An Introduction to the National Flood Insurance Program

A Q&A with Scott Giberson

By Scott Giberson Housing Policy, Insurance

Q: What is the NFIP?

A: The National Flood Insurance Program (NFIP) is a program established by the U.S. Congress in 1968. The NFIP has two primary purposes: to share the risk of flood losses through flood insurance and to reduce flood damages through floodplain management. FEMA (Federal Emergency Management Agency), which administers the NFIP, encourages communities to join the NFIP by making federal flood insurance available to residents of the community in exchange for the community’s agreement to adopt and enforce floodplain management ordinances. Communities that join the NFIP are known as “participating communities”. For a more comprehensive view of the NFIP, its history, and its components, go to the Introduction to the National Flood Insurance Program by the Congressional Research Service.

Q: What role does FEMA’s flood mapping program play?

A: FEMA works with state, local, and tribal governments, as well as private partners, to produce and maintain a flood mapping program (currently known as Risk MAP) for the nation through which flood hazards are identified and mapped for communities, including the delineation of the regulatory Special Flood Hazard Area (SFHA)—the 1% annual chance floodplain. Minimum requirements within federal regulations apply to buildings and development in the SFHA: (i) participating communities must enforce floodplain management requirements for construction in the SFHA, and (ii) loans made by federally regulated institutions secured by buildings in or to be constructed in the SFHA—such as mortgage loans or home equity loans—must be covered by flood insurance at least up to a minimum amount (also known as the “mandatory purchase of flood insurance requirement”).

While FEMA oversees the enforcement of community floodplain management requirements, the mandatory purchase of flood insurance requirement is governed and enforced by Federal banking regulators (e.g. OCC, FDIC, and others). The flood maps are also currently utilized as part of the NFIP’s rating structure for flood insurance policies. Further, flood maps are utilized by governments and other stakeholder groups for emergency preparedness, mitigation, and other purposes.

Q: Why is it important for communities to participate in the NFIP?

A: There are many reasons why communities choose to participate in the NFIP. As mentioned above, NFIP flood insurance is made available for properties in participating communities. In return, FEMA works with communities to identify flood hazards within the community, thereby identifying the SFHA and producing the flood maps for the community. Once the SFHA is identified, the community can better guide future development in and around areas of high risk to flooding.

For participating communities, buildings in the SFHA constructed after the community joined the NFIP or its first flood map (“post-FIRM buildings”) are to be constructed according to the community’s minimum floodplain management standards. Therefore, these post-FIRM buildings are most likely to be built higher and safer from flooding than pre-FIRM buildings in the SFHA.

Further, participating communities that join the voluntary Community Rating System (CRS) agree to higher standards to further reduce the risk of flooding to homes in the community. By engaging in higher-level floodplain management activities, CRS communities bring benefit to residents through percentage discounts off NFIP flood insurance policy premiums. Some buildings both inside and outside of the SFHA in these CRS communities would be expected to be built even higher and safer than typical post-FIRM buildings in non-CRS communities.

Finally, once the SFHA is identified and mapped, mortgage lending on properties in that community will be subject to the mandatory purchase of flood insurance requirement. A positive consequence of this banking requirement is that properties securing mortgages within the SFHA will be covered by flood insurance. More flood insurance within a community leads to a more resilient community.

For more information, download the interactive report, Finding Opportunities in Insuring Flood, which explores federal flood legislation, coverage limits and two case studies identifying potential underinsurance areas.

©2020 CoreLogic, Inc. All rights reserved.