The National Flood Insurance Program

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The National Flood Insurance Program

Legislation

Date: 1968

Source: "The National Flood Insurance Program." U.S. Congress, 1968.

About the Author: The Congress of the United States was established by Article 1 of the United States Constitution of 1787. It is the legislative arm of the U.S. Federal Government.

INTRODUCTION

The U.S. Congress established the National Flood Insurance Program (NFIP) with the passage of the National Flood Insurance Act of 1968. The program includes floodplain identification and mapping, floodplain management, and flood insurance. The NFIP enables property owners in participating communities to purchase insurance as a protection against flood losses. In exchange, communities must adopt and enforce floodplain management regulations to reduce future flood damages.

The idea of flood insurance began in the early 1950s with President Harry S. Truman, after massive floods struck his home state of Missouri. Private insurers would not provide flood insurance. They argued that only those most likely to be flooded would buy it and that an avalanche of claims would bring big financial losses. By 1968, Congress had decided that something needed to be done to address the rising costs of federal disaster relief. Congress also believed that it was important for beneficiaries to help pay the bill.

Under NFIP, the Federal Emergency Management Agency (FEMA) maps areas along coasts, lakes, and rivers with significant flood risk. High flood risk is defined as a one-percent chance of flooding in any year. FEMA then sells NFIP insurance to people in or near flood plains. In 1972, Congress made the insurance mandatory for people in flood zones who have federally regulated mortgages.

PRIMARY SOURCE

§ 4001. CONGRESSIONAL FINDINGS AND DECLARATION OF PURPOSE

Necessity and reasons for flood insurance program
The Congress finds that
1. from time to time flood disasters have created personal hardships and economic distress which have required unforeseen disaster relief measures and have placed an increasing burden on the Nation's resources;
2. despite the instillation of preventative and protective works and the adoption of other public programs designed to reduce losses caused by flood damage, these methods have not been sufficient to protect adequately against growing exposure to future flood losses;
3. as a matter of national policy, a reasonable method of sharing the risk of flood losses through a program of flood insurance which can compliment and encourage preventative and protective measures; and
4. if such a program is initiated and carried out gradually, it can be expanded as knowledge is gained and experience is appraised, thus eventually making flood insurance coverage available on reasonable terms and conditions to persons who have need for such protection.
Participation of Federal Government in flood insurance program carried out by private insurance industry
The Congress also finds
1. many factors have made it uneconomic for the private insurance industry alone to make flood insurance available to those in need of such protection on reasonable terms and conditions; but
2. a program of flood insurance with large-scale participation of the Federal Government and carried out to the maximum extent practicable by the private industry is feasible and can be initiated.
Unified national program for flood plain management
The Congress further finds that
1. a program of flood insurance can promote the public interest by providing appropriate protection against the perils of flood losses and encouraging sound land use by minimizing exposure of property to flood losses; and
2. the objectives of a flood insurance program should be integrally related to a unified national program for flood plain management and, to this end, it is the sense of Congress that within two year following the effective date of this chapter the President should transmit to the Congress for its consideration any further proposals necessary for such a unified program, including proposals for the allocation of costs among beneficiaries of flood protection.
Authorization of flood insurance program; flexibility in program
It is therefore the purpose of this chapter to
1. authorize a flood insurance program by means of which flood insurance, over a period of time, can be made available on a nationwide basis through the cooperative efforts of the Federal Government and the private insurance industry, and
2. provide flexibility in the program so that such flood insurance may be based on workable methods of pooling risks, minimizing costs, and distributing burdens equitably among those who will be protected by flood insurance and the general public.
Land use adjustments by State and local governments; development of proposed future construction, assistance of lending and credit institutions; relation of Federal assistance to all flood-related programs; continuing studies
It is the further purpose of this chapter to
1. encourage State and local governments to make appropriate land use adjustments to constrict the development of land which is exposed to flood damage and minimize damage caused by flood losses,
2. guide the development of proposed future construction, where practicable, away from locations which are threatened by flood hazards,
3. encourage lending and credit institutions, as a matter of national policy, to assist in furthering the objectives of the flood insurance program,
4. assure that any Federal assistance provided under the program will be related closely to all flood-related programs and activities of the Federal Government, and
5. authorize continuing studies of flood hazards in order to provide for a consistent reappraisal of the flood insurance program and its effects on land use requirements.

§ 4011. AUTHORIZATION TO ESTABLISH AND CARRY OUT PROGRAM

Authorization and establishment
To carry out the purposes of this chapter, the Director of the Federal Emergency Management Agency is authorized to establish and carry out a national flood insurance program which will enable interested persons to purchase insurance against loss resulting from physical damage to or loss of real property or personal property related thereto arising from any flood occurring in the United States.
Additional coverage for compliance with land use and control measures
The national flood insurance program established pursuant to subsection (a) of this section shall enable the purchase of insurance to cover the cost of compliance with land use and control measures established under section 4012 of this title for—
1. properties that are repetitive loss structures,
2. properties that have flood damage in which the cost of repairs equals or exceeds 50 percent of the value of the structure at the time of the flood event; and
3. properties that have sustained flood damage on multiple occasions, if the Director determines that it is cost-effective and in the best interest of the National Flood Insurance Fund to require compliance with the land use and control measures.

SIGNIFICANCE

Most people, with the exception of those in the clearest path of danger, do not believe that they need flood insurance and they do not buy it. As a result, the government has kept flood insurance artificially low since the inception of the NFIP in 1968 to attract participants. Premiums ranged from $300 to $400 per year in 2005 for coverage up to $250,000. At the same time, the government limited the size of the flood zones covered by NFIP, thereby limiting the areas in which people were required to buy insurance.

The problems with NFIP became apparent in 2005. Congress designed NFIP to protect flood victims and to protect taxpayers from spending billions to bail out flood victims. In the wake of Hurricane Katrina in 2005 and the most extensive flooding in decades, the program failed. Nearly half of Katrina victims lacked flood insurance. Claims from the insured homeowners amounted to $25 billion and bankrupted NFIP. The government committed an additional $15 billion for rebuilding in Louisiana and Mississippi in 2006, with this amount expected to rise over subsequent years.

The problems surrounding Katrina coverage led to calls for Congress to overhaul NFIP. However, some lawmakers proposed ending the NFIP. Critics argued that it was unfair to ask taxpayers in areas that rarely flood to rescue people who insist upon building in areas prone to flooding. Real estate interests in particular resisted a radical restructuring. They expressed fears that requiring millions more people to buy flood insurance would stifle development. As a result, the basic flaw in the NFIP remains in 2006: there are not enough policyholders paying enough in premiums to spread out the risk and build a financial cushion against disaster. As of 2006, more than 4.8 million people have NFIP policies, including only half of the households in flood zones.