National Flood Insurance Program
Encyclopedia
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 from the government against losses from flooding. 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 flood
s. As of April 2010, the program insured about 5.5 million homes, the majority of which were in Texas and Florida.
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 Map
s (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 2004 Congress 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.
Since 1978, the National Flood Insurance Program has paid more than $38 billion in claims (as of March 31, 2011). More than 40 percent of that money has gone to residents of Louisiana.
(CBRA). The CBRA enacted a set of maps depicting the John H. Chafee Coastal Barrier Resources System (CBRS) in which federal flood insurance is unavailable for new or significantly improved structures. The program was further amended by the Flood Insurance Reform Act of 2004
, with the goal of reducing "losses to properties for which repetitive flood insurance claim payments have been made."
Moreover, certain provisions within the NFIP increase the likelihood that flood-prone properties will be occupied by the people least likely to be in a position to recover from flood disasters, which further increases demand for aid. Some factors contributing to increased demand for aid are:
National Flood Insurance Act of 1968
The National Flood Insurance Act of 1968 is a piece of legislation passed in the United States that led to the creation of the National Flood Insurance Program .The NFIP goals are two-fold:...
(P.L. 90-448). The program enables property owners in participating communities to purchase insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
protection from the government against losses from flooding. 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 flood
Flood
A flood is an overflow of an expanse of water that submerges land. The EU Floods directive defines a flood as a temporary covering by water of land not normally covered by water...
s. As of April 2010, the program insured about 5.5 million homes, the majority of which were in Texas and Florida.
Implementation
Participation in the NFIP is based on an agreement between local communities and the federal government which states that if a community will adopt and enforce a floodplainFloodplain
A floodplain, or flood plain, is a flat or nearly flat land adjacent a stream or river that stretches from the banks of its channel to the base of the enclosing valley walls and experiences flooding during periods of high discharge...
management ordinance
Local ordinance
A local ordinance is a law usually found in a municipal code.-United States:In the United States, these laws are enforced locally in addition to state law and federal law.-Japan:...
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 Map
Flood Insurance Rate Map
A flood insurance rate map is an official map of a community within the United States that displays the floodplains, more explicitly special hazard areas and risk premium zones, as delineated by the Federal Emergency Management Agency...
s (FIRMs). The Mitigation
Flood mitigation
Flood mitigation involves managing the effects of flooding, such as redirecting flood run-off, rather than trying to prevent it altogether. It is management of people, through measures such as evacuation and dry/wet proofing properties for example....
Division within the Federal Emergency Management Agency
Federal Emergency Management Agency
The Federal Emergency Management Agency is an agency of the United States Department of Homeland Security, initially created by Presidential Reorganization Plan No. 1 of 1978 and implemented by two Executive Orders...
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 2004 Congress 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
United States Department of the Treasury
The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...
for times when losses are heavy, and these loans are paid back with interest.
Since 1978, the National Flood Insurance Program has paid more than $38 billion in claims (as of March 31, 2011). More than 40 percent of that money has gone to residents of Louisiana.
Amendments
The program was first amended by the Flood Disaster Protection Act of 1973, which made the purchase of flood insurance mandatory for the protection of property within SFHAs. In 1982, the Act was amended by the Coastal Barrier Resources ActCoastal Barrier Resources Act
The Coastal Barrier Resources Act of the United States was enacted October 18, 1982. The United States Congress passed this Act in order to address the many problems associated with coastal barrier development. CBRA designated various undeveloped coastal barriers, which were illustrated by a...
(CBRA). The CBRA enacted a set of maps depicting the John H. Chafee Coastal Barrier Resources System (CBRS) in which federal flood insurance is unavailable for new or significantly improved structures. The program was further amended by the Flood Insurance Reform Act of 2004
Flood Insurance Reform Act of 2004
The Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004 reformed the National Flood Insurance Program and the terms of the National Flood Insurance Act of 1968. It was designed to "reduce losses to properties for which repetitive flood insurance claim payments have been made." The...
, with the goal of reducing "losses to properties for which repetitive flood insurance claim payments have been made."
Criticisms
As critics predicted, the NFIP encouraged people to locate in areas more susceptible to flood damage. Prior to the NFIP's existence, insurance coverage for flood losses was not provided by any private insurance carriers. Insurance losses stemming from flood damage were largely the responsibility of the property owner, although the consequences were sometimes mitigated through provisions for disaster aid. Today, owners of property in flood plains frequently receive disaster aid and payment for insured losses, which in many ways negates the original intent of the NFIP. Consequently, these policy decisions have escalated losses stemming from floods in recent years, both in terms of property and life.Moreover, certain provisions within the NFIP increase the likelihood that flood-prone properties will be occupied by the people least likely to be in a position to recover from flood disasters, which further increases demand for aid. Some factors contributing to increased demand for aid are:
- Flood insurance for properties in flood prone areas is mandatory only to secure loans, which makes it somewhat more likely that flood prone properties will be owned by seniors who have paid off their mortgages, or investors who have acquired the property for rental income.
- Flood insurance only covers losses for the owner of the property, and claims are subject to caps, which further increases the likelihood that the property will be occupied by renters rather than the property owner.
- Flood prone properties are more likely to be offered for rent because of the owners' increased risks and/or costs associated with occupying the property themselves.
- Flood prone properties are more likely to be offered for rent at a discount, which attracts lower income groups, seniors, and infirm groups.
External links
- http://www.FloodSmart.gov
- Federal law authorizing NFIP
- Experts: Flood terms mislead public MSNBCMSNBCMSNBC is a cable news channel based in the United States available in the US, Germany , South Africa, the Middle East and Canada...