The program enables property owners in participating communities to purchase insurance protection from the government against losses from flooding.
This insurance is designed to provide an insurance alternative to disaster assistance to meet the escalating costs of repairing damage to buildings and their contents caused by floods.
As critics predicted, the NFIP encouraged people to locate in areas more susceptible to flood damage.
Prior to the NFIP's existence, insurance coverage for flood losses was not provided by any private insurance carriers.
Insurance losses stemming from flood damage were largely the responsibility of the property owner, although the consequences were sometimes mitigated through provisions for disaster aid.
Today, owners of property in flood plains frequently receive disaster aid and payment for insured losses, which in many ways negates the original intent of the NFIP. Consequently, these policy decisions have escalated losses stemming from floods in recent years, both in terms of property and life.
Moreover, certain provisions within the NFIP increase the likelihood that flood-prone properties will be occupied by the people least likely to be in a position to recover from flood disasters, which further increases demand for aid. Some factors contributing to increased demand for aid 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.
