With private insurers fleeing the flood damage market in the 60’s, the federal government stepped in to create an insurance alternative that would allow property owners in flood prone areas to obtain adequate coverage. The result was the formation of the National Flood Insurance Program in 1968.

The NFIP was designed to meet escalating costs of damage to homes and businesses as the result of flooding. As of last year, the program insured 5.5 million homes, mostly in TX and FL.

Not just anybody can join the NFIP. Property owners must first determine if a) their property rests on a flood plain or other high flood risk location, and b) if their community participates in the NFIP. Risk premium zones applicable to each participating community are depicted on Flood Insurance Rate Maps (FIRMs). The Mitigation Division within the Federal Emergency Management Agency manages the NFIP and oversees the floodplain management and mapping components of the Program.

An additional premium is paid out to the NFIP by the property owner, and since 1978, the NFIP ha paid out more than $38 billion in claims, much of which has gone to residents in the state of Louisiana. The damage left behind be Hurricane Katrina in 2005 seriously depleted the NFIP funds, and since then it has struggled to make proper provision for more recent filings.

The NFIP has come under criticism for installing provisions that encourage people to purchase homes in flood prone areas, and additionally, many of these people would not be in a financial position to recover from such a disaster. Some additional factors that have drawn criticism are:

Flood insurance for properties in flood prone areas is mandatory only to secure loans, which makes it somewhat more likely that flood prone properties will be owned by seniors who have paid off their mortgages, or investors who have acquired the property for rental income.

Flood insurance only covers losses for the owner of the property, and claims are subject to caps, which further increases the likelihood that the property will be occupied by renters rather than the property owner.

Flood prone properties are more likely to be offered for rent because of the owners' increased risks and/or costs associated with occupying the property themselves.

Flood prone properties are more likely to be offered for rent at a discount, which attracts lower income groups, seniors, and infirm groups.

More recently, the Congress has undertaken efforts to make sure that the NFIP remains financially solvent, looking to extend funding at least until 2016.

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