders of flood policies of the same company caused many insurance companies to begin excluding flood coverage from standard insurance policies, selling flood insurance separately. Over time, insurance premiums collected were insufficient in covering payouts after major flooding events. In 1968, the National Flood Insurance Act established the National Flood Insurance Program (NFIP), which allows property owners to purchase insurance from the U.S. government that covers certain losses from flooding. This insurance is not set by the market risk valuation. It is less expensive than the private insurance company rate would be. This is accomplished either by the program running a deficit and borrowing money or by subsidies from the national government. Either way, the property owners with NFIP policies are receiving government subsidies to live in areas with high flood risk.

Property losses stemming from flood damage were largely the responsibility of the property owner, although the consequences were sometimes mitigated through provisions for disaster aid. Today, owners of property in flood plains frequently receive disaster aid and payment for insured losses, which in many ways negates the original intent of the NFIP. Consequently, these policy decisions have escalated losses stemming from floods in recent years, both in terms of property and life.[15]

Moreover, certain provisions within the NFIP increase the likelihood that flood-prone properties will be occupied by the people least likely to be in a position to recover from flood disasters, which further increases demand for aid. This is an example of adverse selection. Some factors contributing to increased demand for aid are:

  • Flood insurance for properties in flood prone areas is mandatory only to secure loans, which makes it somewhat more likely that flood prone properties will be owned by seniors who have paid off their mortgages, or investors who have acquired the property for rental income.
  • Flood insurance only covers losses for the owner of the property, and claims are subject to caps, which further increases the likelihood that the property will be occupied by renters rather than the property owner.
  • Flood prone properties are more likely to be offered for rent because of the owners' increased risks and/or costs associated with occupying the property themselves.
  • Flood prone properties are more likely to be offered for rent at a discount, which attracts lower income groups, seniors, and infirm groups.

According to critics of the program, the government's subsidized insurance plan "encouraged building, and rebuilding, in vulnerable coastal areas and floodplains."[16] Stephen Ellis, of the group Taxpayers for Common Sense, points to "properties that flooded 17 or 18 times that were still covered under the federal insurance program" without premiums going up.[16]

Another criticism is that FEMA doesn't administer all policies, instead outsourcing many policies to private insurance companies. When a disaster occurs, FEMA makes payments to those private insurance companies to offset their costs. However, there is little oversight and few rules as to how the money should be distributed. As a consequence, private insurers have been known to use FEMA payments to hire attorneys that fight policyholders in court. One law firm is estimated to have received US$29M from FEMA payments to fight Hurricane Sandy claims.[17]


  1. ^ Federal Emergency Management Agency (March 1986). "A Unified National Program for Floodplain Management" (PDF). Retrieved 2014-11-08.
  2. ^ a b Witkowski, Rachel; Scism, Leslie (2017-08-26). "Hurricane Harvey Threatens Largest Flood Insurer: The Government". Wall Street Journal. Retrieved 2017-10-28.
  3. ^ Holladay JS, Schwartz JA. (2010). Flooding the Market: The Distributional Consequences of the NFIP. Institute for Policy Integrity.
  4. ^ "How government policy exacerbates hurricanes like Harvey". The Economist. Retrieved 2017-09-06.
  5. ^ U.S. Government Accountability Office. (2003). Challenges Facing the National Flood Insurance Program
  6. ^ Wright, James M., The Nation's Response to Flood Disasters: A Historical Account. 1 Apr 2000.
  7. ^ (retrieved Apr. 13, 2016)
  8. ^ a b c National Research Council of the National Academies (2015). "Affordability of National Flood Insurance Program Premiums Report 1". Retrieved 2015-08-20.
  9. ^ a b Uhlenbrock, Kristan (31 January 2014). "Despite Hazard of Sea Level Rise, Senate Halts Flood Insurance Reforms". ThinkProgress. Retrieved 31 January 2014.
  10. ^ Ferraro, Thomas (30 January 2014). "U.S. Senate passes bill to delay hikes in flood insurance rates". Reuters. Retrieved 31 January 2014.
  11. ^ "S. 1926 – Summary". United States Congress. Retrieved 31 January 2014.
  12. ^ "Letter of Map Amendment (LOMA) -". Retrieved 27 February 2018.
  13. ^ "Letter of Map Revision –".
  14. ^ "National Flood Insurance Program & the Endangered Species Act –".
  15. ^ "Overwhelming risk: Rethinking flood insurance in a world of rising seas" (PDF). Union of Concerned Scientists. February 2014. Retrieved 6 October 2016.
  16. ^ a b hanscom, Greg (13 January 2014). "Flood pressure: Climate disasters drown FEMA's insurance plans". Grist. Retrieved 31 January 2014.
  17. ^ "Federal program meant to help flood victims spends millions fighting claims". CBS News. 30 April 2018.

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