National Flood Insurance

Madison, Wisconsin — The National Flood Insurance Program (NFIP) had its roots in the 1800s as the country recognized the federal government must play a leading role in controlling and responding to floods.

Two previous chronological articles traced the evolution of a National Flood Insurance Program from its origins in a Supreme Court ruling of 1824 through major flooding events and other disasters that prompted the government’s responses and shaped the program.

The following chronology illustrates a shifting of flood management emphasis to mitigating disaster damage, promoting flood insurance participation and improving floodplain mapping:

1989 – Hurricane Hugo wreaks havoc in the Carolinas, Puerto Rico and the Virgin Islands. Structures that had been built to meet the NFIP’s requirements for floodplain management performed well.

1989 – FEMA revises the definition of “substantial improvement” and, for the first time, defines “substantial damage” – terms that affect floodplain management and reimbursement of disaster losses.

•Substantial improvement represents any reconstruction, rehabilitation, addition or other improvement of a building where the cost of the improvement equals or exceeds 50 percent of the market value of the building before the start of construction.
•Substantial damage reflects damage of any origin sustained by a building when the cost of restoring the building to its before-damaged condition would equal or exceed 50 percent of the market value of the building before the damage occurred.
1990 – NFIP establishes the Community Rating System, which discounts flood insurance premiums in communities that voluntarily adopt measures that reduce flood losses or that increase the number of flood insurance policies.

1992 – Hurricane Andrew devastates south Florida.

1993 – The Great Midwest Flood of the upper Mississippi and lower Missouri River basins results in presidential disaster declarations for 505 counties in nine states and damage as high as $16 billion. Only about one in ten affected structures are covered by flood insurance.

1993 – Extensive flooding causes NFIP losses of more than twice the historic level and forces the program to borrow $100 million from the U.S. Treasury. This is the first time such borrowing has been necessary since 1984. The funds are repaid in fiscal year 1994.

1993 – Congress passes the “Volkmer Amendment” to the 1988 Stafford Act.

•Increases federal support for relocating flood-prone properties.
•Increases hazard-mitigation funds available after a disaster to 15 percent of all of FEMA’s appropriated federal disaster funds, up from the previous 10 percent.
•The federal share of approved mitigation projects increases from 50 percent to 75 percent.
•Clarifies conditions for the purchase of damaged homes and businesses.
•Dictates that purchased structures must be removed and the land dedicated in perpetuity for a use that is compatible with open-space, recreational or wetlands-management practices.
1994 – The National Flood Insurance Reform Act includes the most comprehensive changes to NFIP since 1973.

•Strengthens requirement that flood insurance be purchased by recipients of federal disaster assistance.
•Requires lenders to purchase flood insurance where required if the borrower fails to do so.
•Imposes penalties for failure to require flood insurance or to notify borrowers when flood insurance is required.
•Establishes notice requirements for properties located in flood hazard areas.
1995 – Congress passes the National Flood Insurance Reform Act.

•Applicants for Individual and Family Grants who receive federal disaster assistance are required to purchase and maintain flood insurance on the flooded property until they move to another address.
•In response to the act, FEMA increases the waiting period to 30 days from 5 days before flood insurance coverage becomes effective.
1997 – Increased Cost of Compliance coverage is included in all new and renewed flood insurance policies.

•Helps cover the costs of bringing flood-damaged homes and businesses into compliance with community floodplain ordinances.
•Coverage limit of $15,000 helps pay for elevating, flood proofing, demolishing or relocating structures that have been substantially or repetitively damaged by flooding.
•Available only in communities that adopt and enforce substantial-damage or repetitive-loss provisions in the floodplain management ordinances and require action by property owners.
1999 – More than 4.2 million flood insurance policies in effect with coverage of more than $534 billion, an increase of more than 250 percent since December 1990.

2000 – Congress passes the Disaster Mitigation and Cost Recovery Act.

•Provides technical and financial assistance to states and local governments to promote pre-disaster hazard mitigation measures designed to reduce injuries, loss of life and damage to property, critical services and public facilities.
•Requires that states prepare a comprehensive program for disaster mitigation prior to receiving funds from FEMA.
•Discontinues FEMA’s Individuals and Families Grant Program and replaces it with a program entitled “Financial Assistance to Address Other Needs,” more commonly known as “Other Needs Assistance” (ONA).
•ONA provides for disaster needs such as transportation, medical and dental expenses, moving and storage fees, and replacement or repair of personal property.
2001 – NFIP eliminates its outstanding debt to the U.S. Department of the Treasury accumulated to pay flood claims since the 1970s. The debt had reached as much as $992 million.

2002 – FEMA consolidates the Temporary Housing Assistance and Individuals and Families Grant Programs into a single program called Federal Assistance to Individuals and Households (IHP) and establishes a maximum grant per applicant of $25,000.

2003 – FEMA becomes part of the newly-created U.S. Department of Homeland Security.

2003 – FEMA increases maximum claim payout for Increased Cost of Compliance coverage to $30,000.

2003 – NFIP has cash reserves of $580 million, which are available to pay future claims.

2004 – Tropical Storm Bonnie and Hurricanes Charley, Frances, Ivan and Jeanne strike Florida. Hurricane and tropical storm related disasters also are declared in Alabama, Delaware, Georgia, Louisiana, Mississippi, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia and West Virginia.

2004 – FEMA pays out $1.9 billion in claims for 2004 and uses $225 million in NFIP borrowing authority to pay 2004 flood loss claims.

2005 – Hurricanes Katrina and Rita strike the Gulf Coast.

•Flood wall and levee failures flood up to 80 percent of the city of New Orleans.
•Congress increases NFIP borrowing authority from $1.5 billion to $3.5 billion.
•The Congressional Budget Office estimates that repayment of borrowed funds will not occur until after 2015.
•FEMA estimates that NFIP claims could exceed $22 billion and notes that in its entire history prior to Katrina, NFIP had paid out a total of only $15 billion.
2007 – FEMA increases to $28,800 the maximum grant available under the Individuals and Households Program.

2008 – The NFIP has paid nearly $36 billion in claims since 1978 and today has 6 million policies in force in more than 20,600 participating communities.

NFIP loss experience indicates that $1 billion in flood damages are avoided each year as a result of NFIP floodplain management regulations for new construction.

FEMA is accelerating efforts begun in 1997 to update Flood Insurance Rate Maps nationwide.

•Approximately 75 percent of FEMA flood maps post-Katrina are more than 10 years old.
•Maps are being upgraded in digital format for more than 11,000 communities.
•Maps are being created for approximately 2,700 flood-prone communities without flood maps.
•Electronic and digital printing and distribution will make flood maps more readily available and easier to use.
•Where feasible, and at the request of the community, flood maps will reflect future conditions as well as the traditional existing conditions.
Begun by our forefathers more than 180 years ago, the course of events and legislation passed over time have resulted in a comprehensive insurance system that covers flooding losses while providing the wherewithal to continue the practice of mitigating future losses.

FEMA coordinates the federal government’s role in preparing for, preventing, mitigating the effects of, responding to, and recovering from all domestic disasters, whether natural or man-made, including acts of terror.

Tags: coverage, flood insurance, flooding, Mortgages, policy, Real Estate