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Private Flood Insurance and the National
Flood Insurance Program (NFIP)
Updated November 26, 2019
The National Flood Insurance Program
The NFlP was first authorized by the National Flood Insurance Act of 1968 (42 UIS.C. 4001 et seq.) and
was reauthorized until the end of FY2017 by the Biggert-Waters Flood Insurance Reform Act of 2012
(BW-12; Title II of PL 112-141). After a series of short-term reauthorizations, the NFIP was reauthorized
until December 20, 2019 (P.L. 116-69). In statute, Congress has found that
(1) many factors have made it uneconomic for the private insurance industry alone to make flood
insurance available to those in need of such protection on reasonable terms and conditions; but
(2) a program of flood insurance with large-scale participation of the Federal Government and
carried out to the maximum extent practicable by the private insurance industry is feasible and can
be initiated. (1.2 USC I40(b)).
By law or regulation, federal agencies, federally regulated lending institutions, and government-sponsored
enterprises (GSEs) must require certain property owners to purchase flood insurance as a condition of any
mortgage that these entities make, guarantee, or purchase. Property owners are required to purchase flood
insurance if their property is identified as being in a Special Flood Hazard Area (SFHA, which is
equivalent to having a 1% or greater risk of flooding every year) and is in a community that participates
in the NFIP. Historically, this generally has meant that such property owners were required to purchase a
Standard Flood Insurance Policy (SFIP) from the NFIP. In BW-12, Congress explicitly provided for
private flood insurance to fulfill this mortgage requirement instead of the SFIP, ifthe private flood
insurance met the conditions defined further in statute at 42 U.S C. §4012a(b)(7).
Rulemaking on Accepting Private Flood Insurance
To fulfill the mortgage requirement, a private insurance policy must provide, among other conditions,
flood insurance coverage which is at least as broad as the coverage provided under a [SFIP] ... including
when considering deductibles, exclusions, and conditions offered by the insurer. Implementation of this
requirement has proved challenging. The responsible federal regulators (the Federal Reserve, Farm Credit
Administration, Federal Deposit Insurance Corporation, National Credit Union Administration, and
Comptroller of the Currency) have issued two separate Notices of Proposed Rulemaking (NPRM)
addressing the issue in October 2013 and November 2016. The crux of the implementation issue can be
seen as answering the question of who would judge whether specific policies met the at least as broad
as standard and what criteria would be used in making this judgment. The uncertainty as to whether
CRS INSIGHT
Prepared for Members and
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