    [House Hearing, 110 Congress]
    [From the U.S. Government Publishing Office]

                         THE FLOOD INSURANCE REFORM AND

                      MODERNIZATION ACT OF 2007, H.R. 1682

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

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                       HOUSING AND COMMUNITY OPPORTUNITY

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                           ONE HUNDRED TENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JUNE 12, 2007

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 110-38

                         U.S. GOVERNMENT PRINTING OFFICE

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                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                     BARNEY FRANK, Massachusetts, Chairman

    PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
    MAXINE WATERS, California            RICHARD H. BAKER, Louisiana
    CAROLYN B. MALONEY, New York         DEBORAH PRYCE, Ohio
    LUIS V. GUTIERREZ, Illinois          MICHAEL N. CASTLE, Delaware
    NYDIA M. VELAZQUEZ, New York         PETER T. KING, New York
    MELVIN L. WATT, North Carolina       EDWARD R. ROYCE, California
    GARY L. ACKERMAN, New York           FRANK D. LUCAS, Oklahoma
    JULIA CARSON, Indiana                RON PAUL, Texas
    BRAD SHERMAN, California             PAUL E. GILLMOR, Ohio
    GREGORY W. MEEKS, New York           STEVEN C. LaTOURETTE, Ohio
    DENNIS MOORE, Kansas                 DONALD A. MANZULLO, Illinois
    MICHAEL E. CAPUANO, Massachusetts    WALTER B. JONES, Jr., North
    RUBEN HINOJOSA, Texas                    Carolina
    WM. LACY CLAY, Missouri              JUDY BIGGERT, Illinois
    CAROLYN McCARTHY, New York           CHRISTOPHER SHAYS, Connecticut
    JOE BACA, California                 GARY G. MILLER, California
    STEPHEN F. LYNCH, Massachusetts      SHELLEY MOORE CAPITO, West
    BRAD MILLER, North Carolina              Virginia
    DAVID SCOTT, Georgia                 TOM FEENEY, Florida
    AL GREEN, Texas                      JEB HENSARLING, Texas
    EMANUEL CLEAVER, Missouri            SCOTT GARRETT, New Jersey
    MELISSA L. BEAN, Illinois            GINNY BROWN-WAITE, Florida
    GWEN MOORE, Wisconsin,               J. GRESHAM BARRETT, South Carolina
    LINCOLN DAVIS, Tennessee             JIM GERLACH, Pennsylvania
    ALBIO SIRES, New Jersey              STEVAN PEARCE, New Mexico
    PAUL W. HODES, New Hampshire         RANDY NEUGEBAUER, Texas
    KEITH ELLISON, Minnesota             TOM PRICE, Georgia
    RON KLEIN, Florida                   GEOFF DAVIS, Kentucky
    TIM MAHONEY, Florida                 PATRICK T. McHENRY, North Carolina
    CHARLES A. WILSON, Ohio              JOHN CAMPBELL, California
    ED PERLMUTTER, Colorado              ADAM PUTNAM, Florida
    CHRISTOPHER S. MURPHY, Connecticut   MICHELE BACHMANN, Minnesota
    JOE DONNELLY, Indiana                PETER J. ROSKAM, Illinois
    ROBERT WEXLER, Florida               THADDEUS G. McCOTTER, Michigan
    JIM MARSHALL, Georgia
    DAN BOREN, Oklahoma

            Jeanne M. Roslanowick, Staff Director and Chief Counsel
               Subcommittee on Housing and Community Opportunity

                     MAXINE WATERS, California, Chairwoman

    NYDIA M. VELAZQUEZ, New York         JUDY BIGGERT, Illinois
    JULIA CARSON, Indiana                STEVAN PEARCE, New Mexico
    STEPHEN F. LYNCH, Massachusetts      PETER T. KING, New York
    EMANUEL CLEAVER, Missouri            PAUL E. GILLMOR, Ohio
    AL GREEN, Texas                      CHRISTOPHER SHAYS, Connecticut
    WM. LACY CLAY, Missouri              GARY G. MILLER, California
    CAROLYN B. MALONEY, New York         SHELLEY MOORE CAPITO, West
    GWEN MOORE, Wisconsin,                   Virginia
    ALBIO SIRES, New Jersey              SCOTT GARRETT, New Jersey
    KEITH ELLISON, Minnesota             RANDY NEUGEBAUER, Texas
    CHARLES A. WILSON, Ohio              GEOFF DAVIS, Kentucky
    CHRISTOPHER S. MURPHY, Connecticut   JOHN CAMPBELL, California
    JOE DONNELLY, Indiana                THADDEUS G. McCOTTER, Michigan
    BARNEY FRANK, Massachusetts

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        June 12, 2007................................................     1
    Appendix:
        June 12, 2007................................................    49

                                   WITNESSES
                             Tuesday, June 12, 2007

    Connor, Edward L., Deputy Assistant Administrator for Insurance,
      Mitigation Directorate, Federal Emergency Management Agency,
      Department of Homeland Security................................    10
    Davey, Mark, President and CEO, Fidelity National Insurance
      Company, on behalf of the Property & Casualty Insurers
      Association of America.........................................    33
    Malta, Vince, President, Malta and Company, on behalf of the
      National Association of Realtors...............................    37
    Maune, David F., on behalf of Management Association for Private
      Photogrammetric Surveyors......................................    30
    Minkler, Thomas, President, Clark-Mortenson Agency, Inc., on
      behalf of the Independent Insurance Agents and Brokers of
      America, Inc...................................................    35
    Osman, Paul A., CMF, on behalf of the Association of State
      Floodplain Managers, Inc.......................................    27
    Sumner, Curtis, Executive Director, American Congress on
      Surveying and Mapping..........................................    32

                                    APPENDIX

    Prepared statements:
        Carson, Hon. Julia...........................................    50
        Hinojosa, Hon. Ruben.........................................    51
        Connor, Edward L.............................................    54
        Davey, Mark..................................................    64
        Malta, Vince.................................................    69
        Maune, David F...............................................    81
        Minkler, Thomas..............................................    89
        Osman, Paul A................................................    93
        Sumner, Curtis...............................................   100

                  Additional Material Submitted for the Record

        Statement of Eric D. Gerst, Esq..............................   103
    Hinojosa, Hon. Ruben:
        MAPPS inserts................................................   115
    Taylor, Hon. Gene:
        Series of articles from The Times-Picayune...................   120

                         THE FLOOD INSURANCE REFORM AND

                      MODERNIZATION ACT OF 2007, H.R. 1682

                                  ----------

                             Tuesday, June 12, 2007

                 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 10:17 a.m., in
    room 2118, Rayburn House Office Building, Hon. Maxine Waters
    [chairwoman of the subcommittee] presiding.
        Present: Representatives Waters, Cleaver, Green, Clay,
    Maloney; Biggert, Pearce, Shays, Garrett, and Neugebauer.
        Ex officio present: Representative Bachus.
        Also present: Representatives Hinojosa and Taylor.
        Chairwoman Waters. Good morning. This hearing of the
    Subcommittee on Housing and Community Opportunity will come to
    order.
        Good morning, ladies and gentlemen. I'd like to thank the
    ranking member, Ms. Judy Biggert, and each of the members of
    the Subcommittee on Housing and Community Opportunity for
    joining me for today's hearing on the Flood Insurance Reform
    and Modernization Act of 2007, H.R. 1682.
        I would like to start by noting that without objection, we
    will allow Mr. Ruben Hinojosa and Mr. Gene Taylor to be
    considered members of the subcommittee for the duration of this
    hearing. Also without objection, all members' opening
    statements will be made a part of the record.
        I'm looking forward to hearing from today's witnesses about
    H.R. 1682, the Flood Insurance Reform and Modernization Act of
    2007, which was introduced by Chairman Frank, and co-sponsored
    by a number of members, including the ranking member, Ms.
    Biggert, and myself.
        Last year, the House passed the Flood Insurance Reform and
    Modernization Act of 2006, H.R. 4973, although the Senate did
    not consider flood insurance reform legislation.
        The bipartisan effort in the House last year to pass major
    flood insurance program reform legislation will be welcome
    again this year, because the issues related to flood insurance
    reform and modernization, as well as funding, and the National
    Flood Insurance Program that prompted the House to take action
    last year, have not disappeared.
        The National Flood Insurance Act of 1968 established the
    National Flood Insurance Program (NFIP).
        The National Flood Insurance Program provides flood
    insurance to approximately 5.1 million homeowners, renters, and
    business owners in some 20,118 communities, generating $2.3
    billion in revenue. The purpose of the Act is to provide
    insurance for individuals living in areas of the country
    susceptible to flooding.
        The NFIP has two objectives: One, to promote land use
    decisionmaking; and two, to reduce the cost to government of
    recovery costs related to flooding.
        The purpose of today's hearing is to focus on H.R. 1682,
    the Flood Insurance Reform and Modernization Act of 2007.
        H.R. 1682 will reform the NFIP administered by the Federal
    Emergency Management Agency--FEMA--of the U.S. Department of
    Homeland Security.
        The bill will significantly reform the NFIP to ensure its
    continued viability by encouraging broader participation,
    increasing accountability, eliminating unnecessary Federal
    subsidies, and updating the Nation's flood insurance program so
    that it is consistent with the needs of the 21st century.
        H.R. 1682 is born of necessity after the catastrophic
    hurricanes of 2005, Katrina and Rita. The number of claims,
    257,539, post-Katrina and Rita was unprecedented in the history
    of the NFIP.
        Many of the weaknesses of the NFIP became self-evident
    after the hurricanes.
        In an effort to make the program more actuarially sound,
    the bill would phase out subsidized rates on vacation homes and
    second homes.
        Also, business owners would be eligible to purchase
    business interruption coverage at actuarial rates to better
    prepare them to meet payroll and other obligations in the event
    of major storms.
        The bill also updates maximum insurance coverage limits for
    residential and non-residential properties for the first time
    since 1994.
        The bill requires accountability and financial
    responsibility at the NFIP. FEMA would be required to report to
    Congress on the financial status of the NFIP and conduct
    reviews of the Nation's flood maps. Many people contend that
    the Nation's flood maps are outdated--I think everybody knows
    that--technologically, and of little use to FEMA.
        Disclosure is another important feature of the bill. The
    bill would require that disclosures are made to owners about
    changes in the flood insurance program.
        The bill caps the amount FEMA can raise insurance premiums
    from 10 percent to 15 percent in any given year.
        Most critical is a provision in the bill that increases
    fines on lenders who do not enforce the mandatory flood
    insurance program requirements for those living in a floodplain
    who hold a federally backed mortgage. This will ensure that
    those who should have flood insurance are actually able to
    obtain the insurance.
        In addition to the major reforms in the bill, the borrowing
    authority for the NFIP is increased to ensure that all
    outstanding claims and Federal obligations under the program
    are met.
        The current borrowing authority of the NFIP was last
    increased in March 2006 to $20.775 billion from $18.5 billion
    in November 2005.
        The NFIP must remain solvent in the years to come. The
    total flood insurance claim payouts alone from the 2005
    hurricane insurance are estimated to be around $23 billion.
        I look forward to hearing the testimony of the witnesses on
    H.R. 1682, and I would now like to recognize Ranking Member
    Biggert for her opening statement.
        Mrs. Biggert. Thank you, Chairwoman Waters, and thank you
    for convening this hearing on H.R. 1682, the FIRM Act, which
    Chairman Frank and I introduced on March 26, 2007.
        During the last two Congresses, this committee held a
    number of hearings and markups on flood insurance and the flood
    insurance program.
        In the last Congress, the committee considered H.R. 4973,
    the Flood Insurance Reform and Modernization Act of 2006 which
    the House passed by a vote of 416 to 4 on June 27, 2006. The
    Senate, not surprisingly, did not consider that bill, which
    brings us back to the drawing board today.
        Considering that last year's flood modernization bill
    enjoyed broad bipartisan support, I am pleased that we
    introduced an almost identical bill this year, and that the
    committee is considering it again.
        20,000 communities across the Nation, including 800
    communities in my home State of Illinois, participate in the
    NFIP.
        Later this morning, we'll hear from Paul Osman, the
    certified floodplain programs manager for the State of
    Illinois, who will give us the lay of the land with regard to
    Illinois' leadership in the area of floodplain management and
    flood mitigation.
        For example, in my congressional district, the residents
    and leaders of the village of Tinley Park recently proved that
    a proactive approach to flood management can help both the
    community and homeowners.
        Following remapping in the 1990's, 550 homes in Tinley Park
    were placed in the floodplain and homeowners would have been
    forced to pay an extra $1,000 per year for flood insurance.
    However, instead of paying higher insurance rates and leaving
    homes vulnerable to floods, the residents of Tinley Park took
    action. They worked on a flood mitigation project, received a
    revised FEMA approved floodplain map in April of this year, and
    avoided paying higher insurance premiums.
        For the majority of its 39-year history, the NFIP has been
    a self-funded program. However, flood insurance claims for the
    2005 hurricane season have grown to at least $17.6 billion, a
    total greater than all claims from all other year combined.
    Unless the NFIP is reformed soon, the program will face
    insolvency.
        The FIRM Act would require great accountability and
    financial responsibility from the NFIP. It increases insurance
    coverage limits and the authority of the NFIP to pay claims
    largely incurred as a result of the 2005 hurricane season.
        Maximum coverage limits for residents and contents would
    increase from $250/$100,000 to $305/$135,000, so businesses and
    churches would see increased coverage limits from $500,000 to
    $670,000.
        The FIRM Act also directs FEMA to develop more
    comprehensive and updated flood maps to reflect more accurately
    the risk to homeowners, submit annual financial reports on the
    NFIP to Congress, and phase out subsidies over time for
    vacation homes, second homes, and non-residential properties.
        It would require that property owners be notified of the
    availability of flood insurance and escrow for flood insurance.
        The bill also authorizes the NFIP to provide additional
    living expense coverage for temporary housing immediately after
    a flood, and increases fines on lenders who do not enforce the
    mandatory flood insurance policy for federally backed mortgages
    in the 100-year floodplain.
        On March 11, 2007, the Chicago Tribune reported in an
    article titled, quote, ``Debate swirls around flood policy,''
    that--and again, I quote--``This could be the year Congress
    makes some major changes to the National Flood Insurance
    Program or not.'' I'm hoping for the former.
        I'm confident that this bill will again move through the
    House with bipartisan support, and I'm very hopeful that our
    Senate colleagues will act on it during this Congress,
    especially given that the 2007 Atlantic hurricane season is
    predicted to be very active and the NFIP expires in 2008. NFIP
    reform is needed now.
        I look forward to working with my colleagues on this bill.
    I also look forward to hearing from our witnesses about ways to
    strengthen the FIRM Act so that it's good for American
    communities, taxpayers, and homeowners. I yield back the
    balance of my time.
        Mr. Green. [presiding] I thank the gentlelady, and will now
    recognize Mr. Hinojosa from Texas for 3 minutes.
        Mr. Hinojosa. Thank you, Mr. Chairman, and Ranking Member
    Biggert.
        I want to thank Chairwoman Waters and Ranking Member
    Biggert for holding this very important and timely hearing on
    an issue that is very important to me and to all the
    constituents in my district, as well as a quarter of a million
    people in the Rio Grande Valley of South Texas, where I come
    from.
        I look forward to working with the two of you as the
    committee moves forward with consideration of H.R. 1682, the
    Flood Insurance Reform and Modernization Act of 2007,
    introduced by Chairman Frank and Ranking Member Biggert earlier
    this year.
        I commend the two of you for all the work that you have
    done to date to improve housing conditions for many, many
    residents in the United States. I especially want to thank the
    two of you, again, for moving forward with my two rural housing
    bills on the Housing Assistance Council and the Rural Housing
    and Economic Development program. I am very grateful for that.
        At this point, I ask unanimous consent to submit my entire
    statement for the record, as well as two documents from the
    Management Association for Private Photogrammetric Surveyors. I
    have them here in my hands, and I think that they would add to
    the record.
        Mr. Green. Without objection, it will be done.
        Mr. Hinojosa. Thank you.
        In light of the devastation caused by Hurricanes Katrina,
    Rita, and Wilma, this committee has held numerous hearings on
    ways to address the massive flooding and wind and surge damage
    done to homes and other structures along the coast of the Gulf
    of Mexico, including Texas, Louisiana, Mississippi, and
    Florida.
        We have tried to find ways to ensure that the massive
    flooding that occurred in New Orleans does not recur, and that
    we are able to get our dams and levees up to code to certify
    that they protect those living behind them.
        I realize that H.R. 1682 intended to address a number of
    weaknesses in the National Flood Insurance Program that were
    exposed by the unprecedented 2005 hurricane season, and I
    support many of the provisions included in the bill. However, I
    must stress that there are several provisions in the bill with
    which I find fault, and several provisions that have been left
    out of the bill that I now wish to propose for your
    consideration.
        My main concern is that FEMA and the Army Corps of
    Engineers might not be creating very accurate maps. If the
    mapping is being done now, I am concerned that those maps might
    not be taking into account the fact that some areas will
    eventually have dams and levees that are up to code, including
    those in my district and all along the U.S. border with Mexico.
        I am also concerned that they might not be using the
    appropriate methodology or the most advanced technology to draw
    those floodplain maps.
        Along those lines, I am very pleased that the Management
    Association for Private Photogrammetric Surveyors, MAPPS, are
    testifying here today.
        I agree with them that Section 21 of H.R. 1682 omits
    language regarding map accuracy and the use of modern
    geospatial technologies and FEMA standards and requirements. I
    also agree with MAPPS that we should consider providing mapping
    by watershed. It would result possibly in much more accurate
    and less politically motivated floodplain maps.
        Madam Chairwoman, while you were gone, I said that I would
    like for the entire statement that I have be included as part
    of the record.
        Chairwoman Waters. Without objection, such is the order.
        Mr. Hinojosa. And I will simply close by saying that I
    would hate for us to lose homes because we failed to pass
    legislation containing requirements that the maps be made using
    the most up-to-date and thorough technology and that we
    provide--
        Chairwoman Waters. I thank the gentleman.
        I now recognize Mr. Bachus for 5 minutes.
        Mr. Bachus. I thank the chairwoman.
        First of all, let me welcome Congressman Gene Taylor to our
    hearing today. Congressman Taylor has dealt firsthand with this
    wind versus water issue: how do we determine whether it is wind
    or water? His constituents have been dealing with this. Also, I
    know he has legislation which will allow citizens along the
    coast to purchase a policy that covers both wind and water.
        I do believe that Katrina has sort of brought this thing
    into focus about where there is an area where you're exposed to
    both of those conditions, that there ought to be a more
    efficient way and a fairer way for homeowners.
        One of the questions I think this committee has, and this
    afternoon, the Oversight and Investigations Subcommittee of the
    Financial Services Committee, and the Management,
    Investigations, and Oversight Subcommittee of the Homeland
    Security Committee are addressing this. They're going to have a
    hearing on wind and water.
        And, if we're to have a comprehensive reform, we're going
    to have to make--that's going to be part of the debate, and if
    we have, or offer coverage, if coverage is offered for both of
    these, is it going to be under the National Flood Insurance
    Program or is it going to be privately offered?
        You know, presently, flood insurance is subsidized in many
    cases, is not actuarially sound.
        If we go to a multi-peril policy, where are we going to put
    the rates? The flood insurance program is recovering, but if we
    have another hurricane this year, what happens to rates?
        I know all of these questions about how fast you raise the
    rates to reflect the true cost: if you raise them too fast it
    causes economic hardship in many areas; if you don't raise them
    fast enough, you underfund the program--all of these things
    come into play.
        I know the GAO is doing two reports; they've been asked for
    this.
        But I do believe, long-term, because as the chairwoman has
    said, and as Mrs. Biggert has said, many people in Mississippi,
    particularly, and in New Orleans, were in areas where flood
    insurance wasn't available, yet their homes were flooded.
        In fact, that's probably one of the primary reasons that
    the losses have been so staggering, because there were
    uninsured losses, and for many of those people, flood insurance
    was not available, yet their homes were flooded.
        They had wind insurance, so they had the wrong kind of
    insurance, or there were determinations made that it was water
    and not wind--we've all seen those headlines.
        And I do believe that this Congress, before it finally
    solves this whole issue, is going to have to make a
    determination, at least in some areas, whether we offer
    coverage, as Congressman Taylor said, whether we offer
    coverage--and I won't speak for him. In fact, I would at this
    time ask unanimous consent to the chairwoman that he be allowed
    to participate in this hearing and ask questions.
        Chairwoman Waters. That has already been done.
        Mr. Bachus. Thank you.
        Chairwoman Waters. Thank you very much.
        Mr. Bachus. Thank you.
        But I think that this is something that we have to do, as
    we move forward, probably before we do a comprehensive reform
    of this program, that has to be part of it, and without it, I
    think it's an imperfect reform.
        I yield back the balance of my time.
        Chairwoman Waters. Thank you very much.
        And at this time, the gentleman that Mr. Bachus was
    referring to, Mr. Gene Taylor, is recognized for 5 minutes.
        Mr. Taylor. Thank you, Madam Chairwoman. Thank you very
    much for having this hearing, and I thank Mr. Bachus for his
    kind words.
        Madam Chairwoman, I very much appreciate your willingness
    to improve on the National Flood Insurance Program.
        South Mississippi was devastated by Hurricane Katrina, but
    one thing I want our fellow citizens to know is, although I had
    thousands of complaints about private insurance companies
    failing to pay their claims, there was not a single instance in
    South Mississippi where citizens said that their Federal flood
    insurance didn't pay, and that's something I think is
    representative of the people's government and the people's
    Nation that we ought to be proud of, that it did pay their
    claims. But I do appreciate your willingness to look into
    raising the amount of coverage that is available.
        As I'm learning firsthand, a quarter of a million dollars
    doesn't go nearly as far as people thought it would have a few
    years ago, and so raising the rates is important.
        It's extremely important that the national mapping, to let
    people know of the dangers of flooding, be improved. It's now,
    what, 22 months since the storm and the flood maps have not
    been released. I think that's unconscionable. I think that our
    Nation, with the technology that's available, such as mapping
    from space, it should have been done long ago.
        Your concerns that the lending industry should have been
    warning people that they needed flood insurance are right on
    the mark. There were any number of instances in South
    Mississippi where bankers told people, ``Yes, flood insurance
    is available, but you don't need it, you're 20 feet above sea
    level,'' only for that person to find out that they took 6 feet
    of water in Hurricane Katrina and that their homeowners policy
    wouldn't cover it.
        And although we'll always be grateful for my fellow Members
    of Congress for the money they came up with to help out those
    people who had homeowners insurance, who did flood, and thus
    the grant program came along to help those people up to the
    amount of $150,000 or the amount of the insurance, whichever is
    less, if we, if the Federal flood insurance maps were better,
    if the program was better, maybe we wouldn't have had to come
    up with those grants at all. Maybe that money would have been
    available through the normal course of business.
        And lastly, I would really hope that this committee and the
    other committees would look into the national write your own
    program, where we hire the private sector to sell the policy. I
    don't have a problem with that. It saves our Nation
    administrative costs.
        The conflict of interest comes in when that same company
    representative is sent out to look at the damage after a
    hurricane and decide whether it was water, which means the
    taxpayer flood policy will pay for it, or it was wind, which
    means his company, that he might own stock in, that he's
    probably hoping for a Christmas bonus from, that he's probably
    hoping for his next promotion, is going to pay the claim.
        That is a built-in conflict of interest. I suspected it
    was, and now in Louisiana, there's actually a lawsuit under the
    Fraudulent Claims Act where people are claiming that billions
    of dollars of costs that should have been attributed to the
    private sector insurance companies were paid by the National
    Flood Insurance Program, and these people have introduced a
    lawsuit hoping to get one-third of what is recovered, of funds
    that should not have been spent by our Nation in the first
    place.
        So again, I very much appreciate your willingness to look
    into this. I also appreciate your willingness to look into an
    all-perils insurance policy, so that people don't have to stay
    through the eye of the storm with a video camera to determine
    whether their home was destroyed by wind or water.
        If you've built it the way you should have, if you've paid
    your policy, you should not have to stick around for the
    hurricane, to be an eyewitness to see how your house was
    destroyed. If you've done what you should have done and paid
    your premiums, if your house is gone, if your house is
    substantially damaged, our Nation will pay that policy.
        So thank you very much, Madam Chairwoman, for letting me--
        Chairwoman Waters. Thank you very much, Mr. Taylor. I will
    now recognize the gentleman from New Jersey, Mr. Garrett, for 2
    minutes.
        Mr. Garrett. Thank you, Madam Chairwoman, and thank you
    also to Chairman Frank and all the others who have worked so
    hard at putting together this important piece of legislation.
        You know, in 1968, when Congress created the National Flood
    Insurance Program, the NFIP, the intent was providing
    homeowners who live in floodplains an opportunity to purchase
    flood insurance from the Federal Government, but at that time,
    there really wasn't any other private sector availability for
    them.
        When it was created after many homeowners had already built
    their homes in flood-prone areas, and before any comprehensive
    maps existed, it was because of this that Congress allowed the
    owners of these properties, otherwise known as pre-FIRM
    properties, to purchase flood insurance at subsidized rates.
        Over the last 20 years, the NFIP had been largely self-
    sufficient. Obviously, since Katrina, there have been some
    problems with that.
        So in recognition of the need to bolster the NFIP and allow
    it to better offer affordable flood insurance, the chairman has
    now introduced this legislation.
        This bill, I do believe, marks significant reform to the
    existing program by further updating flood maps, and by
    increasing the phase-in of actuarial rates on vacation homes,
    and on second homes, and on non-residential properties that
    have in the past been subsidized by the program since its
    inception.
        But even with these significant reforms, there still are a
    number of people on both sides of the debate that feel that
    other changes are necessary. Some people have advocated for a
    total and immediate withdrawal of the subsidies for all pre-
    FIRM homes, regardless of when they were purchased. Others
    believe that is not fair to force someone who bought their home
    assuming one flood insurance rate and then have that rate
    changed in the middle of their mortgage.
        So in an effort to find a compromise between these two
    sides of the spectrum, last year I offered what I called a
    common-sense middle ground amendment, and it passed on the
    House Floor and it passed with Chairman Frank's support at that
    time.
        The amendment I offered provided additional resources to
    the flood insurance program in a fair way, and it did not
    subject current homeowners of pre-FIRM homes to unanticipated
    or unplanned increases in their premiums.
        The amendment simply required any purchaser of a pre-FIRM
    primary residential home to pay a phased-in actuary flood
    insurance pricing using the same phase-in structure that non-
    residential and non-primary homes are currently subject to in
    this bill and last year's bill, as well.
        So in essence, I believe it was a common-sense approach, a
    practical approach, and a fair way to bolster the National
    Flood Insurance Program to provide the citizens the appropriate
    coverage to prepare for future disasters.
        And so, quite frankly, I look forward once again to working
    closely, as I did last year with Chairman Frank and the ranking
    members, as well, to move this idea along and this bill, as it
    moves through the process.
        And with that, I yield back the balance of my time.
        Chairwoman Waters. Thank you very much.
        I'll recognize the gentleman from Texas, Mr. Al Green, for
    2 minutes.
        Mr. Green. Thank you, Madam Chairwoman, and I also thank
    the ranking member.
        Madam Chairwoman, I will be concerned about the premium
    increase. That causes me concern because it looks like it may
    be substantial in some cases, and we do have low- to moderate-
    income people who live in areas that have been devastated, and
    of course we don't want to find ourselves having persons who
    cannot afford the flood insurance still remain in areas where
    they desire to live but cannot afford to live there because of
    lack of insurance.
        I'm also concerned about the number of disputes and claims
    that have not been resolved. My understanding is that a high
    percentage may have been resolved, but when we look at the
    empirical data, the raw numbers may still be large. So I'd like
    to know more about the number of claims that haven't been
    resolved.
        And finally, the role of mediation in the process is
    important. I'm concerned and would like to know how that
    process is functioning.
        Is the functionality of it such that it is fine as is or do
    we need to tweak it so that we can better serve the persons who
    eventually participate in the process?
        Thank you again, Madam Chairwoman, And I yield back the
    balance of my time.
        Chairwoman Waters. Thank you very much.
        I recognize the gentleman from Texas, Mr. Neugebauer.
        Mr. Neugebauer. I thank you, Madam Chairwoman.
        I just want to make a few comments. One is that certainly
    we need to make sure that this fund is actuarially sound and
    that the premiums are based on actuarial data, and I don't
    think that should just be for second homes and for vacation
    homes. I think that should be for all homes.
        Because basically, we now have a fund that is busted, and
    we're going to make some improvements to this, and we're going
    to raise the premiums, but in fact, it owes a debt it probably
    cannot pay, and in fact, that puts the taxpayers in the
    position of subsidizing people who live in some of these flood
    areas because they are not paying premiums that are actuarially
    sound, and if, long-term, we're going to have a flood insurance
    program, I think it needs to be one that makes sense and that
    the premiums are charged based on the potential laws.
        I think the second piece of information, and Mr. Taylor
    keeps bringing this to our attention, but homeowners need to
    know what their coverage is. They need to know that when they
    buy a policy, what they're covered for, and they don't need to
    be then caught in the middle of whether this was water or wind.
        And so I look forward to working with the industry, of
    coming up with ways, innovative ways, and I know that the
    industry is capable of delivering that, of some ways that we
    can integrate possibly some of the coverage for flood insurance
    with some of the other existing homeowner policies to deliver a
    better product so that people understand what they're buying
    and what they're getting, and so the day they have a loss,
    they're not calling their lawyer, they're calling their
    insurance agent. So I think we need to work in that direction.
        And certainly, as we move forward with this process, I
    think we need to then determine what we're going to do with the
    fund in its current financial condition, because we've now
    raised the limit on it to $20 billion. We're at the front end
    of the hurricane season.
        It will take a while for some of these premium increases to
    be put in place, and certainly I think the American taxpayers
    need to know exactly how we plan to deal with this fund and
    long-term make sure that we're on a track to make it more
    financially stable.
        And with that, I yield back the balance of my time.
        Chairwoman Waters. Thank you very much.
        Having exhausted the opening statements of the members of
    the committee, I would like to introduce our first witness.
        Mr. Edward L. Connor is the Deputy Assistant Administrator
    for Insurance for the Federal Emergency Management Agency.
        Mr. Connor, thank you for appearing before the subcommittee
    today, and without objection, your written statement will be
    made a part of the record.
        You will now be recognized for a 5-minute summary of your
    testimony.

     STATEMENT OF EDWARD L. CONNOR, DEPUTY ASSISTANT ADMINISTRATOR
       FOR INSURANCE, MITIGATION DIRECTORATE, FEDERAL EMERGENCY
           MANAGEMENT AGENCY, DEPARTMENT OF HOMELAND SECURITY

        Mr. Connor. Good morning, Chairwoman Waters, Ranking Member
    Biggert, and members of the subcommittee.
        I do appreciate your opening comments, and there are many
    things that you said today that I certainly do understand and
    appreciate and the program itself recognizes those needs and
    those desires, and we'll work toward addressing them.
        I'm Ed Connor, Deputy Assistant Administrator for Insurance
    for the Federal Emergency Management Agency, and I certainly do
    appreciate the opportunity to appear today before this
    subcommittee to discuss the National Flood Insurance Program.
        This morning, I'll illustrate how the National Flood
    Insurance Program has moved forward since the 2005 hurricane
    season, by addressing three specific areas: first, the NFIP's
    financial status; second, how the NFIP has operated effectively
    since enactment of the 2004 Flood Insurance Reform Act; and
    third, opportunities to fundamentally strengthen the NFIP's
    financial underpinnings.
        The NFIP makes affordable flood insurance available in
    communities that adopt and enforce measures to reduce
    vulnerability to flooding. From 1968 through 2004, the National
    Flood Insurance Program paid out $15 billion to cover over 1.3
    million claims.
        Hurricane Katrina resulted in claims totalling over $16.3
    billion, and it's likely that the 2005 flood insurance costs
    will be around $19.9 billion. That includes interest already
    paid on borrowing from the Treasury.
        Congress has increased the borrowing authority 3 times
    since Katrina to the present limit of 20.775, and that's been
    recognized by many of you already.
        We've borrowed from the Treasury 11 times since Katrina,
    allowing over 98 percent of 2000 flood claims to be paid, and
    that translates into more than 180,000 Gulf Coast residents on
    the road to recovery.
        That's partly due to our partnership with our write your
    own insurance companies, as well as our claims adjusters and
    our agents, who fulfilled their responsibility to help the NFIP
    policyholders begin rebuilding their lives.
        With over 5.4 million policies insuring more than $1
    trillion in assets, the NFIP collects more than $2 billion
    annually. Yet we expect interest on our borrowed funds to reach
    $720 million this year.
        If future claims meet non-catastrophic historical averages,
    the program will need new loans every 6 months to cover its
    semi-annual interest payments.
        Needless to say, under current loan arrangements, it's
    unlikely that the NFIP will ever be able to retire its debt.
        Financial matters aside, the NFIP has excelled,
    particularly since the enactment of the 2004 Flood Insurance
    Reform Act, which was instrumental in our ability to help Gulf
    Coast policyholders when they needed it most.
        The NFIP's summary of coverage and the flood insurance
    claims handbook helped them through the claims process and
    these documents continue playing a major role in the NFIP's
    ability to close claims quickly and fairly, and the Reform Act
    continues to be a catalyst for programmatic success and
    improvement.
        Since the Reform Act agent training requirements were
    published in September of 2005, 40 States and the District of
    Columbia have made flood insurance training mandatory for
    agents who sell NFIP coverage. Also, FEMA's flood insurance
    claims appeals rule, which was adopted, augments the NFIP's
    historically high success rate of resolving over 99 percent of
    its claims without litigation. And we're reforming and we're
    using the Reform Act funding authorization to address
    repetitive loss properties, as well.
        The repetitive flood claims program is considering 41
    property acquisition proposals which will use all of 2007
    program funds.
        In fiscal 2006, the first year of the program, $9.8 million
    was awarded for property acquisitions.
        Also, the Flood Mitigation Assistance Program is being
    effectively carried out by FEMA's 10 regional offices
    throughout the Nation.
        And finally, our severe repetitive loss pilot program is in
    its final states of development, and we expect to open the
    first application period this summer.
        These mitigation tools are critical components of our
    efforts to reduce at-risk structures and eliminate the
    troublesome and costly flood/rebuild/flood cycle that residents
    in the Nation's flood-prone areas have become so familiar with,
    but we must continue to strengthen the program by: one,
    protecting the program's integrity; two, increasing NFIP
    participation; three, improving citizens' understanding of
    flood risk; and four, reducing risk with proven mitigation
    practices.
        We should enhance these principles by eliminating discounts
    on pre-FIRM structures, strengthening mandatory purchase
    requirements, increasing the annual limitation on premium
    increases, and improving the data on flood maps.
        My written testimony offers details and suggestions along
    with particulars on program enhancements related to the 2004
    Reform Act, and I look forward to considering these matters
    with you.
        However, there is no quick solution that will allow the
    program to absorb catastrophic loss years like 2005. And we're
    concerned with more than financial matters.
        Increasing risk awareness among homeowners is one of the
    NFIP's basic principles. FEMA, through Flood Smart, an
    aggressive education and outreach campaign, continuously
    designs and upgrades informational strategies to increase the
    public's awareness of flood risks and to keep our policyholders
    informed.
        As our citizens learn more about the risks they face, they
    do more to reduce those risks, and they'll want to protect
    their investments, making the Nation's--
        Chairwoman Waters. Mr. Connor, we've given you an
    additional 2 minutes. I'm sorry, you're going to have to
    discontinue your testimony at this time so that the panel can
    get to their questioning.
        [The prepared statement of Mr. Connor can be found on page
    54 of the appendix.]
        Chairwoman Waters. With that, I'd like to thank you for
    your testimony, and I'd like to begin the question period with
    several issues that I did not hear you discuss.
        Did you read the bill?
        Mr. Connor. I did.
        Chairwoman Waters. So you know what we are attempting to do
    in all aspects of the bill?
        Mr. Connor. I do.
        Chairwoman Waters. You did not reference much of what the
    bill is intended to do.
        Let me just kind of gear in on, what do you think about
    that portion of the bill that increases fines on lenders who do
    not enforce the mandatory flood insurance policy requirements
    for those living in a floodplain who hold a federally backed
    mortgage?
        Mr. Connor. Well, we support that proposal.
        To the extent that we do get tougher compliance for
    mandatory purchase, and that's going to ensure that property
    owners who should have flood insurance, who have federally
    backed mortgages, will have it; therefore, the flood insurance
    policies will increase, and that lends itself to strengthening
    the financial status of the program.
        Chairwoman Waters. All right. I was pleased to hear that
    the 7-year comprehensive evaluation of the National Flood
    Insurance Program has been completed, and I understand it was
    just released.
        What do you think are the key findings of and
    recommendations of the evaluation?
        Mr. Connor. Well, we're very excited to look into that,
    Madam Chairwoman.
        Where we are with it right now is we've gone through the
    analysis itself, we've come out with over 190 recommendations
    for the program, we're in the process now of prioritizing those
    particular recommendations and we are building that,
    incorporating that into our planning process so that we can
    move forward with them.
        There are a number of recommendations in all areas of our
    program--risk insurance, floodplain management, and mapping--
    that we think have merit, and we intend to move forward on
    those items.
        Chairwoman Waters. Now, you identified 190 recommendations.
    Do you intend to move forward on all of those?
        Mr. Connor. We are prioritizing them now. There are some
    obviously that a decision will be made that we won't do
    anything with. There are others that we may have already
    started moving on already, and so we may want to just speed
    that process up. And there are some, obviously, that we need to
    move on very quickly.
        Chairwoman Waters. One of the studies in the evaluation is
    called, ``Assessing the Adequacy of the National Flood
    Insurance Program's 1 Percent Flood Standard.'' I assume that
    is the same as what is often referred to as the 100-year flood?
        Mr. Connor. That's correct.
        Chairwoman Waters. Would you tell me what you think about
    what the study said on this topic and is that something that's
    included in your 190 recommendations? Do you have a
    recommendation on this?
        Mr. Connor. I do not have a recommendation at this point,
    but I would like to provide testimony for the record once we
    get around to looking at the details of that particular
    recommendation.
        Chairwoman Waters. Given the predictions of more frequent
    and more damaging storms, will this standard for flood damage
    reduction programs remain useful?
        Mr. Connor. I'm sorry, could you repeat your question?
        Chairwoman Waters. I just talked about the--one of the
    studies of the evaluation program called, ``Assessing the
    Adequacy of the National Flood Insurance Program's 1 Percent
    Flood Standard.''
        Mr. Connor. Yes.
        Chairwoman Waters. And we agree that is what is referred to
    as the 100-year flood.
        We talked a little bit about, I wanted to know what you
    thought about what the study had to say, and given the
    predictions of more frequent and more damaging storms, will
    this standard for flood damage reduction programs remain
    useful?
        Mr. Connor. Again, that's something that I'd like to submit
    for testimony for the record after having reviewed--because of
    the detail and to be sure that I'm accurate in my comment, I
    would prefer to submit testimony for the record.
        Chairwoman Waters. Another study in the evaluation is
    entitled, ``The Role of Actuarial Soundness in the NFIP.''
        Since this subcommittee is considering legislation which
    would again raise the cap on the borrowing authority for the
    NFIP, and since the program is about $100 billion in debt
    requiring annual interest payments to the Treasury of about
    $800 million, I'm very interested in what the evaluation has to
    say about the role of actuarial soundness.
        I know the program has been actuarially sound during most
    of its history, paying back any Treasury borrowing with
    interest, except for one brief period that was in the mid-
    1980's.
        Does this part of the evaluation really address the problem
    of huge catastrophic losses as they affect actuarial soundness?
        Mr. Connor. I think that part of the study will point to
    the fact that we need to, to the extent possible, get the
    policies actuarially rated, and how we do that is a matter of
    discussion today.
        But clearly, to the extent that we are able to get the full
    risk premium for the policies that we write, it will certainly
    bring stability, financial stability to the program, that I
    think that we're all looking for.
        But again, I will say to you, Madam Chairwoman, that
    because I have not gone through the details of all the
    recommendations, I'd like to be able to provide testimony for
    the record on those particular issues.
        Chairwoman Waters. Thank you very much.
        I will now recognize our ranking member, Mrs. Biggert, for
    5 minutes for questioning.
        Mrs. Biggert. Thank you, Madam Chairwoman.
        Mr. Connor, in your written statement, you state that one
    of the fundamental mitigation and insurance principles that the
    mitigation directorate and the NFIP have outlined since the
    2005 hurricane season is to increase the NFIP's participation
    incentives and improve enforcement of the mandatory
    participation in the program.
        What is FEMA doing to provide incentives to communities and
    potential policyholders to participate in the NFIP?
        Mr. Connor. Well, that's a two-part question.
        With regard to what we are doing for policyholders, to the
    extent that we can make people understand their perception of
    risk and that they are vulnerable to flooding, we have a very
    aggressive marketing campaign which is going out, reaching the
    Nation, reaching property owners, making them understand that
    just because you may not necessarily be next to a river or a
    creek, that you are still vulnerable to flooding.
        So to the extent that we can get that message out--
        Mrs. Biggert. How do you get the message out? Is it through
    advertising?
        Mr. Connor. It's through an advertising campaign. There are
    print ads, there are television advertisings, and so forth,
    that are coming right into the property owners' living room
    continuously, through magazines, print ads, and so forth.
        With regard to the communities, there are a number of
    things that we have in place.
        The community rating system, which is an incentive program,
    which basically, to the extent that communities join the
    program and they put in a number of mitigation projects and
    programs, they offer discounts to every policyholder who
    happens to live in that particular community.
        And so to the extent that we can also make people aware
    that, from a community perspective, there are incentives
    available to lower your rates, that's where we get community
    involvement, and that's how the communities can communicate
    this to the various property owners.
        Mrs. Biggert. Do you have any way to check to see if these
    are working? Is this something that you--
        Mr. Connor. Well, with regard to getting the word out to
    the policyholders, the property owners, we have experienced
    over 35 continuous months of growth in the program, 22 percent.
    That translates into over 1 million policies that have come on
    the books since 2004.
        At the same time, we have retained more than 92 percent of
    those policies, so that's a pretty good indication that the
    program is growing in that regard.
        With regard to the communities that are joining the
    program, last year we celebrated. Up to 21,000 communities are
    now part of the National Flood Insurance Program, and for years
    and years and years, those numbers have been down somewhere
    around 19,000 or 20,000.
        So we do feel like we're getting traction on that, that the
    word is getting out, and that people understand: one, the
    perception of risk; and two, what they need to do from the
    standpoint of getting discounts and trying to protect their
    investments.
        Mrs. Biggert. Do you think that part of it is, or the
    recent growth is due to your advertising or due to the fact
    that there were the Gulf hurricanes?
        Mr. Connor. That's a fair question.
        I think that when we talk about the growth in the program,
    you really can't point to any one thing.
        Obviously, the hurricanes from 2004-2005 had a lot to do
    with people understanding that we better do something to
    protect ourselves, but at the same time, our effort and the
    efforts to went into Flood Smart and the advertising campaign
    also, I think, connected the dots.
        So I think that when you look at it in combination, there
    are a number of things that drove that, but I think the
    important element, when we talk about growth in the program, is
    not just how many new policies come on the books, but we also
    need to look at the back end. How many are actually staying on
    the books?
        And that's a very, very important number, and as I said,
    that number continues to get better at 92 percent.
        Mrs. Biggert. And just another question.
        In this bill, we've increased the penalties for federally
    regulated lending institutions that don't comply with their
    mandatory purchase, regulatory responsibilities, which you also
    outline in your testimony.
        Is this enough? What is FEMA doing to improve enforcement
    of the mandatory participation?
        Mr. Connor. Well, we don't really have a lot of authority
    over that, other than the fact that we meet regularly with the
    Federal regulators to make sure that they understand the
    provisions and the nuances of the National Flood Insurance
    Program. We communicate with them, and essentially, to the
    extent we can exchange data as well.
        So if we have policies that drop off the books, and we can
    identify who the regulatory agency is, we can submit that data
    to them for them to follow up.
        But to answer the first part of your question, I think that
    anything that we can do relative to making the penalties a
    little stronger, would increase the compliance on the part of
    the lending community to require flood insurance where
    required.
        Mrs. Biggert. Have all of the regulations been written for
    this?
        Mr. Connor. For?
        Mrs. Biggert. For enforcement by the regulators?
        Mr. Connor. The regulations were written starting back in
    1994. That's when it first--the teeth really went into the
    National Flood Insurance Reform Act, so they've been out there
    for a while.
        Mrs. Biggert. Okay. All right. Thank you very much. I yield
    back.
        Chairwoman Waters. Thank you very much.
        I recognize the gentleman from Texas, Mr. Green, for 5
    minutes for questioning.
        Mr. Green. Thank you, Madam Chairwoman.
        Mr. Connor, welcome, and thank you for coming today.
        Sir, you indicate that 99 percent of the claims are
    processed without litigation.
        Mr. Connor. That's correct.
        Mr. Green. What percent of that 99 percent was resolved by
    way of mediation?
        Mr. Connor. Well, when you say mediation, are you referring
    to the State proposed mediation that--
        Mr. Green. Yes.
        Mr. Connor. Well, none of it has.
        All of that has--all of those 99 percent claims that have
    been resolved have been resolved within the National Flood
    Insurance Program, either through our natural process--if
    there's a question or an appeal, it can be reviewed by higher-
    ups, or, you know, there could be some appeal process with the
    individual--
        Mr. Green. Then you agree that mediation has a role that it
    can play in this process?
        Mr. Connor. I don't agree to that, no. If you're referring
    to the mediation that's being proposed in the legislation--
        Mr. Green. Yes.
        Mr. Connor. --no, I don't think that plays a role, by
    virtue of what you initially said, that 99 percent of our
    claims do close without litigation.
        To the extent that mediation gets involved in the process
    and particularly because it's going to be non-binding
    mediation, from our perspective, that would slow down the
    process in terms of getting claims settled quicker.
        The other thing that would occur as a result of that is
    there are cost implications that are associated with that,
    because now you're going to have to get a staff of folks to be
    at a particular place and time whenever there's a major
    hurricane or storm to go through this mediation process.
        Then thirdly--
        Mr. Green. Let me ask this question.
        If we have 99 percent resolved, in raw numbers, how many
    are not resolved?
        Mr. Connor. Right now, we have, for Rita, 93 that are
    unresolved; for Katrina, 2,699.
        Mr. Green. 2,699 for Katrina?
        And these that are not resolved, in terms of dollar amounts
    in dispute, do you have that data? What is the amount in
    dispute with these, especially as it relates to Katrina?
        Mr. Connor. I don't have that number, sir, but I would like
    to provide testimony for the record on that particular
    question.
        Mr. Green. And in these disputes, it is your opinion that
    mediation would not be helpful, with the 2,699?
        Mr. Connor. It is our opinion that is the case.
        I'm not sure that these are even in dispute as much as
    these may be cases that involve another kind of coverage, which
    is increased ICC coverage, increased compliance coverage, which
    probably doesn't kick in until later on in the rebuilding
    process.
        So I'm not even absolutely certain that these numbers that
    we're talking about now are necessarily in dispute, but that's
    something that we can look into.
        Mr. Green. Many members of the judiciary find that
    mediation just prior to litigation is a helpful tool. You don't
    view it that way, I take it?
        Mr. Connor. We pretty much feel that with regard to any
    kind of mediation, it's better to get that done up front as
    opposed to later on in the process.
        Mr. Green. Let's talk about the increase in premiums.
        We have provided for a 10 to 15 percent increase, and my
    belief is that you spoke of a 35 percent increase; is that
    correct?
        Mr. Connor. A 35 percent increase?
        Mr. Green. Yes, sir.
        Mr. Connor. No.
        Mr. Green. What increase would you recommend?
        Mr. Connor. I'm not sure what you're asking me now. In
    total, or just for subsidized, or--
        Mr. Green. Our bill provides for a 10 percent increase in
    the policy rates for any given year.
        Do you have a recommendation?
        Mr. Connor. Our recommendation is whatever you can give us,
    sir. Right now, the 10 percent cap pretty much has us locked
    in, in terms of anything that we can do to raise the rates.
        If you're proposing 15 percent, we would certainly accept
    that, but the bottom line is that to the extent that, if
    nothing else happens, and if us trying to get the program to be
    financially sound, 15 percent increase, most of those premiums
    are going to go toward paying off the debt, paying other
    program expenses, as well as trying to bill--
        Mr. Green. I yield back, Madam Chairwoman. Thank you.
        Chairwoman Waters. Thank you.
        Mr. Neugebauer.
        Mr. Neugebauer. Thank you very much.
        Mr. Connor, what kind of analysis has your agency done to
    address this issue of you have a fund that, you know, is nearly
    $20 billion out of the money; you're struggling--I think what
    you--did you say the interest was going to be about $700
    million a year?
        Mr. Connor. That's correct.
        Mr. Neugebauer. And so what's the plan?
        Mr. Connor. Well, the plan right now, since Katrina, there
    are a number of things we've been doing to try to address the
    financial situation that we have.
        One would be, what we were just discussing, is we recognize
    that there's a 10 percent cap on premium increases, so to the
    maximum extent possible, we're raising the rates as high as we
    can, based on the ceiling that's there. That's one thing we're
    doing.
        The other thing that we're doing is we're remaining very,
    very aggressive with respect to trying to increase or grow the
    book of business.
        So the program that I talked about before, where we are
    going out and through Flood Smart we're writing more business,
    we have that 22 percent growth, we have over a million
    policies, and that we're retaining those policies, to the
    extent that we remain aggressive, try to get more policies on
    the book, try to get those policies to remain on the book, then
    those are some of the things that we're doing to get premium
    revenues in the door and keep it in the door.
        The third thing that we're doing is we certainly
    recognized, as we looked over the numbers over the last couple
    of years in terms of our expenses and our costs, that there are
    some elements in the way that we compensate the companies with
    respect to claim handling that we need to tighten up.
        There are certain startup costs that companies incur, and
    as a result of that, when you get high flood or mega-
    catastrophes like you did with Katrina, Rita, and Wilma, then
    there's an opportunity that those expenses are going to go
    higher and higher and higher.
        That is something that we need to--we've identified and
    that is something that we need to address, and we intend to
    address that with the upcoming arrangement that we have to
    write your own company.
        So that, in and of itself, I think is going to--those three
    things in combination are things that we're doing now to try to
    address the financial situation in the program.
        But that withstanding, when we're talking about the kind of
    debt we're talking about here, those are noble efforts, and we
    will continue to try to do these things, but again, it will be
    quite a while before we can do anything significant in terms of
    reducing that debt.
        Mr. Neugebauer. You know, in fact, the taxpayers are
    probably on the hook for $20 billion and if another event
    happened, because of our premiums not being actuarially based,
    there's another contingent liability out there, so it's not
    just that this is an existing problem, but it's a potential
    future problem.
        Just because of the caps that are on the increases, what
    would you say, if we passed a bill today that said let's make
    all premiums, vacations homes, primary homes, let's make them
    actuarially based, what would be the percentage of increase
    that most people would be experiencing?
        Mr. Connor. You know, what I'd like to do is to provide
    that testimony for the record, because I'd like to go back and
    just do an analysis on that.
        I wouldn't want to give a number here or a percentage that
    wouldn't be accurate.
        Mr. Neugebauer. I would look forward to that, and I think
    this committee would, too.
        I think we really need to know exactly what kind of
    subsidization is going on here for the people who live in those
    flood-prone areas, because, you know, I live in an area that is
    subject to high winds and tornadoes, and so my insurance costs
    more than for people who live in areas that are not subject to
    those, and so to me, it's not fair that people who live in an
    area, because they choose to live there, should be subsidized
    in a way that's--in other words, not only am I subsidizing, I'm
    paying a higher premium for being in the area I'm in, but I'm
    also subsidizing, as an American taxpayer, the ability for
    folks to live in a--I want to move quickly to how do you feel
    like, on mapping, and I know we're going to hear some testimony
    on mapping, how do you feel like we're coming on identifying
    areas that should be--people should be encouraged to carry
    flood insurance?
        With the technology and the mapping technology we have
    today, are we moving rapidly enough or do we need to move more
    quickly?
        Mr. Connor. Well, you know, based on the reports that I've
    seen, it seems to me that we're right on target in terms of
    when our plan was to get the maps out by the end of the funding
    period.
        When you talk about areas where people need to have
    insurance but don't, the first thing that comes to mind with me
    are residual risks, and those are properties that are behind
    levees and manmade structures, which clearly, because it is not
    considered what we would call today a mandatory purchase
    requirement, to have insurance in those particular areas, it is
    something that we would certainly encourage, even without
    legislation, and the reason we would do that is when you look
    at FEMA as an Agency, one of the things that we are supposed to
    be doing is making folks aware of the risks that they may be
    facing, and to the extent that we all know now what the dangers
    are behind levees and other manmade structures, to the extent
    that folks can understand that you are certainly vulnerable to
    flooding, we are certainly encouraging that. We encourage folks
    to purchase flood insurance, even though it's not a requirement
    at this time.
        Chairwoman Waters. Thank you very much.
        I recognize the gentleman from Missouri, Mr. Clay, for 5
    minutes, for questioning.
        Mr. Clay. Thank you, Madam Chairwoman. I want to thank you
    for conducting this hearing.
        Mr. Connor, I represent St. Louis, Missouri, which is the
    confluence of America's two largest rivers, the Missouri and
    the Mississippi River.
        The mapping provisions of the bill are extremely important,
    especially when one thinks of the disastrously outdated and
    inaccurate floodplain maps that have been used as standards.
        We have concerns expressed by some on the second panel that
    requiring FEMA to map the 500-year floodplain may delay
    completion of the 100-year floodplain map update.
        Additionally, concerns are expressed that the digital
    mapping updates are not necessarily the most accurate updates,
    and that accuracy should be considered the most important
    result of the changes.
        What is FEMA's position on the concern of mapping the 500-
    year floodplain before completion of the 100-year floodplain?
        Mr. Connor. Sir, I'd like to again provide testimony for
    the record on that, because I think that we need to take a look
    at where we are and the resources available and I'd like to
    provide that data to you that way.
        It will be detailed data. I'd like to be accurate with it,
    so I'd like to provide testimony for the record.
        Mr. Clay. Can you shed a little light on whether FEMA
    agrees with the mapping provisions of H.R. 1682 or does FEMA
    have concerns? Can you shed a little light on that?
        Mr. Connor. Again, I would go back to providing the
    testimony for the record, and the reason for that is because
    there are some provisions we like and there are some provisions
    we don't, and so it's easier to provide it to you through that
    means of testimony as opposed to try to try to articulate it
    now.
        Mr. Clay. You don't care to elaborate on it now?
        Mr. Connor. I prefer not to, sir.
        Mr. Clay. I thank you, and Madam Chairwoman, I yield back.
    Thank you.
        Chairwoman Waters. Thank you very much.
        I recognize Congressman Pearce for 5 minutes for
    questioning.
        Mr. Pearce. Thank you, Madam Chairwoman.
        Mr. Connor, recently FEMA has released flood maps in Las
    Cruces--my largest county in Southern New Mexico. As many as
    9,000 properties are going to be added to the floodplain there.
    They recently had an open meeting, which was attended with a
    lot of discussion as to whether or not those maps were
    accurate.
        One of the problems appears to be that some of the levees
    in the surrounding area are partially certified and partially
    uncertified, and it's my understanding that FEMA won't allow
    the properties in the certified pieces to have lower insurance
    rates.
        Can you tell me a little bit about your process and a
    little bit about the circumstance, as much as you might know,
    or similar circumstances?
        Mr. Connor. I would like to again submit that to you
    through testimony for the record, sir, because there are
    details involved in that whole process that is better explained
    that way.
        Mr. Pearce. Is it possible to change designations as parts
    of the levees are certified in the area? In other words, this
    is a process that ought to be well-known to your Agency.
        Mr. Connor. Yes, sir.
        Mr. Pearce. That is possible?
        Mr. Connor. Yes, sir.
        Mr. Pearce. So it's possible that we might get some relief
    there.
        Generally, what drives the redrawing of maps that have been
    pretty stable?
        Mr. Connor. Changes in climate, changes in the physical
    landscape, topography, and the methods.
        Mr. Pearce. Now, as you look at the Nation as a whole, how
    many times have you reissued floodplain maps and found those to
    be inaccurate?
        Of the two circumstances that we've looked at, Carlsbad,
    New Mexico, and also Alamagordo, New Mexico, we have found
    inaccuracies in the FEMA work, and they have gone back and
    redone it for a third time.
        Is that unusual or is there a high rate of reaccomplishing,
    redrawing of maps after an attempt like this one?
        Mr. Connor. I think that's one of the things we need to go
    back and get some data on and provide that to you, through
    testimony for the record, sir.
        Mr. Pearce. In the underlying bill, on Page 3, there is a
    description of a low-priced premium, a $112 premium, for places
    that are low to moderate risk.
        How many places in New Mexico would qualify as low to
    moderate risk?
        Mr. Connor. I don't know off the top of my head, but I can
    surely get that information for you.
        What we're talking about is a preferred risk policy that we
    normally would write in areas that are not considered high risk
    areas, but again, I can get that information to you, provide it
    for the record.
        Mr. Pearce. We were talking about the 500-year floodplain.
    What's the Agency's internal position on that, the 500-year
    floodplain to help draw in?
        I was listening, and I may have missed it, but I did not
    hear you include that suggestion in your increased revenues.
    Mr. Neugebauer was asking how you're going to solve the problem
    of $21 billion worth of--basically about $1 billion a year in
    premiums.
        Mr. Connor. Yes. I think again this is one of the responses
    I would like to provide as testimony for the record because
    again, there are varying opinions in terms of how we approach
    that, sir.
        Mr. Pearce. Just for the record, I would tell you that the
    position of those who would increase to a 500-year floodplain,
    that would include almost everyone in New Mexico, they have an
    average income of about $25,000 a year. So everybody in New
    Mexico would be paying for those $335,000 houses on the Gulf
    that get torn up time after time.
        Those are second homes, they are vacation homes. It is
    particularly egregious that we would consider the 500-year
    floodplain to cure a problem with a fund that does not appear
    to be functioning properly, and to come and tag heavy burdens
    on people who will never have those $300,000 houses, they will
    never live on the coast, they will never have the benefits, and
    yet they are paying for those people who are, just is something
    that really should be thought about quite a lot, in my opinion.
        I see my time has about elapsed. I'll yield back.
        Thank you, Madam Chairwoman.
        Chairwoman Waters. Thank you very much.
        I'm going to call on Mr. Shays next.
        Mr. Connor, did you not anticipate some of these questions
    before coming over here to this committee?
        Mr. Connor. I did anticipate some of them, Madam
    Chairwoman. It's just that on some of these questions that are
    being asked, they are detail oriented, and I want to make sure
    that I give an accurate response.
        Chairwoman Waters. Well, I know, and I appreciate that, but
    I think our members on both sides of the aisle have been
    pressing about the 500-year floodplain issue, and the cost to,
    you know, our constituents, and I keep hearing it coming up
    over and over again.
        I sure wish I could get at least a feel from you about what
    you think about that. What does your Agency think about that?
        Mr. Shays, 5 minutes for questioning.
        Mr. Shays. Thank you for appearing before us.
        I wrestle with this issue; 7 of my 17 towns are on the
    coast.
        In principle, I don't think taxpayers should be subsidizing
    people who build in places they shouldn't build, but what I
    wrestle with is that there are some areas where you have
    continual flooding, and then you have some areas that are on
    the coast and they're on a floodplain, and they don't have
    continual flooding. They may have not had it for decades and
    decades.
        How do we sort out the difference between people who are
    just simply in the line of fire, every few years they seem to
    have to rebuild a home, and those who are not in the line of
    fire?
        Mr. Connor. Well, this is something that we're dealing with
    through the severe repetitive loss program, whereby we are
    identifying some of these properties that have repeated losses,
    and to the extent possible, we're trying to identify these
    properties and through acquisition programs either purchase
    those homes or suggest mitigation projects that would lessen
    their ability to be damaged.
        And this is all handled through a special program, through
    our direct program. It's not handled through the write your own
    program at all. We've taken it from the write your own program.
    It's all handled through a contractor that we're using to
    manage that entire process.
        Mr. Shays. Some of my constituents have jumbo loans, but
    they're only able to ensure up to a certain amount, and yet
    again, they are not in an area where there has been hardly any
    flooding. Maybe I believe 1930, there was something.
        How do we address that issue?
        Mr. Connor. For people who want more coverage, is that what
    your question is?
        Mr. Shays. They have jumbo loans. They have very large
    loans, and they're only insured up to a certain amount that
    doesn't come close to covering the potential loss.
        The way that you get around that is, the maximum that we
    would offer those particular property owners is $350,000, but
    in the private sector, there is what would be called an excess
    policy.
        Could you address the last issue that I'd like to ask, and
    that is the transferring of costs by insurance companies from
    the area where they were liable to flood, insurance where we're
    liable, and then, you know, soak the government?
        Mr. Connor. You're talking about claims? Are you speaking
    about claims?
        Mr. Shays. I'm talking about wind versus water.
        Mr. Connor. Yes.
        There have been a number of discussions on that particular
    issue, and I feel pretty confident that the claims adjusters
    that we're using through the write your own program are
    basically placing the liability where it ought to be, and
    that's with the write your own companies.
        Now, that leads to, well how do you know that?
        There are a number of very rigorous oversight processes
    that we have in place to make sure that the companies are
    performing as they should. These processes include a number of
    different audits.
        There are reinspection audits that take place immediately
    after a flooding event, where these general adjusters will,
    from the National Flood Insurance Program, will go on site and
    they will take random samples of adjusting or claims to make
    sure that they're being adjusted correctly.
        There are also operational reviews that occur every 3 years
    with all the write your own companies where staff of FEMA will
    actually go on site to the companies, pull the files, look at
    them, look at the documentation, to ensure that--
        Mr. Shays. Let me just quickly interrupt you, because I get
    the gist of it.
        Mr. Connor. Yes, sir.
        Mr. Shays. Just walk me through one last point.
        If people down South are having huge flooding, how is that
    impacting people up North who may not be?
        Mr. Connor. How are they affecting people up North?
        Mr. Shays. Right. Do the rates up North go up as well?
        Mr. Connor. No.
        Mr. Shays. Okay.
        Mr. Connor. No. This is--the rates for the National Flood
    Insurance Program are universal rates, so in other words, it's
    not like in the normal insurance industry where--
        Mr. Shays. So they do? In other words if you're trying to
    capture more down South, everybody up North is having to pay
    for it? Correct?
        Mr. Connor. That's correct.
        Mr. Shays. So it's not based on conditions district-wide.
    Thank you.
        Mr. Connor. It's based on the mapping, sir, not on
    necessarily the territory or experience.
        Chairwoman Waters. Thank you very much.
        I'm going to call on the gentleman from Mississippi, Mr.
    Taylor, and I would hope Mr. Taylor, in your line of
    questioning, the problem or the concerns about the private
    insurance companies--you've talked to me a lot about that. You
    might want to, if you have time--
        Mr. Taylor. Sure. Thank you, Madam Chairwoman.
        Mr. Connor, I'm very much interested in subpoenaing the
    records of a conversation held between Mr. Maurstad and,
    according to the Times-Picayune New Orleans paper today, 300
    insurance company representatives, insurance agents and Gulf
    Coast insurance commissioners on September 7, 2005, at which
    point he, in speaking to these people, mentioned that he had
    already had conference calls with the largest insurance
    companies in the flooded areas.
        The reason I would like that, Madam Chairwoman, is because
    I think if we go back to testimony of about a month ago when
    Mr. Maurstad came before this committee, he said something to
    the effect of, ``Well, I told them if there was wind and water,
    go ahead and pay the flood,'' which leads to a problem with the
    United States Federal Code, because under the national write
    your own policy, the primary relationship between the write
    your own company, private industry, and the Federal Government
    will be one of a fiduciary nature, i.e., to ensure that any
    taxpayer funds are accounted for and appropriately expended.
        To quote, ``The entire responsibility of providing a proper
    adjustment for both combined wind and water claims and flood
    alone claims is the responsibility of the write your own
    company.''
        Now, that's out of the U.S. Code 44 CFR 62.23.
        What's interesting is that on September 13th, apparently
    based on this conversation with Mr. Maurstad, State Farm
    Insurance Company sent out, and I'm quoting, ``Where wind acts
    concurrently with flooding to cause damage to the insured
    property, coverage for the loss exists only under the flood
    coverage.''
        So here we have the United States Code calling for a proper
    adjustment of the claim, letting State Farm say go out and this
    much was wind, they pay that much, if this much is water, you
    pay that much over here. But State Farm apparently, based on a
    conversation with Mr. Maurstad, turns around and says, if
    there's wind and water, stick it all to the taxpayers.
        So I understand your concerns, but I'd also remind you that
    in my case, I've been a resident of that home for 28 years,
    with never a drop of water. Within 200 yards of me was a 200-
    year-old brick mansion that had been there for 200 years. The
    day after Katrina, it was a pile of bricks.
        The third thing I would like the gentleman to comment on is
    that I'm having trouble believing that you've done a proper
    following up of adjudicating these claims, and I'm particularly
    troubled by one report that says that your Agency really only
    has about 40 employees, that you've actually turned around to
    an outfit called Computer Science Corporation and hired about
    170 of them on a contract basis, and so you are in effect
    hiring contractors to see if the contractors that you have
    hired to adjudicate the claim have been fair with you.
        And I don't think, again, going back to these gentlemen's
    concerns that the taxpayers are being bilked, that you guys are
    doing that very well, the oversight on behalf of the taxpayer.
        Lastly, I would like to submit for the record a series of
    articles that have appeared in the Times-Picayune, the New
    Orleans paper, within the past month, pointing out very serious
    allegations where the citizens were asked to pay claims that
    should have been paid for by a private insurance company.
        In one instance, a couple submitted a $38,000 bill for the
    contents of their home, only to be compensated to the tune of
    about $139,000 for their home, and it turns out that Allstate
    actually padded the bill by $100,000. It was not in the
    couple's handwriting; it was a typed memo from Allstate.
        There are instances, again, published reports in the Times-
    Picayune, where properties received $95,000 checks, $200,000
    checks on properties that never flooded, where there was just
    wind damage.
        And so I do share the gentlemen's concern, number one,
    because I believe in the flood insurance program. I know how
    important it is. But if it's not properly run, then you do play
    into the hands of those people who would like to do away with
    it.
        I recognize that 52 percent of all Americans live in
    coastal America, that 52 percent of all Americans, whether it's
    Connecticut, New Jersey, Mississippi, or California are at risk
    of some type of ocean or rain or flood event. I got here and
    helped pay for the Iowa floods and didn't bat an eye when it
    came to that bailout. So we do help all of the people in this
    country.
        But your important program is in jeopardy if it's not
    properly managed, so I would like the gentleman--
        Chairwoman Waters. Without objection, the articles will be
    submitted for the record.
        And we will now let--
        Mr. Neugebauer. Madam Chairwoman, I ask unanimous consent
    to grant the gentleman an additional 2 minutes.
        Chairwoman Waters. Without objection, it is so ordered.
        Mr. Taylor. I thank the gentleman.
        Mr. Connor, I've laid some challenges at you. I'd like to
    hear your response.
        Mr. Connor. Well, first of all, I appreciate you bringing
    those to our attention, and we certainly are aware of the
    newspaper articles and the examples that you have presented,
    and we're looking into each one of those to find out what
    exactly did happen.
        But one of the things that I need to assure you of in this
    subcommittee is this.
        To the extent that--we do have oversight, and I'll get to
    that in a second. But to the extent that we do determine that
    there has been a lack of proper performance on the part of a
    write your own company in terms of this claims process, there
    are things that we will do to fix it.
        Mr. Taylor. Can I back up?
        Was there a meeting on September 7th between Director
    Maurstad and over 100 people from the insurance industry?
        Mr. Connor. I would have to check to see on that, and I'll
    provide that for the record.
        Mr. Taylor. Second question.
        How many employees do you have and how many people that run
    this important program are contract employees from CSC?
        Mr. Connor. We have, in claims, we have about maybe no more
    than 15 or 20, but we also hire CSC, which is a contractor that
    we've hired for years, that also helps us, supports us with
    regard to dealing with the write your own and flood insurance
    matters.
        Mr. Taylor. So you really do have contractors checking to
    see if other contractors are defrauding our country?
        Mr. Connor. I don't know about the last part of that, and I
    need to check on that part, but we do use a contractor, CSC, as
    a support for our program, because we do have such small staff.
        Mr. Taylor. Last point.
        Our Nation was very kind to the people of Mississippi with
    the homeowner grants for people who had homeowners insurance
    but who flooded and didn't get paid.
        One of the provisions of that, though, was that in order
    for you to be compensated, those folks had to buy flood
    insurance from now on.
        Mr. Connor. Right.
        Mr. Taylor. What steps are being taken to follow up to see
    that is actually happening, that someone just doesn't buy a
    policy for 1 year and let it lapse, and get the best of both
    worlds? Because again, I understand these gentlemen's concerns.
    We don't want people gaming the system.
        Mr. Connor. Well, based on the 1994 Reform Act where it was
    required that in order to get disaster assistance, the
    prerequisite is that you have to purchase flood insurance, what
    generally happens is, I don't think there's anything in place
    to make sure they maintain it until, of course, there's another
    flooding event in that particular area, and that flood policy
    was not maintained, then they would be denied additional
    disaster assistance. That's pretty much the check on that.
        But there is nothing that we have internally to ensure that
    those people who got flood insurance as a result of disaster
    assistance maintain it.
        The only way that I am aware that it comes to the
    forefront--
        Mr. Taylor. Mr. Connor, I really think you need to fix
    that. A deal is a deal. If we're going to help these people
    out, then they need to keep their end of the bargain.
        Thank you, Madam Chairwoman.
        Chairwoman Waters. Thank you very much.
        The gentleman mentioned that CSC is it, your contractor
    you've had for years, is this a competitive bid?
        Mr. Connor. Yes.
        Chairwoman Waters. And they win every time?
        Mr. Connor. For the last few years, yes.
        Chairwoman Waters. How many years?
        Mr. Connor. I'd have to check on how many years.
        [Mr. Connor did not provide any further information for the
    record.]
        Chairwoman Waters. Okay. The Chair notes that some members
    may have additional questions for this gentleman, 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 the witness
    and to place their responses in the record.
        This panel is now dismissed, and you have mentioned today
    that you would respond to many of the questions that have been
    asked.
        Mr. Taylor. Madam Chairwoman?
        Chairwoman Waters. Yes.
        Mr. Taylor. Again, I appreciate your generosity.
        I would request that the committee subpoena the records of
    that meeting between Director Maurstad and the insurance
    industry that occurred on September the 7, 2005, and any
    additional phone calls that occurred between the director and
    the heads of the large insurance corporations, either
    immediately prior or immediately after that.
        Chairwoman Waters. Thank you. The Chair will take that into
    consideration.
        Thank you very much.
        I will now call the second panel.
        I think that we have a special guest that our ranking
    member would like to introduce.
        Mrs. Biggert. Thank you, Madam Chairwoman.
        It's my pleasure to introduce Paul Osman, who is the
    floodplain programs manager for the Illinois Department of
    Natural Resources, Office of Water Resources.
        He coordinates the Federal, State, and local floodplain
    development regulations as well as the National Flood Insurance
    Program for over 1,000 Illinois communities. He also assists
    with the coordination of floodplain mapping, flood disaster
    response, and flood mitigation activities in Illinois.
        And prior to joining IDNR, Mr. Osman was a resource
    conservationist with the Soil Conservation Service and served 3
    years with the U.S. Peace Corps in Kenya. So we're happy to
    welcome him today.
        Chairwoman Waters. Thank you very much.
        Our second witness is Mr. David Maune, Ph.D., CP, CFM, on
    behalf of the Management Association for Private
    Photogrammetric Surveyors.
        Our third witness is Mr. Curt Sumner, executive director,
    American Congress on Surveying and Mapping.
        Our fourth witness is Mr. Mark Davey, president and CEO,
    Fidelity National Insurance Company, on behalf of the Property
    and Casualty Insurers Association of America.
        Our fifth witness is Mr. Thomas Minkler, president of the
    Clark-Mortenson Agency, Incorporated, on behalf of the
    Independent Insurance Agents & Brokers of America,
    Incorporated.
        And our final witness is Mr. Vince Malta, president, Malta
    & Company, Incorporated, on behalf of the National Association
    of Realtors.
        Without objection, your written statements will be made
    part of the record.
        You will now be recognized for a 5-minute summary of your
    testimony.
        We'll start with Mr. Paul Osman.

      STATEMENT OF PAUL A. OSMAN, CMF, ASFPM CO-CHAIR, INSURANCE
     COMMITTEE, FLOODPLAIN PROGRAMS MANAGER, STATE OF ILLINOIS, ON
      BEHALF OF THE ASSOCIATION OF STATE FLOODPLAIN MANAGERS, INC.

        Mr. Osman. Thank you.
        I'd like to thank Chairwoman Waters and Ranking Member
    Biggert for inviting the Association of State Floodplain
    Managers to testify today.
        It's an honor for me to represent the Association of State
    Floodplain Managers and over 11,000 of my colleagues from all
    50 States in the Nation who work day out and day in to reduce
    flood losses.
        My name is Paul Osman, and I'm the floodplain program
    managers for the State of Illinois. For nearly 20 years, I've
    worked alongside thousands of local officials to reduce flood
    losses.
        I'd like to take just a minute to briefly tell you about
    floodplain management in Representative Biggert's and my State.
    Illinois has the largest inland system of rivers, lakes, and
    streams in the entire Nation. Our borders are formed by major
    rivers. We have the Mississippi on the west, the Ohio on the
    south, the and Wabash on the east. We also have the Illinois
    River. We also lay claim to Mr. Clay's Missouri River, because
    the confluence is just across the State line.
        Over two-thirds of the water in the Nation drains through
    Illinois, so if it snows hard in Saskatchewan, or rains heavily
    in Pittsburgh, we know that at a certain point, Illinois is
    going to flood. Despite these challenges, I'm proud to say that
    Illinois is a national leader in floodplain management. We have
    very strong State and local regulations to prevent new flood-
    prone development. Only appropriate open space uses, such as
    baseball fields and soccer fields and such are allowed in the
    most flood-prone areas.
        We also have a heavy reliance on FEMA and State mitigation
    programs to reduce or eliminate those existing flood-prone
    properties. We've purchased nearly 5,000 flood-prone
    properties.
        Prior to the 1993 flood, Illinois was ranked number 5 in
    the Nation for flood losses. Today, we're ranked number 20, and
    we continue to drop further on that list every year. We take
    floodplain management very seriously in Illinois.
        State and local officials rely on the National Flood
    Insurance Program's three-leg stool of mapping, regulations,
    and insurance to reduce flood losses.
        State and local officials are the Federal Government's
    partners in implementing flood reduction programs and
    coordinating the National Flood Insurance Program.
        We're the first on site during a flood. We see the tears
    and broken hearts after the flood. And we work tirelessly to
    enforce floodplain regulations, to encourage the purchase of
    flood insurance, and to make sure that future flooding will not
    cause increased damages.
        The time has come, however, to allow State and local
    officials to take on more responsibility for floodplain
    management.
        The NFIP should be a program that enables State and locals,
    rather than one that shifts the responsibility for floodplain
    management back up to the Federal Government.
        Therefore, we support any effort to enable State and local
    governments to take a leadership role in their own flood
    reduction destiny.
        H.R. 1682 includes a number of provisions that will help
    State and local officials reduce flood losses. We support this
    legislation that will, over time, improve the financial
    stability of the NFIP, although we have a few recommended
    changes for your consideration.
        The ASFPM supports providing the NFIP with sufficient
    borrowing authority to meet its current needs.
        First and foremost, we urge the committee to forgive the
    debt.
        We feel it's important to ensure that flood insurance
    premiums on primary residences remain affordable to allow
    greater coverage and to reduce any reliance on taxpayer funded
    disaster assistance.
        However, we also strongly support the movement toward
    actuarial rates and the phase-in of actuarial rates on non-
    primary residences and non-residential structures.
        ASFPM supports imposing mandatory purchase on flood
    insurance in areas that are subject to what we call residual
    risk. These are areas behind levees, floodwalls, flood control
    dams, those sorts of things. I only need mention the word New
    Orleans.
        Rather than yet another study, we urge that mandatory
    purchase be implemented directly and that State and local
    entities work together with FEMA to identify these residual
    risk areas.
        Just last week, I was at a community on the Ohio River that
    was protected by a certified levee. This entire community lies
    10 feet below the flood elevation, yet the floodplain maps show
    absolutely no flood risk whatsoever.
        When I checked that community, only three people in this
    community carried a flood insurance policy, and that's despite
    the fact that this levee had 10 years of successive failed
    inspection reports. The levee was in deplorable condition.
        These residual risk areas need to be identified. Residents
    need to know that the flood risk exists, and insurance coverage
    needs to be made mandatory in these areas to better protect the
    residents.
        As a followup, we support the bill's outreach grant
    proposal. However, again, this should not be a federally led
    effort, but rather federally encouraged and supported.
        Outreach efforts should be the responsibility of State and
    local officials who have a far greater awareness of specific
    needs.
        The proposed language in H.R. 1682 bypasses the State
    officials who are responsible for floodplain management.
        ASFPM strongly agrees that flood mapping must have
    continued long-term support. Flood mapping is one of the
    primary components of this bill.
        The funding level increase and the time extension provided
    by the bill will allow for continued flood mapping and risk
    identification at a very basic level. We are particularly
    pleased to see the proposal to re-establish the technical
    mapping advisory council.
        Nearly 3 years ago, new grant programs aimed at repetitive
    loss properties were authorized by the Federal Reform Act of
    2004. Unfortunately, we're still awaiting regulations for the
    program to be released by the Department of Homeland Security.
        ASFPM endorses extending the program and allowing them to
    operate for the full 5 years as originally envisioned.
        Lastly, with your busy schedules, many of you may not have
    noticed, but just 2 weeks ago, a record flood took place on the
    Missouri River. Most of the media coverage was limited to a few
    column inches on the back page of local newspapers. A major
    flood passed almost without notice.
        There's a reason for that. In 1993, FEMA-supported
    mitigation projects bought out many of the most flood-prone
    areas along the Missouri River. The remaining residents bought
    flood insurance.
        Strict floodplain regulations have kept new development
    from going back into those areas. Now when flooding occurs in
    properties that are properly regulated, they become non-events.
        When the NFIP and local floodplain management officials are
    working together as envisioned, we don't hear a word about it.
    It doesn't make the news.
        The NFIP is working, but it needs your help to keep it
    working correctly.
        With a few minor improvements, this bill will help it work
    better.
        Thank you.
        [The prepared statement of Mr. Osman can be found on page
    93 of the appendix.]
        Chairwoman Waters. Thank you very much.
        Mr. David Maune.

    STATEMENT OF DAVID F. MAUNE ON BEHALF OF MANAGEMENT ASSOCIATION
             FOR PRIVATE PHOTOGRAMMETRIC SURVEYORS (MAPPS)

        Mr. Maune. Madam Chairwoman, and members of the
    subcommittee, my name is Dave Maune and I am testifying today
    on behalf of MAPPS, a national trade and professional
    association of over 160 of the Nation's leading mapping firms.
        We appreciate this opinion to comment on H.R. 1682 and
    other issues related to the flood mapping and the National
    Flood Insurance Program. We believe H.R. 1682 is a good start
    in addressing reforms within the NFIP.
        In addition, MAPPS recommends a series of additional
    reforms we believe will help make the program run more
    efficiently, and more importantly, will ensure accurate mapping
    data reaches those entities and individuals impacted every day.
        First, where needed, FEMA should collect accurate ground
    elevation data using the best technology to meet accuracy
    requirements in FEMA's guidelines and specifications.
        FEMA routinely uses LiDar data whenever such data are
    available. In many cases, the FEMA lead determines that the
    best use of FEMA's budget is to focus on the hydrologic and
    hydraulic modeling and production of flood hazard maps, so FEMA
    usually uses the best available elevation data provided by the
    U.S. Geological Survey, NOAA, the Army Corps of Engineers,
    individual States, or others, but that data sometimes does not
    meet FEMA's own accuracy guidelines.
        To address this issue, MAPPS endorses the National
    Academy's proposal of elevation for the Nation, which is needed
    by virtually every Federal agency and State, and not just FEMA.
        Elevation for the Nation also has many major advantages in
    helping homeowners to recognize their true flood risk based on
    the elevation of their homes rather than their location within
    or outside special flood hazard areas.
        We also recommend the inclusion of private sector
    topographic mapping professionals in the re-established
    technical mapping advisory council so that commercial,
    professional expertise is brought to the table.
        We support legislation to provide FEMA with access to the
    Census Bureau's master address file, the MAF, so that maps are
    available with important address information when street
    networks are obliterated as they were in New Orleans during
    Katrina.
        We believe there is a need for FEMA to place new emphasis
    on flood risk based on the variable elevations of houses, and
    thus we recommend a national structures inventory.
        Katrina has also exposed a need for a national levee
    inventory and mapping of areas vulnerable to flooding if a
    levee or other flood control structure fails, and we support a
    goal of eliminating paper products by 2010.
        In my written testimony, I have included other
    recommendations that a task force of MAPPS has developed. We
    commend them all to the committee's attention.
        Let me close on one note. Current, accurate elevation data
    is not only needed by FEMA, but by dozens of Federal, State,
    and local agencies. Elevation data is not solely a FEMA need,
    and it should not be solely a FEMA solution.
        FEMA is but one of many whose needs are not fully satisfied
    by the best available topographic data, and FEMA's map
    modernization funding was never intended to solve this portion
    of a nationwide problem.
        FEMA effectively uses the best available topographic data,
    but it does not have the mission or funding to provide base
    mapping for our country.
        Part of the problem is the budget process at OMB, but it is
    also a challenge due to the authorizing committee and
    appropriations committee structure here in Congress.
        It is neither practical nor feasible to fund the entire
    elevation for the Nation requirement through the FEMA map
    modernization program.
        We have a difficult fact to accept, that either FEMA will
    sometimes produce flood risk maps that are not as accurate as
    they could or should be, or we provide additional funding to
    FEMA beyond the $400 million annual authorization of
    appropriations and other Federal agencies for the acquisition
    of new topographic data for selected floodplains when existing
    data are inaccurate or out of date.
        OMB must develop a plan, approved and funded by Congress,
    so that FEMA, U.S. Geological Survey, and other map production
    and geospatial data user agencies receive the resources needed
    to assure that the Nation has the current accurate mapping that
    is needed to protect property, enhance our environment, save
    tax dollars, and ensure sustained economic growth.
        This concludes my testimony. I'll be happy to answer any
    questions when the time comes.
        [The prepared statement of Mr. Maune can be found on page
    81 of the appendix.]
        Chairwoman Waters. Thank you very much.
        Mr. Curt Sumner.

       STATEMENT OF CURTIS SUMNER, EXECUTIVE DIRECTOR, AMERICAN
                   CONGRESS ON SURVEYING AND MAPPING

        Mr. Sumner. Chairwoman Waters, and members of the
    committee, thank you for the opportunity to speak today.
        My name is Curt Sumner, and I am the executive director of
    the American Congress on Surveying and Mapping.
        We are a nonprofit professional association comprised of
    geodesists, surveyors, cartographers, and other geospatial
    practitioners. We have affiliates in all 50 States.
        Since prior to World War II, the diversity of our
    membership has been used by Congress and Federal agencies to
    seek advice on areas within our expertise.
        We're comprised of educators in colleges and universities,
    as well as people in varying levels of government service, and
    professionals who are licensed to help their fellow citizens do
    things they can't do for themselves, and that puts us directly
    in line with people who are affected by flood maps.
        One of the things that we've done recently is work with
    FEMA to develop something called a certified floodplain
    surveyor program, through which we assist those who believe
    there may be mistakes in determining them to be within the
    flood zones, to file letters of map amendment or letters of map
    amendment related to fill.
        ACSM supports the intent of H.R. 1682, and we believe that
    there are a few areas about which we might like to speak that
    are within our areas of expertise.
        We also welcome the opportunity to work with staff to
    address these issues, as you further your findings.
        Section 21 calls for updating the maps and maintaining the
    maps. We would like to propose that updating not simply be
    digitizing. Digitizing outdated maps is of no benefit. In fact,
    it could be detrimental, by allowing people to misunderstand
    the data they are getting.
        Sometimes digitized data is given more value than mapped
    data or old map data, and if it is wrong information, it
    certainly can be harmful.
        The bill also has language which would require new mapping.
    We believe the mapping should be geo-referenced, it should be
    created using technological advancements that are available to
    us, and a minimum set of standards that would ensure
    consistency of the mapping across jurisdictional lines.
        Sometimes when mapping is to be done in a particular
    jurisdiction, the local jurisdiction may have influence on the
    mapping in terms of the elevation data that is used, and not
    use uniform data which has been accepted by all the Federal
    agencies.
        The bill shouldn't prohibit local government from moving
    forward to do mapping that they deem to be appropriate nor
    should it prohibit the local government from not mapping areas
    that are likely to be undeveloped, such as swamplands, State
    and national forests, or other preserved areas.
        Again, we believe the bill should have express language
    which establishes and authorizes a maintenance program. Timely
    maintenance of the updated maps is very important.
        Another stipulation in the bill is a requirement to show
    the 500-year floodline. We think the language should be
    included in the bill that would allow local jurisdictions to
    map to something called, ``future conditions.''
        Future conditions takes into account proposed or
    anticipated development that may occur over time, and can
    oftentimes provide a better picture of what may occur and
    wherein property could be in harm's way in terms of flooding.
        We, too, applaud the reestablishment of the technical
    mapping advisory council.
        We feel that it's impact in its former state was very
    important in getting to where we are today with flood mapping,
    and we believe the reinstatement should be permanent, and
    clearly it should have representation from the mapping and
    surveying community.
        We also believe that the cooperating technical partners
    program, which was begun after the TMAC ended, should have
    representation.
        This particular program establishes partnerships with
    State, local, and regional organizations toward the development
    of modernized maps and plays an important role.
        In conclusion, I'd like to thank the committee again for
    allowing me to speak and I will be happy to answer questions
    that you may have for me.
        [The prepared statement of Mr. Sumner can be found on page
    100 of the appendix.]
        Chairwoman Waters. Thank you very much.
        Mr. Mark Davey.

     STATEMENT OF MARK DAVEY, PRESIDENT AND CEO, FIDELITY NATIONAL
      INSURANCE COMPANY, ON BEHALF OF FIDELITY NATIONAL INSURANCE
      COMPANY AND THE PROPERTY & CASUALTY INSURERS ASSOCIATION OF
                                AMERICA

        Mr. Davey. Chairwoman Waters, Ranking Member Biggert, and
    members of the subcommittee, my name is Mark Davey and I am
    president and CEO of Fidelity National Insurance Company.
        Fidelity National is a write your own flood insurance
    partner with the National Flood Insurance Program. We are the
    largest writer of flood insurance, facilitating the purchasing
    and servicing of approximately one out of every five policies
    sold through the program.
        Fidelity National is also a member of the Property and
    Casualty Insurers Association of America, a trade association
    representing over 1,000 insurers. PCI member companies
    represent more than 40 percent of all property and casualty
    insurance underwritten in the United States.
        Thank you for the opportunity to appear before you today.
        As events of 2004 and 2005 have shown, the devastation
    caused by hurricanes and floods can impact millions of lives.
    Even today, those hardest hit continue to recover from past
    events.
        Scientists and meteorologists tell us we will continue to
    see more frequent and severe storms for at least another
    decade.
        The NFIP is a necessary public policy response to the
    uninsurable peril of flood and should be continued.
        As currently structured, the program does not provide the
    level of protection needed by consumers. It has not achieved
    the breadth of participation needed for the program to achieve
    its ultimate benefit. In order to better prepare for future
    catastrophes, program reforms are required.
        Fidelity National and the PCI support proposals intended to
    achieve these goals, many of which are contained in H.R. 1682.
    We believe this bill is important to property owners, insurers,
    the government, and our Nation. We support its passage, with
    some suggested changes.
        We believe there are several key issues which must be
    addressed to make the NFIP more responsive to purchasers, and
    more fiscally responsible, as well as to ensure that the
    properties built or rebuilt are protected against future loss.
        There are 12 key reforms that should be part of any
    legislation to change the program, and thanks to the authors of
    the bill, we are pleased to see most of them are contained in
    H.R. 1682.
        We encourage Congress to forgive the outstanding debt
    incurred by the NFIP resulting from Hurricane Katrina and other
    recent events.
        Just to service the current debt levels, the NFIP will need
    new loans approximately every 6 months to cover the annual
    interest alone. It is unlikely that the NFIP will ever be able
    to retire this debt.
        We need to ensure that the NFIP has the ability to access
    funds when needed without constantly coming back to Congress to
    increase its borrowing authority, as was necessary in 2005 and
    2006. This needlessly slows the claims paying process at a time
    when flood victims need it most.
        The current program expires on September 30, 2008. The
    program should be reauthorized on a long-term basis.
        In order to reduce litigation, which significantly raises
    operational costs for all stakeholders, including the Federal
    Government, Congress should affirm Federal court jurisdiction
    over all disputes relating to procurement of a policy and
    adjustment of claims under the NFIP.
        The program should include revised and enhanced mitigation
    efforts, such as adoption of a strong, statewide minimum
    building code. These new codes must contemplate all types of
    loss, not just flooding.
        Legislation reforming the program should provide additional
    Federal funds to expedite completion of the map modernization
    initiative.
        The program should expand the mandatory purchase
    requirement to include additional properties at risk
        In addition to those properties currently defined as
    residing in special flood hazard areas, properties which have
    sustained a flood loss, are located behind a levee or other
    protective barrier, or are located within a specified distance
    from major bodies of water should be required to purchase flood
    insurance.
        The maximum coverage limits should be increased above the
    current $250,000/$200,000 limit for residential property to
    accommodate increasing construction costs.
        The program should include some provision for additional
    living expenses and business interruption.
        The standard residential flood insurance policy should be
    revised to make it more consistent with standard homeowners
    policy forms.
        The non-residential coverage forms should more closely
    emulate traditional property insurance.
        FEMA should modify its disaster assistance procedures to
    ensure that those with flood insurance who are seeking disaster
    assistance are prioritized ahead of those who have elected not
    to purchase flood insurance.
        The program should encourage lenders to establish
    facilities for escrowing flood insurance premiums outside
    special flood hazard areas.
        The program should continue to provide educational
    materials and resources such as those provided by
    floodsmart.gov.
        We are pleased to see that the majority of these reforms
    are addressed, at least in some way, in H.R. 1682, being
    discussed by this subcommittee.
        We commend the chairwoman and the members of this
    subcommittee for holding this hearing to move this program
    forward.
        It has been mentioned in the past, but it should be
    reinforced. The National Flood Insurance Program provides
    important catastrophic protection for our Nation's property
    owners.
        While it needs reform and modernization, we are encouraged
    by the direction of this legislation. We stand ready and
    willing to work with Chairwoman Waters, Ranking Member Biggert,
    this subcommittee, and Congress to refine and obtain passage of
    this bill during the 110th Congress.
        Thank you.
        [The prepared statement of Mr. Davey can be found on page
    64 of the appendix.]
        Chairwoman Waters. Thank you very much.
        Mr. Minkler.

    STATEMENT OF THOMAS MINKLER, PRESIDENT, CLARK-MORTENSON AGENCY,
    INC., ON BEHALF OF THE INDEPENDENT INSURANCE AGENTS AND BROKERS
                            OF AMERICA, INC.

        Mr. Minkler. Thank you, and good afternoon, Chairwoman
    Waters, Ranking Member Biggert, and members of the
    subcommittee.
        My name is Tom Minkler, and I'm pleased to be here today on
    behalf of the Independent Insurance Agents & Brokers of America
    to present our association's perspective on efforts to reform
    the National Flood Insurance Program.
        I'm the president of the Clark-Mortenson Agency,
    headquartered in Keene, New Hampshire, a regional insurance
    agency with 8 locations and 55 employees in New Hampshire and
    Vermont. I also serve as the chairman of IIABA's government
    affairs committee.
        As the sales force of the NFIP and the conduits between the
    program, the companies, and the consumers, IIABA is uniquely
    positioned to see the vast benefits that the NFIP provides to
    people and places that have been hit by a natural disaster.
        With the private insurance industry largely unable to
    underwrite flood insurance because of the catastrophic nature
    of these disasters, the NFIP is virtually the only way for
    people to protect against the loss of their home or business
    due to floods.
        Since 1968, the NFIP has saved disaster assistance money
    and provided a more reliable system of payments for people
    whose properties have suffered from flood damage.
        It's also important to note that for almost 2 decades, up
    until the 2005 hurricane season, no taxpayer money had been
    used to support the NFIP. Rather, the NFIP was able to support
    itself using funds from premiums it collected every year.
        Despite the historical success of the NFIP, the 2005
    hurricane season and the recent weather patterns across the
    country have proven no program is perfect.
        In my home State of New Hampshire, there have been 8
    federally declared disasters from flooding in the last 10
    years. This increased flooding activity in such a short period
    of time has highlighted some of the deficiencies of the program
    and has strained government resources.
        For this reason, the IIABA strongly supports Chairman Frank
    and Representative Biggert's legislation, H.R. 1682, the Flood
    Insurance Reform and Modernization Act of 2007.
        In particular, the Big I is especially supportive of
    efforts to modernize the NFIP by increasing maximum coverage
    limits and by including, at the option of the consumer, the
    purchase of business interruption coverage, additional living
    expense, replacement cost coverage for contents, and basement
    coverage.
        The modernization of coverages will hopefully have three
    positive effects on the NFIP as a whole.
        First, it will allow consumers to more adequately insure
    their properties and valuables against the true risks. This
    will in turn make the NFIP a more attractive product for
    consumers, thereby increasing participation in the program, and
    finally, as optional coverages that are sold at actuarial
    rates, the modernization will result in an NFIP that is closer
    to being on an actuarially sound footing.
        The inclusion of optional business income interruption
    insurance coverage is particularly crucial to Big I members and
    the commercial customers. For property insurance policies,
    business interruption coverage provides protection against the
    loss of profits and continued fixed expenses resulting from an
    interruption in commercial activities.
        Optional business interruption coverage will provide
    stability to small businesses and to the local economies in the
    areas affected by the flood damage.
        Another provision in the legislation which we strongly
    support is the inclusion of the option to purchase additional
    living expenses.
        This provision will provide consumers with greater security
    during the often bewildering post-flood period and will do so
    on an actuarial basis as opposed to relying solely on FEMA
    grants and assistance.
        Also among our recommendations, and present in the
    legislation, is the proposed increase in the maximum coverage
    limits.
        The NFIP maximum coverage limits have not been increased
    since 1994. The current maximum limits are caught in time, and
    they do not provide reasonable financial relief for
    policyholders facing a complete rebuilding process.
        An increase in the maximum coverage limits will better
    allow both individuals and commercial businesses to insure
    against the damages that massive flooding can cause and we're
    grateful that this increase was included.
        Finally, the increase in the NFIP's borrowing authority has
    been an important issue for independent insurance agents and
    brokers. Despite the three borrowing authority increases passed
    by the 109th Congress, the NFIP likely will not have enough
    funds to pay all outstanding claims without another increase.
        The increasing of borrowing authority to $21.5 billion, as
    proposed by this legislation, is vital to ensure the continued
    payout of promised monies to consumers and the IIABA applauds
    the committee for its efforts to ensure that the U.S.
    Government delivers on its promise.
        Additionally, we ask that the committee consider whether it
    may be appropriate to eliminate the incurred NFIP debt
    resulting from Hurricane Katrina. It's estimated that the NFIP
    will need to pay as much as $900 million a year to the U.S.
    Treasury in interest payments alone, which represents nearly
    half of the annual premium.
        The long-term survival of this program may require Congress
    to consider eliminating this debt and the resulting interest
    payments.
        In conclusion, the IIABA firmly believes that the Flood
    Insurance Reform and Modernization Act of 2007 is critical
    towards ensuring long-term stability of the NFIP and toward
    making it more actuarially sound, to the benefit of consumers
    and taxpayers.
        In particular, we strongly support your efforts to increase
    the maximum coverage limits and to provide the optional
    coverages of business interruption insurance and additional
    living expenses.
        I thank the committee for giving me the opportunity to
    express the views of the IIABA on this important program.
        [The prepared statement of Mr. Minkler can be found on page
    89 of the appendix.]
        Chairwoman Waters. Thank you very much.
        Our final witness will be Mr. Vince Malta.

      STATEMENT OF VINCE MALTA, PRESIDENT, MALTA AND COMPANY, ON
             BEHALF OF THE NATIONAL ASSOCIATION OF REALTORS

        Mr. Malta. Thank you, Chairwoman Waters, Ranking Member
    Biggert, and members of the subcommittee, for your invitation
    to present the views of the National Association of Realtors on
    H.R. 1682.
        My name is Vince Malta, and I'm a Realtor from San
    Francisco, California, where I'm the owner of Malta & Company.
    Our firm handles real property sales and manages over 300
    residential rental units.
        I was the 2006 president of the California Association of
    Realtors and I currently serve as vice chair of NAR's public
    policy coordinating committee.
        As the leading advocate for home ownership, affordable
    housing, and private property rights, NAR supports the efforts
    of the Committee on Financial Services to reform the National
    Flood Insurance Program.
        The NFIP is of critical importance to communities across
    the country. The National Association of Realtors believes that
    reforming the program to ensure its long-term viability,
    financial stability, and actuarial soundness is essential.
        NAR supports many provisions in H.R. 1682, including the
    following: Increasing the NFIP borrowing authority; increasing
    available coverage; addressing mitigation and repetitive
    losses; and building public awareness.
        NAR would like to see the GAO study in Section 18 expanded
    to include renters, because they, too, are at risk and eligible
    to purchase flood insurance.
        NAR, however, has significant concerns regarding the
    following three provisions that I would like to focus on this
    afternoon: First, proposed changes to the mapping program;
    second, elimination of subsidies for non-residential properties
    and non-primary residences; and third, the new notification
    requirements in Section 9.
        NAR is concerned that the requirements in Section 21, to
    map the 500-year floodplain, may lead to delays in the current
    task at hand, which is updating the 100-year floodplain maps.
        The ongoing update of the 100-year maps should be completed
    before any effort to map the 500-year floodplain is begun.
        In addition, NAR believes that the technical mapping
    advisory council established in Section 21 should include a
    real estate professional.
        A real estate professional would be able to provide the
    perspectives of map users, including home owners, and potential
    home buyers, and explain how these maps impact real estate
    transactions.
        NAR strongly opposes Section 4, which calls for phasing out
    subsidies for non-primary residences and non-residential
    properties.
        As a matter of fairness, properties built under the same
    circumstances and facing identical flooding risks should not be
    charged different premiums.
        Although limiting subsidies on non-primary residences makes
    for a great sound bite, there may be significant unintended
    consequences for renters, potential home buyers, neighborhoods,
    and communities.
        The average subsidized policyholder pays more into the NFIP
    system than do non-subsidized properties, roughly $720 in
    premiums annually, as opposed to the average non-subsidized
    actuarially rated policy premium of about $350 per year.
        NAR is concerned that eliminating subsidies would result in
    higher premiums, increase the cost of rental housing, and could
    lead to increased delinquencies, foreclosures, and reduced
    property values for both rental units and owner occupied homes.
    Some properties could see premiums increase fourfold or more.
        There's a limit to the amount that insurance can increase
    before people are either forced to sell their house or go
    without insurance.
        NAR believes that the great majority of residential rental
    property owners would be hard pressed to absorb a cost increase
    of $1,100 or more in annual premiums.
        Consequently, the increased cost of flood insurance would
    be passed on through rent increases to tenants, creating a
    hardship and housing affordability problem for low- and fixed-
    income home renters.
        Another issue that needs to be considered is what happens
    when a non-primary residence is sold and then becomes a primary
    residence. Apparently, there is no tracking presently.
        NAR supports increasing the visibility of the NFIP. We
    believe that renter notification requirements in Section 9,
    though well-intended, will not achieve its intended goal. In
    order to build the level of awareness of the NFIP, we believe
    that a broader public awareness campaign is in order.
        Residential property managers have indicated that while the
    type of brochure proposed in Section 9 is most likely to be
    overlooked amongst the rental paperwork, a well-designed public
    awareness campaign would not suffer from this shortcoming.
        In addition to supporting reforms to the National Flood
    Insurance Program, the National Association of Realtors
    strongly encourages Congress to enact a comprehensive natural
    disaster policy to mitigate exposure to the risks of natural
    disaster and foster the availability and affordability of
    property insurance for homeowners and commercial property
    owners.
        Thank you again for this invitation to present the views of
    NAR on H.R. 1682. We stand ready to help you enact meaningful
    reforms to the National Flood Insurance Program, and will be
    glad to answer any questions you may have.
        [The prepared statement of Mr. Malta can be found on page
    69 of the appendix.]
        Chairwoman Waters. Thank you very much, witnesses.
        Without objection, your written statements will be made a
    part of the record.
        I thank you for your testimony, all of you. Your testimony
    was very useful as we revisit the issue of flood insurance
    reform, and I certainly have a few questions I'd like to ask,
    and I'm sure my colleagues do, as well.
        First of all, I'd like to go to Mr. Osman. You talked about
    the States playing a bigger role in decision making about flood
    insurance and flood management.
        Could you be more specific? Are you talking more about
    being able to eliminate the possibility that development and
    building would be accomplished in certain areas? What are you
    referring to?
        Mr. Osman. The NFIP, as written, provides a base standard
    of regulations for development in floodplain areas, and a lot
    of States and a lot of communities have gone above and beyond
    those.
        It's estimated that, again, one of the things you don't
    hear, one of the successes of the NFIP is over $1 billion per
    year is saved from flood losses through these regulations.
        A lot of communities in the States have gone above and
    beyond those FEMA-based minimum standards and have more
    restrictive regulations.
        We talked about the 500-year flood plain. A lot of
    communities require construction of another foot or 2 feet on
    top of the base 100-year flood elevation, another level of
    protection.
        And FEMA rewards communities who go above and beyond
    through the CRS, which provides discounted flood insurance
    premiums to those communities.
        So yes, the States and local communities need to take a
    more aggressive stance towards regulating floodplain above and
    beyond the FEMA minimums.
        Chairwoman Waters. And you're saying that you're prohibited
    from doing that now?
        Mr. Osman. Oh, no. Not prohibited. But just recognize the
    floodplains and regulate them appropriately.
        Chairwoman Waters. Does everyone agree with that? Any
    disagreement with that?
        [No response.]
        Chairwoman Waters. All right. Let me turn to Mr. Davey.
        Do you or did you insure the Gulf Coast region?
        Mr. Davey. For flood insurance?
        Chairwoman Waters. Yes.
        Mr. Davey. Yes, we did, substantially.
        Chairwoman Waters. And could you describe the claims that
    you have had to cover since Hurricane Katrina and Rita?
        Mr. Davey. Well, it was a rather life changing event for
    myself and for our organization. As Katrina approached, there
    was a lot of prayer that took place that it wouldn't hit New
    Orleans or a populated coastline.
        After it hit, I personally got on an airplane, flew to
    Houston, Texas, rented a motor home, and was in Katrina a day
    after it happened. We started surveying, assessing the damage,
    assessing accessibility, staging our adjusting staff to provide
    what areas what accessible, where they could come, where they
    could not come, and just trying to get an immediate response to
    the event.
        Chairwoman Waters. I'd like you to describe your exposure.
    What did you have to pay out?
        Mr. Davey. We processed--on behalf of the National Flood
    Insurance Program, we processed approximately 65,000 claims for
    the event.
        Chairwoman Waters. And 65,000 claims amounted to about how
    much in dollars and cents?
        Mr. Davey. In excess of $4 billion.
        Chairwoman Waters. In excess of $4 billion.
        Could you also describe to me how you handled this very,
    very troubling area of wind versus water and flood? How do you
    you handle that, and what is your understanding about the
    NFIP's responsibility?
        Mr. Davey. We're unique in the industry. We have 200
    insurance underwriters who are dedicated exclusively to the
    Federal flood program. That operation runs completely separate
    from our at-risk division.
        We had roughly 800 homeowners' claims as a result of the
    event. Those claims were administered out of our offices in
    Omaha, Nebraska, and Jacksonville, Florida.
        Our flood claims were exclusively handled out of our St.
    Petersburg office, where have, as I said, approximately 200
    people to manage that book of business. We increased our staff
    to approximately 350 inside employees, as we worked through
    those claims.
        The two policies of insurance are separate contracts. The
    claims administration is completely separate for those two, for
    the flood and the other. There isn't any communication as to,
    in our organization, and I'm speaking only on behalf of the
    company which I represent.
        Chairwoman Waters. Yes.
        Mr. Davey. I'm not speaking on behalf of the PCI or the
    industry.
        Our claims are handled exclusively by each one of those
    divisions, and there isn't any communication, and each policy
    is evaluated for the coverage that it affords. The risk is
    examined.
        We did examine every risk at that juncture, from what was
    flood damage, what was covered under the flood policy, and
    again, out of 65,000 claims, we had a very limited homeowners's
    exposure affected by this event.
        So the vast majority of the circumstances, we were only
    handling the flood side of the equation, and when we did
    participate in both, it was two separate claims files, two
    separate adjustors, and no communication between the two.
        Chairwoman Waters. Very interesting.
        I will now recognize the ranking member, Mrs. Biggert.
        Mrs. Biggert. Thank you, Madam Chairwoman.
        The question of the debt forgiveness has come up, and I
    guess the question is, if there is another event such as 2005,
    and the hurricanes such as Katrina, and let's say that the debt
    was forgiven, would we be right back in the place that we are
    now, with the huge borrowing that the NFIP has to make?
        Mr. Osman, you had said something about that in your
    written testimony.
        Mr. Osman. Is the question do we support the debt
    forgiveness?
        Mrs. Biggert. Yes, and, well, do you support the debt
    forgiveness, and number two, if there is another disaster such
    as Hurricane Katrina and the others, would then the NFIP be
    back in the same position, of having to borrow again to pay off
    the claims?
        Mr. Osman. I think it's important to realize the fact that
    again the successes the NFIP worked is envisioned for 38 years,
    and the 2005 hurricane season was a bit of an anomaly, at least
    hopefully it was, which put us into the debt.
        I think with some of the movement that FEMA is making
    towards premium increases, policy retention, policy increases,
    those sort of things, hopefully we'll recognize the fact that
    that's what we need to, you know, to face through these kind of
    future catastrophes, should they happen. Hopefully, they won't.
        Mrs. Biggert. So what you're saying is that probably
    because of these new innovations, that it wouldn't be the same,
    there wouldn't have to be the borrowing by the NFIP?
        Mr. Osman. Hopefully, but it's hard to forecast what's
    going to happen.
        Mrs. Biggert. I know.
        Mr. Minkler, would you agree with that?
        Mr. Minkler. Yes, Congresswoman, I think our concern is the
    overall viability and sustainability of the program, and the
    consideration of elimination of the debt, along with going to a
    more actuarial based rating system, would go a long way in that
    effort.
        Mrs. Biggert. Mr. Davey, would you agree with that?
        Mr. Davey. If you look at the coastlines and examine the
    exposures and the population density in several areas, I don't
    think it's--we will, at some juncture, perhaps not encounter
    something on the same level as Katrina.
        If the area that's affected is not protected by levees, the
    water can escape, and we don't have nearly the financial cost
    to repair those structures that are initially flooded, where
    the water is allowed to subside. But there are areas across the
    country, the St. Petersburg area, where we could see
    devastating destruction.
        I'm fully in favor of bringing up not only the rate levels
    on secondary homes and other homes to the actuarial--to a real
    actuarial rate level, but across the country, because if you
    look at the percentage of owner occupied homes versus rental
    versus seasonal, if we can bring the entire program's rate
    level up to an actuarially sound basis, we're far better off
    than trying to raise, while we artificially hold down the rates
    for owner occupied homes, and then try to make up the
    difference on the backs of those other properties.
        I think the program is far better off if we work to bring
    all rates to an actuarially sound basis.
        Mrs. Biggert. Thank you.
        Mr. Sumner, do you know how much it would cost and how long
    it would take for LiDAR to--for the entire Nation to satisfy
    FEMA's specifications? Maybe this is for Mr. Maune.
        Mr. Sumner. It's probably better for Dave.
        Mrs. Biggert. Okay.
        Mr. Maune. Yes, I would put a price tag of $400 million on
    acquiring LiDAR for the Nation, but that should not be borne by
    FEMA. That would solve a national problem for USGS, NOAA, the
    Army Corps of Engineers, the Bureau of Land Management, the
    Forest Service--everybody.
        Mrs. Biggert. Thank you.
        Mr. Maune. And it would take about 5 years.
        Mrs. Biggert. Thank you.
        And then, Mr. Osman, you talked about the mitigation, the
    repetitive loss properties, and there were grant programs to
    address that, and by the Flood Insurance Reform Act of 2004,
    and then you say that we're still waiting for regulations for
    the program to be released by the Department of Homeland
    Security.
        Why is that taking so long?
        Mr. Osman. I'm not sure I can answer that question. I think
    Mr. Connor was asked that question earlier.
        But there are repetitive loss--
        Mrs. Biggert. I don't think he replied.
        Mr. Osman. Some of those programs are in effect now, and
    there is--those rules are due out any time, we're told.
        But repetitive loss properties, they are a problem
    nationwide, and they have been addressed aggressively since the
    1993 flood when a lot of these mitigation programs came into
    effect.
        One of the things that was mentioned was the regulation,
    the 50 percent rule, and a lot of communities have adopted
    cumulative clauses where the point of the property reaches 50
    percent damage from cumulative events, and mitigation programs
    come into effect. So there has been a strong effort to address
    repetitive loss programs.
        Mrs. Biggert. Thank you.
        And Madam Chairwoman, I have a question for you. Do you
    know when we expect to mark up this bill?
        Chairwoman Waters. Would you help me, staff? When have we
    targeted this for markup? Before the end of the month.
        Mrs. Biggert. Thank you very much, and I yield back.
        Chairwoman Waters. You're welcome.
        The gentleman from Texas, Mr. Green.
        Mr. Green. Thank you, Madam Chairwoman, and thank you,
    members of the panel, for being with us today.
        Mr. Malta, I'd like to start with you, if I may.
        You mentioned the unintended consequences of phasing out
    the non-residential aspect of this, and you spoke very briefly
    on primary residences and then those that are secondary perhaps
    becoming primary as a result.
        Do you have any additional thoughts on this, please?
        Mr. Malta. Well, yes.
        Who would monitor, let's say if you were to exclude one,
    and then who would monitor when someone is living there as
    their primary residence and when it no longer is, so that
    someone could still obtain coverage? So we think that it's
    really not workable.
        Obviously, there is no tracking system in place, as we
    heard earlier, and so we feel it is very important. Flood
    waters do not distinguish between people who are using a home
    as their primary residence or not, or commercial versus
    residential properties.
        And it would pose a tremendous financial burden on a lot of
    these communities where these subsidies have existed for 40
    years.
        Mr. Green. And what about renters? You mentioned that
    briefly, also--many properties are rental properties, and how
    would they be impacted?
        Mr. Malta. Well, renters would be impacted because property
    owners probably would not absorb the increase in costs, and
    they would try to pass those costs on to renters.
        Many of these properties are already low- to moderate-
    income rentals. The fallacy is that they're all beach
    properties, they're tremendous mansions. That's not the case.
    So this would affect renters, a great deal.
        Mr. Green. Let me move to the gentleman who represents the
    Big I. And I have a question.
        We've talked about having persons actually pay who are in
    the targeted areas of floodplains, let them pay the costs of
    the burden of having repairs or replacement, making it
    actuarially sound.
        What will that cost a typical person if we do this?
        Mr. Minkler. Congressman, I don't have the exact figure. A
    broad statement would be actuarially there will be an increased
    cost for those.
        Mr. Green. Do you think it would double what persons are
    paying now? Could it triple what persons are paying now?
        Mr. Minkler. I'm sorry, I don't have an answer for you.
        Mr. Green. Does someone else on the panel have some
    intelligence to share with us on this? Double, triple?
        [No response.]
        Mr. Green. Is it safe to say that it would--I believe
    you're getting something whispered to you.
        Mr. Minkler. I am. Thank you.
        Mr. Green. Okay.
        Mr. Minkler. The point was made that the increase would be
    optional to the policyholder or the landowner, building owner,
    above and beyond the standard amount, so the replacement cost
    factor would probably not be a direct multiple of whatever
    they're paying for the base policy.
        That still doesn't get you the answer that you're looking
    for, I know, but it would not be a direct correlation of the
    two times, three times, that type of thing.
        Mr. Green. Mr. Malta, do you have some intelligence on
    this?
        Mr. Malta. Well, our intelligence said that the costs would
    increase 2 to 3 times. It would be--they are right now--it's
    about 35 percent of the cost, if they were to be actuarialized.
        So our data indicates 2\1/2\ to 3 times.
        Mr. Green. Would this in some way impact the economic
    status of people who will stay in these areas? Will we find
    that these areas could only be affordable to certain people and
    perhaps not affordable to others?
        Mr. Malta. That's our concern, and that's why we believe
    that you should look very hard at this before you proceed in
    excluding them.
        Mr. Green. Any of the insurance folk like to comment on
    that?
        Mr. Davey. Is your question regarding bringing the base
    program rates to an actuarially sound level, or just the non-
    owner-occupied units?
        Mr. Green. Well, let's talk about both.
        Mr. Davey. If you're going to bring the program to an
    actuarially sound level, and you're going to rate those
    properties as they are exposed, for example--
        Mr. Green. And phase out the--have only the primary
    residences.
        Mr. Davey. And you have only the primary residences?
        Mr. Green. Right.
        Mr. Davey. There are going to be vast swings in the amount,
    what's deemed an actuarially sound rate for somebody living in
    Key West, Florida, versus an actuarially sound rate for
    somebody living on Long Island, New York, based on your
    catastrophic wind models and your various modeling techniques
    that they may employ to see what the potential damageability of
    an area is--
        Mr. Green. Because my time is running out, let me just move
    to another point that I haven't heard us discuss in any great
    detail.
        We seem to associate this with the Gulf Coast area, and I
    understand why, but if we find reason to do this along the Gulf
    Coast, will this not also impact other areas where they have
    other types of disasters? Is this going to be the genesis of
    things to come in other areas?
        For example, right now, we're talking about hurricanes, but
    there are some places where they have tornadoes, and there are
    other places where they have earthquakes.
        So we're just focusing right now on one area, but you do
    concede that we could decide that people living in Tornado
    Alley should not have the opportunity to have the benefit of
    disaster insurance or at least impact their insurance as well?
        Insurance folks?
        Mr. Davey. My comments are strictly related to flood. An
    actuarially sound rate for somebody in a hurricane, in a
    substantially hurricane, Gulf Coastal area will be much
    different than an actuarially sound rate for somebody, for
    example, in Cape Cod, Massachusetts, where the probability of a
    hurricane making landfall there is less, is much diminished.
        So I think if you look at this and you bring this and you
    work toward bringing it to an actuarially sound basis across
    the country, I don't think that the rate will be the same, and
    that's one of the things. The burden, if you convert this
    program to an actuarially sound basis, will be borne for the
    most part through rates for those who are in the greatest area
    of incident, and less so from those people that are not.
        Mr. Green. Thank you.
        I yield back, Madam Chairwoman.
        Chairwoman Waters. Thank you very much.
        Mr. Cleaver, for 5 minutes.
        Mr. Cleaver. Thank you, Madam Chairwoman.
        Actually, I only have one question, I guess one-and-a-half,
    based on what my colleague just asked.
        Mr. Davey, do you support all-peril insurance? I realize
    that's not the subject of this hearing. But my colleague, Mr.
    Taylor, of course, has a bill on that, and I'm just curious.
        Mr. Davey. I do not. I recognize that there are some areas
    in the United States where there is what could best be defined
    as an insurance crisis. There's a complete lack of availability
    of the product at a rate level that's acceptable to the general
    population in those areas today.
        Is the National Flood Insurance Program the vehicle to
    provide that? I'm not in a position to comment on that.
        Mr. Cleaver. I'll leave that to my colleague.
        One final question for me, and this is out of curiosity.
        What would be the cause for interest in national flood
    insurance by the real estate industry?
        Mr. Malta?
        Mr. Malta. Well, Congressman, because this is a program
    that exists to fill the void where the private sector cannot,
    and if people cannot get insurance, they cannot buy a home if
    it's contingent upon a loan, they cannot sell property in a
    given area, so it fills a void, and that's why we're concerned.
        Mr. Cleaver. I yield to my colleague from Mississippi.
        Mr. Taylor. I thank the gentleman for his questions.
        Mr. Malta, I'd like to follow up.
        I was obviously very pleased to see, towards the tail end
    of your testimony, where your organization has come out for a
    comprehensive natural perils insurance, seeing as how that I'm
    convinced that the half of America who lives in coastal
    America, the half of the Realtors, the half of the
    homebuilders, the half of the mortgage lenders, and the half of
    the homeowners are, on a State-by-State basis, waking up and
    finding themselves with 300, 400, or 500 percent increases in
    their premiums, if they can get the coverage, and that it has
    caused a delay on people building houses, buying houses.
        I'm told in my State that the cost per unit of a new
    apartment complex is $300 a month, even for a renter.
        So it does affect everyone, and I'm obviously pleased to
    see your organization come out for something.
        On the specifics, I was wondering if your organization has
    looked at H.R. 920, which I have introduced, along with Ms.
    Waters, Mr. Cleaver, and several other members of the Gulf
    Coast delegation. I was curious if your organization has looked
    at that and would be willing to support that, which would be
    all natural perils insurance, as an option on your national
    flood insurance policy, given the new Democratic rules, which
    call for pay-as-you-go. It would not be taxpayer subsidized. It
    would have to be done in a way that the premiums match any
    potential losses that you--
        Mr. Malta. The National Association of Realtors has no
    position on that bill presently, but we have many members who
    are very much concerned in the coastal areas that you're
    talking about, regarding the concerns that your bill addresses.
        Mr. Taylor. Mr. Malta, the reason I bring this up is that
    obviously everyone recognizes something has to happen.
        You have an extremely powerful lobby called the insurance
    industry, that dumped $25 million in the last election cycle on
    congressional candidates, and about that much on the last
    presidential race, mostly towards the President.
        And so having watched this town for a while, it's a pretty
    safe bet that nothing happens unless some organizations like
    the homebuilders, like the Realtors, like the mortgage lenders,
    those people who are losing the most, will weigh in on behalf
    of something specific.
        I don't see much happening when people talk in
    generalities. I see a lot of things happen up here when people
    get specific behind an idea or a bill.
        And so I would make this request, that if you have any
    reservations about the specific provisions of H.R. 920, if the
    Realtors could get back to us about what they would like to see
    changed, I would welcome that, as a primary sponsor of the
    bill, and I would think the other co-sponsors would, as well,
    because it is a crisis. It's something that has to be
    addressed.
        It very much affects the people in my State; it very much
    affects 52 percent of all Americans.
        And just like the flood insurance program was started to
    fill a void that the private sector chose not to fill at a
    reasonable cost, I think we're realized after Katrina that
    there's another void out there that needs to be filled, and I
    see government is in the business of filling voids that the
    private sector chooses not to or chooses not to at a reasonable
    rate.
        Mr. Malta. Madam Chairwoman, may I respond?
        Chairwoman Waters. Yes, you may.
        Mr. Malta. The National Association of Realtors will get
    back to you on your bill. Okay? And we do support a
    comprehensive natural disaster policy. So we would welcome
    that, and we would work with Congress on that in the future.
        Mr. Taylor. Closing thoughts, Mr. Malta. And that would be
    that one quarter of this Congress has passed this by, and that
    if we want to do something during this Congress, we would
    certainly hope for a timely response on the part of your
    organizations and the other organizations.
        Thank you, Madam Chairwoman.
        Chairwoman Waters. Thank you very much.
        Members, you have been, to our witnesses, you've been
    extremely helpful, and I almost feel as if we need another
    session with you, because there are some other proposals that
    are coming forth.
        Before you leave, Mr. Osman, do you know how many States
    have some kind of disaster insurance programs--flood insurance
    or other kinds of programs--in existence now?
        Mr. Osman. I can only tell you that 20,000-plus communities
    nationwide all over the country participate in the National
    Flood Insurance Program.
        As far as States which have higher regulatory standards, I
    can only estimate that maybe half of the States have higher
    standards that go above and beyond FEMA's minimums, and again,
    that's a guess.
        Chairwoman Waters. I was distracted for a minute, and I did
    not hear everybody's response to an all-perils insurance idea
    or concept.
        Does everyone agree that there should be something to take
    care of flood, wind, earthquake, and all of the other disasters
    in a more comprehensive way that would be available to
    everybody? Any thoughts?
        You don't have to answer this, but if you have any
    thoughts, could you tell me quickly what they are?
        [No response.]
        Chairwoman Waters. No thoughts.
        All right. Thank you very much. We appreciate your
    participation today. We will make sure that your testimony is a
    part of the record.
        This panel is dismissed.
        Okay. Let's see. The written statement of the Consumer
    Federation of America will be made part of the record of this
    hearing, as will the New Orleans Times-Picayune editorial
    entitled, ``Where is the Outrage?''
        The Chair also notes that the hearing record will remain
    open for 5 days to allow for the submission by members of
    additional materials.
        With that, the hearing is adjourned. Thank you.
        [Whereupon, at 12:41 p.m., the hearing was adjourned.]

                                A P P E N D I X

                                 June 12, 2007
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