To address the impact of flooding in certain communities in the United States, the Federal Emergency Management Agency began an initiative enabling homeowners, business owners, and renters to purchase federally backed flood insurance. The National Flood Insurance Program (NFIP) aims to reduce the impact of flooding by offering affordable insurance, encouraging communities to adopt and enforce floodplain management regulations to reduce damage from future floods, and developing maps of flood hazard zones.
Once a community becomes eligible for insurance coverage under the National Flood Insurance Program and has a flood risk designation, regulations apply regarding coverage. However, to ensure property owners and renters could insure their investments Congress also provided an Emergency Program to serve as the initial phase of a community's integration into the NFIP. This article will provide an overview of both the National Flood Insurance Program and the Emergency Program communities utilize when starting their NFIP involvement.
National Flood Insurance Program Overview
The National Flood Insurance Program was created with the National Flood Insurance Act of 1968 as an alternative to disaster assistance in order to help cover the escalating costs of repairing flood damage to public and private structures and their contents. Since 1968, a great deal of legislation has been enacted to strengthen the National Flood Insurance Program, ensure its fiscal soundness, and inform its mapping and rate-setting, including:
- The Flood Insurance Protection Act of 1973;
- The National Flood Insurance Reform Act of 1994;
- The Flood Insurance Reform Act of 2004;
- The Biggert-Waters Flood Insurance Reform Act of 2012;
- The Consolidated Appropriations Act of 2014; and
- Homeowner Flood Insurance Affordability Act of 2014.
FEMA's flood hazard mapping program, Risk Mapping, Assessment and Planning (Risk MAP) identifies flood hazards and assesses flood risks. Risk MAP's work is the basis for the National Flood Insurance Program's flood risk designations, insurance requirements, and regulations. Federal flood insurance may be optional in low and moderate risk flood areas. However, after legislation was passed in 1973 such insurance has been mandatory for all high-risk flood areas designated Special Flood Hazard Areas (SFHAs) in order to receive any federal or federally related financial assistance when buying or constructing buildings.
Even if the federal government does not mandate flood insurance in an area that is not designated as high-risk, a lender may very well require it before issuing a loan. Also, merely because a lender does not require flood insurance before originating a loan does not mean they are prohibited from later requiring it if the property's risk designation changes. Currently, the amount of flood insurance coverage required by law is the lesser of the loan's outstanding principal balance, the structure's insurable value, or the maximum NFIP coverage amount available for the property type.
The Emergency Program
The Emergency Program is the beginning of a community's voluntary participation in the National Flood Insurance Program. Communities may be part of the Emergency Program if:
- no flood hazard information is available for their area;
- the community has a Flood Hazard Boundary Map (FHBM) but no Flood Insurance Rate Map (FIRM); or
- the community has been identified as flood-prone for less than a year.
A community that does not initiate participation in the National Flood Insurance Program for one year or more after being identified as flood-prone, or after being withdrawn or suspended from the program, faces sanctions including:
- denial of flood insurance policies to residents;
- non-renewal of existing flood insurance policies;
- denial of federal grants or loans for development made under programs administered by federal agencies (such as HUD);
- denial of federal disaster assistance to repair insurable buildings in identified flood hazard areas;
- denial of federal mortgage insurance or loan guarantees, including policies written by the VA and FHA, in identified flood hazard areas; and
- requirements that federally insured or regulated lending institutions like banks and credit unions notify loan applicants in flood hazard areas that the hazard exists and the property is ineligible for federal disaster relief.
Eligible Community Procedures Under the Emergency Program
To begin participation in the National Flood Insurance Program, a community must first complete an application. Additionally, it must adopt a resolution of intent to participate and cooperate with FEMA as a floodplain management ordinance. The ordinance must meet minimum standards designed to control the community's use of floodplains and must adopt any FIRM or FHBM created for the community.
Once a community begins the Emergency Program participation phase of the National Flood Insurance Program, FEMA's goal becomes either to:
- convert a community to the Regular Phase of the NFIP as quickly as possible; or
- issue a determination that a community has no special flood areas.
FEMA will collect and process information to determine if a community has minimal or no flood risk and can be converted to the Regular Program without a study. If this is not the case, FEMA will begin a Flood Insurance Study (FIS) to determine base flood elevations and flood risk zones. FEMA will, during the FIS, consult with the community while it compiles flood risk data and creates flood maps to establish risk levels and flood hazard areas. FHBMs represent initial flood hazard information and FIRMs, created only if special flood areas are determined, provide official flood risk data.
During this process, all residents in the community will have access to a limited amount of flood insurance coverage at less than actuarial rates.
Once FIS concludes and FEMA provides the community with a FIRM showing base flood elevations, SFHA boundaries, and regulatory floodways. The community has 90 days to appeal the findings before FEMA finalizes changes to FIRM and the FIS report. It then creates a Letter of Final Determination (LFD), reflecting the new effective dates of FIRM and the FIS report. Issuance of the LFD begins the 6-month period a community has to implement changes such as:
- amending the map reference section of their floodplain management regulations to reflect the new FIRM;
- adopting or amending regulations to include appropriate NFIP requirements for new flood hazard data; and
- adopting base flood elevations in local zoning and building code ordinances.
Once a community adopts the ordinances and comes into compliance, FEMA converts the community to the NFIP's Regular Program. This conversion allows the issuance of higher amounts of flood insurance coverage and permits new construction to be charged actuarial rates for flood insurance that fully reflect the building's risk of flooding.
FEMA has established regulations to deal with complicated issues related to flooding and property owners who would not otherwise be able to protect their investments. The community must cooperate during the Emergency Program of the National Flood Insurance Program to ensure its residents are protected, which involves submitting to the authority of FEMA and making changes based on their findings. However, the end result of this cooperation allows entry into the Regular Program of the NFIP and extend the protections a community can officer its residents.