Flood Insurance

Overview

According to the National Association of Insurance Commissioners (NAIC), floods are the most common and most destructive natural disaster in the United States. Ninety percent of all natural disasters involve flooding, according to Floodsmart.gov. The damage from a flood is not covered under a standard homeowners policy. Flood insurance is a special policy that is federally backed by the National Flood Insurance Program (NFIP) and available for homeowners, renters and businesses.

The National Flood Insurance Program (NFIP) was created in 1968 because flood insurance was virtually unavailable from the private insurance markets following frequent widespread flooding along the Mississippi River in the early 1960s. The NFIP is a Federal program, managed by the Federal Emergency Management Administration (FEMA), and has three components: to provide flood insurance, to improve floodplain management and to develop maps of flood hazard zones.

The NFIP allows property owners in participating communities to buy insurance to protect against flood losses. Participating communities are required to establish management regulations in order to reduce future flood damages. This insurance is intended to furnish as an insurance alternative to disaster assistance and reduces the rising costs of repairing damage to buildings and their contents caused by flood. A homeowner is able to purchase excess flood insurance, but they must be covered by NFIP flood insurance first.

Impact to the Industry

The NFIP is critical to provide certainty to the housing market. Property owners need to have access to affordable flood insurance. Without flood insurance protection, homeowners will not be able to buy, sell or refinance real estate. When Congressional authorization for the NFIP lapsed in 2012, at least 1,300 home closings were delayed each day.