The federal National Flood Insurance Program (NFIP) is the sole source of protection against flood loss in the United States. Originally established in the late 1960s under the National Flood Insurance Act, it has been amended in order to deal with various changing coverage concerns. The program is operated under FEMA, the Federal Emergency Management Agency which is a division of the Department of Homeland Security.
The NFIP offers coverage to any property owner living in a community that has established a flood plan. The chief component of a valid plan is having the area’s vulnerability to flooding determined by creating an area flood map as well as creating a set of zoning and building policies. The latter includes rules on types of construction, required elevation where building is permitted, eligible building materials, and construction reinforcement techniques. The purpose of area flood plans is to encourage acquisition of flood insurance and to mitigate the damage caused should floods occur.
The NFIP offers three separate policies for residential, non-residential (principally business) and condominium association risks. There is also the option of a preferred risk policy for buildings with a particularly low exposure to flooding. Besides structural property, the various flood policies also provide protection for certain types of business and personal property, including improvements and betterments.
While the flood insurance program is underwritten by the federal government, its policies are sold and distributed via regular insurance carriers. While more than five million properties are currently participating in the program, that number is only a small fraction of vulnerable properties that should carry flood insurance.
Flood coverage is excluded under homeowners policies and many commercial property policies. As such, buying flood insurance through the National Flood Insurance Program is the best thing you can do to protect your business from a flood.
When you are a flood insurance policyholder:
- Flood insurance compensates you for all covered losses.
- Coverage is relatively inexpensive.
- You can depend on being reimbursed for flood damages, even if the President does not declare a Federal disaster.
- You do not have to repay a loan, as you might have to with many Federal disaster relief packages. Your covered losses are paid in full.
- You can count on your claim being paid in the event of a flood loss because NFIP flood insurance is backed by the Federal government.
- Your agent can help you handle your claim quickly, so that you will not have to put your life on hold if your property is damaged by a flood.
- You can even request a partial payment immediately after the flood.
Please note, however, that a flood insurance policy generally does not take effect until 30 days afeter you purchase the policy. So if you intend to insure your business against flood damage, be sure to purchase your policy before a flood loss is iminent.
Congress enacted the National Flood Insurance Act in 1968 creating 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. Before passage of the Act, the national response to flood disasters had been to build dams, levees and other structures to hold back flood waters, a policy that may have encouraged building in flood zones.
The NFIP combines the concepts of insurance protection and hazard mitigation by making federally-backed flood insurance available for residential and commercial properties in communities that agree to adopt and enforce floodplain management ordinances to reduce future flood damage.
Nearly 20,000 communities across the U.S. and its territories participate in the NFIP by adopting and enforcing floodplain management ordinances to reduce future flood damage. In exchange, the NFIP makes federally-backed flood insurance available to homeowners, renters, and business owners in these communities. As a priority, the 1968 Act required that flood insurance be made available to 1-4 family residential buildings, small businesses, and churches.
Flood insurance has since been made available to other residential properties, other business properties, agricultural properties, properties occupied by private nonprofit organizations and properties owned by state or local governments. Insurance is available for all these types of properties and their contents with limited exceptions.
Flood insurance covers direct physical losses by flood and losses resulting from flood-related erosion caused by waves or currents of water exceeding anticipated cyclical levels and accompanying a severe storm, flash flood, abnormal tide surge or a similar situation which results in flooding. Mudflows (which occur when water rapidly accumulates in the ground, such as during heavy rainfall or rapid snowmelt) are covered under the NFIP. However, landslides are not.
In addition to providing flood insurance and reducing flood damages through floodplain management regulations, the NFIP identifies and maps the nation's floodplains. Mapping flood hazards creates broad-based awareness of the flood hazards and provides the data needed for floodplain management programs and to actuarially rate new construction for flood insurance.
Visit the following links for additional flood insurance information:
National Flood Insurance White Paper(PDF)
Flood Insurance Facts and Figures