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 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 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. As of April 2010, the program insured about 5.5 million homes, the majority of which were in Texas and Florida.

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. The NFIP is meant to be self-supporting, though in 2003 the GAO 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, and these loans are paid back with interest.

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