Hurricanes Katrina, Rita and Wilma combined to drain the National Flood Insurance Program of nearly $16.8 billion to cover insured flood losses. According to the most current Federal Emergency Management Agency (FEMA) data, other 2005 flood events resulted in an additional $775 million of insured flood losses. Total 2005 NFIP-insured flood loses neared $17.6 billion; 19 times higher than the 10-year, $924 million average annual NFIP-insured losses between 1995 and 2004.

Insured flood losses dropped to lower-than-average in 2006 and 2007; but the 2008 hurricane and storm season has already traumatized the Midwest. At this point it is unknown the amount of NFIP insured losses to expect from these storms; much less the cost of damage that may result from the projected active hurricane season.

Fiscally, the National Flood Insurance Program (NFIP) was self-supporting from the mid-1980's through 2004, according to a 2007 Congressional Research Service report. But to meet its loss-payment obligations resulting from these hurricanes and the other flood events in 2005, the program borrowed heavily from the US Treasury. Legislators became more aware of and concerned over the finances of the NFIP and began considering legislative options to make the program more financially viable.

Data from FEMA's Website indicates that premium and rate levels are surprisingly low in light of the risk of adverse selection to which the NFIP is subject. As of March 31, 2008, the NFIP insures $1.1 trillion in property, yet only collects annual premiums of $2.85 billion (only 18 percent of Katrina's $15.98 billion cost); developing an average rate of only $0.25 per $100.

Congress' primary areas of concern and study include rate adequacy, premium subsidies (real and perceived), outdated Flood Insurance Rate Maps (FIRM's) and the efficiency and cost of the Write-Your-Own (WYO) program. Additionally, lawsuits arising from the Gulf Coast hurricanes addressing wind vs. water damage lead some in Congress to propose the inclusion of wind damage coverage into the NFIP policy (H.R. 1852); but this provision failed in the Senate by a 74-19 vote.

New legislation is being debated currently in the form of the Flood Insurance Reform and Modernization Act of 2007 (S. 2284); but nothing has resulted from the debate. Unless S.2284 is approved the National Flood Insurance Program will expire in September 2008. No new law has been adopted since the Flood Insurance Reform Act of 2004.

Section 207 of the Flood Insurance Reform Act of 2004 required all insurance agents who sell flood insurance policies meet minimum educational standards. A September 1, 2005, directive sent to agents across the country detailed the requirements of the act and set the deadline by which the required flood education was to be complete.

Following is an historical perspective of flood insurance not likely covered in the required flood classes. It is necessary that the history of flood legislation be known so that the current program can be appreciated in light of what has gone before. Upcoming articles will discuss more policy and statutory specifics relating to the current program.

The Days Before NFIP - 1917 to 1968

Federal flood insurance was proposed as early as the mid-to-late 1930's, when private insurers ceased offering flood coverage; but it wasn't until the National Flood Insurance Act of 1968 was signed into law that federal flood insurance became a reality in the form of the National Flood Insurance Program (NFIP). Early Federal flood legislation focused on prevention and mitigation of flood damage rather than a means for providing financing for or "insuring" the exposure. Prior flood legislation is highlighted below in a brief and, to some, interesting history leading up to the program we employ today.

Flood Control Act of 1917: Direct Federal involvement in flood control began. The Flood Control Act of 1917 focused mostly on navigational improvements and authorized several specific flood control projects, mostly along the Mississippi River. The United States Department of Agriculture (USDA) developed researched-based studies for rainfall and runoff measurements developing for the first time a rational method for computing maximum runoff capacity.

Lower Mississippi Flood Control Act of 1928: This act resulted from the April 1927 flood of the lower Mississippi River. In that flood:
• 200 levees were breached;
• 18 million acres of land were inundated by flood waters in six states;
• 313 lives were lost; and
• Property damage reached $284 million (1927 dollars = $3.3 billion today).
Responsibility for flood protection moved from local authorities to the Federal Government. But the law ONLY applied to the areas adjacent to the Lower Mississippi River and dealt strictly with issues of structural protection (dams, levees, etc.).

Flood Control Act of 1936: Ironically in the middle of the worst and longest-lasting drought in American history, four states (Colorado, Nebraska, New York and Texas) suffered major flood damage in 1935 leading to the Flood Control Act of 1936. Only concerned with the construction of flood control structures, this act required local jurisdictions (cities, towns, counties and states) to GIVE ("free") land to the Federal Government for the development of easements and right-of-ways. Not only were they required to "donate" the land, once the work was complete the local jurisdiction was forced to assume responsibility for the operation and maintenance of the structures.

Flood Control Act of 1938: This act repealed the forced contribution of land placed on local jurisdictions by the 1936 act. The Federal Government undertook construction of flood-control dams and reservoirs at its own expense

Flood Control Act of 1944: Authorized the construction of thousands of dams across the United States.

President Truman's Flood Insurance Bill of 1952: Billions had already been invested by the Federal government in the development and maintenance of flood control projects, and additional billions in Federal dollars had been spent in disaster recovery payouts following major flooding incidents. Additional major flooding in 1951 prompted President Truman to ask congress to appropriate $50 million to establish a Federal flood insurance program. Congress did not pass the bill.

Watershed Protection and Flood Prevention Act of 1954: This act authorized flood-protection structures in upstream watersheds, and authorized the U.S. Department of Agriculture's Soil Conservation Service (now the Natural Resources Conservation Service) to participate in comprehensive watershed management projects in cooperation with states and their subdivisions.

Flood Insurance Act of 1956: Congress passed the Flood Insurance Act of 1956 and it was signed into law by President Eisenhower in August 1956. But the program never received funding because the true costs could not be established. Insurance carriers opposed the program as being "impractical." The program was to provide up to $10,000 in insurance per dwelling and to encourage private companies to provide coverage for risks above that amount. The premium was to be the same for all policyholders, regardless of location.

Southeast Hurricane Disaster Relief Act of 1965: Nine hurricanes and major storms hit the Atlantic and Gulf coasts between 1954 and 1965. These storms took over 1,100 lives and caused several billions of dollars in property damage. The Department of Housing and Urban Development (HUD) was directed to study the feasibility of a national flood insurance program as an alternative to continued and ever-increasing disaster relief payments. HUD was only allowed nine months to compile the study.

The Task Force on Federal Flood Control Policy - Gilbert White, chairman: This was conducted as a parallel study with HUD. The findings of this task force were published in August 1966, and became known as House Document 465. Major shortcomings of the existing federal policy of flood control and disaster relief were identified. The study concluded and recommended that a move should be made toward a national flood insurance program, but it contained a warning: "A flood insurance program is a tool that should be used expertly or not at all. Correctly applied, it could promote wise use of flood plains. Incorrectly applied, it could exacerbate the whole problem of flood losses. For the Federal Government to subsidize low premium disaster insurance or provide insurance in which premiums are not proportionate to risk would be to invite economic waste of great magnitude."

It appears that White's warning was not heeded. For the government is now reviewing rate adequacy, premium subsidies and flood plain issues.

Following all the flood control acts and early recommendation and attempts at establishing a Federal flood insurance program, the Federal Government finally acted upon nearly 50 years of experience to establish Federal flood insurance in 1968 which has legislatively evolved into our modern program. The next several articles will focus on the coverages and outside factors that affect coverage provided by the current flood program. Mundane information garnered from most flood classes will be glossed over so that the more unusual and unique issues applicable to flood insurance can be detailed.