Why are banks, mortgage companies, loan servicers and other lending institutions involved in requiring flood insurance?
Prior to flood insurance being offered through the National Flood Insurance Program in 1968, federal disaster relief was the only financial assistance provided to flood victims as the private insurance industry did not offer flood damage coverage. The monetary drain on the U.S. Department of the Treasury and taxpayers from repeated flood disasters led to this federal intervention. The cycle of flooding followed by federal disaster assistance continued as the federal government learned that property owners were not voluntarily purchasing flood insurance. To further shift financial responsibility from taxpayers to policyholders, the federal government first mandated flood insurance coverage for properties in designated flood hazard areas in 1973 by requiring federally regulated banks, mortgage companies, loan servicers and other lending institutions to make flood insurance coverage a condition of the loan.
