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


 
                    THE HOMEOWNERS' INSURANCE CRISIS 
                     AND ITS IMPACT ON COMMUNITIES, 
                      HOMEOWNERS, AND THE ECONOMY 
=======================================================================

                             FIELD HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 11, 2008

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-88

                                 ----------
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41-179 PDF                       WASHINGTON : 2008 

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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            DEBORAH PRYCE, Ohio
CAROLYN B. MALONEY, New York         MICHAEL N. CASTLE, Delaware
LUIS V. GUTIERREZ, Illinois          PETER T. KING, New York
NYDIA M. VELAZQUEZ, New York         EDWARD R. ROYCE, California
MELVIN L. WATT, North Carolina       FRANK D. LUCAS, Oklahoma
GARY L. ACKERMAN, New York           RON PAUL, Texas
BRAD SHERMAN, California             STEVEN C. LaTOURETTE, Ohio
GREGORY W. MEEKS, New York           DONALD A. MANZULLO, Illinois
DENNIS MOORE, Kansas                 WALTER B. JONES, Jr., North 
MICHAEL E. CAPUANO, Massachusetts        Carolina
RUBEN HINOJOSA, Texas                JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri              CHRISTOPHER SHAYS, Connecticut
CAROLYN McCARTHY, New York           GARY G. MILLER, California
JOE BACA, California                 SHELLEY MOORE CAPITO, West 
STEPHEN F. LYNCH, Massachusetts          Virginia
BRAD MILLER, North Carolina          TOM FEENEY, Florida
DAVID SCOTT, Georgia                 JEB HENSARLING, Texas
AL GREEN, Texas                      SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri            GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois            J. GRESHAM BARRETT, South Carolina
GWEN MOORE, Wisconsin,               JIM GERLACH, Pennsylvania
LINCOLN DAVIS, Tennessee             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               KENNY MARCHANT, Texas
JIM MARSHALL, Georgia                THADDEUS G. McCOTTER, Michigan
DAN BOREN, Oklahoma                  KEVIN McCARTHY, California
                                     DEAN HELLER, Nevada

        Jeanne M. Roslanowick, Staff Director and Chief Counsel
              Subcommittee on Oversight and Investigations

                MELVIN L. WATT, North Carolina, Chairman

LUIS V. GUTIERREZ, Illinois          GARY G. MILLER, California
MAXINE WATERS, California            PATRICK T. McHENRY, North Carolina
STEPHEN F. LYNCH, Massachusetts      EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York         RON PAUL, Texas
MICHAEL E. CAPUANO, Massachusetts    STEVEN C. LaTOURETTE, Ohio
CAROLYN McCARTHY, New York           J. GRESHAM BARRETT, South Carolina
RON KLEIN, Florida                   MICHELE BACHMANN, Minnesota
TIM MAHONEY, Florida                 PETER J. ROSKAM, Illinois
ROBERT WEXLER, Florida               KEVIN McCARTHY, California
























































                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    February 11, 2008............................................     1
Appendix:
    February 11, 2008............................................    49

                               WITNESSES
                       Monday, February 11, 2008

Bonfiglio, Charles, President, Florida Association of Realtors...    32
Jesse, Roger, Resident, Hobe Sound, Florida......................    37
McCarty, Hon. Kevin, Insurance Commissioner, State of Florida....    13
Soto, Alex, Past President, Independent Insurance Agents and 
  Brokers of America.............................................    35
Wenham, Hon. Thomas, Mayor, Wellington, Florida..................    10

                                APPENDIX

Prepared statements:
    Watt, Hon. Melvin L..........................................    50
    Brown-Waite, Hon. Ginny......................................    53
    Bonfiglio, Charles...........................................    54
    Jesse, Roger.................................................    64
    McCarty, Hon. Kevin..........................................    65
    Soto, Alex...................................................    79
    Wenham, Hon. Thomas..........................................    86

              Additional Material Submitted for the Record

Watt, Hon. Melvin L.:
    Written responses to questions submitted to Hon. Kevin 
      McCarty....................................................    91
    Written responses to questions submitted to Alex Soto........    92


                    THE HOMEOWNERS' INSURANCE CRISIS
                     AND ITS IMPACT ON COMMUNITIES,
                      HOMEOWNERS, AND THE ECONOMY

                              ----------                              


                       Monday, February 11, 2008

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 1 p.m., in the 
Palm Beach County Commission Chambers, North Olive Avenue, West 
Palm Beach, Florida, Hon. Melvin L. Watt [chairman of the 
subcommittee] presiding.
    Present: Representatives Watt, Klein, Mahoney, and Wexler.
    Mr. Klein. [presiding] The Oversight and Investigations 
Subcommittee of the Financial Services Committee of the United 
States House of Representatives will come to order.
    The purpose of the hearing today is to discuss the 
homeowners' insurance crisis and its impact on communities, 
homeowners, and the economy, and we thank all of you for 
joining us today. We are going to be welcoming some members 
from the committee. Our chairman is going to be here in a few 
minutes; his flight was slightly delayed.
    Before we get to anything else, the Congress would like to 
extend its appreciation to the Palm Beach County Commission for 
making your facilities available to us and for all the 
wonderful work you do on behalf of our community, and I would 
like to turn the meeting over to the board chair of the county 
commissioners, Commissioner Addie Green.
    Ms. Green. Thank you very much. It gives me an honor and on 
behalf of Palm Beach County Board of County Commissioners, I 
would like to extend our welcome to Chairman Watt and the 
members of the Financial Services Committee, Oversight and 
Investigations Subcommittee.
    I would also like to thank our local congressional 
delegation members for their support over the past year, not 
only in working on important insurance legislation, but also in 
securing resources for many of our local appropriations and 
legislative priorities.
    Congressman Wexler, you have for many years been the 
champion of securing the dollars necessary for Palm Beach 
International Airport's new air traffic control tower. We thank 
you and our staff for securing $7.4 million this year towards 
the cost of that construction.
    Congressman Mahoney, many thanks to you for $735,000 for 
our Palm Tran buses and for your leadership on Everglades 
funding and last year's Water Resource Development Act.
    Congressman Klein, thank you for your assistance in 
authorizing $4.5 million in funds for the restoration of Peanut 
Island and your efforts in securing almost $2 million for the 
County Sands Transfer Plant at the Lake Worth Inlet. We look 
forward to working with you again this year on our local 
priorities.
    We appreciate the subcommittee's selection of Palm Beach 
County for your meeting today. As you all know, Florida, and 
particularly Palm Beach County, has been no stranger to rising 
homeowners' insurance costs associated with recent hurricane 
events over the past several years.
    While our State leaders have tried to control the rising 
cost of homeowners' insurance, we have still seen rising 
premiums. In many cases in our community, there has been the 
complete cancellation of property insurance policies. These 
actions should not be considered acceptable and the Federal 
Government should continue to work with the State and with 
insurance providers to reverse this trend.
    We thank Congressmen Klein and Mahoney for their leadership 
in passing the Homeowners' Defense Act, which will help create 
a national solution for providing affordable homeowners' 
insurance to residents in Florida, Louisiana, California, North 
Carolina, and every other State in the country that is 
susceptible to natural disasters.
    We appreciate Senator Nelson sponsoring the Companion Bill 
and hope it will pass this year in the Senate. Your 
deliberation and testimony here today are important. Please 
take our words with you to Washington and share them with your 
colleagues.
    You are lucky because today is a beautiful day in Palm 
Beach County, however, sometimes the seas swell up to 20 feet, 
the wind gusts over 100 miles per hour, and the rainfall 
measurements are in feet and not inches.
    These kinds of conditions, and we have seen more than our 
fair share of them over the last 5 years, require assistance to 
our government that the private sector must help provide.
    Please help us to assist and protect the many full-time and 
part-time residents of our State who call this area home and 
who need and demand affordable property insurance.
    Again, thank you.
    Mr. Klein. Thank you very much, Commissioner, and thank you 
again to the whole County Commission and your staff for making 
this facility available to us, and of course for welcoming our 
colleagues in from around the country for this event.
    Before we go any further, we actually have some very sad 
news today. A colleague of ours, a longstanding Member of the 
Congress, one of the great champions of human rights, a 
Holocaust survivor, chairman of the Foreign Affairs Committee--
of which Congressman Wexler is a member--and I know Congressman 
Wexler is particularly close with him, because he is a 
subcommittee chairman, Tom Lantos, passed away this morning, 
and it is a great loss to our whole country, and if I could 
just ask for a moment of silence.
    Thank you.
    We would first like to acknowledge a number of folks who 
are here today in addition to our local residents and business 
leaders who have come to talk to us, as some of our elected 
officials.
    I see Representative Booker, State Representative Booker, 
and Commissioner Gottlieb. Let's see, I know there are a couple 
of other county commissioners who are going to stop by. I know 
there are some staff from various offices who are here, so we 
thank all of you for participating with us and representing 
your offices.
    The job of Member of Congress is only one that works very 
well with all of our State and municipal and county officials, 
so we thank all of them for their service.
    I would also, of course, like to acknowledge my colleagues 
sitting here. Congressman Mahoney has been, as a new member, he 
and I came together, and this has just been an incredible 
privilege and honor to serve in Washington, but it has really 
been a wonderful opportunity to serve with Congressman Mahoney. 
With his background and my background we have just been blessed 
with a lot of great people in Washington who helped us work on 
the insurance issue. And this man sitting next to me has been 
an absolute stalwart, has used his business skills and capacity 
to help guide the legislation through to make sure it makes 
sense, and I want to acknowledge that.
    And Congressman Wexler has not only been doing that this 
year, but has been doing this in previous years as a Member of 
Congress and has been a long standing member working actively 
on this issue, and also Congresswoman Wasserman Schultz, who is 
not here today, has been very active as well.
    I also would like to acknowledge Congresswoman Brown-Waite; 
Ginny Brown-Waite is a Member of Congress from the west coast 
of Florida. She submitted a written statement which we will 
make a part of the record, without objection, and she has been 
a very active person, coming up with some solutions and working 
with all of us in a bipartisan way to get this bill passed out 
of the House this year.
    So I think we are very blessed to have a group of Florida 
Members on both sides of the aisle who have worked very 
actively in leading other parts of the country on this issue.
    And with that, I think what we are going to do now is just 
get to some opening remarks, and as I said, the chairman will 
be here in a matter of a few minutes and then he will take over 
the meeting, but as part of the opening of the meeting, we 
would like to get some local remarks from our Members of 
Congress.
    So I am going to start with Congressman Tim Mahoney.
    Mr. Mahoney. Thank you, Congressman Klein. And I would like 
to say thank you to the County Commission and Commissioner 
Green for being here today, and you are right, it is a 
beautiful day, and I am thrilled to death that it is a Monday, 
a work day, and I am here in South Florida so that is a good 
thing.
    I would also like to thank Congressman Klein, and we do 
make a good team. Congressman Klein's many years of service to 
the State, his knowledge of the issues, and his ability to keep 
telling me to calm down, it is going to be okay, we are going 
to get there, has been a real inspiration. I have been very 
blessed.
    As well as having the gentleman on my left, Congressman 
Wexler; Congressman Wexler is a great leader in the House of 
Representatives and he has certainly been a great leader for 
the Florida Delegation. And on this legislation and all issues, 
he is somebody that we go to for help and advice and he has 
never let us want for good actions to take, so I want to thank 
Congressman Wexler.
    I would like to begin by thanking you, and the people on 
the subcommittee, and Chairman Watt for taking leadership on 
this issue. And I just want everybody to know that this is not 
the first hearing of the committee; it has been one of several 
that we have had in the 110th Congress.
    The commitment of Congress to investigating this issue so 
that the Members of Congress and the American public can better 
understand this crisis gripping Florida and the rest of the 
Nation is noteworthy and was very, very key this past November 
in the successful passage of H.R. 3355, the Homeowners' Defense 
Act.
    In addition, again, I would like to thank Congressmen Klein 
and Wexler. I would also like to recognize Commissioner McCarty 
and thank him for coming in, I believe, from California where 
he was attending an insurance commissioners conference today, 
and he has worked tirelessly on behalf of the people of the 
State of Florida to break this spiral of rising homeowners' 
insurance rates.
    I would also like to recognize a special witness joining us 
today, Mr. Roger Jesse. Mr. Jesse is a retired homeowner from 
Hobe Sound, Florida, and he, like many other seniors and 
families in the State of Florida, was notified last year that 
his homeowners' insurance was not going to be renewed. 
Fortunately for Mr. Jesse, he was able to find another 
insurance company. Unfortunately, his premiums doubled.
    Finally I would like to thank Mayor Tom Wenham, from the 
Village of Wellington, for participating in today's hearing. 
And it is a real honor, Mr. Mayor, to have you, and I think 
that Wellington is very typical of the types of communities 
across the country that are seeing the negative impact that 
this homeowners' insurance crisis is having on our communities.
    Before I begin summarizing the national catastrophe 
insurance crisis affecting my district, the 16th Congressional 
District of Florida, I want to reiterate that it is a national 
problem.
    In 2004 and 2005, natural disasters resulted in 
approximately $89 billion in privately insured catastrophic 
losses. It is estimated that over 60 percent of homeowners in 
America have seen sharp increases in their premiums. The 
incidence of natural disasters is increasing, as well as their 
severity. Just this past week, we witnessed a brutal chain of 
devastating tornadoes that hit half-a-dozen States and killed 
58 citizens in Arkansas, Tennessee, Alabama, and Kentucky.
    This rare midwinter storm was the worst tornadic activity 
to hit America in over 20 years. When one factors in the 
increase and the severity of the storms with an increase in 
population growth and the higher cost of construction and labor 
materials, the homeowners' insurance industry, which has the 
responsibility to their employees and shareholders, has been 
left no other option but to adjust their models, increase their 
premiums, and reduce their liability by canceling policies.
    Ladies and gentlemen, the private homeowners' market has 
failed, and certainly it has failed in States like Florida and 
Louisiana.
    The problem is clear--private insurers do not have enough 
capital to cover potential losses a mega disaster would incur. 
As a result, their only option is to reduce exposure by 
increasing premiums and looking at exiting markets.
    As a member of the Blue Dogs, a conservative group of 
Democrats in Congress, there is nobody who believes more in the 
free enterprise system than I do. However, I believe that there 
is a proper role for government when markets fail and both 
citizens and industry need help. And that is why we pass 
legislation and it is precisely why we are here having this 
hearing today.
    Here in Florida, the State has acted responsibly. And even 
with the $28 billion catastrophe fund, insurers still continue 
to increase premiums and cancellations because they cannot 
cover exposure.
    To the homeowner with a mortgage, homeowners' insurance is 
not an option; the lender requires it. When rates go up, the 
homeowner has no choice but to pay. The toxic cocktail of 
rising gas prices, housing, healthcare costs, property taxes, 
and homeowners' insurance has created a vicious cycle of terror 
for our seniors living on fixed incomes while robbing families 
of their dreams of homeownership. In Florida, the market has 
deteriorated so dramatically that homeowners can't even get 
insurance regardless of price. And in an effort to address this 
growing problem, Florida had to step in to avert an economic 
disaster by creating Citizens Property Insurance.
    I am sorry to report that Citizens of Florida, the owners 
of the biggest homeowners' insurance company that covers over 
30 percent of the market--I have received hundreds of letters 
from my constituents detailing the difficult choices they have 
had to make in order to pay their homeowners insurance bills.
    For example, I got a letter from a single mother of two who 
was dropped by her insurance in 2006. She eventually found 
another company, which charged her more than 3 times what she 
had been paying for similar coverage. As a result, she has been 
forced to work overtime on Saturdays, give away one of the 
family pets, and reduce her weekly grocery budget. And sadly, 
her story is not unique. Thousands of families across Florida 
have been forced to make these similar difficult decisions.
    I want to point out though, that the efforts of 
Commissioner McCarty and Governor Crist have resulted in 
improvement this year. But let's be clear, battling for rate 
reductions from premiums that are already too high and getting 
premiums from companies or subsidiaries of firms with 
questionable financial reserves, does not constitute a 
solution.
    In response to this crisis, I joined with Congressman Klein 
in introducing H.R. 3355, the Homeowners' Defense Act of 2007. 
I am proud to say that our bill passed with bipartisan support 
in the House this past November. This legislation creates a 
national catastrophic program designed to stabilize the 
homeowners insurance market by expanding private industry's 
capacity to cover natural disasters while helping States better 
manage risk.
    Our bill recognizes that in the days following a disaster, 
it is imperative to get people back in their homes. As we saw 
on the Gulf Coast, a failure to do so ends up killing local 
businesses and communities.
    H.R. 3355 recognizes that nobody got into the business to 
insure an act of God, and today the insurance companies have to 
plan and pay for the cost of a 1-in-200-year event each and 
every year.
    Finally, H.R. 3355 will lower rates by capping the 
homeowners' insurance companies' liabilities, ensures that each 
State that voluntarily--let me repeat that--voluntarily 
participates, have a catastrophe program that is actuarially 
sound and in the final analysis when that 1-in-200-year event 
happens, money is there to quickly get people back in their 
homes, and save businesses and communities.
    What makes this legislation historic is that never again 
will the farmer in Nebraska or the accountant in Arizona have 
to write a check in the form of a government disaster bail-out 
and not get paid back.
    Our bill loans the States the money at low interest rates 
and gets paid back over 30 years, ensuring that rates stay 
stable and the American taxpayer does not get left holding the 
bill.
    We appreciate Senators Clinton and Nelson for taking 
leadership on this issue in the Senate. As a former insurance 
commissioner, Senator Nelson was one of the first to recognize 
that our Nation was facing a crisis and called for Federal 
action. Congressman Klein and I, along with Congressman Wexler, 
are working with the Senate to make sure that this legislation 
becomes law.
    Again, I want to thank the County Commission for allowing 
us to be here. I thank my colleagues for holding these hearings 
today. And I look forward to hearing the testimony from our 
distinguished guests. I yield back the balance of my time.
    Mr. Klein. Thank you very much, Congressman Mahoney.
    Congressman Wexler.
    Mr. Wexler. Thank you very much. I, too, want to thank 
Commissioner Green and the entire County Commission for 
availing us the opportunity to meet here today and meet and 
hear and learn from constituents.
    Commissioner Green has been serving the people of Palm 
Beach County for the better part of 2 decades. She and I had 
the privilege of being plaintiffs together in, I think, a 
historic lawsuit to protect the rights of our citizens to vote 
and have their votes counted. We still have work to do.
    I would be remiss if I didn't maybe just add, and we very 
much appreciate your comments at the beginning, but Congressman 
Alcee Hastings has been an enormous asset to this community and 
has played an instrumental role in obtaining resources for both 
Palm Beach and Broward Counties at the Federal level and his 
assistance and leadership has been extraordinary for a period 
of time longer than any of us have actually served in 
Washington.
    The issue of property insurance and homeowners' insurance 
rates is obviously the single most important economic issue 
affecting our communities. The insurance rates of all of our 
constituents in many instances has doubled, and in the worst 
instances has actually tripled, even when they haven't made 
claims in several years.
    Insurance companies are dropping homeowners right and left 
and these responsible working families cannot, in many 
instances, find an insurance company willing to write a new 
policy at any price. This is obviously unacceptable.
    The problems in Florida are terrible and they are now 
causing significant problems in other States as well. From 
hurricanes to floods, ice storms, earthquakes, wildfires, and 
tornadoes, every State has some risk of catastrophic natural 
disaster. Pooling these risks together will mean that when a 
catastrophic disaster does occur, the combined resources of the 
participating States are ready to respond. This provides a more 
stable pool of resources and reduces the overall risk to 
investors for any one natural disaster.
    The Homeowners Defense' Act, which Mr. Mahoney and Mr. 
Klein have talked about, encourages States to prepare well in 
advance of a disaster, buying into a national pool through 
State-sponsored insurance funds and lowers homeowner insurance 
rates.
    Insurance experts agree that solving this homeowners' 
insurance crisis requires first stabilizing the private 
insurance market, not supplanting it. And under Mr. Klein and 
Mr. Mahoney's plan, private investors can make market-based 
determinations of the financial risks while the Federal 
Government spreads the risk of natural disaster. And let me 
speak to this one point quickly, if I could.
    There are many people who have historically said that the 
Federal Government has no role when it comes to insurance. 
Well, Florida is the perfect example of why the Federal 
Government needs to get involved and get involved now. As Mr. 
Mahoney said, the Florida legislature, Governor Crist and the 
legislature, acted responsibly. They did what the State could 
do, but it wasn't enough. And what we have proven in Florida is 
that even when a State legislature acts responsibly and in fact 
attempts to solve the problem, that the resources of one State, 
even a State as large as our own, is not significant enough to 
provide the relief that homeowners need. That is why the 
Federal Government needs to be involved.
    This isn't a Republican issue or a Democratic issue; it is 
not liberals or conservatives. This is a people issue. And this 
is, in the context of the Homeowners' Defense Act, a response 
on behalf of all people, all residents. We in Florida have 
struggled too long with astronomical homeowners' insurance 
rates. The problem now is spreading across the country to 
homeowners in many different States. And this committee meeting 
today, this effort today, is a part of a growing strategic 
effort to persuade our colleagues in other States that, before 
this last season or before this last year, said, ``No, no, I 
don't have worry about catastrophic concerns in my area,'' this 
is our ongoing attempt to create a coalition of Democrats and 
Republicans alike to address this issue.
    In closing, if I could just offer one observation. I have 
never before, in my 16\1/2\ years of public service, seen two 
people take on an issue so aggressively as have Mr. Klein and 
Mr. Mahoney, and together along with the help of many other 
colleagues, have pushed the issue of property insurance to the 
forefront of the agenda of Congress.
    It was not an easy task, but these two gentlemen came to 
Washington last year after winning election and went to the 
Democratic leadership, to Speaker Pelosi, to Mr. Hoyer, and to 
others, and said, ``We were sent here to fix the problem of 
property insurance, because homeowners are struggling in 
Florida, and we cannot go home until we achieve something.'' It 
is unheard of in Washington, for two freshmen, in a body of 
435, to come forth with a bill of this magnitude and actually 
pass it. This is an extraordinary achievement, and I thank both 
gentlemen for all of their efforts.
    Mr. Klein. I think, with that, we will just close right 
here. That was very nice.
    Actually, to comment on Congressman Wexler's comments, Mr. 
Mahoney and I would probably agree when someone says it takes 
an act of Congress, I now know what that means. I mean, it is a 
pretty substantial ordeal to move the Members of Congress.
    And, again, something like this has been out there for many 
years. Those of us who have lived in Florida for many years and 
certainly those who have lived here since Hurricane Andrew have 
seen the deterioration of the market.
    As a matter of fact, those of you who know Citizens today, 
it was originally called the JUA, and the Joint Underwriting 
Association was a response by the legislature in back in 1992, 
after Hurricane Andrew, to what was thought to be a very short-
term window before the market would reestablish itself and it 
was a State government back-up to the fact that people couldn't 
buy insurance from other companies.
    And that JUA, which probably should have been gone, at 
least under the theory, after a few years is now the Citizens 
Insurance Group, which is the largest insurance underwriter in 
the State of Florida. That is the exact opposite of what we 
want as consumers. You don't want the government standing 
behind this; you want private underwriters, successful 
competition for price, for service, and all of those things.
    So it really has been quite an ordeal for all of us from 
Florida. And what has made the difference, as mentioned by my 
colleagues, is two things.
    Number one, the leadership in Washington has been 
responsive to some type of solution, different ideas, but we 
came up with something with a lot of support from experts in 
the field. Tim and I might be nice guys but we really did rely 
on a lot of people out there who helped us to come up with some 
new models here.
    And number two, the fact that as you now watch the news 
every day, there are new natural disasters occurring constantly 
and things that in some cases are covered by insurance, and in 
other cases, arenot covered. Whether it is wildfires or major 
storms or tornados--and it goes on and on and on. So natural 
disasters are not limited solely to areas like Florida.
    I guess in my opening remarks before the chairman gets 
here, I would of course like to again thank the chairman of 
this subcommittee, Mr. Watt. I would like to also acknowledge 
the chairman of our Financial Services Committee--which is a 
large overall committee that this bill went through--Chairman 
Barney Frank, and, of course, the leadership of the House, both 
Democrat and Republican, for allowing us to bring this bill 
forward.
    The issue of available and affordable homeowners' insurance 
is something that everyone in this room and everyone in our 
community deals with on a regular basis. But the problem is 
with displaced homeowners desperate for relief; we all know 
that we have to continue to find a solution.
    Even with holding this hearing today, I think we understand 
that although the House has moved on this bill, it is now in 
the Senate. And with Senator Nelson and others, in a bipartisan 
way, we are asking those Members of the Senate to consider this 
bill. If they have to make some refinements to it, we welcome 
and are looking forward to those opportunities to make the bill 
even better and then to get together with the House and present 
it to the President for consideration.
    Hundreds of thousands of homeowners, not only in Florida 
but around the country, have been dropped, and the treatment by 
some insurance companies to do what has happened in Florida, 
between cancellations and the elevations and the tripling of 
premiums in some cases, has now become very relevant in other 
parts of the country as well, places like New York, New Jersey, 
and all the way down the eastern seaboard. We know about the 
Gulf Coast. In California--over 85 percent of the homes in 
California have no earthquake insurance. Think about that.
    If we have a Northridge or San Francisco San Andreas Fault 
type of earthquake of any kind of magnitude, we are talking 
about a situation that is not insured, and you can only imagine 
that the California delegation will be coming to the United 
States, people, all of us in Congress, to say help us, help us 
like you helped with Hurricane Andrew, help us like you helped 
with Hurricane Katrina.
    So the more we can do as a policy, as a private-sector 
group of people to more proactively plan for and underwrite 
these expenses and these possible reconstruction efforts, we 
can reduce the exposure of the Federal taxpayer.
    As we know, as it was explained, this bill has taken a more 
creative approach. It is voluntary and it only says that the 
States that want to participate will, so the States that don't 
feel like they have a need to, don't have to, which is good. 
And it is just a creative way of letting the private sector 
transfer the risk over to Wall Street, so private investor 
bonds can take care of this.
    So we believe that using an innovative capital strategy and 
these new ideas will allow investors to take on this risk in a 
voluntary way and at the same time will allow us to reduce the 
overall risk.
    We understand that the total economic impact of natural 
disasters exceeds $100 billion in any number of given years. 
Yet, we know that at the same time, there has been a failure of 
the insurance market to be able to take care of us as 
individual homeowners.
    So we believe that this piece of legislation and possibly 
other ideas that come forward are ways of planning for the 
future, not waiting for the natural disaster to hit and then 
responding afterwards and we plan to work with all of you and 
continue to work with the Congress and the President until this 
legislation is signed into law.
    The status quo is no longer an option and we know that this 
is the time and this is the place for us to pass this 
legislation and with that we look forward to hearing the 
testimony that is presented today to help us continue to build 
and refine this bill and make sure that it gets passed as soon 
as possible.
    So we thank you for allowing us to share some opening 
thoughts with you. What we would like to do is now ask the 
first panel to come forward.
    Mayor Wenham and Commissioner McCarty, if you would step to 
the microphones, and we will get you started here.
    Mayor Wenham, if you would begin, introduce yourself, if 
you would, and give us your observations and your suggestions 
on this issue, please.

 STATEMENT OF THE HONORABLE THOMAS WENHAM, MAYOR, WELLINGTON, 
                            FLORIDA

    Mr. Wenham. I am Mayor Tom Wenham of the Village of 
Wellington, which has a population of about 57,000. We are 
about 12 miles west of here, where State Road 7 and Forest Hill 
meet, and Congressman Mahoney is our Congressman.
    Good afternoon, Mr. Chairman, and members of the 
subcommittee. I want to thank you for the opportunity to 
address you on behalf of the community of Wellington in what I 
believe is an issue of national importance. And I thank all of 
you for your comments because I am going to get into some 
things here just how it affected the Village of Wellington.
    As far as homeowners insurance and its impact on 
communities, homeowners, and the economy, I am going to speak 
to you with the specifics of my community.
    I would also like to thank my fellow panel members for 
their insight into what they had presented.
    I can only speak to the experience of my own community, a 
community that in most respects is better prepared to deal with 
disaster than most. We have what we call a hurricane fund as 
part of our overall budget, and we have $2 million sitting in 
there right now. We were very fortunate through the hurricanes 
of 2004 and 2005, that we had a very large reserve.
    When I am writing a check to a group that came in to pick 
up all our debris, our vegetative debris, for $2.1 million, 
that gives you an idea of just what the Village of Wellington, 
which is probably very representative of the other communities.
    We actively plan for catastrophes and we have created the 
reserve funds to help, but there are things that no community 
is ever prepared to deal with completely on its own and that is 
what I think you gentlemen are trying to present and we support 
it.
    In 2004, it cost Wellington $6.2 million to clean up after 
Hurricanes Francis and Jean. We also suffered nearly $2.3 
million worth of damage to our public facilities out there, all 
of our Village buildings. Residential damage to the community 
was $6.7 million and commercial damage was $1.1 million.
    In 2005, the numbers for Hurricane Wilma were $5.8 million 
in recovery costs. So if you look at where we had $6.2 million 
in 2004, and $5.8 million in 2005, there is $12 million in 
recovery costs that the Village of Wellington had to pick up.
    I will say, and Congressman Mahoney knows, we have been to 
Washington any number of times speaking to FEMA about trying to 
get some relief, and I will address that in a few minutes.
    With $5.8 million, $3.75 million in loss in public property 
again, after 2004, now we get hit in 2005 with our public 
buildings, $50.4 million to Wellington residents on their 
properties, and $7.75 million in losses to the businesses in 
the community of Wellington.
    We are a new community in which most of the structures have 
been built under more stringent windstorm codes. Wellington 
became a community in 1996, 4 years after Hurricane Andrew hit. 
So we were fortunate that all the homes that were built after 
the hurricane, were built to the Miami-Dade Code, which is very 
fortunate for us.
    During the recent period of increased hurricane activity, 
the cost of property insurance for our community has increased 
over 400 percent. The cost in 2003 to 2004 was $175,000. That 
is what the Village paid for its insurance. This past year, we 
spent $719,000 for insurance, just on our buildings. That is an 
increase of over $540 million just to the Village of 
Wellington. Thank goodness we have a reserve that can help us 
get through some of these areas. I don't know how some of the 
other communities in Palm Beach County are doing.
    Personally, I have spent over $11,000 in adding storm 
shutters and a wind-rated garage door. Even with these 
improvements designed to limit damage, my insurance rates have 
gone up 248 percent, from $1,381 in 2002, as my wife and I went 
through these numbers over the weekend, to over $3,400 this 
past year.
    Annually these increases--and you can see it all in front 
of you when you lay it out: 2002, $1,381; 2003, $1,409; 2004, 
$1,810; 2005, $2,289; 2006, $3,154; and this past year, $3,428. 
So that is just what my personal insurance costs, and I will 
bet you anybody else in back of me could get up and probably 
say about the same thing. I am talking about a 3,200 square 
foot house under roof, 2,200 under air, which is the common 
denominators, the benchmarks, that we all use. And it has gone 
up $2,000, a little over $2,000 since 2002.
    We understand that natural disasters are not the fault of 
the insurance industry, but neither are they unpredictable. I 
mean, everybody knows 3 days in advance when a storm is going 
to come, so the insurance companies--we hear it, they hear it.
    When the hurricanes are over, I have been on channel 5, 12, 
and 25; I have been on the radio with all of them saying how do 
we stand in the community of Wellington, as I am sure the other 
mayors in their communities have to do.
    The cost of homeowners' insurance is rising to the point 
where it is pushing the cost of homeownership beyond the reach 
of our average resident, if you can even find a company, as has 
been said by you gentlemen, to write a policy.
    Even the availability of insurance is not a certainty. In 
the face of all the problems associated with homeowners 
insurance, perhaps it is time to develop a national policy and 
I hope that you certainly do it.
    One final point, if I am allowed the time, and then I will 
pass on.
    Mr. Chairman, we as local officials here in the community 
are the ones who are on the firing line when the residents, 
immediately after a storm, start calling. They may call you 
gentlemen and ladies up in Washington, but it is us elected 
officials here in the community who get the brunt of it.
    We have to make sure, and these are some of the things that 
I have been faced with, and I am sure you have been too--we 
have to make sure that the water is safe to drink. At least 
people, if it is safe to drink and they can take a shower, 
whether it is cold because they don't have any electricity, at 
least they will be satisfied there.
    The roads are clear of vegetative debris so that the people 
who have been cooped up can get out to see how the rest of the 
community is looking. Now, that is--you may laugh at that, but 
how many times, when the manager and I have gone out and there 
are people just sightseeing and riding around.
    ``When am I going to get my power? I need to get a roofer 
tomorrow before another storm hits. When will schools be 
open?'' These are some of the questions that we get hit with 
and I am sure that you Congressmen who live here know what I am 
saying because you have probably been hit with them too.
    We are called upon to answer after the storm. After Wilma, 
as Mayor, I personally answered, with my aide, 61 phone calls 
in one day relative to the storm about these kinds of 
questions, what is the Village of Wellington--not the 
Congressmen, not our Senators, not our State legislative 
delegation--what are you as the Mayor and the village council 
going to do to help me through this. And that is the truth, 
gentlemen.
    Helping to resolve this issue, this insurance problem 
issue, would certainly make life easier for all of us.
    I would like to thank you, Mr. Chairman and the members of 
the delegation, for allowing us to present our views, thoughts, 
and information relative to this situation that affects all 
property owners, not only in Wellington but certainly in Palm 
Beach County.
    What is it I have to say now, Mr. Mahoney, I yield my time?
    Mr. Mahoney. You yield back the balance of your time.
    Mr. Wenham. Oh, the balance of my time. Thank you.
    [The prepared statement of Mayor Wenham can be found on 
page 86 of the appendix.]
    Mr. Klein. Before we get to Mr. Mahoney, I just want to 
take care of a couple of housekeeping things.
    I just want to say that, without objection, all members' 
opening statements will be made a part of the record. And, 
without objection, the written statements of our witnesses 
today will be also made a part of the record.
    I have a couple of other people to recognize--Commissioner 
Santa Maria, thank you for joining us, and a couple of local 
people who were very involved for many years in helping us with 
some early insurance tasks for us, Barbara Zee and Fran Fisher. 
Thank you for both being here today and being part of this.
    Congressman Mahoney.
    Mr. Mahoney. Are we going to go to the next testimony and 
then we will ask questions?
    Mr. Klein. Yes, why don't we do that. I just wanted to say 
that Mr. Mayor, it is only--what took you less than 45 minutes 
to figure out took me a year to learn how to say. I yield back 
my time.
    Mr. Wenham. Well, I just learned it from you, sir, so it 
only took me about 10 minutes.
    Mr. Klein. There you go.
    I think what we will do, if it is okay with the committee, 
is we will move on to Commissioner McCarty for his comments. 
And before we do that, I see that our chairman has arrived, and 
we would like to extend our appreciation for a long travel day.
    Congressman Watt, our chairman, is from North Carolina and 
has a long history of being a leader on our committee, but also 
has a great deal of understanding in terms of oversight and 
investigation, which is what the focus is of this particular 
subcommittee that is holding this hearing today.
    And being from North Carolina, and certainly those of us 
from Florida, share a lot of common interests in dealing with 
natural disasters. I think, until the last few years, North 
Carolina actually had more experiences with hurricanes than 
Florida had for many years.
    But we appreciate you coming down and holding this 
congressional hearing and being able to take some of the 
testimony and some of the comments from the people who are 
presenting today back to Washington. As we continue to work 
through this legislation of which you have been such a great 
mentor to all of us on, that you can continue to make sure that 
we pass something that will work, and that will help all of us, 
in all 50 States, work through this issue.
    Where we are at right now is we have taken testimony in 
this first panel from the Mayor of Wellington. And with your 
permission, Mr. Chairman, the next presenter is Commissioner 
McCarty, who is the insurance commissioner of the State of 
Florida, and has been for many years. I will turn it over to 
the chairman before we get to him.
    Chairman Watt. Thank you so much.
    Am I on? I am on. Okay.
    Let me first express my apologies for being late getting 
here. We actually got off the ground reasonably on time in 
Charlotte, North Carolina, this morning, and we flew for about 
a half hour, and then the plane made a U-turn and went back to 
Charlotte because we had an ill passenger on the plane. We 
landed back in Charlotte about 11 a.m., and we were back off 
the ground by 11:45 a.m. or so, and here I am.
    Commissioner McCarty, go right ahead, and then we will 
proceed from there.

      STATEMENT OF THE HONORABLE KEVIN MCCARTY, INSURANCE 
                 COMMISSIONER, STATE OF FLORIDA

    Mr. McCarty. Thank you, Mr. Chairman, and welcome to the 
Sunshine State. I would like to take this opportunity to thank 
you for your leadership on this issue as well as the other 
members of the Financial Services Committee's Subcommittee on 
Oversight and Investigations.
    I feel that to a certain degree, I am preaching to the 
choir, by hearing the testimony and the opening remarks are 
much of what I have been saying the last several years. But I 
do welcome the opportunity to be here to testify on this very 
important issue and the affordability and availability of 
homeowners, the emergency insurance crisis, its impact on our 
communities, but moreover its impact on our national economy.
    My name is Kevin McCarty and I am the insurance 
commissioner for the State of Florida. I also serve as the 
chair of the Property and Casualty Committee of the National 
Association of Insurance Commissioners and chair of its 
Catastrophe Working Group.
    While Florida is historically known for its hurricane 
risks, it is the State of Louisiana where Katrina made landfall 
with $38 billion of insured losses.
    This event created shortages in the construction industry, 
created mass human migration, and affected the Nation's oil 
prices and its overall inflation rate.
    Hurricane Katrina quickly emerged beyond a State issue, but 
a national issue. Not only did the Federal Government 
appropriate over $100 million for recovery, this affected 
homeowners' rates across the country. The most critical point I 
think it is important to make today is that catastrophic events 
are not a State problem. It is not a Florida problem; it is a 
national problem that cries out for a national solution.
    To accurately price insurance products, insurance companies 
must be able to predict future storm damage. In order to do 
this, you have to look at the frequency and severity of storms 
and then estimate the impact on damages to homes and 
businesses. Predicting both of these elements has created a 
problem for the insurance industry and for regulators across 
the country.
    During the 2004/2005 hurricane season, eight named storms 
made landfall in the State of Florida, a scenario certainly not 
anticipated by any of the hurricane predictors or any of the 
hurricane models, most of which had focused on mega 
catastrophes like Hurricane Andrew in 1992. There is also a 
general consensus by many in our scientific community that we 
are in a period of more active storms for the Gulf of Mexico as 
well as the Atlantic Basin.
    Predicting storm damage is very challenging. Recent 
demographic shifts in our population have enticed people to 
move to warm-weather States like Florida, the increased 
building along our coastline; now nearly half of our residents 
live near or close to a coastline.
    All of these elements combined create uncertainty which 
continues to impact the availability and the affordability of 
homeowners' insurance. This uncertainty has led many of our 
national carriers to limit their writing from Texas to Maine. I 
personally have spoken with representatives of the global 
reinsurance industry in Bermuda and Europe to encourage them to 
invest in the Gulf Region, particularly in Florida.
    Given the current situation as I have already outlined, 
there is little interest in expanding investment, in large part 
because of the exposure of Florida, and this is at any price. 
This creates a critical problem for coastal States like 
Florida. Homeowners must have insurance as a term and condition 
of their mortgage. If the private insurers will not insure 
homes, the State must intervene to provide the capacity or our 
economy in the State of Florida would grind to a halt.
    States like Florida had to create alternative markets like 
Citizens. Despite record catastrophe loss in 2004 and 2005, the 
U.S. property and casualty market companies have made record 
profits. Some coastal markets have experienced a mild recovery 
in a relatively healthy property market.
    By example in Alabama, only 2 of its 67 counties experience 
problems with contraction in the marketplace, while in 
Mississippi, 6 of the 82 counties are directly experiencing 
insurance problems. Louisiana, which felt the brunt of Katrina, 
is experiencing difficulties in 24 of its parishes.
    States with longer coastlines have experienced more 
dramatic problems: In North Carolina, the State's residual 
market has increased its policy count by 32 percent; South 
Carolina increased by 38 percent; and in Massachusetts, one-
third of the policies in the Cape are written by its residual 
market. Some insurers have even recognized a potential problem 
in New York, even though the State has not had substantial 
tropical activity in many decades.
    In Florida, the State's residual market, Citizens Property 
Insurance, experienced an increase of about 500,000 policies 
from 2005 to 2006, becoming the State's largest insurer.
    During 2007, the Florida legislature passed comprehensive 
legislation to address the availability and affordability of 
its homeowners' coverage. It changed Citizens Insurance 
Corporations so that its rates were more affordable for its 
policyholders.
    It expanded the CAT fund to give the industry up to $12 
billion of low-cost, inexpensive reinsurance to recognize the 
cost of global reinsurance.
    It provides Floridians with incentives to mitigate against 
future damage and mitigating future storms. Prior legislation 
created $250 million in a capital build-up company to encourage 
reinvestment in the State of Florida.
    More recently, the Florida Building Commission adopted a 
code-plus standard allowing buildings 2,500 feet from the coast 
to withstand a 1-in-500-year event, the most stringent building 
code in the country.
    Insuring catastrophes is beyond the State's resources. The 
United States is one of the only industrialized nations in the 
world without a comprehensive national catastrophe plan. While 
Hurricanes Andrew and Katrina caused tremendous loss, these 
pale in comparison of other potential natural disasters.
    Merely a repeat of the 1906 earthquake would cause $400 
billion in damage, and as Representative Klein has already 
alluded to, most of that would be uninsured.
    A 1938 hurricane in New York would cost $300 billion in 
damage. Even last week featured tornadoes that ripped through 
four southern States causing loss of life and millions of 
dollars in damage, highlighting once again that all parts of 
the country are exposed to catastrophic loss.
    The solution is not a large Federal program, but the United 
States does need to think proactively and to think 
strategically about how it deals with natural disasters. I am a 
supporter of H.R. 3355, the Homeowners Defense Act passed by 
Congress last year. This bill recognizes the importance of 
preparation, of prompt response, of mitigation, and the 
limitation of State resources.
    I want to thank the leadership of Representatives Mahoney 
and Klein on this very important issue, and I will be happy to 
answer any questions.
    [The prepared statement of Mr. McCarty can be found on page 
65 of the appendix.]
    Chairman Watt. Thank you very much, Commissioner McCarty 
and Mayor Wenham. I am sure you welcomed everybody to your fine 
city. I got a birds-eye view of it coming in. It is beautiful, 
and I am delighted to be here.
    I think I will defer my questions until last, and I will do 
my opening statement later too. It is almost redundant at this 
point.
    Why don't we go--which direction do you all want me to go 
in? They keep passing the buck, everybody is doing that. I will 
recognize Representative Klein for 5 minutes.
    Mr. Klein. Thank you, Mr. Chairman.
    Commissioner, this is something that we have been trying 
to, as you were pointing out, it is--I think most people are 
aware, this is no longer a Florida-versus-49-other-States 
approach.
    In your meetings at the NAIC, where you are taking a 
leadership role in this, part of what we are trying to do in a 
way of encouraging the Senate to move forward is to reach out 
to the Senators. And what we found so far is a very similar 
reaction to what we had in the House, which was everybody seems 
to think the old model of a national risk catastrophe pool is 
some big Federal program where every small piece of every 
policy in the United States goes into some big pool and there 
is a back-up. That is not the case. We have come up with a 
totally different way of looking at and approaching this, and 
it doesn't obligate any State that doesn't want to be involved 
to be involved.
    However, the perception is different still in the Senate. 
And I know our Members, Senator Nelson and others, are spending 
some time.
    Can you give us some thoughts or some suggestions in 
approaching through your colleagues, State-to-State, a way of 
working with us to educate the Members of the Senate so that 
they realize whether they come from a State that is prone to 
have large-scale natural disasters or no natural disasters, 
that this is a very attractive solution that can provide great 
relief to the taxpayers and stabilize a very significant 
problem in the United States? Some suggestions and an approach 
for us, please?
    Mr. McCarty. Thank you very much.
    First of all, I would like to express my appreciation for 
Representative Mahoney, who took time out of his busy schedule 
and briefed the National Association Committee meeting when 
they met in Washington, D.C. I think that gave a unique 
opportunity for, first of all, us to debunk some of the myths 
that are out there exactly what the homeowners, most of them 
thought of it as a national bailout program, when in fact it is 
a reasonable, appropriate, voluntary approach which deals with 
a myriad of issues from mitigation to funding solutions 
including maximizing capital markets.
    So I think part of it is an educational issue and I--this 
was the first Federal legislation property insurance that the 
NAIC has endorsed in my tenure there, so I think that is very 
important. And remember, that is made up of the 50 States and 
six other territories, so we have the same challenge of having 
to convince people in the central part of the United States 
that they are in fact paying for Katrina today, and it is 
estimated between $850 to $1,000 per taxpayer is being spent 
because we have a national catastrophe plan. It is just 
inefficient and ineffective, and it pays money after the fact 
instead of before, instead of maximizing the efficiencies of 
the insurance market and getting money--as you testified in 
your opening remarks--back into the hands of people so the 
communities are built.
    It is an education process. It is an evolutionary process. 
And I will continue to, you know, certainly work with my 
colleagues to build a necessary consensus.
    I also think that it is important to educate folks today or 
in 2004, it was Florida and then it was Louisiana. The fact of 
the matter is that 49 of 50 States have a moderate to severe 
risk of a natural disaster other than floods. We have been in 
the business of that. When Floridians pay into the flood 
program, we pay 41 percent of the flood premium in this 
country. So we need to continue to work with our colleagues 
around the country to understand that it is a national problem 
that demands a national solution, which means that we all may 
chip in at the beginning but in the long run it is beneficial 
to the national economy.
    And then to follow up, Mr. Chairman, you know, I think that 
people don't understand that there is a major earthquake risk 
to the Midwest. There is a major fault line in the Midwest 
which doesn't pop up very often in terms of activity, but it 
has the potential of creating as much of a problem as the San 
Andreas Fault in California.
    But if I could just follow up--and the Commissioner, I 
think for all of our purposes, as you are helping educate your 
colleagues and if you could ask your colleagues and maybe 
survey them and they only have two Senators for each State. So 
if they could sort of give us intelligence or perspective on 
which Senators, if they have a meeting with the Senators or 
communicating with them as to why they think it is important, 
and get the reaction back, if they are taking some of that 
educational opportunity to work with them and then get that 
information back to us and we will obviously--Senator Nelson 
and others are taking a lead on this, but it is a team effort 
here.
    So any information you have about the reaction or 
perspective, you know, favorable five to one where they stand 
on this or where they need more information, we can reach out 
to them from the Washington side as well, so appreciate that 
benefit as well.
    Mr. McCarty. It would be my pleasure.
    Chairman Watt. I thank the gentleman for his questions and 
for the responses. And I will now recognize Representative 
Mahoney for 5 minutes.
    Mr. Mahoney. Thank you, Chairman Watt, and I am glad you 
had the opportunity to fly over Wellington. I will be enlisting 
you with a bunch of other projects that we are going to be 
working on.
    Chairman Watt. Thank you, Congressman.
    Mr. Mahoney. Mr. Mayor, thank you very much for being here, 
and thank you for sharing your personal story with regards to 
your family's homeowners' insurance problem.
    You know, Wellington is kind of an interesting town. When I 
moved here in 1988, it was an area and it was fast-growing, and 
it was known for being a place for young families to be able to 
get affordable housing, and as a result the community 
prospered. It also prospered because my wife and daughter spent 
a lot of money doing horse shows down in Wellington.
    But my question for you is that, you know, the big 
concern--one of the concerns that I have with regards to this 
issue, and it continues to pose as the top issue here in 
Florida, is the impact of affordable housing and maintaining 
Wellington's profile as being a place where young families can 
continue to move and have a very desirable lifestyle.
    Over the last 5 or 6 years, as we have seen these premiums 
go up and property taxes and other things, what has been the 
impact, or has there been an impact, in terms of what you are 
seeing in terms of people being able to move in and afford to 
live in the community?
    Mr. Wenham. Well, I could say this because the question has 
come up many times and with the value of houses dropping, the 
real estate market, we do have, and some neighborhoods have 
told me this, we know do have affordable housing, whether it is 
workforce housing, senior housing or whatever, that there is 
that type of housing now in the community.
    There are still some properties selling out there for well 
over a million dollars. And I was talking to a real estate 
broker this past weekend, and land in the equestrian area that 
you are referring to is well over a million dollars an acre, as 
you know. So it is there but--and that doesn't make for very 
affordable housing.
    Mr. Mahoney. But have you seen an increase--I mean, one of 
the other things that we are having to deal with in the 
subprime crisis is people defaulting on their homes?
    Mr. Wenham. Yes, we--yes, we have seen some of that 
happening in the community also.
    Mr. Mahoney. And has the cost of homeowners' insurance, do 
you think, been a contributing factor to that?
    Mr. Wenham. There is no--well, there are two things, 
Congressman. There is the insurance and of course the taxes. 
And I think that the State of Florida is trying to address that 
situation, but both of them, many of our residents and my 
constituents have come up to me and expressed the insurance and 
the taxes, yes.
    Mr. Mahoney. Thank you.
    Commissioner McCarty, great to have you here fighting this 
battle with you.
    Now as a businessperson, at the end of the day, all I care 
about is lower homeowners insurance rates. I mean, that is what 
it is all about. And one of the things that we are trying to do 
is trying to figure out how we can create a system that enables 
the insurance companies to come back in. People don't want 
Citizens Insurance; that is the insurer of last resort. The 
industry doesn't want Citizens Insurance to become an all-
perils company which it found by necessity to do in order to 
generate additional revenue so that it wasn't continually to be 
just a sieve of money on the taxpayers.
    But the question for you is that, in H.R. 3355, one of the 
things that we are doing is in order to stabilize the market; 
we are doing three things. We are trying to expand reinsurance 
by allowing investors to invest in CAT programs where there is 
a consolidation of risks amongst States that have these 
programs. The second thing that we do is we make sure that in 
that 1-in-200-year event, that the Federal Government comes in 
and provides a loan to States that participate to make sure 
that there is enough capital. And then the third thing that we 
do is in those events is we cap the liability of the insurance 
industry to 1\1/2\ times annual premiums.
    My first question to you is, as an insurance commissioner, 
if presented with that program that the State of Florida was in 
at a 1-in-200-year situation, when you sit down and take a look 
at what homeowners' insurance rates are, given that scenario, 
would you be able to easily ascertain what the risk is, what 
the cost of the risk is, and what the fair insurance premium 
should be for a company?
    Mr. McCarty. Now that certainly is going to vary by a 
number of factors. First of all, how successful we are in 
providing incentives for greater capital in part of that 
program. I think one of the things your bill recognizes is we 
measure reinsurance in terms of billions of dollars but capital 
markets we measure in trillions of dollars.
    So any way that we can provide lessening burdens and 
obstacles of getting capital--and it really does depend on how 
much new capital we can bring in to bring competition to the 
reinsurance marketplace.
    But the key aspect of this is for most insurance companies 
and why they are retreating, is the risk of ruin. And to the 
extent that you are able to provide a backstop so that 
companies are able to on an individual basis calculate their 
tolerance for risk and eliminate the risk of ruin aspect, I 
think, brings that stability in the marketplace, which in 
combination with the other factors we have discussed and are in 
the bill will, hopefully, bring a return and challenge 
Citizens.
    Citizens, we don't want the government to be--that is not 
what we do well. On the other hand, insurance companies have 
done a fairly good job of getting money quickly in the hands or 
their policyholders in the aftermath of an event. Not in all 
cases, but in most cases, which is critical as we have heard 
before about getting kids back to school, people back to work, 
back to paying taxes because that is what the effect is in the 
local economy, which ultimately affects the national economy.
    Mr. Mahoney. Another question I have for you is that in 
addressing this issue of having to deal with rising premiums, 
our research has shown when we have--investigating this bill, 
is that there are two other elements that perhaps we should be 
looking at; the modeling companies that the insurers use to 
determine what the right level of risk could be and the rating 
agencies. And I would be interested in your thoughts on whether 
or not you think that Congress should be looking at the role 
that the modeling companies and the rating agencies play in 
this crisis?
    Mr. McCarty. Well, these have certainly been contentious 
issues in the State of Florida. As you know they have been the 
subject of some subpoenas issued by the Office of Insurance 
Regulation. We, too, are interested in the relationships of the 
modeling companies, the re-insurers, the brokers, and the 
rating agencies to ensure that the comprehensive reforms that 
were adopted by the Florida legislature were in fact passed on 
to the policyholders of Florida.
    I think it certainly has been a lot of information that has 
come to our office, which we certainly think it is a legitimate 
area of inquiry.
    With regard to the computer models, we, in Florida, have 
been addressing this issue for a number of years. As you know, 
we have established the modeling commission to review models. 
Some companies have used what is called the short-term models, 
which generate 35 to 40 percent higher losses than the approved 
models. We, in cooperation, the Office of Insurance Regulation, 
with FIU, have created our own computer models, State-run 
computer model to check the--you know, do as a reality check.
    So looking at modeling companies, I think, is of critical 
importance, because I think the variations on how they generate 
rates are huge, on a statewide basis, but then when you get 
down to towns like Wellington and Miami Beach, and those areas, 
you might see swings that are over 100 percent.
    Mr. Mahoney. Would you be supportive of a role for the 
Federal Government in terms of taking responsibility through, 
for instance, the National Oceanic and Atmospheric 
Administration or FEMA or somebody that would have the 
responsibility for running the models, that there would be some 
agreement as to what the right level of risk would be?
    Mr. McCarty. You know, I think that is appropriate--I think 
there needs to be a national model similar to the FIU model. I 
think we have to continue to encourage the proposition of 
modeling companies, because I think through that competition we 
should have a national modeling check, our check on the 
commercial models.
    Chairman Watt. Thank you for your insightful questions and 
for the responses. And I will now recognize Representative 
Wexler for approximately 5 minutes.
    Mr. Wexler. Thank you very much, Mr. Chairman.
    It has been said before, but we are privileged to have Mr. 
Watt here. He has an extraordinary amount of knowledge on this 
issue and many others and to have Chairman Watt on our team is 
an enormous advantage for those of us who are so committed to 
seeing this to a successful resolution. We really do thank you 
for being here.
    Commissioner McCarty, I also want to applaud your 
testimony, and your answers to some of the early questions.
    Your unequivocal support for H.R. 3355 quite candidly is a 
breath of fresh air. And I hope people appreciate, I am sure 
they do, that the positions you have taken, have been taken 
without regard to partisanship. You are just saying what you 
think needs to be said, and I really do applaud your effort and 
applaud what is an exceptionally intellectually honest approach 
to this problem.
    In that regard, if I could just share with you some of my 
experience, and I think the experience of Mr. Mahoney and Mr. 
Klein, when we go out and we talk to our colleagues about 
supporting this bill and supporting a national catastrophic 
response, often what we will hear is, well, speaking for 
myself, what I often hear is, ``Hey, Wexler is from Florida; 
Florida could do this; Florida is a big State.'' Or, ``Just get 
together, get your people from Florida to get together with 
people in California and do something or, you know, Florida, 
Mississippi, Alabama, and Texas, you guys do something 
together.''
    Tell us why that is not sufficient, in your experience. 
Tell us why Florida, working with two States, three States, 
whatever it may be, isn't going to be the answer that we need.
    Mr. McCarty. Well, first of all, thank you for your kind 
remarks. I appreciate that comment.
    There are a couple of reasons. One is a matter of global 
reinsurance. In order for it to work, you need to spread the 
risk, not concentrate the risk. When you take the risk of 
hurricane and put it with a hurricane in the Gulf of Mexico, 
you are actually compounding the problem instead of spreading 
the risk globally. So if you were to counterbalance with 
Florida's risk for catastrophes with California, you are 
spreading the peril, but the only way to do that is spread it 
in the global reinsurance market, which is what reinsurance is 
all about.
    The problem is that there are limitations on the global 
reinsurance market capacity. Like I said in my testimony, my 
test in Bermuda Lloyd mitigation programs and it is mitigation 
programs and it is building code and building enforcement. All 
this is well and good but there is a finite amount of 
reinsurance that Florida can--Florida is considered a super 
peak and really needs to counterbalance that with earthquakes 
in Japan, etc., and the problem is that there is a finite 
amount of capacity.
    What the Mahoney-Klein bill attempts to address, in a very 
important way, and I think that this is something we need to 
continue to look at both at the State level and the national 
level, is breaking down the barriers and bringing more capital 
to the marketplace. And regionalizing and concentrating it is 
counterintuitive to the principles of insurance.
    Mr. Wexler. If I understood your original testimony 
correctly, you said 49 of the 50 States have some risk of 
national catastrophic problems happening. What is the one State 
that doesn't?
    Mr. McCarty. It is a relatively unpopulated State; it is 
the State of North Dakota. But if you throw in the risk of 
flood, then all 50 States are exposed. And as you know, many of 
the States will say, well, listen, this is a Florida problem, 
you know, but we have solved their problem to a certain extent 
by addressing the standard of the Federal Flood Program. In a 
large way, we subsidize that in Florida, because we pay 41 
percent of the premium, we get about 16 percent back over the 
years. So again, one of the things that we have to remember 
that is that it is not a single peril; it is all perils.
    Mr. Wexler. It is minus-39 degrees today in North Dakota. 
They have a freezing issue there, I am sure.
    Chairman Watt. Thank you. And let me thank this panel for 
being here. And before I release the panel, I want to ask some 
questions, but now that I have gotten settled in a little bit, 
I just want to make a couple of comments, and not an official 
opening statement, because I think I will just ask unanimous 
consent of my colleagues to put my opening statement, a formal 
written opening statement into the record and just kind of make 
a couple of general comments.
    First of all, I am not sure if my colleagues even know 
this, but we need to pause for at least a moment of silence, 
because we lost one of our Members this morning, Tom Lantos, 
who was very recently diagnosed with cancer and had announced 
that he was not planning to run again. Because of that 
diagnosis, he didn't last long at all after the diagnosis.
    So if you all would, just indulge us for a moment, for a 
moment of silence in memory of our wonderful colleague and one 
of our leading international experts in our body, the chairman 
of the International Relations Committee in the House of 
Representatives, Representative Tom Lantos.
    Second, I would be remiss if I did not comment on how much 
I am pleased to be here with my colleagues, Representative 
Klein, who represents this congressional district, and 
Representative Mahoney, who is in the adjoining congressional 
district.
    Mr. Mahoney. We are all adjoining, but it is the--it is the 
better district to the north.
    Chairman Watt. I didn't want to get into that now.
    Both of these new Members of Congress, freshman Members of 
Congress, have come into the Congress and made an immediate 
impact by not only by becoming cosponsors of this legislation 
that has been testified about some this morning and taking 
ownership of this issue of flood insurance, catastrophe 
insurance, but on a number of other issues that we won't be 
addressing today, they have taken leadership roles.
    I have had the pleasure of getting to know both of them as 
members of the House Financial Services Committee. And I think, 
without getting partisan or political about this, I just want 
to express my thanks to this area of Florida for sending us 
these outstanding representatives and tell you that they are 
doing an outstanding job on your behalf.
    I haven't spoken about Representative Wexler--
    Mr. Wexler. We apologize for sending me there.
    Chairman Watt. He is holding his breath, because I have 
known him much, much, much longer than I have known either 
Representative Mahoney or Representative Klein. You came to 
Congress in the same class with me, didn't you?
    Mr. Wexler. You are a little older than I am. No, I came 
during the impeachment year.
    Chairman Watt. Oh, the impeachment year. Okay, okay, okay. 
Well, it seems like he has been there as long as I have, maybe 
that is what it is.
    But I have had the honor of serving on the House Judiciary 
Committee with Representative Wexler, and I know the passion 
that he brings to our body and the commitment that he has, not 
only on this catastrophe issue and hurricane issue, but on 
Constitutional issues and a whole range of other issues that we 
have had the opportunity to address.
    And I am delighted to be here in the State of Florida and 
convening this hearing, although I wasn't here to convene 
formally.
    It has been our Oversight and Investigations Subcommittee 
that has been directly involved in a number of these issues; I 
kind of got involved in the aftermath of Hurricane Katrina. It 
was our Oversight Subcommittee that held hearings and is 
continuing to hold hearings, in fact, about the non-payment of 
claims in the aftermath of Katrina.
    Most people saw the visible lack of response that the 
Federal Government made in New Orleans and Mississippi, but 
there was a massive public failure, there was a massive private 
failure, because what happened after Hurricane Katrina exposed 
some really serious problems in the interface between public 
insurance, which our Federal flood insurance is, and private 
insurance.
    In effect, what was happening is they started pointing 
fingers at each other. The private carriers said that the 
damage was caused by water and to some extent the public 
carrier, the flood insurance naturally was saying that the bulk 
of the damage was caused by wind. So the consequence of that 
for a long, long period of time was that, neither the public 
insurance nor the private insurance market was responding to 
the needs of the people.
    Finally the Flood Insurance Program kicked in and paid 
probably some claims that they should not have paid and went 
substantially into debt borrowing substantial money that we 
have not modeled for under the Flood Insurance Program. And 
then over time, the private insurers went through litigation or 
settlement or through their own undertakings have stepped in 
and started to pay the claims.
    But during that period of time there was just massive non-
payment of claims, and it exposed some really serious problems 
in the hurricane, flood, wind, and homeowners area that 
Representatives Klein and Mahoney kind of stepped into and 
said, we have experienced in the private sector. We have our 
own hometown experiences to bring to bear on this, and they 
have been invaluable in their contributions in this area.
    I say that not because I had it in my prepared comments, my 
prepared comments actually went in a completely different 
direction, but I think that we are just blessed.
    And I should say, so that nobody walks away from thinking 
this a partisan issue, it is not. It is neither a partisan 
issue because Representative Brown-Waite, from Florida, also 
has a piece of this bill that was passed by the House and made 
an important contribution to the discussion and to the solution 
that we are trying to pursue.
    So it is not a Democratic issue, it is not a Republican 
issue, it is not an upper-income issue nor is it a lower-income 
issue. It affects all of us. And we saw it all in the aftermath 
of Katrina because the lowest of the lowest income people in 
Louisiana were hit and the highest of the highest income people 
along the coast of Mississippi were hit and everybody between 
those two economic extremes was hit. So hurricanes didn't come 
in and select Republicans or Democrats to impact, didn't come 
in and select rich people or poor people or black people or 
white people to hit. This was something that showed us how 
vulnerable we are in every possible respect that you can 
imagine.
    And I think if we can find a good solution and I think we 
have, at least a part of a good solution that has been put 
forth by the wonderful Representatives here in Florida, if that 
solution or other solutions emerge as effective solutions, we 
will have benefited from the experiences and benefited from the 
knowledge that this is not a partisan issue or a class issue; 
it impacts the whole country.
    So having said that, let me ask a couple of questions, 
particularly of Commissioner McCarty. One of the issues we 
always face, I think, is that well, I think that there are two 
really serious dilemmas that we have here.
    Number one is that the private market has always been 
resistant to either a State government or the Federal 
Government or a local government playing a role in the 
insurance area. In fact, we had some problems even finding 
somebody who would come and testify about it because I suspect 
they knew I was going to ask them the question I am getting 
ready to ask Commissioner McCarty.
    They don't want the public sector to be involved in this 
because they say it is intensely and uniquely a private 
enterprise issue, but as far as I know they haven't come up 
with a good solution to catastrophic losses.
    Commissioner, you are closer to the private sector. You 
deal with private insurance companies on a regular basis, are 
they suggesting anything as an alternative to this, because 
they just don't seem to have bought in as readily as you as an 
insurance commissioner have bought into the prospect that the 
Federal Government has a role here?
    Mr. McCarty. Well, I think the answer to your question, Mr. 
Chairman, really depends in large part on what company you are 
talking with. It is not a monolith by any means.
    Your large carriers have been very active in getting a 
national exclusion in a Federal backstop, a reinsurance program 
because that really fits in with their strategy in terms of 
their particular exposure, in many ways they are overexposed 
natural catastrophes. Some are smaller and national companies 
who don't have a lot of risk have a different view. Far be it 
for me to testify on their behalf, but the first thing they 
need to do is to eliminate the State impediments to the rate 
law.
    In essence what they would like to do is a free and 
unfettered market to sell their insurance product. The problem 
with that is you have to assume axiomatic to a free market 
system is willing buyers and willing sellers. In the instant 
case, it is a term and condition of a mortgage, so people have 
to buy insurance in order to have the mortgage, and you almost 
have to have a mortgage to buy a home. So you don't have the 
unfettered willing buyers and willing sellers.
    But their first contention, is let's see what we can do in 
terms of bringing in free capital initially before we look at 
any other Federal programs. Some of the various associations 
have evidenced some interest in some Federal backstops; I think 
there is a whole range of opinions on this issue. But I think 
first and foremost they would like to see the market free up 
deregulation of State regulation.
    Chairman Watt. Talk to us a little bit about this seeming 
irreconcilable to me. I can't quite figure it out; maybe you 
can explain it to me, how on the one hand insurance companies 
can be experiencing severe losses and going out of the market 
and fleeing the market and yet on the other hand, at least on a 
global basis, have had record profits. You alluded to that in 
your testimony. How do you reconcile those two things?
    Mr. McCarty. Well, I think that, again, this is a company's 
purpose, to make profits. The regulators like to see some 
balance struck between investors and their policyholders. We 
think that there is some responsibility, corporate 
responsibility, not only to the stockholders, but to your 
policyholders, and I think the companies have reconciled their 
issue by recognizing that their immediate concern is the 
quarterly profit statements and their need to generate a profit 
in order to continue to satisfy their stockholders. That is not 
terribly uncommon with most businesses in America.
    What makes insurance strikingly different is the risk of 
ruin. Their capital is at stake everyday in a hurricane season, 
to lose all of their capital. So their strategic plan is, in 
order to make--continue to make profits is to retrench from 
those areas. They have historically underestimated their risk 
of ruin. They have historically underestimated their potential 
exposure and as they get better science, they are of the mind 
that they need to reduce their interest. Well, the reduction 
exposure is not just a Florida issue, as I testified earlier, 
this is occurring from Maine to Texas. The retrenchments 
particularly escalated to hurricanes in coastal prone areas.
    By reducing that exposure, you can also increase your 
profits.
    Chairman Watt. Now, some people have suggested that 
allowing insurance companies to kind of create subsidiaries and 
do this State by State, have a Florida subsidiary in another 
State, contributes to this problem that I have described as one 
that I don't understand how you can have both record losses and 
record profits at the same time. That is one peg, I will put 
it.
    The second peg I will put is that I saw a statistic, in 
preparation for this hearing in fact, that indicated that about 
half of the U.S. population lives near the coast. That is the 
second peg.
    The third peg is there is now before Congress, and it will 
come actually before our Financial Services Committee for 
consideration, a proposal to create an optional Federal 
insurance charter. I know that is something that State 
insurance commissioners, my own State insurance commissioner in 
North Carolina kills me or threatens to shoot me even if I 
mention it publicly, but it is--the legislation has been 
introduced and in the course of having this discussion, I think 
it is worthwhile to have a full-blown discussion.
    Insurance is about spreading risk, and if half of our 
population lives along a coastal area, 49 of our 50 States have 
some kind of catastrophic risk of being exposed to catastrophes 
of some kind or another, what--give me your perspective, 
Commissioner McCarty, on whether that, plus the propensity of 
insurance companies to go State by State by State because they 
are regulated State by State by State, whether that might 
create a case for at least considering the prospect of an 
optional Federal charter.
    And I want to make it clear that I am not on record as 
being supportive of an optional charter. In fact, I think if 
you look at the comments I have made about it, my comments have 
not been all that favorable toward it because I know that 
insurance is something that has been historically regulated and 
done at the State level and I am patently aware of that.
    But I just think we shouldn't come to Florida and not get 
the Florida insurance commissioner's comments about this, if he 
is willing to allow me to put him on the spot.
    Mr. McCarty. My pleasure, Mr. Chairman.
    The three issues to consider as they are oftentimes 
referred to, in the aftermath of Hurricane Andrew, State Farm, 
Allstate, and Nationwide, to mention three of the major 
companies that are Florida-specific companies, certainly part 
of the reason you set up a corporate entity is limit your 
liability. There is certainly going back to the issue before, 
being driven by the capital--the rating organizations that they 
would be downgraded once they did set up pup companies, so they 
have, but I think it is quick to point out they have 
capitalized them and have recapitilized those companies in the 
aftermath of our storms since there were back-to-back eight 
named storms that hit Florida. So they have evidenced their 
commitment to Florida.
    Rates are really State-based anyway. They file with each 
individual State jurisdiction to do that. So setting up the pup 
company, in and of itself, does not necessarily raise rates, 
but if that pup company buys all of its reinsurance in that one 
region, that could affect the cost of the reinsurance 
component.
    In terms of changing demographics, I think you are right on 
point, Mr. Chairman, there is a significant change in the 
demographics of the United States since the 1950's. More and 
more Americans are gravitating towards and relocating towards 
high-risk areas, whether that risk is the risk of hurricanes in 
the Gulf of Mexico or the risk of earthquake exposure in 
California and other places in the west, we are certainly much 
greater at risk of catastrophic loss, just merely by the change 
of demographics.
    As I alluded to before, if we were just to repeat historic 
events, these events would be many, many, many times more 
cataclysmic today merely because of the changing demographics.
    And lastly, with regard to the issue of the optional 
Federal charter, I think that the insurance industry marshals a 
very compelling argument for having a national Federal charter. 
Because of the inefficiencies of dealing with 50 States many 
times it is easier to deal with foreign countries than it is to 
get 50 licenses in the United States and appointment of agents, 
etc.
    Having said that however, I think if any of the bills you 
have seen out there for an optional Federal charter do not 
complement the regimen as we have seen in many States in the 
United States, including the State of Florida, which by that I 
mean, having a complete consumer protection regulation 
framework put in as well, I think when you start talking about 
consumer protection by an optional Federal charter, support for 
it will not be as strong as it is for many members in the 
insurance industry.
    I think the better solution is a solution that would create 
greater efficiencies among the States through compacts, as we 
have seen with the interstate compacts that have been done in 
the past and creative work then among the States to the 
National Association of Insurance Commissioners, as opposed to 
creating an optional Federal charter.
    The fear by most regulators is the mask of the optional 
Federal charter is effectively to get around State regulations 
and State consumer protections. If you were to build in a 
firewall and still have State consumer protections, but you can 
just get a license easier, I think the real issue is companies 
would like to see much of the apparatus for consumer protection 
dismantled.
    Chairman Watt. I think I have long since exceeded my time, 
and I will go another round if you all care to go another 
round. I now recognize Representative Klein.
    Mr. Klein. Thank you, Mr. Chairman, and just a few 
observations.
    First on the deregulation issue which you asked about, and 
your questions were extremely insightful, having been in the 
Florida legislature 14 years before this and been involved with 
these issues, these are the issues that are the crux of what is 
going on in Florida and other States where these same symptoms 
have manifested themselves in terms of risk reduction, 
reduction of the portfolio and also acceleration of the rates.
    On deregulation, the argument that I have heard in Florida 
over the years is, you know; let the market establish its 
equilibrium. If you do that, you will be bringing in lots of 
capital, lots of competition and things like that.
    The problem is, if you have a $2,500 policy, and the market 
is at $8,000, all of a sudden you have 10 competitors come in, 
that is a wonderful thing on the competition side, but you have 
now priced it out of the realm of homeownership in Florida or 
other States.
    So this is a question where I think there is sort of an 
acknowledgement of market failure at a certain point. We all 
know you have to have insurance if you have a mortgage and this 
is obviously something, even if you didn't have a mortgage, I 
would certainly think it is the proper way to prepare to 
protect your own values, and your estate, and your home and 
things like that.
    The second issue is the separation of the risk and Mr. 
Mahoney has been very outspoken about this. This was presented 
in the Florida legislature early on after Hurricane Andrew with 
separating and taking apart one side of the risk, and up to 
this point the companies have capitalized when necessary when 
there was a problem after the hurricanes.
    But, if that is the case, why shouldn't there be one 
company? And more importantly it is this notion of the 
evaluation of the risk. I mean, if you are just separating 
out--it is almost like saying Palm Beach County should have its 
own little lines--of let's evaluate what Palm Beach County 
looks like; here are the lines. A joke here in Florida--they 
have what they call the I-95 mountain range--I-95 is a road in 
a flat State that has no topographical differences on one side 
or the other, yet you pay more on the ocean side than you do on 
the west, yet, in the event of hurricanes, if I ask people here 
who live here, anybody here live west of I-95? How much more 
damage occurs, more west or more east? A rhetorical question, 
it is because the storms came in from the west, no storm surge, 
so it was you could argue it is a fiction of the east side 
versus the west side. And again, these are things that have 
been used to drive up rates and justify rates.
    And lastly on the optional Federal charter, that is 
obviously being discussed on many levels in Washington. My 
biggest thing is, as the Commissioner is pointing out, that to 
the extent that those kinds of things are considered, if we 
were to look at the entire United States as a risk area, and we 
do what insurance is supposed to do, spread the risk and if 
somebody gets a national charter for offering homeowners' 
insurance, that is wonderful and that, you know, different 
rate, different areas, involve different risk and that is fine, 
but you are blending the entire United States together into one 
category with reinsurance, but if they are not prepared to do 
that and it is a national charter but still each State does 
their own thing, I don't see any benefit to the consumer and I 
think what we are trying to figure out here are ways to balance 
the right of a reasonable profit for a for-profit business for 
what we all know is a necessity and that is to have homeowners' 
insurance at a reasonable rate that many people in this room 
have paid in for 15 or 20 years, and they have that one claim, 
they are afraid to make a claim because they are going to get 
cancelled or the insurance company won't be there to back them 
up.
    So those are the things that we are all trying to address 
nationally and I appreciate you honing in very directly on the 
questions that are really the operative questions in resolving 
this.
    Thank you, Mr. Chairman.
    Chairman Watt. Representative Mahoney.
    Mr. Mahoney. Thank you, Mr. Chairman, for giving us this 
second round. This is very stimulating.
    First thing I just wanted to make sure I understood from 
Commissioner McCarty and that is is that this concept of a 
regional approach to catastrophes is something that you say 
increases risks, doesn't reduce risks, and is not a good 
solution. Did I understand that to be correct?
    Mr. McCarty. Obviously pooling together in a regional CAT 
fund is better than doing nothing at all. My problem with the 
concept, however, is that you are not spreading it in a wide 
enough manner. To make it most effective, certainly a small 
State like Louisiana isn't large enough to create a Louisiana 
CAT fund like Florida. But if you pooled it together with a 
number of States in the Southeast, they would be able to be 
able to do that.
    Mr. Mahoney. But not to interrupt you, but three States 
that all have the same risk which is catastrophic hurricanes, 
does that increase, you know, does that share the risk or does 
that heighten the risk for that region? I mean there are people 
that are saying that that is what we need to do, we need to 
have regional catastrophic strategies and I just want to make 
sure I understand that what the--whether or not you think that 
that is accurate or not or should we be doing, saying no, that 
is the wrong thing, we should be going to a national approach.
    Mr. McCarty. I think a national approach spreads the peril 
and the geography--
    Mr. Mahoney. Right.
    Mr. McCarty. --which I think are the two most critical 
issues. But short of a national plan, a regional plan makes 
some sense because of the cost of lowering insurance. A CAT 
fund can have actuarially rates at one-third the cost of the 
private sector.
    Mr. Mahoney. Well, I think the problem with global 
reinsurance, hearing your testimony, sir, is the fact that 
there is just not enough of it. And so when something is 
scarce, the cost is high. Is that--am I understanding that, is 
that a simple understanding?
    So my question is, let's just run through the math. You 
know, somewhere along the lines somebody said that two category 
fours hitting Florida in a year would generate $79 billion 
worth of damage, is that--does that sound familiar to you?
    Mr. McCarty. That is certainly within the realm.
    Mr. Mahoney. And if you take a look at all the insurance 
premiums we got for wind that come in the State, what would you 
say annual premiums are in the State?
    Mr. McCarty. I don't have that figure, but it is 
substantially less than that.
    Mr. Mahoney. The number I think I am working with is 
somewhere in the $9 to $10 billion level?
    Mr. McCarty. That is about right.
    Mr. Mahoney. And a fully funded CAT fund is how much in the 
State of Florida right now, if we had the fund fully funded 
now, right now, the CAT program?
    Mr. McCarty. The CAT--we have a CAT capacity of about $36 
billion, but that is mostly through debt instruments.
    Mr. Mahoney. Okay, let's say we have $36 billion in that, 
$10 billion in premium. That gets us to $46 billion. You know, 
the point I am trying to make here is that we still have 
between $30 and $40 billion of unfunded liability. And 
everybody needs to understand that is what is causing the 
instability in the market, because when the Commissioner goes 
out and we borrow money or we tax people by adding a premium to 
their policy to build a State CAT fund in order to provide 
lower cost reinsurance, what the insurance companies are doing, 
as Commissioner McCarty is saying, is that they are taking 
advantage of it, they are buying the lower reinsurance through 
the market, but at the end of the day, with the savings that 
they have, they still have unfounded liability. So they still 
are going back to that expensive reinsurance, which is costing 
anywhere between $200- to $300 million per billion to cover.
    I will tell you just anecdotally, one thing we have a great 
chief operating officer, just goes to show you here, Mr. 
Chairman, that Democrats do know how to manage, we have Alex 
Sink, who is chief operation officer for the State, and I met 
with Alex in Washington D.C., and she was trying to figure out 
how to finance that shortfall in the State of Florida--
    Chairman Watt. That is the same Alex Sink who came out of 
my congressional district in North Carolina; I just wanted you 
to know that.
    Mr. Mahoney. So Alex Sink met with us and she showed me a 
letter from a company that will remain nameless to what they 
call a commitment letter, and that commitment letter was a 
commitment to raise the money, it wasn't having raised the 
money, it was to raise the money to fund the CAT fund so that 
in the event the money would be there. And they wanted, I think 
it was $600 million for the letter--$600 million for the 
letter.
    So the point I am trying to make here is we can't solve the 
problem in the State of Florida, because if you add up all the 
nickels and dimes, we are still about $40 million dollars short 
and there isn't a reinsurance industry although they are 
fighting us tooth and nail to try to keep us from regulating. 
There is not a reinsurance industry that has enough capital, A; 
and B, if they had the capital they wouldn't put it all into 
disasters in North America, let alone the United States, let 
alone the Gulf Coast, and that is what is creating the problem.
    And that is the reason why the Federal Government has to 
step in and say look, we will be the lender of last resort for 
that $40 million, the State of Florida and the State of North 
Carolina respectively have to take on their responsibility and 
the insurers have to do the same. Because until you solve that 
instability in the market, there is no relief.
    Would you agree with that?
    Mr. McCarty. Absolutely.
    Mr. Mahoney. Thank you very much, I appreciate it.
    Chairman Watt. Representative Wexler.
    Mr. Wexler. Out of deference to the second panel, I will be 
very quick, but if I could just ask the Commissioner for his 
assistance. We have a political problem in that when we had the 
hearings regarding this bill in the House of Representatives, 
the Administration, meaning the President of the United States, 
the Administration came and testified vehemently against this 
legislation and essentially made the argument, not the argument 
that you make, but the argument that you alluded to, that it 
was improper to create what in effect was a Federal regulatory 
role and that what was really necessary was that the private 
market was being inhibited by State insurance commissioners 
such as yourself. And I and others asked well, what are you 
saying is that Commissioner McCarty is not letting the prices 
go high enough and to a degree, that is in effect what they 
said.
    But my point is this, you are the chairman of what is, I 
suppose, the most relevant organization in the Nation with 
respect to this issue in terms of expertise.
    Would it be possible in the context of dealing with the 
Administration if an organized effort could occur where a 
majority of like-minded people such as yourself could 
communicate informally to the Administration the principles and 
to support the principles that are at a minimum enunciated in 
the bill to better enable us to convince our colleagues in the 
Senate and other of our cronies in the House to push forward 
with this.
    Mr. McCarty. Yes, I am aware of the Administration's 
position with regard to any Federal action with regard to 
intervention in what they consider the private marketplace. I 
also believe we can probably play a role, hopefully, in 
educating the Administration on some of the limitations. I am a 
free market guy and bringing Governor Bush to meet with them 
and bringing macroeconomics in and bring in more capital, and 
be very clear that there is a finite amount there and again, 
the unregulated surplus line market which is not regulated 
rates, are not regulated, there is a limitation on how much 
capacity they can take. So it is a matter of the capacity and 
the exposure in different parts of the country particularly 
Florida.
    But I certainly would do my best to--I don't know how 
effective I would be, but I certainly would make those efforts.
    Mr. Wexler. Thank you very much, Commissioner.
    Chairman Watt. We have found that free markets really can't 
do effectively or as effectively as government, and it strikes 
me as that this is one of those areas where regardless of how 
we model or how effective we are, I can look at the historical 
risk patterns and I can tell you generally who is going to have 
an accident, or who is going to have a fire or who is going to 
have a theft, but I don't know anybody who is going to be able 
to contemplate and figure out the likelihood of Acts of God. 
And government's prime role is to step into the breach for the 
common benefit of its citizens and so I don't want to get on, 
you know, this is not government versus private enterprise; it 
is about the common welfare of the people that we all serve.
    And so, with that, let me thank you, Mr. Mayor, for being 
here. Thank you, Commissioner McCarty for being here. I am 
extremely apologetic for being late, but you know, it was not 
in my control. I am glad to hear Representative Mahoney 
praising Alex Sink, who came out of North Carolina to work for 
Bank of America and came down and became a success, even more 
successful in Florida than she was in North Carolina. She is a 
good friend of mine too, a wonderful, wonderful person.
    So thank you all being here and we will now call up the 
second panel.
    Just for information purposes, there was somebody in the 
room who raised their hand, and it is not traditional in 
congressional hearings, either in the field or in Washington, 
to take questions from the audience. In a lot of cases, we have 
townhall meetings where questions are appropriate to the 
Members of Congress, but I am afraid I won't be able to take 
any questions from the audience today, sir.
    Mr. Oser. Let me say this, I am so proud of our Congressman 
up there and I have lived in three States.
    Chairman Watt. He might recognize you for that purpose of--
    Mr. Wexler. Mr. Oser, please speak up.
    Mr. Oser. I spent a little time in Cherry Point, North 
Carolina, before you were born.
    Chairman Watt. We might all ask you to come to the mike if 
you are going to--no, no, we thank you for the praise, but 
unfortunately we have to honor the protocols and rules of 
Congress in --thank you.
    We would now like to welcome up our second panel and 
therefore CVs have been put into the record or will be put into 
the record. I guess I will ask unanimous consent to put your 
full resumes or CVs into the record and I will make a brief 
introduction.
    Our first witness on the second panel is Mr. Charles 
Bonfiglio. Did I come close?
    Mr. Bonfiglio. Very good.
    Chairman Watt. --president of the Florida Association of 
Realtors. Our second witness on the second panel is Mr. Alex 
Soto, past president of the Independent Insurance Agents and 
Brokers of America. And our third witness on the second panel 
is Mr. Roger Jesse, a resident of Hobe Sound, Florida. And that 
is in keeping with our tradition when we go into the community 
of having some residents come and testify. We did that when we 
were in Mississippi too, so we thank you so much for being 
here.
    Just so you know the rules of the road, without objection, 
your entire written statements will be made a part of the 
record, and each of you will be recognized for 5 minutes or 
thereabouts. I am not as rigorous about that as some Chairs, 
but you will be recognized for 5 minutes. Do they have a 
lighting system over there?
    He will raise up a hand when you have 1 minute left in your 
5 minutes. Don't stop though in the middle of a sentence just 
because you have run out of 5 minutes. Please finish up your 
thoughts because we are here to get as complete a record as we 
can.
    And with that, Mr. Bonfiglio, we will recognize you for 5 
minutes.

STATEMENT OF CHARLES BONFIGLIO, PRESIDENT, FLORIDA ASSOCIATION 
                          OF REALTORS

    Mr. Bonfiglio. I have a great Alex Sink story, but we will 
save that for another time.
    Thank you, Chairman Watt, Congressman Wexler, Congressman 
Mahoney, and Congressman Klein for the opportunity to be here 
to speak to you on behalf of the Florida Association of 
Realtors, on the homeowners' insurance crisis and its impact on 
communities, homeowners and the economy.
    My name is Chuck Bonfiglio, and I am broker/owner of 
Century 21 Triple A Realty in Cooper City, Florida, and also 
president of the Florida Association of Realtors. The Florida 
Association of Realtors is the largest trade association in the 
State, with more than 150,000 members.
    I must begin with a public thank you to Congressman Klein 
and Congressman Mahoney for their efforts to address the 
problem of availability and affordability of property 
insurance.
    The bill that that they led through the United States House 
of Representatives, the Homeowners' Defense Act of 2007, 
defines a process for supporting reinsurance markets nationwide 
and as such marks a solid first step in ensuring the 
availability and affordability of homeowners insurance in at-
risk markets. On behalf of all Realtors and homeowners in 
Florida, we thank you.
    Mr. Chairman, as you know, the availability and 
affordability of property insurance is at its core a consumer 
issue. The importance of this insurance to homeowners, 
commercial property owners and those who would like to own 
their own home or place of business cannot be overstated.
    Unfortunately, it is also something that consumers 
nationwide, even those who are not in what have traditionally 
been considered disaster-prone areas, now know all too well.
    The Florida Association of Realtors strongly encourages 
Congress to enact a comprehensive natural disaster policy to 
help property owners prepare for and protect against losses 
from future catastrophic events. Such a policy would recognize 
the respective responsibilities of property owners, private 
insurance markets and all levels of government in preparing for 
and recovering from future catastrophic events.
    An unprecedented number of strong hurricanes, including the 
most powerful hurricane ever measured, Hurricane Wilma, caused 
extraordinary devastation in 2004 and 2005. As you all know, 
eight hurricanes rated category three or higher, blew through 
Florida in just 2 years.
    My Association commissioned a study on the impact of 
hurricanes on housing and economic activity which was completed 
in April 2006. I would just briefly mention some of the 
findings of this study, but I would like to submit the full 
study for the record.
    Chairman Watt. Without objection, we have a copy of it, I 
believe, the Affordability and Availability of Homeowners 
Insurance in Florida, and without objection, it will be 
submitted in its entirety for the record.
    Mr. Bonfiglio. Thank you.
    After the devastation of 2004 and 2005, private insurance 
companies sharply raised insurance premiums and/or drastically 
lowered their insurance coverage in Florida.
    The limited availability of property insurance in turn 
forced many homeowners to seek coverage through Florida's 
public insurance system. But Florida Citizens Property 
Insurance Corporation, specifically set up to provide insurance 
in high-risk areas where private market insurance options are 
limited, has also come under great financial strain and been 
forced to significantly raise insurance premiums.
    The current high cost and limited coverage of property 
insurance appears to be impacting the housing market. 
Unfortunately, declining housing activity is often the 
precursor to a larger economic slowdown. Without a doubt, the 
2004 and 2005 hurricane seasons were catastrophic and 
unpredictable.
    Hurricanes of such strength and frequency could not have 
been anticipated through normal historical analysis, and hence, 
cannot be considered as normal insurable losses. I believe that 
Federal catastrophic insurance coverage would permit insurance 
companies to better manage risk and widen insurance 
availability at reasonable costs.
    Just as with Federal terrorism insurance, coverage on 
unknown events allows the private insurance market to continue 
its presence. A Federal catastrophic insurance program will not 
only benefit Floridians, but also residents living near the 
Mississippi River who experienced flooding, families in Kansas 
and Oklahoma who will see more than their fair share of 
tornados, west coast residents from San Diego to Alaska with 
earthquakes, Texans and Coloradoans with wild fires, and 
numerous other people in cases of unforeseen and unpredictable 
natural disasters.
    As you all know, a strong real estate market is central to 
a healthy economy by generating jobs, wages, tax revenues, and 
a demand for goods and services. In order to maintain a strong 
economy, the vitality of residential and commercial real estate 
must be safeguarded.
    Homeowners' insurance is a necessary component in securing 
a mortgage and buying and selling a home. If a potential 
homeowner is unable to obtain or afford the required insurance, 
the sale will not be completed.
    In addition, many of our commercial Realtors have reported 
problems with commercial insurance. Our members have 
experienced large increases in premiums, in some cases more 
than fourfold with concurrent increases in deductibles and 
decreases in coverage, and in other cases a complete lack of 
availability.
    While most agree that States are the appropriate regulators 
of property insurance markets, I believe that there is a proper 
role for the Federal Government in addressing mega 
catastrophes. Some disasters are just too large or 
unpredictable for the private market to manage alone. As such, 
it is appropriate for the Federal Government to intervene in 
insurance markets and prevent market disruption and insolvency 
among insurance companies.
    I must admit that we all have a duty to ensure that there 
is confidence that our homes and businesses will survive future 
catastrophic events. I just met with the president of the 
Florida Homebuilders, Bob Parrish, on Friday, and we agreed 
that appropriate mitigation measures can also create the 
confidence.
    Federal and State governments can provide incentives 
through tax credits. We know that a dollar spent on mitigation 
saves society an average of nearly $4. Florida has the ``My 
Safe Florida Home'' mitigation program that provides matching 
grants to homeowners to harden or strengthen their homes, and 
it is working. We would encourage Congress to look at tax 
credits to encourage mitigation as well.
    There is no guarantee that 2008 or any future years will be 
as benign for natural catastrophes as 2006 and 2007. The 
question is not whether there will be another Katrina-like 
event in size and scope of destruction, but when.
    As we learned, it is far less costly to prepare ahead of 
time than to fund recovery efforts. We also encourage Congress 
to consider proposals that will provide incentives for property 
owners to undertake mitigations measures, allow individuals to 
establish catastrophe savings accounts to pay for losses 
resulting from catastrophe events, strengthen the Nation's 
infrastructure, and ensure the long term viability of the 
National Flood Insurance Program.
    Thank you again for inviting me to present the views of the 
Florida Association of Realtors. We certainly hope the United 
States Senate will have a similar hearing, and we stand ready 
to help you, Chairman Watt, and others in Congress to develop a 
responsible natural disaster policy that addresses the needs of 
consumers, the economy, and the Nation.
    Thank you.
    [The prepared statement of Mr. Bonfiglio can be found on 
page 54 of the appendix.]
    Chairman Watt. Thank you for your testimony and thank you 
for the role the Realtors are playing on this issue and in 
providing housing around the country. Certainly some of the 
most thoughtful ideas for dealing with the crisis of 
foreclosures and lending and other lending issues that we have 
been facing in my community have come from my local Realtors 
and from your national association, so we thank you so much.
    Mr. Soto, you are recognized for 5 minutes also.

 STATEMENT OF ALEX SOTO, PAST PRESIDENT, INDEPENDENT INSURANCE 
                 AGENTS AND BROKERS OF AMERICA

    Mr. Soto. Thank you, Chairman Watt, and Congressmen Klein, 
Mahoney, and Wexler.
    I appreciate very much the opportunity to be with you. As 
you have indicated, my name is Alex Soto. I am the immediate 
past president and the immediate past chairman of the 
Independent Insurance Agents and Brokers of America.
    We are 300,000 men and women working in 25,000 independent 
agencies, which are small businesses throughout our entire 
Nation. We are not employees of the insurance companies and we 
are not representatives of the insurance companies, nor the 
reinsurers.
    The big ``I'' likes to think of itself as being a group of 
small business owners, and we have contractual relationships 
with many insurance companies and serve our clients by placing 
their risk with the best possible solutions within the 
companies that we represent.
    I am also the president and the CEO of InSource, Inc., 
which is one of the largest privately owned insurance agencies 
in the State of Florida. We are based in Miami, Florida. We 
also have offices in Broward County. And I had the dubious 
distinction of having lived through Hurricanes Andrew, Katrina, 
and Wilma, and Congressman Klein alluded to the former JUA, 
which was the predecessor of Citizens, I was for a period of 
time, vice chairman of that organization.
    Let me make the following comments. The insurance industry 
is neither monolithic or monopolistic. The fact of the matter 
is that if you go to A.M. Best, and A.M. Best is an 
organization, the largest and the oldest that rates and ranks 
insurance companies, you will see on their Web site that they 
have financial information on over 7,500 insurance companies. 
And these insurance companies sell all types of insurance and 
A.M. Best does not keep financial information on the entire 
universe of insurance companies. So if we are generous, and say 
that they do it for 75 percent of the marketplace, then that 
universe is about 10,000 insurance companies.
    If you go to the Department of Insurance of the State of 
Florida, you will note that 118 insurance companies are 
licensed to sell homeowners' insurance in the State of Florida, 
a small proportion of the total universe.
    That number of 118 is very misleading because the reality 
of the fact is that a number of these 118 companies are not 
writing any new business, or worse yet they are not only not 
writing new business, they are actually canceling and non-
renewing a number of insurers.
    These 10,000 insurance companies everyday, their CEOs make 
a decision on where they are going to invest their capital, in 
terms of the lines of insurance they are going to offer, 
coverage, and the geographic areas.
    And so in effect, every State in the Nation competes 
everyday with every other State for the attention of these 
insurance companies in order to bring capital to their State 
and as Commissioner McCarty already indicated to us, the fact 
of matter is that the marketplace does not have confidence that 
they can risk a substantial portion of their capital, and I am 
talking about the individual companies, in coming to an area 
such as South Florida or coastal areas or other catastrophe 
prone areas of the United States.
    So, we are unfortunately left with pup companies, as he 
alluded to, emerging companies, and the residual Citizens 
marketplace. Not a sufficient amount of competition, and when 
insurance companies compete for the attention of my clients, my 
clients win. It happens all the time.
    I will give you a very quick example. We were working on 
the renewal of a large architectural firm. We contacted eight 
insurance companies. There is no crisis in professional 
liability. We indicated to them that we were going through a 
bid process on behalf of our client and they were delighted to 
participate. As we moved through the process, what happened was 
the premiums came down, the limits went up, the deductibles 
went down, and the language of coverage expanded. There was 
competition, there is competition, and that is what we would 
like to return in Florida.
    Perhaps unlike other segments of my industry, I will tell 
you that my Association is four square in favor of your bill 
and we salute you for what you are doing. We have been the 
independent agents in favor of a backstop solution because 
there is a place for the Federal Government. While we 
ultimately believe that some deregulation of rates would be a 
good idea, it would be irresponsible where there is no 
competition in an area such as Florida to do it precipitously 
so we don't believe that is an important or a proper solution 
so we salute you for what you are doing and we support it and 
we will work in order to try to get it passed through the 
Congress.
    We support any other measure that would create more 
competition and more market being brought to our areas, the 
coastal areas of the United States.
    There are two other components to this that I think are 
important in romancing, if you would, capital to come to our 
areas.
    Quite frankly, I would like to see our elected officials in 
our State, our Governor and members of the legislature, speak 
with a little softer voice when condemning our industry. When 
you use a blanket brush to attack the industry, what you will 
never know is that certain companies in certain parts of the 
Nation will simply not come and invest in your area, among 
other things, because they believe there is a hostile 
environment.
    Finally, I like the comments that Mr. Bonfiglio just made 
in terms of retrofitting and hardening homes. It is probably 
one of the most important magic bullets that we have.
    It works this way: If you think of premiums as innies and 
payments of claims as outies, every one of us have to keep, in 
our private lives, in our businesses, even in State government, 
the innies ahead of the outies. Insurance companies need to do 
that. If you don't like the innies, the premiums that we are 
paying, we have to reduce the losses.
    If you look by example at Hurricane Charlie that came in 
from the southwest coast and cut across a swath, it went out 
Daytona Beach, there was an analysis done recently by the 
Institute for Business and Home Safety, that looked at the 
losses of the homes that were in that area and were affected, 
in the ones that were built prior to 1996, when a better 
building code went into effect, had fully 60 percent more 
claims than the ones that were built afterwards.
    And when you compared the total number of claims, law of 
large numbers, the severity of the ones that were better built 
after the improvement of the code was actually 42 percent less 
severe. There is nothing as dramatic as hardening of our homes 
that we can do in order to improve our market condition.
    I salute you for what you are doing and we will work with 
you in order to get it passed. At some point in the question 
and answer session, I would love to get into optional Federal 
charter or deregulation of insurance or any of the other 
topics.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Soto can be found on page 79 
of the appendix.]
    Chairman Watt. Thank you for your outstanding testimony, 
and I will now recognize Mr. Jesse for 5 minutes or 
thereabouts.

    STATEMENT OF ROGER JESSE, RESIDENT, HOBE SOUND, FLORIDA

    Mr. Jesse. Thank you, Mr. Chairman. And I am glad to be 
here with Mr. Klein, Mr. Mahoney, and Mr. Wexler.
    I am just a plain retired guy, okay? I retired in 1999 and 
I had experience in general management, marketing, sales, and 
engineering. I purchased my Florida home in 2002 and became a 
Florida resident; I homesteaded in 2004. I am a widower, I am 
on a fixed income, and I am 73 years old.
    I have resided and owned 9 homes in over 48 years, from 
coast to coast. I have been in some earthquakes and a few 
things like that and that experience level. I have a Bachelor 
of Science degree from the University of Wisconsin and Chemical 
Engineering and Naval Science, in that area and I am very 
active in volunteering in Martin County, specifically in this 
area.
    As I said my current home was purchased in--I said August 
of 2002, but I made a mistake--it was July, so I stand 
corrected.
    I purchased homeowners' insurance through a local agent 
from Allstate Floridian in 2004 and was informed in the spring 
of 2007 that my insurance was not being renewed. Although my 
residence had been through three hurricanes and had not had a 
claim made with Allstate Floridian in this case.
    As the crow flies, my home is 5 miles from the ocean, in 
that area. It is still on the east side of I-95, in that area. 
The home is rather unique in its construction, in that the 
exterior walls are actually poured reinforced concrete. It is a 
fortress, in that area, it really is. My total hurricane damage 
from those three hurricanes was $280 for the screening of my 
lanai, and just a part of the screen of the lanai, in that 
area.
    Being of relatively new construction, it has shutters, 
hurricane shutters and all the improvements that are called for 
in all the codes in that area.
    I am currently insured by a company called Royal Palm 
Insurance and my insurance rates have not, you know, they are 
nothing incredibly dramatic, but since 2004, it has doubled in 
that area.
    In addition, there is some--I guess my concern is about the 
capabilities of a company that I haven't really heard about 
before, as opposed to a company that is national and certainly 
more visible in the area. And there was a recent article in the 
local Stuart News that this insurance company was doing drive-
by appraisals and increasing the premiums on the policy in the 
area. That did not happen to me in that area.
    I guess the increasing cost and availability of good, 
reliable homeowners' insurance is a major concern, but it 
doesn't impact me that heavily in terms of my current 
lifestyle. I have reasonable computer skills and frequent the 
Internet regularly. I am very concerned that for many seniors 
or disadvantaged who are on the edge and have a difficult time 
communicating in this electronic world.
    Thank you.
    [The prepared statement of Mr. Jesse can be found on page 
64 of the appendix.]
    Chairman Watt. Thank you so much for your cogent reminder 
that we can put all the statistics and models and whatever, but 
in the final analysis this is still about the citizens that we 
serve, and I thank you so much for being here.
    Mr. Klein, you are recognized for 5 minutes. Do you want to 
go--Mr. Mahoney for 5 minutes.
    Mr. Mahoney. You can see, Chairman Watt, the pecking order 
here of a Florida delegation, how it works, and I am at the low 
end of this pecking order, so I am happy to go first.
    Chairman Watt. You look like you are in the middle there to 
me.
    Mr. Mahoney. Well, that is the only concession that I got, 
sir, was having my colleagues on either side of me.
    Mr. Bonfiglio and Mr. Soto, thank you very much for being 
here today and having the Florida Association of Realtors and 
the Independent Insurance Agents supporting this bill has been 
an enormous asset.
    I don't think I have to remind you that operating 
businesses, whether they be insurance agencies or real estate 
firms, that things have been kind of rough for your 
constituents these past several years.
    And we have seen here, Chairman Watt, the perfect storm of 
what can happen when you have out of control insurance rates, 
premiums for insurance--homeowners' insurance, property taxes 
and that here in the State of Florida, whether you like it or 
not, the real estate industry and construction and all of the 
things that affect it are still the major industry in the State 
and we are, I would say, fair to say, in a recession and having 
to figure out how to dig ourselves out.
    But the first question I have, and it is just from the 
perspective of your constituents Mr. Bonfiglio and Mr. Soto, is 
that when you take a look at all the things that are impacting 
sales right now for your members--property taxes, homeowners' 
insurance, and housing costs--could you just kind of lay out 
what is happening in the State of Florida and how each is 
impacting. I know they are all negative but, you know, could 
you give us a little relative, you know, discussion as to how--
which is bigger, lesser, how things impact the market.
    Why don't we start with you, Mr. Bonfiglio?
    Mr. Bonfiglio. Yes, thank you for the question.
    You know, when you look at it, our number of sales in 2007 
in the State of Florida were down by 29 percent from 2006. And 
that was after being down about 30 percent in 2006 from 2005. 
And I did some quick numbers and resales, existing homes in the 
State of Florida for 2007, totaled about $130,000. There are a 
160,000 Realtors, and there are probably another 160,000 non-
Realtor licensees, so you do the math. It equates to less than 
one-half of a sale per licensee.
    We have foreign investors who love the State of Florida; 
the Canadians, the people from Great Britain, and with the 
dollar being what it is, those folks ought to be coming here in 
droves and buying up our property. But unfortunately the reason 
that they are not and that has gone down as well, 2 years ago, 
foreign investors did about 15 percent of our sales and that 
was over 80,000 sales. Last year in 2007 that dropped to 7.3, 
so you say well, with all the things that are positive for the 
investor, for the foreign investor, then why aren't they buying 
and the answer is simple; taxes and insurance.
    Until we can fix that, these folks aren't going to be 
purchasing as they should be and that should be a tremendous 
market for our State.
    Mr. Mahoney. Mr. Soto, do you have a comment on that?
    Mr. Soto. Yes, two or three very quick points.
    Number one; there has been a theme of concern about the 
rising cost of insurance. We have a small but growing segment 
that are making decisions to go bare, by that, meaning not to 
buy windstorm insurance. And some people are doing it in a 
thoughtful manner and they are putting some money away, they 
are doing the reserve. Others will be bankrupt the moment that 
they are hit by a catastrophe because they are going bare 
without the wherewithal to create another plan.
    Some are going to be bankrupt because of the size of the 
deductibles. Deductibles have increased. There has been a 
premium stabilization in the last year or so where the 
increases have been more modest, but there is a tremendous 
danger as to the quality of the paper and the insurance that 
stands behind it.
    There is a tremendous concern--I used to worry about my 
home and my clients' homes. Now I have to worry about everybody 
in the State of Florida because of the exposure of the 
catastrophe fund, which I believe is sorely underfunded and 
also Citizens Insurance. And that is why we really, I think the 
analysis that you all went through in terms of the size of the 
exposure, it is well beyond our borders and our State, what it 
can handle.
    Mr. Mahoney. I appreciate that, Mr. Soto, because I was 
going to address another question to both you and Mr. Jesse.
    By the way, Mr. Jesse, I am glad to see that you came in 
your official uniform of a successful retiree today.
    Mr. Jesse. Thank you.
    Mr. Mahoney. Okay, and I think it is very, very valuable 
what you are doing here, talking about your experience.
    And the thing that struck me is the fact that who are 
living in this hardened shelter and a little piece of paradise 
called Hobe Sound, that has not lost its beach charm and the 
small town community feel.
    But, you know, you were talking about having been insured 
by a subsidiary of Allstate, Allstate Floridian, and then you 
are now to another company and my question to you is, as a 
homeowner being rejected by a national name, Allstate, even 
though it is a Florida pup company, which has its 
ramifications, and going to another company that doesn't have a 
national reputation, can you just explain to me, I mean, how 
confident are you that you are really insured at this point in 
time?
    Mr. Jesse. Not terribly confident. I would say being 
advised that, you know, they are not going to renew is, you 
know, as you get on and older, as I said, it gets more 
difficult, okay, and I am pretty good, I have my senior 
moments, but I am there and I can find new stuff and everything 
like that if it is available, if it is any good, okay. And how, 
again, I have heard so much about, you know, shortfalls and 
everything like that today. I mean it really makes you think, 
you know, where--what have I really got here.
    Mr. Mahoney. Well, the other thing you pointed out too is 
that you are fairly computer savvy and, you know, one of the 
things that you have been able to do that I know a lot of our 
seniors have had difficulty doing, because they haven't used 
the Internet and so and so forth, is be able to take advantage 
of some the services that are out there that might be able to 
help them find lower cost insurance, which is a different 
problem.
    But Mr. Soto, getting back to you, you know this whole 
issue of pup companies and these new companies. I mean, I 
remember having a conversation with the Governor and 
Commissioner McCarty, unfortunately I think he had to leave 
already, and there is coming back to us and saying don't worry 
because we have more competitors in the market, we have new 
companies coming into the market, and being an old financial 
services guy myself, I mean, I am always concerned about the 
strength of one's balance sheet frankly, in terms of being able 
to handle the event.
    We had a situation in the last Hurricane Wilma where we had 
a fairly significant company insure, I will say, not a company, 
end up going bankrupt and putting additional stress.
    As an independent, representing independent agents, I mean, 
one of the great values that you bring to the marketplace is 
your independence, your ability to take a look at what is out 
there in the marketplace and be able to assess and evaluate 
companies and their product offerings.
    I would be interested in your perspective in terms of 
whether or not the programs instituted by the State, our 
inability to stop the exodus of what I would call A-tier 
companies from the State, could you give us an assessment of, 
you know, what you think the current situation is of the 
balance sheet of the insurance industry is in the State of 
Florida right now?
    Mr. Soto. Sure. Well, very quickly, thank God for the 
emerging companies because we have practically nothing else. We 
would be left with Citizens. They have stepped into a gap.
    But I will tell you and I review--one of my corporate 
responsibilities is to review and read carefully every contract 
that my organization signs with every company.
    My standard used to be, you had to be an A rated company 
and you had to have a financial size of eight or larger. A.M. 
Best gives you a letter rating and a Roman numeral rating and 
we have basic standards. We have to throw that out the window.
    I was facetiously telling one of my partners the other day 
that I just signed a contract, with a company that was just 
organized last week and that they have five chickens in their 
treasury, three of which I thought had the Avian Flu, and it is 
very scary, it is very scary in the position that we are in.
    The second part is that you have to realize and I will tell 
you that I helped organize one of those insurance companies. We 
are doing business exclusively in the State of Florida, we are 
writing homeowners business, with wind, but there is no 
spreading of the risk in terms of going to Nebraska and Ohio 
and other places, so that is a concern.
    We cannot rest on the basis of the creation of those 
companies, we have to--and I believe that your plan will give a 
certain amount of confidence to other companies to get 
involved, the larger ones, because at the end of the day we 
have to in effect, get them back to the coastal areas.
    Mr. Mahoney. Just to finish up, Mr. Chairman, if you 
indulge me for a few more seconds.
    I mean one of the things that our bill does is it 
recognizes that the goal here is to bring A-tier companies back 
into the market and that, you know, the goal would be from my 
perspective, that a well crafted plan like our bill will not 
only encourage companies to come back in, because the key to it 
is is that there is stability, again, remind everybody that 
there is stability because in that big event that, you know, in 
that 1-in-200-year event, the Federal Government will provide 
the loans, it is capped and we have done everything we can 
possibly do to expand the market for reinsurance.
    So we are, you know, this is a very much a pro business, 
pro market approach where we are trying to get companies to 
come back in, because frankly I haven't met anybody who wants 
to be insured by Citizens.
    So, I just, again, want to thank both of you for coming, 
because between the subprime crisis, homeowners' insurance, and 
the property amendment, it has been a perfect storm of epic 
proportions. And I hope you all recognize that Congress, in the 
Stimulus Package and with the interest rate cuts working with 
the President and the Federal Reserve, are doing everything 
that we can do to resuscitate the real estate market and so 
that we can protect our local economies.
    With that, I will yield back my time.
    Chairman Watt. Thank you so much.
    Representative Wexler.
    Mr. Wexler. Thank you again. Thank you to all the gentlemen 
for giving us the opportunity to learn from you.
    Representative Mahoney talked about the Stimulus Package. 
To me, ultimately the most important part of that package, if I 
understand it correctly, from now until the end of the year 
will enable conforming loans, the amount of a conforming loan 
to go from whatever it is--$417,000 to almost $300,000 more 
than that depending on the cost of the average price of a home 
in a particular area and so forth.
    I would be curious just to hear your reaction in terms of 
what kind of an impact you think that actually will have here 
in Palm Beach and in Broward and the Treasure Coast. And also 
beyond the provisions of H.R. 3355, specifically as it relates 
to hardening homes, as you described, Mr. Soto, and mitigation 
of risk, what tax provisions in your idea would be the most 
meaningful in terms of incentivizing people to take on the 
financial cost of doing that type of mitigation.
    Mr. Soto. Would you like me to take that part first?
    Mr. Wexler. Please.
    Mr. Soto. We ought to make this, in my opinion, a Marshall 
Plan program and there are a number of steps and I will hit the 
facts very quickly.
    We ought to do at the Federal, at the State, and even local 
level, everything we can to support first, the research. There 
is wonderful work being done in a number of universities in our 
State. In my area, FIU is creating the wall of wind. They are 
going to take fans and blow up to 170-mile-an-hour winds on 
fully built homes that they are going to put on Lazy Susans, 
and they are going to spin them around and they are going to 
blow it at the doors, at the roofs, at the windows, at the 
cornices, at everything possible in order to garner the 
knowledge as to when these elements will fail. And they are 
going to build homes according to the code in the past, the 
code today, and over the years the historical number of codes. 
They are also going to test all sorts of hardening and retro 
fitting. So we need to support that vigorously.
    Number two; we need to make sure that all that information 
gets to our citizens. I look forward to the day that I can go 
on the computer, as Mr. Jesse can do today, and type in that I 
live in zip code 33143, my home is built in 1990 and answer a 
few questions and I will be told what will happen to my home at 
certain wind speeds, the different elements, and what I need to 
do in order to improve it, and then a list of licensed 
contractors that will help me harden the home.
    Then after that we need to have inspectors that are trained 
in order to come out and look at it and see the work that I 
have done and demand that my insurance company give me a 
sufficiently strong actuarially sound credit commiserate with 
what I have done. I did that in my house and I did it, but as a 
private citizen, and I got a reduction in my premium of $1,200.
    A property tax credit or an income tax credit or some sort 
of credit that I can see a direct link between the dollars 
spent and what I am getting back, that in combination with the 
credit from my insurance company will be significant. We still 
have a very large segment of inventory that was built, more 
than 80 percent, was built prior to 1996.
    Mr. Wexler. If you don't mind me asking, what did it cost 
you to get the $1,200 credit, understanding that is a recurring 
credit, I assume, I hope.
    Mr. Soto. Yes, it is. And a number of other things that I 
have done but I will tell you the inspection cost me a $105 in 
order to get that. I found that some elements of my home were 
built better, also simple little things. You know, we have 
learned that if you use ring shank nails to secure the roof of 
your home, it takes the roof--and ring shank nail is nothing 
more than a nail that has rings on it--it takes it from a 
category 1 to a category 4. Well, I am not going to undo my 
entire house but part of the research that they said it, if you 
put a commercial grade ribbon of glue where your plywood and 
your trusses come together, that you can now increase a holding 
power to a category 4-plus.
    It cost me $100 from Home Depot of commercial grade glue 
and a skinny, wiry young guy, in the winter, I didn't want to 
kill him, to go up in my attic and do it and then I got up 
there and tapped it and it is like concrete. My roof is not 
flying off in pieces. It may do like Dorothy and go in one 
piece, but it is now--so it is that type of thing that you can 
do. And I found that in the Web at the Institute for Business 
and Home Safety, out of the research that some of our 
universities did.
    So there has to be a connecting bouncing ball all the way 
across and it ought to be done, in my opinion, as almost a 
Marshall Plan. It is--when you take the reduction of the losses 
of 60 percent fewer claims and 42 percent less severe, there is 
nothing that we are putting in place in terms of reinsurance, 
in terms of savings that is that dramatic as reducing losses.
    Mr. Wexler. With the exception of, and I will stop with 
this, Mr. Chairman, with the exception of the investment and 
the research which is obviously critical to the whole thing, 
those other matters seem to me to be matters more appropriately 
regulated to the State or local governments, would you agree?
    Mr. Soto. Yes, to a great extent they are.
    Mr. Wexler. Okay. Thanks.
    Chairman Watt. I think I will let Mr. Klein, since he is in 
his home turf go last and because I will pick up on just one 
thing.
    Mr. Jesse testified that he lives in a fortress, had a 
hundred and some dollars worth of damage in a major hurricane. 
You testified you upgraded and got a big credit. He says his 
insurance rate went up about double. How do you reconcile that? 
I mean is there something now that will allow somebody who 
lives in a fortress who really has stable well-built hurricane 
proof, whatever that is, home to get--to really get insurance 
savings and tax savings similar to what we are proposing for 
the greening of homes? That is one of the things that is in our 
energy bill. So it wouldn't be too much of a step to go one 
step further and talk about tax credits for the strengthening 
of homes.
    But if Mr. Jesse is not going to get the benefit of that 
because the system doesn't have enough flexibility in it to 
give him the benefit of the hardening of his home, what good is 
it to him? Is that flexibility in the system now?
    Mr. Soto. In a number of insurance companies they do, in 
others it is pathetically poor and that is that the credits 
that they give for the differential and the construction of 
homes, is in my mind, not sufficient and when I mean 
sufficient, I mean sufficient to meet actuarial standards. The 
fact of the matter is there is a huge significant of the amount 
of damage that a home can suffer.
    Now he has poured concrete--poured reinforced concrete 
walls. I don't know whether he has the same in terms of his 
roof or his roof is a joist and masonry type roof which is 
another aspect there, but the short answer is I would encourage 
him to get in touch with his insurance company or his agent and 
inquire as to every possible credit that they make available 
and the size and significance, and then get them to do a 
thorough inspection or he can hire a private inspector that 
will complete a form that will indicate as to what standards 
his house meets and I suspect that he may get some pretty good 
credits.
    Chairman Watt. Well, I think if nothing else comes out of 
this, I am going to get Mr. Jesse and Mr. Soto paired up today 
so he can, he can help you get your insurance rate down. It 
sounds like, I mean, if you are living in a fortress and 
everybody else around you is having his house blown away and 
yours is still standing there with a hundred and some dollars 
worth of damage, we want you rewarded for that, I think.
    And if you are not rewarded, then other people will see 
that you are not rewarded, and they won't have the incentive to 
follow your lead, to build those fortress kind of hardened 
homes that have been talked about.
    So I think I will go with that to the hometown guy, 
Representative Klein, thank him once again for hosting us, and 
yield him as much time as he may consume.
    Mr. Klein. Thank you, Mr. Chairman, and I share our 
hometown in our gerrymandered South Florida area and to having 
this hearing and appreciate your support.
    Chairman Watt. I support the notion of the tax. We don't 
use the term gerrymandering in North Carolina. I don't use it 
since it was my congressional district that went to the Supreme 
Court 3 or 4 times and got reformed 3 or 4 times in the last 
round of redistricting, so those beautiful, carefully 
constructed congressional districts, we love them.
    Mr. Klein. Look at the map of mine and get a beauty--
    Chairman Watt. Yes, it can't get be anymore beautiful than 
mine. I just--I didn't mean to get you off track, but I just 
always have to send up the red flag when somebody uses that 
term.
    Mr. Mahoney. Just to show you how bad it is here between 
where I parked across the street and coming in, I went through 
three congressional districts.
    Mr. Klein. I support incentives. And those incentives that 
are actually in the bill, H.R. 3355, are a few type.
    Number one; I think that we have and consider legislation 
and we may want to continue to push on this to encourage tax 
incentives, whether they be credits, deductions, something to 
encourage fortifying of homes. And obviously it is not just 
hurricanes. It is earthquakes. There is lots of different 
engineering, I am not an expert and we rely on the building 
experts to tell us.
    Florida really has moved farther than other States because 
of Hurricane Andrew and I know that in the legislature, we 
passed these a number of years ago, but on a nationwide basis, 
the more we can do to incentivize people to better protect 
their homes, it is good for them, in terms of their own 
deductible, if they don't have the damage in the first place, 
they don't have that huge deductible, they don't create the 
exposure of the insurance industry or to the State risk 
catastrophe pool or anything else. So a good thing.
    Secondly, and your point about it being somewhat disparate 
and different insurance companies, our experience in Florida is 
the same, in that some insurance companies offer $25 credit 
which is worthless.
    You know, this is a big investment. When you start putting 
in the type of glass or the types of, you know, fortifying the 
roof trusses or doing the shutters, in many homes it is tens of 
thousands of dollars before you turn around. And you have to be 
able to have that cash available to you or be prepared to make 
that investment and in order to do that, for many people, it is 
a question of how quickly can I recover that or what 
incentives. If my insurance policy is going down $1,500, and 
this whole thing is going to cost me $10,000, well maybe that 
is something I can justify over some time.
    But again, I think that the experience we have had is it 
hasn't been enough to create that and we all agree from a 
public policy point of view, it is the right thing to do so I 
want to encourage us all to continue to talk about that and put 
that forward as an idea, I think it is justified.
    Plus, on the Federal level, in terms of the Federal 
bailouts, once again, if we can reduce that national exposure, 
less damage, less exposure and less bailout of the treasury.
    The only other thing I would like to add and it is along 
the same lines that I asked the Commissioner, and if I could 
ask the two gentlemen also, as you are working with your 
colleagues around the United States and if you wouldn't mind 
continuing to pursue those conversations with the U.S. 
Senators, and as you get information back to feed that to 
Senator Nelson or Martinez, us, as to how we can best educate, 
because this is still an education process of which the 
chairman has come down to help us continue this education 
process within the House, but in the Senate we need to continue 
to do that.
    We can be successful with this because we have a very 
logical commonsense approach, but there are still a lot of 
people who are operating with the information that is not up-
to-date. So I would just ask then on behalf of us up here if 
you could reach out to your colleagues in other parts of the 
country and find friends and those are not friends or are not 
of understanding, give us that information so we can begin the 
process of meeting with their staff, meeting with them and 
making sure they understand why this is a valuable and 
appropriate approach to dealing with this.
    So, Mr. Chairman, from my point of my view, I appreciate 
again your ability to come down here and spend some time in 
this area recognizing this is a nationwide problem, then we had 
heard from Mr. Jesse, as representative of our whole community 
as a consumer and we are all consumers and we appreciate you 
expressing what has happened to you and because it is something 
that has happened to all us. My insurance was cancelled 
recently so we are all in the same plane here and appreciate 
your support and your interest.
    Chairman Watt. Any other comments from Mr. Wexler?
    Mr. Wexler. Just real quickly. A gentleman just walked in, 
Mr. Goldstein, who is a prominent professional in our real 
estate industry, but more importantly at his ripe old age, if 
my understanding is correct, he and his wife just had a baby 
boy 2 or 3 days ago, and I just wanted to congratulate him.
    Chairman Watt. He is probably glad to be out of the house 
today, instead of changing diapers.
    Final comments. First of all let me sure that I made a 
unanimous consent request to enter the full content of my 
opening statement in the record; we will do that without 
objection.
    I asked unanimous consent to submit for the record the full 
statement of Representative Ginny Brown-Waite, who was not able 
to be with us today, but sent a statement and we will make that 
a part of the record.
    Just a comment. I suspect those along in Florida most 
likely heard of the hurricane prone sections of North Carolina, 
Wilmington, Carolina Beach, the Outer Banks.
    I live in Charlotte, 3 hours probably from Wilmington, 
about the same amount from Carolina Beach. The Outer Banks is 
actually closer, much, much closer to Washington D.C., than it 
is to where I live in Charlotte.
    And I never thought that I would experience a hurricane, 
but in the middle of the night Hurricane Hugo came 3 hours 
inland to strike Charlotte some years ago. I heard on the 
television the warnings that it could occur, I went to bed on 
the highest level of my house which was the worst thing I could 
possibly do because I always thought that hurricanes were fed 
by the ocean and that it was impossible for a hurricane to come 
that far inland, and I woke up the next morning and saw just an 
absolutely devastated city around me.
    I make that point, because I think there is nothing better 
than personal experiences, the personal experiences that we 
bring to our positions as Members of Congress, the personal 
experiences that the two insurance representatives and real 
estate representatives, the personal experiences of Mr. Jesse, 
and the personal experiences that the Members of Congress bring 
to their jobs to understand the ins and outs of the problem and 
the potential range of solutions that exist to those problems.
    You have sent us three wonderful Representatives who are 
here with us today--and I don't mean to suggest that the 
Representatives who are not here are not wonderful 
Representatives--who have a wealth of personal experience in 
this area. And they have immediately rolled up their sleeves 
and set about solving and finding a solution to this problem, 
which is really what we owe to our constituents and to the 
citizens of this country.
    I am grateful to each of you being there today to enlighten 
us more because that is what these hearings are about. If we 
understand the problem, and we understand the potential range 
of solutions, then we are more likely to find the right balance 
and the right solution, if we are going to find the solution at 
all.
    So, I thank you for being here. The Chair notes that some 
members may have additional questions for this panel and for 
the first panel which they may wish to submit in writing. 
Without objection, the hearing record will remain open for 30 
days for members to submit written questions to these witnesses 
and to place their responses in the record. We would also 
welcome a statement from the gentleman who wished to say 
something nice about his Representative, if he wanted to submit 
something for the record.
    Mr. Oser. (Inaudible)
    Chairman Watt. I am sure they will. I have some 
constituents who are kind of like you in my congressional 
district.
    Mr. Wexler. No, you don't.
    Chairman Watt. I don't. All right. With that having been 
said, all hearts and minds are gathered to a solution for this 
problem and this hearing is adjourned.
    Thank you so much for entertaining us here.
    [Whereupon, at 4:01 p.m., the hearing was adjourned.]























































                            A P P E N D I X



                           February 11, 2008

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