What Is the National Flood Insurance Program?

Nichols, SC, USA — Homeowner surveys flood damage from Hurricane Matthew. Floodwaters remain in his home three days later.

FEMA Photo by Dominick Del Vecchio, Oct 19, 2016

The National Flood Insurance Program (NFIP) was created in 1968 to provide affordable flood insurance to people who wanted to make sure they could repair their home, if they were flooded. The program is administered by Federal Emergency Management Agency (FEMA). Today, the NFIP covers about 5.1 million properties worth more than $1.25 trillion collectively.

But the program does more than provide insurance coverage. It actually performs three primary functions:

  1. It provides low-cost flood insurance to more than 5 million properties in more than 22,000 communities in all 50 states and U.S. territories.
  2. In cooperation with states and communities across the United States, it produces and distributes flood-risk maps highlighting the geographic areas that are most susceptible to floods. Flood zone mapping is an ongoing effort, as flood risk changes over time due to altered weather conditions and shifts in land use, among other factors. Ninety-eight percent of Americans live in areas where FEMA has produced flood maps.
  3. It establishes minimum building and zoning codes that are intended to guide new real estate development away from flood-prone areas. Under the NFIP, cities, counties, and communities must adopt codes stringent enough for their residents to be eligible to purchase insurance through the NFIP. Even with the requisite local codes and standards in place, the United States has experienced explosive population growth in vulnerable coastal areas.

Since its inception, the NFIP has provided more than $57 billion to help policyholders rebuild their homes in the aftermath of inland floods and coastal storms. But the NFIP is currently $24.6 billion in debt because it pays out more in damages than it collects in insurance premiums from policyholders. The NFIP became mired in debt after Hurricane Katrina struck the Gulf Coast in 2005, causing catastrophic losses throughout Louisiana and Mississippi. This debt has continued to grow as multiple catastrophic floods (those with losses in excess of $500 million each) have occurred since 2005 (see Table 1).

MONTH/YEAR

STORM EVENT

NFIP DAMAGES PAID

August 2005

Hurricane Katrina

$16,319,693,811

September 2008

Hurricane Ike

$2,698,943,618

August 2011

Hurricane Irene

$1,343,016,957

August 2012

Tropical Storm Isaac

$556,845,352

October 2012

Superstorm Sandy

$8,544,480,946

August 2016

Louisiana Severe Storms and Flooding

$2,363,749,364

October 2016

Hurricane Matthew

$589,490,594

Storms causing catastrophic losses for the National Flood Insurance Program since Hurricane Katrina in 2005.

The NFIP’s financial debt is a symptom of many problems. Major flood events are becoming increasingly common, flood damages are increasing, and about 20 percent of policyholders under the NFIP pay insurance premiums that are artificially low and do not reflect the true likelihood of flood damages. Congress has taken some steps to address this problem, but it has not been completely fixed.

But another major shortcoming of the NFIP is that it has focused on rebuilding flooded properties—often multiple times―instead of helping homeowners relocate.

Repeatedly Rebuilding: The Unintended Consequences of Flood Insurance

In the United States, more than 30,000 properties have been flooded an average of five times each and been rebuilt each time through the NFIP. Some of these properties have flooded more than 30 times.  We can’t afford to keep rebuilding flood prone properties over and over, particularly if the owner would prefer to move somewhere safer, rather than rebuild. The NFIP needs to provide more assistance to homeowners that are tired of living through repeated floods. 

The future costs facing the nation are staggering and cannot be entirely avoided. The real estate website Zillow recently estimated that 1.9 million properties worth $882 billion are at risk of being inundated by sea level rise by the year 2100. It’s hard to imagine that the NFIP will be able to rebuild these properties multiple times in the coming decades, until they are finally inundated. 

We need to seriously consider how we will assist low-income residents and home owners that are included among those properties. The longer we leave people and their homes in an increasingly vulnerable situation, the more at risk people’s lives are, the more we will pay to repeatedly rebuild, and the greater the pressure will be to erect costly and environmentally questionable flood defenses, a strategy that is not feasible for the entire U.S. coastline.

NRDC has proposed a platform of “climate smart” flood insurance reforms that includes our discounts for buyouts proposal. Our reforms are intended to provide assistance to low-income homeowners to relocate as climate change puts their homes at greater risk and also increase the accountability and transparency that is sorely lacking in the NFIP.

  • Through the NFIP, provide homeowners with a guaranteed buyout, if they no longer want to rebuild. The first, and sometime only, assistance provided by the NFIP is to rebuild in the same vulnerable location in the same vulnerable way. That’s a recipe for disaster in far too many cases. For homeowners that want to move out of harm’s way, the NFIP should help, not hinder, that from happening.
  • Give owners the right to know about their home’s history of flood damages. Often, people buy a house only to find out later that it is susceptible to flood damage. If previous owners ever filed an NFIP claim, FEMA already knows that property’s flood history. Homeowners, whether or not they currently have NFIP coverage, should have a right to this information. Providing the flood history of a property can help homeowners make better decisions.
  • Make more data on the NFIP publicly available. The public has a right to know where flood damages occur, the cost of those damages, and what communities are doing to reduce their vulnerability to flooding and sea level rise. FEMA should make this information available to decision makers, researchers, community organizations, and the public.
  • Flood maps should show how sea level rise and other effects of climate change will impact future flood risk. Flood maps are used by government officials, developers, and planners to decide where it is safe to build. Without the inclusion of future flood risks, communities cannot make fully informed and sustainable decisions.
  • Invest in resilience and in reducing our vulnerability to flooding. According to the National Academy of Sciences, more funding should be dedicated to reducing vulnerability to flooding, rather than rebuilding over and over.

About the Authors

Rob Moore

Senior Policy Analyst, Water program
Blog Post

Too many Americans have no knowledge whether their home has flooded and, therefore, likely to flood again. This is all due to a lack of information. Luckily, The 21st Century Flood Reform Act (HR 2874) as amended, will be a game changer regarding greater flood risk disclosure and transparency.

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