[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



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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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