Chapter 2: Property and Casualty Insurance for Homes and Businesses

History of Insurance

National Flood Insurance Program

In the early 20th century, the US experienced severe river flooding. The federal government intervened with projects, such as building levees and dams, to control damages caused by flooding. Yet despite spending billions of dollars on these projects, flood loss continued to worsen. Eventually, the National Flood Insurance Act of 1968 created the NFIP.

By the 1950s, lawmakers came up with the notion of flood insurance. However, it soon became clear that private insurers would not be able to offer affordable flood insurance. It was too difficult to develop the right rate structure since floods typically cause catastrophic damage.

As floods and the ensuing damage continued to grow, the federal government passed the Hurricane Disaster Relief Act of 1965. This came after Hurricane Betsy ripped through the gulf coast states, causing terrible damage. The law provided financial relief for the hurricane victims and authorized a study for a national flood insurance program. The study led to the National Flood Insurance Act of 1968, which created the NFIP. But, property owners were not required to buy flood insurance at that time.

In 1972, Tropical Storm Agnes destroyed parts of the East Coast, but few property owners had flood insurance. The cleanup and recovery cost the federal government more than any prior disaster. This gave rise to a law passed in 1973 that denied federal government assistance following a flood for those communities who were not part of the NFIP. It also required flood insurance for the buildings in designated zones.