Introduction to FEMA’s National Flood Insurance Program (August 2016)

CRS – Congressional Research Service Paper: Introduction to FEMA’s National Flood Insurance Program (August 2016)


The NFIP was established by the National Flood Insurance Act of 1968 (NFIA, 42 U.S.C. ยง4001 et seq.), and was most recently reauthorized by the Biggert-Waters Flood Insurance Reform Act of 2012 (Title II of P.L. 112-141). The general purpose of the NFIP is both to offer primary flood insurance to properties with significant flood risk, and to reduce flood risk through the adoption of floodplain management standards. Generally, communities volunteer to participate in the NFIP in order to have access to flood insurance, and in return are required to adopt minimum standards. FEMA manages a process, called Risk MAP, which conducts Flood Insurance Studies (FISs) to produce Flood Insurance Rate Maps (FIRMs). Depicted on FIRMs are Special Flood Hazard Areas (SFHAs), which is the area exposed to a 1 in 100 or greater risk of annual flooding. FIRMs vary in age across the country, and are updated on a prioritized basis with no definitive timetable. The Risk MAP process provides extensive outreach and appeal opportunities for communities. Updating a community’s FIRMs can take as long as three to five years or more. Participating communities must adopt a flood map and enact minimum floodplain standards to regulate development in the SFHA. FEMA encourages communities to enhance their floodplain standards by offering reduced premium rates through the Community Rating System (CRS). FEMA also manages a Flood Mitigation Assistance (FMA) grant program using NFIP revenues to further reduce comprehensive flood risk.

NFIP flood insurance uses one of three types of Standard Flood Insurance Policies (SFIPs). SFIPs have maximum coverage limits set by law. Any federal entity that makes, guarantees, or purchases mortgages will require property owners in the SFHA to purchase flood insurance, generally through the NFIP. In moderate risk areas, community members may purchase Preferred Risk Policies (PRPs) that offer less costly insurance. NFIP policies also provide Increased Cost of Compliance (ICC) coverage to offset the cost of complying with floodplain management standards, such as elevating a substantially damaged property. The day-to-day sale, servicing, and claims processing of NFIP policies are conducted by private industry partners. Most policies are serviced by companies that are reimbursed through the Write Your Own (WYO) Program.

The premium rate for most NFIP policies is intended to reflect the true flood risk. However, Congress has directed FEMA to subsidize flood insurance for properties built before the community’s first FIRM (i.e., the pre-FIRM subsidy). FEMA also “grandfathers” properties at their rate from past FIRMs to updated FIRMs through a cross-subsidy. Congress also directed the development of an Affordability Study, and a forthcoming Draft Affordability Framework, to evaluate methods for making flood insurance more affordable.

Participating communities that fail to adopt FIRMs or maintain minimum floodplain standards can be put on probation or suspended from the NFIP. In communities that do not participate in the NFIP, or have been suspended, individuals cannot purchase NFIP flood insurance. Individuals in these communities also face challenges receiving federal disaster assistance in flood hazard areas, and have difficulties receiving federally-backed mortgages. Congress has provided discretionary appropriations to the NFIP for some of the cost of Risk MAP.

Congress also authorizes the use of premium revenues for other NFIP costs, including administration, salaries, and other expenses. NFIP premiums also include additional charges, including a Federal Policy Fee, a Reserve Fund assessment, and a surcharge that help fund the NFIP. The NFIP currently owes $23 billion to the U.S. Treasury, leaving $7.425 billion in borrowing authority from a $30.425 billion limit in law. This debt is serviced by the NFIP, not the general taxpayer, and interest is paid through premiums. Though an exact timetable is unknown and depends heavily on future flood losses, it is unlikely that the debt will be repaid within 10 years or longer. After September 30, 2017, key authorities of the NFIP, such as the authority to issue new insurance contracts, will expire if they are not reauthorized by Congress.