National Flood Insurance Program

In 1968 Congress created the National Flood Insurance Program (NFIP) in response to the rising cost of taxpayer-funded disaster relief for flood victims and the increasing amount of damage caused by floods. The NFIP makes federally backed flood insurance available in communities that agree to adopt and enforce floodplain management ordinances to reduce future flood damage. The NFIP is self-supporting for the average historical loss year. This means that unless there is a widespread disaster, operating expenses and flood insurance claims are financed through premiums collected.

A growing number of private insurers have begun offering "excess flood" policies, intended to provide more extensive water damage protection to homeowners than the coverage provided by NFIP policies alone. In addition, some insurers have introduced special policies for high value properties. These high-end policies may cover homes in noncoastal areas and/or provide enhancements to traditional flood coverage.

According to a Rand Corporation study conducted for the NFIP, nationwide about 49 percent of single family homes in special flood hazard areas (SFHAs) were covered by flood insurance in 2004. In the South and West the percentage was about 60 percent. Only about 1 percent of homeowners in non-SFHAs purchase the coverage.