Congress first proposed providing flood insurance in the 1950s, after it became clear that private insurance companies could not profitably provide flood coverage at a price that consumers could afford, primarily because of the catastrophic nature of flooding and the difficulty of determining accurate rates. In 1968, Congress created NFIP to help reduce escalating costs of providing federal flood assistance to repair damaged homes and businesses. According to FEMA, NFIP also was designed to address the policy objectives of identifying flood risk, offering affordable insurance premiums to encourage program participation, and promoting community-based floodplain management. To meet these policy objectives, NFIP has four key elements: identifying and mapping flood risk, floodplain management, flood insurance, and incentivizing risk reduction through grants and premium discounts. Through NFIP, FEMA maps floodplain boundaries and requires participating communities to adopt and enforce floodplain management regulations that mitigate the effects of flooding and reduce overall costs. According to FEMA, floodplain management standards are designed to prevent new development from increasing the flood threat and to protect new and existing buildings from anticipated flooding. FEMA has a division responsible for flood mapping activities and policy and guidance, but stakeholders from all levels of government and the private sector participate in the mapping process. For instance, FEMA relies on local governments to provide notice of changes in communities that can pose new or changed flood hazards and works with localities to collect the information needed to update flood maps. FEMA’s Flood Insurance Rate Maps serve several purposes. They provide the basis for setting insurance rates and identifying properties whose owners are required to purchase flood insurance. For example, since the Flood Disaster Protection Act of 1973, as amended, homeowners with federally backed mortgages or mortgages held by federally regulated lenders on property in an SFHA are required to purchase flood insurance. Others may purchase flood insurance voluntarily if they live in a participating community. The maps also provide the basis for establishing floodplain management standards that communities must adopt and enforce as part of their NFIP participation. As of February 2017, 22,235 communities across the United States and its territories voluntarily participated in NFIP by adopting and agreeing to enforce flood-related building codes and floodplain management regulations. FEMA has stated that resilience to flooding is a key objective of NFIP. Broadly speaking, resilience is the ability to prepare and plan for, absorb, recover from, and more successfully adapt to actual or potential adverse events. Resilience is closely linked with flood mitigation activities. For example, FEMA estimated that its floodplain management efforts resulted in avoidance of $1.87 billion in flood losses annually, and FEMA officials said they expect this amount to increase over time as additional new construction is built to increasingly better standards. FEMA supports a variety of flood mitigation activities that are designed to reduce flood risk and thus NFIP’s financial exposure. These activities, which are implemented at the state and local levels, include hazard mitigation planning; the adoption and enforcement of floodplain management regulations and building codes; and the use of hazard control structures such as levees, dams, and floodwalls or natural protective features such as wetlands and dunes. FEMA provides community-level mitigation funding through grant programs. At the individual property level, mitigation options include elevating a building, relocating the building to an area with lower flood risk, or purchasing and demolishing a building and turning the property into green space. Another tool FEMA uses to incentivize efforts to reduce flood risk is the Community Rating System. The Community Rating System is a voluntary incentive program that recognizes and encourages community floodplain management activities that exceed the minimum NFIP requirements. As a result, flood insurance premium rates are discounted to reflect the reduced flood risk resulting from community actions that meet the three goals of reducing flood damage to insurable property, strengthening and supporting the insurance aspects of NFIP, and encouraging a comprehensive approach to floodplain management. Insurance offered through NFIP includes different coverage levels and premium rates, which are determined by factors that include property characteristics, location, and statutory provisions. NFIP coverage limits vary by program (regular or emergency) and building occupancy (for example, residential or nonresidential). In NFIP’s regular program, the maximum coverage limit for 1-4 family residential policies is $250,000 for buildings and $100,000 for contents. For nonresidential or multifamily policies, the maximum coverage limit is $500,000 per building and $500,000 for the building owner’s contents. Separate coverage is available for contents owned by tenants. To set premium rates, FEMA considers several factors including location in flood zones, elevation of the property relative to the community’s base flood elevation, and characteristics of the property such as building type, number of floors, presence of a basement, and the year a structure was built relative to the year of a community’s original flood map. Additionally, FEMA allows policyholders to pay lower premiums if they opt for higher deductible amounts. Most NFIP policies are deemed by FEMA to be full- risk rates, while some are less than full-risk (subsidized). FEMA defines full-risk rates as those charged to a class of policies that generate premiums sufficient to pay the group’s anticipated losses and expenses. According to FEMA, these rates are based on the probability of a range of possible floods, damage estimates based on that level of flooding, and accepted actuarial principles. FEMA staff noted that approximately 80 percent of FEMA’s policyholders pay full- risk rates. Subsidized rates do not fully reflect the risk of flooding but are intended to provide policyholders with more affordable premiums while encouraging floodplain management in communities and the widespread purchase of flood insurance. Generally, subsidized policies cover properties in high-risk locations that otherwise would have been charged higher premiums and that were built before flood maps became available and their flood risk was clearly understood. FEMA staff said they had begun increasing rates for certain subsidized properties as prescribed under the Biggert-Waters Act and HFIAA. This included increased rates for subsidized policies covering businesses, nonprimary residences, severe repetitive loss properties, and substantially damaged/substantially improved properties as required by the Biggert-Waters Act. In addition, HFIAA required increased rates for subsidized policies covering primary residences. When setting subsidized rates for individual properties, FEMA staff said they also consider flood risk, previous rate increases, and statutory limits on rate increases. FEMA also allows some policyholders to receive grandfathered premium rates, which allows policyholders who have been mapped into higher-risk flood zones to pay lower premiums associated with their previous lower- risk flood zone. FEMA officials said that in the aggregate, policy classes that contain grandfathered policies collect enough in premiums to reflect the full risk of loss for that class, but as we have previously reported, FEMA does not yet possess the data necessary to verify this. FEMA funds NFIP primarily through the insurance premiums paid by policyholders. In addition to covering insurance claims, NFIP premiums also are intended to cover outreach, research, and operating expenses. FEMA also charges a Federal Policy Fee on NFIP policies that helps fund efforts that include mitigating flood risk on properties covered by NFIP policies and developing and maintaining flood maps. In addition, FEMA received appropriations of $190 million in fiscal year 2016 for mapping and other specified statutory requirements. Congress authorized FEMA to borrow from Treasury when needed, up to a preset statutory limit. Originally, Congress authorized a borrowing limit of $1 billion and increased it to $1.5 billion in 1996. Following the catastrophic hurricanes of 2005, Congress amended FEMA’s borrowing authority three more times to more than $20 billion. After Superstorm Sandy in 2012, Congress increased FEMA’s borrowing authority to $30.425 billion. In January 2017, FEMA borrowed an additional $1.6 billion, increasing the total debt to $24.6 billion. Before 2005, NFIP was mostly self-sustaining, only using its borrowing authority intermittently and repaying the loans. Figure 1 shows outstanding debt from 1995 through 2017. The Biggert-Waters Act affected many aspects of NFIP. For example, it required FEMA to increase rates at 25 percent per year until full-risk rates were reached for certain subsidized properties, including secondary residences, businesses, and severe repetitive loss properties; increase rates over a 5-year period to phase out grandfathered policy rates; prohibit subsidized rates for properties purchased after, or not insured, as of July 6, 2012; create a reserve fund that would maintain at least 1 percent of the total annual potential loss exposure faced by NFIP based on outstanding flood insurance policies in force in the prior fiscal year; improve flood risk mapping; and develop new methods related to compensation for companies that sell, write, and service flood insurance policies; that is, Write Your Own (WYO) insurers. However, concern over rapid rate increases led to the passage of HFIAA in 2014, which repealed or altered portions of the Biggert-Waters Act. HFIAA reinstated certain rate subsidies removed by the Biggert-Waters Act, including those for properties purchased after, or not insured, as of July 6, 2012. For these properties, and certain others, rates would rise by at least 5 percent per year. HFIAA also established a new subsidy for properties that are newly mapped into higher-risk zones. The subsidy is phased out for individual properties over time. HFIAA also restored grandfathered rates and generally limited yearly increases in property- specific rates to 18 percent. In addition, HFIAA created a premium surcharge that would be deposited into the reserve fund (generally, $25 for primary residences and $250 for others).