1. What is the National Flood Insurance
Program (NFIP)?
The NFIP is a Federal program enabling property owners in participating
communities to purchase insurance protection against losses from flooding.
This insurance is designed to provide an insurance alternative to disaster
assistance to meet the escalating costs of repairing damage to buildings
and their contents caused by floods.
Participation in the NFIP is based on an agreement between local communities
and the Federal Government that states if a community will adopt and
enforce a floodplain management ordinance to reduce future flood risks
to new construction in Special Flood Hazard Areas, the Federal Government
will make flood insurance available within the community as a financial
protection against flood losses.
2. Why was the NFIP established by Congress?
For decades, the national response to flood disasters was generally
limited to constructing flood-control works such as dams, levees, sea-walls,
and the like, and providing disaster relief to flood victims. This approach
did not reduce losses, nor did it discourage unwise development. In
some instances, it may have actually encouraged additional development.
To compound the problem, the public generally could not buy flood coverage
from insurance companies, and building techniques to reduce flood damage
were often overlooked.
In the face of mounting flood losses and escalating costs of disaster
relief to the general taxpayers, the U.S. Congress created the NFIP.
The intent was to reduce future flood damage through community floodplain
management ordinances, and provide protection for property owners against
potential losses through an insurance mechanism that requires a premium
to be paid for the protection.
3. How was the NFIP established and who administers it?
The U.S. Congress established the NFIP on August 1, 1968, with the
passage of the National Flood Insurance Act of 1968. The NFIP was broadened
and modified with the passage of the Flood Disaster Protection Act of
1973 and other legislative measures. It was further modified by the
National Flood Insurance Reform Act of 1994, signed into law on September
23, 1994. The NFIP is administered by the Federal Insurance and Mitigation
Administration (FIMA) and the Mitigation Directorate (MT), components
of the Federal Emergency Management Agency (FEMA), an independent Federal
agency.
4. What is a Special Flood Hazard Area (SFHA)?
In support of the NFIP, FEMA has undertaken a massive effort of
flood hazard identification and mapping to produce Flood Hazard Boundary
Maps (FHBMs), Flood Insurance Rate Maps (FIRMs), and Flood Boundary
and Floodway Maps (FBFMs). Several areas of flood hazards are commonly
identified on these maps. One of these areas is the Special Flood Hazard
Area (SFHA), which is defined as an area of land that would be inundated
by a flood having a 1-percent chance of occurring in any given year
(also referred to as the base flood or 100-year flood). The 1-percent-annual-chance
standard was chosen after considering various alternatives. The standard
constitutes a reasonable compromise between the need for building restrictions
to minimize potential loss of life and property and the economic benefits
to be derived from floodplain development. Development may take place
within the SFHA, provided that development complies with local floodplain
management ordinances, which must meet the minimum Federal requirements.
Flood insurance is required for insurable structures within the SFHA
to protect Federal financial investments and assistance used for acquisition
and/or construction purposes within communities participating in the
NFIP.
5. What is a flood?
"Flood" is defined in the Standard Flood Insurance Policy
(SFIP), in part, as:
A general and temporary condition of partial or complete
inundation of two or more acres of normally dry land area or of two
or more properties (at least one of which is your property) from overflow
of inland or tidal waters, from unusual and rapid accumulation or runoff
of surface waters from any source, or from mudflow.
6. What is the NFIP's Write Your Own (WYO) program?
The Write Your Own (WYO) Program, begun in 1983, is a cooperative
undertaking of the insurance industry and the FIMA. The WYO Program
allows participating property and casualty insurance companies to write
and service the Standard Flood Insurance Policy in their own names.
The companies receive an expense allowance for policies written and
claims processed while the Federal Government retains responsibility
for underwriting losses. The WYO Program operates within the context
of the NFIP, and is subject to its rules and regulations.
The goals of the WYO Program are:
- Increase the NFIP policy base
and the geographic distribution of policies;
- Improve service to NFIP policyholders
through the infusion of insurance industry knowledge; and
- Provide the insurance industry
with direct operating experience with flood insurance.
As of October 2000, more than 100 insurance companies had signed arrangements
with FIMA to sell and service flood insurance under their names.
7. Do the state insurance regulators have any jurisdiction over
the NFIP in their respective states?
As established by the U.S. Congress, the sale of flood insurance under
the NFIP is subject to the rules and regulations of FIMA. FIMA has elected
to have State-licensed insurance companies' agents and brokers sell
flood insurance to consumers. State regulators hold the insurance companies'
agents and brokers accountable for providing NFIP customers with the
same standards and level of service that the States require of them
in selling their other lines of insurance.
Private insurance companies participating in the Write Your Own (WYO)
Program must be licensed and regulated by States to engage in the business
of property insurance in those States in which they wish to sell flood
insurance.
8. How does the NFIP benefit property owners? Taxpayers? Communities?
Through the NFIP, property owners in participating communities are able
to insure against flood losses. By employing wise floodplain management,
a participating community can protect its citizens against much of the
devastating financial loss resulting from flood disasters. Careful local
management of development in the floodplains results in construction
practices that can reduce flood losses and the high costs associated
with flood disasters to all levels of government.
9. What is the definition of a community?
A community, as defined for the NFIP's purposes, is any State, area,
or political subdivision; any Indian tribe, authorized tribal organization,
or Alaska native village, or authorized native organization that has
the authority to adopt and enforce floodplain management ordinances
for the area under its jurisdiction. In most cases, a community is an
incorporated city, town, township, borough, or village, or an unincorporated
area of a county or parish. However, some States have statutory authorities
that vary from this description.
10. Why is participation in the NFIP on a community basis rather
than on an individual basis?
The National Flood Insurance Act of 1968 allows FIMA to make flood insurance
available only in those areas where the appropriate public body has
adopted adequate floodplain management regulations for its flood-prone
areas. Individual citizens cannot regulate building or establish construction
priorities for communities. Without community oversight of building
activities in the floodplain, the best efforts of some to reduce future
flood losses could be undermined or nullified by the careless building
of others. Unless the community as a whole is practicing adequate flood
hazard mitigation, the potential for loss will not be reduced sufficiently
to affect disaster relief costs. Insurance rates also would reflect
the probable higher losses that would result without local floodplain
management enforcement activities.
11. Is community participation mandatory?
Community participation in the NFIP is voluntary (although some States
require NFIP participation as part of their floodplain management program).
Each identified flood-prone community must assess its flood hazard and
determine whether flood insurance and floodplain management would benefit
the community's residents and economy. However, a community that chooses
not to participate within 1 year after the flood hazard has been identified
and an NFIP map has been provided is subject to the ramifications explained
in the answer to Question 20.
A community's participation status can significantly affect current
and future owners of property located in Special Flood Hazard Areas
(SFHAs). The decision should be made with full awareness of the consequence
of each action.
12. What is the NFIP's Emergency Program?
The Emergency Program is the initial phase of a community's partici-pation
in the NFIP and was designed to provide a limited amount of insurance
at less than actuarial rates. A community participating in the Emergency
Program either does not have an identified and mapped flood hazard or
has been provided with a Flood Hazard Boundary Map (FHBM), and the community
is required to adopt limited floodplain management standards to control
future use of its floodplains. About 1 percent of the 19,000 communities
participating in the NFIP remain in the Emergency Program; FEMA hopes
to convert all communities to the Regular Program of the NFIP. For additional
information on mapping, please refer to the "Flood Hazard Assessment
and Mapping Requirements" section of this booklet
13. What is the NFIP's Regular Program?
A community participating in the Regular Program of the NFIP is usually
provided with a Flood Insurance Rate Map (FIRM) and a detailed engineering
study, termed a Flood Insurance Study (FIS). (Additional information
on FIRMs and FISs is provided in the "Flood Hazard Assessment and
Mapping Requirements" section of this booklet.) Under the Regular
Program, more comprehensive floodplain management requirements are imposed
on the community in exchange for higher amounts of flood insurance coverage.
14. What happens when a community does not enforce its floodplain
management ordinance?
Communities are required to adopt and enforce a floodplain management
ordinance that meets minimum NFIP requirements. Communities that do
not enforce these ordinances can be placed on probation or suspended
from the program. This is done only after FEMA has provided assistance
to the community to help it become compliant.
15. What is probation?
Probation is the formal notification by FEMA to a community that its
floodplain management program does not meet NFIP criteria. It is an
action authorized under Federal regulations.
16. When can a community be placed on probation?
A community can be placed on probation 90 days after FEMA provides written
notice to community officials of specific deficiencies. Probation generally
is imposed only after FEMA has consulted with the community and has
not been able to resolve deficiencies. The FEMA Regional Director has
the authority to place communities on probation.
17. How long will probation last?
Probation may be continued for up to 1 year after the community corrects
all Program deficiencies and remedies all violations to the maximum
extent possible.
18. What penalties are imposed when a community is placed on probation?
An additional $50 charge is added to the premium for each policy sold
or renewed in the community. The additional charge is effective for
at least 1 year after the community's probation period begins. The surcharge
is intended to focus the attention of policyholders on the community's
non-compliance to help avoid suspension of the community, which has
serious adverse impacts on those policyholders. Probation does not affect
the availability of flood insurance.
19. What is suspension?
Suspension of a participating community (usually after a period of probation)
occurs when the community fails to solve its compliance problems or
fails to adopt an adequate ordinance. The community is provided written
notice of the impending suspension and granted 30 days in which to show
cause why it should not be suspended. Suspension is imposed by the Associate
Director, Mitigation Directorate, FEMA. If suspended, the community
becomes non-participating and flood insurance policies cannot be written
or renewed. Policies in force at the time of suspension continue in
force for the policy term. Three-year policies remain in force until
the next annual anniversary date of the policy.
20. What happens if a community does not participate in the NFIP?
Flood insurance under the NFIP is not available within that community.
Furthermore, Section 202(a) of Public Law 93-234, as amended, prohibits
Federal officers or agencies from approving any form of financial assistance
for acquisition or construction purposes in a Special Flood Hazard Area
(SFHA). For example, this would prohibit loans guaranteed by the Department
of Veterans Affairs, insured by the Federal Housing Administration,
or secured by the Rural Housing Services. Under Section 202(b) of Public
Law 93-234, if a Presidentially declared disaster occurs as a result
of flooding in a non-participating community, no Federal financial assistance
can be provided for the permanent repair or reconstruction of insurable
buildings in SFHAs. Eligible applicants may receive those forms of disaster
assistance that are not related to permanent repair and reconstruction
of buildings.
If the community applies and is accepted into the NFIP within 6 months
of a Presidential disaster declaration, these limitations on Federal
disaster assistance are lifted.
21. Explain the discounts on premiums that can be obtained
in communities that qualify for the Community Rating System (CRS) because
they have floodplain management programs that go beyond the minimum
requirements to participate in the NFIP.
The NFIP's Community Rating System (CRS) recognizes community efforts
beyond the NFIP minimum standards by reducing flood insurance premiums
for the community's property owners. The discounts may range from 5
to 45 percent. The discounts provide an incentive for new flood mitigation,
planning, and preparedness activities that can help save lives and protect
property in the event of a flood.
22. What procedures must be followed for a community to participate
in the Community Rating System?
Participation in the CRS is voluntary. A community in compliance with
the rules and regulations of the NFIP may apply. The community's Chief
Executive Officer must appoint a CRS coordinator to handle the application
work and serve as the liaison between the community and FEMA. The first
step in the application process is for the community to obtain a copy
of the CRS Coordinator's Manual, which describes the program
and gives details on the eligible activities. The CRS coordinator should
fill out and submit an application for participation in the CRS. The
CRS will verify the information and arrange for flood insurance premium
discounts.
23. How can a community acquire the CRS Coordinator's Manual and
other information describing the program?
The CRS Coordinator's Manual, additional CRS publications, and
soft-ware may be ordered online or by writing, phoning, or faxing a
request to the NFIP/CRS. Contact information is listed in the "Additional
Reading" section at the end of the booklet. All publications are
free, and the computer software for completing the application is also
available at no charge.
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