Is Your Flood Insurance Program Ready for a Government Shutdown?

Despite The House of Representatives passing legislation to extend federal funding yesterday, a government shutdown still isn’t completely off the table. It still needs to make it through The Senate and be signed by President Biden. We all know a potential shutdown has far-reaching effects, but one you may not be prepared for is the lapse of the National Flood Insurance Program (NFIP).

Here’s what that means for your financial institution:  

  • Your institution’s ability to close loans requiring Flood Insurance will be impacted.
  • The authority to provide new flood insurance contracts expired.
  • Flood insurance contracts entered into before the expiration will only continue until the end of their policy term of one year.
  • The authority for NFIP to borrow funds from the Treasury was reduced from $30.425 billion to $1 billion.
  • Other activities of the program are technically still valid, such as the issuance of Flood Mitigation Assistance Grants. However, the expiration of the key authorities listed above have potentially significant impacts on the remaining NFIP activities.

To help you prepare for a potential flood insurance lapse, we created a free on-demand training session that includes a 36-page handbook. If you’re interested, you can access the complimentary prep session here.

This isn’t the first time we’ve had to deal with NFIP lapses…

On numerous occasions over the years Congress or the President has temporarily failed to provide funding that allows the Federal Emergency Management Agency (FEMA) to continue the National Flood Insurance Program (NFIP). In most cases when the NFIP lapsed, Congress reauthorized the NFIP retroactively.

However, in past NFIP lapses, borrowers were not able to obtain flood insurance to close, renew, or increase loans secured by property in an SFHA until the NFIP was reauthorized.  Since 2019, with the passing of the mandatory requirement to except private flood insurance policies there are options.

The challenge for your financial institution is that the NFIP is the primary source of flood insurance coverage for residential properties in the United States. The NFIP has 4.7million flood insurance policies providing $1.28 trillion in coverage, with 22,594 communities in 56 states and jurisdictions participating.

The program collects about $4.6 billion in annual premium revenue and fees. With the lapse in authorization and the borrowing authority reduced to $1 billion, FEMA will continue to adjust and pay claims as premium dollars come into the National Flood Insurance Fund (NFIF) and reserve fund.

Can your institution meet compliance requirements when the statutory authority FEMA to issue flood insurance lapses?

If Congress doesn’t reauthorize the NFIP, FEMA cannot issue new or renewal flood insurance policies or increase coverage on existing policies. Borrowers cannot obtain NFIP insurance to close, renew or increase loans secured by property located in an SFHA until the NFIP is reauthorized, except under particular circumstances.

In the past the agencies have each provided guidance and expectation for their intuitions to continue business operations.  If you have not read and implemented those practices into your Compliance Management System (CMS), your institution will be at risk.

Our free How to Prepare for FEMA Flood Insurance Lapses on-demand session is a concise 1-hour and covers everything you need to know regarding a potential flood insurance lapse from a compliance perspective. We hope it’s useful. And if you have any questions additional questions, you can always reach out to us at