Learn about the NFIP, what it covers and costs, and more.
About the National Flood Insurance Program (NFIP)
The NFIP is a federal program managed by the Federal Emergency Management Agency (FEMA) that offers flood insurance to households and businesses throughout the United States. The NFIP is a voluntary program in which participating communities adopt and enforce minimum floodplain management regulations that limit development in the FEMA-defined 1% annual chance floodplain. In exchange, the federal government makes flood insurance available to all residents in that community.
Since 1968, the NFIP has been the main provider of residential flood insurance in the US. Congress created the program in response to rising disaster assistance costs and a lack of flood insurance offerings from private insurers. Today, more than 22,000 communities participate in the NFIP, making flood insurance available to the vast majority of the nation’s population. The program currently has over 5 million policies in force, accounting for more than $1.3 trillion in coverage.
About Special Flood Hazard Areas (SFHA)
Beyond providing flood insurance, the NFIP’s main objectives include identifying and mapping flood risk and encouraging floodplain management. FEMA maps flood zones in communities across the United States, specifying areas of risk on Flood Insurance Rate Maps, or FIRMs. In developing FIRMs, FEMA focuses specifically on mapping the 1% annual chance floodplain, also known as the 100-year floodplain, Special Flood Hazard Area, or SFHA. Within the boundary of the SFHA, flood insurance is mandatory for those with a mortgage from a federally-backed or regulated lender, and the NFIP’s minimum floodplain management regulations apply. These regulations aim to limit development in high risk areas. Under these regulations, all new development in SFHAs must obtain a permit from the local government and be elevated so that the lowest floor is at or above the height of floodwaters in the 1% annual chance flood.
Coverage and cost of insurance
Under the NFIP, residential property owners can purchase up to $250,000 of building coverage and up to $100,000 of contents coverage. Non-residential property owners, such as businesses or municipalities, can purchase up to $500,000 for building coverage and another $500,000 to cover the contents of the building.
The cost of flood insurance for a given property varies by flood zone, the amount of coverage, and various characteristics of the building, including its elevation, number of floors, and whether it has a basement. NFIP policies for single-family homes average $1,098 per year inside the SFHA, and $492 outside the SFHA. The median policy for a single-family home inside the SFHA costs $738. Outside the SFHA, the median cost is $439 (FEMA 2018).
Although FEMA is responsible for the management and financing of the NFIP, the program relies on private insurance companies to carry out most of the day-to-day operations, including the marketing, sale, and administration of policies, and settling of claims. These firms are known as “Write Your Own” companies and perform these administrative functions in exchange for a fee from FEMA. They do not bear any financial risk and are not involved in setting rates. There are currently 58 WYO companies that offer flood insurance from the NFIP.
For most of its history, the NFIP has been able to cover the cost of flood insurance claims through the premiums collected from policyholders. However, the program was not structured to handle claims from catastrophic loss years and the 2005 hurricane season drove the program into a massive debt that was later exacerbated by claims from Superstorm Sandy in 2012 and Hurricanes Harvey, Irma, and Maria in 2017. Today, the program is $20.5 billion in debt to the US Treasury, despite Congress forgiving $16 billion of debt in late 2017.
The NFIP is required to pay these funds back to the Treasury with interest. Debt is paid for with revenues collected from current NFIP policyholders. From 2006 to 2016, the program paid $2.82 billion in principal repayments and $4.4 billion in interest, funded by insurance premiums collected from policyholders (Congressional Research Service 2019).
Comparison of NFIP Premiums and Payouts (1978 – 2018)