Introduction to the National Flood Insurance Act Announcer: Welcome to FEMA Law Talk – a Podcast series produced by the FEMA Office of Chief Counsel. The purpose of this podcast series is to increase FEMA’s ability to learn and innovate as an organization through promoting a better understanding of the legal authorities that support FEMA’s efforts to reduce loss of life and property and protect the nation from all hazards. Now, here is your Host, Barbara Montoya. Host: Hello and welcome back to FEMA’s Law Talk Podcast series. My name is Barbara Montoya, and I am here with Brad Kieserman, Chief Counsel for FEMA. During this podcast, we are going to provide you with an introduction to the National Flood Insurance Act. After listening to this podcast, you should be able to recognize the important provisions of the National Flood Insurance Act and understand the basics of FEMA’s National Flood Insurance Program. Brad, can you start today by providing some general background information—let’s start with what constitutes a "flood?" Brad: Barbara, let’s start by defining what we mean by "flood": In layman’s terms, "[f]loods are the result of a multitude of naturally occurring and human-induced factors, but they all can be defined as the accumulation of too much water in too little time in a specific area. Types of floods include regional floods, flash floods, ice-jam floods, storm-surge floods, dam- and levee-failure floods, and debris, landslide, and mudflow floods."1 The Standard Flood Insurance Policy or SFIP, which we’ll talk about in a minute, defines flood as: A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is the policyholder's property) from: --Overflow of inland or tidal waters; --Unusual and rapid accumulation or runoff of surface waters from any source; --Mudflow; or Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above.2 1 U.S. Geological Survey, Significant Floods in the United States During the 20th Century, http://ks.water.usgs.gov/pubs/fact-sheets/fs.024-00.html (last visited Aug. 15, 2011). 2 See 44 C.F.R. pt. 61, app. A(1), art. II(1). Host: Why does the federal government need to provide flood insurance? Brad: Historically, floods have been one of the most destructive natural hazards in the United States.3 During the 20th century, floods were the number one natural disaster in the United States in terms of the number of lives lost and property damage.4 For the first half of the 20th century, the Federal government addressed the problem of flooding by funding flood-control projects. However, despite billions of Federal dollars spent in flood control projects, the personal hardships and economic distress from floods continued to increase – largely as a result of the unwise use of the Nation’s floodplains.5 In response, Congress passed the National Flood Insurance Act of 1968 (often called by its acronym "NFIA") to enable the public to overcome the devastation accompanying floods by providing "a reasonable method of sharing the risk of flood losses . . . through a program of flood insurance which can complement and encourage preventive and protective measures."6 3 See 33 U.S.C. § 701a 4 See supra note 1 5 See S. Rep. No. 093-583 reprinted in 1973 U.S.C.C.AN. 3317; see also 42 U.S.C. § 4001(c). 6 42 U.S.C. § 4001(a). Host: Was affordable flood insurance available prior to the enactment of the NFIA? Brad: No. Prior to the NFIA, affordable flood insurance was not available. Standard homeowners’ insurance policies did not provide coverage against flood hazards. Floods were thought to be uninsurable for three reasons. First, only individuals in flood-prone areas would purchase flood-insurance coverage. Second, risk-based premiums were too costly for the average household, and third, insurers could not generate sufficient premiums to insure against a catastrophic flood event. In 1965, Congress enacted the Southeast Hurricane Disaster Relief Act.7 The Act was passed as a result of the extensive damage caused by Hurricane Betsy in the Gulf States. The Southeast Hurricane Disaster Relief Act provided financial relief for the flooding victims and authorized a feasibility study of a national flood insurance program. This study provided the basis for the National Flood Insurance Act of 1968. 7 Southeast Hurricane Disaster Relief Act, Pub. L. No. 89-339 (1965). Host: How did the National Flood Insurance Act change the way the Federal government deals with flooding hazards, Brad? Brad: The National Flood Insurance Act, codified at 42 U.S.C. §§ 4001 - 4129, authorized the head of FEMA to "establish and carry out a national flood insurance program which will enable interested persons to purchase insurance against loss resulting from physical damage to or loss of real property or personal property related thereto arising from any flood occurring in the United States." The Administrator generally carries out these functions through the Federal Insurance and Mitigation Administration, often referred to in statutes and regulations as the "Federal Insurance Administrator," or FIA.9 The National Flood Insurance Program is often described as a three-legged stool because it has three primary components: 1) the sale of flood insurance, 2) minimum floodplain management ordinances, and 3) flood hazard mapping. 8 42 U.S.C. § 4011(a) 9 See 42 U.S.C. § 4129 Host: So, Brad, can you walk us through each leg of the stool and tell us a little more about how these three components work together? Brad: Sure, Brad. Let’s begin with the first and most obvious leg of the stool: the sale of flood insurance. Congress charged FEMA with promulgating the terms and conditions of flood insurance.10 FEMA has done this by regulation, which is called the Standard Flood Insurance Policy ("SFIP").11 There are three Standard Flood Insurance Policies or SFIPs presented as appendices to part 61 of title 44 of the Code of Federal Regulations—one for dwellings, one for general property, and one for residential condominium building associations. 10 See 42 U.S.C. § 4013(a). 11 See 44 C.F.R. pt. 61, app. A(1)-(3). Host: But, Brad, if someone’s home is flooded, won't federal disaster assistance, like the Stafford Act, pay for the damages? Brad: Not necessarily, Barbara. Federal disaster assistance typically comes in the form of a low interest loan to help cover flood damage, not compensation for losses. Even then, those loans and limited disaster assistance grants are only available if the President formally declares a major disaster and must be repaid along with any existing mortgage. It is important to remember that not every flood results in a disaster declaration under the Stafford Act and that any disaster assistance may not cover the entire damage. Host: Ok, Brad, so, you’ve just introduced us to the sale of flood insurance, which is the first leg of the NFIP’s three-legged stool. Tell us about the second leg: minimum floodplain management ordinances. Brad: Well, 42 U.S.C. § 4022 prohibits FEMA from providing flood insurance unless the community adopts and enforces floodplain management regulations that meet or exceed the floodplain management criteria established in accordance with § 4102(c) of title 42. So, this is a statutory restriction. FEMA implements this statute and established floodplain management criteria in Federal regulations contained in 44 Code of Federal Regulations (CFR) Part 60, which is called "Criteria for Land Management and Use." Host: Brad, do communities have to participate in the NFIP? Brad: No, Barbara, the NFIP is a voluntary program. To be eligible for affordable flood insurance, a community must adopt FEMA’s flood insurance rate map—that’s the third leg of the stool, which we’ll talk about in a minute—and must adopt and enforce FEMA’s minimum floodplain management regulations. Those regulations require certain building criteria for all new construction or substantial improvements to existing structures that are located in special flood hazard areas, also referred to as SFHA. The SFHA is that land within the floodplain of a community subject to a 1 percent or greater chance of flooding in any given year, referred to as the base flood or the 100-year flood. Host: So, in other words, the NFIP makes flood insurance available to homeowners in communities that agree to implement and enforce minimum national standards for regulating development in floodplains? Brad: That’s exactly right! Host: Why doesn’t FEMA just enforce the floodplain management regulations for communities that choose to participate in the NFIP? Why does the community need to adopt and enforce these regulations? Brad: Great question, Barbara! FEMA does not have the authority to enforce building or floodplain ordinances. Those ordinances are local laws and not Federal laws. The Tenth Amendment to the U.S. Constitution empowers the States with police powers, and the States, by their State constitutions or laws, give that power to counties, cities, or other local government entities. So, when a participating community adopts floodplain management ordinances consistent with FEMA regulations, they become local ordinances and a community may be suspended from the NFIP for not enforcing its own ordinances. FEMA conducts community assistance visits (CAVs) to ensure communities are properly enforcing their flood ordinances. Host: Brad, you emphasized that participation in the National Flood Insurance Program is voluntary. What if a community declines to participate and then suffers flood damages? Brad: Hurricane Agnes in 1972 proved that few property owners in identified floodplains were insured. As a result, Congress passed the Flood Disaster Protection Act of 1973.12 The Flood Disaster Protection Act prohibits Federal agencies from providing financial assistance for acquisition or construction of buildings and certain disaster assistance in the floodplains in any community that did not participate in the NFIP within 1 year of being identified as flood prone. Additionally, the Act mandated that Federal agencies require flood insurance on all grants and loans for acquisition or construction of buildings in designated SFHAs for communities that participate in the NFIP. This requirement is referred to as the Mandatory Flood Insurance Purchase Requirement. 12 Flood Disaster Protection Act of 1973, Pub. L. No. 93-234 (1973). Host: Brad, does that mean a community within the SFHA that does not participate in the NFIP is ineligible for assistance under the Stafford Act? Brad: Sort of, Barbara. 42 U.S.C. § 4106, which is a provision of the National Flood Insurance Act (as amended), and 44 C.F.R. § 206.110(k), which is a Stafford Act implementing regulation, prohibit Federal agencies providing financial assistance, including disaster assistance for damages or loss resulting from flooding, for acquisition or construction purposes for use in an area that FEMA has identified as being a SFHA unless the community participates in the NFIP. However, there are exceptions to this prohibition on receiving disaster assistance in connection with a flood. For example, community members may still receive essential assistance to meet immediate threats to life and property. Host: Okay, Brad, I think I understand about two of the NFIP components: the sale of flood insurance and minimum floodplain management ordinances. What can you tell us about the third component: mapping our nation’s floodplains? Brad: To further achieve the purposes of the NFIA – to sell flood insurance and encourage the adoption of sound floodplain management -- Congress required FEMA to identify and publish information for floodplain areas nationwide that have special flood hazards and to establish flood-risk zone data.13 FEMA does this in the form of a map called the Flood Insurance Rate Map or "FIRM."14 The FIRM is created after a flood insurance study is conducted, and, depending on the detail of the study, the FIRM may depict the SFHA, floodways, the water surface elevation of the base flood, the risk premium rate zones, and other information. The flood data "information is based on historic, meterologic, hydrologic and hydraulic data, as well as open-space conditions, flood control works, and development."15 13 See 42 U.S.C. § 4101. 14 See FEMA, National Flood Insurance Program (NFIP) Flood Maps, http://msc.fema.gov/webapp/wcs/stores/servlet/info?storeId=10001&catalogId=10001&langId=-1&content=productFIRM&title=NFIP%20Flood%20Maps&parent=productInfo&parentTitle=Product%20Information (last visited Aug. 15, 2011). 15 Id. Host: Brad, what is a risk premium rate zone? Brad: Risk premium rate zones describe the land area in terms of its risk of flooding. As the NFIP website states, "[e]veryone lives in a flood zone" - it is just a question of whether you live in a low, moderate, or high risk area.16 16 NFIP, Frequently Asked Questions, http://www.floodsmart.gov/floodsmart/pages/faqs/what-are-flood-zones.jsp (last visited Aug. 15, 2011). Host: Brad, you talked about what goes into a FIRM. How is a FIRM used and by whom? Brad: FIRMS are the official map of the community and are used by many people and entities. Private citizens, insurance agents, and brokers use the FIRM to identify flood risk and premium zones. Community officials use the FIRM to administer their local floodplain management ordinance and for planning. Lending institutions and Federal agencies use the FIRM to determine whether the mandatory flood insurance requirement is implicated in the particular purchase. Host: So, basically, a Flood Insurance Rate Map helps a community understand its risk by graphically showing the locations of high-risk, moderate-to-low risk, and undetermined-risk areas, right, Brad? Brad: That’s right, Barbara. Homes and buildings in high-risk flood areas with mortgages from federally regulated or insured lenders are required to have flood insurance. These areas have a 1% or greater chance of flooding in any given year, which is equivalent to a 26% chance of flooding during a 30-year mortgage. Homes and businesses located not located in the SFHA that have mortgages from federally regulated or insured lenders are not required by law to have flood insurance. However, flood insurance is highly recommended because anyone can be financially vulnerable to floods. People outside of the SFHA file over 20% of NFIP claims and receive one-third of disaster assistance for flooding. And, as we discussed earlier, when it's available, disaster assistance is typically a loan you must repay with interest. Host: OK, so to recap, Brad, the United States has a lot of flooding from hurricanes, tropical storms, heavy rains and other conditions. Standard homeowners insurance doesn't cover flooding, so, in 1968, Congress created the National Flood Insurance Program to help provide a means for property owners to financially protect themselves. The NFIP is often described as a three-legged stool because it has three primary components: 1) the sale of flood insurance, 2) minimum floodplain management ordinances, and 3) flood hazard mapping. The NFIP offers flood insurance to homeowners, renters, and business owners if their community participates in the NFIP. Participating communities agree to adopt and enforce ordinances that meet or exceed FEMA requirements to reduce the risk of flooding. And, FEMA conducts studies to create flood hazard maps that outline different flood risk areas within communities. Did I get that right, Brad? Brad: Perfect, Barbara! And, there’s a lot more to know about the National Flood Insurance Act! We have only scratched the surface! We’ll cover some of these issues in greater depth in future podcasts. Meanwhile, our listeners can always go to www.floodsmart.gov, which is the official web site of the NFIP and has lots of great, well-organized information. Host: Brad, thank you so much for speaking with us today. That wraps up this installment of the FEMA Law Talk Podcast Series. Today, we provided a general overview of the National Flood Insurance Act. We hope that you enjoyed learning more about the Act and the three components of the National Flood Insurance Program. Please join us again for another installment of Law Talk! Announcer: This has been a production of FEMA’s Office of the Chief Counsel in conjunction with the Office of External Affairs. If you have any questions or would like more information, please contact the podcast series program manager at FEMA-OCC-Podcast@fema.gov. Thank you and have a great day.