The National Flood Insurance Program (NFIP) is a federal program. Participation is voluntary, but the benefits are considerable. To join, a community agrees to adopt, administer and enforce a floodplain management ordinance that meets or exceeds the minimum requirements. When communities participate in the NFIP, property owners and renters can buy flood insurance to help deal with losses from flooding.
Federal flood insurance is designed to provide an alternative to disaster assistance and disaster loans. Disaster assistance is a poor choice; it never comes close to covering all the costs of repairing homes and businesses. It is especially important to remember that disaster assistance is available only after a flood is declared a major disaster by the president of the United States.
Federal flood insurance also is a better alternative than disaster loans that are made available only when a disaster declaration is made by the president or by the Small Business Administration. Loans require repayment, typically over a 10-year period. Insurance will pay whenever damage from a qualifying flood event occurs. Background information about why the NFIP was created and how the program is structured follows:
Meeting the Need for Flood Insurance
For decades, the national response to flood disasters generally involved constructing flood control works such as dams, levees, channelizations and sea walls. After major floods, the federal government stepped in and gave disaster assistance to flood victims. This approach did not reduce many flood-related losses, nor did it discourage unwise development in high-risk areas. In some parts of the country, it may have actually encouraged additional hazard-prone development. To compound the problem, private insurance companies would not offer insurance against flood damage. Importantly, the messages that nature sent with every flood about how and where to build were often overlooked.
Nearly every county in the country has experienced at least one major disaster declaration. In the face of mounting flood losses and rising disaster relief costs, the U.S. Congress created the National Flood Insurance Program in 1968. The intent was to reduce future flood damage through local floodplain management ordinances and to have people who live at risk help pay for their recovery through an insurance mechanism.
Another important objective of the NFIP was to break the cycle of flood damage. Many buildings have been flooded, rebuilt and flooded again. Sometimes this cycle occurs every couple of years, with people rebuilding in the same flood-prone areas, with the same flood-prone construction techniques.
By encouraging communities to guide development to lower risk areas and by requiring elevation of new buildings and those that sustain major damage, one of the long-term goals of the NFIP can be achieved: create disaster resistant communities. Older buildings may be removed, replaced, upgraded or modified with techniques that lead to little or no flood damage. Through the land development process, developers can often be encouraged to stay out of high-risk areas.
New construction that meets the minimum standards generally has only minimal damage when floodwaters rise. Meeting these performance standards allows people to move back in faster because there is less cleanup and fewer repairs are needed.
The NFIP has helped to foster an important change. In many counties and towns across the country, instead of trying to keep floods away from the people, now we try to keep people and property away from the power and devastation of floods.
The Mandatory Purchase Requirement
From 1968 until the adoption of the Flood Disaster Protection Act of 1973, the purchase of flood insurance was voluntary. However, in 1973 Congress decided to make flood insurance a requirement for many properties. For the first time, regulated lending institutions were not supposed to make, increase, extend or renew any loan secured by improved real estate or located in a special flood hazard area unless the secured property and any personal property securing the loan was covered for the life of the loan by flood insurance. Congress decided to make the purchase of flood insurance a requirement because so few flood-prone structures were covered by flood insurance, and too many people continued to need federal disaster relief.
In 1988, Congress began to consider more changes to the NFIP. Flooding along the Mississippi River in 1993 prompted further evaluation, and the National Flood Insurance Reform Act was passed in September 1994. It included a significant boost to improve compliance with the mandatory purchase requirements of the NFIP by lenders, servicers and secondary market purchasers. Increasing compliance and participation in the NFIP is designed to decrease the financial impact of flooding to the federal government, taxpayers and citizens in areas prone to flooding.
Additional information about the mandatory purchase requirements is in the Federal Emergency Management Agency (FEMA) booklet entitled Mandatory Purchase of Flood Insurance Guidelines. Some materials may be accessible on FEMA's Web site at www.fema.gov; search for "Mandatory Purchase."
Administrative Structure of the NFIP
The Community Status List for Kentucky is updated regularly on FEMA's Web site. In addition to listing each participating community in the NFIP, it lists the communities that have identified Special Flood Hazard Areas (SFHAs), but which do not participate. Also listed is the date of entry for each community, as well as the date of the current effective maps.
Emergency Phase. Until recently, the Emergency Phase of the NFIP was the initial phase of participation. It was designed to provide a limited amount of insurance at less than actuarial rates. A community in the Emergency Phase either does not have an identified and mapped flood hazard or has been provided with a Flood Hazard Boundary Map.
Adoption of a limited floodplain management ordinance is required. About 1 percent of the nearly 20,000 communities participating in the NFIP remain in the Emergency Phase, including nine of Kentucky's 312 participating communities. In the Emergency Phase, only limited flood insurance coverage is available. Single-family dwellings are eligible for $35,000 building coverage and $10,000 contents coverage. Other residential, nonresidential or small business structures are eligible for $100,000 building coverage and $100,000 contents coverage.
Regular Phase. Usually a community participating in the Regular Phase of the NFIP is provided with a Flood Insurance Rate Map (FIRM) and a detailed engineering study, termed a Flood Insurance Study. Under the Regular Phase, more comprehensive floodplain management requirements are required in exchange for higher amounts of flood insurance coverage. Law establishes the maximum amounts of coverage.
As of 2004, residential structures are eligible for $250,000 building coverage and $100,000 contents coverage. Nonresidential structures are eligible for $500,000 building coverage and $500,000 contents coverage.
To find out more about flood insurance, download Answers to Questions About The National Flood Insurance Program from FEMA's Web page. To order the booklet, call the FEMA Distribution Center (1-800-480-2520).
Some general information is available on the Internet at www.floodsmart.gov. Use this site or call the NFIP toll-free hotline (1-888-379-9531) if you have questions about where and how to buy flood insurance.