[Senate Hearing 110-932]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-932
 
         AN EXAMINATION OF THE NATIONAL FLOOD INSURANCE PROGRAM 

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

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                                   ON

                  THE NATIONAL FLOOD INSURANCE PROGRAM


                               __________

                        TUESDAY, OCTOBER 2, 2007

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


      Available at: http: //www.access.gpo.gov /congress /senate /
                            senate05sh.html

                               ----------
                         U.S. GOVERNMENT PRINTING OFFICE 

50-358 PDF                       WASHINGTON : 2009 

For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
Washington, DC 20402-0001 





















            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

               CHRISTOPHER J. DODD, Connecticut, Chairman
TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         WAYNE ALLARD, Colorado
EVAN BAYH, Indiana                   MICHAEL B. ENZI, Wyoming
THOMAS R. CARPER, Delaware           CHUCK HAGEL, Nebraska
ROBERT MENENDEZ, New Jersey          JIM BUNNING, Kentucky
DANIEL K. AKAKA, Hawaii              MIKE CRAPO, Idaho
SHERROD BROWN, Ohio                  JOHN E. SUNUNU, New Hampshire
ROBERT P. CASEY, Pennsylvania        ELIZABETH DOLE, North Carolina
JON TESTER, Montana                  MEL MARTINEZ, Florida

                      Shawn Maher, Staff Director
        William D. Duhnke, Republican Staff Director and Counsel
                    Jennifer Fogel-Bublick, Counsel
   Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
                          Jim Crowell, Editor

























                            C O N T E N T S

                              ----------                              

                        TUESDAY, OCTOBER 2, 2007

                                                                   Page

Opening statement of Senator Carper..............................     1

Opening statements, comments, or prepared statements of:
    Senator Brown................................................     2
    Senator Shelby...............................................     3
    Senator Reed.................................................     5
    Senator Dole.................................................     5
    Senator Casey................................................     7
    Senator Allard...............................................     8
    Senator Schumer..............................................     9
    Senator Bunning..............................................    11
    Senator Martinez.............................................    11
    Senator Menendez.............................................    23
        Prepared statement.......................................    46

                               WITNESSES

David I. Maurstad, Assistant Administrator for Mitigation and 
  Federal Insurance Administrator, Federal Emergency Management 
  Agency, Department of Homeland Security........................    13
    Prepared statement...........................................    47
Orice Williams, Director of Financial Markets and Community 
  Development, Government Accountability Office..................    15
    Prepared statement...........................................    54
    Response to written questions of:
        Senator Reed.............................................   150
Chad Berginnis, State Hazard Mitigation Officer, Ohio Emergency 
  Management Agency, on behalf of the Association of State 
  Floodplain Managers, Inc.......................................    30
    Prepared statement...........................................    83
Donald L. Griffin, Vice President, Personal Lines, Property 
  Casualty Insurers Association of America.......................    32
    Prepared statement...........................................   106
    Response to written questions of:
        Senator Reed.............................................   151
Gerald E. Galloway, Ph.D., Professor of Engineering, University 
  of Maryland....................................................    34
    Prepared statement...........................................   112
J. Robert Hunter, Director of Insurance, Consumer Federation of 
  America........................................................    36
    Prepared statement...........................................   121
Mark Davey, President and Chief Executive Officer, Fidelity 
  National Insurance Company.....................................    37
    Prepared statement...........................................   135
Vince Malta, National Association of REALTORS...................    39
    Prepared statement...........................................   138

              Additional Material Submitted for the Record

Letter from Enterprise Community Partners, Inc...................   153


         AN EXAMINATION OF THE NATIONAL FLOOD INSURANCE PROGRAM

                              ----------                              


                        TUESDAY, OCTOBER 2, 2007

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:33 a.m., in room SD-538, Dirksen 
Senate Office Building, Senator Thomas R. Carper, presiding.

         OPENING STATEMENT OF SENATOR THOMAS R. CARPER

    Senator Carper. The hearing will come to order. Good 
morning.
    Today's hearing is on the National Flood Insurance Program. 
Senators will have 5 minutes for opening statements. I will 
then recognize Mr. Maurstad and Ms. Williams to offer their 
testimony to our Committee. Following Mr. Maurstad's and Ms. 
Williams' testimony, we will have two rounds of questions, then 
ask our second panel to come forward. Then we will break for 
dinner.
    [Laughter.]
    Actually, we are working on the defense appropriations 
bill, and I am not sure when we are going to have votes, but I 
am sure we will have some.
    The National Flood Insurance Program was established in 
1968 as a three-pronged program: insurance, mapping, and smart 
land use. The NFIP today provides insurance coverage to over 5 
million property owners around the country.
    Prior to Hurricane Katrina, the NFIP was a self-supporting 
program. The 2005 hurricane season, though, resulted in FEMA 
borrowing $20 billion from the Department of the Treasury. In 
1989, as Hurricane Hugo was bearing down on the East Coast, I 
was part of an effort over in the House of Representatives, I 
think with my colleague--maybe both of my colleagues on either 
the left or--when did you come to the Senate?
    Senator Shelby. 1986.
    Senator Carper. 1986. Well, you were already here. I think 
Senator Reed and I were over in the House, and we actually 
worked on legislation to reform the National Flood Insurance 
Program.
    At the time we were concerned about low participation rates 
in the Flood Insurance Program, and I had a proposal to 
increase participation by requiring mortgage lenders to escrow 
flood insurance payments, just like many do for homeowners' 
insurance.
    We were also concerned about the fact that a small 
percentage of properties had been responsible for more than a 
third of all claims, costing about $200 million annually. Our 
proposal included a call for floodproofing or removing those 
properties and reserved a small amount of funds collected from 
flood insurance premiums to pay for this.
    We also sought to limit new construction in coastal areas 
that were quickly eroding, and our proposal sought higher, more 
appropriate premiums for those who lived in vulnerable 
locations.
    In 1989, a bill to reform the Flood Insurance Program was 
passed, one not as far-reaching as our earlier proposal, but at 
least a step in the right direction. It was passed by both the 
House and the Senate before running into trouble in conference 
where, unfortunately, it died.
    Last year, this Committee passed a comprehensive flood 
insurance reform bill, and, unfortunately, that bill also 
died--not in conference but on the Senate floor. Today, 2 years 
after Hurricane Katrina, we find ourselves again looking at the 
National Flood Insurance Program. Our main concerns: the low 
subscription rate, the repetitive-loss properties, the low 
premiums that do not reflect the vulnerability of the 
properties being insured.
    This time, the tragedy of Katrina will stay with us for a 
long time because the rebuilding will take, as we know, many, 
many years, causing us in Congress to continue writing checks 
for many, many years.
    While this is not something that any of us want, perhaps it 
will help keep the pressure on us long enough to pass a bill, 
improving the Flood Insurance Program this time--and not just 
pass a bill, but get a bill to conference, and actually report 
a bill and send it to the President, a bill that will require 
us to better consider where we build and rebuild, how we build, 
and how we allocate risk.
    I want to thank Chairman Dodd and our Ranking Member, 
Senator Shelby, for their leadership on this issue. I also want 
to thank Jen Fogel-Bublick and Jim Johnson for their hard work 
as members of our staff on this initiative as well. I do not 
think Senator Bunning has joined us yet. I know he has spent a 
fair amount of time on this as well, and my hope is that we can 
somehow pull together and address this. The authorization for 
this program I think expires in about a year, maybe at the end 
of next September, and we have plenty of time to get to work 
and pass a good, strong bill to send to the President.
    There is an old adage that goes something like this: Work 
expands to fill the amount of time that we allocate to do a 
particular job. And so we have got about almost 11-12 months to 
do this job. I do not want us to use all of that. I would like 
for us to be able to report a bill out of here by the early 
part of maybe next year, but this hearing today is helpful in 
sort of setting the stage for some movement on that bill.
    Senator Shelby, thank you.
    Senator Shelby. Mr. Chairman, I know Senator Brown has got 
to go somewhere. I would be glad to swap places with him and 
yield to him now, and then take it back.
    Senator Carper. That is very gracious.
    Senator Shelby. Go ahead.

               STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you again, Mr. Chairman. Thank you, 
and also Senator Dodd, Senator Carper, and Senator Shelby. And 
thanks to the witnesses, especially Chad Berginnis, who is 
Ohio's State Hazard Mitigation Officer, and I appreciate the 
work that he does and that so many of you do.
    I apologize for having to cut my time here so short because 
it is a topic that is so important to all of us. I have to go 
to Arlington today with some World War II veterans. Many of you 
have been watching the Burns piece on television--more than a 
piece, the long, long, long series that is so extraordinary.
    Many people think of flooding as a coastal problem until it 
hits your area, as Ohio has experienced a good bit of flooding 
a year ago, and much, much more, especially in Findlay, 
Bucyrus, Shelby, sort of northwest/north-central Ohio, in the 
last couple of months. Nine counties were declared a disaster 
area by Governor Strickland. Some areas saw the worst flooding 
in a century. Findlay talked about the last flood they had of 
any size like this was in 1913, and it sort of begs the 
question of the whole National Flood Insurance Program. I, with 
the Governor, spent a day in Findlay back in August talking to 
people, you know, as they were sort of digging out. It was 2 
days after the floods had crested, and they were cleaning their 
shops, businesspeople, homeowners, all, and few knew much about 
flood insurance. You know, you would guess that 100 percent of 
those people had fire insurance. The numbers are something like 
10 percent have flood insurance. It is something we need to 
explain better; we need to sort of perhaps change our attitudes 
about it and educate people in areas that are prone to flooding 
better than we have. And it is a program that has worked when 
it is able to, and we ought to be able to make it work in more 
situations.
    Again, I appreciate what my predecessors have done on this 
issue and what we are going to be able to build on in the 
future. And I thank Senator Shelby for yielding.
    Senator Carper. All right. Senator Richard C. Shelby.

             STATEMENT OF SENATOR RICHARD C. SHELBY

    Senator Shelby. Thank you, Mr. Chairman.
    The National Flood Insurance Program, as you mentioned, is 
currently $20 billion in debt and lacks the resources to 
service that obligation. Unfortunately, the program's debt is 
only one of the many difficulties facing the future of the 
taxpayer-backed flood insurance.
    In recent years, there has been a population explosion, as 
you well know, in coastal areas all over this country. Millions 
of Americans now live and work in structures worth billions of 
dollars that are located in some of our Nation's riskiest 
areas. It is likely that this phenomenon will continue and the 
demand for Government-provided flood insurance will grow.
    In light of this growing migration to our coastal areas, 
our examination of the flood program needs to be prospective as 
well as retrospective. We already know that the program has 
failed to meet the demands of the past. We must now determine 
whether the program is properly designed to handle trillions 
rather than billions of dollars' worth of property loss.
    During the 109th Congress, this Committee held multiple 
hearings on the National Flood Insurance Program. After 
thorough examination, we unanimously--Democrats and Republicans 
unanimously--approved legislation intended to address many of 
the problems with the program. The bill eliminated subsidies on 
vacation homes, businesses, and severe repetitive-loss 
properties. It also established a process for the elimination 
of all subsidies in the future. The bill also addressed the 
insufficiencies in the existing maps by establishing stringent 
standards that the program must use to complete the 
modernization process, which is a must.
    The bill required State-chartered lending institutions to 
maintain flood insurance coverage for all mortgages located 
within the 100-year floodplain. The bill also enhanced the 
enforcement tools available to bank regulators at the Federal 
and State levels by requiring escrow of flood insurance 
premiums throughout the life of the mortgage and by increasing 
the civil penalties regulators may levy for failure to comply. 
Finally, the legislation created a mandatory reserve fund to 
pay future claims without additional contributions from the 
taxpayer. Unfortunately, as has been pointed out, the 109th 
Congress failed to take up this legislation before it 
adjourned.
    In the interim, a number of studies looking at difficult 
facets of the program have been initiated. Two have been 
completed. Recently, the GAO completed the first part of a two-
part examination of the public-private partnership between 
insurance companies and the Flood Insurance Program known as 
``Write Your Own.'' The GAO is still looking at what this 
program costs private insurers to administer on behalf of the 
Government because FEMA, surprisingly, was unable to do so.
    When this partnership was created, the program was supposed 
to reimburse expenses for the Write Your Own carriers. Profit 
was not supposed to be part of the agreement. Initial 
indications are that many companies are not only profiting from 
this arrangement; property and casualty companies have been 
created solely for the purpose of administering this program. 
In other words, it is their only business.
    Another study produced by the Congressional Budget Office, 
or CBO, examined the value of pre-FIRM subsidized properties 
within the program. The Congressional Budget Office determined 
that 40 percent--yes, 40 percent--of subsidized coastal 
properties in their study sample are worth more than $500,000 
and 12 percent are worth more than $1 million, at a time when 
this program is $20 billion in debt. These findings provided 
further validation of this Committee's previous approach on 
taxpayer-funded subsidies.
    The National Flood Insurance Program is now at a 
crossroads. The 2005 hurricane season was most certainly a 
jarring wake-up call, but we cannot be guided only by the 
lessons of a single hurricane season as we move forward. We 
know demographic trends have placed and are likely to place 
more strains on the fiscal resources of the program. As those 
demands become more considerable, I think it is incumbent upon 
us to better understand the costs and the risks attached to 
this program.
    Last Congress, as I said, this Committee unanimously agreed 
on a way forward. I believe we can do so again.
    Thank you, Mr. Chairman.
    Senator Carper. Thank you, Senator Shelby.
    Senator Reed.

                 STATEMENT OF SENATOR JACK REED

    Senator Reed. Well, thank you very much, Mr. Chairman, and 
thank you and Senator Shelby for holding this hearing. I want 
to welcome the witnesses. I particularly want to welcome Dr. 
Galloway, who I appreciate not only for his service as an 
engineer but as a general officer in the United States Army, 38 
years' service, including service as Dean of the Academic Board 
at West Point. Thank you, Doctor General, for your work.
    Today, more than half the United States population lives in 
coastal counties, and that number will continue to grow in the 
future. Development is changing coastal ecosystems, and global 
warming will produce more intense storms and sea level 
increases. These events will place communities at greater risk, 
and reforms to the Flood Insurance Program are absolutely 
necessary.
    I believe that reforms must balance making the program 
actuarially sound with ensuring that working American families 
living in flood hazard areas have access to affordable flood 
insurance and take advantage of that insurance.
    Amid several concerns regarding the current National Flood 
Insurance Program, I will focus my comments very briefly on the 
issue of FEMA's flood insurance rate maps, known as FIRMs. 
Floods are the most common and destructive natural disasters in 
the United States. Accurate flood maps should be the foundation 
of the NFIP. Flood insurance can mean the difference between a 
family having $250,000 to rebuild after a flood or literally 
being wiped out.
    As such, I have focused my attention in this legislation on 
the National Flood Insurance Program mapping program. I 
introduced the National Flood Mapping Act of 2005 during the 
last Congress, and I am pleased to see it included by the 
Committee in the NFIP legislation. I will continue to urge that 
this legislation be adopted.
    There is one particular issue I want to address now and I 
look forward to the witnesses' comments on, and that is, my 
bill will require mapping of the 100-year floodplain plan along 
with the 500-year floodplain plan and areas of residual risk. 
Some have suggested that mapping the 500-year floodplain as 
part of FEMA's Map Modernization Program could lead to delays 
in updating the 100-year floodplain plan. I do not believe 
that. FEMA already includes a 500-year floodplain on its maps. 
Collecting this data and adding this information is absolutely 
the right approach and imperative to the public's right to know 
about their flood risk, and we should not fragment these 
efforts.
    I am, again, very pleased that the Committee is taking up 
this issue, and I look forward to the testimony of the 
witnesses.
    Thank you very much, Mr. Chairman.
    Senator Carper. Thank you, Senator Reed.
    And next let us turn to Senator Dole. You are next.

              STATEMENT OF SENATOR ELIZABETH DOLE

    Senator Dole. Thank you, Mr. Chairman and Ranking Member 
Shelby. I appreciate your holding this hearing on the National 
Flood Insurance Program, which covers approximately 132,000 
homes in North Carolina. Many people who live in these homes 
have felt the impact of flooding in the wake of hurricanes like 
Isabel, Frances, Floyd, and Ivan.
    Researchers from NOAA forecasted a very active 2007 
hurricane season. They forecasted 13 to 15 named Atlantic 
tropical storms, with as many as 9 expected to reach hurricane 
strength and 3 to 5 growing into very dangerous hurricanes with 
winds of at least 111 miles per hour. NOAA states, and I quote, 
that ``Historically similar conditions have typically produced 
two to four hurricane strikes in the continental United States 
and two to three hurricanes in the region around the Caribbean 
Sea.''
    Of course, it is not possible to estimate the number of 
landfalling hurricanes. The bottom line is that we must be 
prepared. Government at every level must stand ready to provide 
assistance.
    We have been very fortunate that major hurricanes have not 
hit the United States during the past 2 years, but we cannot 
and should not wait for another major catastrophe before we 
reform the National Flood Insurance Program.
    Over the past 10 years, there have been many costly 
hurricanes that have weighed heavily on this program. In North 
Carolina, the program has been critical to our recovery from a 
number of major storms. In the fall of 1999, the eastern part 
of North Carolina was hit by Hurricanes Floyd and Irene. Floyd 
wreaked havoc, flooding many small communities. In Princeville, 
for example, the flooding completely swept away the town, 
leaving people to relocate or live in temporary housing until 
their homes could be rebuilt. To this day, in Greenville, North 
Carolina, you can still see the water lines on the buildings 
which mark the flood's highest point. The National Flood 
Insurance Program paid out over $460 million for Hurricane 
Floyd, with approximately $200 million of it going to North 
Carolina.
    In recent years, our State has also experienced devastating 
flooding in the mountains. With rains from Hurricane Ivan, 
mountain valleys began to fill, with normally small creeks and 
streams turning into raging rivers. In total, the Flood 
Insurance Program paid out more than $1.5 billion in claims for 
this storm, of which $10 million went to relief efforts in 
North Carolina.
    Though these and other storms have been quite costly for 
the Flood Insurance Program, no one could have foreseen the 
strains caused by Hurricanes Katrina and Rita. To date, FEMA 
has handled 241,000 claims and has paid out approximately $16.3 
billion stemming from the 2005 hurricane season. In March 2006, 
Congress raised the program's borrowing authority to almost $21 
billion. FEMA still anticipates paying approximately $21.9 
billion in claims, more than the program has paid out in total 
over its 30-year-plus history.
    In North Carolina, we recognize our vulnerability to 
flooding, and our State is proactively undertaking one of the 
most advanced mapping programs in the Nation to better identify 
areas of risk. With FEMA's support, our maps can provide local, 
State, and national officials with a clear picture of areas 
vulnerable to floods. In turn, communities can properly plan 
current and future development. While I had some concerns about 
last year's Flood Insurance Reform and Modernization Act, I 
fear that inaction could result in a far worse situation.
    Again, I want to thank you, Mr. Chairman, Senator Shelby, 
for devoting time to this very important program, and I look 
forward to hearing from our witnesses.
    Senator Carper. Thank you, Senator Dole.
    Next if we could hear from Senator Casey, please, and he 
will be followed by Senator Allard.

              STATEMENT OF SENATOR ROBERT P. CASEY

    Senator Casey. Mr. Chairman, thank you very much, and 
Ranking Member Shelby and our guests, the panelists who will be 
here today.
    I wanted to first of all give you a sense of the State I am 
from--Pennsylvania--where we have had more than our share of 
flooding, not just in the last couple of months and couple of 
years, but really for many, many generations, as far back as 
probably the most infamous and destructive inland flooding, 
which was in Johnstown, Pennsylvania, on Memorial Day of 1889. 
That community suffered several others many decades later, but 
there are other seemingly less dramatic examples of that. So we 
have suffered tremendous loss over many years.
    And I guess what we are trying to do with this legislation, 
any reform initiative, is to first of all be fair, to make 
sure, of course, that this program is actuarially or fiscally 
sound, and also to ensure that we are, as best we can, building 
in incentives for both existing homeowners and those who are 
seeking to develop in new areas of a particular community. And 
I think, of course, the mapping priority that is so prominent 
in this discussion is something we are very concerned about, 
getting the mapping right so we have accurate data.
    In our States, flood insurance policyholders receive the 
second highest total of claims--claims payments, I should say, 
in the United States after the 2004 hurricane season, and heavy 
summer rains and inland-moving tropical systems threaten 
homeowners throughout the State during the summer season 
virtually every year. In the past 10 years, Pennsylvania has 
experienced more than 15 flood-related federally declared 
disasters. In the period 2002 to 2006, insured flood losses 
totaled more than $337 million. That gives you a sense of the 
dimension.
    But I visited a community in Allegheny County in the 
southwestern corner of our State, just outside of Pittsburgh, 
this summer--a community by the name of Millvale--that did not 
suffer enough losses to rise to the level of being awarded 
Federal help. But even in that instance, where, when you 
compare it to other examples, it may not seem as dramatic or as 
devastating, for that community there is a sense of 
hopelessness, a sense of helplessness, that sometimes 
Government itself cannot even respond to appropriately. And 
that is not necessarily the fault of the Federal Government all 
the time. It is not necessarily the fault of our laws. But we 
have got to make sure that as we reform this legislation and as 
we inform ourselves about the best way to do that, we remember 
the human trauma that these incidents cause in the lives of so 
many families. And I just want to make sure that we are 
cognizant of that as we are listening to the testimony.
    We appreciate the expertise that is brought to bear on this 
hearing from our panelists, and I appreciate the opportunity to 
spend some time here this morning in this hearing. Thank you.
    Senator Carper. Senator Casey, thank you very much.
    Senator Allard, you are recognized.

               STATEMENT OF SENATOR WAYNE ALLARD

    Senator Allard. Thank you, Mr. Chairman. I would like to 
also thank you for holding this hearing, as well as Ranking 
Member Shelby.
    Contrary to what many might think, flood insurance is an 
important program for my constituents in Colorado, too. It is 
not just for citizens of coastal areas. Our topography often 
acts as a funnel for rain or runoff, resulting in flooding even 
with smaller amounts of water. In such instances, the National 
Flood Insurance Program can be an important Government tool to 
help prevent or minimize flood damage and facilitate recovery 
efforts when damage does occur.
    In 2004, this Committee produced a series of important 
reforms designed to make the National Flood Insurance Program 
more effective. I was pleased to support the legislation. 
Following the 2005 hurricane season, though, it became clearer 
that the National Flood Insurance Program was in need of much 
more fundamental reform.
    I believe that the bill reported by this Committee last 
year was a good step in addressing that need, and I was 
disappointed that we were unable to enact the reforms. Without 
them, we are left with a program that is both broke and broken.
    I am hopeful that we can move in an expeditious manner this 
fall. Not only do we have a legal obligation to pay the claims 
of those who purchased flood insurance policies, but we also 
have an ethical obligation to the people who are responsible 
enough to buy appropriate insurance. We must ensure that flood 
insurance continues to be available for those who need it, as 
well as we must do everything we can to protect taxpayer 
dollars.
    On this point I remain deeply concerned over the effect of 
the ongoing subsidies for certain properties. We must move more 
strongly toward an actuarially sound Flood Insurance Program. I 
also remain deeply concerned with the state of the floodplain 
maps. An effective Flood Insurance Program is predicated upon 
accurate, current floodplain maps. Local community mitigation 
and prevention efforts are only as good as the maps on which 
they rely. I am interested in finding ways to utilize 
technologies such as satellite and high-altitude mapping 
capabilities to improve the current mapping system.
    Millions of people have taken steps to protect their home 
and family by purchasing a flood insurance policy. But we must 
be careful that as part of our reform efforts or more general 
disaster assistance not to create a moral hazard. In fact, we 
need to find ways to improve the flood insurance participation 
rates.
    I look forward to working with my colleagues to find the 
necessary reforms to ensure the long-term solvency of the 
National Flood Insurance Program. I thank the witnesses for 
appearing here today to share their views.
    Thank you, Mr. Chairman.
    Senator Carper. Thank you, sir.
    Senator Schumer, just in time.

            STATEMENT OF SENATOR CHARLES E. SCHUMER

    Senator Schumer. I will not sing that famous song, because 
it will ruin it.
    Anyway, I want to thank you, Chairman Carper, for chairing 
this hearing today. I want to thank Chairman Dodd and Ranking 
Member Shelby as well.
    Recent events have shown our current system of insurance 
for coastal flooding needs serious examination. The program has 
had some recent problems, we all know, but it still can be 
considered a qualified success. And that being said, there are 
certain areas where the Flood Insurance Program can and should 
be improved. One of these areas is how FEMA determines high 
flood risk areas, known as 100-year floodplains because their 
risk of flooding is more frequent than once every 100 years.
    Under the National Flood Insurance Program, every mortgage 
made by a federally backed or insured lender in a 100-year 
floodplain must have flood insurance, and this policymakes a 
great deal of sense for those areas with high risk of flooding.
    But while the policy makes sense, the execution is sorely 
lacking. We have had a particular problem up in the Buffalo 
area. FEMA has continually classified certain areas of Buffalo 
100-year floodplains, despite the fact that there has never 
been a single flood claim in these areas in the history of the 
National Flood Insurance Program, despite the fact that Buffalo 
has recently invested heavily in flood mitigation 
infrastructure. It results in unnecessary insurance costs for 
residents of those areas.
    On August 24th, I sent a letter to FEMA asking them to send 
a representative to personally examine the flood prevention 
measures adopted by Buffalo and determine if the 100-year plain 
designation was still appropriate. And I would say this to you, 
Mr. Maurstad--I know we do not have questions yet, but despite 
my request, FEMA has yet to send anyone to Buffalo. And I hope 
that you will. You need to recognize the potential flaws in the 
flood mapping methodology and refrain from issuing any new 
flood map until it has first sent a representative to Buffalo 
to see firsthand the city's flood prevention improvements.
    It is sort of ironic here. In certain places, we are saying 
FEMA does not do enough and flood insurance does not do enough, 
and yet they are requiring flood insurance in all kinds of 
areas that do not need it. So we ought to sort of get our house 
in order.
    Another aspect of the National Flood Insurance Program that 
merits close examination is whether it truly provides enough 
coverage against real flooding. In New York, in the aftermath 
of Katrina, many insurance companies stopped writing new 
homeowner insurance policies and canceled existing policies, 
particularly for the coastal areas of Long Island. This 
occurred in spite of the fact that downstate New York has not 
experienced a major hurricane since Hurricane Gloria in 1985, 
and that was a Category 1 storm--not a 5 or a 3 but a 1.
    Insurance companies, which have historically profited 
immensely from insuring downstate New York, now appear to be 
reconsidering whether they should continue to insure areas that 
are even at slight risk of hurricanes. I point this out not to 
blame the insurance companies--although, in my opinion, the 
insurance companies that have fled Long Island do deserve a 
great deal of blame--but to highlight the fact that there may 
be larger issues with the National Flood Insurance Program that 
need to be addressed.
    The insurance industry wants to cash out its chips on Long 
Island, but homeowners cannot afford this kind of gamble. Why 
are insurance companies leaving Long Island because of 
hurricane risks even though flood damages are already insured 
by the Federal Government? One answer may be that the maximum 
amounts covered by the National Flood Insurance Program are 
simply too low for areas with higher construction and 
rebuilding costs, and clearly, Long Island, where the average 
house--average small house--sells for $450,000.
    Currently, the maximum amount on a home structure by the 
NFIP is $250,000, and that is not high enough. That is one 
reason the House bill raised the amount to $335,000, and, in 
fact, the number may be not--that number is not good enough, as 
I mentioned, for large parts of Long Island.
    So the point is we have a flat national amount. You know, 
maybe in Mississippi where construction costs and housing costs 
are much lower it makes sense, but it does not make sense in 
New York. And it is unfair to say to a person in New York who 
has an average house, you do not get flood insurance, but to 
say to a person in another State, even if you are at 80 percent 
of the percentile in terms of cost of your house you do. So 
maybe we should look at higher-cost areas to do it.
    Now, another reason insurance companies may be leaving Long 
Island is that even though the Flood Insurance Program is 
covered by the Federal Government, private insurers are 
increasingly unwilling to cover the risk of wind damage. As we 
all know, hurricanes cause both flood- and wind-related damage. 
Since the creation of the Flood Insurance Program, the Federal 
Government has covered flooding; private insurance has covered 
wind. Perhaps the private insurance industry has lost its 
appetite to insure against wind damage. If that is the case, 
should the Federal Government step in to insure those 
homeowners who would otherwise be without insurance, provided 
this insurance is done in an actuarially safe and sound manner? 
The House of Representatives seemed to think so. They put it in 
their bill. I believe we should do the same in the Senate and 
will work toward that.
    The private insurance industry says, no, no, no, let us 
cover wind, and then they leave areas like Long Island. 
Gentlemen, ladies, you cannot have it both ways. You want to 
exempt yourself from large parts of America, and certainly of 
New York? Then do not lobby against the Federal Government 
coming in and doing it.
    So I look forward to hearing from representatives of the 
insurance industry. I would like to hear their perspectives on 
why the insurance industry has pulled out of Long Island and 
what they think can be done for residents in those areas. I 
appreciate the time, Mr. Chairman and having this timely 
hearing.
    Senator Carper. Thank you very much.
    Our next Senator who is going to be recognized is Senator 
Bunning, who has done a lot of work, and we thank you very much 
not only just for doing it, but for your leadership for the 
last several years on this.

                STATEMENT OF SENATOR JIM BUNNING

    Senator Bunning. Thank you, Mr. Chairman. Thank you, 
Senator Shelby, also. I am glad we are finally holding a 
hearing on the National Flood Insurance Program, which expires 
next year. I hope we can soon pass a reform bill that builds on 
the significant reforms enacted in the 2004 reauthorization 
written by my Subcommittee.
    Last year, this Committee passed a good reform bill that 
would have made the program more financially sound and provided 
better protection to the taxpayers. Even though it did not go 
as far as I would like, the bill would make a good starting 
point for the new reauthorization.
    As we saw in 2005, the current program is a financial 
disaster waiting to happen. The storms of 2005 exposed all the 
flaws in the program and have cost the taxpayers more than $20 
billion. Without any reforms, the same thing will happen again.
    The current program is not financially sound and encourages 
property owners to take risks that put them in harm's way. Even 
worse, many of the subsidized policyholders do not even need 
the help since they are already wealthy or taking insurance on 
their vacation homes. The taxpayers should not have to bear 
that burden.
    I have made no secret about my lack of faith in the 
management of this program. It took over 2 years from when the 
2004 reforms were signed into law for FEMA to create the 
appeals process required by the law. So I am not surprised by 
the recent GAO report that found that FEMA in some cases has 
been paying the insurance companies and agents that sell flood 
insurance policies almost two-thirds of the premium in 
administrative cost. Those numbers are unacceptable, and we 
need to address that as well.
    I am looking forward to hearing from our witnesses. Thank 
you again, Mr. Chairman.
    Senator Carper. You bet. Thank you, Mr. Bunning.
    I think, Senator Martinez, you are the last man standing. 
You have got a lot at stake given the nature of the State that 
you represent and given the job that you held before as HUD 
Secretary. I know you have thought a lot about this, and we 
look forward to your comments.

               STATEMENT OF SENATOR MEL MARTINEZ

    Senator Martinez. Thank you, Mr. Chairman, Senator Shelby. 
I appreciate it very much. It is a program that has been 
helping American families since 1968, but we know the problems 
that were exposed in the program, particularly after Hurricanes 
Katrina, Rita, and Wilma, which did show some serious flaws in 
the program.
    The 2005 Gulf Coast hurricanes were catastrophic disasters 
that required over $110 billion in Federal disaster relief, 
including almost $22 billion in claims payouts under the 
National Flood Insurance Program. The program has had to borrow 
money extensively from the Treasury in order to pay claims and 
expenses, and Congress has had every right to be concerned 
about the programmatic and financial challenges facing the 
National Flood Insurance Program.
    Last year, this Committee worked very hard to pass a flood 
insurance reform bill, as Senator Bunning just alluded to, and 
this bill would have made a number of positive changes in the 
program. Among those provisions, the legislation would have 
provided debt forgiveness, required mandatory coverage areas, 
and strengthened FEMA's mapping program.
    Although I remain concerned about eliminating subsidized 
premium rates for certain properties and raising the deductible 
level of claims, I nonetheless do support the overall effort to 
improve and strengthen the program so that it can continue to 
provide insurance coverage to millions of Americans in harm's 
way.
    I appreciate the witnesses' being here today and look 
forward to their testimony, and as you know, the House recently 
passed a flood insurance reform package that substantially 
differs from this Committee's legislation from last year. I am 
particularly interested in hearing from our witnesses about the 
importance of debt forgiveness as well as the ramifications of 
adding wind coverage to the program.
    The strengthened viability of the National Flood Insurance 
Program is incredibly important to my home State of Florida. 
There are over 2 million NFIP policies on homes in Florida, 
representing over 40 percent of the entire program. We cannot 
wait any longer to make serious reforms to this program. We 
have a responsibility to ensure that those who rely on flood 
insurance to live and work in their community will have the 
security they desperately need and rely on.
    Mr. Chairman, I thank you for calling this timely hearing, 
and I look forward to the testimony from our witnesses and 
continuing this very important conversation about the future of 
this program. Thank you very much.
    Senator Carper. Thank you, Secretary Martinez.
    Now, to our first panel, you have had the opportunity to 
hear from us. Now we will have the opportunity to hear from 
you, and we look forward to that. It is interesting. I have 
just a couple of observations. One, we had a pretty good 
turnout here today, and I was wondering how many--I thought it 
might just be Senator Shelby and me up here, maybe with Senator 
Bunning, but we have a pretty good turnout in terms of our 
Senators, and I think that bodes well. The only other hearing I 
ever chaired at the full Committee level was FHA, and it lasted 
about 10 minutes. It was one of those deals where somebody 
objected over on the Senate floor--not to my chairing, but to 
any committees meeting. So we had to leave after about 10 
minutes. Richard here made me leave. I was tempted to keep us 
here, but he said, ``No. You have got to go. You will go to 
jail if you keep it in session.''
    [Laughter.]
    Senator Shelby. I do not know if you would go to jail, but 
I just thought that was the Senate rules.
    Senator Carper. Playing by the rules.
    Anyway, among the words we hear most on the Senate floor 
and in committees is the word ``reform.'' If you think about 
it, we hear that. We also hear ``bipartisan.'' It is not always 
bipartisan, and a place that we talk a lot about reforms; 
sometimes we do not fully deliver. But we need to deliver on 
this one, and I am pleased to see the kind of turnout we have 
had here today, and the interest. And this is maybe an issue 
whose time has come once again.
    So, Mr. Maurstad, David Maurstad, I understand you are the 
Assistant Administrator for Mitigation and the Federal 
Insurance Administrator for FEMA, and we welcome you. I will 
probably recognize you first, unless you want to defer to Ms. 
Williams. Why don't you go first, Mr. Maurstad?
    And then Orice Williams, Director of Financial Markets and 
Community Development for GAO. We are delighted that you are 
here, and we welcome you both.
    Mr. Maurstad, why don't you lead us off, and then we will 
recognize Ms. Williams. And I would ask you to keep your 
comments to about 5 minutes, and we will enter your full 
statement into the record.

  STATEMENT OF DAVID I. MAURSTAD, ASSISTANT ADMINISTRATOR FOR 
    MITIGATION AND FEDERAL INSURANCE ADMINISTRATOR, FEDERAL 
  EMERGENCY MANAGEMENT AGENCY, DEPARTMENT OF HOMELAND SECURITY

    Mr. Maurstad. Thank you. Good morning, Senator Carper, 
Ranking Member Shelby, and Members of the Committee. I 
appreciate the opportunity to appear this morning to address 
the NFIP's financial status, how the 2004 Flood Insurance 
Reform Act has made the NFIP more effective, and opportunities 
to improve this program, and I am prepared to answer any 
questions on map modernization that you might have after the 
testimony.
    The NFIP makes affordable flood insurance available in 
communities that would adopt and enforce measures to reduce 
vulnerability to flooding. From 1968 through 2004, the NFIP 
paid out $15 billion to cover over 1.3 million claims. 
Hurricane Katrina alone resulted in claims totaling over $16.3 
billion, and we expect the 2005 flood insurance costs to 
approach $20 billion, including interest paid on borrowing from 
the Treasury--borrowing that enabled the NFIP, in partnership 
with our insurance company partners, to pay over 98 percent of 
the 2005 flood claims. That is more than 180,000 Gulf Coast 
residents helped on the road to recovery by the claim payments 
from their NFIP insurance policies.
    To date, the NFIP has borrowed $17.535 billion to pay for 
Katrina, Rita, and Wilma claims and the required interest--
interest that likely will exceed $800 million a year by 2009, 
when we expect to approach our congressionally approved $20.775 
billion borrowing limit.
    If future claims meet historical averages, the NFIP will 
need new loans every 6 months to cover semiannual interest 
payments, making it unlikely that the NFIP will ever be able to 
retire its debt.
    Financial matters aside, the program has performed well, 
particularly since the finalization of the 2004 Flood Insurance 
Reform Act. The NFIP Summary of Coverage and the Flood 
Insurance Claims Handbook have been important additions to the 
program, playing a major role in helping policyholders better 
understand their coverage and helping the NFIP close claims 
quickly and fairly. Supplemental and acknowledgment forms now 
accompany every new and renewed flood insurance policy, 
providing policyholders with easy-to-understand coverage 
explanations.
    In addition to better informing policyholders, the NFIP has 
greatly increased the number of agents who are trained to sell 
flood insurance. Since September of 2005, 42 States and the 
District of Columbia have made flood insurance training 
mandatory for agents selling NFIP coverage, and over 42,000 
agents have completed our basic agent tutorial, either online 
or in the classroom.
    Of course, education and training can only reduce, not 
eliminate, claim settlement disputes. That is why FEMA adopted 
the Flood Insurance Claims Appeals Rule, offering policyholders 
a clear avenue to appeal decisions of adjusters, agents, 
companies, and FEMA. This rule enhances the program's 
historically high success rate of resolving over 99 percent of 
its claims without litigation.
    Finally, the reform act helps FEMA address repetitive-loss 
properties. The Repetitive Flood Claims Program distributed a 
total of $19.8 million in fiscal years 2006 and 2007 to help 
communities remove more than 80 buildings from floodplains. We 
have also transferred $80 million from the National Flood 
Insurance Fund, ready to help States and communities mitigate 
severe repetitive-loss properties. And in fiscal year 2007, our 
Flood Mitigation Assistance Program committed $31 million to 
States for various floodplain management projects and plans.
    These programs, combined with flood insurance and other 
mitigation activities, are important elements of a systematic 
effort to eliminate the flood-rebuild-flood scenario that the 
Nation's flood-prone communities have become all too familiar 
with. And we must keep improving, which means strengthening the 
NFIP programmatically and operationally to protect the 
program's financial integrity, increase NFIP participation, 
improve citizens' understanding of flood risk, and reduce risk 
with proven mitigation practices. We should enhance these 
principles by eliminating discounts on pre-FIRM structures, 
increasing penalties for federally regulated lenders who do not 
comply with their mandatory purchase regulatory 
responsibilities, and providing more ICC coverage for 
policyholders to bring their structures up to flood-related 
building codes.
    Also, as recommended by a recent GAO report, the NFIP must 
have reasonable estimates of Write Your Own expenses and ensure 
their financial audits are performed on time, without 
exception. Finally, we are opposed to increasing the NFIP's 
scope of coverage. A costly multi-peril NFIP will not resolve 
the wind versus flood issue or reduce vulnerabilities in wind-
prone communities. My written testimony offers additional 
details and suggestions.
    Finally, we are concerned about more than financial 
matters. The NFIP is a leader in educating the Nation's 
homeowners about flood risk, but we cannot do it alone. Local 
government leaders must also inform citizens about their risks 
and make the difficult land-use planning and management 
decisions needed to build communities that are a safer place to 
live, work, and do business.
    I will be happy to answer any questions that the Committee 
might have. Thank you.
    Senator Carper. Good. Thank you, Mr. Maurstad.
    Ms. Williams, in recognizing you, let me just say from all 
of us our special thanks to GAO for the work that you have done 
in this area and for the product that you brought to us. 
Thanks. You are recognized.

STATEMENT OF ORICE WILLIAMS, DIRECTOR OF FINANCIAL MARKETS AND 
    COMMUNITY INVESTMENTS, GOVERNMENT ACCOUNTABILITY OFFICE

    Ms. Williams. Thank you. Senator Carper, Ranking Member 
Shelby, and Members of the Committee, I am pleased to be here 
today to discuss the challenges facing the National Flood 
Insurance Program. My comments are based on numerous reports 
and testimonies GAO has provided over the years as well as 
several ongoing engagements. I would like to briefly touch on 
four major challenges facing the NFIP and FEMA, which oversees 
the program.
    First, as you well know, one of the biggest challenges 
facing the NFIP is the actuarial soundness of the program. As 
of August 2007, FEMA owed over $17.5 billion to the U.S. 
Treasury, largely resulting from losses during the 2005 
hurricanes. This is significant because FEMA is unlikely to be 
able to repay this debt, primarily because many of the 
program's premium rates are set to cover losses in an average 
historical loss year, which, until 2005, did not include any 
catastrophic losses.
    Moreover, to balance the need to keep the costs of flood 
insurance affordable, Congress included premium subsidies for 
certain properties; that is, about one in four NFIP policies 
have premiums that represent 35 to 40 percent of the true risk 
premium. Also contributing to the NFIP's financial challenges 
are the more than 70,000 properties that suffer repetitive 
losses. While these properties represent about 1 percent of all 
NFIP-insured properties, they account for between 25 to 30 
percent of all NFIP flood claims.
    FEMA is also creating a new category of policyholders that 
pay premiums that may not reflect their current risk of 
flooding. Specifically, eligible properties that are remapped 
into higher-risk flood areas are able to pay a discounted rate 
that reflects their old risk level.
    Second, the NFIP also faces challenges expanding its 
policyholder base by ensuring compliance with mandatory 
purchase requirements and promoting voluntary purchase by 
property owners who live in areas that are at less risk.
    A recently commissioned FEMA study estimated that 75 to 80 
percent of homeowners most likely to be required to have flood 
insurance have it. At the same time, only half of those living 
in high-risk areas are estimated to have flood insurance. 
Moreover, the penetration rate nationwide was only 1 percent, 
yet every State in the Nation is susceptible to flooding.
    Since 2004, FEMA has implemented a mass media challenge 
called ``FloodSmart'' in an attempt to educate the public about 
the risks of flooding and to encourage the purchase of flood 
insurance. While numbers of policyholders have increased 
following Hurricane Katrina, it is unclear whether these 
policyholders will remain in the program as time goes on and 
memories of the 2005 hurricanes fade.
    The third challenge is map modernization. The impact of the 
2005 hurricanes highlighted the importance of having accurate, 
up-to-date flood maps that identify areas that are at greatest 
risk. While requirements for purchasing flood insurance apply 
only to certain properties in high-risk areas, according to 
FEMA, about half of all flood damage occurs outside high-risk 
areas. While FEMA has begun to take steps to adjust its map 
modernization efforts by changing its mapping standards and 
guidelines and adopting risk-based mapping priorities, managing 
this process and producing accurate digital flood maps is and 
will be an ongoing challenge.
    Finally, I would like to briefly touch on the challenges 
FEMA faces in overseeing the NFIP. This includes the need for 
effective oversight over the industry companies and thousands 
of insurance agents and claims adjusters that are primarily 
responsible for the day-to-day process of selling and servicing 
insurance policies.
    In closing, as we have said before, meeting the NFIP's 
current challenges will require sound data and analysis and the 
cooperation and participation of many stakeholders. We 
appreciate the difficulty of restoring the financial viability 
of this program while balancing complex public policy 
objectives that may be at odds.
    Senator Carper, Ranking Member Shelby, this concludes my 
oral statement, and I would be happy to answer any questions 
that you may have.
    Senator Carper. All right. Thank you. Thank you both. When 
you combine the time that each of you used up, it was exactly 
10 minutes. That was perfect.
    Let me start with Mr. Maurstad, and I am going to just try 
to recognize our members for 5 minutes, and we will go to a 
second round for those who have additional questions.
    Mr. Maurstad, you mentioned and Ms. Williams has mentioned 
and I think probably most of my colleagues have mentioned in 
their comments the issue of flood mapping. One aspect of flood 
insurance that is sometimes overlooked, though not in our 
testimony today, is flood mapping. Many of the witnesses here 
today that are going to follow the two of you today discuss 
flood mapping in their testimonies, and some at great length.
    Now, I want to better understand where FEMA is in terms of 
updating and maintaining maps. As I understand it, there are 
flood maps that are two decades old, in some cases, in many 
cases, clearly not providing meaningful risk assessments or 
information. And my first question would be: When does FEMA 
expect to be done with updating all flood maps? And do you have 
the resources that you need to update all maps?
    Mr. Maurstad. Well, Senator, you are absolutely right about 
your comments on the state of the flood maps prior to the map 
modernization process. We are now into that a number of years. 
We are looking at in the current phase of map modernization, 
the funding will end in 2008. The map production will conclude 
sometime during 2010, because it generally takes a couple of 
years for the mapping process--the development of the maps and 
then the appeal and adoption process at the local level.
    Senator Carper. Let me just interrupt. Does the mapping 
process work today differently than it used or do you have 
better technology and you are able to do a much better job?
    Mr. Maurstad. The process is the same. The length of time--
depending upon the type of study that is done will dictate how 
long that takes, how much data is available at the local level 
that can be shared with the program. But then when we turn 
those maps over, then it is up the community, and that can vary 
anywhere from 6 months to 2 years in the appeal and the 
adoption process at the local level. So that process is not 
really changed.
    Senator Carper. Our technology allows us to do a lot of 
things today far more quickly than they could in 1968. Mapping 
is not one of them?
    Mr. Maurstad. Development of the maps, certainly technology 
allows for better development of the maps. I am saying the 
total process, the public hearing process, the sharing with the 
community process, that takes the same amount of time.
    Senator Carper. Excuse me. Does technology allow us to 
develop maps at a more reasonable cost than was previously the 
case?
    Mr. Maurstad. I believe that there is cost savings 
associated with the current technology compared with the old 
paper maps. We are certainly able to do more, and those maps, 
more importantly, I think, in the future will be able to be 
maintained and updated at less cost than what the paper maps 
were able to do. So there certainly will be benefits associated 
with that.
    To get to the heart of your question, at the end of the 
process, this current phase, we expect to have 92 percent of 
the Nation's population with new digital maps covering about 65 
percent of the land area.
    Senator Carper. Just a related question in addition to 
updating maps. Maintenance is clearly needed. You have talked a 
little bit about that. But what are FEMA's plans to maintain 
maps? And what are your assessments for how much you will need 
annually to maintain flood maps on an ongoing basis?
    Mr. Maurstad. Well, we certainly have learned during this 
process, working with our State and local stakeholders, that 
there is a continued need for new engineering studies. The 
current phase, even though we made an adjustment to focus on 
risk in 2006, a mid-course adjustment, we have found that there 
are many communities around the country that need additional 
engineering studies to provide the best flood mapping 
information to them.
    Now, every community of the 20,000 probably would want to 
have that engineering study. I doubt that we will ever be able 
to afford to do that. But we will certainly be able to and need 
to continue to work toward developing the resources to be able 
to have engineering studies on all of the high-risk areas 
throughout the country.
    Senator Carper. Again, did you say--you may have said it 
and I missed it, but your best estimates for how much you will 
need annually to maintain flood maps on an ongoing basis?
    Mr. Maurstad. Well, we are working right now on our current 
budget proposals. Again, I think that certainly we are going to 
be looking at the funding beyond this phase, depending upon 
what is appropriated by Congress. About $56 million will be 
available from the ratepayers to continue the maintenance and 
some limited additional new maps. Beyond that, I think that it 
is fair to say that there are estimates--I think some of the 
folks that will testify after me have developed estimates on 
what they believe will be needed into the future. We are still 
working on developing that number.
    Senator Carper. All right. Thank you.
    Senator Shelby.
    Senator Shelby. Ms. Williams, GAO has reported that 
accurate, updated flood insurance maps are the foundation of 
the National Flood Insurance Program. Is that correct?
    Ms. Williams. Yes.
    Senator Shelby. Are you satisfied, from the standpoint 
representing the General Accounting Office, with FEMA's efforts 
to improve and update the flood maps? And if not, why not?
    Ms. Williams. I think our position, as I mentioned, map 
modernization is and is going to be an ongoing challenge. We 
did recognize--after our 2004 report, we laid out a number of 
recommendations about improving guidelines given that FEMA has 
to deal with communities with varying levels of resources and 
skills and abilities that they needed consistent guidelines to 
make sure the process was occurring consistently across the 
country. And we did recognize that FEMA did come up with 
guidelines. They made a mid-process adjustment, and they did 
improve some of those guidelines.
    In terms of where they are in the process, the latest 
information we obtained from FEMA was that 34 percent of the 
maps have been remapped, and this 34 percent includes effective 
maps as well as preliminary maps. So I think the 34----
    Senator Shelby. Are those 34 percent mainly located in the 
Gulf Coast area, or are they everywhere?
    Ms. Williams. Well, it varies. There's a definite 
concentration in North Carolina, for example, and then there 
have been remapping efforts--they do tend to focus on the 
coast, and then fewer on the West Coast, for example, so it is 
scattered along the East Coast.
    Senator Shelby. Is part of the problem in moving forward 
the bureaucracy, the local input and so forth? Does that slow 
it down?
    Ms. Williams. It is part of the challenge, and part of that 
has to do with the outreach effort that goes on as a community 
either, one, makes the decision that they want to be remapped 
and they have worked----
    Senator Shelby. Wait a minute. Excuse me.
    Ms. Williams. Yes.
    Senator Shelby. The local community will decide whether 
they want to be remapped?
    Ms. Williams. Well, it is my understanding in terms of 
priority that part of FEMA's process was that the communities 
that had taken the step to create, for example, the base map--
the communities are often responsible for coming up with the 
base map that FEMA will work with to put elevation over.
    Senator Shelby. Doesn't the Corps of Engineers and FEMA 
have a data base for all this, you know, for the 100-year 
floodplain that we talk about in most areas? Do they not?
    Mr. Maurstad. A couple of comments, if I could, Senator. 
First of all, there is new mapping going on in every State----
    Senator Shelby. We hope so.
    Mr. Maurstad [continuing]. All across the country. It is 
not just in the coastal areas. The focus has been within those 
States for them to identify the high-risk areas in the States.
    Yes, there is a base level of information that is used. 
That is what is being, in essence, converted from a paper 
environment to the digital environment. That is a starting 
point for the new digital maps.
    Senator Shelby. Ms. Williams, the General Accounting 
Office, it is my understanding, has determined that the 
National Flood Insurance Program has absolutely no basis for 
determining the cost for insurers to administer this program--
in other words, the program. Can you explain this finding to 
the Committee?
    Ms. Williams. Yes. On that particular issue, in September 
we issued a report that looked at the payments made to the 
Write Your Own companies, and what we found when we looked at 
the payments made, there really was not an ability for us to 
also look at the expenses that were incurred by the Write Your 
Own companies. And so not only could we not determine whether 
or not that amount was an appropriate amount, I think what was 
more alarming is that FEMA was unable to tell us that this was 
an appropriate amount based on a review that they had done.
    Senator Shelby. OK. Director Maurstad, are you concerned 
about conflicts that people have pointed out when a single 
insurance adjuster performs a claim analysis for both the wind- 
and flood-related damages? And what steps does the National 
Flood Insurance Program take to address such conflicts?
    Mr. Maurstad. First of all, I think there are always going 
to be conflicts in the adjustment process, and it is not 
solely----
    Senator Shelby. This is a big one.
    Mr. Maurstad. Yes. Not solely between----
    Senator Shelby. Is it water only and----
    Mr. Maurstad. The single adjuster. The single adjuster 
program is actually an outgrowth of a request at the State 
level for one adjuster program to coordinate payments made 
under the State wind pools along with the Federal flood 
program. The Write Your Own companies can also utilize that, 
according to the arrangement that we have with them. I believe 
we have got appropriate mechanisms in place to be able to make 
sure that the flood claim is paid fairly and accurately 
according to the provisions of the flood insurance policy.
    Senator Shelby. Ms. Williams, the GAO, in your statement 
you say you are currently looking into the conflicts of 
interest that can arise when an insurance company sells both 
property casualty and flood policies to a single homeowner. 
When will your analysis in that area be complete? And will you 
furnish that to the Committee?
    Ms. Williams. Absolutely. I would be glad to provide a 
copy, and the report should be issued in the next 2 months.
    Senator Shelby. Is that a concern for you at GAO?
    Ms. Williams. Well, it is an area that we do specifically 
deal with, the inherent conflict of interest that exists, and 
our bigger concern is making sure that there is an internal 
control process to manage for and mitigate that inherent 
conflict.
    Senator Shelby. Thank you.
    Thank you, Mr. Chairman.
    Senator Carper. You are welcome.
    Senator Reed, you are recognized. Next, we have been joined 
by Senator Menendez, and, Senator Menendez, once Senator Reed 
has asked his questions, Senator Bunning will be recognized, 
and then you are next. Thanks for coming.
    Senator Reed. Thank you, Mr. Chairman.
    Mr. Maurstad, I want to follow up on the Chairman's 
question about maintenance of these flood maps. We are spending 
a lot of money, some would argue not enough, but a lot of money 
to upgrade the maps. But is there a plan of proposed budgets to 
continue on a regular basis to maintain these maps? And I say 
that because I think the experience of all of us who live in a 
coastal State is that because of development, these areas are 
changing week by week. And without maintenance, we will find 
ourselves in a few years right back where we started from, 
where the maps are out of date. Could you comment on that?
    Mr. Maurstad. Yes, I agree with you 100 percent that we 
definitely have to make sure as a country that when we are 
continuing to move forward with the map modernization process 
that we maintain them far better than we did in the paper 
environment. One of the benefits of being in the digital world 
will be that will be easier to accomplish. Funding, of course, 
will be a concern.
    And so we need to look at that. We need to continue to work 
with providing incentive for State and local governments to 
partner with the program to make sure that the maps are updated 
and remain so. But we also need to recognize that over time we 
are going to have to do this throughout the country over a 
period of time. With the platform, local communities may be 
able to do some updating on their own, if they want to take 
that responsibility over. We will encourage that, to partner 
with them to do that. So that certainly is an area that needs 
to occur.
    Senator Reed. Is there a budget request now for 
maintenance?
    Mr. Maurstad. Well, we certainly are working on the budget 
request for the 2009 budget, but, regardless, the program has, 
as I indicated before, $55 million that it has been 
contributing to the mapping process in the past few years, and 
those funds will still be available from the policyholders. And 
then we will continue to work with the administration and with 
Congress on developing the next phase of map modernization.
    Senator Reed. Ms. Williams' testimony states that an 
estimated $1.2 billion in flood losses are avoided annually 
because communities have implemented the NFIP's floodplain 
management requirements. When did you last update these 
requirements to provide for these benefits?
    Mr. Maurstad. Well, essentially that is the requirement 
that communities adopt the flood maps, that they enforce the 
floodplain management ordinances that they pass at the local 
level, and it is associated with new construction, rebuilding, 
current construction at the base flood elevation or higher. And 
so we look at the calculation of that benefit on an annual 
basis. It clearly is and should rise. But the essential base of 
what the requirements are for the community are the same as 
what they have been.
    I do need to point out that, as you are well aware, there 
are about 1,700 communities that are a part of the Community 
Rating System that represent about two-thirds of the 
policyholders across the country that go beyond our Federal 
minimum requirements and do additional mitigation and other 
activities to make their communities less vulnerable to 
flooding.
    Senator Reed. That raises my next question; that is, in 
Rhode Island, our local authorities have taken, I think, some 
positive steps. Our Coastal Resources Management Council, for 
example, has begun to examine the ability of increasing 
setbacks because of the potential rise in sea levels. We are 
one of the few States that is looking at that. We have also 
classified our barrier beaches in the various categories and 
actually prevented new infrastructures on some of our barrier 
beaches. The feeling we have is that the community rating 
service is not giving adequate credit for that, that frankly 
the standards are so low--it is undifferentiated. There are 
some States that are doing a lot, some doing a little, but 
everybody gets treated the same. Can you comment on that?
    Mr. Maurstad. Yes, sir. There are 17 different categories 
where Community Rating System participants can gain credit 
toward the premiums paid by their policyholders. And if you are 
suggesting--and we will, we will go back and look at those 17 
criteria and see if they are weighted appropriately for the 
types of mitigation activities that you have mentioned. But 
communities accumulating points, and they start out at a CRS 
Community 10, can go all the way down to CRS Community Rating 
1--we have one of those in the country--and receive at 5-
percent increments of policy discounts.
    Now, there is another area that is in line with this in 
that the benefit goes to policyholders, and it has been raised 
to me before that--and we are looking at whether or not we 
should provide some type of an incentive or some type of a 
means for the community directly that takes these activities. 
And I think that is something that we need to further explore.
    Senator Reed. Thank you.
    Thank you, Mr. Chairman.
    Senator Carper. Thank you, Senator Reed.
    Senator Bunning.
    Senator Bunning. Thank you, Mr. Chairman.
    We have heard the GAO report released last month found that 
payments to the Write Your Own companies for servicing policies 
have ranged from one-third to two-thirds of premium income. 
What do you think is an appropriate number?
    Mr. Maurstad. Well, sir, I think that we need to look at 
that in the context of what we are compensating the Write Your 
Own companies for, and there are two main categories: One is 
for their operating expenses, including the compensation for 
their agents, which is in the range of 31 percent of their 
written premium. A second part is the--and that has actually 
gone down a couple of percentage points over the course of the 
last 10 years.
    The second and the factor that has influenced 2006 and is 
going to influence part of 2007 is what we reimburse the 
companies for handling claims for the losses that occur. That 
is a percentage basis also. So as the number of claims 
increase, as the volume of claims increases, the costs 
associated with handling that claim is going to increase also.
    And so I believe that it is appropriate to look at the 
operating expense portion of what we compensate and compare 
that to the premiums, develop the ratio of the premiums that 
are written, and then I think it is more appropriate to look at 
the volume of claims and the amount of claims that are paid 
with the costs associated with that and the ratio there. 
Clearly, after the catastrophic years that we had, that was a 
substantial amount.
    One of the lessons learned from Katrina is we need to 
gather information from the Write Your Own companies on their 
costs to adjust the claims, which we are in the process of 
doing, and also change the mechanism by which we reimburse the 
companies for claims. And we are in the process of doing that 
also. So we are going to make a correction in that area.
    Senator Bunning. This is another question for Mr. Maurstad. 
In your testimony, you said that the deadline for companies to 
submit audits for 2005 and 2006 was September 30th. Did all the 
Write Your Own companies get their audits in on time?
    Mr. Maurstad. I checked this morning, and they are in the 
process--we are in the process of determining if all of them--
and we are just a couple days beyond September 30. Every 
indication that I have received so far is that they are going 
to be in on time. But I do not have the specific number to 
share with you today. We can provide that to you.
    Senator Bunning. Does somebody else in your shop handle 
that?
    Mr. Maurstad. Yes, sir. Again, I asked the deputy----
    Senator Bunning. I would definitely like for you to give 
the Committee a written report on that.
    Mr. Maurstad. We will.
    Senator Bunning. No. 2, how much of the claims paid on 
residential property for 2005 hurricanes went to secondary 
homes or vacation homes?
    Mr. Maurstad. I am not sure. I do not have that number 
right in front of me. But I will provide that to you for the 
Committee also if you would allow that.
    Senator Bunning. When will the Severe Repetitive Loss Pilot 
Program rules be finalized?
    Mr. Maurstad. We are in the final stages of having those 
rules through the concurrence process. My hope is that in the 
very near future, we will have that ready to be published.
    Senator Bunning. And what are you doing to enforce 
mandatory purchase requirements?
    Mr. Maurstad. Well, the lenders are responsible for the 
mandatory purchase requirements. We continue to meet with them 
to make sure, if they have difficulties with that that the 
program can help with, that we understand what that is and try 
to assist. But the lenders are responsible for----
    Senator Bunning. What do you mean if you understand it? Is 
the language in our bill not clear to you?
    Mr. Maurstad. No. If they understand it. Sometimes the 
lenders bring concerns to us about the requirements.
    Senator Bunning. Well, if it is not clear, then I would 
suggest that you come to us and explain what is not clear in 
the law.
    Mr. Maurstad. When we meet with our Federal lending 
partners, I will suggest that to them.
    Senator Shelby. May I?
    Senator Bunning. Go right ahead, Senator.
    Senator Shelby. Is there a penalty in the law for the 
lenders not to comply, in other words, not to enforce what 
Senator Bunning is talking about?
    Mr. Maurstad. They clearly have to enforce, but the 
question----
    Senator Shelby. No, but what is the penalty if they do not 
enforce it? They either do or they do not, and it seems like 
they are lax there. Senator Bunning is onto, I think, a good 
point.
    Thank you for yielding, Senator.
    Senator Bunning. Sure. So you will let us know?
    Mr. Maurstad. Sir, it is not FEMA's responsibility to 
enforce the mandatory purchase requirements. It is the lenders' 
responsibility.
    Senator Bunning. Well, then we will ask them.
    Mr. Maurstad. Yes, sir.
    Senator Bunning. Thank you.
    Senator Carper. Senator Menendez.

              STATEMENT OF SENATOR ROBERT MENENDEZ

    Senator Menendez. Thank you, Mr. Chairman.
    Mr. Chairman, I would ask unanimous consent that my opening 
statement be placed in the record, along with----
    Senator Carper. Is there objection? Hearing none----
    Senator Menendez. Thank you, Mr. Chairman.
    Mr. Maurstad, I want to follow up on a question Senator 
Bunning asked you. Last year when you were before the 
Committee--I believe it was in January of last year--on the 
issue of the Severe Repetitive Loss Pilot Program, I asked you 
then when could we expect the rulemaking process to come to 
fruition, and you said by the end of 2006, the end of the 2006 
fiscal year. I just heard your answer to Senator Bunning, and 
so I want to ask you a series of questions.
    First of all, there was $40 million appropriated for fiscal 
year 2006. Is that correct?
    Mr. Maurstad. Yes, sir.
    Senator Menendez. And that funding, has that been obligated 
at all?
    Mr. Maurstad. That funding has been transferred from the 
National Flood Insurance Fund into the category that would be 
available for grants as soon as the program gets up and 
started. So the funding is there and available.
    Senator Menendez. Why is it that, 3 years after the law has 
been passed, a year after the target date for finalizing the 
rules, the program is still under development? What is the 
hold-up?
    Mr. Maurstad. We attempted to get the rule through the 
development process and through the concurrence process as 
quickly as we could, and there really is no excuse that I can 
offer that is going to satisfy the displeasure with it not 
being done to this point. All I can indicate to you is we 
continue to push very hard to----
    Senator Menendez. Is this a priority for FEMA?
    Mr. Maurstad. I believe it is.
    Senator Menendez. Boy, if it is a priority, we are in deep 
trouble if this is the way priorities move.
    Let me ask you this: The program is only authorized until 
2009, so if it is not starting until next year, what would that 
mean for the pilot?
    Mr. Maurstad. It means that the results of the pilot and 
the effectiveness of the pilot is going to occur beyond that, 
certainly not--unless the Severe Repetitive Loss Pilot is 
extended, certainly not before the conclusion of this first 
phase.
    Senator Menendez. Well, it seems to me we are going to have 
a very limited result of what the pilot would indicate to us as 
whether it is being successful or not. This is an area--I am 
particularly interested in this area because my home State of 
New Jersey, which has 127 miles of Atlantic coastline, was 
fifth largest last year alone in terms of claims against the 
National Flood Insurance Program, and has an elevated number of 
repetitive-loss claims. It is a real concern to us. This 
program is the one that we anticipate, for example, 
acquisition, structure demolition, structure relocation, with 
the property deed restricted for open spaces in perpetuity; 
where we look at elevation of structures, where we look at 
floodproofing of structures, where we look at minor physical, 
localized flood control projects, and a whole host of other 
things. We cannot get to that if we do not move.
    Ms. Williams, what is your assessment of why this program 
is stuck in the mud?
    Ms. Williams. Over the years, GAO has looked at the 
implementation of the 2004 act, and in terms of monitoring, 
getting the pilot up and running, it has been an issue we have 
continued to raise.
    As a concern in terms of a specific reason for it, I do not 
think I have today a specific reason for why, but we have 
raised this as a concern, and it is one of the challenges that 
we acknowledge.
    Senator Menendez. You have not studied why, in fact, it has 
not moved forward?
    Ms. Williams. Other than stating the fact that it has not 
been moving forward.
    Senator Menendez. You know, there are 8,100 properties, as 
I know it, that are categorized as severe repetitive loss. What 
is the impact of this in terms of the overall program if we do 
not get this program moving? Isn't there a cost factor for all 
the time we delay from making the changes that are envisioned 
in the pilot program that could look toward mitigation, that 
would have a savings impact upon the program?
    Ms. Williams. Yes. This is one of the issues that we have 
pointed out. and it is the fact that the repetitive-loss 
properties are a drain on the program. These 1 percent of 
properties account for 25 to 30 percent of the losses.
    Senator Menendez. So, Mr. Maurstad, when are we going to 
see this again?
    Mr. Maurstad. We are pushing to get it done as soon as 
possible. If I could add, though----
    Senator Menendez. I know, but in January of 2006, you told 
me at the end of the fiscal year 2006, so, you know, as soon as 
possible, that is a very open-ended proposition. Can you give 
me some sense of the timeframe? Can you give the Committee some 
sense of the timeframe?
    Mr. Maurstad. I can check with the leadership and try to 
provide you with a specific date.
    Senator Menendez. Would you give it to the Committee in 
writing.
    Mr. Maurstad. Yes, I will try to do that.
    Senator Menendez. Thank you, Mr. Chairman.
    Mr. Maurstad. Could I add, however, I want to make sure 
that the Committee understands that no repetitive-loss activity 
has not occurred. We continue to have the flood mitigation 
assistance funding available; the individual repetitive loss we 
got going, that $10 million; plus in the pre-disaster 
mitigation grant area, many of those applications deal with and 
focus on repetitive-loss properties. And certainly in the Post-
Disaster Hazard Mitigation Grant Program, there are funds that 
are allocated by the States that they set the priorities toward 
this issue.
    So I do not want to leave the impression that no activity 
is going on relative to trying to address the Repetitive Loss 
Pilot Program----
    Senator Menendez. But having said that, if that were 
sufficient, Congress would not have needed to have passed the 
pilot program.
    Mr. Maurstad. I understand.
    Senator Menendez. Thank you.
    Senator Carper. Mr. Maurstad, I think the history of the 
program since 1968 is that from time to time revenues that are 
collected, premiums collected, do not cover the cost of claims, 
and FEMA has had to borrow money from the Treasury to pay those 
off and eventually to recoup the money and pay off the loan to 
FEMA with interest.
    As you will recall, we increased here in Congress FEMA's 
borrowing authority to roughly $20 billion on the heels of the 
storms in 2005. I would just ask: Is FEMA in a position to 
repay this debt or begin repaying this debt with interest to 
the Treasury?
    Mr. Maurstad. As long as losses are at the historical 
average, the program will not have the ability to pay the 
losses, the expenses of the program, and the interest that is 
estimated to be $800 million a year. Right now, over the course 
of the next two fiscal year, again, based on the average 
historical loss level of about $1 billion, a little more than 
$1 billion, the current borrowing authority of $20.775 billion 
we anticipate would be exhausted by the end of 2009.
    Senator Carper. How is FEMA currently paying the debt, the 
interest on the debt?
    Mr. Maurstad. Well, we have been fortunate. We have 
borrowed some.
    Senator Carper. From?
    Mr. Maurstad. From the Treasury.
    Senator Carper. To repay the interest owed to----
    Mr. Maurstad. Yes. And we have also had in 2005 a less than 
average historical loss year.
    Senator Carper. 2005?
    Mr. Maurstad. 2006. Excuse me. In 2006, a less than average 
historical loss year, so we had cash-flow that was available 
there to contribute toward the claims of 2005 and the debt, and 
the same exists so far this year. We will have the final 
results in probably 60 days, but we are also looking at a lower 
than average historical loss year this year.
    Senator Carper. All right.
    Mr. Maurstad. So that has funds that are also made 
available to repay the interest.
    Senator Carper. Ms. Williams, you discuss in your testimony 
the problem of properties that are remapped to continue to pay 
rates based on their previous risk level. You indicated that 
these grandfathered rates can be permanent.
    Does FEMA have the ability to change this policy and charge 
rates that are more truly based on risk? Does FEMA have the 
ability to change this policy? And after you have answered, I 
will ask Mr. Maurstad to respond as well.
    Ms. Williams. I think in terms of legally, it is not clear 
to us that FEMA has the ability to do this.
    Senator Carper. All right. Mr. Maurstad.
    Mr. Maurstad. Well, I would say that historically this is 
in line with the discounts that are provided to pre-FIRM 
properties, those properties that were a part of the 1 percent 
annual chance area prior to a community adopting flood 
insurance rate maps. And so it is consistent with that 
principle of not adversely impacting property owners as a 
result of either the community adopting maps or new maps being 
adopted that changes the floodplain area.
    It is also done to make sure that folks maintain their 
flood insurance during that period of time so that it is in 
line with, again, the statutory charge of making sure that 
premiums are affordable.
    Senator Carper. Ms. Williams.
    Ms. Williams. We do not necessarily disagree with any of 
that, but we raise this issue to point out that it does have 
implications; that while properties that are remapped may have 
to face a higher insurance premium going forward, the fact that 
this particular discounted rate stays in force potentially 
forever has implications for the program, and those 
implications have to be considered because it can have an 
impact on the actuarial soundness of the program, and this is 
creating another category in addition to the one in five 
subsidized properties--well, the one in four subsidized 
properties that already exist.
    Senator Carper. Senator Shelby, did you want to jump in?
    Senator Shelby. I want to follow up on that.
    It is my understanding--and you correct me if I am wrong on 
this. In your written testimony--and you just alluded to it, I 
think--you suggested that the National Flood Insurance Program 
is creating a whole new class of subsidized properties you 
allowing those that are mapped in the newly created 100-year 
floodplain to obtain insurance less than actuarial rates. Do 
you believe that FEMA should just now be creating a whole new 
class of directly subsidized structures if, as I believe and 
most people believe, one, the Flood Insurance Program is broke, 
is taking on more, you know, it is taking on, no pun intended, 
a lot of water? And I do not see any other than really re-
engineering the whole program. And I am sure we will hear some 
of this in a few minutes in the second panel.
    Why would they want to take on a new class of directly 
subsidized structures?
    Ms. Williams. Well, it is kind of--I can't--well,----
    Senator Shelby. Do you see what I am getting at?
    Ms. Williams. I see what you are getting at, and part of it 
is it is the balancing act that I referred to in terms of you 
have a community, they are remapped; you have individuals in 
the community that may now end up in a 100-year floodplain, and 
they now have a high-risk designation and would have to pay a 
higher rate.
    So in order to keep people in the program, through the 
FloodSmart process this is being encouraged. People are being 
encouraged to buy flood insurance today, knowing that their 
community is being remapped, so they can lock in----
    Senator Shelby. Subsidized insurance, right. Subsidized.
    Ms. Williams. Well, my understanding is for the 
grandfathered property, the grandfathered rate would be the 
non-subsidized rate.
    Senator Shelby. Mr. Maurstad.
    Mr. Maurstad. Well, first of all, it is not a new class. 
This is something that was occurring in the paper environment 
also when communities were remapped. So it is not a new class. 
It is certainly, as we are mapping the entire Nation, more 
prevalent than what it was when we were not updating the old 
maps. But they were not a subsidized--they were not a 
discounted policy--they are not a discounted policy currently.
    So what I would like to suggest is if we could provide a 
written explanation of this process to you for your 
edification.
    Senator Shelby. Is the program broke?
    Mr. Maurstad. Well, you know, that is----
    Senator Shelby. By normal accounting standards, is it 
broke?
    Mr. Maurstad. The program has more objectives than just 
financial objectives. If you look at it from----
    Senator Shelby. I am talking about financially. 
Financially, is it broke?
    Mr. Maurstad. Financially, it is in debt, and it certainly 
does not have the ability to repay that----
    Senator Shelby. Is it insolvent, though? That is----
    Mr. Maurstad. Well, it is not insolvent any more than the 
Federal Government is insolvent. Because it is a Federal 
Government program that is backed by the Federal Government, 
and the whole rating scheme that was developed over the course 
since 1968 has been one that created the circumstance where a 
disastrous event would far exceed the program's ability to pay 
for it. It just took 38 years for that type of an event to 
occur. It could have happened in year two.
    Senator Shelby. Is the program unable to pay for itself 
because it was never actuarially sound?
    Mr. Maurstad. Certainly, it was designed at the beginning 
for discounts to be provided to pre-FIRM. That is a loss of 
around $700 million of foregone revenue every year. So the 
program by design was set up that way.
    Now, over the course of time, I think in rough terms in the 
last decade, the percentage of properties that are discounted 
has gone from 42 percent down to about 25 percent. The 25 
percent of the policies clearly are discounted, and that is why 
we support removing that discount for vacation homes and for 
business homes and phasing it out on residential homes.
    Senator Shelby. Thank you.
    Thank you, Mr. Chairman.
    Senator Carper. You bet.
    I am going to reclaim my time and just ask maybe one more 
question, and this is probably a question that I would ask of 
the second panel, too. So this will give them a chance to think 
about it.
    Ms. Williams, you start off your testimony saying, ``My 
testimony today will revisit and update the four major 
challenges facing the Flood Insurance Program.'' Then you are 
going to highlight what those are and then talk about them at 
some length. Sometimes around here when we are addressing a 
program that needs to be reformed or revised, we are given the 
admonition, ``Do no harm.'' So as we go forward on national 
flood insurance reform, we will certainly endeavor to do no 
harm.
    Give me your short list or to-do list of things that we 
should do, aside from doing no harm. Then I will ask Mr. 
Maurstad to respond to these as well. So, Mr. Maurstad, just 
listen up, please. Thank you.
    Ms. Williams.
    Ms. Williams. I think in terms of----
    Senator Carper. What is our to-do list?
    Ms. Williams. Since March 2006, GAO has named NFIP as one 
of our high-risk programs, so I think one of the first issues 
would be to deal with the financial solvency of the program and 
to determine how best to do that.
    Next would be to look at the reasons for that.
    Senator Carper. Does that involve forgiving the debt? Is 
that part of that?
    Ms. Williams. Well, I would think that would have to be 
part of the debate, given the debt that is owed, the inability 
of the program to be able to service the debt, while as long as 
we do not have major flood events, they may be able to pay the 
interest. If not, any major event would flow directly through 
to the Treasury, and it would require borrowing from the 
Treasury to deal with any future significant claims.
    Senator Carper. All right. Keep going.
    Ms. Williams. You know, to deal with that issue, and then 
to deal with the sub-issues under that, looking at the 
actuarial soundness of the program. That would involve looking 
at subsidized and non-subsidized rates in particular.
    One of the things we are looking that hopefully will help 
aid in evaluating this has to do with a review we currently 
have going on looking at how the actuarial rates are set 
specifically, whether or not all the zones are actually 
actuarially sound. So that is where I would start.
    Senator Carper. That is it?
    Ms. Williams. Yes.
    Senator Carper. Well, I want to ask you to think about this 
and respond to me for the record, if you will, in a more 
comprehensive way.
    Ms. Williams. Absolutely. All right.
    Senator Carper. That would be very helpful.
    Mr. Maurstad, if you will go back to the comments of Ms. 
Williams, and also just as somebody who has thought a lot about 
this program, given the responsibilities you hold, what should 
we do as we go forward?
    Mr. Maurstad. We need to increase the percentage of 
policyholders paying actuarially sound rates by phasing out the 
discounted premiums.
    Senator Carper. OK.
    Mr. Maurstad. We need to increase NFIP participation, 
incentives, improve program enforcement, have sound oversight. 
We need to work diligently and incorporate a greater 
participation by all of the actors involved in making sure that 
communities understand their risk, that property owners 
understand their risk, and they take appropriate action, so 
communication.
    And I think we need to continue to further reduce risk 
through mitigation practices. We need to focus on the 
repetitive-loss properties. We certainly need to continue sound 
progress in mapping and continue that into the future. And I 
think there needs to be a broader discussion of the impacts of 
areas that are protected by levees and dams and how that 
affects what people believe their risk is, how safe they are, 
and how the program reacts to that, both from a floodplain 
management perspective and proper insurance rating.
    Senator Carper. Good. Thanks. That is the kind of list we 
are looking for.
    Ms. Williams, if you would expand on your answer for the 
record, that would be appreciated.
    Ms. Williams. Yes.
    Senator Carper. Senator Shelby, any last word?
    Senator Shelby. No. I will wait for the next panel.
    Senator Carper. OK. We will probably have some additional 
questions for you, and we just ask that you respond to them 
promptly. We appreciate very much your being here today. Thank 
you.
    As the members of this panel take their seats, Mr. 
Berginnis, go ahead and pull up a chair. Your name is 
pronounced ``Berginnis.'' Is that correct?
    Mr. Berginnis. Yes, sir.
    Senator Carper. And are you from Ohio?
    Mr. Berginnis. Yes.
    Senator Carper. Where do you live?
    Mr. Berginnis. In Newark.
    Senator Carper. OK. I was back at Ohio State. I am a 
graduate of Ohio State. I was back there about 10 days ago and 
saw, among other things, my old Navy ROTC unit and my old 
fraternity house, and the first quarter of the Ohio State-
Northwestern football game where they scored 28 points. It was 
quite a beginning. I was there in 1968, the year that the 
National Flood Insurance Program began, the year that Ohio 
State did pretty well on the football field, as I recall. So 
you are going to lead off this panel, and you are the State 
Hazard Mitigation Officer of the Ohio Emergency Management 
Agency. You are going to be testifying here on behalf of the 
Association of State Floodplain Managers. Welcome. Thank you.
    Senator Shelby. Can I say something?
    Senator Carper. Sure. Go ahead, please.
    Senator Shelby. I was thinking of Ohio State. You know, we 
love their brand of football, great school and everything. But 
every now and then they run into the SEC teams from the South. 
But not every day. They are holding on, to say the least.
    Thank you, Mr. Chairman. I will pay for that.
    Senator Carper. All right.
    [Laughter.]
    Dr. Galloway, Dr. Gerald Galloway--well, let me go back to 
Mr. Griffin here. You are listed out of order in my--you are 
fine. You can sit right where you are, but I understand you are 
with the Property Casualty Insurance Association of America. Is 
that correct?
    Mr. Griffin. Yes, sir.
    Senator Carper. We are delighted that you are here. Thanks 
for joining us.
    Dr. Gerald Galloway, Professor of Engineering at the 
University of Maryland, a Terrapin.
    Mr. Galloway. Yes, sir.
    Senator Carper. Welcome aboard.
    We have J. Robert Hunter, Director of Insurance for the 
Consumer Federation of America. Thank you for joining us today.
    Vince Malta.
    Mr. Malta. Good afternoon.
    Senator Carper. I am going to go back to Mr. Davey, 
President and CEO of Fidelity National Insurance.
    And last, but not least, Vince Malta from the National 
Association of Realtors. Mr. Malta, welcome. We are glad you 
have come, and we are just going to recognize you to speak. My 
staff has given me a notice that says let's cut your testimony 
back to 4\1/2\ minutes, let's not take the full 5 minutes. We 
will probably close you off right around 5 minutes, and then we 
will go right to questions.
    Mr. Berginnis, welcome. O-H.
    Mr. Berginnis. I-O.
    Senator Carper. There we go.
    Mr. Berginnis. And, yes, the SEC has been giving us 
problems recently.

 STATEMENT OF CHAD BERGINNIS, STATE HAZARD MITIGATION OFFICER, 
OHIO EMERGENCY MANAGEMENT AGENCY, ON BEHALF OF THE ASSOCIATION 
               OF STATE FLOODPLAIN MANAGERS, INC.

    Mr. Berginnis. Good morning, Chairman Carper and Ranking 
Member Shelby and distinguished Members of the Committee. I am 
Chad Berginnis, Past Chairman and Mitigation Policy Coordinator 
for the Association of State Floodplain Managers, and also a 
day-to-day practitioner implementing these FEMA programs, the 
National Flood Insurance Program as well as the Hazard 
Mitigation Programs.
    Today the ASFPM is pleased to offer our thoughts on a 
program that has for nearly 40 years served the Nation quite 
well. The NFIP was and continues to be a unique program having 
three components--flood insurance, flood mapping, and flood 
mitigation--that meets simultaneous goals of risk reduction, 
easing the dependency on taxpayer-provided disaster relief 
funds, and distributing the responsibility for floodplain 
management to all levels of Government.
    While the Congress has held numerous hearings since Katrina 
exploring ways to improve the NFIP, we hope you give 
consideration to the following items:
    First, the program was praised by Members of Congress for 
quickly and efficiently handling claims, although recognizing 
the financial issues that we are dealing with. Large-scale 
recovery mapping efforts have resulted in updated information 
on flood risks, which is essential to recovering in a way that 
is more resistant to destruction next time a hurricane would 
occur, and flood mitigation elements of the NFIP such as 
construction codes and increased cost of compliance have the 
potential to transform the area to one that is less flood-
prone, more resilient to future disasters, and potentially 
eliminate a large number of the repetitive-loss properties that 
were discussed earlier and that continue to be a significant 
challenge for the NFIP.
    We sit here in support of NFIP reform, and I would best 
characterize ASFPM's recommendations as a pragmatic approach, 
addressing all components of the NFIP, and one that is based on 
studies, evaluations, and supporting the original intent of the 
program.
    On the issue of flood insurance reforms, we believe that 
reforms must lead to a better financial stability while 
balancing the need for policy affordability. We hear it all the 
time out in the field, the price of flood insurance policies. 
ASFPM supports moving rates to actuarial for pre-FIRM non-
residential buildings and non-primary residences, and also 
believes that the mandatory purchase of flood insurance should 
be extended to areas protected by flood control structures. 
These areas still have flood risk, and while it may be lowered 
by the mere presence of those facilities, the catastrophic 
consequences of failure are much higher than if the structure 
did not exist at all. These policies would be, I would 
anticipate, lower in cost also than those in the 100-year 
floodplain.
    The extending of mandatory flood insurance purchase to non-
federally regulated lending entities, allowing escrow of flood 
insurance premiums and debt forgiveness, are also supported by 
the ASFPM.
    Flood mapping reform must acknowledge the ongoing need to 
update and refine the Nation's flood hazard maps. The proposed 
National Flood Mapping Act of 2007, introduced by Senator Reed, 
not only recognizes this, but also recognizes that our flood 
maps should identify the multiple flood risks that we face, 
whether it is in areas protected by levees, 500-year 
floodplains, or even storm surge inundation areas.
    Investments in flood mapping should be concentrated on the 
flood data layer and strive to map the full extent of the 100-
year floodplain updating older, outdated hydrologic studies 
that, again, the Committee had recognized previously.
    In Ohio, for example, States investments in statewide 
LIDAR, which is a laser-based topographic mapping, will result 
in extremely accurate topography that can be used to further 
refine flood hazard maps.
    Flood mitigation reform should build on the successes and 
challenges of past reforms in 1994 and 2004. In particular, we 
propose changes to the Flood Mitigation Assistance Program and 
increased costs of compliance coverage to make them more 
flexible in mitigation options allowed and costs that are 
eligible to be covered. We are concerned that the repetitive 
flood claims program, as it has been designed, does not 
necessarily meet the congressional intent and are also 
particularly concerned that the Severe Repetitive Loss Program 
has some potential statutory issues that have made it very 
difficult to implement in rulemaking. We would request the 
Committee invite FEMA to discuss those issues and barriers to 
implementation, and recommend also that the pilot program be 
extended to preserve the 5-year intent.
    Finally, we must guard against reform proposals that weaken 
the NFIP. There have been a lot of reform proposals talked 
about, certainly in the House as well, and proposals to do such 
things as opting out of buying insurance or providing insurance 
in communities that refuse to join the NFIP. Those communities 
that refuse to do the day-to-day management responsibilities of 
their flood hazard area will weaken the NFIP. Perhaps the most 
disconcerting of these proposals, though, is the addition of 
wind coverage to the NFIP. ASFPM is strongly opposed----
    Senator Carper. Mr. Berginnis, I would just ask you to go 
ahead and finish this sentence, but then wrap it up, please.
    Mr. Berginnis [continuing]. To this proposal, and 
especially in light of the need to strengthen the NFIP's 
financial standing and maintaining price affordability.
    Thank you.
    Senator Carper. Thanks very much for your testimony.
    Mr. Griffin, you are recognized for 5 minutes.
    Mr. Griffin. Thank you. Mr. Shelby, I do not know whether 
you remember. You spoke a few years ago at the National 
Association of Realtors, and I was on a panel on insurance 
following that. And nothing like the topic of insurance to 
clear the room. You had a full room of people, probably 300 or 
400, and as soon as our panel came up, it looked similar to the 
way it does here today. So, anyway, I hope you will not hold 
that particular comment against me.
    [Laughter.]
    Senator Shelby. So you are used to it, right?
    Mr. Griffin. I am used to it, yes. It is a popular topic.

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

    Mr. Griffin. My name is Don Griffin, and I am Vice 
President of Personal Lines for the Property Casualty Insurers 
Association of America. PCI is a trade association representing 
over 1,000 insurers, and 57 of the 88 insurers are in the 
NFIP's Write Your Own program. Thank you, Chairman Carper and 
Ranking Member Shelby and Members of the Committee for the 
opportunity to appear before you today.
    I will probably jump to the end of where you asked for 
recommendations because that is what most of my testimony will 
focus on.
    PCI believes that the NFIP is a necessary public policy 
response to an uninsurable peril. It has undergone significant 
changes throughout its history, yet it still provides vital, 
important protection for our Nation's policyholders. However, 
the program as currently structured does not provide consumers 
with the level of protection needed and has not achieved the 
participation needed.
    The events of 2004 and 2005 have shown the devastation by 
hurricanes and floods that can impact millions of lives, 
businesses, and our Nation. Even as those hardest hit continue 
to rebuild, scientists tell us we are in for a period of a lot 
more of this coming along the road. So we need to be better 
prepared.
    Significant reforms were passed in 2004. Unfortunately, 
many of those reforms were not in place when the 2005 
hurricanes hit. They are now. We believe that those things will 
be helpful in the future.
    Also, as you have heard from many of the people that have 
talked--and you are well aware--the debt that the Federal Flood 
Program is carrying right now is huge. We think there is room 
for improvement on all fronts.
    So what do we think should be done with the National Flood 
Insurance Program? First and foremost, we think the debt should 
be forgiven. We do not see any way possible that the National 
Flood Insurance Program is going to be able to repay this debt 
based on the current rating structure. The program should be 
reauthorized for a long-term basis. In order to reduce 
litigation, you should affirm the Federal court jurisdiction 
over all disputes relating to the procurement and the policy 
adjustment and claims related to the NFIP.
    The program should include enhanced mitigation efforts and 
strong building codes. We need to look at land use. We cannot 
continue to put ourselves in harm's way. As all of us would 
like to live along the coast, that is just not possible, even 
though 54 percent of the population does already.
    The maximum coverage limits should be increased to at least 
allow the average home to be replaced based on today's 
construction costs.
    FEMA should be given more flexibility in determining rate 
changes and as well charge actuarially sound, risk-based rates 
for all properties.
    The policies should be rewritten so it is more closely 
aligned with the homeowners' policy and the other P&C products 
that are out there today. The program should include at least 
some coverage for additional living expenses, business 
interruption coverage, and the option to insure buildings for 
their replacement cost value. The program should provide more 
educational materials and strengthen requirements for flood 
protection.
    The flood maps are outdated. It has been mentioned many 
times here already today. And, oftentimes, as a former agent, I 
can tell you it was an awful hard thing to try and figure out 
where the property was on that flood map. So reform legislation 
needs to include additional funds to complete the map 
modernization initiative and to expedite that process.
    We all have a duty to provide consumers with the best 
information possible so that they can make an informed 
decision. Unfortunately, when it comes to flood insurance, many 
consumers take a look at this and figure it just will not 
happen to me, so if they are not required to buy it, they do 
not.
    The program should include, therefore, the mandatory 
purchase requirement, and it should be expanded to include 
additional properties at risk and properties that are located 
behind levees or other protective barriers. Mandatory purchase 
requirements should not be limited to those areas in special 
flood hazard areas.
    The program should encourage lenders to establish escrow 
for policies outside those 100-year floodplains so that people 
can better afford the product and purchase the product.
    Again, thank you for the opportunity to be here and present 
our views. We commend you and the Committee for actually 
looking at this issue, and we look forward to working with you 
to improve it and make it better in the future.
    Thank you.
    Senator Carper. Mr. Griffin, thank you, and thanks so much 
for the way you structured those recommendations. That was very 
helpful.
    Dr. Galloway.

     STATEMENT OF GERALD E. GALLOWAY, PH.D., PROFESSOR OF 
              ENGINEERING, UNIVERSITY OF MARYLAND

    Mr. Galloway. Thank you very much, Senator Carper, Senator 
Shelby. Delightful to be here today. I am a Professor of 
Engineering with the Terrapins at the University of Maryland, 
but I come today as the former PI of a study of the adequacy of 
the 1-percent standard we have in the NFIP, and having just 
finished a Levee Policy Review Committee session for FEMA. I 
also led the 1994 White House study of the reasons for and what 
should come out of the Mississippi floods of that particular 
period.
    I am here today to urge the Committee to extend the zone 
for mandatory purchase of flood insurance from the 100-year 
flood zone to the 500-year flood zone. Requiring insurance only 
within the 100-year floodplain does not provide coverage for 
the 3 to 7 million structures at risk in the floodplain in that 
100- to 500-year zone. Requiring actuarially sound and 
location-based insurance for those in this zone would not 
impose significant financial burdens on property owners at risk 
in this latter zone, as it is considerably less than the risk 
in the 100-year zone, but it would greatly reduce the exposure 
of the Federal Government and certainly the residents to losses 
from a significant event that could occur. As we learned in New 
Orleans and in earlier floods, levees do fail, and I recommend 
the extension of the mandatory purchase of insurance to include 
areas behind levees and to require FEMA to accredits levees in 
the NFIP only when they are at the 500-year level and protect 
urban areas.
    Many of the structures that we now have protecting millions 
of Americans are of unknown or marginal integrity. Requiring 
those behind levees to obtain flood insurance informs them of 
their risk, reduces the impact on these individuals should a 
flood occur, and limits the exposure, again, of the Federal and 
State governments in terms of the assistance and 
indemnification they must provide.
    For over 25 years, studies have emphasized that the 100-
year levees do not provide sufficient protection for areas 
where large numbers of people or high-value property are at 
risk. A 100-year levee faces a 26-percent chance of being 
overtopped within the life of a 30-year mortgage. Not very good 
odds.
    Finally, I urge the Committee to support continuation of 
the Flood Map Modernization Program and the ongoing shift of 
emphasis from flood rate mapping to flood risk mapping. The key 
to effectively dealing with the flood hazard is to know where 
it is and how bit it is and what the consequences of a flood 
event might be.
    The Map Modernization Program has been a major step 
forward, but it has a way to go. While we have made progress in 
developing more accurate topographic data for use in mapping--
you have referred to that already, and my colleague has talked 
about the advantages of LIDAR--unfortunately, much of the 
Nation's hydrological data are out of date. Approximately 45 
percent of levee designs and flood risk determinations are 
based on precipitation frequency estimates that are as much as 
45 years old. Approximately the same percentage of designs and 
determinations are based on flow frequency guidelines that are 
at least 25 years old. Many communities even lack long-term 
stream flow records. Support of map modernization must provide 
for updating this hydrologic data and must also address the 
needs of NOAA and USGS for funding of needed data collection 
and monitoring. We also need to take a strong look at including 
future conditions in this mapping.
    A flood insurance rate map, however, is not a risk map. 
Risk analysis incorporated information about the hazard, the 
probability of the system--levees, flood walls, flood ways--may 
not perform as designed, and the consequences that will occur 
should the flood exceed the level of protection provided or 
should the system fail.
    Describing a risk on a map is not a simple process, but one 
that must be accomplished if the public is to know and 
understand the challenge it faces living in a flood zone. The 
Corps of Engineers, in cooperation with FEMA, has been working 
diligently in the New Orleans area to develop various types of 
flood risk maps and recently published maps that indicated the 
depths of inundation in various areas of New Orleans should 
certain floods occur. These maps take into account the 
potential performance of the levees and other structures that 
are part of the flood damage reduction system. I have got 
copies of these that are in my testimony and larger copies I 
have up--if someone would hand those to the Senators, I would 
appreciate it.
    S. 1938 indicates that risk must be considered in the 
mapping process. The language of the bill provides an important 
endorsement of this need. FEMA and the Corps have worked 
closely together on the mapping of New Orleans and are working 
together in California. They have also become partners in the 
development of a national levee inventory. This cooperation has 
brought the resources of both agencies to bear.
    In closing, let me compliment the Committee on its 
attention to the issues of floodplain management. The proposed 
legislation on flood mapping provides strong support for 
continuation of a program that is critical to our efforts to 
reduce national flood losses and to protect the health and 
safety of our citizens.
    Thank you.
    Senator Carper. Dr. Galloway, thank you very, very much.
    Mr. Hunter, you are recognized.

STATEMENT OF J. ROBERT HUNTER, DIRECTOR OF INSURANCE, CONSUMER 
                     FEDERATION OF AMERICA

    Mr. Hunter. Thank you, Mr. Chairman, Mr. Shelby. The Flood 
Program is a shambles. Two of the key problems are that the 
program is currently subsidizing unwise new construction in the 
Nation's floodplain, and the administration is out of control. 
Congress wisely established the program on the principle that 
new construction would not be subsidized, and now I am hearing 
even grandfathered subsidized.
    When I ran the program, we had a goal of updating maps 
every 3 to 5 years. Now they are 20 years old, some of them. 
All maps are biased to the very low side because there is a lot 
of construction going on. Now, maps with elevations that are 
too low do a lot of bad things. People build new homes they 
think are safe that are not. Rates are predicated upon the 
elevations that are too low and, therefore, are actually 
subsidized. The hidden subsidy. People buying homes in what 
they think are outside the floodplain do not buy flood 
insurance, but they really are in the floodplain.
    FEMA is not following through to make sure that communities 
are enforcing even these inadequate maps. Congressional intent 
of not subsidizing new construction has been thwarted. FEMA's 
program administration is out of control. GAO reports, two of 
them recently, one is that the fees that they are paying to the 
Write Your Own companies, they have no idea what they are. Some 
partnership. One partner gets all the assets; the other gets 
all the liabilities, $3.2 billion in the last 3 years paid to 
the Write Your Own companies, more than half of the premiums.
    Despite the cost, the conflicts of interest are failing 
consumers and taxpayers around the country. Just look at the 
Gulf Coast. After Hurricane Katrina, judges have found that 
insurance companies are engaged in illegal cost shifting that 
was adverse to the flood program. One Write Your Own insurer 
assigned $95,000 in flood damage to a property that never 
flooded. Other adjusters say that one insurer is charging the 
flood program much more for building materials for flood 
repairs than they do for the same house for wind damage. FEMA 
does not know if what they are paying--if these claims are 
being properly paid or not because they do not have the right 
information.
    The Flood Insurance Program Write Your Own companies are 
using anti-concurrent causation clauses in their policy that 
basically says if a flood happens at the same time as wind, we 
are not going to pay any wind, making it much more probable 
that flood damage will be magnified in the adjustment.
    Can solvency be achieved for flood insurance? Not under the 
current administration. The subsidy Congress built into the 
program was there for a reason. It made sense at the beginning. 
The subsidy was intended to help people, rich or poor, who had 
built prior to the flood maps being in place and might not have 
realized there was a flood risk. Thirty years have passed since 
those maps were in place. In retrospect, the program should 
have phased the subsidy out from the beginning and as homes 
were sold, since the maps were then available, and over time 
these subsidies should have been reduced and eliminated. 
Grandfather rates, of all things, should not be kept in place 
forever and should be eliminated.
    Now, obviously subsidies for low-valued structures for poor 
people have to be handled with great care and done over a 
period of time, and that requires some thought about it. But 
the recent CBO report makes it clear that most of these are not 
low-valued structures. These are rich and frequently, 23 
percent of them, second homes.
    So what should Congress do now? First, it would be 
irresponsible for Congress to expand the program while the 
program is out of control. The main reason CFA has opposed 
House bill 3121 is that it expands coverage without controlling 
the costs.
    In the last session of Congress, this Committee reported to 
the floor S. 3589, which, unfortunately, did not pass, but it 
did very positive things, including focusing on the critical 
need to reduce subsidies quickly, building reserves for future 
losses, studying excessive expenses paid to Write Your Own 
insurers, and other things.
    It is a very good place for you to start your consideration 
on improving the National Flood Insurance Program. Removing 
more of the subsidy, as we outline in our written testimony, we 
think could even strengthen the bill some more.
    Three critical steps must be taken to make the NFIP work 
properly. They are straightforward: make sure that mitigation 
works, move to actuarial soundness, and restore sound 
management of FEMA. Since FEMA seems unable to do this itself, 
Congress must undertake tight oversight of FEMA's 
implementation if these goals are to be achieved.
    Senator Carper. Terrific. Thanks very much.
    Mr. Davey, 5 minutes, please.

STATEMENT OF MARK DAVEY, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 
              FIDELITY NATIONAL INSURANCE COMPANY

    Mr. Davey. Thank you, Mr. Chairman, for allowing us to 
participate in this hearing on further enhancing the National 
Flood Insurance Program. Fidelity National Property and 
Casualty Insurance Group is the largest writer of flood 
insurance policies in the United States. We wrote 338 million 
NFIP policies for the calendar year 2005, approximately 400 
million for calendar year 2006, and we are on track to produce 
in excess of 430 million for calendar year 2007. Sixty-five 
percent of our current flood policies are in mandatory coverage 
areas where 35 percent of our policies are in voluntary, non-
mandatory flood zones.
    Mr. Griffin has set forth in his testimony a number of 
suggested reforms to the program, and Fidelity National 
strongly supports those changes. I have included in my written 
testimony a number of additional improvements to the program 
that we may suggest be made to ensure its continued value for 
American homeowners. We must modernize this program and re-
establish it on a more financially sound foundation. The key to 
doing so is to increase participation in this program, bringing 
more dollars in, and provide a higher level of protection to 
families across America.
    One of the reforms that was discussed in crafting last 
year's legislation was a significant reduction in expense 
reimbursements. That discussion is likely to be renewed in the 
wake of last month's GAO study. I believe that the study 
seriously misrepresents the expense reimbursement issue, and I 
would like to address those misrepresentations.
    Upon first reviewing the GAO report, I was immediately 
disappointed reading their claim that payments to Write Your 
Own insurance companies comprised up to almost two-thirds of 
total premium revenue. The science of statistics is one of our 
most powerful analytical tools available today; however, 
statistics that are quoted and utilized out of context are 
destructive, and incorrect inferences can cause substantial 
damage. The utilization of individual data components to 
validate the above-referenced statement is factual, but when 
taken out of context, it is extremely misleading.
    The claims administration fees and adjusting fees cannot be 
disregarded when examining this period. As the GAO report 
states, ``Prior to the unprecedented events of 2005, the NFIP 
was self-sustaining.'' Relatively speaking, I would argue that 
the program prior to 2005 was efficiently fulfilling its 
mandated costs in a fiscally responsible manner.
    Hurricane Katrina not only highlighted the need to examine 
specific components of the NFIP; it also forced policymakers, 
businesses, and individuals to rethink an extremely broad range 
of practices and policies. Relating to the NFIP claims funding 
and administration process, we need to analyze the basic 
funding mechanisms and administration models to properly and 
adequately respond to future events on a Katrina level.
    The GAO report acknowledges that Write Your Own carriers 
did close 95 percent of all claims resulting from Katrina, 
Rita, and Wilma by May of 2006, within 9 months following the 
event.
    I can only speak in regards to our NFIP policyholders. I 
feel we qualify and administer our claims per prescribed 
guidelines to the very best of our ability. I know we had one 
of the largest claim loads of all Write Your Own carriers, and 
I am proud of the response we provided to our customers. We did 
everything possible to make certain we assisted our customers 
while strictly adhering to NFIP's prescribed claims handling 
processes and policy provisions. We take our fiscal 
responsibility to the Federal Government very seriously.
    I am troubled by the tone and inference made in some 
sections of the report. We followed set protocols to the letter 
and individually examined each and every claim on its own 
merit. To the best of my knowledge, every dollar paid for flood 
damage went toward actual documented flood damage. We were good 
fiduciaries of the Federal Government's money and should not be 
faulted for following protocol in receiving the provided 
administrative fee as prescribed by FEMA.
    Based on the Hurricane Katrina experience, we believe the 
claims administration fees should be reviewed for storms of 
this magnitude. As CEO of Fidelity National, I stand ready and 
willing to participate in your review process to make the NFIP 
a better program for non-cat times and truly catastrophic 
times.
    Mr. Chairman, thank you again for your time today. I look 
forward to answering any questions you may have and to help 
reform this valuable program.
    Thank you.
    Senator Carper. Mr. Davey, thank you.
    Mr. Malta, you have the last word.

  STATEMENT OF VINCE MALTA, NATIONAL ASSOCIATION OF REALTORS 

    Mr. Malta. Good afternoon, Senator Carper, Senator Shelby, 
Members of the Committee. Thank you for inviting me to present 
the views of the National Association of Realtors on the 
National Flood Insurance Program.
    The NFIP enables property owners in participating 
communities to purchase insurance as a protection against flood 
losses. More than 20,000 communities participate in the NFIP. 
According to FEMA, flood damage is reduced by nearly $1 billion 
a year as the result of communities implementing sound 
floodplain management requirements and property owners 
purchasing flood insurance. NAR encourages efforts to reform 
the NFIP that will, No. 1, ensure that flood maps are accurate 
and up to date; two, address the NFIP's ability to pay existing 
and future obligations to policyholders; and, three, educate 
consumers about the importance of obtaining and maintaining 
flood insurance.
    In addition, reform efforts should strike a balance between 
ensuring the long-term fiscal viability of the NFIP and 
avoiding changes that may result in market inequities and 
housing affordability problems, especially for low- and 
moderate-income homeowners and renters.
    First, regarding flood maps, without accurate maps, 
property owners are not able to properly evaluate the risk to 
their property from flooding. NAR has been, and will continue 
to be, a strong advocate of fully funding the map modernization 
program. To this end, we are working with the Flood Map 
Coalition to secure full funding for the map modernization 
effort, with groups such as the Association of State Floodplain 
Managers.
    NAR is concerned, however, that adding a requirement to map 
the 500-year floodplain--a task much larger than updating the 
existing 100-year floodplain maps--as part of FEMA's Map 
Modernization Program could lead to delays in updating the 100-
year floodplain maps. Realtors do not want to see this process 
delayed further.
    Next, regarding the NFIP's financial stability, there are a 
number of policy options to address the NFIP's financial 
stability that would have the support of realtors and others 
that we suggest Congress to consider carefully.
    First, NAR supports policies and reforms that would limit 
the drain on the NFIP posed by severe repetitive-loss 
properties. In addition, NAR supports funding for mitigation 
activities for individual repetitive-loss properties and 
extending the pilot program for mitigation of severe 
repetitive-loss properties.
    Second, increased participation in the NFIP. Flooding from 
recent hurricanes in the Gulf Coast as well as in North 
Carolina has made clear that many vulnerable low-income 
families have virtually no flood coverage. Therefore, NAR 
encourages the Committee to include a study in its NFIP reform 
bill that will identify ways to increase low-income family 
participation in the NFIP and identify ways to ensure that a 
greater percentage of at-risk homeowners and renters are able 
to protect themselves from future flood losses. We believe that 
any such study should include an analysis of how best to 
encourage renters to participate in the NFIP because they, too, 
are at risk and eligible to purchase content insurance.
    In regards to subsidies, NAR strongly encourages the 
Committee to commission a study of the effects of phasing out 
subsidies before including such a proposal in legislation. 
Eliminating subsidies on non-primary residences and non-
residential properties could have significant unintended 
consequences for renters, business owners, potential 
homebuyers, neighborhoods, and local economies.
    Despite rhetoric to the contrary, a recent CBO report on 
the NFIP noted, and I quote, ``the evidence here does not 
suggest that the subsidies tend to cover larger or more 
luxurious structures, whether inland or in a coastal area.'' 
The National Association of Realtors is concerned that 
eliminating subsidies would result in higher flood premiums, 
increase the cost of property ownership and rents in these 
areas, and could lead to increasing delinquencies, foreclosures 
and reduced property values.
    Third, educating consumers. This is essential to help 
protect against future loss from flooding. Many consumers may 
not be aware that flood insurance is available to them, 
especially if they live outside a high-risk flood area. NAR has 
been working with FEMA to develop educational materials for 
realtors, clients, and potential clients about the importance 
and availability of flood insurance through the National Flood 
Insurance Program. These materials should be finalized later 
this fall.
    Thank you again for inviting me to present the views of the 
National Association of Realtors. NAR stands ready to work with 
the members of the Committee and all Senators to enact 
meaningful reforms to the National Flood Insurance Program.
    I would be glad to answer any questions that you may have. 
Thank you.
    Senator Carper. Thank you, Mr. Malta. I have a couple of 
questions I am going to ask, and I will submit a number for the 
record, and I know Senator Shelby has indicated he has as well.
    Senator Reed handed me a question to ask as he walked out 
of the room, and let me just truncate it by simply saying Mr. 
Malta has raised some concerns about mapping the 500-year 
floodplain. Just by a show of hands, are there other witnesses 
at the table who share the concerns that Mr. Malta has 
expressed. If you would just raise your hand.
    [No response.]
    Senator Carper. OK. Let me come back to Mr. Berginnis, if I 
could. Mr. Berginnis, the American Institute for Research 
conducted--at least I am told they conducted an extensive 
evaluation of the Flood Insurance Program, and they made 
numerous recommendations for strengthening the program. I would 
like to read one quote on removing subsidies. Here is what they 
had to say:
    ``It appears that, given the NFIP's current financial 
position since Hurricane Katrina and given the volatility of 
flood-related losses, pursuing actuarial soundness as a primary 
goal could undermine other goals and increase net costs to 
society.''
    Now, in the bill this Committee passed last year, we 
attempted to balance the need to move to actuarial rates with 
the other program goals--that is, mitigation and protection--by 
removing subsidized rates from non-primary residences, such as 
vacation homes, as well as severe repetitive-loss properties. 
Could you comment for us on whether you believe this bill--I 
guess it was last year's bill--struck the right balance and 
what the effect might be if we removed all homes--if we removed 
all homes to actuarially sound rates?
    Mr. Berginnis. Thank you for the question. Last year's bill 
did take a measured approach in terms of selectively reducing 
subsidies. It clearly did not have a blanket approach, but 
there were--if I recall, one of the provisions that within 
ASFPM we discussed quite in detail was the movement toward 
actuarial rating in the event of a property buying or selling a 
property transaction where it would actually move to actuarial 
rating. And for things like secondary homes, vacation homes, 
those are kind of no-brainers. But when you actually tie 
movement to actuarial rating when a real estate transaction 
occurs, again, I think some of the problems that were 
identified earlier, real estate transactions happen between 
rich folks or poor folks and everybody in between. And there is 
a need to strike that balance, especially with lower-income 
people, moderate-income folks even, to move very quickly toward 
actuarial rating.
    I do not know--it was--hearing Mr. Hunter, and certainly 
talking about we need to move to that, the conundrum of moving 
everything to actuarial rating is really dealing with primary 
residences and how in the heck you get your arms around that 
issue and move those toward actuarial rating.
    In general, ASFPM has always advocated an approach where we 
move toward actuarial rating but also come in on the back side 
with mitigation options and programs to where folks would at 
least have an opportunity to mitigate and make their house in a 
better position.
    Senator Carper. Thanks. I do not know if anyone else would 
like to respond to that same question. If you would, have at 
it. Mr. Griffin.
    Mr. Griffin. Sure. I think that one of the things that we 
have to be cognizant of is that transaction and that not all 
the people that live in coastal areas are wealthy. So I think 
one of the things we have to do is when we move, as you have 
proposed last year, to actuarially sound rates in certain areas 
of the country and under certain circumstances, we need to make 
that happen. But we also need to look at it for primary 
residences and perhaps on a more gradual basis.
    The idea is that we need to get this program on sound 
financial footing, and if we have to do that over a period of 
years, that is fine with our industry. But we need to make sure 
that that does happen.
    Thank you.
    Senator Carper. Thanks.
    Anybody else? Dr. Galloway and then Mr. Malta.
    Mr. Galloway. Just very quickly, in the follow-up to the 
Mississippi flood and other riverine floods as opposed to 
coastal floods, it has been amazing to see that a large number 
of the people that are affected are low-income retirees, people 
who have lived in the home their entire life. And in the 1994 
study, following up by others, we came up with the obvious 
conclusion that if you are going to go to actuarial rates and 
you are going to raise the rates, you will have to provide some 
sort of a safety net. And in dealing with the Government, when 
the administration was dealing with that, they felt that that 
could be accomplished.
    Senator Carper. All right. Thank you.
    Mr. Malta, the last word on this, and then I will ask one 
more quick question and then hand it over to Senator Shelby.
    Mr. Malta. Yes. As pointed out, this is not just an issue 
about big houses on the beach. This is about working-class 
families that live along rivers and streams, et cetera, as has 
been pointed out here earlier.
    Senator Carper. Thanks.
    My last question, at least for the record, would be for Mr. 
Griffin. Mr. Griffin, I think you indicated in your testimony 
that half of those that are required to carry flood insurance 
do not purchase flood insurance. Let me just ask: What can be 
done to get more people to purchase flood insurance?
    Mr. Griffin. I think there are a couple of things. I think, 
first of all, we need to make sure that the public is more 
aware of the requirement. I think that what has happened, 
unfortunately, in our society as we moved to the secondary 
mortgage market where a lot of times mortgages change hands, 
sometimes the requirement to purchase that flood insurance 
somehow gets lost in the transition, so we need to make sure 
there is enforcement there. I think the communities need to be 
more involved in making sure that the people do that and that 
actually need to buy it.
    The Rand report is what I was referring to as the one that 
did a study and indicated that about 50 percent--in effect, I 
think in New Orleans only about 39 percent of the people who 
actually lived in New Orleans had proper flood insurance, and 
that is not an acceptable take-up rate as far as the industry 
is concerned or as far as we think the Government is concerned. 
So I think we have to do better, and we have to make sure that 
the public understands that this is more of a requirement and 
not just a--``Does my mortgage lenders require it?'' is 
typically the question. And sometimes I think they forget or a 
couple years later somehow it falls off.
    But the question also is: If the mortgage lender does not 
require it, then oftentimes the answer is, ``I am not going to 
purchase it.''
    Senator Carper. Fair enough. All right. Thank you.
    Senator Shelby.
    Senator Shelby. Mr. Chairman, I have a number of questions 
that I would like to submit for the record because we do have 
two conferences that meet on Tuesdays.
    Mr. Hunter, I just want to make an observation. You have 
been here many times. You know this program.
    Mr. Hunter. Yes, sir.
    Senator Shelby. You ran this program.
    Mr. Hunter. Yes.
    Senator Shelby. And I appreciate very much your 
observations regarding this program, candid, very candid. But 
unless we, one, have proper mapping--which goes to Dr. 
Galloway's statement--proper mapping and a broad influx of new 
people in this program, this program is going to continue to 
take on water, is it not?
    Mr. Hunter. Yes. You need proper mapping, proper rates.
    Senator Shelby. Right. Proper mapping and proper rates.
    Mr. Hunter. And penetration.
    Senator Shelby. And penetration. In other words, I see no 
reason in the world--in the world--for the taxpayer, the rest 
of the people in this room here, for example, to subsidize me 
or my friends that have their second homes at the beaches and 
flood-prone areas.
    Now, I do see from a social program that where you have the 
primary homes of the less fortunate, we can devise some type of 
program. But why should we in any way subsidize very wealthy 
people in this country? And that is what we are doing, is it 
not?
    Mr. Hunter. Yes, you are, and obviously there is a mix of 
demographics. But I think you can come up with a program. I 
think in retrospect, now looking back to the beginning, it is 
too bad we did not at the very beginning say we are going to 
phase this out over time. But if we do not do it now, we will 
be sitting here 30 years--I will not, but some people will be 
sitting here having the same discussion.
    Senator Carper. Well, Senator Shelby might still be sitting 
here.
    [Laughter.]
    Senator Shelby. Senator Carper might be here in 30 years, 
but I do not think that I will be here, either.
    Dr. Galloway, in your written testimony, you pointed out 
several flaws of the ongoing FEMA Map Modernization Project, 
including the fact that FEMA often simply makes a digital copy 
of an existing paper map and that the underlying data used is 
still extremely dated information. In other words, there is 
nothing new here. You are just repeating the mistakes. You also 
stated that more coordination within the Federal Government 
will be useful.
    Could you highlight for the record the nature of your 
concern and provide the Committee any recommendations for your 
consideration as we move forward? We heard FEMA testify a few 
minutes ago--you did, too--and GAO. We are not satisfied with 
that. We see this program, as Mr. Hunter would say, it is 
broke, and it is going to become ``broker''--if you can get 
``broker.'' And I do not see any way to modernize this program 
if we do not phaseout the subsidies for most people and, 
second, if we do not have proper mapping. Or maybe mapping 
comes first.
    Mr. Galloway. I would say that in many ways the Flood Map 
Modernization Program has represented an unparalleled amount of 
cooperation among Federal agencies. The problem is they are 
trying to recover 25 years of neglect. The very fact that we 
have not updated our weather maps, the very fact that the 
information on which FEMA must rely is out of date, makes it 
very difficult to start. And getting money into other programs 
is almost impossible.
    What you have seen in the map I left you on New Orleans 
says that we are beginning to see----
    Senator Shelby. That map is scary, if you look at it.
    Mr. Galloway. It scares you, and that goes to the issue of 
penetration. If a map like this is hung on the wall in a 
community and they know what the potential flooding is, then 
they will be able to do something. There are steps that can be 
taken. It will require continued support of the Map 
Modernization Program, adequate funding, and an emphasis on 
this cross-agency cooperation.
    Senator Shelby. Doctor, you heard the testimony I alluded 
to earlier from FEMA that said they can map things and then 
they have to go through the local people to see if this is what 
they want to do and everything. Is that a problem?
    Mr. Galloway. Well, I think it is the challenge. The system 
is designed to give the local community, as it should, a voice 
in the project. When the local community is not interested, it 
becomes a struggle for FEMA.
    Senator Dole pointed out that North Carolina is charging 
ahead because they are a local cooperating partner, and North 
Carolina has spent money on getting the maps, is interested in 
having that information. But when other communities are not, it 
makes it very difficult for FEMA.
    Senator Shelby. Well, you obviously know this, but in my 
State of Alabama, we have two large counties--Mobile and 
Baldwin--on the coast, and I think most of that is above sea 
level, if it is not that. But we still do not have the problems 
that Mississippi or the exposure in Louisiana and Florida, but 
there is some exposure there. And the State has to play a role 
here, does it not?
    Mr. Galloway. Yes, sir. It is a cooperative effort, and the 
responsibility for all of this floodplain management has got to 
be shared at each level, and if the State is not playing a 
role, it does not go very far.
    Senator Shelby. It is flawed in its design and it will not 
work, as Mr. Hunter has mentioned many times before this 
Committee.
    Thank you, Mr. Chairman. I do have those questions for the 
record.
    Senator Carper. I suspect a number of us do. I would ask 
for answers, and let me just say thank you very much on behalf 
of all of us. Thank you for making time in your schedules to be 
and for really what I would describe as excellent testimony. We 
look forward to working with you as we go forward. Sometimes, 
you know, we hold hearings and not much comes of it. In this 
case, I think we are moving forward smartly.
    Senator Shelby. Mr. Chairman?
    Senator Carper. Yes, sir.
    Senator Shelby. One last observation. Everybody here on the 
panel can contribute and would contribute, but I believe if we 
had Dr. Galloway and Mr. Hunter, they could make this program 
work.
    [Laughter.]
    Thank you.
    Mr. Galloway. Sir, I have got to say I was born in Mobile, 
so I have an advantage.
    Senator Carper. Before we adjourn, we are going to be 
submitting some questions, follow-up questions in writing, and 
we would just ask that you reply to them fully and promptly.
    Again, we thank you very much, and this hearing is 
adjourned.
    [Whereupon, at 12:51 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
             PREPARED STATEMENT OF SENATOR MENENDEZ

    Thank you, Mr. Chairman. I am glad this Committee has the chance 
once again to look at the issue of flood insurance. As many of us know, 
floods are not a static issue. Especially for those of us who come from 
states that have seen repeated floods, we know they can be like the 
wound that doesn't heal. An area struck by a flood is vulnerable to be 
hit over and over again. And worse, a band-aid approach just won't cut 
it. Like any natural disaster, floods can wash away lives in an 
instant. New Jersey bore witness to this earlier this year, when we 
experienced a devastating flood. But the Nor'easter of 2007 was only 
the latest of, many, catastrophic floods that have begun to plague New 
Jersey.
    New Jersey may not come to mind as being at the top of the list for 
states at risk of hurricanes or floods, but the facts tell another 
story. New Jersey is a coastal state, with 127 miles of Atlantic 
coastline. More than half of New Jersey residents live in counties the 
National Oceanic and Atmospheric Administration list as exposed to 
hurricane risks. Last year alone, there were nearly 2600 claims under 
the National Flood Insurance Program, making New Jersey fifth in the 
nation for flood insurance claims.
    Earlier this year, I convened a conference in New Jersey to examine 
the challenges our state faces and to develop a comprehensive strategy 
moving forwards. By no means is that challenge getting any easier. When 
we look at our historical flood trends, it is clear that the damage is 
only getting more severe. New Jersey's shoreline is at severe risk of 
coastal flooding. By the end of the century, sea levels are expected to 
rise 7 to 23 inches--if we factor in the anticipated effects of global 
warming, we could be talking about 2 to 4 feet. And New Jersey is 
certainly not alone.
    With repeated floods, changes in our climate, rising home prices, 
and an overburdened insurance program, the task of how to effectively 
provide protection for homeowners at risk is a daunting one. That is 
why I welcome this discussion today. I look forward to hearing about 
potential solutions from our witnesses. There is no easy fix. But I 
hope that we will be able to provide a stronger, smarter, flood 
insurance program that guarantees homeowners they will be taken care 
of, and does not break the bank. It will be a difficult balance, but 
one I look forward to working with the Committee to make happen.
                                 ______
                                 
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 
                                 
   RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED FROM ORICE 
                            WILLIAMS

Q.1. Since FEMA became part of the Department of Homeland 
Security, there have been concerns expressed about whether 
enough attention, staff and funds have been provided to flood 
mapping and natural disaster mitigation efforts. Has GAO looked 
at this resource allocation issue and its potential impacts on 
state and local governments?

A.1. Since 2003 when FEMA became part of the Department of 
Homeland Security, GAO has reviewed and reported on a variety 
of issues related to FEMA's flood mapping and natural disaster 
mitigation efforts, as well as agency-wide resource allocation 
issues and to a lesser extent, the extent to which these 
efforts could potentially impact state and local governments.

      For example, in March 2004, we reported that 
FEMA's implementation approach for the flood map modernization 
program was based on the assumption that partnerships with 
local, state and other federal agencies were needed to enable 
FEMA to leverage its resources and reduce the federal costs of 
map modernization.\1\ We recommended that FEMA develop and 
implement strategies for partnering with state and local 
entities with varying levels of capabilities and resources and 
ensure that it has the staff capacity to effectively implement 
the nationwide mapping contract and the overall map 
modernization program.
---------------------------------------------------------------------------
    \1\ GAO, Flood Map Modernization: Program Strategy Shows Promise, 
but Challenges Remain, GAO-04-417 (Washington, D.C.: Mar. 31, 2004).
---------------------------------------------------------------------------
       While FEMA had developed a strategy for partnering with 
these state and local entities to encourage greater involvement 
in map modernization, including the contribution of resources, 
we concluded that the overall effectiveness of the agency's 
partnering efforts was uncertain because FEMA had not yet 
developed a clear strategy for partnering with communities that 
have few resources, limited mapping capability, and little 
history of flood mapping activities. Regarding resources 
allocated to flood mapping, a FEMA staffing analysis determined 
that the agency needed an additional 75 staff with specific, 
identified skills to effectively monitor and manage the 
contract and overall map modernization program. As of January 
2008, FEMA reported that 11 Flood Map Modernization Program 
individuals were certified in program management and FEMA had 
hired 30 of 43 authorized term positions to help oversee and 
manage the program.

      In January 2007, we reviewed FEMA agency-wide 
resource allocation efforts and reported that FEMA lacks 
adequate information on resources associated with its day-to-
day operations.\2\ For example, FEMA lacks adequate data on 
reallocations of resources among programs, projects, and 
activities, on staffing levels. We recommended that FEMA take 
steps to better manage resources for its day-to-day operations, 
including collecting data that enables managers to monitor 
progress and support resource priorities, using leading 
practices to develop a strategic workforce plan, and developing 
business continuity plans.

    \2\ GAO, Budget Issues: FEMA Needs Adequate Data, Plans, and 
Systems to Effectively Manage Resources for Day-to-Day Operations, GAO-
07-139 (Washington, D.C.: Jan. 19, 2007).

      In addition, in August 2007 we reviewed the 
collaborative efforts of federal agencies and other 
stakeholders to promote natural disaster mitigation efforts and 
reported that while FEMA, other federal agencies, and 
nonfederal stakeholders have collaborated on natural hazard 
mitigation, the current approach is fragmented and does not 
provide a comprehensive national strategic framework for 
mitigation.\3\ We concluded that a comprehensive framework 
would help define common national goals, establish joint 
strategies, leverage resources, and assign responsibilities 
among stakeholders. Accordingly, we recommended that FEMA 
develop and maintain a national comprehensive strategic 
framework for mitigation. However, we did not evaluate FEMA's 
current resource allocations regarding mitigation.
                                ------                                

---------------------------------------------------------------------------
    \3\ GAO, Natural Hazard Mitigation: Various Mitigation Efforts 
Exist, but Federal Efforts Do Not Provide a Comprehensive Strategic 
Framework, GAO-07-403 (Washington, D.C.: Aug. 22, 2007).
---------------------------------------------------------------------------

 RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED FROM DONALD L. 
                            GRIFFIN

Q1. In your testimony, you said that the NFIP should include 
revised and enhanced mitigation efforts to encourage strong, 
statewide minimum building codes that consider all the risks of 
loss due to natural disasters? I think this approach would help 
prevent flood and hurricane loss. Rhode Island has what is 
considered an advance program for coastal hazards to prevent 
damage before it can occur. The state's Coastal Resources 
Management Counsel has mapped the entire shoreline of the state 
and applies erosion setbacks to protect buffers. Does the 
private insurance market have a way to reduce premiums for 
homeowners and businesses in states that are taking initiative 
to reduce losses?

A.1. PCI believes that, yes, the approach I mentioned in our 
testimony would be beneficial with regard to both flood and 
hurricane loss. The Rhode Island program Senator Reed outlined 
would be beneficial in both of these areas as it would 
establish reasonable land-use policies that would prevent 
development of areas that are subject such catastrophic loss 
(as it is described). Accordingly, we strongly support such 
prudent state and local mitigation activities.
    With regard to the second part of the question asking if 
the private insurance market has a way to reduce premiums for 
property policyholders in these situations, the answer is 
also--yes. The private insurance industry looks at various 
issues when developing its pricing for property exposures. 
These include fire protection, type and use of the structure, 
the building codes in the specific area, past losses in the 
area by type (e.g., wind, fire, etc.), construction trends 
(labor and materials costs) as well as a variety of other 
factors. The less risk a property presents, the lower the 
overall cost of providing the insurance. Our industry, through 
one of its advisory organizations, Insurance Services Office, 
Inc. (ISO) developed the Public Protection Classification 
System that has, for decades, been the measure of fire 
protection for a community. It looks at type of fire 
department, equipment, water flow, access to structures, 
training, etc. That organization has also recently developed 
the Building Code Effectiveness Grading Schedule which measures 
a community's building code program including the standards, 
training and experience of planning department staff, 
enforcement (which is vital), etc. Some private insurers are 
now starting to use this type of system as a way to evaluate 
and price property exposures and we expect market competition 
will encourage more to do so in the future.
    Private insurers currently reduce premiums for mitigation 
activities as a result of loss experience and through 
individual company risk selection guidelines. These premium 
reductions are based on loss experience that accurately 
reflects the impact of a specific mitigation activity on 
insured losses. Pricing reductions that fail to have an actual 
impact on insured losses create distortions which result in 
inefficient and unfair pricing for risk spreading, the major 
social benefit of insurance. However, as it takes time for 
mitigation activities to show up in loss experience, and as 
their impact relative to other factors affecting insurance 
costs may be small; the reduced costs may not be as useful as 
we would hope in encouraging investment in mitigation by 
communities or individual property owners.
    In regard to your comments on flood versus wind mitigation 
measures you may want to consider the following:
    There is a growing recognition by experts and the public 
sector that significant benefits accrue from addressing 
mitigation from an all-hazards perspective. While some 
mitigation measures are specific to individual hazards (e.g. 
elevation above base flood requirements, sprinklers, safety 
programs) many address multiple hazards (e.g. disaster 
planning, safety inspections, etc.).
    The synergistic effects of mitigation extend across hazards 
(e.g. disaster planning addresses fire, workplace violence, 
natural catastrophes, etc) and across risk bearers (e.g. the 
individual or property, the neighborhood, the community etc).
    Where several individuals bear the cost of unmitigated 
losses stimulating mitigation investment decisions is 
facilitated by parsing out the costs of mitigation investments 
among all parties that pay the costs of losses. That is, 
mitigation decisions are facilitated when insurers provide 
incentives that match the extent to which they are affected; 
state, local and federal government contribute to mitigation 
relative to the burden they would bear if losses were to occur; 
and individual risk bearers contribute their pro-rata share.
    In summary, we commend you for your state's efforts to 
reduce losses due to natural disasters and we believe that such 
programs are beneficial to all involved. PCI pledges to work 
with you on strong land-use and building code standards that 
will reduce loss of life and property for our citizens. 
Finally, we look forward to reauthorization and reform of the 
NFIP this year. Please let us know if you would like to discuss 
our response or have other questions with regard to our views 
on reforms to the NFIP.

              Additional Material Submitted for the Record

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 

