[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                      REVIEW AND OVERSIGHT OF THE
                    NATIONAL FLOOD INSURANCE PROGRAM

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   HOUSING AND COMMUNITY OPPORTUNITY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 14, 2005

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-17



                    U.S. GOVERNMENT PRINTING OFFICE
25-513                      WASHINGTON : 2005
_____________________________________________________________________________
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York              NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California          MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma             GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio                  DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair   JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                GREGORY W. MEEKS, New York
JIM RYUN, Kansas                     BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio           DENNIS MOORE, Kansas
DONALD A. MANZULLO, Illinois         MICHAEL E. CAPUANO, Massachusetts
WALTER B. JONES, Jr., North          HAROLD E. FORD, Jr., Tennessee
    Carolina                         RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois               JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut       WM. LACY CLAY, Missouri
VITO FOSSELLA, New York              STEVE ISRAEL, New York
GARY G. MILLER, California           CAROLYN McCARTHY, New York
PATRICK J. TIBERI, Ohio              JOE BACA, California
MARK R. KENNEDY, Minnesota           JIM MATHESON, Utah
TOM FEENEY, Florida                  STEPHEN F. LYNCH, Massachusetts
JEB HENSARLING, Texas                BRAD MILLER, North Carolina
SCOTT GARRETT, New Jersey            DAVID SCOTT, Georgia
GINNY BROWN-WAITE, Florida           ARTUR DAVIS, Alabama
J. GRESHAM BARRETT, South Carolina   AL GREEN, Texas
KATHERINE HARRIS, Florida            EMANUEL CLEAVER, Missouri
RICK RENZI, Arizona                  MELISSA L. BEAN, Illinois
JIM GERLACH, Pennsylvania            DEBBIE WASSERMAN SCHULTZ, Florida
STEVAN PEARCE, New Mexico            GWEN MOORE, Wisconsin,
RANDY NEUGEBAUER, Texas               
TOM PRICE, Georgia                   BERNARD SANDERS, Vermont
MICHAEL G. FITZPATRICK, 
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina

                 Robert U. Foster, III, Staff Director
           Subcommittee on Housing and Community Opportunity

                     ROBERT W. NEY, Ohio, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California
    Chairman                         NYDIA M. VELAZQUEZ, New York
RICHARD H. BAKER, Louisiana          JULIA CARSON, Indiana
PETER T. KING, New York              BARBARA LEE, California
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         BERNARD SANDERS, Vermont
CHRISTOPHER SHAYS, Connecticut       STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio              BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida           DAVID SCOTT, Georgia
KATHERINE HARRIS, Florida            ARTUR DAVIS, Alabama
RICK RENZI, Arizona                  EMANUEL CLEAVER, Missouri
STEVAN, PEARCE, New Mexico           AL GREEN, Texas
RANDY NEUGEBAUER, Texas              BARNEY FRANK, Massachusetts
MICHAEL G. FITZPATRICK, 
    Pennsylvania
GEOFF DAVIS, Kentucky
MICHAEL G. OXLEY, Ohio


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 14, 2005...............................................     1
Appendix:
    April 14, 2005...............................................    55

                               WITNESSES
                        Thursday, April 14, 2005

Beam, Beth, Ellwood City, Pennsylvania...........................    30
Bearekman, Larry, Poquoson, Virginia.............................    32
Berginnis, Chad, CFM, Association of State Floodplain Managers, 
  Inc., Chair, State of Ohio.....................................    21
Griffin, Donald L., Vice President, Personal Lines for the 
  Property Casualty Insurers Association of America..............    28
Jenkins, William O. Jr., Director, Homeland Security and Justice 
  Issues, United States Government Accountability Office.........    24
Kanstoroom, Steven J., Oxford, Maryland..........................    34
Maurstad, David I., Acting Director and Federal Insurance 
  Administrator, Mitigation Division, Federal Emergency 
  Management Agency, Emergency Preparedness and Response 
  Directorate, Department of Homeland Security...................    11
Redmer, Alfred W. Jr., Maryland Insurance Commissioner, Maryland 
  Insurance Administration.......................................    26
Stelyn, Georgette J., Seaford, Virginia..........................    36

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    56
    Davis, Hon. Jo Ann...........................................    58
    Hoyer, Hon. Steny H..........................................    59
    Kelly, Hon. Sue W............................................    61
    Ney, Hon. Robert W...........................................    62
    Beam, Beth...................................................    64
    Bearekman, Larry.............................................    69
    Berginnis, Chad..............................................   114
    Griffin, Donald L............................................   125
    Jenkins, William O. Jr.......................................   131
    Kanstoroom, Steven J.........................................   150
    Maurstad, David I............................................   174
    Redmer, Alfred W. Jr.........................................   181
    Stelyn, Georgette J..........................................   244

              Additional Material Submitted for the Record

Davis, Hon. Jo Ann:
    ``Flood Insurance Offers Peace of Mind'', press release, 
      FEMA, October 16, 2003.....................................   255
Maurstad, David I.:
    Response to written questions from Hon. Jo Ann Davis.........   256
    Response to written questions from Hon. Michael G. 
      Fitzpatrick................................................   261
    Response to written questions from Hon. C.A. Dutch 
      Ruppersberger..............................................   266
    Response to written questions from Hon. Earl Blumenauer......   269
Bartlett, Griffin and Vermilye, Inc., prepared statement.........   282
Craftsman Book Company, prepared statement.......................   287
Independent Insurance Agents & Brokers of America, prepared 
  statement......................................................   295


                      REVIEW AND OVERSIGHT OF THE
                    NATIONAL FLOOD INSURANCE PROGRAM

                              ----------                              


                        Thursday, April 14, 2005

             U.S. House of Representatives,
 Subcommittee on Housing and Community Opportunity,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 11:08 a.m., in 
Room 2128, Rayburn Office Building, Hon. Robert W. Ney 
[chairman of the subcommittee] presiding.
    Present: Representatives Ney, Waters, Frank, Scott, 
Fitzpatrick, Ruppersberger, Hart, Neugebauer, Cleaver, and 
Green.
    Also Present: Representatives Blumenauer, Davis, and Kelly.
    Chairman Ney. I am going to bring the subcommittee to 
order.
    Today, the Subcommittee on Housing and Community 
Opportunity meets to conduct review and oversight of the 
National Flood Insurance Program. Specifically, the hearing 
will focus on the administrative problems facing the National 
Flood Insurance Program and the steps currently being taken by 
FEMA and the private insurance industry to resolve those 
problems that are out there. Also, it is my hope to discuss the 
current funding difficulties affecting the implementation of 
the Flood Insurance Reform Act.
    Last year, this committee spent considerable time and 
effort on legislation to reauthorize and reform the National 
Flood Insurance Program, and on June 30, 2004, President Bush 
signed into law the Flood Insurance Reform Act. This 
legislation re-authorizes the National Flood Insurance Program 
through September of 2008. It includes provisions to strengthen 
the operational and financial aspects of the National Flood 
Insurance Program by providing States and local communities 
with an additional 40 million a year for flood mitigation 
efforts for repeatedly flooded properties and allows for 
increases of flood insurance premiums on properties that refuse 
government mitigation offers.
    In addition to repetitive loss and re-authorization, the 
legislation requires FEMA and insurance companies to provide 
better information to flood insurance policyholders to ensure 
they are fully aware of the details of their policies so they 
will know the rights that they have. During the deliberations 
on the re-authorization legislation, however, many concerns 
were raised regarding the administration of the program and 
these concerns were brought to the attention of FEMA. 
Policyholders often did not have a clear understanding of their 
policy. Insurance agents often did not understand what they 
were selling or how to process claims correctly. Many 
policyholders did not know of or understand the appeals process 
and many questioned the adequacy of payments and the adjustment 
of the system.
    Of course, you can imagine the trauma people go through. We 
had three floods, major flood incidents, in my district. People 
are going through a lot of trauma, and there are members here 
today that are concerned about what is going on with people, 
and to add problems to it, the confusion I think further, 
obviously, made things so difficult for so many people.
    The lack of coordination between private insurers, NFIP, 
and FEMA and inadequate training were listed as possible 
sources for some of the administrative problems affecting the 
program.
    The goal of today's hearing is to focus on which 
administrative problems face the program and what steps are 
currently being taken by FEMA and the private insurance 
industry to resolve those problems. Floods have been and 
continue to be one of the most destructive and costly hazards 
to our Nation. During this past year, as I stated earlier, 
there have been three floods in the district I represent. All 
three of these incidents qualified for Federal relief granted 
by the President. Recent flooding in January of this year 
resulted in historic levels in several local dams, and in 
Tuscarawas County, three communities that I represent were 
forced to evacuate and displaced 7,000 people. I was able to 
witness this devastation firsthand when I toured those 
properties with people that were affected in many of the 
counties.
    The National Flood Insurance Program is a very valuable 
tool in addressing the losses incurred throughout this country 
due to floods and ensures that businesses and families have 
access to affordable flood insurance that would not be 
available on the open market.
    And I would want to get approval for members who are not on 
this committee to sit here today.
    Without objection, we have Mrs. Kelly and Mrs. Davis and 
Mr. Blumenauer. Is there anybody else that is not regular? Mr. 
Frank is always an officio member and our ranking member. And 
they have concerns, so without objection, they will be 
participating members of this today.
    The gentleman from Massachusetts.
    [The prepared statement of Hon. Robert W. Ney can be found 
on page 62 in the appendix.]
    Mr. Frank. Thank you, Mr. Chairman. This is a very 
important hearing. Some issues that we deal with are very 
controversial. They are weighted with ideology, and they 
attract a lot of attention. They are important, but there are 
also some important things that we do that are more technical 
in nature, but less ideological. One of the main 
accomplishments for which this committee in particular obtained 
credit in the last Congress was the substantial amendment to 
the Flood Insurance Program. It was thoroughly bipartisan. The 
gentleman from Oregon, not a member of our committee who is 
with us now, Mr. Blumenauer, and the gentleman from Nebraska, 
formally a member of this committee, a very distinguished one, 
Mr. Bereuter, took a very important lead. We did a very good 
job, and I note that the director and administrator said that 
what we did was give a vote of confidence in the program. That 
is partially true, but it was, frankly, not a vote of 
confidence in the existing program, and one of the things that 
the chairman of the full committee, my colleague from Ohio, and 
I had made clear, people will remember, is that we were 
prepared to block an extension of the program as it then 
existed.
    There were serious concerns from groups that don't always 
work together, but major taxpayer groups, groups concerned with 
inefficient government spending, environmental groups, united 
to be critical of the old program, and it was a condition made 
very clear by the chairman of the full committee and myself, 
speaking on behalf of the great majority of members of this 
committee that re-authorizing the program was conditional on 
our getting these kinds of improvements, and that is why I and 
some others are disappointed that we have not seen nearly as 
much progress that we had hoped for this much after the bill 
passed last June in getting those improvements implemented, 
both financially and otherwise. We are not talking about huge 
amounts of money, but the lack of money, the lack of attention 
to the pilot program, the fact that we don't have the rules and 
regulations. I worry that this will jeopardize not just the 
amendments of last year, but the whole program, because it 
should be very clear had there not been the effort by the 
gentleman from Nebraska, the gentleman from Oregon, and others 
which the chairman and I were able to support, this program 
would not have had the support to get through the House of 
Representatives. This program would have ended.
    I believe that what we did last year was not just to 
improve the program, but to rescue it and to greatly improve 
it, and if that is not fully implemented, we are going to be 
back in that sort of crisis. So I hope that we are going to 
hear today and that when I read the testimony of the acting 
director, I don't to my disappointment see a lot about, the 
commitment to these newer approaches, and they are essential.
    So I hope that we will come out of today with a commitment 
that we are going to see this both funded to the extent 
possible, and we are talking about millions of dollars, not 
even tens of millions in some cases with the pilot program, and 
that we will get the rules and regulations passed. Let me say 
if there is anything in the legislation that causes problems--I 
haven't heard that there is--but if anybody feels charged with 
the responsibility for this, the legislation needs to be 
clarified or whatever, we are here to do that. In fact, 
previously I think we have already acted and reacted, and I 
hope the other body will soon to make clear that the 
compensation would be tax exempt. Obviously you don't always 
legislate perfectly. So as things come forward, we are ready to 
straighten them out.
    But this really is essential to the program. A broad 
coalition of groups put this package together last year. I 
think it deserves a more energetic effort at implementation 
than it has been getting, and I hope that that is what we will 
see today.
    Chairman Ney. I thank the gentleman for his comments.
    The gentlelady from New York.
    Mrs. Kelly. Thank you, Mr. Chairman. I appreciate the 
opportunity to sit with the subcommittee today to represent the 
needs of my constituents in Deer Park and Port Jervis, New 
York. They are coping with an aftermath of massive flooding 
which has damaged homes, businesses, and public property in our 
area. FEMA and the local officials have been assessing the 
extensive damage together over the past week, and about an hour 
ago, Governor Pataki of New York requested Federal disaster aid 
for Orange County and 13 other counties in New York.
    We are counting on FEMA to review and to approve this 
Federal disaster request immediately. Hundreds of people have 
been displaced from their homes. Small businesses and 
livelihoods have been shut down indefinitely. Time is so 
critical in this rebuilding process, and there is no time to 
waste. The damage I viewed in Deer Park, Port Jervis, Warwick, 
and Washingtonville is among the worst I have ever seen from a 
natural disaster in the Hudson River Valley. Washed out roads 
in towns and villages throughout Orange County are further 
compounding public and individual damage totals. The flooding 
in the Black Dirt Agricultural Section is likely to cause 
serious problems for our local farmers during their upcoming 
growing season and has already done so.
    Nevertheless, local residents and local leaders have very 
impressively shared a valiant and very positive spirit toward 
recovery and the selfless efforts of our emergency volunteers, 
and they have been nothing short of remarkable.
    I will be back there again frequently in the days ahead as 
well as another in other areas like Warwick and Washingtonville 
to help in any way that I can. I have been working with local 
officials and the FEMA, the Federal Emergency Management 
Agency, to facilitate prompt and effective Federal response in 
order to provide the assistance my constituents need in the 
most immediate manner possible.
    FEMA needs to have public meetings throughout our region in 
the days ahead to help our affected residents and get their 
questions answered and the Federal support that they are 
relying on. A vital part of the recovery from this disaster and 
earlier floods along the Delaware River is the National Flood 
Insurance Program. The NFIP has been vital in relieving the 
costs to my constituents and making coverage available to those 
who rebound and who want to rebuild their homes and their small 
businesses, but we have got to work together to ensure that 
this program is as well managed as possible and that my 
constituents and the program administrators, adjusters, and the 
sales people have the best information about their opinions and 
their resources from my people.
    I am really hopeful that this hearing will help ensure that 
the people in Deer Park, Port Jervis, and throughout Orange 
County who have suffered extreme damage to their homes and 
their businesses and their farms will receive the best possible 
assistance from the NFIP and have the means to rebuild, and I 
look forward to the testimony today, but I also look forward to 
your working with us immediately, consistently, and 
straightforwardly with the people of Orange County.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Chairman Ney. I want to thank the gentlelady also for 
prompting us to have this hearing and supporting this hearing.
    The gentleman from Georgia, Mr. Scott.
    Mr. Scott. Thank you very much, Mr. Chairman.
    I too want to congratulate you on having this important 
hearing. Our Nation has suffered drastically from flooding and 
other natural disasters. In my home State of Georgia, we have 
had numerous examples of that same tragedy with the overflowing 
of our Flint River down in southwest Georgia. Farms have been 
affected. Small businesses have been affected, even in our 
metro area with constant flooding in the Nassie Creek area.
    I think it is very important that we are holding this 
important hearing today regarding the future of the National 
Flood Insurance Program. I think it is very important that the 
committee continue to monitor implementation of the program 
which Congress reauthorized that last year. I support the 
National Flood Insurance Program because I believe that it 
provides an important service to people who have had property 
hit by natural disaster.
    With the budget battles that are currently being waged in 
the house, we need to find the best ways to target scarce 
Federal dollars, including flood assistance; however, Congress 
must also ensure that consumers are protected and given 
adequate compensation for their losses.
    I certainly want to thank the distinguished panel of 
witnesses today before our committee, and I certainly look 
forward to the testimony. I do believe the central question 
that we are faced with today is this, that in view of the fact 
that this Administration did not authorize funding for the 
flood insurance program in the Fiscal Year 2006 budget, the 
question is, where do we go from here? How do we maintain the 
program? How has the Administration's budget decisions affected 
the effectiveness of the program? And what will the 
Appropriations Committee do? And what level of funding will 
this program receive?
    I think the American people are very anxious to get some 
answers to these questions, and so am I. Mr. Chairman, I look 
forward to the testimony.
    [The prepared statement of Hon. Sue W. Kelly can be found 
on page 61 in the appendix.]
    Chairman Ney. Thank you.
    The gentleman from Pennsylvania, Mr. Fitzpatrick.
    Mr. Fitzpatrick. Thank you, Chairman Ney. I have seen 
firsthand the devastation that flooding can create. I was up to 
my knees in water helping the residents of Pennsylvania's 
Eighth District when we thought we had experienced the worst 
flood possible last September after Hurricane Ivan hit; 
however, flooding the weekend before last was even worse. It 
forced more than 6,000 of my constituents to evacuate. The 
district suffered damage in the tens of millions of dollars. 
More than 500 houses sustained major damage. Another 500 
sustained minor damage, and 100 businesses felt the affects of 
the worst flooding in the region over half a century.
    As a former Bucks County commissioner, now as a Member of 
Congress, I have heard from my constituents about the 
administrative problems plaguing the National Flood Insurance 
Program like the claim processing and inconsistencies and 
interpretations about the standard used to determine claim 
amounts.
    I want to know what the Federal Emergency Management Agency 
is doing to educate policyholders on their coverage under the 
policy to see that insurance agents clearly articulate the 
terms and conditions of the policy at the time of sale and know 
how to process claims correctly and inform policyholders of the 
appeals process. Mr. Chairman, we must ensure that we are 
protecting families that have to endure the destruction of a 
flood. The families in the Eighth Congressional District in 
Pennsylvania will continue to be discouraged until we resolve 
these problems which are facing the program.
    I yield back my time.
    Chairman Ney. I want to thank the gentleman.
    Mr. Blumenauer.
    Mr. Blumenauer. Thank you, Mr. Chairman, for your courtesy 
in permitting me to join with you again. I appreciate your 
leadership personally and that of this subcommittee in 
fashioning important reform for this program.
    Chairman Ney. Thank you.
    Mr. Blumenauer. One is sympathetic to the problems that we 
have already heard you and other members reference in terms of 
the devastation that flooding can have. It is the most common 
and most damaging natural disaster that is afflicted upon our 
citizens. That is why we were able to work with you in crafting 
some specific provisions to make the tragic stories that have 
been witnessed by these members less frequent. In particular, 
dealing with repetitive flood loss, something that we had 
focused on, understanding that for the last 25 years, 38 
percent of all flood insurance claims have dealt with one 
percent of the properties, and I salute you for designating 
that there would be an additional $70 million set aside that 
potentially in the pilot project could have helped 7,500 
severely repetitive loss properties from being put in harm's 
way.
    When we think of 10,000 properties in this country that 
have suffered repetitive loss four times or more or have 
received payments in excess of the value of the property, the 
benefit for accelerating our efforts is clear, and I have 
appreciated over the course of the last 6 years we have been 
working with FEMA with our administrator and his predecessors 
to try and craft a way to make it work better, but I too am 
concerned, as Mr. Frank, about the pace with which we are 
moving forward, in part, because this was crafted in 
consultation with the committee and with people from FEMA for 
the last two administrations.
    We thought that we had targeted this, but as yet we haven't 
yet promulgated the regulations to implement the pilot project, 
nor have we seen funding requested for the full authorized 
level.
    Now, it may have been understandable because we passed it 
late last year after the budget had been submitted, but this 
year, it is troubling. It is troubling that there is only $8 
million, the potential new money that has been authorized. As 
Mr. Frank says, yesterday we were talking about trillions and 
hundreds of billions of dollars. To be talking about less than 
a hundred billion dollars sounds like small change around here, 
but for the people in harm's way, some of whom I suspect are 
here today, being able to adequately fund the program and help 
move them out of harm's way can make a huge difference in terms 
of their lives and livelihood, and every person that we move 
out of harm's way is less pressure on millions of people to not 
pay higher premiums and it means that we will save millions of 
dollars every month in the future from future losses.
    So Mr. Chairman, I do appreciate your courtesy, the 
leadership of this subcommittee, of Ranking Member Frank and 
Chairman Oxley in providing a united front to help improve this 
vital program for our constituents, and I look forward to an 
interesting and productive hearing today. Thank you.
    Chairman Ney. I want to thank the gentleman and I 
appreciate his comments.
    The gentlelady, Ms. Davis.
    Mrs. Davis. Thank you, Mr. Chairman, and I want to first 
thank you for holding this, what I think to be a very important 
hearing, and also thank your staff. They have been absolutely 
wonderful in helping us put this all together, and thank you 
for the hospitality of inviting me and allowing me to sit in on 
it.
    In September of 2003, Hurricane Isabel struck the eastern 
United States, doing so much damage it was actually one of the 
worst disasters in Virginia's history. There was damage 
exceeding $1.5 billion. Strong winds knocked out power lines. 
Trees were downed everywhere, and storm surges flooded many 
homes. The First District of Virginia was devastated in many of 
its areas.
    Today, two of my constituents, Larry Bearekman and Ginger 
Stelyn both had their homes flooded, and they are here. You 
will hear their stories. I want to thank them both for coming 
today to testify and to share their difficult times that they 
have had. Both faced tremendous strain and difficulty 
attempting to rebuild their homes and their lives, and 
unfortunately they are not alone. Many residents from my 
district and across the country continue to face challenges in 
rebuilding their lives from many of these disasters.
    Many of these challenges, in my opinion, are because of the 
National Flood Insurance Program. My office received many, many 
calls from constituents that they felt they were unfairly 
treated, that the process was inadequate and that they were 
just totally misled, and I felt it my responsibility as their 
representative to do all that I can to help them.
    I have concerns with the administration and oversight 
policies of the National Flood Insurance Program. Thousands 
trust and rely on their flood insurance to restore their 
property that was destroyed by flood waters, but many, many, 
have been disappointed to find that their claims adjustment 
process has, as I said, been unfair and inadequate.
    Today, I hope that we will be able to get to the bottom of 
it, that we will be able to find out why my constituents and 
many folks' here constituents felt they were told one thing and 
then another thing was done. I just hope that the committee can 
get to the bottom of it and come up with regulations, find out 
what the real truth of the matter is, and make sure that our 
National Flood Insurance Program is being run adequately and 
correctly and operating as we in Congress intended.
    I want to thank you again, Mr. Chairman, for holding this 
important hearing and for allowing me to join you today.
    Chairman Ney. I thank the gentlelady.
    The gentleman from Maryland, Mr. Ruppersberger.
    Mr. Ruppersberger. Chairman Ney, thank you very much for 
allowing me to participate in this hearing, also Ranking Member 
Frank. This is a very important hearing, as we all know, 
concerning the National Flood Insurance Program and the 
problems that we face concerning this program.
    Before I get started, I would like to recognize the 
Maryland Insurance Commissioner, Al Redmer, who is going to be 
on one of the panels. I also would like to recognize over 50-
plus victims from my district of Hurricane Isabel and who have 
come down to participate in this hearing and also Steven 
Kanstoroom from Ashton, Maryland, who I believe is one of the 
panelists. I know what you have gone through, and we are going 
to try to help you out.
    As we discuss these proposed policy changes concerning the 
National Flood Insurance Program, I hope that we will all 
remember that ultimately what we are talking about is families. 
In my State of Maryland, we still have families that have not 
received a settlement and some that are, sadly, still in FEMA 
trailer housing, and this is wrong.
    We are here today to talk about the National Flood 
Insurance Program. In September 2003, Hurricane Isabel tore 
through the east coast and devastated Maryland's Second 
Congressional District. This storm did well over $200 million 
in damage and devastated the lives of thousands of Marylanders. 
In my district, the Bowleys Quarters Fire Department became 
Hurricane Central. During the storm, these firefighters pulled 
people from homes that were quickly overcome by storm waters. 
The Bowleys Quarters Fire Department distributed rations, 
supplies, and helped provide hot meals, and I want to thank 
them for their involvement as the other fire departments that 
were involved throughout the Second Congressional District.
    Thousands of Marylanders banded together to help each other 
rebuild and get back on their feet, and they should all be 
applauded for their actions. After Hurricane Isabel, there was 
a lot of misinformation. There was a lot of confusion and a lot 
of education that had to occur. Thousands of Marylanders were 
shocked to learn that flood insurance coverage they purchased 
was inadequate and would barely restore any of the life that 
they had built. It was truly heartbreaking to hear some of 
these stories.
    The most frustrating part from my perspective was that 
thousands of Marylanders were run around in circles to only 
come into dead ends. It was very frustrating for them. Some 
people had their claims processed while others had claims 
denied or their settlements were remarkably low. We had to keep 
fighting to get these people the money they deserved.
    The biggest problem was that many of my constituents dealt 
with untrained agents and adjusters that provided at times 
inaccurate information and data. The biggest problem was that 
pricing guidelines literally varied from one agent to another, 
from one adjustor to another. For example, an adjustor would 
tell someone that dry wall would be repaired at $10 per sheet, 
only to get a settlement for the dry wall which was $3 per 
sheet. The obvious affect is the victim does not get as much 
money to rebuild, which is frustrating and confusing and wrong, 
and they couldn't afford it.
    This confusion coupled with losing a home and all of one's 
belongings created an angry and frustrated community. We cannot 
allow this to happen again. We have a chance here to make 
strides in changing the program to make it workable in the 
future.
    What is the solution? We need plain English description of 
a homeowner's flood insurance coverage with what is and is not 
covered. We need to have timely training for adjusters and 
agents and not crisis training. We need to have the insurance 
companies at the NFIP work together to develop standards and 
procedures so that everyone is on the same page, and, finally, 
I hope that we will all get a better understanding of where 
there are deficiencies in the program. We need to understand 
this so that we can fix it and not have the problems that have 
arisen in the past.
    I look forward to hearing from the witnesses so that we 
have a complete understanding of the situation and find out 
what we need to do to fix the problem for our constituents. 
Thank you, Mr. Chairman.
    Chairman Ney. I thank the gentleman.
    The gentlelady from Pennsylvania, Ms. Hart.
    Ms. Hart. Thank you, Mr. Chairman. I especially appreciate 
the opportunity to be here today as a former member of your 
subcommittee and somebody I think like the other Members who 
have joined us today that have unfortunately similar situations 
to report.
    I am not sure how many of us have actually seen the 
commercial on television for the National Flood Insurance 
Program. Some of you may not even notice that is what it was 
for, but there was a nice pretty frame house that you see and 
then you see all these bad things happen to the house except 
one thing, a flood, and at the end of the commercial, they say 
your homeowner's insurance covers all these things except one 
thing, and then the waters come and they surround the home, and 
on the screen comes a little logo for the NFIP, and it says if 
you are in a flood zone, you need to get national flood 
insurance because it will help you if you have this incident 
happen.
    Well, unfortunately, I think for folks who are going to 
testify here today, that ad is a pretty cruel joke. You know, 
we have made this program, I think the Members of Congress, 
believing that it would provide assistance to people who face 
that very situation of the waters and flooding. Everybody knows 
that when you get a mortgage and you are in a flood zone, you 
are required to get this flood insurance. It is something that 
people expect will help them in the occurrence of a flood.
    Well, the opportunity for this committee to work on 
improving this policy is one that I really find after what I 
know our constituents experienced is a very important one.
    Following the September 2004 in Western Pennsylvania with 
Hurricane Francis and then Hurricane Ivan, my staff worked long 
hours to coordinate with Federal agencies to help assisting 
victims in securing relief. The damage was vast, covered a vast 
area. The damage in several areas was quite intense. The 
response of Federal agencies for the most part was immediate. 
Officials were on the ground. They worked with my staff and 
others to help clean up the neighborhoods, to get people moved 
back into their homes, back into their businesses.
    We knew it wasn't going to be an easy process. Hundreds of 
homes and businesses suffered severe damage, and we expected 
that it was going to take some hard work to get folks back on 
their feet. In many instances, they are back on their feet. We 
were able to help Federal agencies provide necessary 
assistance. Neighborhoods removed debris. Communities got 
involved. Other Federal programs certainly were utilized to 
help people put their lives back together.
    Unfortunately, this hasn't always been the case, and in 
February of 2005, we really began to face the underlying 
problem. Months after the flooding, local citizens were 
organizing to ask for relief. We had town meetings. There were 
a number of different opportunities to sit down and talk with 
different agencies to figure out how they could move forward. 
Many still had not had their insurance claims settled. Their 
properties continued in that form that they were in right after 
the flooding. They were still damaged. Families were forced to 
live out of their homes, imposing on family and friends, using 
their savings to pay for hotels.
    My office worked with other local officials to try to 
resolve these problems, and as we talked with our constituents, 
a pattern became clear. In addition, we also heard similar 
stories that we have heard from my colleagues today in Maryland 
and Virginia and North Carolina, and as the picture became more 
clear, many of these cases remained unresolved. We contacted 
the Financial Services Committee to raise the concerns, and I 
am very pleased that the committee is focusing on it with this 
hearing.
    They fall into three categories really: Improper insurance 
coverage, inaccurate information about the insurance programs, 
about adjustments, concerns about what happened after the 
properties were assessed, low estimates, that sort of thing, 
and then after those low estimates were given, an impossible 
situation in trying to challenge those estimates and get the 
real damage assessment, the appropriate damage assessment.
    I don't fault anyone in particular for these problems that 
my constituents have had with these programs, and I didn't 
write the committee about these issues to place blame on an 
individual or individuals. I contacted the Committee in order 
to address some of these concerns to make these programs 
operate better and more appropriately for the people that they 
are expected to serve.
    I will wind up, I promise.
    The failures of the Federal program are clear. The only way 
for us to address them is to discuss it in an open forum. I 
asked the Committee and they have offered the opportunity for 
one of my constituents, Beth Beam of Ellwood City, to come here 
and testify about the issues that she faced.
    I see this as a starting point. These people have suffered 
not only devastating losses, but they have also suffered a lack 
of appropriate assistance through the National Flood Insurance 
Program. I thank Mrs. Beam for making the trip here, her 
husband, Mike, and her children who continue to live with their 
parents as a result of this problem.
    And I thank you, Chairman Ney, for giving me the 
opportunity to be here today.
    Chairman Ney. I want to thank the gentlelady.
    Again, I want to thank members of both sides of the aisle 
for the amount of interest you have had in this and the true 
concern you have for your districts and constituents. I would 
ask to be included in the record, without objection, testimony 
of the Independent Insurance Agents and Brokers of America, the 
statement of William Griffin, Jr., the testimony of Gary 
Mosell, the statement of Congressman Steney Hoyer. Without 
objection, they will be made part of the record.
    Panel one, we will move to David Maurstad, who is appointed 
Acting Director of FEMA's Mitigation Division and Acting 
Federal Insurance Administrator in June 2004. His areas of 
oversight include the National Flood Insurance Program, the 
National Earthquake Hazards Reduction Program, the National Dam 
Safety Program, and the National Hurricane Program. Previously, 
Mr. Maurstad served as Regional Director of FEMA's Region 8 
where he coordinated FEMA activities six western States, 
including the State of Nebraska where he has served as 
Lieutenant Governor.
    I would also note that our Ranking Member, the gentlelady 
from California, Congresswoman Waters had to speak on the rule 
and will be here later.
    Thank you.

  STATEMENT OF DAVID I. MAURSTAD, ACTING DIRECTOR AND FEDERAL 
INSURANCE ADMINISTRATOR, MITIGATION DIVISION, FEDERAL EMERGENCY 
    MANAGEMENT AGENCY, EMERGENCY PREPAREDNESS AND RESPONSE 
          DIRECTORATE, DEPARTMENT OF HOMELAND SECURITY

    Mr. Maurstad. Good morning, Chairman Ney and members of the 
subcommittee. I appreciate this opportunity to appear here this 
morning. First, let me thank this subcommittee and Congressman 
Blumenauer for the work that it accomplished last year by re-
authorizing the National Flood Insurance Program through Fiscal 
year 2008. I appreciate the priority that Congress and the 
President demonstrated through the re-authorization and the 
stability gained through a multi-year re-authorization.
    The Flood Insurance Reform Act of 2004 enhanced the 
existing flood mitigation assistance programs and authorized a 
pilot and individual grant program for reducing severe 
repetitive loss properties. The President's Fiscal Year 2006 
budget request includes an additional $8 million for the 
enhanced Flood Mitigation Assistance Program, and we are 
working on options that may allow us to implement the pilot 
program.
    Since starting in this position last June, I found that the 
NFIP has been successful through its 37-year history, in part, 
because this program has integrated 95 of the country's 
property insurance companies and their agents that sell and 
service approximately 95 percent of the 4.7 million policies in 
force. Under our arrangement with the insurance companies, it 
is our responsibility to ensure their performance. To that end, 
FEMA conducts regular audits to assure each company is meeting 
its financial requirements, performance objectives, and 
adhering to program policies.
    One of my goals is to ensure that flood insurance claims 
are handled fairly, equitably, and expeditiously. Based on my 
experience, I have found that the NFIP meets or exceeds 
industry standards in this regard. Even so, I want this 
subcommittee to know that I strive to challenge myself, my 
staff, and our partners to continuously improve.
    Last year, the NFIP experienced a catastrophic loss year 
due primarily to an historic hurricane season. The NFIP 
received approximately 59,000 flood insurance claims in 2004, 
and we anticipate paying $1.6 billion to resolve these claims. 
This level of claim activity represents the single largest loss 
year in the history of the NFIP. As a result, the program has 
exercised its borrowing authority in the amount of $200 million 
to date. This is the fourth time since 1990 that the program 
has been in a position of borrowing, and as with previous 
times, we anticipate repaying the current Treasury borrowing 
with interest by the end of the year.
    The claims adjustment process associated with flood loss 
has not ben without appropriate scrutiny. As you are aware, 
after Hurricane Isabel in September of 2003, there were a 
number of concerns raised. These concerns received a 
significant level of attention from policyholders, local and 
State officials and Congress. As a means of addressing these 
concerns, FEMA created a task force that undertook an 
unprecedented review of the Hurricane Isabel claims for every 
policyholder that requested a review. To ensure that 
policyholders were aware of the review option, FEMA implemented 
an outreach strategy that consisted of a targeted series of 
community meetings, newspaper ads, press releases, and a toll-
free number to field policyholder questions as well as initiate 
a request for a review. FEMA mailed approximately 24,000 
letters, received over 4,300 calls, and held over 40 outreach 
sessions in three States.
    As a result of this effort, nearly 2,250 policyholders 
requested and received an additional review of their claim of 
which 1,101 received an additional payment. The amounts paid 
represents less than two percent of the over $453 million paid 
in claims for Hurricane Isabel.
    It is my assessment that there is a fundamental 
misunderstanding of the intent of the NFIP. For example, some 
policyholders believe that if they paid premiums for a hundred 
thousand dollar limit of coverage on their dwelling, they were 
entitled to a $100,000 claims payment regardless of the actual 
flood damages sustained. Another common misconception is that 
the original intent was to restore homes or property to what 
has been referred to as a pre-flood condition which FEMA may 
have inadvertently contributed. It has come to my attention 
that there is a press release dated October 16, 2003, on the 
FEMA web site that states flood insurance can make you whole 
again. This statement is inaccurate. The press release has been 
removed from the FEMA web site.
    This is the only instance that I am aware of that supports 
this misconception. In fact, my review of the legislative 
history, committee reports, the statute, the standard flood 
insurance policy, and how the program has been administered 
since its inception clearly indicates that the NFIP was never 
intended to restore policyholders to pre-flood condition. It 
was designed to help them recover.
    There is a high risk associated with flood losses. In fact, 
prior to the establishment of the NFIP, a flood insurance 
policy was expensive and generally unavailable. In response, 
Congress created the NFIP in 1968. The design of the program as 
cited in Section 1302 of the National Flood Insurance Act of 
1968 was to provide, and I quote, a reasonable method of 
sharing the risk of flood loss. The 1968 Act created a flood 
insurance mechanism that tied the availability of this 
insurance to a community's management of its flood risk.
    This policy has been successful. The NFIP standards for new 
construction are now saving an estimated $1.1 billion annually 
in avoided flood damage. Additionally, it should be recognized 
that since 1968, the NFIP paid out from policyholder premiums 
approximately $14 billion in insurance claims, which in 
addition to helping homeowners, renters, and business owners 
recover financially from a flooding event, otherwise would have 
greatly increased taxpayer funded disaster relief.
    The standard insurance policy has specific limitations and 
coverage for high-risk areas such as basements and areas below 
elevated buildings. The policy also does not provide for 
additional living expenses unlike a typical homeowner's policy 
and only allows replacement cost coverage in certain 
circumstances, and there is a statutory limit on coverage for 
residential buildings and commercial buildings.
    Even more significant, FEMA regulations specify that 
communities require flood-prone properties be brought into 
compliance when a structure is substantially damaged; however, 
the program only provides partial funding for the cost of 
complying with that requirement.
    [The prepared statement of David I. Maurstad can be found 
on page 174 in the appendix.]
    Chairman Ney. If we could, because we have a vote, I want 
to ask one question because I have another commitment and Mr. 
Fitzpatrick will be chairing the committee. So if I could, and 
I am sorry to interrupt you, but I want to get my one question 
in that I have got and I will be, again, back later.
    There is some type of huge disconnect that has occurred, 
some type of huge disconnect. Now, I know you had that up on 
the web site, and that was an error, and people might have 
assumed from that that in every single situation they were made 
whole. Beyond that, there still is a disconnect between what 
the citizen thinks that they are getting. So the question I 
want to ask is, what is FEMA doing to find out or work with 
what the agents think they are selling to people and what 
agents are telling people and what people think they are 
getting? Because there is some huge disconnect.
    Mr. Maurstad. Sir, we continue to work with the 95 
insurance companies that we rely on to service and sell the 
standard flood insurance policy. It is a part of the 
arrangement that they are required to make sure that their 
agents are trained appropriately to sell the flood insurance 
product. In addition, it is the agent's responsibility from a 
professional point of view, regardless of what, whether it is 
homeowner policy, an auto policy, or a flood insurance policy, 
for them to be adequately trained and have the necessary 
education and knowledge to be able to provide what their 
policyholders deserve.
    Chairman Ney. Do you think it has been effective, or how 
long has the Government been embarking on this? Because I 
really don't know the answer to that question.
    Mr. Maurstad. Well, I would contend that those provisions 
that I spoke about have always existed, and, for example, 2 
years ago, there were about 47,000 claims handled by the NFIP 
program, last year about 74,000 claims. The vast majority of 
those were settled to the satisfaction of the policyholder.
    Chairman Ney. One thing I wanted to ask you, we have been 
doing this for years--and I am just going to tell you my 
personal experience because I have been in office 24 years, 10 
out here and then 14 in the State legislature. Over the period 
of years, of course, you will get some people that will 
misunderstand something, but I have got to tell you honestly, 
in the last few years, it has just swelled in the amount of 
people that said I thought I was getting this and I didn't get 
it versus my entire time I have been in office. I can judge 
over the last 24 years. You know, things have peaks and 
valleys, but it has just went way up the charts of what I am 
hearing around my district, and I am hearing that from other 
members of both sides of the aisle. So I wonder why it is 
happening in the last, I don't know, 4 or 5 years.
    Mr. Maurstad. I think we need to address it, sir, and I 
think that the companies are working with us. The agent 
associations are working with us to re-emphasize the need for 
agents to have the knowledge that their policyholders, their 
customers, expect from them. Anecdotally, just my opinion as I 
look at this, one factor that tends to stick out is if an area 
has not had a major flooding event within a relatively short 
period of time, there tends to be more misunderstanding by the 
policyholders and the agents in that particular area than areas 
that have frequent flooding events.
    Chairman Ney. Unfortunately, we tend to flood all the time 
down the Ohio River and areas we are in. We really have had 
fairly consistent flooding over the years. So I just wanted to 
add that. Again, I used to not hear a lot, just a few 
occasional things. It has just grown by leaps and bounds. So 
there is something out there or something is not working, and 
that is going to be the purpose of why we will continue, of 
course, with the questions, and I want to work with you to help 
people.
    With that, we are going to take a recess and we will 
return. Thank you.
    [Recess.]
    Mr. Fitzpatrick. [Presiding] The committee is now in order. 
We have a little bit of time between votes, and we would like 
to accommodate Mr. Maurstad's schedule.
    Mr. Maurstad, as a new member and a Representative of a 
district that has experienced significant flooding, I really do 
appreciate your time and your testimony here today and your 
willingness to answer the questions. I just have one question 
for you.
    About a year ago, in March of 2004, the Senate Subcommittee 
on Economic Policy held a hearing on flood insurance losses, 
and at that hearing, a variety of problems were outlined, such 
as policyholders who often do not have a clear understanding of 
their policy, the limits, and what is covered. Insurance agents 
often do not understand what they are selling and how to 
process claims in an effective, quick, and efficient way. Many 
policyholders do not know or understand the appeals process. 
Many question the adequacy or the inadequacy of the payments 
they received.
    At that hearing, Anthony Lowe testified in his capacity as 
the Federal Insurance Administrator, Mitigation Division 
Director, and at that hearing, he acknowledged many of these 
problems. Mr. Lowe indicated that FEMA was conducting a 
comprehensive review of what he called top to bottom. 
Furthermore, he indicated that the agency was taking steps to, 
quote, address these concerns on the front end by stepping up 
outreach efforts to explain the National Flood Insurance 
Program policy provisions and simplifying the claims procedure.
    Mr. Maurstad, I was wondering if you could explain for the 
committee what steps have been taken since that hearing a year 
ago to address these concerns.
    Mr. Maurstad. To specifically address the concerns from 
Isabel, the outreach effort that I talked about in my opening 
is the manner in which we, I believe, successfully attempted to 
provide that type of information during that process. Since 
then and since the re-authorization last June and the direction 
provided in the re-authorization to NFIP to institutionalize a 
number of those, we have been working actively with our 
stakeholders in trying to develop those various products and 
are in the rule-making process for establishing those and hope 
to have that completed by fall.
    Mr. Fitzpatrick. Thank you, Mr. Maurstad.
    At this time, I recognize Ms. Kelly for 5 minutes.
    Mrs. Kelly. Thank you very much.
    Mr. Maurstad, the names Francis, Ivan, Isabel, Hugo, Floyd, 
they are names given to tropical storms. They are names given 
to hurricanes. We in New York, as I mentioned in my opening 
statement, have just had our governor declare a disaster area 
for 13 counties on an unnamed storm. There are lots of storms 
that don't have those names. This storm has hit my people very 
hard.
    You mention in your testimony the extensive outreach 
campaign that the flood insurance program conducted after 
Hurricane Isabel, that you sent out 24,000 letters, 40 outreach 
sessions for policyholders. I want to know what you have 
planned for my constituents in Orange County. Are they going to 
receive some intensive outreach from you?
    Mr. Maurstad. What we have done and what we would certainly 
do to help is continue to participate in community meetings to 
try to share the information that is needed for policyholders 
to assist them in that claims handling process. Of course, we 
need to while we certainly work together distinguish between 
the efforts, the recovery efforts, that will go on and the 
meetings that will be held there with the communities on 
available assistance through the recovery, public assistance, 
and individual assistance. We will specifically assist in those 
cases where we can provide your constituents information that 
they need to have their claims adjusted appropriately if they 
are having difficulties with their agent or with the adjusters 
that are responsible for making sure that they are paid 
appropriately and fairly within the provisions of the standard 
flood insurance policy.
    Mrs. Kelly. You said that your flood insurance program, in 
your testimony, you say that it paid it two percent more 
because of the extensive outreach that you did on Hurricane 
Isabel. Frankly, I believe that FEMA ought to be paying out 100 
percent of eligible claims, not 98, not two percent more. There 
shouldn't be two percent more. You have got a hundred percent 
record that I am looking for, and I expect FEMA to take 
additional outreach steps that you described in your testimony 
in New York because of this terrible flooding that we have just 
experienced.
    I have walked in those fields with my people. I have 
watched them. I have been with them when they have opened the 
doors in their housing returning after the flood. It breaks my 
heart. We need you to get the outreach out there. We need you 
to do it rapidly. People can't wait, sir. The mold begins to 
attack the house. The problems are my farmers are having to re-
dig the ditches in the fields. My sod farmers have had flooding 
that has covered over the sod, and now is the time when they 
need to sell that product.
    We need your help and we need it now. Part of what I hear 
from my constituents and part of what you are hearing in the 
passion in my voice, sir, is a frustration with what appears to 
be just a bureaucracy that is hung up and not producing rapidly 
and producing for the needs of the people that we represent 
here. I think you have heard that from the members this 
morning.
    I would ask you, Mr. Maurstad, to go back and tell your 
people, those people who are in those offices working for you 
that we here on Capitol Hill expect prompt response, and we 
expect it yesterday. We are the Federal Government. We should 
be helping these people. You are being paid by tax dollars. We 
expect these people to have their support, and we expect it 
immediately.
    I am not blaming you, sir, but I am blaming the 
bureaucracy. You are in charge. The buck is stopping on your 
desk right now. Please get back there. Please get back to me. 
Don't let two weeks go by. Don't let four weeks go by. People 
need to reclaim their lives. I have got a whole lot of people 
along the Delaware River and Western Orange County who need 
your help and they need it now.
    Mr. Fitzpatrick. The chair recognizes Mr. Ruppersberger of 
Maryland.
    Mr. Ruppersberger. Yes. Thank you, Mr. Chairman.
    First, you can see how passionate people are because you 
disrupt families and their everyday life, and I know that FEMA 
and our engagement with FEMA and people involved are saying, 
Look, we can only do what we can do pursuant to the law, 
pursuant to our statute. I will say in the beginning, I was 
very impressed with the way FEMA came in in support for people 
who were dislocated and helped them, but then the problems 
started to rebuild and where are we going to go, and we still 
have people in trailers today.
    So it is important that we get to the core of the problem, 
we learn from what has happened, and then try to fix it because 
there will be other floods.
    There are a couple of issues I want to get into. The first 
thing, the issue of FEMA generally, and I am not sure--because 
you are a part of the large bureaucracy of Homeland Security, I 
am concerned with the fact this FEMA is in Homeland Security. 
When we have a national disaster in our country, we are the 
best country in the world. It is a high priority to help people 
as soon as we can. And the fact that we are in such a large 
agency, it seems to me that FEMA should have a direct line to 
the President so that when we need to move, we can move 
quickly, and when we have problems, even though it might not be 
pursuant to the law, we can adjust what we have to do to help 
our people.
    So my first question, do you feel that FEMA being in 
Homeland Security, you have your hands tied, you are not able 
to get the money quickly enough, you are not able to move 
through that bureaucracy, and would it be better when we have 
national disasters to go directly to the President and not be a 
part of a large bureaucracy whose real goal is to protect 
homeland security in areas such as ports and airports and all 
those other areas?
    Mr. Maurstad. Well, sir, I believe that becoming a part of 
the Department of Homeland Security has actually been a benefit 
to FEMA in the way that we have been able to respond to the 
hurricanes of last year. I think we have demonstrated that a 
number of times. Because of the other entities that we are now 
partners with within the department, we are able to utilize 
what they bring to the table. The Coast Guard comes to mind, 
for example, in the assistance that they are able to provide 
FEMA in the response and the recovery associated with major 
disasters.
    So I think that it certainly has not crippled our ability 
in being able to respond.
    Mr. Ruppersberger. I think that is something that we are 
really going to have to keep looking at because we need to 
produce in this area, and when there is a national disaster, 
our concern in Maryland is that all of a sudden there were 
hurricanes in Florida and then the people who were involved in 
Maryland were not getting service because people had to move to 
Florida. So I think that is something we have to look at.
    You have standards in FEMA, evaluation goals. Do you have 
those same evaluation goals for the adjusters in the insurance 
program? A lot of what we saw and our staff personally saw and 
the people at least in my district, you had all sorts of 
inconsistencies. You had adjusters that seemed not to be 
trained. You had different price evaluations, different 
estimates, no standards.
    Two questions: First, do we require the insurance companies 
to have that standard? And if we do, I think that we have not 
held them accountable for performance. I think that is 
something we have to look at, and basically we need a standard, 
to develop a standard, in natural disasters and the fact that 
FEMA is coming in and saying pursuant to the law we can only do 
this, then we need to change the law and we need to evaluate 
that and we need recommendations from you all and talking to 
our constituents and our people in the different States and our 
insurance commissioners from the States to find out what we 
need to do so that if this happens again, we can do it better.
    Mr. Maurstad. Well, we do have a process by which we 
evaluate adjusters' performance with re-inspections and we 
also, of course, hold the insurance companies accountable for 
the work of their adjusters. We audit the claims process. We 
audit the work of those. When we are able to identify that 
there are areas where a particular company or a particular 
adjustor within a company is not meeting the standards, then we 
take action with that company in correcting them.
    Mr. Ruppersberger. My experience has been that we had 
inconsistency all over the map. We didn't have people that were 
qualified, didn't know what they were doing. So let me ask you 
this: When was the last performance standard done?
    Mr. Maurstad. Well, with adjusters, we do it routinely 
while the losses are occurring, and so it is an ongoing process 
with the adjusters. Now, companies, we do the large audit, 
performance audits, on a rotating basis.
    Mr. Ruppersberger. My time is almost up. Are we going to 
have another round, Mr. Chairman, of questions?
    Mr. Fitzpatrick. We will not.
    Mr. Ruppersberger. Well, then let me go quick. I know the 
light is on.
    I really want to get to the bottom of this. I think right 
now--you talk about standards and training--we don't have, 
really, the standards. I want to make sure that we take what we 
have now--you can take my district. You can take other 
districts and that we look at what the problems were and then 
re-evaluate those problems and the people involved, and 
sometimes the people, such as the adjusters, don't have the 
tools and resources either. This is something that has to be 
fixed and we have to learn from what has happened now and we 
have to take care of these people that are still out there.
    Now, you have certain laws you have to abide by. There is 
no question, but we have to go further. We are the finest 
country in the world and it is not appropriate or fair that we 
cannot help people in need in our country.
    So I really have more questions. I will submit those 
questions to you, and I would like you to get back. We have a 
long way to go here. I know that you are representing your 
agency. You have to take certain positions, but let us keep an 
open mind. It is about the families.
    Thank you.
    Mr. Maurstad. Yes, sir.
    Mr. Fitzpatrick. We will make those questions part of the 
record as well if you submit them to the committee. Thank you.
    The chair recognizes Ms. Davis of Virginia for 5 minutes.
    Mrs. Davis. Thank you, Mr. Chairman.
    Mr. Maurstad, I hope you took note. Representative Kelly 
said that she hoped two weeks, four weeks, wouldn't go by, and 
I hope you will recall that 19 months has gone by, and I still 
have constituents in little trailers.
    Please don't take my time to clap. Let me get my questions 
in here, but I appreciate it.
    You stated in your statement that you were aware of a 
release dated October 16, 2003, and I just want to know for the 
record, you were made aware of that release on the FEMA web 
site dated October 16, 2003, that stated flood insurance can 
make you whole again, because you were in my office the day 
before yesterday and I asked you did you know it was on there, 
and you were not aware of it. I ask you now when was it taken 
off?
    Mr. Maurstad. It was taken off as soon as I got back to the 
office.
    Mrs. Davis. So this release that, Mr. Chairman, I would 
like to put in as part of the record, dated October 2003, one 
month after Hurricane Isabel hit my district has been on your 
web site from October 2003 until April 2005. It is no wonder 
constituents think that flood insurance can make you whole 
again.
    I would like to submit this for the record, Mr. Chairman.
    Mr. Fitzpatrick. Without objection, it will be made part of 
the record.
    Mrs. Davis. You also talked about the flood insurance 
program being established back in 1968. You quoted from it, but 
let me quote from the program. It says the program was 
established to, in quotes, provide the necessary funds promptly 
to assure rehabilitation or restoration of damaged property to 
pre-flood status or to permit comparable investment elsewhere. 
It sounds to me like the program was started to restore it to 
pre-flood status. What do you think?
    Mr. Maurstad. Well, in my looking at that, that is 
actually, I believe, from a Senate and House report in 1967 on 
a previous attempt to establish a flood insurance program.
    Mrs. Davis. But it sort of says the intent of Congress, 
does it not?
    Mr. Maurstad. In 1968, when the bill was actually put in 
place, that language was not a part of the legislation, nor was 
it a part of the Senate and House comments, and so my 
conclusion is that there was a conscious reason for having that 
language in a report that was not adopted versus a report on a 
bill that was adopted.
    Mrs. Davis. But it seems clear to me if it was a Senate 
report, it was the intent of Congress. Here we are 19 months 
later since Hurricane Isabel, and as I said, I have 
constituents that still are not taken care of. What are you 
doing to address the length of time that it takes to process 
the claims? As you know, I have two constituents who will be 
testifying after you. One just has moved back into her home. 
The other gentleman is still in a rental place.
    Mr. Maurstad. Well, at the end of the review process, we 
had either settled with all of the individuals that asked for 
their claim to be reviewed or we provided them with what was a 
final offer based on the coverages that are provided by their 
standard flood insurance policy.
    Mrs. Davis. Do you think that your insurance providers 
believe that their insurance is there to make people whole?
    Mr. Maurstad. No, I do not.
    Mrs. Davis. I have a web site here from Travellers 
Insurance that says in their advertisement, and I quote: The 
Mitchells were very fortunate to have flood insurance, and then 
on and on and, ``the cost to repair or replace the building was 
covered less the minimum $500 deductible. Wall to wall 
carpeting was replaced. Floors were dried and refinished. The 
walls were painted and cabinets and appliances were replaced.''
    If the everyday folk pull up something like this on the web 
site, and I am sure there are plenty more of these, they have 
to assume that they are going to get replacement cost or that 
they are going to be restored, and that is wherein I think we 
have the problem.
    And you and I had this discussion the day before yesterday, 
and I understand you are reading from the book and, you know, 
the rules are what they are, but the perception is reality in 
the United States of America, sir. If I have constituents that 
are sitting in trailers and they, because they looked at your 
web site one month after Hurricane Isabel hit, plus not to 
mention what they were told by people when they came into my 
district--how do I go back to my constituents and say sorry, 
the Government is not going to help you even though we have 
this on your web site? You said yourself in your statement it 
was an error. It is a mighty big error, sir. What do I tell my 
constituents?
    Mr. Maurstad. What I indicated, it was inadvertently 
included in a press release.
    Mrs. Davis. For almost two years.
    Mr. Maurstad. I want to make sure that there is a 
distinction in that the benefit associated with folks having 
trailers provided under the individual assistance program in 
the recovery division of our agency and the benefits that are 
provided that are not a part of the standard flood insurance 
policy. And I do take very seriously my responsibility to 
balance the needs of the fund and the charge of Congress to 
make sure that flood insurance is affordable, and I also take a 
great deal of responsibility in making sure that the policy is 
followed because it is law and that is my responsibility to 
enforce it.
    I don't have the discretion to be able to authorize claims 
to be paid that are not provided for under the standard flood 
insurance policy.
    Mrs. Davis. My time is up. I wish we had more time, but I 
would say that it is your interpretation of the program versus 
my interpretation of the program, sir, and I think that is 
probably the problem throughout the agency.
    Thank you, Mr. Chairman.
    Mr. Fitzpatrick. Thank you, Mr. Maurstad, for your 
testimony. Clearly, we have a lot of work to do. I know that 
the committee looks forward to working with the Federal 
Emergency Management Agency and the National Flood Insurance 
Program, but we have to do a better job reaching more flood 
victims, repetitive flood victims, to be quicker, to be fairer, 
and I am sure that we are going to be working together toward 
that.
    Before I dismiss panel one, the chair notes that some 
members may have additional questions for this panel which they 
may wish to submit in writing. Without objection, the hearing 
record will remain open for 30 days for members to submit 
written questions to these witnesses and to place their 
responses in the record.
    The first panel is dismissed.
    Mr. Fitzpatrick. We would ask the second panel to please 
take their seats at the table, Mr Berginnis, Mr. Jenkins, Mr. 
Redmer, Jr., Mr. Griffin, Ms. Beam, Mr. Bearekman, Mr. 
Kanstoroom, and Ms. Stelyn. Please take your seats at the 
table. The subcommittee does need to recess until we conclude 
the votes of early this afternoon. The members will be back to 
conclude the subcommittee hearing.
    The subcommittee is in recess until the sound of the gavel.
    [Recess.]
    Mr. Fitzpatrick. I would like to thank the individuals, the 
distinguished panelists who are here in the Nation's capital to 
testify as part of panel two.
    First, I would like to recognize Ms. Davis of Virginia who 
wants to introduce two of her constituents who are here with us 
today.
    Mrs. Davis. Thank you, Mr. Chairman. I appreciate the 
opportunity. As I told the chairman, unfortunately I am going 
to have to leave here at 1:30. So I hope I can get back, but I 
wanted to have the opportunity to introduce two of my 
constituents who have had to bear the brunt of some very 
unfortunate situations, and they are Mr. Larry Bearekman from 
Poquoson, and Mr. Bearekman, just for the record, is still in 
temporary quarters; and the other is Ms. Georgette, otherwise 
known as Ginger, Stelyn, and she lives in Seaford, York County, 
Virginia, and she has just recently gone back in her home.
    I appreciate you both so much for taking the time to travel 
here to tell your stories that are so similar to so many other 
stories with the district.
    Thank you.
    Mr. Fitzpatrick. Thank you, Ms. Davis. The first witness on 
panel two is Chad Berginnis. Mr. Berginnis is the Flood Plain 
Management Program supervisor in the Division of Water with the 
Ohio Department of Natural Resources. He has co-authored a 
comprehensive revision of the Model State Flood Plain 
Regulations, drawing in part on his previous experience as the 
planning director of the Perry County Planning Commission.
    Without objection, Mr. Berginnis, your written statements 
will be made part of the record. You will each be recognized 
for a 5-minute summary of your testimony, and it will go for 
each of those who are here today to testify.
    Mr. Berginnis, you have 5 minutes.

    STATEMENT OF CHAD BERGINNIS, CFM, ASSOCIATION OF STATE 
        FLOODPLAIN MANAGERS, INC., CHAIR, STATE OF OHIO

    Mr. Berginnis. Good morning and thank you, Mr. Chairman and 
the subcommittee, for giving the Association of State Flood 
Plain Managers the opportunity to testify.
    I currently serve as chair for the ASFPM and I also work in 
the State of Ohio's Flood Plain Management Program which 
implements the National Flood Insurance Program at the State 
level. I and most of the 7,000 members of the ASFPM work as 
jack of all trades in the NFIP on a daily basis. We are the 
State and local officials that are involved in implementing the 
NFIP.
    The 2004 Reform Act holds great promise. From our 
standpoint, it contains three significant elements: The 
creation of aggressive mitigation programs to address the 
repetitive loss program, changes to existing NFIP and 
mitigation programs to improve effectiveness, and the final two 
provisions which make positive changes to the insurance side of 
the program.
    Repetitive flood losses are a significant threat to the 
NFIP, whether it be perception such as the black eye the NFIP 
receives when a homeowner who has made repetitive flood 
insurance claims totalling several times the value of the home 
is profiled on programs like ``Fleecing of America'' or the 
reality that in the average year, claims for repetitive loss 
properties are $200 million. Repetitive flood losses threaten 
the financial stability of the NFIP. Furthermore, everybody 
pays for them. Policyholders in Ohio, where relatively few 
repetitive loss properties exist, bear the cost of increased 
flood insurance premiums which are at least partially due to 
the excessive repetitive loss claims.
    The 2004 Reform Act repetitive loss mitigation programs 
should make in-roads into this problem, but they are 
meaningless until they are funded. This is why we are perplexed 
that the Fiscal Year 2006 budget requested only $8 million of 
the $70 million authorized. None of these funds authorized are 
new taxpayer dollars. They are a transfer from the National 
Flood Insurance Fund.
    Acting quickly is critical. Over half of the newly 
authorized funds are for a pilot program that will fund 2009, 
and funds for this program were not even requested in 2006. The 
Reform Act doubled the funding for the basic Flood Mitigation 
Assistant Program, $20 million in new authorization, but only 
$8 million was requested. Why is that?
    The FMA program already exists. While it is true that rule-
making must occur, especially for the Repetitive Loss 
Mitigation Programs created in the Reform Act, we understand 
that part of the delay is debate over whether these funds 
should come out of premium dollars or fee dollars associated 
with the flood insurance policies. We submit that it can come 
out of either and should come out of both.
    Some may argue that to take funds out of premiums opens the 
door for other programs to be similarly funded. That is 
nonsense. These programs were created specifically to mitigate 
properties that most impact the flood insurance fund. It is a 
literal investment in the fund to help protect the fund. Our 
written testimony also identifies other issues related to the 
implementation of the new mitigation programs.
    Another important aspect of the Reform Act was to improve 
existing NFIP and mitigation programs. One such improvement is 
with increased costs of compliance benefits. The new mitigation 
tool created under the 1994 Reform Act, ICC, helps offset the 
cost to the property owner for making their buildings more 
flood resistant, as required by local and State codes. The 
maximum benefit under the ICC is $30,000. The surcharge on 
flood insurance policies to pay for this benefit yields over 
$80 million annually. Unfortunately, as implemented, ICC is not 
well utilized. The average ICC claim is well below the maximum 
limit, and data as of 2 years ago showed that less than $2 
million was being spent nationwide; thus, nearly all ICC 
surcharge dollars are not being utilized for their intended 
purposes and, instead, likely cross-subsidizing the general 
flood insurance policy.
    The Reform Act changes will help, but we also need FEMA's 
help to create a framework that meets the intent of the statute 
and not be so conservative in its interpretation that ICC is 
overly burdensome.
    We would also like to highlight one of the new mitigation 
options that the Reform Act officially recognized, the 
demolish, rebuild, or modify elevation option. For several 
years, FEMA has piloted this option as an alternative to 
existing mitigation. For some reason, the pilot use has 
stopped. We are unclear as to why and we are hopeful that FEMA 
will take quick action to again allow the use of this option.
    Although our members are less affected by Title II 
provisions of the Reform Act, we would like to say one thing 
about flood insurance policies. The single largest complaint 
flood managers get across the Nation are that flood insurance 
policies are too expensive. We realize that there is a 
legitimate question made about what policy coverages should or 
should not be, but we also hope the committee recognizes that 
it will affect the cost of policies.
    In conclusion, what I have highlighted are just some of the 
problems, but there is one problem in particular I would like 
to mention, and that is FEMA has several critical missions 
vital to nearly every community and State in the Nation. Its 
legacy missions, those that pre-date becoming part of the 
Department of Homeland Security, were to prepare for, respond 
to, recover from, and mitigate against flooding. FEMA's focus 
tended to be on natural hazards. Now that FEMA is part of the 
Department of Homeland Security, we are witnessing a systematic 
dismantling of some of their functions. Funds are being 
transferred or under constant threat of transfer. Staff 
positions are being lost, and FEMA has borne a large share of 
the DHS organizational and administrative costs.
    I would, finally, like to thank both on behalf of the State 
of Ohio and the ASFPM for the good work that FEMA does with 
Under Secretary Brown and the folks that have helped us through 
the years. In Ohio, we have had seven Presidential flood 
declarations in the last 2 years, and recovery is always a 
very, very difficult thing, but we are doing the best we can, 
and I think FEMA folks do deserve some of the credit for that.
    Thank you.
    [The prepared statement of Chad Berginnis can be found on 
page 114 in the appendix.]
    Mr. Fitzpatrick. Mr. Berginnis, thank you for your 
testimony.
    There will be questions for the witnesses after all the 
witnesses have testified. Mr. Jenkins will testify next, but 
before Mr. Jenkins testifies, the members have been called for 
another vote. So we are going to recess this committee hearing 
for 15 minutes, and we will be back together at approximately 
1:23 this afternoon.
    Thank you.
    [Recess.]
    Mr. Fitzgerald. The committee will be in order.
    Mr. Jenkins serves as director of homeland security and 
justice issues in the United States Government Accountability 
Office. His areas of responsibility include emergency 
preparedness and response, elections, the Federal judiciary, 
sentencing and corrections, and bankruptcy.
    Mr. Jenkins, you have 5 minutes.

   STATEMENT OF WILLIAM O. JENKINS, JR., DIRECTOR, HOMELAND 
     SECURITY AND JUSTICE ISSUES, UNITED STATES GOVERNMENT 
                     ACCOUNTABILITY OFFICE

    Mr. Jenkins. Thank you, Mr. Chairman, and members of the 
subcommittee. I appreciate the opportunity to be here today to 
discuss some preliminary results of our ongoing work on the 
National Flood Insurance Program. We plan to report to Congress 
later this year on the final results of that work.
    Today, we provide some preliminary information on policy 
coverage and limitations, the structure of the program, the 
views of some insurance company managers on the program's 
operation, and FEMA's progress in implementing mandates on the 
2004 Flood Reform Act.
    Under the National Flood Insurance Act of 1968, Congress 
established the NFIP to provide an insurance alternative to 
disaster assistance in response to the escalating cost of 
repairing flood damage. The NFIP was designed to be self-
supporting and actuarially sound. Thus a challenge for FEMA is 
to strike a balance between coverage and premiums that are 
sufficiently affordable to encourage participation in the 
program.
    Policyholders may choose to insure their home and the 
personal property inside their home or the home only. The NFIP 
is not designed to cover all flood losses. For example, the 
policy does not cover the replacement costs of personal 
property, and the coverage of basements excludes finished 
walls, floors, furniture, and other personal property. In 
addition, preexisting damage not caused by the flood is not 
covered.
    Replacement coverage for damage to a primary residence is 
limited to those homeowners who have purchased coverage equal 
to 80 percent of the home's full placement cost or the maximum 
available coverage of $250,000. The work of selling, servicing, 
and adjusting claims on NFIP policies is carried out by 
thousands of private insurance agents, and adjusters who work 
independently are employed by insurance companies or vendors 
who are under contract to insurance companies to handle their 
flood business. According to FEMA, about 95 percent of all 
policies are underwritten by 95 private insurance companies who 
are paid about one-third of the policy premiums for their 
service. About 40 FEMA employees assisted by about 170 contract 
employees are responsible for regulating, managing, and 
overseeing the program, which is expected to include about 4.7 
million policies by the end of this year.
    Independent insurance agents are the main points of contact 
for policyholders and those who wish to purchase flood 
insurance. Other than requiring that agents meet basic State 
insurance licensing requirements, neither FEMA nor the four 
insurance companies we visited have historically required that 
agents complete training or demonstrate a basic level of 
knowledge of the NFIP to sell policies. When losses occur, 
flood claims adjusters employed by the insurance companies or 
independent contractors become the eyes and ears of the NFIP. 
The adjusters are assigned to policyholders after they have 
notified their insurance agents of a flood loss and the agent 
has written a loss report.
    Adjustors are responsible for evaluating the damage and 
submitting claims to the insurance company which reviews the 
claim and processes payment. Unlike agents who sell the 
policies, adjusters must be certified by FEMA to work on NFIP 
claims.
    FEMA's primary method of overseeing the work of the 
insurance companies who write the policies and process claims 
is to conduct an operational review of each company once every 
3 years, more frequently if problems are found during the 
review. FEMA also uses about 10 general adjusters to check the 
work of claims adjusters through re-inspections of a sample of 
about 4 percent of claims done after ever flood event.
    We interviewed four insurance managers in the larger 
insurance companies who write flood insurance. According to 
these managers, the knowledge of the agents who sell NFIP 
policies varies, in part depending on the frequency with which 
they write policies. Three of the four managers thought FEMA 
staff who conducted operational reviews were knowledgeable and 
that such reviews were an effective way for FEMA to ensure that 
the NFIP is administered in accordance with the established 
legislation and regulation. All four managers also said that 
FEMA should examine ways to make the program less complex and 
less document intensive.
    FEMA noted that some documentation, such as elevation 
certificates, are required because the NFIP is part of FEMA's 
broader flood plain management strategy that combines insurance 
with hazard mitigation to reduce future flood damage to homes.
    The Flood Insurance Reform Act of last year had three major 
mandates for FEMA related to policy sales and service. FEMA is 
working to implement all three, but none are complete. Working 
with State insurance commissions and commissioners, FEMA is 
still in the planning stages of how to establish and implement 
insurance agent education and training requirements. FEMA has 
drafted new materials to be provided to policyholders at the 
time of purchase or renewal for flood insurance which it 
expects to have finalized by October of this year.
    FEMA is developing a formal appeals process for 
policyholders in the event of a grievance about a claim. That 
also is expected to be completed by October of this year.
    That concludes my statement, Mr. Chairman. I would be 
pleased to answer questions you or other members of the 
committee may have.
    [The prepared statement of William O. Jenkins Jr. can be 
found on page 131 in the appendix.]
    Mr. Fitzpatrick. Thank you, Mr. Jenkins.
    The next witness is Mr. Alfred W. Redmer, Jr. Mr. Redmer 
was appointed insurance commissioner for the Maryland Insurance 
Administration in June 2003 by Governor Robert Erhlich. Prior 
to his appointment, Mr. Redmer had served as the House minority 
leader in the Maryland General Assembly where he had 
represented the Eighth District in Baltimore County. Mr. Redmer 
is a licensed insurance and stock broker.
    Mr. Redmer, you have 5 minutes.

    STATEMENT OF ALFRED W. REDMER, JR., MARYLAND INSURANCE 
        COMMISSIONER, MARYLAND INSURANCE ADMINISTRATION

    Mr. Redmer. Thank you, Mr. Chairman and members of the 
committee. It is a pleasure to be here. I would like to first 
thank you for your work and the changes you have made to the 
flood program during the re-authorization of last year. With me 
today is Jeff Getek, our director of external affairs, and Joy 
Hatchette, who is associate commissioner of consumer education 
and advocacy, and it is my pleasure to be here to testify on 
behalf of the citizens of Maryland about their experiences with 
the National Flood Insurance Program following Hurricane Isabel 
in September of 2003.
    At your request, my testimony will focus on the problems 
with the program; however, I do need to recognize the efforts 
and our appreciation of the those hardworking dedicated 
employees at FEMA and the flood program that responded to the 
citizens of Maryland in the aftermath of Hurricane Isabel. The 
devastating effect Isabel had on property along the Chesapeake 
Bay was unprecedented. Eighteen months after Isabel, we still 
have 100 families still living in FEMA trailers. On a related 
note, as recently as this week, some are being threatened with 
the loss of those trailers and being left literally homeless, 
which is unconscionable.
    A few statistics: Under the direction of Governor Robert 
Erhlich, we staffed 15 disaster recovery centers, held dozens 
of community meetings, collaborated with our Congressional 
delegation, and handled over 1400 intakes, 500 formal 
complaints, and we generally assisted and advocated for the 
citizens in coordinating and communicating with carriers, 
adjusters, and the flood program, which resulted in hundreds of 
thousands if not over a million dollars of additional funds. 
Many of these residents have made the trip to Washington today, 
and if the citizens of Maryland would just wave their hands, 
and I know we have numerous people in an overflow room as well.
    First, what you have with you today is a report that we did 
in 2004 and another report that we just recently completed. We 
would appreciate it if you would look at that. We have also 
worked with citizen groups led by Bernice Myer, who is here 
today as well as consumer advocate Steve Kanstoroom, who will 
speak a little bit later. Steve has spent thousands of hours 
and thousands of dollars of his own money traveling the country 
inspecting losses, advocating for consumers, and has developed 
an incredible level of expertise. Additionally, the National 
Association of Insurance Commissioners has a Catastrophe 
Working Group and a new work group dedicated to advocating for 
an additional review of the flood insurance program.
    At your question request, I am going to address four areas 
of concern in my limited time. I have pretty detailed testimony 
in writing.
    First, the delays in assistance and the lack of trained 
agents and adjusters. Some agents were not familiar with the 
claims process or the coverages available under the program. We 
also have a shortage of trained experienced adjusters. Some 
took weeks to contact the claimants. The program has a lack of 
an official claim or an appeal process. Folks also had to deal 
with multiple adjusters. They had to deal with the adjustor 
from the flood program, a different adjustor from the 
homeowners company, a different adjustor from FEMA, another 
adjustor from the Small Business Administration, a very 
burdensome and complicated process.
    Some of the adjusters didn't know what the standard policy 
covered. They either did not get or they ignored important 
directives that came from the National Flood Insurance Program. 
We also had issues where adjusters inappropriately pressured 
citizens to sign proof of loss statements in spite of 
inadequate reimbursements.
    Number two, the lack of uniformity in claim estimates and 
confusion with the pricing guidelines, a lot of instances of 
conflicting information from carriers, the flood program, and 
adjusters. Everybody had a different answer as to what was 
covered, incorrect usage of the pricing guidelines by the 
adjusters as well as adjusters using old outdated pricing 
guides. There were coverage questions and conflicts regarding 
outside heating oil tanks, the removal of contaminated soil 
underneath the homes, mold and mildew remediation. There were 
questions regarding direct physical versus direct physical 
contact. This is just to name a few.
    In some instances, the flood program actually reversed its 
own decisions, but that information was slow to reach the 
adjusters. Some adjusters went out with the pricing guideline, 
period. Instead of price hikes due to supply, demand, and 
shortages, they are stuck with only the pricing guidelines with 
no modifications.
    I was asked to comment on lender requirements. In short, 
lenders require you buy an amount of coverage to cover the 
loan. As we all know, particularly with waterfront property, 
the structure is a small part of the total value. In these 
instances, the consumer is forced to buy an amount of coverage 
they could never, ever collect, even in the event of a total 
loss.
    Number four, failure of NFIP to implement the program as 
Congress intended, Congresswoman Davis did an excellent job of 
articulating that. I will move on.
    We have a significant number of conclusions and 
recommendations in our written report. Many factors caused 
these problems: Inadequate consumer, producer, and adjustor 
information; inconsistencies and errors in pricing guidelines 
and claim estimates; a confusing and complicated bureaucracy, 
the result, citizens with inadequate settlements and their only 
option is to go to Federal Court. We have people living in 
trailers. We would appreciate another review.
    For future disasters, please consider the thorough 
recommendations that we have made and that will come out of the 
GAO. We would appreciate Congress looking at it again. I know 
others, including Mr. Kanstoroom, have significant 
recommendations on consumer education, the comprehensive claim 
and appeal process. We need assurances that payments are 
adequate. We need to strengthen the relationship and 
coordination between private insurers, the flood program, and 
FEMA, enhanced agent and adjustor training. We need to add a 
meaningful role for State regulation regulators.
    And in closing, on behalf of the citizens of Maryland, 
thank you for your willingness to listen to our experiences. We 
would appreciate an additional review of the entire program, 
and on behalf of the National Association of Insurance 
Commissioners, we collectively stand willing to assist and 
provide expertise through our Catastrophe Working Group and the 
Government Affairs Task Force in any review, Congressional 
review, of this program.
    [The prepared statement of Alfred W. Redmer Jr. can be 
found on page 181 in the appendix.]
    Mr. Fitzpatrick. Thank you, Mr. Redmer, for your testimony. 
I appreciate that.
    Next we recognize Mr. Donald L. Griffin. Mr. Griffin is 
vice president, Personal Lines at the Property Casualty 
Insurers Association of America, which is a trade association 
representing over 1,000 property and casualty insurers who 
write almost 40 percent of all insurance policies sold in the 
United States.
    You have 5 minutes.

STATEMENT OF DONALD L. GRIFFIN, VICE PRESIDENT, PERSONAL LINES 
   FOR THE PROPERTY CASUALTY INSURERS ASSOCIATION OF AMERICA

    Mr. Griffin. Thank you. I appreciate the opportunity to 
appear before you today and present information to the 
committee regarding the effectiveness of the National Flood 
Insurance Program. We have heard testimony from a lot of the 
individuals, and you will hear some shortly from some victims.
    While there are certainly problems maybe that are 
associated with the National Flood Insurance Program, I want to 
say that overall the program works very well. The program was 
established in 1968, and I would reiterate the comments of 
Director Maurstad in that it was not established to put people 
back into pre-loss condition. That is not the policy wording. 
That is not the program. The idea that Mr. Jenkins talked about 
from the GAO was that there is a balance that has to be 
maintained between what is provided and keeping it affordable, 
and they have struck that balance, and it may need to be 
changed, but that is the current system we have now.
    We would also say that the insurance industry has no 
particular say over the wording in the contract, but that it is 
a legal contract, and when we are called upon to adjust all the 
thousands of losses that you have heard about recently, we are 
called upon to do that based on the rules and regulations out 
by FEMA. So that is how we adjust those losses.
    It is a very complex program. The insurance industry finds 
it complex. The agents find it complex. The adjusters find it 
complex. I would say that that is one particular area where we 
would be very happy to work with this committee, Congress, 
FEMA, and policyholders to try and make it better and easier to 
understand.
    The claims and appeals process is very difficult. There 
wasn't a formal process set in place. The Title II provisions 
of the bill passed last year along with many of the other 
reforms actually will do lots of good things, hopefully, to 
make this process better going forward.
    While I can't focus and I can't address individual claim 
situations that you may hear about today, what I can tell you 
as an industry is we are committed. As you know, we write 95 
percent of the business through the National Flood Insurance 
Program through the write-your-own programs with insurers, and 
our company represents probably 40 percent of that market. What 
we can tell you is we are very committed to making the program 
work better.
    We believe that there are ways to do that, and many of the 
ways include doing things like simplifying the determination of 
where the flood property actually is on a flood map. That is 
probably one of the most difficult things for an agent to do. 
It is also difficult to try and figure out what coverage is 
actually there.
    On the process of the purchaser, one of the other things 
that they are typically required to do is buy flood insurance 
to meet the demands of the mortgagee. As you heard from Mr. 
Redmer, there is a problem with mortgagees requiring the amount 
of insurance to be too high and not cover just the structure, 
but to cover the entire mortgage. There are State laws in many 
States that prevent that from occurring, but probably not in 
Maryland.
    There could be many improvements to the program. We find 
it, as we said, very complex. PCI and the IBHS, which is the 
Institute for Business and Home Safety Flood Committee, are 
very willing to work with everyone to try and come up with 
solutions to fix these problems as well as implement the 
provisions of Title II. We have actually been working and have 
had several meetings with FEMA and the NFIP on the 
implementation process of Title II based on the public law 
passed last year.
    There is one particular provision of that Act, though, that 
causes us grave concern with the insurance industry, and that 
is a requirement that you have to have a signature saying the 
insured understands what they bought. Because of the way the 
process is administered, as you know, there is a 30-day waiting 
period for people before their coverage becomes effective. So 
signing a form that is saying that they got all of these 
documents at the time they actually purchased the policy is not 
practical. That means that policy form and that document 
requiring the signature must be mailed later. The return or the 
compliance with that return could be very problematic for both 
the industry as well as FEMA, and it could be problematic later 
at claim settlement time.
    The other thing that we would support is you very wisely 
put in some very helpful mitigation issues, the ability to deal 
with repetitive losses. We would hope and we would work with 
you and Congress to fund those mitigation repetitive losses. We 
think that is very important for both the program as well as 
the industry as well as policyholders.
    As I mentioned before, but it should be reinforced, the 
program works. There may be ways to improve it, some of which 
were discussed in my testimony and in the written testimony I 
submitted, but overall, it provides a very important 
catastrophic protection for the policyholders, for the Nation, 
and for our members.
    Thank you.
    [The prepared statement of Donald L. Griffin can be found 
on page 125 in the appendix.]
    Mr. Fitzpatrick. Thank you, Mr. Griffin.
    Our next witness is an American who is on the other side of 
the contract process, the person who paid the premium 
faithfully year in and year out, who expected to be covered, 
who is harmed, and still has a loss yet to be reimbursed for. 
And for introduction of our next witness, I call on the 
gentlelady from Pennsylvania, Ms. Hart, to introduce her 
constituent.
    Ms. Hart. Thank you, Mr. Chairman. I appreciate the 
opportunity to be here again and the opportunity to introduce 
my constituent, Beth Beam. I want to thank Beth. She has taken 
a lot of time with my staff and with me to have us understand 
the gravity of the situation that she and her family face, 
which, unfortunately, is more common than we would like to 
think as a result of some of this miscommunication and really 
misinformation surrounding the National Flood Insurance 
Program.
    Beth and her husband, Mike, live in Ellwood City, 
Pennsylvania, which is a lovely town where I actually have one 
of my district offices, and Ellwood City was hit very hard by, 
unfortunately, two of the hurricanes of last fall or last late 
summer.
    Mrs. Beam is a credit analyst, and she took off some time 
to be home with her kids and fully intended to return to work, 
but hasn't been able to do so, basically, because of the 
challenges that her family faces as a result of basically their 
homelessness as a result of the flooding and ineffectiveness of 
the programs that she and her husband have been trying to 
navigate. The promises made, the contracts, again, as the 
chairman referred to, have really placed them in a difficult 
situation.
    They were flooded twice, as I mentioned, last September and 
have still not been able to move back in their home. She is 
going to give testimony about the details.
    But I just want to thank you, Beth, for being here. I want 
to thank you for bringing your information to us and your 
patience, really, for dealing with this.
    And I yield back, Mr. Chair.

       STATEMENT OF BETH BEAM, ELLWOOD CITY, PENNSYLVANIA

    Ms. Beam. Chairman Ney, Ranking Member Waters, members of 
the committee, thank you for providing me the opportunity to 
discuss my experience with the NFIP.
    My husband and I purchased a house in Ellwood City along 
the Connoquenessing Creek. We spent 8 years remodeling the 
entire house ourselves. We purchased over $93,000 in flood 
insurance, being told it would cover any damages in the event 
of a flood. Instead, the insurance industry has taken our 
premiums and gave nothing in return.
    During this nightmare, we have been left to fend for 
ourselves. Our first floor was flooded with 1 foot of water on 
September 9, 2004 by Hurricane Francis and then with 5 feet 
from Ivan just days later. Although we suffered such a 
catastrophic loss, that experience pales in comparison to the 
nightmare we have endured fighting for our settlement with 
FEMA, its contractor, Computer Sciences Corporation, Liberty 
Mutual, and Countrywide. Watching the destruction of my family 
through the settlement process has been far more painful than 
the flood.
    Because FEMA failed to honor its contract with us, we were 
forced to live with my parents. Our 19-month-old toddler is a 
light sleeper. To accommodate her, my 4-year-old sleeps on the 
floor in the family room, my husband on the couch, and me in a 
chair, for 7 months.
    It breaks my heart to see how this is affecting my 4-year-
old daughter. She cries because she has been separated from her 
friends at home for so long. She misses her bedroom and her 
toys. She wants to sell lemonade to make money to fix our home. 
She calls it the flood house.
    The endless stress has left me physically and emotionally 
exhausted. As a result, I have been constantly ill.
    After the flood, I immediately filed an insurance claim. 
Bellmon Adjustors, a third-party firm, informed me that their 
records indicated we only had $5,800 in coverage, not the 
$93,000 we paid for. We were shocked. This was the first we 
learned of this problem.
    I immediately contacted Liberty Mutual's flood processing 
center and was told, unbeknownst to me, FEMA redesignated our 
flood zone. Liberty Mutual confirmed that a notice regarding 
the policy change had not been sent to me. Likewise, my agent 
stated he never received a notice, nor did my lender, as 
required by law.
    Liberty Mutual's vendor told me not to worry; the policy 
would be reinstated with proper coverage, and we would receive 
a retroactive bill. The next day, Liberty Mutual's vendor left 
a message stating they discovered an unsigned computer-
generated copy of the letter regarding the redesignation that I 
should have received.
    I learned Federal law required my lender to maintain 
adequate coverage on the loan. I next contacted a FEMA 
underwriter, Mr. Van Dyke, who denied the existence of the 
Federal requirement imposed upon the lender. After many calls, 
FEMA's Van Dyke reluctantly admitted the law existed and 
questioned why I wasn't suing my lender and insurance company 
for errors.
    Despite our 8 years of faithfully paying premiums, neither 
Countrywide, Liberty Mutual, nor FEMA would accept 
responsibility for the failed notification process. Clearly, 
one or more of these entities is at fault, and FEMA has 
oversight of Countrywide and Liberty Mutual.
    It is common knowledge the NFIP is virtually suit-proof in 
that unless fraud is proven, attorney's fees and punitive 
damages are not recoverable. We will be fortunate to receive 60 
percent of what we are owed years from now. In the meantime, 
FEMA and our insurance company are taunting us to sue them.
    I eventually went round and round with FEMA. First, they 
said they would reform my policy to provide the coverage that 
appeared on the original declarations page. Then they reneged. 
Then they lost my case and said my case was closed. All the 
while, my 4-year-old sleeps on the floor and my husband and I 
sleep on the couch and a chair.
    From the beginning, we should have received clear 
information rather than four-way finger-pointing between FEMA, 
CSC, Liberty Mutual, and Countrywide. Had it not been for the 
victims web site, femainfo.us, we never would have known that 
history repeats itself in regard to the NFIP, its contractors, 
and business partners.
    A Federal program should be capable of handling the 
American public. Instead, a citizens group is carrying FEMA's 
load. Something is terribly wrong here. I cannot believe that 
Congress ever intended to set up a premium-funded program where 
the policyholders have no rights, a program that has no 
oversight and no accountability to the very people that fund 
it--the policyholders.
    Liberty Mutual reluctantly filed an E and O claim and 
offered us 50 cents on the dollar. Just like the Isabel 
victims, we are now trapped in limbo 7 months later along with 
many of my neighbors. They too are flood insurance victims, 
each with their own claims adjusting horror story.
    We want our lives back. We want to go home. We want to be 
happy again. Isabel is being replayed in Pennsylvania. Clearly, 
FEMA's NFIP is broken.
    Please use your power to right this dreadful situation. The 
information is now readily available, and I urge you to set 
aside the several days of testimony it will take to expose the 
NFIP disaster. Thousands of us are desperately depending on 
each of you to help us regain our homes and our lives.
    Again, thank you for the opportunity to testify today, and 
I look forward to answering questions.
    [The prepared statement of Beth Beam can be found on page 
64 in the appendix.]
    Mr. Fitzpatrick. Thank you, Ms. Beam, for bringing your 
family's story to Congress.
    Our next witness is Larry Bearekman, and, Larry, you have 
already been introduced by Congresswoman Davis. You have 5 
minutes.

        STATEMENT OF LARRY BEAREKMAN, POQUOSON, VIRGINIA

    Mr. Bearekman. Thank you, Chairman and subcommittee 
members. I want to especially thank Joanne Davis for giving me 
the opportunity to come up here and witness to what has 
happened to us.
    I live in the City of Poquoson. It is a small, quaint city 
on the Chesapeake Bay near Hampton, Virginia, about 11,000 
people. It has good schools. It is a great place to raise your 
children. Unfortunately, the highest ground in the whole city 
is about 11 and a half feet.
    September 18, 2003, my wife and youngest son went to 
Richmond to stay with my parents. I stayed at the house with my 
two teenage sons, and Hurricane Isabel arrives. We were able to 
stay in the house until 10 a.m. That morning, we grabbed what 
keepsakes and things we valued and hit the road.
    September 19th, I can see it like it was yesterday. Myself 
and my two teenage sons tried to get back to the house. It took 
us 3 hours to get within a couple of miles of the house because 
of all the rubbish, debris, trees, telephone poles that were 
all over the roads. It looked like a war zone. We had to 
abandon the car. It was just unbelievable, the amount of 
debris.
    We were walking down the road and we were walking on 12 
inches of seaweed, lawn chairs, buoys, everything you can think 
of. The smell, the smell of fuel oil, sewage, swamp mud, and on 
top of that, when we got to the house, my door is wide open. I 
didn't realize what the force of the water could do.
    We went into the house. The furniture, all of our 
belongings are all over the place. I went back outside, and you 
could see the mud packed on the side of the house, how high the 
water got to. It got to the bottom of the window sills. The 
fuel oil tank in the back of my yard actually was dislodged, 
and I know that it was half-filled and probably weighed in the 
proximity of about a thousand pounds.
    That evening, my wife came back from Richmond, and all we 
could do was hug and cry. After a minute, I just had to take 
deep breath, and I told her, I said, Honey everything will be 
fine. I said we are insured. If I would have known then what I 
know now, I couldn't have said that statement.
    I have a lot to say, a lot of things to cover, and not 
enough time, but I would like to point out that I am one 
person, we are one family, we are five victims. There are 
thousands and thousands of other victims who have been damaged, 
taken advantage of, and not given their rights. Of all my 
neighbors, there is not a one that has told me that they had 
everything paid for. Just recently, I talked to and was aware 
of two of my neighbors that did finally settle for the full 
amount of damage to their houses. They were paid the same 
damages that I had put a claim in for through the outreach 
program and they got fully covered, and then my file was ready 
to be reviewed about August 13th, as in my written statement. 
At that time, Charley hit the next day and you could not find a 
FEMA representative up in their offices. I think it is up in 
New Jersey.
    At that time, I had been put off, run around, and I hired a 
consultant, insurance consultant, licensed insurance 
consultant, who was trying to help me with my situation.
    Mr. Griffin says that it is their intent to follow the 
rules and regulations. Well, if you look explicitly at my 
written testimony, which I cannot cover everything, you will 
see that there are a lot of discrepancies. One that I would 
like to place emphasis on is on the next day. On March 1st, I 
basically had gotten an engineering company to do a report on 
some damage of the house. The insurance agent said we cannot 
use your engineering consultant, which he told me that I 
needed, and it ended up costing me $400.
    So they hired their own engineering company, Rimkus Group. 
If you will notice on Exhibit P, this is a letter that was 
written from David Maurstad to Governor George Allen. He took 
this copy and sent it to Joanne Davis. That was her reply from 
him on the same issue. In the third paragraph, he basically 
misrepresents the language and creates an untrue statement in 
reference to my engineering report.
    He says a report from Norman Davis, architect, a firm hired 
by Mr. Bearekman, was submitted to the engineer for review in 
conjunction with this inspection. He says, ``It identified a 
construction defect of undersized foundations.'' If you look at 
that exhibit in the written testimony, you will see that there 
was no mention of a defect. It basically said that the 
foundation would not meet today's codes and that is why it 
would have to be upgraded. When the house was built in 1970, it 
met code.
    So what he has done is, also if you look at the next day, 
March 1st, they had my engineering report and said that they 
could not use it. They had to go to and do their own 
engineering report. And now he is trying to use my engineering 
report to substantiate his denial of my insurance when, in 
fact, through the outreach program, he paid other homeowners 
for this exact same damage, same type of construction, and then 
turns around and denies everybody else from August 13th on.
    I know I have run over my time. I appreciate the slight 
extension, if you have got any questions, and I really do 
appreciate this opportunity.
    Thank you.
    [The prepared statement of Larry Bearekman can be found on 
page 69 in the appendix.]
    Mr. Fitzpatrick. Thank you, Mr. Bearekman, and you should 
know that your testimony and the testimony Ms. Beam and others, 
the written testimony, are all made part of the record. We 
appreciate that.
    Our next witness is Steve Kanstoroom, who is a resident of 
Ashton, Maryland. He began examining the National Flood 
Insurance Program 2 years ago in response to a neighbor's 
problems following a flood event.
    Steve, you have 5 minutes.

      STATEMENT OF STEVEN J. KANSTOROOM, OXFORD, MARYLAND

    Mr. Kanstoroom. Thank you, Mr. Chairman, for inviting me 
here to testify today.
    My home is in Oxford, Maryland. It is on Maryland's eastern 
shore, and over the past 15 months, I have spent more than 
6,000 hours investigating the National Flood Insurance Program 
and its problems. Prior to Isabel, I retired as a pattern 
recognition and fraud detection expert. I was responsible for 
programs with millions of customers, billions of dollars, and 
making certain that those programs operated consistently with 
Federal regulations. That was my job.
    I gained my experience in processing these multibillion 
dollar bank portfolios and corporate portfolios from leading 
experts in some of the largest banks in the country, MasterCard 
International, Visa USA, U.S. Secret Service, Postal 
Inspectors. Prior to that, I processed for the Department of 
Justice and others.
    I have got solutions. I'm so troubled to sit here. I heard 
what Congressman Ney said. I heard Congresswoman Melissa Hart. 
I have got the answers. I have got all the answers. I can't 
explain something larger than Enron in 5 minutes. I have got 
them. I can do it in 15. I can't do it in 5.
    But what I would ask, is ask me questions. I will give the 
answers, and I will just do the best that I can to speak to 
these points. What I would ask is, ask me about the prior 
administrations. I lined up the appointees to testify here 
today, the Presidential appointees, the folks who ran the 
program for Mr. Maurstad. What they will tell you and if you 
look at the record, of course, the program is to restore people 
to their pre-loss condition. This nonsense about it never did 
is just that. It is total poppycock.
    The fact of the matter is what they are doing is spinning 
this and saying, Well, we are talking contents. We are not 
talking contents. We are talking the four corners of your home 
and, of course, replacement cost value means you restore it to 
the pre-loss condition. The industry knows what replacement 
cost value means.
    Well, regardless of what Congress said, it is how they 
trained these people. The fact is I received very significant 
press when I learned of the pricing disparity, this wrong set 
of numbers that was being used. I took it to the Senate. The 
Senate hearing largely turned on that finding. Look at my 
testimony. You will see the published data says it is a 
fraudulent use of that data. That is what he is saying to the 
insurance industry. That is what he's saying to Florida 
officials. That is what he said to Jeb Bush. That is what he 
said to Charley Crist. That is what he said to Tom Gallager, 
fraudulent use of the numbers. Look in the testimony.
    The fact of the matter is the four corners of your house, 
if it is properly insured, of course it is replacement cost 
value. Look in the policy. It just pains me to see these people 
sleeping on the floor and to have officials come in here and 
try to spin this into something that it is not.
    Once I received the positive press, I started having 
whistle-blowers call late at night. I had them from FEMA. I had 
them from Computer Sciences Corporation. I had them from 
insurance industry officials.
    I shared that information with former fellow insurance 
administrator Robert Hunter, and what he said was history seems 
to be repeating itself. The fact of the matter is these 
problems are coming from the industry's desire to hold their 
claims payments down. FEMA will say and then the industry will 
say, well, but it is not coming of our pocket; it is not coming 
out of the carrier's pocket; there should be no problem here. 
Well, but there is. The same adjustor adjusts that the flood 
loss is upstairs, and that adjustor is working for the carrier, 
and the carrier doesn't want to pay $2 a square foot for sheet 
rock on the first floor coming out of the NFIP budget. They 
want to pay $1.46, for example. When the tree falls through the 
roof upstairs from the same storm, that is what they want to 
pay.
    Clearly, if one pays $2 on the flood, another pays $1.46, 
it is going to jump off the page. That is a big part of the 
problem. That is where it is coming from.
    Another place that it is coming from is Computer Sciences 
Corporation. I found the training problem disparity whereby 
FEMA trains its sales agents to tell customers that they will 
be restored to the pre-loss condition. I was there. An industry 
person was with me. He wanted to testify today. He is sitting 
right over there. He will tell you this is how they train us. 
This is what FEMA says. That is what Bill Griffin's testimony 
says. We pay for the unbroken chain of events flowing from the 
loss; that is what they say.
    CSC then turns around and trains the claims adjusters very 
differently, narrowly defined coverage, in limited amounts. 
That is a problem. It is not a question of the agents don't 
know what they are doing. It is a question of the same 
companies training the agents that you have coverage and 
turning around and training the adjusters that you don't. I 
have got the adjustor training on video tape. We have got the 
witnesses in the room that can attest to the agent training.
    Regarding Mr. Maurstad's surprise that the marketing 
materials say that it is restored to the pre-loss condition, it 
is not just that one piece that I sent to Congresswoman Davis. 
I have got numerous examples where the industry says they will 
restore people to their pre-loss condition. Again, I can't go 
through that in a couple of minutes.
    Lastly, the publisher of the data cites WINK TV's videos in 
Florida. You need to look at those. They are available on the 
web site. You need to look at those.
    What I would ask is, ask me the questions. Ask me about the 
training disparity, how I know. Ask me about the underlying 
reasons for low-balling. Ask me about what CSC's private 
contractor knew and when they knew it. It is not just words. I 
have got the documents. We have got the witnesses, and they 
very much wanted to testify here today.
    I appreciate the opportunity to be here. I appreciate the 
opportunity to answer any questions.
    [The prepared statement of Steven J. Kanstoroom can be 
found on page 150 in the appendix.]
    Mr. Fitzpatrick. Thank you, Mr. Kanstoroom.
    Our final witness is Ms. Georgette Stelyn, who has been 
introduced by Congresswoman Davis previously.
    Georgette, you have 5 minutes.

      STATEMENT OF GEORGETTE J. STELYN, SEAFORD, VIRGINIA

    Ms. Stelyn. First, I would like to thank you, the 
subcommittee and chairman, for my letting me testify today.
    I would like to start by telling you what I was doing 
actually on September 17th, the day before the storm. I had 
called my insurance agent to make sure that all of my insurance 
papers were in order. He reassured me that I was plenty 
insured. I had $225,000 on my dwelling and $52,000 on my 
contents. He said you should be fine with what you own and 
where you are.
    So I started to prepare for the storm. I lifted everything 
in my house off the floor 2 to 3 feet in hopes not to lose as 
much, and then we had a mandatory evacuation. So I packed up my 
minivan with my four children and my dog, everything that I 
felt was important, which was my home videos and my photo 
albums, and said happy anniversary to my husband.
    Then I woke up on September 18th. There was a phone call 
from two friends of mine. They had just cut through the trees 
and gotten to my house. They told me everything I own is gone, 
two walls of my house are missing, and the roof collapsed. I 
dropped to my knees crying. I didn't know what to say to my 
four kids. I didn't know where to go or even what to do.
    So I packed my minivan back up from the hotel that we 
stayed in that night and headed back home to I don't know what. 
On the way home, I called my insurance agent and told him my 
situation and to please immediately put my claim in, which he 
did so. Then it was September 22nd. I had an insurance adjustor 
come out to my house. He was at my house for about 30 minutes, 
took a few measurements and I would say approximately 12 
photos. I never saw the man again. He never came out to my 
residence again, and he is going to tell me what my house is 
worth.
    So before he left, I had asked him what do I do; what do I 
need to do? He asked if I needed any money. He gave me a check 
for $5,000, and then he just told me to start itemizing 
everything that is damaged. I said I will do that, which I did. 
I itemized 2,603 things that were damaged. There was a lot 
more, but that is as far as I itemized, which came to a total 
of $193,968, which he depreciated 71 percent of.
    After several weeks going by, I had numerous conversations 
with my insurance adjustor from Travellers asking when I can 
receive more money. He had said my claim is actually a very 
large claim; it is going to take some time to get to. I 
immediately started construction. I went through my savings, I 
cashed out stocks, and I had borrowed money. I was now 40,000 
out of my pocket waiting for my settlement.
    Then my adjustor came to me with a copy of a settlement and 
the grand total of $49,200. I had asked him, no one can build a 
house on this price, not me or anyone else. So I am looking 
over the papers with him, and I started pointing out things 
that were missing in my settlement, doors, walls fixtures, 
numerous things, and then I questioned his prices, why am I 
paying this much for 2 by 4s and sheet rock when my builder is 
charging me this much for 2 by 4s and sheet rock; why are your 
prices so much lower than what the store is charging me?
    So he had said this is a rough draft. What I will do is we 
will go over it, and if you can get me any receipts on any of 
your newly renovations I have done on the house, do so. So I 
started hunting down receipts, a receipt for my new carpet, a 
receipt that my refrigerator was 2 months old, all the receipts 
I can receive. He went over it and he gave me his new revised 
draft, which was $124,923, which the house was only going to 
cost me 210,000 to replace. So I am still being cheated by the 
adjustor and still short.
    Within this process, I had to stop my construction and wait 
2 months, stopped construction waiting for my settlement from 
the adjustor.
    Every year, I am forced by law to pay my insurance and I 
have to pay it on time. I am not allowed to be late, and when 
it came time for the NFIP and FEMA to help me, they instead 
cheated me. They stalled my claim, drug it out as long as they 
could; it was such a big claim. They used a software program 
which did not pay for the materials that I was paying for down 
at the store, and when it comes to taxes, I never saw any 
taxes. My 2 by 4s, I had to pay taxes on. My contents, I had to 
pay taxes on them. There was nothing in there with the taxes.
    So where am I today, you may ask. I am now a year and a 
half down the road. I have moved into my house. I don't own a 
couch yet. Contents money went structure. ICC money, they were 
4,000 short. So I am now single, actually getting a divorce, 
with my four children. I have thousands of dollars in debt. My 
builders are putting a mechanical lien against my house for 
$38,000 because I don't have the money to pay.
    The sad part is what has happened to me has happened to 
thousands and thousands of families. I have eight neighbors. 
Three of us are back. Five are not even there yet. This has 
happened to thousands, and all I can say is I plead, I beg, I 
ask for someone to please get the NFIP, FEMA; everyone needs to 
get everything straight and stop cheating us who are the people 
that are paying on their policies.
    And I thank you.
    [The prepared statement of Georgette J. Stelyn can be found 
on page 244 in the appendix.]
    Mr. Fitzpatrick. Thank you, Ms. Stelyn.
    The committee appreciates the personal testimony of 
everybody, especially those who have been victimized by 
flooding in your individual communities and those who stand in 
the position of administration of the flood insurance program.
    Mr. Jenkins, I was wondering if you could from the 
industry's point of view address a couple of things. One is 
regular everyday citizens who purchase flood insurance and 
believe mistakenly or otherwise that--you have heard the 
testimony here that they have been told pretty clearly that the 
four corners of their structure, just talk about the structure 
itself, their home, is covered in the event of a flood, and 
then they find out while they are faithfully and dutifully 
paying those premiums each and every year that there is no 
coverage, or if there is coverage, there is inadequate 
coverage, or even if there is inadequate coverage, that you 
have got to fight with your own insurance company for months 
subsequent to a flood with no place to live unless you are 
fortunate enough to have family in the area.
    What is the industry doing to address that concern, first, 
and also 7 months since Ms. Beam has had her incident in 
Ellwood City, Pennsylvania, you know, while I am sure companies 
are watching and companies wanting to address that particular 
situation, what are the companies doing to rectify the 
situation, to change industry standards so that families like 
the Stelyns and the Beams who are here today are not going to 
have to endure the problems that they have endured in the past?
    Mr. Jenkins. I think that question might be better directed 
to Mr. Griffin who represents the insurance companies because 
we have not done any work looking specifically at that.
    Mr. Griffin. I would be happy to try and address that 
issue. Certainly in any program with the thousands of claims 
that are going on, there are problems that arise. No system is 
perfect. We understand that there are people that have been and 
still are out of their homes and have problems.
    I will tell you that the industry works very hard to try 
and settle all the claims they can as fairly as possible. I 
will also say that you heard testimony from Director Maurstad. 
Of the 24,000 claims that were given the opportunity to be 
reviewed, in the end there were 2,000, a little over 2,000 that 
requested a review and a little over a thousand of them that 
ended up with a different settlement. Certainly, that is not an 
entirely acceptable amount, but as far as percentage concern, 
that still means that roughly 96 percent of the people got the 
amount of insurance under the program that is paid for by the 
contract or called for by the contract.
    With regard to going forward, we are hoping that many of 
the provisions that were put in under Title II will help and do 
things that will make things better for people to better 
understand what they are actually purchasing, for us to be 
better able to help them with the claims process, and we are 
working very closely or more closely than we have with FEMA in 
the past to try and rectify some of these problems.
    I will say that prior administrations and prior directors 
at FEMA were not as supportive of the public-private 
partnership that needs to exist for this program to work, and 
we certainly are happy to see Director Maurstad in this 
position because he does seem to understand the importance, but 
it is a public-private partnership. It involves the government. 
It involves the policyholders. It involves the insurers.
    We certainly want to do anything we can to make it better. 
Again, I can't say that--no system is perfect. We can't always 
make everyone happy, but we are trying to do our best to 
improve it.
    Mr. Fitzpatrick. We have heard testimony here today that 
victims were forced to negotiate with, deal with, a whole line 
of adjusters. FEMA has an adjustor. The insurance company has 
an adjustor. I heard someone say the Small Business 
Administration, if you are going for a low-interest loan, they 
have an adjustor. The adjusters may or may not communicate with 
each other, probably don't, may or may not agree with or be 
talking about the same programs.
    When you talk about a public-private partnership between 
the government and the industry, what steps are you taking to 
agree to a single point of contact, a single adjustor, they can 
deal with so they can get an answer? They can live with an 
answer. What they can't live with is no answer or conflicting 
answers.
    Mr. Griffin. Very much understood. Many of our larger 
companies and many of the write-your-own companies that are 
involved in this have gone to a single adjustor process. So 
that means they would have the same adjustor for both the wind 
storm or the flood or the regular home damage. Now, what we 
can't do is change the way that FEMA works, and sometimes when 
you get involved with something that is to be done on an 
appeals process, there is a FEMA adjustor that needs to get 
involved secondarily.
    So that process has to be streamlined, and there is some 
way that we can work that better. I will say that based on what 
we saw in Isabel and what we are seeing coming out of Florida, 
there has been improvement in the program and how that works. 
It isn't flawless, but there has been improvement.
    Mr. Fitzpatrick. I would like to recognize Mr. Scott of 
Georgia.
    Mr. Scott. Thank you very much, Mr. Chairman.
    I would just first to like to say to Mrs. Stelyn, is it?
    Ms. Stelyn. Yes, sir.
    Mr. Scott. That I certainly was moved by your testimony and 
my heart certainly goes out for what you and others have gone 
through, and we hope that with this hearing today as a result 
of your testimony and others that we can make sure that this 
program runs much smoother.
    Can I ask you just for a moment if you could describe your 
interaction with FEMA's review task force? I represent in my 
district FEMA relocated at Fort Gill for their operations in 
this whole southeastern United States.
    Ms. Stelyn. You are talking about the form they sent and 
they had mailed it back with all the information that they 
wanted, and they called me and they asked me a few more 
questions, which I had spoke to them maybe a little later than 
that, and I don't know who I spoke to, but I will never forget 
my response: I am sorry, I probably could get you a few 
thousand dollars more, but we will be leaving this office, 
wherever they were, in 2 weeks to go down to Florida for that 
hurricane that was just hit.
    Mr. Scott. Okay.
    Ms. Stelyn. So, basically, he could not help me. They were 
going to Florida in 2 weeks. So that is how the review process 
worked for me.
    Mr. Scott. So you really don't think you got the 
professional quality that you desired?
    Ms. Stelyn. I was basically told, sorry, you know, we are 
leaving in 2 weeks; there is another hurricane. I am now on the 
back burner.
    Mr. Scott. Okay.
    Ms. Stelyn. I mean, I remember Ms. Hart there saying she is 
hoping her review process goes quickly, and I was thinking to 
the back of myself, good luck.
    Mr. Scott. Okay. Thank you.
    Mr. Kanstoroom, you are a medical doctor; is that correct?
    Mr. Kanstoroom. No. Pattern recognition and fraud detection 
expert.
    Mr. Scott. Okay. What do you recommend that FEMA do to 
better educate and monitor insurance agents?
    Mr. Kanstoroom. Actually, what I saw in large part was not 
a problem with the education of the agents. It is the problem 
with the education of adjusters. If the claimants, the 
policyholders, had the same materials that the sales agents 
have and if the adjusters had the same materials that the sales 
agents have, then we wouldn't be here today, I believe. It is 
just that simple.
    I mean, as far as the review process goes, it was a sham. 
What first got these folks calling me was it was people on the 
review team who called me. My phone rang at 10 o'clock one 
night. It was someone from inside of CSC. It was a victim just 
like Ms. Stelyn who had sent a letter, heart-felt letter--I 
know you are busy, a big hurricane; I am desperate; I have got 
a little granddaughter; I take care of my granddaughter--and 
signs it, please do what you can, including Sammy the kitten. 
Well, that turned into the office joke at the task force. That 
is what pushed the person over the edge at the task force to 
reach out and call me at 10 o'clock at night.
    The task force wasn't independent as the Senate directed. 
One of the early documents they gave me was the roster. Darned 
if it wasn't the same adjusters and adjusting firms in large 
part that low-balled the people in the first place in all of 
the management, identical management. So this review was a 
farce. There was no review.
    As far as the numbers that they cite, good grief. One of 
the things that they say is less than half the notices went. I 
have got victims telling me I never received a notice, and when 
they call, you know what they would say? Well, you know if we 
review it, you might end up with less; you are going to have to 
pay some money back.
    Now, in this woman's case, there is no way she is going to 
ask for a review. More over, when the reviewer would come out, 
they would just misinterpret the policy once again. So it is 
really one of--I mean this works. It works for the industry for 
the reason I said before. It is an education issue for the 
adjusters, not the agents. Sure, some agents didn't tell the 
victims that they have to elect contents coverage, but buy and 
large, that is not what we are here for, contents coverage. 
Sure, that is a problem, but they need to be speaking from the 
same book, not one training manual for adjusters, what it 
covers, and a different disparate manual for agents.
    Mr. Scott. So your response is it is not a matter of a 
number of adjusters; it is a matter of adequate training and 
education for the adjusters? You don't sense any purposefulness 
here, do you?
    Mr. Kanstoroom. Absolutely there is purposefulness. Yes, 
absolutely. Absolutely without a doubt.
    Let me give you an example. We have got--let me think. I 
think the man's name is Jeff Akin. A letter went to the Senate, 
to the Senate Banking Committee. Two primary issues turned that 
hearing. Number one was this wrong set of prices; number two, 
this letter, and I remember it. It says--actually, I may have a 
copy. It says the man has, let us say, $107,000 loss. His 
adjustor comes out and says he covered. CSC's Rodney Cross 
comes out and out, the letter says, and he told the man he is 
not covered, zero. FEMA made a mistake; you don't really have 
coverage although you have been paying all these years.
    The man enlisted the help of Senator Dole. Anthony Lowee 
sends a letter, of course, you have coverage. The victim calls 
the adjustor back, gee, Mr. Valentine, I thought you would like 
to know I really do have coverage so the same thing doesn't 
happen to my neighbor, to which the letter reads, well, I knew 
that, but CSC's Rodney Cross told me not to tell you.
    Of course, it is purposeful. I could give you a thousand 
such examples. The problem is this purposefulness is destroying 
these people's lives. It is not a matter of it hurts them. They 
can't recover. It is no different than somebody getting 
evicted. They cannot recover from the situation. Look at her. 
They are separated. She says she is going to be divorced. This 
is a disaster and so easily fixed. I have got the 
recommendations. I have worked with the folks inside FEMA. I 
have worked with the people inside CSC. We have got the 
recommendations right now. We don't need another audit, with 
all due respect. What we need is to look at what I have got. I 
have got 6,000 hours here.
    Mr. Scott. Let me just ask it generally. I am sure you have 
got them here, but could you share with us specifically what 
the priority of your recommendations would be to fix this 
problem?
    Mr. Kanstoroom. I do. There are 20 areas of low-balling and 
they are in any written. I can flip to it. I can give you some 
right off the top of my head, actually all of them, most 
likely.
    The number one issue is somehow somebody put into the FEMA 
training manual that direct physical loss equates with direct 
physical contact. That is incorrect. I brought that to FEMA's 
attention last year. They issued a claims guidance memo on May 
7th, and the point was what the adjusters were saying was 
unless water touched it, there is no coverage. Well, it makes 
perfect sense to the layperson, but wait a minute. What if it 
wicks up your wall? What if your insulation gets wet and it 
goes up your wall and now you have mold on your ceiling? Of 
course, that is covered, but what these adjusters were saying 
is water didn't touch the inside of your ceiling; there is no 
coverage.
    That one mistake that FEMA has since removed from their 
manual after I brought it to their attention, just like I 
brought to their attention about the press release on Monday, 
that one mistake easily accounts for a 50 percent difference in 
these claims payments, and there are 20 of them. That is one, 
and they are in my testimony.
    Mr. Scott. Okay. I don't want to take up much more time on 
that.
    Mr. Fitzpatrick. The gentleman's time has expired.
    Mr. Scott. Thank you.
    Mr. Fitzpatrick. Thank you, Mr. Scott.
    I recognize Chairman Ney.
    Chairman Ney. Thank you, Mr. Chairman.
    Ironically, two of our caseworkers from Ohio happen to be 
here, Joy Dillon and Jody Treadway. They are here for another 
reason. If we knew they would have gotten finished earlier, I 
would have probably put them up here on the witness table 
because they have dealt for a decade with issues. And I was 
saying earlier I am seeing more complaints in the last few 
years than I saw in previous years. So therefore, you know, I 
know something is amiss.
    There is not enough time, Mr. Chairman, today for all the 
questions I could ask, but I would actually like at some point 
in time to make some time, Mr. Kanstoroom, to take time to look 
over everything you have, you know, to take the hour or two or 
whatever to be able to do that.
    I did have a question I wanted to ask Ms. Stelyn. Do you 
have a copy of your original policy? Do you?
    Ms. Stelyn. Not on me.
    Chairman Ney. But you do have a copy?
    Ms. Stelyn. Yes. In my car.
    Chairman Ney. Okay. Because I would like to also look at 
that policy, and when you countered back, I assume to the 
agent, and you said, look, my policy says replacement--and I 
saw the pictures of, obviously, the damage that occurred, did 
it occur above the basement level?
    Ms. Stelyn. This house is on a slab.
    Chairman Ney. Oh.
    Ms. Stelyn. I am on the Chesapeake Bay. I had 5 feet of 
water.
    Chairman Ney. Okay. The way I looked at it, I am sorry. I 
guess I was looking at the picture wrong.
    So it was on a slab. So it came in through one floor and 
got everything?
    Ms. Stelyn. I lost two walls and the roof collapsed.
    Chairman Ney. So, obviously, it was definite replacement 
value because the house is gone.
    Ms. Stelyn. I don't think I would say I got replacement 
value.
    Chairman Ney. No, no, no. I mean it was to be replacement 
value because it is gone.
    Ms. Stelyn. Yes. It should have been, yes.
    Chairman Ney. Not 10 percent damage or 20 percent damage, 
it is gone.
    Ms. Stelyn. Yes.
    Chairman Ney. Now, when you confronted them, what year was 
this?
    Ms. Stelyn. When I confronted them what?
    Chairman Ney. What year?
    Ms. Stelyn. This is Isabel's storm, which was September 18, 
2003.
    Chairman Ney. And when you confronted them about why aren't 
you getting the replacement value, what was then their answer 
to that? Because if it is in the policy, it is in that policy.
    Ms. Stelyn. I was told by him this is the most I can get 
you; I am, in fact, giving you more than what I probably should 
be writing. I thought I was getting a gift, you know, and he 
kept pushing to me this computer program. He plugged in the 
number, whatever came out is what I got unless I could provide 
a receipt, and that is how the whole thing went down. I could 
not get a receipt. I got whatever that computer told him.
    Chairman Ney. Could someone, anybody, on the panel answer 
me one thing? I have heard this twice today. What is this issue 
where for sheet rock, it has got to be a certain price? I mean, 
if my house, you know--I am lucky. I have never had damage, but 
if something is damaged, let us say my kitchen, by a fire or 
something, I would assume I would be paid a certain price for 
the worth of the appliances, and then it would be up to me to 
go shopping if I want to by a used refrigerator or I want to 
buy a new refrigerator. I don't understand how the policy is 
coming back and saying the bedrock has got to be ``X'' dollars 
and 46 cents.
    If they cut you a check to say, here, this is for your 
damage, you should be free, then, I assume, to just buy what 
you would want to buy whether it is cheaper or more expensive. 
Let us say they did the perfect thing and gave you replacement 
value and said here, $200,000, it is yours. Why do you have to 
start, from what I am hearing, messing around with here is how 
much sheet rock costs?
    Mr. Kanstoroom. I can explain that.
    Chairman Ney. Okay.
    Mr. Kanstoroom. They started with what they deemed a price 
guide, they FEMA, and as it was explained to me, Computer 
Sciences Corporation developed the price guide, and on the 
price guide, which I have copies of, it clearly states the 
source is the National Construction Estimator. The publisher of 
the data of the National Construction Estimator who wished to 
be here today, but due to the constraints the committee 
wouldn't permit, he submitted written testimony.
    What he says is quote, leading the consumer to believe that 
new construction pricing represents a fair and complete 
valuation of their damages is, in my expert opinion, 
fraudulent.
    And so the problem was CSC had these price guides and 
clearly printed on the bottom on some States--I believe I have 
Maryland, North Carolina, and Virginia. Some States, it said 
only to be used as a guide or words to that effect. Others, it 
didn't, and that led to these claims adjusters coming out and 
saying, believe it or not, Federal law requires that I do not 
exceed these guidelines.
    Now, I brought that to FEMA's attention several days before 
the Senate hearing. It took them 2 months to issue a bulletin, 
and, again, that is a May 7th claims guidance memo, where they 
say that is not how it needs to run and they can use contractor 
bids and estimates, words to that effect; however, they never 
told anybody. When you talk to the people on the task force, 
they said I am not aware of such a memo.
    Chairman Ney. Now, let us assume----
    Mr. Redmer. Mr. Chairman, if I could interrupt, the issue 
is not if the claim reimbursement should be a thousand dollars 
and they actually give you a thousand dollars, at that point, 
you can go out and take that thousand dollars and buy whatever 
you want, whether it is $800 or whether it is $1200. The issue 
is, based on the system, instead of the claim reimbursement 
being a thousand dollars, you are getting a check for $400, 
$500 or $600 at best, and that is where the friction is.
    The adjudication of the claim typically is for pennies on 
the dollar so that you don't get the amount that you could get 
to go out and buy what you need to buy.
    Chairman Ney. As commissioner, do you get people that 
obviously are coming to the Department of Insurance and saying, 
wait a minute, this isn't fair, and they file with you?
    Mr. Redmer. Yes.
    Chairman Ney. Do you have the ability under how we have 
things set up to intervene at all?
    Mr. Redmer. Before Hurricane Isabel, if you presented 
yourself to Maryland, you received a letter and the letter said 
we can't help you; it is a Federal program; here is the 800 
number. Under Joy Hatchette, we set up a program where they 
came to us and we facilitated communication and information and 
we got inspections and those kinds of things, but we do not 
have the ability as State regulators to regulate the claim 
adjudication process like we do with a homeowner's claim. It is 
completely pre-empted by Federal law.
    And I need to stress that we have heard from victims this 
afternoon that are young, educated, and articulate consumers. 
Go to eastern Baltimore County in Congressman Ruppersberger's 
district where you are dealing with folks that are in their 
seventies or their eighties and older, and the frustration and 
the bureaucracy is such that they don't call because they can't 
navigate that bureaucratic system.
    Chairman Ney. I am out of time. I apologize. I just think--
I understand. I am trying to estimate if it is partial damage. 
You know, you can start to debate some of this, the prices. For 
example, the total damage, I know with the homeowner's 
insurance it says the replacement value for my home is blank. 
It is already preset today. Now, if I upgrade my house, I tell 
my agent. So that, in my mind, is the replacement value if it 
burns down to the ground and there is no walls left or it is 95 
percent gone. That is why in her case, if she has the policy, 
it is puzzling.
    Mr. Kanstoroom. I don't agree. What that is, that gives you 
a right to sue.
    Chairman Ney. What is that?
    Mr. Kanstoroom. That policy. That is not a guarantee you 
are going to paid.
    Chairman Ney. It is in my mind.
    Mr. Kanstoroom. No.
    Chairman Ney. Before we get into a debate here, hear me 
out. I think you will agree with me. In my mind, which as I am 
sure was in her mind or his, this gentleman's mind, that is 
what you get if it was gone. That is what I would think.
    Mr. Kanstoroom. That is what they sell you, but that is not 
what you get. What you get is a difficult negotiation with 
people that are told these are the prices I can't deviate from, 
and the question is, well, why would that be, and my answer is, 
because it works for the property insurance side of their 
business.
    When Allstate sells you the flood policy, in most cases, 
Allstate is selling you the wind policy. Allstate does not want 
to pay, and this is from their adjusters and the documents. I 
am not saying anything that is not easily verifiable. They 
don't want to pay at $2 a foot for sheet rock upstairs. They 
want to pay $1.46 upstairs, and so when their flood adjustor 
comes out, he is going to tell you my book says it is $1.46.
    Chairman Ney. And I will conclude. I am just saying this 
needs cleared up because this goes beyond a misunderstanding. 
This is going into turning someone's world upside down.
    Now, if it says to you or to me in my policy, you know, by 
the way, here is your replacement value, but we might have to 
talk about this, then I go into it knowing, okay, there might 
be a problem. But I, myself, when I read my policy, I assume 
replacement means replacement. So we have got to clarify that 
because it is a terrible problem for people.
    I am sorry for running over.
    Mr. Kanstoroom. When you read it, it says replacement cost 
value. It is not a defined term in the policy. It is the 
industry standard, and that is the meaning people take out of 
it, and unfortunately that is not what they mean.
    Chairman Ney. We want to work with you. I appreciate it.
    Mr. Chairman, I appreciate it. I am sorry for running over. 
I don't normally do that. I apologize to the other members.
    Mr. Fitzpatrick. Thank you, Mr. Chairman.
    The chair recognizes Mr. Ruppersberger.
    Mr. Ruppersberger. Thank you.
    We only have a short period of time, and I am going to ask 
Mr. Redmer a question and Mr. Kanstoroom a question. What I am 
really interested in, we have been working on this issue for a 
long time with your office, Mr. Redmer, and, Mr. Kanstoroom, 
you have been working with us and have done a lot of research. 
What I am interested in and my questions are going to be to 
results and recommendations that you have for this committee on 
how we can try to fix the problem.
    We have identified some of the issues, the industry 
standards, and I think that is very relevant, because just 
because it is the insurance industry standard doesn't mean that 
their clients who they are selling policies to are being served 
correctly. If we have another incident, we are going to have 
the same problem again.
    So, Mr. Redmer, we worked closely together when you were a 
member of the House of Delegates. You did a great job there. 
You know what constituent service is about. You also now as 
insurance commissioner know what these issues are.
    Based on what you have seen from the time we had Isabel 
until now, from those two perspectives, what do you think needs 
to be done as far as fixing the problem? I mean, a different 
type of standard in the industry? A law by Congress to force 
that we do something differently? FEMA being more responsive 
about changing laws so they have the authority to do what they 
need to do?
    Remember, we don't have a lot of time. I have asked the 
chairman to give me some more time if we could.
    Mr. Redmer. And I appreciate that. In the spirit of time, 
we have two reports that literally have dozens of 
recommendations, and I could rattle on forever, but there needs 
to be a clear claim adjudication process. There needs to be an 
appeal process.
    Mr. Ruppersberger. An appeal process where?
    Mr. Redmer. With the Federal program. There is not a 
clear----
    Mr. Ruppersberger. How would you recommend it work so we 
don't get caught up in a bureaucracy?
    Mr. Redmer. Well, the easiest way to do it is to make it 
consistent with what happens with other forms of insurance. One 
of the problems that we have is that the Federal flood program 
is different than homeowners insurance. The expectations are 
that they are the same. Clearly, they are not. So the more that 
we can make them similar, the more that we reduce the gaps that 
are in the program.
    Mr. Ruppersberger. How about a requirement or a system that 
will require the people selling the insurance that part of that 
requirement to sell is an education and then a verification so 
that the person who might not have the sophistication feels 
that they know what they are getting? That way, the 
expectations are there.
    Mr. Redmer. Certainly having enhanced education, training, 
and disclosure is good.
    Mr. Ruppersberger. That is part of the sale of the policy?
    Mr. Redmer. Absolutely, but the problem is even with 
adequate disclosure, you have gaps in the program. So you are 
still only going to get 50 cents on the dollar.
    Mr. Ruppersberger. So then what would you recommend to get 
to the next level to get what the appropriate compensation is? 
Money?
    Mr. Redmer. Well, certainly there needs to be money, but 
one of the things we have to do is make sure, number one, that 
we close the gaps where we don't have coverage that we should 
have coverage. We need to do a better job of training and 
educating the adjusters so that they use the software 
correctly.
    There is an ability, and we have investigated the software 
packages. You can take the plywood and throw in a modifier 
because it is a renovation instead of new construction, but 
either the adjusters are not trained how to do it or there are 
financial incentives for them not to do it.
    But again, there are dozens of recommendations.
    Mr. Ruppersberger. Well, that is something that really is 
important because we are talking about end gain, and I know 
this is not my committee, but I would like you to get that.
    Mr. Kanstoroom, you have done a lot of work. You have 
worked with our office. You have represented or you have 
advocated for a lot of people in my district as far as your 
research and expertise. We have had conversations. I am 
interested to know what you feel and if you have some 
specifics--again, we have time issues--about the problems that 
exist. Again, I am more interested in your recommendation on 
what we need to do with respect to either do we need Congress 
to pass a law. What do we need to do to deal with the issue of 
insurance standards?
    It shouldn't be industry standards. It should be standards 
that we--because the Federal Government is involved and State 
and local issues, it should be a system that works, and give me 
your recommendations about problems that you see that are very 
blatant. And is it an issue of problems or symptoms? I mean 
where are we going here to solve it? I would really like to 
hear recommendations because, in the end, this committee is 
going to take what we do here today and attempt to resolve it 
either through a law or whatever. So this is your chance, if 
you can, to give me what you know.
    Mr. Kanstoroom. Number one, these are symptoms that you are 
hearing about today. There are much greater problems here that 
have not even come out on the table. These are the symptoms.
    As far as what you do in the short term, in my testimony, 
written, there is a proposed bulletin to the industry that 
details the 20 points of low-balling; here is the problem; here 
is solution. I will gladly sit with whoever you want me to sit 
with. After talking a couple of days, everyone is going to say, 
oh, wow.
    Mr. Ruppersberger. Well, we will talk to the chairman who 
is very interested that we talk to the staff here and who will 
meet with you and do the research.
    Mr. Kanstoroom. The point is these people need help today. 
So the short term is this bulletin goes today with instructions 
that these claims have to be looked at to be in compliance with 
what should have been done in the first place. That will get 
people like Georgette back on her feet quickly because she 
doesn't have time. She doesn't have time for hearings or 
investigations. She doesn't have time. So if I could explain 
that and show people how that works, that is number one.
    As far as going forward in the medium term, there needs to 
be oversight. The States, as you heard, really have very, very 
little they can do other than bring this to people's attention. 
In fact, in the Federal Government, there is no oversight 
either.
    The oversight comes from FEMA and that is really where the 
problem is at. If there was an independent body not affiliated 
with FEMA that had authority to approve these claims that come 
up for review, that would be a giant step.
    Mr. Ruppersberger. You are talking about an appeal process.
    Mr. Kanstoroom. An appeal process. That is right, but not 
affiliated with FEMA, not affiliated with these adjusting 
firms, and there are plenty of independent experts that have no 
affiliation, but that is a medium term solution that is easily 
managed if people want to get it done. Longer term, quite 
frankly, the regulations in large part are there. It is the 
business of the way FEMA is interpreting them, and someone has 
got to clunk them on the head to say here is really what is 
supposed to happen.
    Mr. Ruppersberger. There is also a problem with the 
policies where people think they have flood insurance and they 
don't. Is it the homeowners policy? How would you recommend 
that we make sure that everyone understands what they have? I 
mean what type of system would you put into effect?
    Mr. Kanstoroom. It is quite simple. I actually drafted one 
for FEMA a year ago. It is not that complicated. They have to 
have the same play book. That is what it is. The victims have 
one. The adjusters have another one. The agents have another 
one. If they all have the same play book, they are all going to 
see what they get. It is not that complicated.
    Mr. Ruppersberger. By the way, I mean, you do a lot of 
work. Why don't you tell the staff and the committee some of 
your background, how you have had past experience in the area 
of insurance adjusting.
    Mr. Kanstoroom. Twenty-two years experience of pattern 
recognition and fraud detection for some of the largest 
corporations in the world, and what my job was to do was to 
spot patterns of fraud, quite frankly. While it was on a much 
larger scale than this is, that is my background.
    Mr. Ruppersberger. Are you alleging that there has been 
fraud here?
    Mr. Kanstoroom. Absolutely.
    Mr. Ruppersberger. Where? You don't have to name names 
because we are a Congressional committee, not a grand jury, but 
where have you seen fraud that we can look at to see where 
there are problems?
    Mr. Kanstoroom. I have seen fraud in the adjusting 
practice. I have seen fraud where----
    Mr. Ruppersberger. What kind of fraud?
    Mr. Kanstoroom. Flat-out wrongful denial of a claim.
    Mr. Ruppersberger. I am talking about actual fraud.
    Mr. Kanstoroom. Fraud in using the wrong set of prices that 
the publisher said is fraudulent.
    Mr. Ruppersberger. In order to help the company?
    Mr. Kanstoroom. Absolutely. In order to lower their costs, 
in order to tell these people that these are the prices that 
you are entitled to. That is wrong. It is wrong. They are 
entitled to replacement cost value, not a synthetic new 
construction price.
    Mr. Ruppersberger. Are you saying that maybe there is a 
policy within certain insurance companies to attempt to----
    Mr. Kanstoroom. The whistle-blowers that wanted to testify 
here today would tell you the way they keep their claims 
adjusting practice is to keep the payments low. That is what 
they would tell you.
    Mr. Ruppersberger. You mean there is an incentive for 
adjusters to--I want to hear it from you--an incentive for 
adjusters to have a lower cost and that would be to their 
benefit?
    Mr. Kanstoroom. Absolutely. They make it up in volume. In 
other words, when you look at a hundred adjusters--this is a 
risk management perspective--it is who has got the lowest 
payout and who has got the highest payout. You can have a 
hundred adjusters you can invite to the storm. All things being 
equal, one of them is going to have the lowest payout.
    Mr. Ruppersberger. But isn't a part of being an adjustor 
having certain independence to evaluate a claim and make 
adjustments?
    Mr. Kanstoroom. Absolutely, but not to knowingly use a 
wrong set of numbers.
    Mr. Ruppersberger. Well, that is what I want to get to, 
because fraud is a very strong allegation. If it is there, we 
want to deal with it, and I would really like to know more 
about allegations of specifics, but because this is a 
Congressional hearing, our rules don't allow us to do it 
publicly, but we can talk to you about it.
    Mr. Kanstoroom. Maybe if I could hit a high note here, I 
worked with WINK TV in Fort Myers on putting a story together. 
I had a phone call from Homeland Security, the Inspector 
General's Office, counsel, and the bottom line was the 
documents that I had uncovered, they told me, that incriminated 
both FEMA and Homeland Security, the Inspector General's 
Office, they told me and CBS recorded it--they actually aired 
part of the story--it is unlawful for me to have anything that 
incriminates FEMA or DHS, give them what I have got, destroy my 
copies. And notwithstanding Senator Mikulski's request for an 
IG investigation, they have no interest in investigating. They 
said they have a small staff. They only have 450 people.
    So there is a lot here. It is not going to go away. It is 
going to get bigger.
    Mr. Ruppersberger. Well, the reason we are having the 
hearing is to try to look at a new system and we are trying to 
get information to make sure that we take these victims here 
today and to make sure that we understand what their problems 
were so we can set up a new system. If there are issues of 
fraud, we need to deal with it. I mean right away. Remember, 
you have to prove it. So let us just not use the word loosely.
    Mr. Kanstoroom. Of course not. The best way to prove it I 
know is have the people that allege it sit here. Bob Hunter, 
what he says is if the training disparity exists, as Mr. 
Griffin will testify to and I will testify to it right now, 
fraud has likely occurred on a massive scale, I think is the 
quote. It is in my testimony, written.
    You have got the former Presidential appointee Joanne 
Howard. Her document is in my testimony. She says it is not the 
way the program worked under her administration, or her tenure, 
or was intended to. What she says is of course you restore the 
people to the pre-loss condition. Again, it is in the written. 
You can go with what it says.
    As far as the publisher of the data, he wanted to be here 
today. He had reservations to be here today. He will sit here 
and tell you just as it is written this is a fraudulent use of 
his data to tell this woman that this is a fair valuation based 
on a number that they know is not right.
    Mr. Ruppersberger. Well, let us get to this. The time is 
almost up. Give me some basic recommendations on the system 
itself, the industry standard, how you would from a legislative 
point of view, how we would change this system that does not 
seem to work, very quickly because we are way over my time. We 
are supposed to only have 5 minutes. I don't know how we do 
this, but that is our rules.
    Mr. Kanstoroom. God is working. Number one, there is no 
oversight.
    Mr. Ruppersberger. Thank you, Mr. Chairman, for allowing 
him to go over.
    Mr. Kanstoroom. Thank you very much.
    I don't contend that the system is that broken as much as 
there is no management of it.
    Mr. Ruppersberger. Accountability at the top.
    Mr. Kanstoroom. That is right. And so there is an incentive 
for the carriers to not overpay a claim. There is a penalty 
that the carrier will pay if they overpay a claim. There is not 
a penalty if they underpay. They could care less.
    Mr. Ruppersberger. Mr. Redmer, do you basically agree with 
some of the statements being made by Mr. Kanstoroom?
    Mr. Redmer. As I mentioned, we have got two reports of 
observations and recommendations and certainly accountability, 
consistency of information, communication. I mean, we can go 
down the list. As I mentioned earlier, there is no formal claim 
process, no formal appeal process.
    Mr. Ruppersberger. Okay. I would like to work on that, and 
would I suggest that maybe you two get together. If there are 
some allegations of fraud in our State, I would hope that you 
can at least look at that and get the facts and data.
    Mr. Redmer. We have been. Thank you.
    Mr. Ruppersberger. Thank you.
    Mr. Fitzpatrick. Thank you. The chair recognizes the 
ranking member, Ms. Waters from California.
    Ms. Waters. Thank you very much, Mr. Chairman and members. 
I am sorry that I could not be here earlier for this most 
important hearing. Our committees are overlapping and we have a 
big important bankruptcy bill that is on the House floor today. 
Again, we have very important legislation that is winding its 
way through Congress this session, and we want to make sure 
that we pay attention to all of it, but I have been briefed 
about the hearing that has taken place today, and I am more 
than concerned about policyholders who have been misled, who 
have been cheated, who have been disrespected, who have not 
been paid attention to, who have been left holding the bag, and 
I tell you I am sick and tired of consumers who are being 
exploited in America by too many entities.
    Even as we work on the bankruptcy bill, there are problems 
where the average American working family is just being done 
in, and I want to tell you I am always having problems with 
insurance, because we get too many complaints in our office 
about folks who have been paying policies for years, and at the 
point that they have a claim, then all of a sudden they are 
told what was not covered and how they cannot be made whole, 
and I think that if the Congress of the United States does not 
act very aggressively to protect the consumers, then none of us 
should be re-elected and sent back to office. This is 
outrageous.
    I take seriously that you have indicated, some of you, that 
there are some recommendations that can easily be adopted by 
the Congress of the United States. I am going to work with my 
colleagues to see what those recommendations are, but I want to 
ask one question that my staff as has directed me to, and it 
has been identified that Mr. Kanstoroom may be able to explain 
to us that very task force that was formed to re-examine the 
Hurricane Isabel claims consisted of the very same adjusters 
who denied the claims of policyholders in the first place. Is 
that true?
    Mr. Kanstoroom. Yes, it is true. Yes, it is true in that 
the identical management was in charge of that task force, not 
some of it, not most of it. All of it was identical. As far as 
the adjusters, if you have a third-party adjusting firm that 
worked the storm, while maybe Fred and Mary worked the storm, 
that same firm had different people sitting on that task force, 
and as it was explained to me, they literally turned around in 
their chair and said, wait a minute; I have got Georgette's 
claim here; you worked on this one, didn't you; oh, yeah, she 
is, isn't due any more money. Okay. Boom, case closed. That was 
the task force.
    As far as this review business, the insider's report was 
stacks of returned mail. Realize, her mailbox was gone. Where 
is the mail going to go? So many of these people didn't get a 
notice.
    As far as the numbers that they are citing, when FEMA first 
published the numbers of claims, and I want to say it was a 
couple million dollars, the point was North Carolina Advocate 
Beth Midget and myself, between the two of us, had claims that 
we had worked that totaled the numbers of dollars that FEMA was 
saying they had already approved on the task force. In other 
words, just two people working had their numbers. The numbers 
are garbage.
    Ms. Waters. Well, again, my attention is being drawn to the 
fact that Federal preemption may be causing some of the 
problems that we are experiencing here, that one of the 
byproducts of this Federal preemption is that if you have a 
disinterested or hostile Federal regulator, the States are 
powerless to act, that the insurance Commissioner Redmer should 
be revisiting the issue of preemption and giving States a role 
if they want to protect consumers.
    Is that kind of the consensus here?
    Mr. Kanstoroom. Yes.
    Ms. Waters. Yes. All right. I will just promise you I will 
do everything that I possibly can to correct what is wrong. 
Again, what has been described here today causes me to feel 
even stronger in my views about the problems of the insurance.
    So thank you very much for coming. I do appreciate it.
    Mr. Fitzpatrick. Thank you, Ms. Waters.
    I just have one final question before we adjourn this 
hearing for Commissioner Redmer and/or Mr. Griffin for the 
industry. I think it was testified that the Beam family of 
Pennsylvania purchased a home; I think it was about 8 years 
ago. Like most young families, they had to get a mortgage. The 
mortgage company required a flood insurance policy. The flood 
insurance policy is probably paid for at settlement. The policy 
itself is put in the settlement package in a lock box 
somewhere, and for 8 years, this policy was paid on.
    And then the first nightmare for the Beam family was they 
were flooded twice in a week, and the second nightmare came in 
the phone call that the flood coverage that the family thought 
they had had been reduced from a number down to about 10 
percent of what was originally sold, and I think that the 
testimony was that the Federal Emergency Management Agency had 
reworked, perhaps, the flood plain. Nobody told the Beam 
family. Nobody told the mortgage company. As a result of that 
reworking of the flood plain, the insurance company reduced the 
amount of flood insurance coverage that that family would have 
and would need not too distant in the future. Nobody notified 
the Beam family and nobody notified the mortgage company.
    Then after two floods in a week, somebody finds an unsigned 
computer-generated letter in a file saying your coverage was 
reduced from, I think it was 80-some thousand to about $8,000.
    I am wondering what the industry standard is before you 
change, a company changes, an industry changes, the insurance 
that a family needs and relies on. What kind of notification is 
required of this family before that happens so that what 
happened to the Beam family of Pennsylvania does not happen to 
another family?
    Mr. Redmer. I can tell you the standard in Maryland as it 
relates to insurance other than the flood insurance program 
because, again, we don't regulate that, but in the instance of 
an individual in Maryland filing a complaint, as a routine, we 
go back to the carrier and we make them document to us that 
their action complied with Maryland law, and we make them prove 
to us that they mailed certain things and what have you. 
Failing their ability to prove that their actions were 
justified, we have the ability to make them pay the claim. We 
don't have that ability with respect to the flood insurance 
program.
    Mr. Griffin. Let me, if I could, make a couple of 
responses. First of all, I would not agree, with all due 
respect, Ms. Waters, that we want this regulated at the State 
level. This should stay a Federal program that is more commonly 
administered that way.
    Just to go back, I think, as I recall, it was $93,000 was 
the amount that she originally had, and it was reduced to 
somewhere around $7,800.
    Ms. Beam. $5,800.
    Mr. Griffin. Thank you. Typically, hopefully, the policy 
that you get doesn't go in a lock box somewhere. Hopefully, a 
copy of it may go in a lock box, but, hopefully, a policy you 
get for a flood insurance policy, just like a homeowners 
policy, just like an automobile policy, finds its way into a 
file somewhere in your home so you can reference it when you 
need it.
    Every year, a policy, probably on flood insurance as well 
as many other policies, probably 60 days ahead of when that 
policy renews, a new declarations page is mailed out, and it 
says on it how much coverage is provided and how much the 
premium is. Now, that doesn't mean in this particular case that 
there weren't problems with the system, but what it does tell 
me is that there was a notice sent, not a notice that there was 
a change, which maybe should have occurred. It probably should 
have occurred based on what we saw and what has been reported, 
but there was a declarations page sent out that showed the 
difference and a lower number prior to the policy being 
renewed.
    Mr. Redmer. Mr. Chairman, I can tell you that there were 
also too many instances in Maryland where somebody was living 
in their home. They had their mortgage. They bought their flood 
insurance. The flood insurance was paid through the escrow 
account. And as the mortgage got sold from lender to lender to 
lender, at some point in the process, it fell through the 
cracks. The lender did not pay the premium. The policy 
terminated because of a lapse of premium. The individual, for 
whatever reason, didn't get notified, and there was no coverage 
in force because of it falling through the cracks.
    Ms. Waters. Mr. Chairman.
    Mr. Fitzpatrick. Ms. Waters.
    Ms. Waters. To the gentleman whose name I can't see on his 
card because you are too far away, I understand that you are 
the casualty insurance trade rep?
    Mr. Griffin. Yes, ma'am.
    Ms. Waters. And I respect that you disagree with me on 
Federal preemption; however, let me take issue with you in your 
explanation which basically says if people get their notices, 
they ought to read them and it is not our fault that they 
don't. Let me submit to you that when you purchase flood 
insurance and you agree to pay a certain premium, the average 
person believes that that is how much the premium is, and they 
don't know about changes in the flood plain and other kinds of 
things, and if the notice comes even a year or two later, they 
trust the person who came out and sold them that this was the 
best thing since popcorn, that it is going to be all right.
    And no, we don't always read the notices because we think 
we have been paying our premiums. We paid them on time, and we 
expect that we have a relationship with the insurance company 
that continues unless somehow somebody is going to make it 
known in a very, very understandable way that we either 
cancelled or there is going to be a big increase or premium or 
something, and God knows even a reduction, which we never get.
    So let me just say this, that no average working Americans 
who are dealing with a lot of issues, don't always read the 
fine print, but that is unacceptable when you have your biggest 
life investment at stake. It just seems to me that there would 
be a little bit more respect for the American homeowner and 
taxpayer from our insurance companies that would engage us in 
ways that we understand what it is they are doing to us, and I 
don't think that is too much to ask.
    Mr. Griffin. I don't think it is too much to ask that you 
read the dec page when the bill comes. You read your bill when 
your MasterCard bill comes. You look it over. You look at the 
charges. You want to make sure that nothing in there that you 
are charged is erroneous. It is not too much, to use your 
words, to protect the largest investment you have to ask you to 
look at the amount on there and make sure that it is the same 
as it was previously or more or at least when you check the 
premium to see if it has gone up or done down, and then that 
will give you some indication of whether there has been a 
change in the amount insurance.
    Ms. Waters. Well, if I may, Mr. Chairman, yeah, we do 
usually notice the numbers. What we don't always notice is the 
fine print. We don't know when you sell us that policy that 
should there be some change in government policy or work that 
is going on to deal with the flood plain, that somehow the 
policy that we agreed to is no longer in effect. We don't know 
that, and we don't always read that fine print, and sometimes 
we don't really know what people are saying to us, and the 
agents never explain that.
    I want to tell you I will just stand up for the average 
person in that because I know it happens in too many families 
over and over again, and I defend American families who don't 
always read the fine print because I find that most of it is 
constructed in ways that you don't want us to read it. The 
print is fine. It is worded in ways that the average American 
person reading it doesn't always understand.
    So there are a lot of tricks to the trade, and if I can 
close by telling you it is kind of like the ads that we see on 
television that are selling you prescription drugs. They tell 
you how wonderful the drug is and then they bring on flowers 
and somebody running through the meadows looking very beautiful 
when they tell you all of the side effects so that you are 
distracted, looking at this beautiful person running through 
the meadows, and you forget to concentrate on the side effects 
because that is the tricks of the trade. Insurance companies 
have a lot of them.
    Thank you, sir.
    Mr. Fitzpatrick. Thank you, Ms. Waters.
    The chair notes that some members may have additional 
questions for this panel which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for members to submit written questions to these 
witnesses and to place their responses in the record.
    We appreciate the attendance of all those who gave 
testimony today.
    This hearing is adjourned. Thank you.
    [Whereupon, at 3:04 p.m., the subcommittee was adjourned.]


                            A P P E N D I X

                             April 14, 2005

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