Congress created the National Flood Insurance Program in 1968 to address the rising costs of taxpayer-funded disaster relief for flood victims and the increasing amount of damage caused by floods. Prior to the NFIP’s creation, all flood losses were covered through taxpayer funded disaster aid. In 1983, the Write-Your-Own program was established, allowing companies to write and sell flood coverage for the NFIP as a means of increasing the number of homeowners with flood coverage. Under the program, companies administer the sales and claims of NFIP-backed policies and are reimbursed for their administrative expenses.
The NFIP offers flood insurance, in some cases with subsidized rates, to homeowners, renters, and business owners in some 20,000 communities that meet the program’s standards for flood plain management, with approximately 5.1 million flood insurance policies currently in place. The program was originally designed so that the premium dollars taken in every year would be used to pay out any flood losses incurred by policyholders. However, because the NFIP does not account for catastrophic loss years, massive flood losses have left the program in debt.
Congress was successful in implementing some reforms with the passage of the Biggert-Waters Flood Insurance Reform Act of 2012. The legislation, passed after a string of 17 temporary extensions over three Congresses, extended the NFIP for five years and addressed the problems of adverse selection, moral hazard, and financial instability that have caused the program to fall into debt.
But even before the reforms of Biggert-Waters could be implemented, Congress passed the Homeowner Flood Insurance Affordability Act of 2014. The law rolled back many of Biggert-Water’s provisions meant to bring financial stability to the NFIP, primarily implementation of actuarial rates for nearly 1.1 million policies, returning the program to its fiscally precarious position.
Since the authorization enacted under Biggert-Waters expired in 2017, the program has again been subject to a series of last-minute extensions.