The Importance of the National Flood Insurance Program to the U.S. Congressional Reauthorization on the Horizon


According to FEMA, floods have been the most common and costly natural disaster in the United States. While flooding events are concentrated, they occur in all 50 states and US territories. Historically, flooding was controlled with public or private efforts including levees, dams, and seawalls. Federal disaster relief was occasionally made available to flood victims, but many were left devastated. Insurance companies were mostly unwilling to underwrite the risk of flood due to the catastrophic nature and concentration of claims; still today, a standard homeowner’s insurance policy typically does not cover flood damage.

With mounting flood losses and escalating disaster relief cost, Congress created the National Flood Insurance Program (NFIP) with passage of the National Flood Insurance Act of 1968. The NFIP is a Federal program, managed by the Federal Emergency Management Administration (FEMA), and has three components, to (1) provide flood insurance, (2) promote flood hazard mitigation, and (3) develop maps of flood hazard zones.

The mandatory purchase requirement provisions of The National Flood Insurance Reform Act of 1994, require federally backed lenders to determine whether the building securing a loan is or will be located in a Special Flood Hazard Area (SFHA) and if it is, require adequate flood insurance is obtained and retained. Additionally, the NFIP allows all property owners in participating communities to buy federally backed insurance to protect against flood losses. This insurance is intended to provide an insurance mechanism instead of disaster assistance; thereby protecting taxpayers as well as property owners. NFIP participating communities are required to establish flood management regulations in order to mitigate future flood loss.

Since the inception of the NFIP, additional legislation has been enacted to reform the program, ensure its fiscal soundness, and bolster its mapping, mitigation, and insurance functions. However, the costs associated with flooding have risen significantly (including the impactful events of Hurricane Katrina and Superstorm Sandy), putting the program more than 24 billion dollars in debt, according to Government Accounting Office. Recent reform efforts to address the burgeoning debt by eliminating subsidies and moving premiums to actuarial rates have resulted in skyrocketing cost for policyholders.

Congress now faces the challenge of balancing financial solvency of the program and reducing taxpayer exposure while also addressing affordability concerns. Additionally, FEMA flood insurance rate maps, many of which are significantly outdated and ever-changing, must be kept current with efficient and accurate mapping technology. Finally, investment in cost-effective floodplain management and mitigation efforts to reduce flood risk are vital to the programs intent.

NFIP Reauthorization Expiration Approaching

The current NFIP reauthorization expires on September 30, 2017 and Congress will be considering potential changes to the program as part of the reauthorization process. Seemingly unusual for Congress these days, there is significant bipartisan interest in reforming and reauthorizing the NFIP. This article summarizes the various areas where Republicans and Democrats mostly concur, thereby making a reasonable prediction for September’s legislation.

Long-Term Certainty:
A long-term (5 to 10 year) reauthorization is sought to provide communities, homeowners, businesses, and NFIP insurance providers’ uninterrupted access to and program funding for existing and new policies. Legislators stress the need to avoid uncertainty in both the insurance and housing markets.

Expand Private Flood Insurance Market:
In recent years, more sophisticated risk modeling has been developed, generating new interest among private insurers to provide flood coverage. There is strong support for clarifying Congressional intent that lenders should be able to accept private flood insurance as an alternative to the NFIP; however, significant obstacles for the development of a private market continue to exist. Reforms are sought to remove barriers for private insurers to enter the domestic flood insurance market as a complement to the NFIP to help provide consumers with more choices.

Address Affordability:
To address constituent concerns, especially for low and mid-income homeowners under mandatory purchase requirement, Representatives look to address flood insurance premium increases. Vouchers, mitigation credits, annual percentage caps to premium increases, and cost controls are all under consideration and have significant support.

Invest in Mitigation:
Congress looks to authorize funding for community-wide mitigation projects and mitigation assistance programs. Floodplain management and mitigation programs that show a positive return on investment have been shown to be effective ways to reduce flood risk.

Modernize Mapping:
FEMA’s role in creating and maintaining accurate flood risk maps is the foundation of the program’s mandatory purchase requirement and insurance premium calculations. Some maps are more than 30 years old. Mapping techniques have significantly evolved including Light Detection and Ranging (LiDAR) and other Geographic Information Science technologies. Investing in newer systems and methods for more accurate mapping of flood risk across the country will generate better data resulting in a more effective and efficient program.

Whether you have indifference to it, love it, or hate it, the NFIP exists and will continue to exist for at least the near-term. We can all hope bipartisan, commonsense reforms to the program, as part of the 2017 reauthorization, will make the program more fiscally sound while addressing affordability concerns for policy holders, protecting property owners from devastating loss due to flooding and taxpayers from excessive disaster relief payments or runaway program expense.

Written By:
Steve Murchison
Director, FZDS

FZDS provides Flood Zone Determinations nationwide for lender compliance with National Flood Insurance Program regulatory requirements. Federal regulations require lenders to determine and document whether collateral used to secure a mortgage is located in a Special Flood Hazard Area (SFHA). Life-of-Loan tracking, census tract data, borrower’s notices, and aerial map copy makes FZDS your single-source for flood zone determinations. FZDS is sharply focused on providing customers with superior accuracy and delivering solutions that saves lenders time and money. Learn more at