The Evolution Of Nfip: A Law's Journey

The National Flood Insurance Program (NFIP) was established in 1968 through the National Flood Insurance Act of 1968 (P.L. 90-448). The program was created by the Congress of the United States to address the growing need for flood insurance, which was often unavailable or unaffordable on the private insurance market. The NFIP has two main goals: to reduce future flood damage and to protect property owners.

The National Flood Insurance Act of 1968

The NFIP has two primary goals: reducing future flood damage and protecting property owners. The program enables property owners in participating communities to purchase government-administered insurance protection against losses from flooding. It also requires flood insurance for all loans or lines of credit secured by existing buildings, manufactured homes, or buildings under construction located in Special Flood Hazard Areas.

The Act was motivated by a long history of property damage and loss of life due to flooding. The legislation was finally passed due to the recent flood loss sustained in Florida and Louisiana following the destruction caused by the Hurricane Betsy flood surge in 1965. Recognition of flooding as a problem in the US dates back to as early as 1913, when a major flood in the Ohio River Valley took the lives of over 400 people and caused over $200 million in property damage. In 1927, the Mississippi River flooded, causing over $236 million in damage and displacing more than 700,000 people. These disasters led people and policymakers to advocate for a government entity solely devoted to assisting and strengthening community resilience against floods.

Since its inception, the NFIP has undergone several amendments and reauthorizations to strengthen the program, ensure its fiscal soundness, and improve its mapping and rate-setting processes through expert consultation, reports, and studies.

The Flood Disaster Protection Act of 1973

The National Flood Insurance Program (NFIP) was created by the US Congress in 1968 through the National Flood Insurance Act of 1968. The NFIP was formed in response to a growing need for flood insurance, which was often unavailable or unaffordable on the private insurance market. The program was designed to share the risk of flood losses through insurance and to reduce flood damage by restricting floodplain development.

In 1973, Congress made major changes to the program with the Flood Disaster Protection Act of 1973. This Act amended the NFIP and made the purchase of flood insurance mandatory for the protection of property within Special Flood Hazard Areas (SFHAs). The SFHAs are areas that would be flooded by a base flood, which has a one percent chance of occurring in any given year. This is also known as a 100-year flood.

The National Flood Insurance Reform Act of 1994

• The methods used to determine compliance
• The number of institutions examined during the reporting year
• The total number of institutions found not to be in compliance
• Actions taken to correct incidents of noncompliance
• An analysis of compliance, including a discussion of any trends, patterns, problems
• Recommendations regarding reasonable actions to improve the efficiency of the examination process

The Flood Insurance Reform Act of 2004

The Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004 (Pub. L. 108-264) reformed the National Flood Insurance Program (NFIP) and the terms of the National Flood Insurance Act of 1968. The Act was designed to "reduce losses to properties for which repetitive flood insurance claim payments have been made". The Act's preamble included several Congressional findings that highlighted the need for the new law:

• The NFIP insures approximately 4,400,000 policyholders.
• About 48,000 properties in the program have experienced, within a ten-year period, two or more flood losses where each loss is more than $1,000.
• About 10,000 repetitive-loss properties have experienced two or three losses that cumulatively exceed the building value.
• These repetitive-loss properties cost the taxpayer about $200 million annually.
• About 1% of insured properties account for 25-30% of claims losses.
• The vast majority of repetitive-loss properties were built before the 1974 implementation of floodplain management standards, making them eligible for subsidized flood insurance.
• Reducing losses to properties for which repetitive flood insurance claim payments have been made.
• Creating policyholder awareness about individual flood insurance policies.
• Increasing policyholder information on guidance about the flood insurance claims process.
• Establishing a minimum flood insurance training and education requirement for insurance professionals.

The Biggert-Waters Flood Insurance Reform Act of 2012

The Biggert-Waters Act aimed to strengthen the financial framework of the NFIP by directing FEMA to remove discounts for some policyholders. This meant that policyholders would pay flood insurance rates that better reflected their expected flood losses and the real risk of flooding. At the time, Congress recognised that removing these discounts could make flood insurance unaffordable for some households. As such, they mandated that FEMA study flood insurance affordability to address this concern.

The Act also had some unintended consequences for local governments, residents, and businesses. Multiple counties, both coastal and inland, reported dramatic increases in annual NFIP flood insurance premiums due to the phase-outs of subsidised premium rates. Additionally, due to a provision in the Act, FEMA began to update Flood Insurance Rate Maps (FIRMs), which included new low-lying areas that also began to face drastic rate increases.

In response to concerns about rising premiums from constituents, Congress passed the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA). This legislation rolled back some of the changes implemented under BW-12 and included several key reforms, such as grandfathering of premiums for properties built to code before the release of updated FIRMs and retroactive refunds to NFIP policyholders who paid higher premiums under Biggert-Waters.

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