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National Flood Insurance Program
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 NFIP has two purposes: to share the risk of flood losses through flood insurance and to reduce flood damages by restricting floodplain development. 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 the Special Flood Hazard Area in a community that participates in the NFIP. U.S. Congress limits the availability of National Flood Insurance to communities that adopt adequate land use and control measures with effective enforcement provisions to reduce flood damages by restricting development in areas exposed to flooding.
Flood insurance was generally provided by private insurers beginning in 1895, but after the Great Mississippi Flood of 1927, most private insurers concluded that flood risk was uninsurable at a price that consumers could afford given the catastrophic nature of flooding, as well as difficulties in creating accurate risk assessments for policy pricing and risks of adverse selection.
The NFIP is managed and administered by the Federal Emergency Management Agency (FEMA) through the Federal Insurance and Mitigation Administration (FIMA). The program 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. 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. The cost of the insurance program was fully covered by its premiums until the end of 2004, but it has had to steadily borrow funds since, primarily due to Hurricane Katrina and Hurricane Sandy, accumulating $25 billion of debt by August 2017. In October 2017, Congress cancelled $16 billion of NFIP debt, making it possible for the program to pay claims. The NFIP owes $20.525 billion to the U.S. as of December 2020.
The Federal Emergency Management Agency (FEMA) defines the floodplain as the area that would be flooded by a base flood, which is "the flood which has a one percent chance of being equaled or exceeded in any given year". In this sense, a base flood is synonymous with a 100-year flood and a floodplain is synonymous with a special flood hazard area. This base flood "is used in the National Flood Insurance Program (NFIP) to indicate the minimum level of flooding to be used by a community in its floodplain management regulations." FEMA explains regulatory floodplains in some places including hills as "critical determinations are made by evaluating your community’s rainfall and river flow data, topography, wind velocity, tidal surge, flood control measures, building development (existing and planned) and community maps."
Scientists and engineers use statistical analysis of streamflow data to determine the likelihood of flood elevations. Theoretically a 100-year flood has a 1 percent chance (1/100 = 0.01 or 1 percent) of occurring in any given year and a 500-year flood has as a 0.2 percent chance (1/500 = 0.002 or 0.2 percent) of occurring in any given year. However, these expected flood elevations actually occur more or less often than expected.
44 CFR § 9.4 defines parts of the floodplain as follows:
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 FEMA 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. 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, and these loans are paid back with interest.
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National Flood Insurance Program
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 NFIP has two purposes: to share the risk of flood losses through flood insurance and to reduce flood damages by restricting floodplain development. 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 the Special Flood Hazard Area in a community that participates in the NFIP. U.S. Congress limits the availability of National Flood Insurance to communities that adopt adequate land use and control measures with effective enforcement provisions to reduce flood damages by restricting development in areas exposed to flooding.
Flood insurance was generally provided by private insurers beginning in 1895, but after the Great Mississippi Flood of 1927, most private insurers concluded that flood risk was uninsurable at a price that consumers could afford given the catastrophic nature of flooding, as well as difficulties in creating accurate risk assessments for policy pricing and risks of adverse selection.
The NFIP is managed and administered by the Federal Emergency Management Agency (FEMA) through the Federal Insurance and Mitigation Administration (FIMA). The program 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. 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. The cost of the insurance program was fully covered by its premiums until the end of 2004, but it has had to steadily borrow funds since, primarily due to Hurricane Katrina and Hurricane Sandy, accumulating $25 billion of debt by August 2017. In October 2017, Congress cancelled $16 billion of NFIP debt, making it possible for the program to pay claims. The NFIP owes $20.525 billion to the U.S. as of December 2020.
The Federal Emergency Management Agency (FEMA) defines the floodplain as the area that would be flooded by a base flood, which is "the flood which has a one percent chance of being equaled or exceeded in any given year". In this sense, a base flood is synonymous with a 100-year flood and a floodplain is synonymous with a special flood hazard area. This base flood "is used in the National Flood Insurance Program (NFIP) to indicate the minimum level of flooding to be used by a community in its floodplain management regulations." FEMA explains regulatory floodplains in some places including hills as "critical determinations are made by evaluating your community’s rainfall and river flow data, topography, wind velocity, tidal surge, flood control measures, building development (existing and planned) and community maps."
Scientists and engineers use statistical analysis of streamflow data to determine the likelihood of flood elevations. Theoretically a 100-year flood has a 1 percent chance (1/100 = 0.01 or 1 percent) of occurring in any given year and a 500-year flood has as a 0.2 percent chance (1/500 = 0.002 or 0.2 percent) of occurring in any given year. However, these expected flood elevations actually occur more or less often than expected.
44 CFR § 9.4 defines parts of the floodplain as follows:
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 FEMA 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. 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, and these loans are paid back with interest.