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Energy and Environment Cabinet

Division of Water

Division of Water
Brief History of the National Flood Insurance Program

In 1968, Congress passed the National Flood Insurance Act based on findings that: "(1) a program of flood insurance can promote the public interest by providing appropriate protection against the perils of flood losses and encouraging sound land use by minimizing exposure of property to flood losses; and (2) the objectives of a flood insurance program should be integrally related to a unified national program for floodplain management."

In the late 1960s, federal officials originally estimated that only 5,000 communities had flood hazards. As they looked more carefully at the problem, they determined that more than 20,000 counties and towns have some degree of risk. Today, flood insurance is available in more than 20,000 communities and U.S. territories, including Indian tribes, authorized tribal organizations and Alaska Native villages, that have voluntarily adopted the NFIP requirements. Although federal assistance is still a vital part of disaster response and recovery, the NFIP saves the U.S. taxpayer millions of dollars each year.

Major flood disasters have always had an impact on the NFIP.  Hurricane Agnes struck the East Coast in 1972. At the time, there were fewer than 1,200 communities in the NFIP, and only 95,000 homeowners had insurance policies. Hurricane Agnes caused a total of up to $4 billion in damage and affected states from the Gulf Coast all the way to Canada. Less than 1 percent of the damaged buildings were insured, and only $5 million was paid in insurance claims. 

After that, it became clear that many flood-prone communities needed more incentive to join the NFIP. Even with the cost of insurance for older buildings subsidized, most people did not purchase policies because they generally didn't think a disaster would hit their towns. The Flood Disaster Protection Act of 1973 was passed, and its most significant impact was the mandatory purchase requirement. Since then, mortgage lenders and banks were supposed to require that borrowers obtain flood insurance on homes located in mapped floodplains.

In 1981, the Reagan administration set a goal to make the NFIP self-supporting by 1988. That would mean that no taxpayer support is needed to pay claims and operating expenses. One step toward that goal was a decrease in the amount of subsidy for older buildings. In addition, rates were increased and coverage of certain items in basements was sharply limited. These measures, combined with a number of years without major floods, allowed the NFIP to achieve self-supporting status in 1985, three years before the target date.

In 1989, Hurricane Hugo hit South Carolina. Flood insurance payments totaled nearly $350 million -- about 35 percent of the $1.1 billion in federal disaster support. Other major floods have prompted significant payments for flood insurance claims, helping thousands of home and business owners recover without burdening the federal government and taxpayers. Some notable events include the Midwest floods of 1993 with $271 million in claims, Hurricane Georges (1998, $149 million), Hurricane Allison (2001, $1.1 billion) and Hurricane Isabel (2003, $421 million).

Through those major flood disasters and thousands of small events, the NFIP is certainly doing what Congress anticipated -- saving taxpayer dollars.

The most important reason the NFIP works is because properly built homes do not get damaged, or at least they are damaged much less than if they had been built flat on the ground. On average, buildings constructed in compliance with NFIP floodplain rules sustain 77 percent less damage than those that are not built properly.

In 1998, the NFIP celebrated its 30th anniversary. Through successful partnership with the private insurance industry, the NFIP provides efficient service to flood insurance policyholders. Through partnerships with communities, the NFIP supports both damage reduction and preservation of natural and beneficial floodplain functions.

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