Flood Insurance

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Introduction to the NFIP

1. What is the National Flood Insurance Program (NFIP)?

The NFIP is a Federal program enabling property owners in participating communities to purchase insurance protection 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 floods.

Participation in the NFIP is based on an agreement between local communities and the Federal Government that states if a community will adopt and enforce a floodplain management ordinance to reduce future flood risks to new construction in Special Flood Hazard Areas, the Federal Government will make flood insurance available within the community as a financial protection against flood losses.

2. Why was the NFIP established by Congress?

For decades, the national response to flood disasters was generally limited to constructing flood-control works such as dams, levees, seawalls, and the like, and providing disaster relief to flood victims. This approach did not reduce losses, nor did it discourage unwise development. In some instances, it may have actually encouraged additional development. To compound the problem, the public generally could not buy flood coverage from insurance companies, and building techniques to reduce flood damage were often overlooked.

In the face of mounting flood losses and escalating costs of disaster relief to the general taxpayers, the U.S. Congress created the NFIP. 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.

3. How was the NFIP established and who administers it?

The U.S. Congress established the NFIP on August 1, 1968, with the passage of the National Flood Insurance Act of 1968. The NFIP was broadened and modified with the passage of the Flood Disaster Protection Act of 1973 and other legislative measures. It was further modified by the National Flood Insurance Reform Act of 1994 and the Flood Insurance Reform Act of 2004. The NFIP is administered by the Federal Emergency Management Agency (FEMA), a component of the U.S. Department of Homeland Security (DHS).

4. What is a Special Flood Hazard Area (SFHA)?

In support of the NFIP, FEMA identifies flood hazard areas throughout the U.S. and its territories by producing Flood Hazard Boundary Maps (FHBMs), Flood Insurance Rate Maps (FIRMs), and Flood Boundary and Floodway Maps (FBFMs). Several areas of flood hazards are commonly identified on these maps. One of these areas is the Special Flood Hazard Area (SFHA), a high-risk area defined as any land that would be inundated by a flood having a 1-percent chance of occurring in any given year (also referred to as the base flood).

The high-risk-area standard constitutes a reasonable compromise between the need for building restrictions to minimize potential loss of life and property and the economic benefits to be derived from floodplain development. Development may take place within the SFHA, provided that development complies with local floodplain management ordinances, which must meet the minimum Federal requirements. Flood insurance is required for insurable structures within high-risk areas to protect Federal financial investments and assistance used for acquisition and/or construction purposes within communities participating in the NFIP.

5. What is a flood?

Flood is defined in the Standard Flood Insurance Policy (SFIP), in part, as:

A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from overflow of inland or tidal waters, from unusual and rapid accumulation or runoff of surface waters from any source, or from mudflow.

6. What is the NFIP?s Write Your Own (WYO) Program?

The Write Your Own (WYO) Program, begun in 1983, is a cooperative undertaking of the insurance industry and FEMA. The WYO Program allows participating property and casualty insurance companies to write and service the Standard Flood Insurance Policy in their own names. The companies receive an expense allowance for policies written and claims processed while the Federal Government retains responsibility for underwriting losses. The WYO Program operates within the context of the NFIP, and is subject to its rules and regulations.

The goals of the WYO Program are:

Increase the NFIP policy base and the geographic distribution of policies;

Improve service to NFIP policyholders through the infusion of insurance industry knowledge; and

Provide the insurance industry with direct operating experience with flood insurance.

Currently, about 100 insurance companies write flood insurance with FEMA.

7. Do the state insurance regulators have any jurisdiction over the NFIP in their respective states?

As established by the U.S. Congress, the sale of flood insurance under the NFIP is subject to the rules and regulations of FEMA. FEMA has elected to have State-licensed insurance companies? agents and brokers sell flood insurance to consumers. State regulators hold the insurance companies? agents and brokers accountable for providing NFIP customers with the same standards and level of service that the States require of them in selling their other lines of insurance.

Private insurance companies participating in the Write Your Own (WYO) Program must be licensed and regulated by States to engage in the business of property insurance in those States in which they wish to sell flood insurance.

8. How does the NFIP benefit property owners? Taxpayers? Communities?

Through the NFIP, property owners in participating communities are able to insure against flood losses. By employing wise floodplain management, a participating community can protect its citizens against much of the devastating financial loss resulting from flood disasters. Careful local management of development in the floodplains results in construction practices that can reduce flood losses and the high costs associated with flood disasters to all levels of government.

9. What is the definition of a community? A community, as defined for the NFIP?s purposes, is any State, area, or political subdivision; any Indian tribe, authorized tribal organization, or Alaska native village, or authorized native organization that has the authority to adopt and enforce floodplain management ordinances for the area under its jurisdiction. In most cases, a community is an incorporated city, town, township, borough, or village, or an unincorporated area of a county or parish. However, some States have statutory authorities that vary from this description.

10. Why is participation in the NFIP on a community basis rather than on an individual basis?

The National Flood Insurance Act of 1968 allows FEMA to make flood insurance available only in those areas where the appropriate public body has adopted adequate floodplain management regulations for its flood-prone areas. Individual citizens cannot regulate building or establish construction priorities for communities. Without community oversight of building activities in the floodplain, the best efforts of some to reduce future flood losses could be undermined or nullified by the careless building of others. Unless the community as a whole is practicing adequate flood hazard mitigation, the potential for loss will not be reduced sufficiently to affect disaster relief costs. Insurance rates also would reflect the probable higher losses that would result without local floodplain management enforcement activities.

11. Is community participation mandatory?

Community participation in the NFIP is voluntary (although some States require NFIP participation as part of their floodplain management program). Each identified flood-prone community must assess its flood hazard and determine whether flood insurance and floodplain management would benefit the community?s residents and economy. However, a community that chooses not to participate within 1 year after the flood hazard has been identified and an NFIP map has been provided is subject to the ramifications explained in the answer to Question 20.

A community?s participation status can significantly affect current and future owners of property located in Special Flood Hazard Areas (SFHAs). The decision should be made with full awareness of the consequence of each action.

12. What is the NFIP?s Emergency Program?

The Emergency Program is the initial phase of a community?s participation in the NFIP and was designed to provide a limited amount of insurance at less than actuarial rates. A community participating in the Emergency Program either does not have an identified and mapped flood hazard or has been provided with a Flood Hazard Boundary Map (FHBM), and the community is required to adopt limited floodplain management standards to control future use of its floodplains. Less than 1 percent of the 20,000 communities participating in the NFIP remain in the Emergency Program; FEMA hopes to convert all communities to the Regular Program of the NFIP. For additional information on mapping, please refer to the ?Flood Hazard Assessment and Mapping Requirements? section of this booklet.

13. What is the NFIP?s Regular Program?

A community participating in the Regular Program of the NFIP is usually provided with a Flood Insurance Rate Map (FIRM) and a detailed engineering study, termed a Flood Insurance Study (FIS). (Additional information on FIRMs and FISs is provided in the ?Flood Hazard Assessment and Mapping Requirements? section of this booklet.) Under the Regular Program, more comprehensive floodplain management requirements are imposed on the community in exchange for higher amounts of flood insurance coverage.

14. What happens when a community does not enforce its floodplain management ordinance?

Communities are required to adopt and enforce a floodplain management ordinance that meets minimum NFIP requirements. Communities that do not enforce these ordinances can be placed on probation or suspended from the program. This is done only after FEMA has provided assistance to the community to help it become compliant.

15. What is probation?

Probation is the formal notification by FEMA to a community that its floodplain management program does not meet NFIP criteria. It is an action authorized under Federal regulations.

16. When can a community be placed on probation?

A community can be placed on probation 90 days after FEMA provides written notice to community officials of specific deficiencies. Probation generally is imposed only after FEMA has consulted with the community and has not been able to resolve deficiencies. The FEMA Regional Director has the authority to place communities on probation.

17. How long will probation last? Probation may be continued for up to 1 year after the community corrects all Program deficiencies and remedies all violations to the maximum extent possible.

18. What penalties are imposed when a community is placed on probation?

A $50 surcharge is added to the premium for each policy sold or renewed in the community. The surcharge is effective for at least 1 year after the community?s probation period begins. The surcharge is intended to focus the attention of policyholders on the community?s noncompliance to help avoid suspension of the community, which has serious adverse impacts on those policyholders. Probation does not affect the availability of flood insurance.

19. What is suspension?

Suspension of a participating community (usually after a period of probation) occurs when the community fails to solve its compliance problems or fails to adopt an adequate ordinance. The community is provided written notice of the impending suspension and granted 30 days in which to show cause why it should not be suspended. Suspension is imposed by FEMA. If suspended, the community becomes non-participating and flood insurance policies cannot be written or renewed. Policies in force at the time of suspension continue in force for the policy term.

20. What happens if a community does not participate in the NFIP?

Flood insurance under the NFIP is not available within that community. Furthermore, Section 202(a) of Public Law 93-234, as amended, prohibits Federal officers or agencies from approving any form of financial assistance for acquisition or construction purposes in a Special Flood Hazard Area (SFHA). For example, this would prohibit loans guaranteed by the Department of Veterans Affairs, insured by the Federal Housing Administration, or secured by the Rural Housing Services. Under Section 202(b) of Public Law 93-234, if a Presidentially declared disaster occurs as a result of flooding in a non-participating community, no Federal financial assistance can be provided for the permanent repair or reconstruction of insurable buildings in SFHAs. Eligible applicants may receive those forms of disaster assistance that are not related to permanent repair and reconstruction of buildings.

If the community applies and is accepted into the NFIP within 6 months of a Presidential disaster declaration, these limitations on Federal disaster assistance are lifted.

21. Explain the discounts on premiums that can be obtained in communities that qualify for the Community Rating System (CRS) because they have floodplain management programs that go beyond the minimum requirements to participate in the NFIP.

The NFIP?s Community Rating System (CRS) recognizes community efforts beyond the NFIP minimum standards by reducing flood insurance premiums for the community?s property owners. The discounts may range from 5 to 45 percent. The discounts provide an incentive for new flood mitigation, planning, and preparedness activities that can help save lives and protect property in the event of a flood.

22. What procedures must be followed for a community to participate in the Community Rating System?

Participation in the CRS is voluntary. A community in compliance with the rules and regulations of the NFIP may apply. The community?s Chief Executive Officer must appoint a CRS coordinator to handle the application work and serve as the liaison between the community and FEMA. The first step in the application process is for the community to obtain a copy of the CRS Coordinator?s Manual, which describes the program and gives details on the eligible activities. The CRS coordinator should fill out and submit an application for participation in the CRS. The CRS will verify the information and arrange for flood insurance premium discounts.

23. How can a community acquire the CRS Coordinator?s Manual and other information describing the program?

The CRS Coordinator?s Manual, additional CRS publications, and software may be ordered online or by writing, phoning, or faxing a request to the NFIP/CRS. Contact information is listed in the ?Additional Reading? section at the end of the booklet. All publications are free, and the computer software for completing the application is also available at no charge.

Flood Insurance Information for Prospective Buyers

24. Who may purchase a flood insurance policy?

NFIP coverage is available to all owners of insurable property (a building and/or its contents) in a community participating in the NFIP. Owners and renters may insure their personal property against flood loss. Builders of buildings in the course of construction, condominium associations, and owners of residential condominium units in participating communities all may purchase flood insurance.

Condominium associations may purchase insurance coverage on a residential building, including all units, and its commonly owned contents under the Residential Condominium Building Association Policy (RCBAP). The unit owner may separately insure personal contents as well as obtain additional building coverage under the Dwelling Form as long as the unit owner?s share of the RCBAP and his/her added coverage do not exceed the statutory limits for a single-family dwelling. The owner of a nonresidential condominium unit may purchase only contents coverage for that unit.

25. How can property owners or renters find out if they are eligible to purchase flood insurance?

NFIP coverage is available only in participating communities. Almost all of the nation?s communities with serious flooding potential have joined the NFIP. The NFIP provides a listing of participating communities in the Community Status Book. To learn if a community participates in the NFIP, refer to this listing online at www.fema.gov/fema/csb.shtm or contact a community official or insurance agent.

26. How can a property owner determine if the property is in a Special Flood Hazard Area (SFHA)?

FEMA publishes maps indicating a community?s flood hazard areas and the degree of risk in those areas. Flood insurance maps usually are on file in a local repository in the community, such as the planning and zoning or engineering offices in the town hall or the county building. A property owner may consult these maps to find out if the property is in an SFHA.

In addition, maps can be viewed and ordered online or by writing, phoning, or faxing a request to the FEMA Map Service Center. Contact information is listed in the ?NFIP Program Information? section at the back of this booklet. Delivery is usually within 2 to 4 weeks. There is a minimal charge for maps for most users, so it is advisable to call for detailed information.

27. What types of property may be insured against flood loss?

Almost every type of walled and roofed building that is principally above ground and not entirely over water may be insured if it is in a participating community. In most cases, this includes manufactured (i.e., mobile) homes that are anchored to permanent foundations and travel trailers without wheels that are anchored to permanent foundations and are regulated under the community?s floodplain management and building ordinances or laws. (However, this does not include converted buses or vans.) Contents of insurable walled and roofed buildings also may be insured under separate coverage.

28. What kinds of property are not insurable under the NFIP?

Buildings entirely over water or principally below ground, gas and liquid storage tanks, animals, birds, fish, aircraft, wharves, piers, bulkheads, growing crops, shrubbery, land, livestock, roads, machinery or equipment in the open, and most motor vehicles are not insurable. Most contents and finishing materials located in a basement or in enclosures below the lowest elevated floor of an elevated building constructed after the FIRM became effective are not covered. (See ?Coverage? section for coverage limitations in basements and below lowest elevated floors.) Information on the insurability of any special property may be obtained by contacting a property insurance agent or a broker.

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