National Flood Insurance Program
NAR supports renewing and strengthening the long-term viability of the federal flood insurance program, as well as maintaining funding to update and improve the accuracy of flood maps.
- Why is the federal government in the flood insurance business?
- Why is the NFIP nearly $30 billion in debt to the Treasury?
- Are some states paying more in premiums than they get back in claims?
- What about recent reports of an emerging private flood insurance market?
- Chronology of Major Flood Events
- Each year the federal government spends billions of dollars on disaster relief to flood victims – all at taxpayer expense.
- Floods claim more lives and property than any other natural disaster.
- Flood disasters have been declared in every state in the past 5 years alone.
- Floods are not only coastal issues; they occur nearly anywhere, anytime.
- Flood zones exist along rivers, lakes, creeks, as well as the coasts.
- Flood losses (25% of claims) come from outside of the “flood zones.”
- If more properties were insured for flood damage, fewer owners would turn to taxpayers for disaster relief after the next major flood.
- The problem is misinformation keeps the private market from meeting the demand for flood insurance.
- ‘It’s a lemon’ – just one flood can bankrupt insurance companies so they will set rates high to cover their losses. However, few property owners will see flood insurance as worth buying since they believe they’re being over-charged.
- ‘Never flooded’ – Even where there is a 2% annual flood risk (very high), a property still has a 50/50 chance of not flooding over 35 years. It is human nature not to believe a risk until there is a flood – no matter how accurate and reliable the risk communication.
- ‘Costs too much.’ Because only the “high-risk” properties will tend to buy (i.e. “adverse selection”), it will distort the market and drive up rates until no one – not even those who flood repeatedly – can afford the flood insurance.
- The National Flood Insurance Program (NFIP) provides an insurance market alternative to taxpayer-funded disaster relief.
- Reauthorized to issue flood insurance every 5 years or the program terminates.
- Purchased through private insurance companies but administered by the Federal Emergency Management Agency (FEMA) which sets rates and coverage terms.
- Reduces the information barrier by mapping the flood risk and rating communities.
- Requires flood insurance for a federally backed mortgage where there is a 1-in-4 chance of flooding over 30 years (i.e., a 1% annual risk).
- Averts billions of dollars in property damage each year because communities must adopt and enforce flood building codes and standards as a condition for joining NFIP.
- Enables 5.5 million property owners in 20,000 communities to protect themselves rather than relying on taxpayers so history won’t repeat itself. See NFIP’s chronology
- Since Hurricane Katrina in 2005, the program had to borrow from taxpayers in order to cover several catastrophic loss years in a row.
- The borrowing must be fully repaid plus interest to compensate taxpayers.
- Taxpayers are still “on the hook” for the $30 billion if NFIP ends, but a terminated program won’t be able to generate new premiums to help reduce the loan balance.
- That may appear to be the case but historic data won’t predict record-breaking events like Katrina.
- All it takes is one major flood in a population center to wash away any state "surplus."
- Just ask the Gulf Coast before Hurricane Katrina or New England before Sandy.
- One must also consider a state’s current “exposure” (i.e., how many properties could pay-out at any given time); not just how much has historically been “paid in” versus “paid out” over some select number of years.
- For example, from 1978-2008, Florida paid four times in premiums what it’s claimed over the same period, yet:
- According to CoreLogic, $490 billion of Florida’s properties are exposed to storm surge, constituting one-third of the national total, and 40% are at “extreme risk.” It wouldn’t take a very large hurricane before Florida was no longer deemed a “donor” state.
- In fact, the most damaging storm in U.S. history was the 1926 Great Miami Storm which, had it happened in 2005, would has cost $140-$160 billion – dwarfing Katrina’s $80-billion price tag. If it happened once, it could again.
- Just because a state has dodged the flood “bullet” for 50 years doesn't mean its luck won't run out tomorrow.
- There are now several private flood insurance companies that will write first-dollar coverage in higher risk flood zones.
- Some of these companies may be able to offer better coverage at lower cost than NFIP because:
- Private companies will underwrite the risk property-by-property whereas NFIP maps at the community level and may inadvertently include lower risks.
- Private companies will charge rates that better align to the individual property risk, while NFIP charges national average rates that are too high for some and too low for others.
- Also NFIP considers this a “coverage lapse” so properties won’t be eligible for a lower rate if they leave the program and a private market policy doesn’t work out.
|2014||"Grimm-Waters" Act amends Biggert Waters and applies the gradual phase-out of subsidies to all older properties.|
|2013||Superstorm Sandy strikes New England; NFIP borrowing now totals $24 Billion.|
|2012||"Biggert Waters" Act reauthorizes NFIP through 2017 and will gradually phase-out subsidies for older properties except at the time of sale.|
|2008-12||NFIP extended 18 times and twice allowed to shutdown stalling 40,000 home sales a month.|
|2005||Hurricane Katrina strikes the Gulf Coast becoming costliest hurricane in U.S. history; NFIP borrows $17 billion from taxpayers to cover claims from the 2005 storm season.|
|2004||"Bunning-Bereuter" Act reauthorizes NFIP through 2008 and attempts to phase-out subsidies to the 1% of properties with "severe repetitive losses" accounting for disproportionate share of NFIP claims; however, loopholes prevent full implementation of this pilot project.|
|1994||NFIP amended to strengthen lender enforcement of the mandatory purchase requirement.|
|1983||NFIP supplemented through Write-Your-Own program which allows NFIP to continue setting rates and coverage terms but contract with private insurance companies to service individual policies on FEMA’s behalf.|
|1973||NFIP amended to require flood insurance for a mortgage in the mandatory purchase zones.|
|1968||NFIP created as insurance alternative to rising cost of fully taxpayer-funded disaster relief.|
|1965||Hurricane Betsy strikes Gulf Coast becoming first in U.S. history to cost a billion dollars.|
|1956||Federal Flood Insurance Act authorizes program which isn’t funded; the American Insurance Association finds that flood insurance is not commercially feasible.|
|1950||Disaster Relief Act creates the first permanent system for post-disaster aid.|
|1930-50||Government funds a series of flood-control projects and flood-specific disaster loans.|
|1929||Private insurance industry abandons coverage of flood losses.|
The Biggert-Waters Flood Insurance Reform Act of 2012 (B-W Act) reauthorized the National Flood Insurance Program for an additional 5 years. That Act also largely eliminated federal subsidies of flood insurance, resulting in increases in the premiums to be charged for flood insurance coverage, as determined by FEMA. Because those rate increases were in some cases significant, many property owners or prospective property owners raised concerns about their exposure to higher flood insurance rates. Real estate brokers and agents also raised concerns about their possible exposure to misrepresentation claims by property purchasers who acquired property before such increases take effect and are later subject to substantial increases in their flood insurance premiums.
As a result of the concerns of property owners about higher flood insurance premiums, NAR and others sought from Congress legislation to slow the implementation of higher rates. On March 21, 2014 the President signed the Homeowner Flood Insurance Affordability Act of 2014. That Act changes the B-W Act to significantly mitigate the current impact of higher flood insurance rates. This includes eliminating the immediate application of full market-based rates upon the sale of a property or a new policy, limiting annual flood insurance premium rate increases to 18% for primary homes and 18-25% for second homes, directing FEMA to implement new rate tables based on the new Act within 8-16 months, allowing policy holders to receive a refund of premiums already paid in excess of the amount that would be allowed under the new law, allowing new owners to assume a prior owner’s policy at existing rates, providing for properties to be “grandfathered” to retain their flood zone’s rates even when remapped into different flood zones, and phasing in rate increases for newly mapped properties.
The following guidance is offered for brokers and agents in marketing and selling property for which flood insurance may be required, or that is located in areas where the purchase of flood insurance may be prudent.
- In general, brokers and agents owe buyers duty to disclose adverse material features, conditions, or aspects of property of which they have actual knowledge. Brokers and agents are not, however, generally required to investigate independently whether a property is in a flood zone or otherwise in an area likely to be subject to flooding or flood risks. However, if a broker or agent has actual knowledge that a property being marketed for sale is in an area where flood insurance is required or has specific knowledge that flood insurance has been required for that particular property in the past, those facts should be disclosed to the buyer. If the broker or agent has actual knowledge that the area in which the property is located has experienced flooding or is subject to flood risks that cause many or most owners to purchase flood insurance those facts should also be disclosed.
- If a broker or agent determines that it is necessary to make disclosures to buyers regarding flood insurance, as described above, he should also advise buyers that, as a result of the B-W Act, flood insurance rates are likely to be higher than in the past. Although the amount of such rate increases may be lower than they would have otherwise been under the B-W Act alone, increases will nevertheless be implemented with the goal of reaching full market based premium amounts in time.
Such advice should further indicate that notwithstanding the 2014 Homeowner Flood Insurance Affordability Act, prior flood insurance premiums will not be representative of future rates and that rates will increase, although more slowly than anticipated under the B-W Act. An example of a disclosure statement that could be used for this purpose is attached, although brokers and agents may also use different methods or language to communicate to buyers information about flood insurance and flood insurance premiums. In circumstances where flood insurance is not required and there is no reasonable basis for a broker or agent to believe that it may be required or is prudent to have, no such disclosure need be provided.
- For buyers who seek more information about the NFIP or flood insurance coverage or rates, the broker or agent should be prepared to provide sources of information about those subjects available from “official” sources or those otherwise known to be competent and reliable. These might include publications, pamphlets, or similar materials prepared or distributed by FEMA or other federal or state agencies or departments, or other sources known to be credible. Examples of such publications can be found at the following links: http://www.fema.gov/national-flood-insurance-program/flood-insurance-ref... http://www.floodsmart.gov http://www.fema.gov/national-flood-insurance-program http://www.fema.gov/floodplain-management/flood-insurance-rate-map-firm
Brokers and agents may ask buyers to sign an acknowledgement of receipt of any such materials provided.
- Where flood insurance may be required or may be advisable, brokers and agents may also find it helpful to identify to purchasers one or more suppliers of flood insurance coverage to be provided to interested purchasers seeking such information about flood insurance coverage and rates. Brokers and agents should not recommend or endorse any particular carrier, and it is prudent to identify more than one carrier and encourage interested buyers to compare flood insurance coverage among several different carriers.
- Under the Homeowner Flood Insurance Affordability Act some sellers are entitled to a refund of flood insurance premiums that they previously paid that were higher than now provided for under the Act but may not be able to collect that refund prior to closing of a sale of the property. Listing brokers representing sellers in that position should suggest that the seller discuss with his or her attorney the best way to preserve their right to collect that refund after the transaction closes.
Sample Flood Insurance Disclosure StatementYour mortgage lender [may] [will] require you to purchase flood insurance in connection with your purchase of this property. The National Flood Insurance Program provides for the availability of flood insurance and establishes flood insurance policy premiums based on the risk of flooding in the area where properties are located. Recent changes to federal law (The Biggert-Waters Flood Insurance Reform Act of 2012 and the Homeowner Flood Insurance Affordability Act of 2014, in particular) will result in changes to flood insurance premiums that are likely to be higher, and in the future may be substantially higher, than premiums paid for flood insurance prior to or at the time of sale of the property. As a result, purchasers of property should not rely on the premiums paid for flood insurance on this property previously as an indication of the premiums that will apply after completion of the purchase. In considering purchase of this property you should consult with one or more carriers of flood insurance for a better understanding of flood insurance coverage, current and anticipated future flood insurance premiums, whether the prior owner’s policy may be assumed by a subsequent purchaser of the property, and other matters related to the purchase of flood insurance for the property. You may also wish to contact the Federal Emergency Management Agency (FEMA) for more information about flood insurance as it relates to this property.
HR 2874, The 21st Century Flood Reform Act
Find NAR's letters, testimonies, bill updates, and more on the NAR Federal Issues Tracker
Austin Perez, firstname.lastname@example.org
Ken Wingert, email@example.com
Austin Perez, firstname.lastname@example.org
Russell Riggs, email@example.com
What is the fundamental issue?
Congress must reauthorize the National Flood Insurance Program (NFIP) to continue providing flood insurance after December 8, 2017 and include private market reforms that reduce uncertainty in real estate markets.
I am a real estate professional. What does this mean for my business?
Without the NFIP, millions of home and small business owners in 22,000 communities nationwide will not be able to obtain a mortgage or insurance to protect their property against the most common and costly natural disaster in the U.S.: flooding. The program reduces the number of uninsured properties that will otherwise turn to the federal government for taxpayer-funded disaster aid after floods. The NFIP was created in 1968 when there was no private market for flood insurance; now there is a considerable and growing market that is offering better coverage at lower cost than NFIP in many parts of the country.
- Reauthorizing and gradually strengthening the NFIP so it is sustainable over the long run;
- Providing federal assistance to high-risk property owners, including guaranteed loans, grants and buyouts in order to build to higher standards and keep NFIP rates affordable;
- Encouraging the development of private market options to offer comparable flood insurance coverage at lower cost than the NFIP;
- More granularly pricing NFIP policies to better reflect the property's specific risk; and
- Improving flood map accuracy so fewer property owners have to file expensive appeals.
On July 6, 2012, Congress passed the Biggert-Waters Act reauthorizing the NFIP for 5 years. While ending the shutdowns and shorter extensions that cost 40,000 home sales each month, implementation problems threatened to undermine real estate transactions where flood insurance is required for a mortgage. The program's authority has since been extended to December 8, 2017.
On March 13, 2014, Congress amended Biggert-Waters with the passage of The Homeowner Flood Insurance Affordability Act. These amendments were signed into law on March 21, 2014:
- Repealed FEMA's authority to raise premium rates at the time of property sale;
- Restored grandfathering so properties built to code in one flood zone wouldn't be re-rated in another simply because of a FEMA map change;
- Reset flood insurance rates one time back to pre-Biggert Waters levels and refunded overcharges;
- Limited future premium increases to 18% annually for newer properties and 25% for the older ones;
- Added a $25/$250 surcharge to NFIP policies until property owners begin paying full-risk rates; and
- Established the Office of the Flood Insurance Advocate to help property owners with faulty flood maps and insurance rate concerns.
On June 15, 2017, the House Financial Services Committee reported HR 2874: The 21st Century Flood Reform Act, to reauthorize and make further improvements to NFIP. The legislation meets NAR's six reform principles. Specifically, the bill:
- Reauthorizes the program for 5 years;
- Limits maximum flood insurance premiums to no more than $10,000 per year for residential properties;
- Preserves the practice of grandfathering for property owners who built to code but are later remapped;
- Removes hurdles to the private flood insurance market, which often offers better coverage at lower cost than the NFIP;
- Authorizes $1 billion in pre-flood mitigation assistance grants to elevate, flood proof, buyout or mitigate high risk properties;
- Doubles increased cost of compliance (ICC) coverage in the NFIP policy so policyholders can obtain up to $60,000 for property mitigation and access these funds prior to a flood;
- Better aligns NFIP rates to the risk, particularly for lower risk and lower value properties inland of the coast;
- Enables more communities to develop alternative flood maps like North Carolina’s, which are more accurate than FEMA’s, and generally streamlines the map appeals process;
- Improves the claims process in light of problems experienced after Superstorm Sandy;
- Addresses issues with repeatedly flooding properties that account for 2 percent of NFIP policies but 25 percent of the claim payments over the history of the program; and
- Strengthens overall the solvency of the program over the long term.
NAR urges the House of Representatives to bring up and pass HR 2874: The 21st Century Flood Reform Act. For additional information, please visit:
- Redlined Bill Text (includes Manager's amendments): HR 2874
- NAR Section-by-Section Analysis: HR 2874
- NAR Response to Frequently Asked Questions (FAQ): HR 2874
- NAR Myth Buster: HR 2874
We've already done the research for you.
Before you search elsewhere, take advantage of the research we've already done for you. Formerly known as Field Guides, References tabs contain links to external articles, titles from the NAR Library eBooks collection, websites, statistics, and other material to provide a comprehensive overview of perspectives on each topic. EBSCO articles (E) are available only to NAR members and require a password.
On July 6, 2012, the President signed into law “The Biggert-Waters Flood Insurance Reform Act of 2012” which extends the National Flood Insurance Program (NFIP) for five years and includes many program reforms. NAR has created this NFIP Resources Page, which includes links to detailed information on the NFIP to help answer REALTOR® questions about the changes coming to the NFIP.
- NAR Issue Brief: How Home Buying May Vary in the Floodplain
- Flood Insurance Rate Webinar: Independent actuaries with the Milliman firm provide an educational presentation on how the National Flood Insurance Program sets its insurance rates.
- NAR & SmarterSafer Coalition: Flood Insurance Reform Principles
- 2017 August Recess Talking Points: NFIP
Please note: On September 8, Congress signed a three-month extension of the National Flood Insurance Program (NFIP). The bill, signed into law by the President, extends the NFIP until December 8, 2017.
- Milliman Flood Insurance Study
- Fact Checker: Flood Insurance Market Parity and Modernization Act
- NAR Issue Brief: Flood Insurance Premium Rates - At a Glance
- NAR Statement: Homeowner Flood Insurance Affordability Act
- Fact Sheet: Homeowner Flood Insurance Affordability Act
- Comparison Chart: Current Law and the Flood Insurance Affordability Act Changes
- FAQs: Homeowner Flood Insurance Affordability Act
- Section by Section Summary: National Flood Insurance Affordability Act
- Chart: Flood Insurance Premium Rates for Second Homes
- NAR Legal Guidance
- FEMA: Information re: the Office of the Flood Insurance Advocate to assist property owners
- FEMA: National Flood Insurance Program Call Center for Policyholders and Disaster Survivors Nationwide
- FEMA: Flood Insurance for Businesses: Impacts of Recent Legislation
- FEMA's Bulletin Enabling Buyers to Assume Seller's Rates
- FEMA Resource on Flood Insurance Reforms
- FEMA: Overview of NFIP
- FEMA Grandfathering Rules
- FEMA Presentation on Changes to NFIP under Affordability Amendments
- FEMA: Notices to Congress: Monthly Updates on Flood Mapping
- FEMA: Official Source for Flood Mapping and Hazard Layer
FEMA’S Rate Relief Programs
In anticipation of increasing flood insurance rates, FEMA identifies several options that may directly or indirectly result in flood insurance discounts to policyholders.
- NFIP Community Rating System
The NFIP Community Rating System (CRS) offers insurance premium discounts (up to 45 percent) for individuals in communities implementing floodplain management practices that exceed the minimum requirements of the NFIP. By implementing CRS floodplain management best practices, flood losses are reduced, public safety is enhanced, and the cost of flood insurance is decreased.
- FEMA’s Hazard Mitigation Assistance (HMA) Program
FEMA's Hazard Mitigation Assistance (HMA) grant programs provide funding for eligible mitigation activities, including elevating properties, that reduce disaster losses and protect life and property from future disaster damages.
- Elevation Certificates
An Elevation Certificate is an important tool that documents your building’s elevation. The below fact sheet provides valuable information for homeowners including guidance for obtaining an Elevation Certificate which is necessary for determining full-risk rates in high-risk zones. It may also show that you may be paying too much for flood insurance.
- FEMA Flood Map Appeal
If a person believes their property was incorrectly included in a NFIP-identified Special Flood Hazard Area (SFHA), they may submit an application to FEMA for a formal determination of the property's location and/or elevation relative to the SFHA.
- Raise the Deductible
And like any other insurance policy, you can always raise the deductible.
- FEMA: History and Upcoming Changes to the NFIP
- NAR: What is the Impact of New Flood Bill?
- NAR: Flood Bill Helps Commercial
- NAR: FEMA Flood Law Processing
- Greg Larson, Bismarck Mandan Board of REALTORS®: The Importance of the National Flood Insurance Program
- FEMA: Flood Insurance Policy and Claim Statistics
- Interactive Map for NFIP Subsidized Policies by State and County
- Determine Your Flood Zone: “V” (high risk coastal), “A” (high risk river), “X” (low risk) or “D” (unmapped)
- FEMA: NFIP Actuarial Rate Review
Resources for REALTORS® and Consumers
- NAR/U.S. Fish & Wildlife Service page: Coastal Barrier Resources System
- NAR Legal Guidance on Disclosures
- FEMA: Flood Insurance Rate Maps
- NAR/FEMA Brochure: What To Ask Your Insurance Agent
- NAR/FEMA Brochure: What to Know and Say About Flood Risk and Flood Insurance
- HouseLogic: What Consumers Need to Know About Flood Insurance
- FEMA: Homeowner’s Guide to Elevation Certificates
- Propertycasualty360.com -The 4 Things Homeowners Misunderstand About Flood Insurance
- Carolina Flood Solutions: Non-Engineered Opening Guide
Additional Information & Research
- FEMA sub-study: The Role of Actuarial Soundness in the National Flood Insurance Program
- GAO Collected Research on NFIP (2013)
- GAO Report - Flood Insurance: More Information Needed on Subsidized Properties
- RAND Gulf States Policy Institute Analysis of the NFIP and Proposed Reforms
- CRS Report: Status and Remaining Issues for Congress (2013)
- CRS Report: NFIP Background, Challenges, and Financial Status (2011)
- University of PA – The Wharton School: NFIP Issue Briefs
- University of PA – The Wharton School: White Paper on Pricing Flood Insurance – Texas (2012)
- University of PA – The Wharton School: Paper on Modifying NFIP to Reduce Flood Losses (2012)
- American Institutes for Research: Evaluation of the NFIP’s Building Standards (2006)
- PriceWatehouseCooper’s 1999 Economic Impact Study of Charging Full Actuarial Rates
- CBO’s review of the PriceWaterhouse Cooper 1999 Actuarial Rate Study
- CBO Study of NFIP Premium Rates
- Insurance Information Institute Flood Facts
- FEMA report: Chronology of Major Events Affecting the NFIP
- Deloitte Center for Financial Services: The potential for flood insurance privatization in the U.S.
- Insurance Information Institute: Flood Insurance
- Milliman National Flood Insurance Program Study
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