The Mandatory Purchase Requirement: Origins and Effectiveness in Achieving NFIP Goals

Congress created the flood insurance mandatory purchase requirement (MPR) in 1973 to encourage more communities to join the National Flood Insurance Program (NFIP) and more households to purchase flood insurance.Greater participation in the program and take-up of flood insurance were desired to achieve three NFIP goals:reduce flood damages through adoption of NFIP-mandated floodplain management regulations in participating communities,limit increased spending on federal disaster aid by lowering flood damages and making insurance the primary tool for financial recovery, andimprove post-flood financial recovery by increasing the number of people with flood insurance.The MPR requires federally-backed or regulated lenders to require borrowers to purchase and maintain a flood insurance policy when they provide a mortgage in a 1% annual chance floodplain, as mapped by the Federal Emergency Management Agency (FEMA). It also requires those who receive federal assistance for property acquisition, construction, or repairs in a mapped 1% annual chance floodplain to purchase and maintain flood insurance or they will not be eligible for post-flood disaster assistance in the future.The MPR has been successful in stimulating community enrollment in the NFIP and adoption of NFIP-required floodplain management regulations. These regulations have reduced flood damages relative to what they might have been without the regulations. However, there are limits to the ability of these NFIP-required regulations to continue to reduce flood damages. Adoption of cost-effective flood risk management programs, responsive to future changes in flood hazard, will require intergovernmental actions beyond the MPR.Since most disaster aid is not directed to individuals (let alone their insurable property losses), expanding residential flood insurance take-up will do little to reduce federal disaster aid.The MPR increased take-up rates of flood insurance among those subject to the requirement, but the MPR does not apply to many households in areas subject to flooding. These include households with property that does not have a federally-regulated or federally-backed mortgage and households outside the 1% annual chance floodplain. Encouraging flood insurance purchase by these households will require changes to the MPR or new programs aimed at spurring voluntary purchase of flood insurance.