National Flood Insurance Program

The National Flood Insurance Program (NFIP) was created by the Congress of the United States in 1968 through the National Flood Insurance Act of 1968 (P.L. 90-448).

It enables property owners in participating communities to purchase insurance protection from the government against losses from flooding. This insurance 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. Participation in the NFIP is based on an agreement between local communities and the federal government which 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. 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. The NFIP is meant to be self-supporting, though in 2004 Congress found that repetitive-loss properties cost the taxpayer about $200 million annually. Congress originally intended that operating expenses and flood insurance claims be paid for through the premiums collected for flood insurance policies. NFIP borrows from the U.S. Treasury for times when losses are heavy, however, these loans are paid back with interest.

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 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."

Criticisms
As critics predicted, the NFIP encourages people to locate in areas more susceptible to flood damage. Prior to the NFIP's existence, insurance coverage for flood losses was not provided by any private insurance carriers. Insurance 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.

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. Some factors contributing to increased demand for aid are:


 * Flood insurance for properties in flood prone areas are mandatory only to secure loans, which makes it somewhat more likely that flood prone properties will be owned by seniors that have paid off their mortgage, or investors that 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 vs the property owner.


 * Flood prone properties are more likely to be offered for rent because of the owner's 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 the infirm.