The History of the Federal Flood Insurance Program
Flood insurance is offered from the federal government through the National Flood Insurance Program. Flood insurance from the federal government was a response to the approach of assisting flood victims with disaster assistance. This was because development was occurring in flood-prone or high-risk areas and private insurers would not provide coverage for flood losses. A government program was needed because the dangers of flooding were being overlooked.
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National Flood Insurance Act
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The National Flood Insurance Act was passed in 1968. The act was passed because of two important findings. The first finding stated that the public interest in flood protection can be achieved by providing protection against losses as the result of floods and by minimizing property exposure to flooding. The second finding stated that a flood insurance program should be tied to a program for the management of floodplains.
Risk
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During the 1960s the federal government began to study and estimate the number of communities that have some sort of risk related to flooding. A closer look at this problem led to the determination that more communities than were previously thought were exposed to flood risk. Today, there are more than 20,000 communities and areas that have access to the National Flood Insurance Program.
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Hurricanes
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Hurricanes are one of the most common causes of flooding in many areas along on the East and Gulf coasts. Hurricanes can cause billions of dollars in damages, as was the case with Hurricane Agnes in 1972. When the hurricane struck, very few buildings and property were insured for losses as a result of flooding. This hurricane and the damage that it caused led to the need for incentives for individuals and businesses to purchase flood insurance.
Incentives
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Individuals and businesses were not purchasing flood insurance in the belief that a disaster would not occur where they live. This led the federal government to pass the Flood Disaster Protection Act of 1973 (see Resources). This act led to a mandatory purchase requirement for flood insurance. If a home or building was located in a floodplain, a mortgage lender or bank was required to have the borrower purchase flood insurance.
Taxpayer Support
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Since the creation of the National Flood Insurance Program, taxpayer dollars have been needed to run the program and pay claims. This changed in 1981 during the presidency of Ronald Regan, and the program's goal was to become self-supporting by 1988. This led to changes in the flood program, such as limiting the subsidies for older buildings, increasing rates and eliminating some coverage for basements. As a result, the National Flood Insurance Program became completely self-supporting in 1985.
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