National Flood Insurance Program: Background, Challenges, and Financial Status

Rawle O. King
Analyst in Financial Economics and Risk Assessment

In 1968, the U.S. Congress established the National Flood Insurance Program (NFIP) to address the nation's flood exposure and challenges inherent in financing and managing flood risks in the private sector. Private insurance companies at the time claimed that the flood peril was uninsurable and, therefore, could not be underwritten in the private insurance market. A threeprong floodplain management and insurance program was created to (1) identify areas across the nation most at risk of flooding; (2) minimize the economic impact of flooding events through floodplain management ordinances; and (3) provide flood insurance to individuals and businesses. Major changes were made to the program in 1973, 1994, and 2004. 

Despite investing significant resources to identify flood risk and shape floodplain and coastal development, flood costs have risen over the past recent decade. The unprecedented losses in 2005 from Hurricanes Katrina and Rita and the 2008 Midwest flood and Hurricanes Ike and Gustav have focused national attention on hurricane risk and the impact of storm surge on property, inland flooding on rivers, and the financial viability of the NFIP. 

The NFIP was self-supporting from 1986 until 2005 as policy premiums and fees covered all expenses and claim payments. In 2005, the NFIP incurred approximately $17 billion in flood claims caused by Hurricanes Katrina, Rita, and Wilma. This amount exceeded the $2.2 billion in annual premiums and the $1.5 billion in borrowing authority from the U.S. Treasury. As a result, Congress passed and the President signed into law legislation to increase NFIP borrowing authority first to $3.5 billion (P.L. 109-65) and then to $18.5 billion (P.L. 109-106) in November 2005, and finally to $20.775 billion (P.L. 109-208) on March 23, 2006. As of March 31, 2010, the outstanding debt and accrued interest cost stood at $18.75 billion. Under current law, the funds borrowed from the U.S. Treasury must be repaid with interest. The program, however, is not in a position to repay the debt. At the conclusion of the 110th Congress, conferees attempted, unsuccessfully, to resolve key differences in the House and Senate flood insurance reform bills (H.R. 3121 and S. 2284). 

The 111th Congress has acted to ensure that basic NFIP authorities remain in force while the debate on reform proposals continues. Since 2009, the NFIP has been extended by a series of bills. The authority of the Federal Emergency Management Agency (FEMA) to issue flood insurance contracts, however, lapsed on March 28, 2010. Congress will likely consider retroactively reauthorizing the NFIP when Members return from Easter recess on April 12, 1010. 

Meanwhile, several flood insurance-related bills are currently before the 111th Congress. Representative Taylor has introduced legislation (H.R. 1264) to add wind coverage to the NFIP. Also, Representative Pallone has introduced H.R. 777 to suspend flood map changes until the Administrator of FEMA submits a community outreach plan to Congress. H.R. 777 would also create a tax credit for flood insurance premiums on property not previously in a mapped floodplain but included on a new flood hazard map.


Date of Report: April 8 2010
Number of Pages: 27
Order Number: R40650
Price: $29.95

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