Historically, people at risk from flooding could only hope for help from their neighbors and charitable organizations in the event of a flood. Government assistance varied from community to community, and flood insurance was scarce. During the 1920s, the insurance industry concluded that flood insurance could not be a profitable venture because the only people who would want flood coverage would be those who lived in floodplains. Since they were sure to be flooded, the rates would be too high to attract customers. During the 1960s, Congress became concerned with problems related to the traditional methods of dealing with floods and flood damage—construction of structural projects and federal disaster assistance. Both were proving to be quite expensive, with no end in sight.

 

Congress concluded that:

 

•  Although Federal flood programs were funded by all taxpayers, they primarily helped only residents of floodplains. 
   

• Flood protection structures were expensive and could not protect everyone. 
   

• People continued to build and live in floodplains, thus still risking disaster. 
   

• Disaster relief was both inadequate and expensive. 
   

• The private insurance industry could not sell affordable flood insurance because only those at high risk would buy it. 

 

In 1968, Congress passed the National Flood Insurance Act to correct some of the shortcomings of the traditional flood control and flood relief programs. The act created the National Flood Insurance Program (NFIP) to:

 

• Transfer the costs of private property flood losses from the taxpayers to floodplain property owners through flood insurance premiums.

 

Provide floodplain residents and property owners with financial aid after floods, especially smaller floods that do not warrant federal disaster aid. 

 

• Guide development away from flood hazard areas. 

 

• Require that new and substantially improved buildings be constructed in ways that would minimize or prevent damage in a flood.

 

Congress charged the Federal Insurance Administration (which at that time was in the Department of Housing and Urban Development) with responsibility for the program.

 

Participation in the NFIP grew slowly. In 1972, Hurricane Agnes devastated a wide area of the eastern United States. Disaster assistance costs were the highest ever, leading Congress to examine why the NFIP was so little used. Investigators found that few communities had joined the NFIP—there were fewer than 100,000 flood insurance policies in force nationwide.

 

To remedy this, the Flood Disaster Protection Act was passed in 1973, requiring that buildings located in identified flood hazard areas have flood insurance coverage as a condition of federal aid or loans from federally-insured banks and savings and loans, and as a condition for receiving federal disaster assistance. These “sanctions” for non-participation, which are detailed later in this unit, make it hard for any community that wants federal assistance for properties in floodplains to avoid joining the NFIP.

 

The 1973 Act spurred participation in the program dramatically. By the end of the decade, more than 15,000 communities had signed on and about two million flood insurance policies were in effect.

 

In 1979, the Federal Insurance Administration (FIA) and the NFIP were transferred to the newly created Federal Emergency Management Agency (FEMA).

 

During the early 1980’s, FIA worked to reduce the program’s dependence on its authority to borrow from the Federal Treasury. Through a series of rate increases and other adjustments, the program has been self-supporting since 1986. The NFIP is funded primarily through premium income, which pays all administrative and mapping costs as well as claims.

 

Since 1973, the program has been amended several times. The most important changes came under the National Flood Insurance Reform Act of 1994 which fine tuned various aspects of the program, such as authorizing the Community Rating System, increasing the maximum amount of flood insurance coverage, and establishing a grant program for mitigation plans and projects.

 

The Reform Act and the initiation of a flood insurance advertising campaign known as “Cover America” boosted sales of flood insurance policies again. By the end of 1997, there were 3.8 million flood insurance policies in force. Also by the end of 1997, the number of participating communities exceeded 19,000 out of 22,000 with identified floodplains.