[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]





                   THE HOMEOWNERS' INSURANCE CRISIS:
                       SOLUTIONS FOR HOMEOWNERS,
                       COMMUNITIES, AND TAXPAYERS

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

                             FIELD HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              JULY 2, 2009

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 111-52






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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York         PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois          EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina       RON PAUL, Texas
GARY L. ACKERMAN, New York           DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California             WALTER B. JONES, Jr., North 
GREGORY W. MEEKS, New York               Carolina
DENNIS MOORE, Kansas                 JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts    GARY G. MILLER, California
RUBEN HINOJOSA, Texas                SHELLEY MOORE CAPITO, West 
WM. LACY CLAY, Missouri                  Virginia
CAROLYN McCARTHY, New York           JEB HENSARLING, Texas
JOE BACA, California                 SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts      J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina          JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia                 RANDY NEUGEBAUER, Texas
AL GREEN, Texas                      TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri            PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois            JOHN CAMPBELL, California
GWEN MOORE, Wisconsin                ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire         MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota             KENNY MARCHANT, Texas
RON KLEIN, Florida                   THADDEUS G. McCOTTER, Michigan
CHARLES WILSON, Ohio                 KEVIN McCARTHY, California
ED PERLMUTTER, Colorado              BILL POSEY, Florida
JOE DONNELLY, Indiana                LYNN JENKINS, Kansas
BILL FOSTER, Illinois                CHRISTOPHER LEE, New York
ANDRE CARSON, Indiana                ERIK PAULSEN, Minnesota
JACKIE SPEIER, California            LEONARD LANCE, New Jersey
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York

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

                     DENNIS MOORE, Kansas, Chairman

STEPHEN F. LYNCH, Massachusetts      JUDY BIGGERT, Illinois
RON KLEIN, Florida                   PATRICK T. McHENRY, North Carolina
JACKIE SPEIER, California            RON PAUL, Texas
GWEN MOORE, Wisconsin                MICHELE BACHMANN, Minnesota
JOHN ADLER, New Jersey               CHRISTOPHER LEE, New York
MARY JO KILROY, Ohio                 ERIK PAULSEN, Minnesota
STEVE DRIEHAUS, Ohio
ALAN GRAYSON, Florida




                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 2, 2009.................................................     1
Appendix:
    July 2, 2009.................................................    33

                               WITNESSES
                         Thursday, July 2, 2009

Detlefsen, Dr. Robert, Vice President of Public Policy, National 
  Association of Mutual Insurance Companies (NAMIC)..............    11
Geller, Hon. Steven, former Florida State Senator, and former 
  President, National Conference of Insurance Legislators........    18
Grillo, Joseph A., CIC, Senior Vice President, Weekes & Callaway, 
  Inc............................................................     9
Itkin, Ivan, resident of Fort Lauderdale, Florida................     6
Loy, Admiral James M., USCG (Ret.), former Commandant of the U.S. 
  Coast Guard; former Deputy Secretary of the U.S. Department of 
  Homeland Security; and National Co-Chairman, 
  ProtectingAmerica.Org..........................................    25
Repetto, S. Colleen, Executive Director, Fair Insurance Rates in 
  Monroe (FIRM)..................................................    12
Shelton, Cynthia C., President, Florida Association of Realtors..     7
Spudeck, Dr. Raymond, Chief Economist, Florida Office of 
  Insurance Regulation...........................................    20
Williams, Vicki, Outreach Coordinator, The My Safe Florida Home 
  Program........................................................    27

                                APPENDIX

Prepared statements:
    Moore, Hon. Dennis...........................................    34
    Detlefsen, Dr. Robert........................................    36
    Geller, Hon. Steven..........................................    66
    Grillo, Joseph A.............................................    73
    Itkin, Ivan..................................................    76
    Loy, Admiral James M.........................................    77
    Repetto, S. Colleen..........................................    82
    Shelton, Cynthia C...........................................    98
    Spudeck, Dr. Ray.............................................   103
    Williams, Vicki..............................................   116

 
                   THE HOMEOWNERS' INSURANCE CRISIS:
                       SOLUTIONS FOR HOMEOWNERS,
                       COMMUNITIES, AND TAXPAYERS

                              ----------                              


                         Thursday, July 2, 2009

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
the Commission Chambers, City Center, 401 Clematis Street, West 
Palm Beach, Florida, Hon. Dennis Moore [chairman of the 
subcommittee] presiding.
    Members present: Representatives Moore and Klein.
    Chairman Moore of Kansas. Good morning. This field hearing 
of the Subcommittee on Oversight and Investigations of the 
House Financial Services Committee will come to order.
    Our hearing this morning is entitled, ``The Homeowners' 
Insurance Crisis: Solutions for Homeowners, Communities, and 
Taxpayers.''
    Before we get started, I want to say a word of thanks to 
the residents of West Palm Beach, Florida, for welcoming us 
here, as well as the people here at the City Center for letting 
us use your new facility for this field hearing today.
    I would also like to thank Congressman Klein and his staff 
for their work in organizing this important field hearing.
    At our last O&I Subcommittee hearing, we were forced to 
rush the proceedings because 28 roll call votes were called on 
the House Floor 5 minutes into the start of our hearing. The 28 
votes actually turned into a day-long record of 53 roll call 
votes, but we had to wrap up the hearing very quickly, and the 
witnesses were kind of rushed to get their testimony in, with 
2-minute statements each instead of the usual 5 minutes.
    So to have a more robust discussion of the issues today, I 
decided to have our next hearing as far away from the Capitol 
as we could get during a work period so we wouldn't be 
interrupted by votes, but Congressman Klein should be 
forewarned that it won't preclude me from limiting him to 2 
minutes. No, I'm teasing. I'm teasing.
    In all seriousness, we will begin this morning's 
subcommittee hearing with members' opening statements up to 5 
minutes per member, and there are two of us. And then we will 
hear testimony from our first panel of witnesses.
    After that, members will have up to 5 minutes to question 
our witnesses and, if time permits, we may have a second round 
of questioning. We will then hear testimony from our second 
panel, have time for questions, and conclude with our third 
panel of witnesses testifying, with more time for questions.
    Without objection, the opening statements of the members 
present will be made a part of the record. Without objection, I 
ask that written testimony from the Independent Insurance 
Agents and Brokers of America be entered into the record.
    I now recognize myself for up to 5 minutes for an opening 
statement.
    On May 4, 2007, at 9:45 p.m., Greensburg, Kansas, was hit 
by a Category 5 tornado. The tornado was estimated to be nearly 
2 miles in width, and traveled for nearly 22 miles; 95 percent 
of that City was destroyed, with the other 5 percent severely 
damaged. The National Weather Service estimated winds of the 
tornado reached 205 miles per hour. I was invited by the 
Governor to go out and view the tornado just a couple of days 
after it happened. It was just unbelievable.
    Thankfully, tornado sirens sounded in the City 20 minutes 
before the tornado struck, and a tornado emergency was issued, 
which undoubtedly saved many lives. This was the first tornado 
to be rated a Category 5 tornado since 1999. Former Kansas 
Governor Kathleen Sebelius, the HHS Secretary, as I said, took 
several of us out to view that disaster area.
    Shortly after the storm, I joined my colleagues Congressman 
Jerry Moran and former Congresswoman Nancy Boyd on a visit 
there to meet with residents. We talked to people and heard 
what had happened.
    During that visit, we attended local church services, had a 
meeting with local officials to discuss the successes and the 
problems with current relief efforts, toured the town to see 
firsthand the damage caused by the tornado, and participated in 
a USDA World Development Housing Rededication for the first 
facility to be rebuilt.
    While the amount of damage was staggering, progress was 
already being made. In fact, I have been very impressed by how 
many people opened up their hearts and their wallets to help 
the people of Greensburg. That generosity has made a big 
difference in this little town in Kansas, and they were able to 
put their community and their lives back together.
    It is a fact of life that catastrophic natural disasters 
will happen from time to time, and we need to be fully 
prepared. After the unacceptable response by FEMA to Hurricane 
Katrina, for example, we must ensure that our Federal 
Government is prepared to help in a time of need.
    Hurricane Katrina caused $45.3 billion in insured losses. 
And, of the top 10 most costly insured catastrophes in the 
United States since 1989, 8 of the 10 were caused by 
hurricanes.
    Today, we focus on how catastrophic natural disasters 
impact the affordability and the availability of homeowners' 
insurance, especially in places like here in West Palm Beach, 
Florida. This is a tough problem with no easy answers, but 
hopefully today's hearing will shed more light.
    I appreciate the hard work of your Congressman Klein, who 
has put his thoughts and efforts into these issues. His work in 
carefully drafting the Homeowners' Defense Act is exhibited by 
the strong bi-partisan support the measure has received. I look 
forward to working with him in moving this legislature through 
this session of Congress.
    I also look forward to hearing from our witnesses today, 
and the perspectives they bring to the table. We will hear from 
several different viewpoints of what these issues mean to real 
homeowners and to taxpayers.
    We will also examine insurance industry coverage of 
catastrophic natural disasters, the withdrawal of insurance 
companies from offering policies in coastal areas, rising 
homeowners' insurance rates, premiums, and the resulting 
economic impact on State and local governments.
    I will conclude by noting this is not just a Florida 
problem, by any means. California has had earthquakes; a number 
of States have been devastated by wildfires.
    How these devastating tragedies impact the affordability 
and availability of homeowners' insurance is a national problem 
that demands a national response, in coordination with States 
that are most affected by these disasters.
    I now recognize for 5 minutes a senior member of the 
subcommittee, and a leader in Congress on many financial 
issues, service issues, including the homeowners' insurance 
issues we are examining today, my colleague, representing the 
22nd District of Florida, Representative Ron Klein.
    Mr. Klein. I thank the chairman for your leadership, and 
thank you for taking time out of your schedule in Kansas to be 
with us during this week.
    This is a great opportunity for those of us in our 
community to enter information into the record for Congress, 
for us to take back to Washington and give to our colleagues on 
the Committee on Financial Services and all the other 
committees, to give them the full balance of what is going on 
in the marketplace here in Florida.
    But before I get into a couple of specifics, I would like 
to acknowledge and thank West Palm Beach Mayor Frankel and the 
City Commission for allowing us to use the building today, the 
chambers. I would also like to thank a whole number of people 
out in the audience, because many of you have been involved in 
the homeowners' insurance issue for many, many years now.
    This is a great example of when people say, oh, things are 
developed in Washington with lobbyists and everything else. I 
will tell you the people who have been the biggest resource to 
me, and it is many of you in the audience here, as individuals, 
as individual homeowners, business owners, people who have had 
their own experiences.
    We have come together with a whole lot of different 
meetings and task forces and study groups, and come up with a 
number of ideas which we have now taken to Tallahassee, and we 
are now taking up to Washington to try to solve a problem that, 
as the chairman said, is not just a Florida issue; it is a 
national issue in many capacities.
    I just would like to do a little bit of overview. Many of 
us who are in the room today and live in our community did not 
live in West Palm Beach or Palm Beach County during Hurricane 
Andrew. Many people have moved here since then or have come 
from other places.
    But--and surprising to say, for many people, that they are 
not aware that Hurricane Andrew was nowhere near West Palm 
Beach. It was in Florida City and Homestead. I live in Boca 
Raton; it was nowhere near us. And we had more damage from an 
unnamed storm after Hurricane Andrew came through than we did 
from Hurricane Andrew.
    But the reality was, since that point in time, the 
insurance market in Florida has unfortunately become less and 
less stable. More and more companies have withdrawn, and we 
find ourselves in the position where the market is not what it 
should be, if at all available to the average consumer.
    And one more note of history is after I was elected to the 
Florida Legislature right after Hurricane Andrew, so, I see 
Steve Geller here is someone I served with in the Legislature 
at the time, but we know that one of the first things we had to 
do was we had to come back in a special session and create 
something called the Joint Underwriting Association, the JUA, 
which was supposed to be a last resort agency, a government-
backed agency for people who couldn't get private market 
insurance. Hopefully, it would go away in 2 or 3 years when the 
private market restored itself.
    And yet, we find ourselves today in a place where the 
successor to the JUA, which is now called Citizens, which 
everyone knows what Citizens is, it is the largest underwriter 
of insurance in Florida. So it is supposed to have gone away, 
but it hasn't gone away. Unfortunately, we now have public-
backed insurance as the largest scenario.
    And that is exactly the opposite of where we want to be. We 
want private sector insurance coming in here.
    Yet, at the same time, when I hear from consumers, I hear 
over and over and over again that if--I know that I paid my 
premium for the last 25 years to a particular insurance 
company, on time every single month, and yet when Hurricane 
Wilma came through, I had a $2,500 claim, and I had to call my 
insurance agent--and I appreciate the agents; they are the ones 
on the front lines. They are not making the decisions. But I 
had to call my agent so say if I file this, are they going to 
cancel me?
    After paying tens of thousands of dollars in, a $2,500 
claim, am I going to be canceled?
    And in many cases, some of them were. Or some were canceled 
in the next insurance cycle. This is wrong. I think we all 
understand, you know, insurance companies are for-profit 
businesses, but we, as consumers, want to know that if we are 
doing our part on our side, that the insurance companies will 
stand behind us.
    So I think there are a whole lot of issues out there that 
we can all hopefully work together and try to restore a market. 
What we have come up with in Washington, with a whole lot of 
input from many of you in this room here, and throughout the 
State and the country, is an idea which allows insurance to do 
what it is supposed to do--and, Mr. Chairman, I am hopeful that 
we are going to get a hearing on this as soon as we get back in 
the fall, after the August break--to literally pool insurance 
risk. But only among the States that want to do it. We are not 
going to obligate places in the United States where they feel 
like their insurance rates are just fine, the insurance markets 
are stable.
    But there are 20-some States right now that have serious 
concerns, because insurance companies have pulled back. And I 
am just going to give quick examples. It is hurricanes, it is 
earthquakes--88 percent of the homes in California have no 
earthquake insurance. The California Earthquake Authority, 
which is a special group there, it is just too pricey, or they 
can't get it. It is just a very bad place, because when--it is 
not if, but when--the earthquake hits, we are talking about 
possibly $100 billion of recovery in that area.
    Earthquakes, mudslides, firestorms, major ice storms, 
tornadoes, and it goes on and on. These are all areas where 
many insurance companies have withdrawn their coverage. So what 
we find is a lot of people going bare at a time when they need 
that coverage, their mortgage says they have to have that 
coverage.
    So, Mr. Chairman, what we have tried to do is, in a 
bipartisan way, we put together a plan where we transfer that 
risk, for States that want to participate, over to an 
institutional bond arrangement where private investors fill 
that fund with their taking the risk on whether they will be 
repaid or not. They get interest, they get premium. We have 
tested this, and we believe that it is a viable solution to 
helping provide coverage on the upper highest end of 
catastrophe.
    And, you know, for that, again, I appreciate the 
opportunity for us to take some testimony today, and to learn 
more about what people are saying so we can take this up to 
Washington, get it passed in the House, get it passed in the 
Senate, and present it to the President so we can get some 
relief around the United States.
    Thank you, Mr. Chairman.
    Chairman Moore of Kansas. Thank you, Congressman Klein.
    I am pleased to introduce our first panel of witnesses for 
this morning's hearing. First, we will hear from Dr. Ivan 
Itkin, a local resident from Fort Lauderdale.
    Next, we will hear from Ms. Cynthia Shelton, president of 
the Florida Association of Realtors. Testifying next will be 
Mr. Joe Grillo--and please correct me if I mispronounce the 
name--senior vice president of Weekes & Callaway.
    We also have Dr. Robert Detlefsen, vice president of public 
policy for the National Association of Mutual Insurance 
Companies.
    And lastly, we will hear from Ms. Coleen Repetto, executive 
director of the Fair Insurance Rates in Monroe.
    Without objection, your written statements will be made a 
part of the record, and you will each be recognized for a 5-
minute statement summarizing your written testimony.
    Mr. Itkin, you are recognized for 5 minutes, and please 
give us your testimony, sir.

 STATEMENT OF IVAN ITKIN, RESIDENT OF FORT LAUDERDALE, FLORIDA

    Mr. Itkin. Thank you very much, Chairman Moore. And I would 
like to welcome you to south Florida.
    Chairman Moore of Kansas. Thank you.
    Mr. Itkin. We appreciate your coming and--
    Chairman Moore of Kansas. I am glad to be here.
    Mr. Itkin. --your concern that you have on this particular 
issue, which is a major concern for us. And I also want to 
thank Congressman Ronald Klein for his willingness to take on 
this issue, because it is extremely important for his 
constituents and for the other residents of Florida.
    Having said that, I want to say good morning to you. I want 
to say good morning to you and to Congressman Klein, and hope 
that the House Financial Services Oversight and Investigations 
Subcommittee will be positive toward this issue as it bring 
this to the attention of our Members of Congress in Washington.
    My name is Ivan Itkin. I live in a beachfront high-rise 
condominium building located at 3200 North Ocean Boulevard in 
the City of Fort Lauderdale. The building is 29 stories tall, 
with 220 residential units, and shares the 10-acre property 
with a similarly-sized building. The residents of the complex, 
like others in Florida, have great concerns over the 
availability of windstorm insurance.
    With respect to my particular building, the condominium 
association has had great difficulty getting private hurricane 
insurance. Because of the possibility of hurricanes in our 
area, and the potential for causing significant and a 
widespread damage, private insurance companies are unwilling to 
insure against such outcomes.
    Prior to the current policy year, we were able to obtain 
insurance from one carrier, QBE, which now refuses to insure 
our building unless impact glass is installed in all our 
windows and doors. Even installing hurricane shutters will not 
suffice, although the building was built to the code 
established just a few years ago.
    As a consequence, we are forced to get insurance from the 
State-created insurer of last resort, Citizens Property 
Insurance Corporation, which is severely underfunded, and which 
will require large annual premium increases over a number of 
years from its policyholders.
    The deductibles are so high that even if there is a major 
loss, there will be no recovery. For our building, the 
deductible is 5 percent of the building's appraised value of 
$85,243,600, which requires a loss to exceed $4.26 million 
before a single dollar can be recovered, even though our annual 
premium is $339,000.
    It is quite obvious to us that we are not adequately 
protected. We need another solution. We need a catastrophic 
insurance program like National Flood Insurance, a program that 
will provide protection against all naturally occurring 
catastrophes.
    I believe Congress needs to pass Federal NATCAT 
legislation.
    Thank you for your attention, and I appreciate your taking 
the ball from here.
    [The prepared statement of Mr. Itkin can be found on page 
76 of the appendix.]
    Chairman Moore of Kansas. Thank you, Mr. Itkin, and I will 
say again to the witnesses, each of your written statements 
will be made a part of the record, and will be available to 
other Members of Congress as well. Ms. Shelton, you are next, 
please. Thank you.

STATEMENT OF CYNTHIA C. SHELTON, PRESIDENT, FLORIDA ASSOCIATION 
                          OF REALTORS

    Ms. Shelton. Thank you, Chairman Moore and Congressman 
Klein, for inviting me here today to speak before the Oversight 
and Investigations Subcommittee.
    I am pleased to present the views of the Florida 
Association of Realtors on the issue of natural disaster 
insurance.
    My name is Cynthia Shelton, and I am a Realtor from Lake 
Mary, Florida, which is the Orlando area. And I am current 
president of the Florida Association of Realtors. With me is 
our vice president and president for 2011, Pat Fitzgerald, from 
Jupiter, Florida.
    The Florida Association of Realtors is the largest trade 
association in Florida. We represent more than 120,000 Realtor 
members--many of them are here in the room today--who are 
nvolved in all aspects of real estate including residential 
leasing, commercial investment property management, 
homeownership, appraisals, auctions, and much, much more, so we 
understand what our clients and customers and homeowners are 
going through.
    The availability and affordability of property insurance 
is, at its core, a consumer issue. The importance of available 
and affordable insurance to homeowners, to commercial 
properties, to businesses, and to those who would like to own 
their home, investments, or place of business cannot be 
overstated. This is something that your constituents have long 
understood, since Floridians have dealt with the problem of 
insurance availability and affordability for many years.
    Unfortunately, it is also something that is known to 
consumers nationwide, even those who are not in what we 
traditionally called disaster-prone areas. A strong real estate 
market is the linchpin of a healthy economy, one that generates 
jobs, wages, tax revenues, and the demand for goods and 
services.
    In order to maintain a strong economy, the vitality of 
residential and commercial real estate must be safeguarded. 
Insurance availability and affordability concerns are not 
limited to Florida, or even to the Gulf Coast area. We have 
heard from Realtor colleagues from coast to coast, just like 
yourself, Chairman Moore, representing concerns about the 
availability and affordability of property insurance.
    Like ours, their insurance concerns extend beyond 
homeowners' insurance, and include multi-family housing, 
businesses, and commercial property casualty insurance. It is 
no secret that insurance is a key component to the financing 
and purchasing of real estate. Without property casualty 
insurance, lenders will not lend. And when a policy is canceled 
or not renewed, property owners are typically in default of 
their mortgage terms.
    The limited availability and high cost of insurance, 
therefore, not only threatens the ability of current property 
owners to hold onto their properties, but it also slows the 
rate of housing and commercial investment in these communities, 
and thus the economy. The inability to obtain affordable 
insurance is a serious threat to the real estate market, one we 
don't need any more than we have today. New home purchases, 
resale transactions, and housing affordability are affected in 
many of the following ways.
    Homeowners' insurance is a necessary component in securing 
a mortgage and buying or selling a home. If a potential home 
buyer is unable to obtain or afford the required insurance, the 
sale will not be completed. As a result, potential home buyers 
are excluded from the market.
    A home's value is another way. A home's value is directly 
tied to insurance cost. Homeowners are required by their 
mortgage lenders to not only pay for a full year in advance of 
closing on a home, but to maintain that homeownership 
regardless of what the ongoing costs are. And insurance that is 
expensive or unavailable devalues properties. Insurance costs 
impact renters and rent levels. Insurance costs incurred by 
multi-family property owners are ultimately passed on to their 
tenants through higher rents. This impacts housing 
affordability, particularly for low-income renters.
    Our commercial members, of which I am one, have also 
experienced problems with commercial insurance, and 
availability and affordability of that insurance. Commercial 
property owners have experienced large increases in premiums, 
in some cases more than fourfold from the prior year, 
dramatically increasing the deductibles, as well, and, on top 
of that, less coverage.
    Chairman Moore of Kansas. Ms. Shelton, I will have to ask 
you to wind up your statement.
    Ms. Shelton. Yes.
    Chairman Moore of Kansas. Your time has expired, and your 
written statement will be made a part of the entire record--
    Ms. Shelton. Thank you.
    Chairman Moore of Kansas. --as well.
    Ms. Shelton. The glimmer of hope, we as Florida Realtors 
believe that it is time for Congress to consider a national 
natural disaster policy.
    I cannot continue without acknowledging Congressman Klein 
and his support of prior bills, and of the one that is being 
introduced today.
    Florida Realtors would like to see a healthy economy, and 
by having natural disaster insurance, I am sure that House Bill 
2555 can address other issues that we will discuss, I am sure, 
at this hearing, such as mitigation and some other items that I 
think will help.
    And we thank you, and the Florida Realtors and national 
Realtors are in support of this bill.
    [The prepared statement of Ms. Shelton can be found on page 
98 of the appendix.]
    Chairman Moore of Kansas. Thank you, Ms. Shelton. We will 
remind each of the witnesses, your statements will be received, 
obviously, for the record, but your written statements will 
also be a part of the record.
    Mr. Grillo, you are next recognized for 5 minutes, sir.

  STATEMENT OF JOSEPH A. GRILLO, CIC, SENIOR VICE PRESIDENT, 
                    WEEKES & CALLAWAY, INC.

    Mr. Grillo. I would like to also add my thanks for being 
invited to express my views today. I am representing that of a 
regional insurance agency. I am a senior vice president and 
sales manager, and part of the management team for Weekes & 
Callaway, which is a private agency. It has been in business 
since 1954, and is situated in Delray Beach. We have over 50 
employees, and underwrite approximately $100 million in 
insurance premiums.
    I have been a licensed agent in this State for 31 of the 
past 36 years, having only left it for a 5-year tour of duty in 
the State of Virginia. I did return, Congressman, before--just 
before Andrew, 2 weeks before Andrew occurred. So I have been 
here for most of the major events that have taken place.
    Not that I should create panic, there are some small spots 
of bright news in that we have seen insurance rates, largely 
due to the mitigation credits, come down significantly over the 
past 2 years. However, this primarily takes care of the newer 
homes, and leaves out the older homes, which, obviously, need 
to be retrofitted. This is an area where I think the Federal or 
State Government can offer some relief and support in terms of 
grants, tax credits, and the like, to help other homeowners 
improve the risk. Improved risk will lead to better 
underwriting results, which should help to increase the 
affordability and availability of insurance.
    The number of companies which have been underwriting in 
this State have actually increased in number, the private 
companies, although Citizens, as has already been pointed out, 
is by far the largest insurer in the State.
    Well, that is just the good news. But the bad news is 
really more important. Our population growth has slowed 
significantly, and two of the main reasons have been property 
taxes and insurance. Florida is an area where a lot of retirees 
seek their final homes. And many have turned away, you know, 
for these very reasons. And we are now seeing the term half-
back as a common reference, especially in the realty community.
    Not that I am opposed to that. I am a vacation property 
owner in South Carolina myself.
    However, having said that, insurance rates still remain at 
historical high levels. And the pressure is felt even more 
today with our problems with our economy on individuals and 
families as to affordability. Other than a handful of national 
insurers who will underwrite high-valued homes, we basically 
are void of all brand names in our marketplace. By brand names, 
I am talking about the State Farms, the Allstates, Hartfords, 
Travelers, and so forth.
    We are left with a market consisting of start-up companies, 
most of whom have not been in business for more than 5 years, 
and who it might be questionable as to how well they could 
withstand a substantial hurricane, or perhaps even a less than 
substantial hurricane. We had seen, by benefit of our storms in 
2004 and 2005, a number of those companies that couldn't make 
it financially as a result.
    Obviously, this puts enormous pressure on our State 
catastrophe and guarantee funds, which ultimately leads back to 
the consumer. The few rated companies not Demotech rated, which 
is the rating given to those in business less than 5 years, who 
have been writing, are getting saturated with business. And 
this could very well threaten their future viability.
    The good news of decreasing costs also carries some bad 
news, in that these companies, who are, in my opinion, 
marginally funded, will have less premium dollars to pay losses 
should a catastrophe occur.
    There also remains severe restrictive underwriting in the V 
flood zones, and most of the companies that are writing are 
underwriting so on the basis of zip code saturation. So if you 
are fortunate enough to get into the company while there is 
open, you will get homeowners' insurance. Not speaking to the 
price, but availability. If they get saturated, they close it 
out, leaving a lot of people on the sideline.
    In conclusion, we have availability and somewhat improved 
rates, but are sitting on a time bomb reliant on the weather; 
when and where will the wind blow. We do not have a long-term 
solution, and one can only imagine what would have happened 
here in Florida if Hurricane Ike had hit here instead of Texas.
    Our key to the future, I think, is expanding our 
underwriting capacity, which must be done by having our brand 
names return to provide homeowners' coverage in our State. A 
free market competition economy will follow its own course, and 
lower costs over time, based upon underwriting results. This 
will only happen if they perceive they can control risk and 
have a reasonable expectation to earn a profit. This is where 
the Federal and State Government can and must provide vital 
support. As large as the insurance industry is, it is not 
sufficient to bear the entire risk. Catastrophic exposures due 
to population concentrations have become too significant.
    If insurers are better able to measure risk with some caps 
on their exposure, through more affordable reinsurance, whether 
private or publicly sourced, they can assess their ability to 
put a portion of their assets at risk in such--in our 
catastrophic area, as well as others.
    I do caveat, however, that regulation would be required, 
that the benefit of such a reinsurance plan is passed to the 
consumer and not retained in the profit coffers of the company.
    Chairman Moore of Kansas. Mr. Grillo, I am going to have to 
ask you to wind up--
    Mr. Grillo. Okay.
    Chairman Moore of Kansas. --your statement, sir.
    Mr. Grillo. Essentially, I am an open market person, but at 
the same time can see where the proposed legislation would have 
the Federal Government act as the conduit to better reinsurance 
costs.
    With proper integration of the plan into the insurance 
mechanism, it is logical to believe that it would result in a 
better purchasing environment for the homeowner, which is what 
we all desire.
    [The prepared statement of Mr. Grillo can be found on page 
73 of the appendix.]
    Chairman Moore of Kansas. Thank you, sir. Dr. Detlefsen, 
you are recognized for 5 minutes, sir.

  STATEMENT OF DR. ROBERT DETLEFSEN, VICE PRESIDENT OF PUBLIC 
  POLICY, NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES 
                            (NAMIC)

    Mr. Detlefsen. Thank you, and good morning, Chairman Moore 
and Representative Klein.
    I represent the National Association of Mutual Insurance 
Companies, a property casualty insurance association whose 
1,400 members underwrite more than 40 percent of the property 
casualty insurance premium written in the United States.
    Property insurance has, indeed, become more expensive and 
somewhat less available in the coastal regions of the United 
States. The reason for this is quite simple. The exposure of 
densely concentrated high-value property in certain geographic 
regions to relatively high levels of catastrophe risk means 
that property insurance in these regions will be expensive 
compared to regions that have lower levels of catastrophe risk.
    Attempting to make property insurance in catastrophe-prone 
regions more affordable in high-risk areas, many States in 
hurricane-prone coastal regions, including Florida, impose 
rating and underwriting restrictions on property insurers that 
act as price ceilings on coverage.
    While this rate suppression lowers the cost of insurance in 
the short term, it has long-term consequences that are far 
worse for insurance consumers. Government-mandated rate 
suppression lowers prices for people living in high-risk 
regions by requiring insurance buyers in low-risk regions to 
pay more, robbing Peter to pay Paul.
    Further, inasmuch as higher insurance premiums serve as a 
powerful disincentive to further population growth and economic 
development in disaster-prone areas, insurance rate suppression 
perversely removes this disincentive. By distorting the 
public's perception of risk, rate suppression encourages the 
very phenomenon that created the problem in the first place, 
the growing concentration of people and wealth in high-risk 
regions.
    Moreover, as the Wall Street Journal noted in an editorial 
published earlier this week, Florida's approach to insurance 
regulation ``isn't even within a coastal mile of being 
actuarially sound. The State government acknowledges that in 
many high storm risk areas, the premiums are from 35 percent to 
65 percent below what is needed to cover potential claims. That 
subsidy has made Governor Crist popular with many coastal 
residents, even as the State plays Russian roulette with the 
weather.''
    Rate suppression and underwriting restrictions are also 
largely responsible for the insurance availability problem in 
coastal areas. When government rate regulation prevents 
insurers from covering their costs, they may have no choice but 
to exit the market, as has happened here in Florida recently.
    If the Florida approach is not the right way to solve the 
problem, what is? To answer that question, NAMIC has been 
working with a team of insurance experts at the Wharton School, 
as well as with a task force of its own members.
    The Wharton team identified two key principles that should 
guide insurers and policymakers as they grapple with national 
disaster insurance issues. First, insurance premiums should be 
based on risk, to provide signals to individuals as to the 
hazards they face, and to encourage them to engage in cost-
effective mitigation measures to reduce their vulnerability to 
catastrophes.
    Second, any special treatment given to lower-income 
residents in hazard-prone areas who cannot afford the cost of 
living in those locations should come from general public 
funding, and not through insurance premium cost subsidies.
    NAMIC's own statement of principles reflects these two key 
points, and identifies building codes and mitigation measures 
as two important additional ways to address disaster risk 
management issues. Thus, NAMIC supports two congressional 
bills, H.R. 2246 and H.R. 2592, that would encourage the use of 
strict building codes. We also support the mitigation grant 
provisions of Representative Klein's bill, the Homeowners' 
Defense Act. In fact, we would support more generous mitigation 
grants, because mitigation is one of the most effective ways 
both to reduce the individual's exposure to catastrophes, and 
to reduce his or her insurance costs. While NAMIC appreciates 
the work done by Representative Klein on this subject, we do 
not support the portions of the Homeowners' Defense Act that 
would build on State catastrophe funds, because such mechanisms 
invariably underprice the true risk-based cost of insurance.
    We believe a better path would be to let the private market 
set risk-based insurance prices in order to create incentives 
for people to engage in risk mitigation and risk avoidance 
strategies. This leads to an important point. NAMIC recognizes 
that there are low-income people living in high-risk areas who 
simply could not afford risk-based premiums. Rather than 
distorting insurance markets to address this problem through 
rate suppression, NAMIC supports direct means-tested Federal 
subsidies to low-income residents of such areas, modeled on the 
Federal social welfare programs that provide Food Stamps and 
housing vouchers.
    In conclusion, NAMIC realizes that property owners and 
insurers, mortgage lenders, Realtors, and home builders who 
live and do business in coastal areas will face serious 
challenges in the years ahead.
    Congress can play a constructive role by reforming the 
National Flood Insurance Program, creating incentives for 
States to enact and enforce effective State-wide building 
codes, offering mitigation grants, and providing targeted 
subsidies that would enable low-income property owners to pay 
risk-based property insurance premiums.
    Thank you for your kind attention--
    Chairman Moore of Kansas. Thank you.
    Mr. Detlefsen. --and I would be happy to answer any 
questions you might have.
    [The prepared statement of Dr. Detlefsen can be found on 
page 36 of the appendix.]
    Chairman Moore of Kansas. Thank you, sir. Ms. Repetto, 
please.

   STATEMENT OF S. COLLEEN REPETTO, EXECUTIVE DIRECTOR, FAIR 
                INSURANCE RATES IN MONROE (FIRM)

    Ms. Repetto. Thank you, Chairman Moore and Congressman 
Klein, for this opportunity.
    My name is Colleen Repetto, and I am the executive director 
of FIRM, Fair Insurance Rates in Monroe, also known as the 
Florida Keys. We are a 501(c)(4) grassroots organization that 
began at a backyard barbecue in 2006, and has grown to more 
than 5,000 members countywide. We are run by volunteers, and we 
are funded by donations.
    FIRM brought attention to the State-wide windstorm 
insurance prices by successfully challenging Citizens Property 
Insurance 2006 Monroe County rate filings. In 2004, a 1,900 
square foot home, built to withstand 150-mile-an-hour winds, 
with hurricane protection, was paying $3,000 a year in 
windstorm premiums. By 2006, the same home was billed $15,900 
for a 1-year premium, and had never had a wind claim.
    As a result of our engineering, meteorological, 
geographical, statistical, and historical verified facts, which 
proved that our county had been charged excessive windstorm 
rates, the Office of Insurance Regulation rolled back our rates 
by 32 percent.
    The rate was not the only issue. A Florida law allowing 
insurance companies to bill, and then file them for approval, 
was devastating to our policyholders. At the extremely high 
rates, people were receiving invoices from $9,000 to $25,000 
for 1 year's premium on an insurance policy that, in the Keys, 
because we build to the highest, strongest building codes in 
the State, it was highly unlikely that the majority of our 
insureds would ever have damage greater than their deductible, 
and therefore, have no claim against the policy.
    FIRM lobbied our State legislators to help repeal, although 
temporarily, the Use and File Law. Insurance companies 
currently must file their rates with the OIR before billing 
their policyholders. We continue to press to make File and Use 
a permanent law.
    Contrary to popular perception, Monroe County is not a 
wealthy county. We have many low- and middle-income residents 
who could not afford this insurance, and were in distress at 
how they would provide the coverage that was required by their 
mortgages.
    Currently, risk models used in setting rates do not 
separate wind and flood, and, therefore, do not accurately 
reflect probable maximum loss for each peril. There is no all-
risk hurricane insurance. Wind is provided by State or private 
insurers, and flood is a Federal program. Claims can be delayed 
for years, until the damage is proportionately assessed, which 
cause additional financial burdens for property owners trying 
to get their lives back on track after a devastating storm.
    We feel strongly that Federal funds, which are really all 
taxpayer dollars, should not be the first line of financial 
relief for natural disasters.
    The National Climatic Data Center, a division of NOAA, 
tracks and evaluates natural catastrophic events that have 
great economic and societal impacts. In 2008 alone, 
$58,000,000,000 for insured and uninsured properties was spent 
in 44 States before the ice storms in the Northeast in 
December.
    FIRM believes in personal responsibility, especially in 
high-risk areas. Property owners should strengthen their 
buildings to meet or exceed their regional perils, and buy 
insurance. All-risk policies could be provided by private 
insurance companies, capping their losses, followed by State 
catastrophe funds paying all-risk claims to their cap loss, 
with a Federal financial obligation guaranteed to kick in as a 
backstop.
    Consumers need to be educated on the cost-savings benefits 
of strong building and mitigation, and offered low-interest 
loans or grants to better withstand the high risk.
    Local governments have a responsibility to properly and 
appropriately develop land use regulations, and enforce 
building codes. Windfall tax dollars generated by rebuilding 
and repairs after a storm should be used to build State CAT 
funds--fund reserves, fund mitigation programs, and/or reduce 
premiums in the areas where they are collected. These 
unanticipated sales tax revenues should not be allowed to be 
deposited into general funds for use in any other way.
    All in all, a comprehensive, multi-level, all-risk 
catastrophic insurance program needs to be implemented to 
preserve assets, protect the lives of our citizens, and 
maintain stable communities.
    And we are very grateful to you to allow us to participate 
and tell our story.
    Thank you.
    [The prepared statement of Ms. Repetto can be found on page 
82 of the appendix.]
    Chairman Moore of Kansas. Thank you, Ms. Repetto.
    We would like to begin our questioning now. And, again, we 
are going to have limits here, because we have a couple of 
other panels who need to testify.
    But, Mr. Itkin, I want to thank you for testifying, sir, 
and ask you a question. From your perspective, sir, who should 
bear the cost of disaster assistance after a natural 
catastrophe? Should it be the local residents, the insurance 
industry, the government, or some combination of the three?
    Mr. Itkin. Well, I think it has to deal with--that we have 
to pool our responsibilities for this particular situation, 
like a catastrophe, if it occurs.
    You know, there are a lot of places around this country 
where they do have naturally occurring damages from tornadoes 
and from hurricanes. We tried to address at least people who 
had flood problems by enacting national flood insurance.
    I think what is required is a national program which then 
can take control and provide for adequate premiums nationwide 
that will cover the costs of, you know, occasional damages that 
come in various locales.
    I think it is just important. Like that is what basically 
insurance is. It is spreading the risk. And I think it is--in 
our situation, we don't have a--much yet, much tornado damage, 
and so--but there are people who do have tornado damage, and 
they suffer huge losses. So there has to be some way of 
combining people with their risk, having risk.
    Chairman Moore of Kansas. Thank you, sir. Ms. Repetto, do 
you have any additional comments on that question?
    Ms. Repetto. Well, we believe in a four-tiered approach. 
First of all, I think, because we are a consumer group, we 
always feel left out of the--when people talk about this.
    The four-tiered approach is basically policyholders pay 
insurance companies for a product and a service. Before anyone 
else pays, when there is damage, we have to pay our deductible. 
So we kind of pay twice. We pay a premium for something we hope 
we never have to use, and I am sure the insurance companies 
feel the same way, but we, in our case, we had a homeowner who 
had her property insured, her building insured for $850,000. 
Now, that is a significant property. She had a 10 percent 
deductible with windstorm. Her premium, after she took the 10 
percent deductible, was $18,000.
    When you add the premium of $18,000, which is out-of-
pocket, to a 10 percent deductible should she have a 
catastrophic loss, you are talking about this family having 
$103,000 out-of-pocket before they had ever filed.
    So the four-tier approach is the policyholders, I 
absolutely believe everyone should buy insurance. You pay your 
deductible, you would pay--you would then go to the insurance 
company to pay the claim.
    Beyond that, I think the insurance companies could have an 
all-risk policy that they cap the losses; then it could be a 
State catastrophe fund, cap loss; and then the Federal 
guarantee on top of that as a backstop.
    Thank you.
    Chairman Moore of Kansas. Thank you very much.
    Ms. Shelton, does the cost or availability of homeowners' 
insurance have an impact on home prices in your community 
across Florida?
    Ms. Shelton. Yes, sir, it does in many ways. And I will use 
an example right now. My daughter just bought a home in 
Tallahassee. The insurance policy on an 1,100 square foot home 
is--I had three quotes: one was $900; one was $1,200; and one 
was $1,500. The $900 is fairly less insurance, but if you look 
at that, that is over $100 a month on the average, if you use 
the middle ground there, that affects, on a $550 house payment, 
an additional $100 is going to go to insurance, not counting 
the tax base. So I would tell you that it affects probably the 
affordability of not only the average or affordable home price 
range, that is where it seems to get hit the hardest, but it 
also affects all across. Like we are still paying for Katrina 
right now. And so at some point, we have to realize, whether we 
are paying it for through taxes, through Congress in other 
ways, or, here in Florida, as an individual homeowner, I would 
tell you it is affecting the pricing of homes, as well as 
commercial properties across our State.
    Chairman Moore of Kansas. Thank you. And my time is about 
up. I am going to now yield to Congressman Klein for 5 minutes 
of questions.
    Mr. Klein. Thank you, Mr. Chairman. And I thank all of you 
for coming today and taking time out of your busy lives to 
share with us your experience. As I was listening, Mr. 
Chairman, to the conversations here, if we were anywhere in the 
United States that has had insurance problems, it would 
probably be the Realtors, the insurance agents, the homeowners 
coming together--the home builders, all talking about building 
codes, and mitigation, and costs, and spreading the risk; it 
would be the same conversation. So I think this is somewhat 
representative of a problem that we see all over the United 
States, even though this particular meeting is taking place 
here in West Palm. I think we all share, and, Doctor, I think 
you had mentioned where we share the interest in mitigation and 
exposure.
    As a Realtor, if you could just start out with telling me 
the kinds of impacts you think that mitigation--and that 
responsibility for mitigation. Do you think homeowners take 
that certainly? And, certainly, if insurance was incentivizing, 
taking responsibility, whether it is window issues, securing 
the trusses, all those kinds of things. Can you just share with 
us what your thinking is on how mitigation plays into 
stabilizing our insurance system?
    Ms. Shelton. Well, first of all, the mitigation plans that 
we are looking at right now, including the one that you are 
building, we believe you have to build strong homes. If you are 
going to build on the coast, you need to build a strong home on 
the coast, whether it is the shutters, or whatever it is going 
to take to protect, to prevent against loss. That is a cost, if 
you know up front, Congressman Klein, that you know is going to 
be an issue, you can plan. You know, I can't afford this 
property if the cost to build it to codes or mitigate it to be 
stronger is too expensive. I will look at other alternatives in 
other areas. What happens, though, is, currently, mitigation 
isn't really given credit on anything other than homes. If you 
start looking at the commercial properties, it doesn't matter 
how well you build it; you do not get a break on commercial 
properties.
    Mr. Klein. Have we incentivized enough, I mean, from the 
insurance point of view, as--
    Ms. Shelton. No.
    Mr. Klein. --a consumer, the investing? They are expensive 
propositions--
    Ms. Shelton. They are very--
    Mr. Klein. --for retrofitting.
    Ms. Shelton. They are very expensive. And if you think 
about the average homeowner, just getting into a home in 
today's economy, to tell them--not new construction. I 
sincerely believe new construction, we have to build to better 
standards.
    Mr. Klein. Okay.
    Ms. Shelton. Without a doubt. I do think some areas of the 
State have done that. Some have not. I think around the 
country, there are different things. If your house floods, why 
would you continue to build it in the same area? So I think 
there are things we have to take responsibility for 
individually. I do think the cost of mitigation for existing 
properties is astronomical. It is sometimes not worth taking 
that funds and put into it. You might as well set it aside and 
wait for the catastrophe to hit, and use it then, because it is 
just not practical to do so. I do think some of the credits 
have helped.
    Mr. Klein. Can we--Mr. Grillo, can we, and should we, be 
doing more as a government, as a private sector, as an 
insurance underwriter, do more to incentivize investing in 
mitigation?
    Mr. Grillo. Absolutely. And that was part of my opening 
statements. The problem we have is those who are moderate- to 
higher-income can afford to take these steps in terms of the 
new construction, and also in terms of retrofitting of their 
homes. But we have people who are not necessarily low income. 
Take my daughter, for example. She is a teacher, and her 
husband, until a year-and-a-half ago, earned his living in the 
construction business, which is, of course, really underwater 
right now, so to speak. But if you look at just her salary as a 
teacher, she earned too much to gain much assistance from many 
of the programs currently available. Yet, when you take her 
salary and you net it down to what the net income is, it 
doesn't leave a lot left over to pay for major renovations of a 
home, of a retrofit of a roof; if it is an older home and 
didn't have the benefit of shutters, to invest in shutters. 
These are expensive propositions when people are trying to put 
food on the table.
    Mr. Klein. Mr. Chairman, one more question?
    Chairman Moore of Kansas. Certainly.
    Mr. Klein. Dr. Detlefsen, I share with you your--and I 
think most of us share the view on mitigation and reducing 
exposure. That is good for everyone. It is good for whomever is 
involved in this process: Homeowners, in terms of deductibles, 
and the insurance underwriters, as well as any government 
involvement. Where I differ, respectfully, with your view on 
the risk side is I would agree with your statement that we want 
to assess this based on risk. There have been proposals in 
Florida, if you follow the Florida Legislature, about 
deregulating insurance and letting the market go wherever it 
needs to go. There are a lot of problems with that, and 
certainly that doesn't provide, necessarily, the fact that 
insurance companies will sell in areas where we need insurance. 
And I think, as a public policy, we all understand the 
necessity for mortgages, and for people's peace of mind, you 
know, they can get insurance at a reasonable price, based on 
risk.
    Here is my problem with just the comment about risk. 
Florida, a number of years ago, the Florida Legislature allowed 
I-95 to be an east/west point of demarcation for windstorm. If 
I could just finish this.
    Chairman Moore of Kansas. Certainly.
    Mr. Klein. I appreciate that opportunity. I like to call 
that the I-95 Mountain Range. Now, the I-95 Mountain Range is 
not a real mountain range; it is a road that was constructed 
wherever they had the land to do it. But on the east side, 
there is presumably a higher risk on one side, and on the west 
side, there is a different risk. And yet, in the last four 
hurricanes we had in Florida, a lot more damage, because the 
hurricanes came from the west, than any kind of storm surge or 
anything on the east side. And it is not a question of more--
higher property values or lower property values. It is an 
artificial designation. Now, risk is--how will we define it, 
you know? And most of the damage in Florida has been more 
inland. So just share with me, you know, how we get our arms 
around the risk. Because I think we agree on the assumption, 
but we are--you know, it is how you define it, and how you get 
to that point that people understand that you pay more if it 
truly is a higher risk.
    Chairman Moore of Kansas. And, Dr. Detlefsen, our time is 
up. So I am going to ask you to respond, if you can, within 30 
seconds, and then submit whatever written statements you would 
like for the record. It will be part of the record.
    Mr. Detlefsen. Representative Klein, I would agree with you 
that the I-95 divide is irrational and not an actuarially valid 
basis for distinguishing high-risk and low-risk regions. But, 
as you pointed out, that was an artificial construct that was 
created by the legislature.
    Mr. Klein. Requested by the insurance industry. It was 
not--the Florida Legislature didn't come up with this on its 
own. It was the insurance industry that came and said we need 
this, that is the divide. I was there at the time.
    Mr. Detlefsen. Well, but that is because they are not 
allowed to charge based on risk, and so with--in regard to 
individual areas that have high risk relative to other areas, 
and so they needed some way of being able to recoup the cost of 
insuring in the higher risk regions by charging more in other 
regions. And this apparently was what the legislature was 
willing to allow them to do. It is certainly not an ideal 
situation from the standpoint of the insurance industry.
    Chairman Moore of Kansas. I am going to have to close this 
panel down. I would invite each of you, if you have additional 
information you would like to provide to the members here, to 
submit written statements. They will be made a part of the 
record and considered. And I thank you very, very much for 
testifying. I excuse you, and I would like to invite the second 
panel to come up to testify. Please take your seats, and, 
again, thanks for testifying.
    Ray Spudeck, if you would, please. I am pleased to 
introduce our second panel of witnesses for this morning's 
hearing. For this panel, we will hear from former Florida State 
Senator of the 31st District, and the former president of the 
National Conference of Insurance Legislators, the Honorable 
Steven Geller.
    I am also pleased to introduce Dr. Ray Spudeck, chief 
economist in the Florida Office of Insurance Regulation.
    Without objection, gentlemen, your written statements will 
be made a part of the record. You will each be recognized for a 
5-minute statement summarizing your written statements. And, 
Senator Geller, you are recognized for 5 minutes, sir.

STATEMENT OF THE HONORABLE STEVEN GELLER, FORMER FLORIDA STATE 
SENATOR, AND FORMER PRESIDENT, NATIONAL CONFERENCE OF INSURANCE 
                          LEGISLATORS

    Mr. Geller. Thank you, Mr. Chairman. And I would love to 
spend an hour debating the gentleman from NAMIC.
    Congressman Klein, I was the Chair of the Property and 
Casualty Subcommittee when Hurricane Andrew struck, so I am 
happy to go over that with you.
    Good morning. I am Senator Steve Geller. Until I retired in 
November, I was the minority leader of the Florida Senate. I am 
past national president of the National Conference of Insurance 
Legislators, and chaired the Natural Disaster Subcommittee. I 
believe that a national natural disaster program of some type 
is absolutely critical. Some type of Federal backstop, such as 
the Terrorism Risk Insurance Act, is necessary for natural 
disasters. Expanding the National Flood Insurance Program to 
cover all natural disasters would also work.
    I know from my days at NCOIL that many of my legislative 
colleagues asked why their constituents should pay so that a 
few wealthy people can live on the coast. It is not an issue of 
a few wealthy people living on the coast. Many of my former 
constituents in Century Village, Pembroke Pines, a senior 
community located much closer to the Everglades than to the 
ocean, will tell you that they can't make ends meet because of 
the high cost of windstorm insurance. Close to 80 percent of 
the population of the State of Florida lives in our 35 coastal 
counties. And no part of the State is more than 80 miles from 
the coast. And it is not just a Florida issue.
    Mr. Chairman, I have a DVD that I would like to enter as a 
supplement to my remarks.
    Chairman Moore of Kansas. That will be received in the 
record.
    Mr. Geller. Thank you, sir. It is the introductions to 20 
episodes of the Weather Channel television series, ``It Could 
Happen Tomorrow.'' Each of the 20 episodes deals with natural 
disasters that could occur tomorrow, causing anywhere from 
hundreds of deaths to hundreds of thousands of deaths, from 
billions of dollars in damages to hundreds of billions of 
damage. And they are all over the country. They include 
wildfires, floods, earthquakes, hurricanes, a volcano, and 
tornadoes.
    Mr. Chairman, it is a national issue. If any of the natural 
disasters that I mentioned occur, Congress will have to step 
in, or else face a collapse of the financial system. If a 
natural disaster costing $100 billion or more occurs, and 
Congress does nothing, the insurance industry will become 
insolvent. If the insurance industry can't pay off homeowners' 
policies on homes that have been destroyed, the banks that 
loaned money on those homes without insurance will fail. Is 
this starting to sound familiar?
    The insurance industry is dealing with both actuarial risk 
and time risk. If there is a 1-in-100-year event that would 
cost $100 billion, the industry could charge $1,000,000 a 
year--I apologize. That would cost $100,000,000, the industry 
could charge $1,000,000 a year for 100 years for reserves, and 
that number will be actuarially sound. However, because of time 
risk, the insurance industry is trying to raise that hundred 
billion dollars as soon as possible, which raises rates to an 
impossible amount. And I don't blame the industry for trying to 
do this. Only the Federal Government can absorb the time risk 
while charging actuarially sound rates.
    Let me give you some concrete examples of how great these 
savings could be if Congress steps in and eliminates the time 
risk.
    In Florida, the State CAT fund charges rates approximately 
78 percent to 90 percent less than private reinsurers. Because 
they have post-claim funding, they can eliminate the time risk. 
In Florida, over 50 percent of all windstorm dollars go 
directly to pay for reinsurance. In south Florida and other 
coastal areas, this number is much higher, up to 80 percent or 
90 percent. Using simple math, we see that the total windstorm 
rates in south Florida could be reduced by 60 to 65 percent 
with an appropriate Federal program. I believe that the high 
cost of windstorm insurance is the single biggest issue in the 
State of Florida today. Many people pay more in homeowners' 
insurance than they do on their mortgage or property taxes. 
Businesses have to raise their prices to pay for the high cost 
of windstorm insurance.
    The root of our current financial mess is the housing 
crisis. Congress has been working on ways to keep people in 
their homes. When people pay as much for homeowners' insurance 
as they do for their mortgage, a large reduction in their 
insurance rates helps far more than a cut in their mortgage 
payments. Let me repeat this. In many areas of the country, the 
single best thing that Congress can do to keep people in their 
homes is to pass a natural disaster bill. The best stimulus 
package that we can pass is not sending everybody $200. It is 
reducing their insurance premiums by hundreds or thousands of 
dollars a year. Let the consumer spend those savings in 
restaurants and stores, and we will have a much greater 
stimulus package than what Congress passed.
    Chairman Moore of Kansas. I am going to have to ask you to 
wind up, sir.
    Mr. Geller. Yes, sir, I will. And let's improve our balance 
of trade. The majority of the reinsurers are in foreign 
countries. Swiss Re, Hanover Re, Munich Re, Bermuda Lloyd's. 
Let's keep our American dollars in the American economy, 
instead of sending them overseas. No State can handle this 
alone. We have done our part.
    Mr. Chairman, we thank you, and we hope that the Federal 
Government will help us out here.
    [The prepared statement of Mr. Geller can be found on page 
66 of the appendix.]
    Chairman Moore of Kansas. Thank you, Senator. Dr. Spudeck, 
you are recognized for 5 minutes, sir.

  STATEMENT OF DR. RAYMOND SPUDECK, CHIEF ECONOMIST, FLORIDA 
                 OFFICE OF INSURANCE REGULATION

    Mr. Spudeck. Chairman Moore, Congressman Klein, on behalf 
of the Florida Insurance Commissioner, Kevin McCarty, I thank 
you for the opportunity to have the Office of Insurance 
Regulation testify before you today on what is probably the 
single most important issue to the Florida economy. My name is 
Ray Spudeck. I am the chief economist for the Florida Office of 
Insurance Regulation.
    In addition to dealing with this issue on an ongoing basis 
for Florida, which is why I think I look pretty good for a 20-
year-old man, I also have worked very closely in the national 
debate on this issue, both within the Federal Government and 
with agencies of the Federal Government, and with the National 
Association of Insurance Commissioners.
    If I could, I think there are some things, as we talk about 
this issue, that we could agree on. First and foremost, we 
can't stop the ground from shaking, we can't stop the 
hurricanes from making landfall, and we can't stop the rivers 
from breaching. What we can do is ensure that we are prepared 
before that happens, that we are there, boots on the ground, 
ready to solve the problem immediately after it happens, and 
that we have a system that will speed the economic recovery.
    Along those lines, it is Florida's loss, but I do believe 
it is the country's gain with Craig Fugate now moving to manage 
FEMA and direct FEMA. He is responsible for, I think, what we 
have as one of the best first responder systems that is 
available. And we have shared that with other States as they 
have needed it for natural disasters. That is first and 
foremost, and I think we can all agree on that.
    Secondly, I would think most would agree that the economic 
recovery and the single most important thing that speeds an 
economic recovery is, in fact, the insurance mechanism. If 
people can't get their homes repaired, they can't come home, 
and they can't go to work. They also can't go to work if the 
building--if the place where they work hasn't been repaired, or 
if the schools are not repaired and being opened. Insurance is 
the engine that drives that, however that insurance is 
financed. So, critically, that is important, because there is a 
direct link between the risk of loss and repair of a specific 
building. It is much easier to talk about repairing your office 
building or repairing your home than it is saying, here is a 
bunch of money, here is a city; now, how do we want to repair 
it. We have seen signs of that economic recovery, both good and 
bad, in different cities around the country, around the Nation, 
over the last decade, and we will continue to see that.
    Now, the question of how that is financed and the framework 
in which that insurance is provided leads to some 
discrepancies. As noted obliquely, we have entirely different 
systems for how we do this risk, and how we insure this risk, 
and how we create this insurance mechanism, depending on the 
type of risk. That, in turn, leads to how we recover for this 
type of risk. If the catastrophe is a hurricane, we insure that 
right now in the private sector, in some cases with help from 
the States, and what we notice is that claims do get paid, by 
and large, and economies can and communities do get recovered.
    We do see some issues I will talk about with that market as 
I move forward, but that does seem to happen. If the next 
event, or if the major catastrophe is an earthquake, well, we 
are going to have an entirely different story. The good news is 
there won't be much insured loss, because, as Congressman Klein 
noted, since it is an optional cover in most insurance 
contracts, including those that, by the way, are guaranteed by 
the Federal mortgage agencies, there is not going to be much of 
an insurance loss. There is going to be economic devastation.
    A modeling firm recently estimated that a repeat of the 
1906 San Francisco earthquake would create--and the headlines 
all read--between $50- and $80,000,000,000 worth of insured 
losses. The next line of that report did not make the 
headlines, but suggested there would have been, actually, about 
$250,000,000,000 worth of insured losses. And I am pretty sure 
we know how that is going to be recovered and that is going to 
get paid. It is going to get paid for by the American taxpayer.
    In the case of flood insurance, every time the flood 
breaks, it costs somebody money. And, generally, it doesn't 
cost the people who have the floods themselves. And we see that 
different ways. I mean, we have a system currently; we are 
familiar with that in Florida. According to the Government 
Accountability Office, over the last 30 years, Floridians have 
paid in $10,000,000,000 more than they have taken out in 
losses. We could have used that $330,000,000 a year to do a lot 
of other things for our own markets. Again, a huge limit on--a 
huge bill, and a huge bill for the American taxpayer.
    So, in contrast to a lot of the critics of the work that 
you are trying to do, Congressman Klein, or the work that is 
trying to be done in the House this year, I would argue that 
the only publicly subsidized system that we have for dealing 
with catastrophic insurance risk is the one we currently have 
in place. Now, I think the private market works. I think there 
are issues, and I think there are areas where the government 
could get involved. And I will try and be brief. What we notice 
following a severe event is that there are disruptions to the 
marketplace. There is a volatility in the availability and 
pricing of insurance that in many cases makes it impossible. 
People are certainly saying that now.
    In Florida, we were probably, most would argue, getting 
close to an equilibrium before the 2004-2005 hurricanes. That 
is completely gone now. In 2006, we saw, and this obliquely 
contradicts Dr. Detlefsen's question, surplus line companies, 
companies that are unregulated as to form and rate, actually 
canceling policies in mid-term, because they could no longer 
take the cover.
    Nationally, as noted, the national insurance companies, the 
large insurance companies, have retreated from the coast. Not 
only the coast, they have retreated from catastrophic risk in 
all areas. Since 2000, the amount of insured exposure that has 
gone into residual markets nationwide has risen from 
$113,000,000,000 in 2000 to $670,000,000,000 in 2007. I am 
somewhat happy to report that, actually, Florida is reversing 
that trend. We are actually taking policies out of Citizens, 
and moving them in. What can the Federal Government do, I 
think, to try and close up--
    Chairman Moore of Kansas. Dr. Spudeck, I am going to have 
to ask you to wind up, and you can submit your written 
statement for the record, please, sir.
    Mr. Spudeck. I will do that.
    Chairman Moore of Kansas. Thank you.
    Mr. Spudeck. If I can just--to finish up, there are things 
the Federal Government can do. Mitigation is important. We all 
agree on that. Federal--you guys--Federal Government guarantees 
a lot of mortgages. Why insurance isn't covered, why homes 
aren't built is not clear to me at all. Catastrophe reserves, 
the Internal Revenue Tax Code, you guys control that, not us. I 
think that can build reserves. And back up plans moving forward 
that don't disrupt the private market I think are important.
    We look forward to working with you, and I am happy to 
answer any questions.
    [The prepared statement of Dr. Spudeck can be found on page 
103 of the appendix.]
    Chairman Moore of Kansas. Thank you. And I will recognize 
myself for 5 minutes for questions. And, again, each of you 
will have an opportunity to submit any additional comments you 
would like to make for the record. We would appreciate that.
    What kind of impact, in terms of--well, what kind of impact 
is the present system going to have on property values in 
Florida if nothing is done by the Federal Government about what 
the Congressman and I are talking about here, something in that 
area? And I will direct first to you, Dr. Spudeck.
    Mr. Spudeck. Well, there are two things that are going to 
happen. First of all, as it becomes increasingly difficult to 
insure unmitigated homes, we recognize that if it continues the 
way it goes there are going to--there will likely be properties 
that are just: A, uninsurable; and B, unsalable. The average 
age of a home in Florida is between 24 and 25 years old. That 
predates most of the modern building codes. We tried to develop 
a mitigation program and a My Safe Florida Home Program. That 
has been very successful. The current economic situation has 
limited the amount of budget to that program from the State 
level. I think that is--otherwise, yes, I mean, we have an 
awful lot of older homes that aren't mitigated. These are 
interior homes, you know.
    Chairman Moore of Kansas. Do you agree, Senator, or have 
any additional comments, sir?
    Mr. Geller. Yes, Congressman. The current system is just 
devastating for home values, as you heard the Realtors talk. 
You are required to have insurance to purchase a home. If 
insurance is unavailable or unaffordable, then it devalues the 
home. Today, if you are--not even if you are on the water, if 
you are close to the water, if you are blocks and blocks away, 
you can be paying more, far more for your insurance than you 
are for your mortgage or your taxes. If you are close to the 
water, you could pay more for insurance than the two of them 
combined. People can't afford that. If they can't afford the 
home, they won't buy the home. That drives the value down.
    And, again, we are not asking Congress to assume actuarial 
risk. Just assuming the time risk will solve much of this 
problem.
    Chairman Moore of Kansas. I am going to yield now to my 
colleague for 5 minutes for questions. Congressman?
    Mr. Klein. Thank you, Mr. Chairman. And thank you, 
gentlemen, for being here today and sharing with us your 
experience. Let's start with Senator Geller.
    One of the things that we are talking about is the whole 
risk assessment and whether doing something which helps to 
stabilize the insurance market encourages bad behavior. You 
know, people building in coastal areas. We know in Florida, and 
many parts of the United States, a large percent of our 
population, in the entire country, lives close to water.
    Mr. Geller. Yes, sir.
    Mr. Klein. On the coast, and other places. So we have an 
existing issue. It is not like you can just wipe that away and 
pretend like it is not there and say, well, all those people 
just have to fend for themselves. We are trying to--we have a 
public policy that says that insurance is good, and we want to 
do that.
    Can you just share with us whether your view of this is 
that there is a crowd-out issue here if we do something like 
create a national risk catastrophe pool.
    Mr. Geller. Not at all, Congressman. The problem here, as 
you pointed out, what some people say, oh, don't build near the 
water. All right. So let's eliminate Miami Beach, let's 
eliminate Fort Lauderdale, let's eliminate Palm Beach. That is 
not going to happen. And 80 percent of our population in 
Florida lives in the coastal counties. People living near the 
water today pay more. They should pay more. According to 
actuarial models, it is higher risk. Our problem isn't most 
hurricanes. Our problem is the unpredictable, 1-in-100-, 1-in-
150-, 1-in-200-year disaster. That is the same reason you 
passed TRIA. You can't model for something that you can't 
predict. And you just can't predict the damages for a 1-in-200-
year earthquake. You can't model for what is going to happen 
when the New Madrid Fault goes. And that is in the State right 
next to yours, Mr. Chairman. And so what's going to happen when 
all of these occur, it is impossible to model damages. We think 
that if you--the State and the private market can deal with the 
predictable 1-in-10-, 1-in-20-, 1-in-50-year events. All we are 
asking for is the unpredictable mega disaster, because right 
now, the insurance industry is trying to charge for an event 
that probably will not occur in the lifetime of anyone in this 
room.
    Mr. Klein. Mr. Chairman, if I can just share with you a 
conversation I had with Steve Israel?
    Chairman Moore of Kansas. Certainly.
    Mr. Klein. Steve Israel is a colleague of ours from Long 
Island in New York. And he got involved in our legislation 
because he started hearing from a lot of his constituents who 
were getting letters from a national insurance underwriter 
saying something to the effect of we are overdue for the big 
one, and--meaning a hurricane that sort of travels up the coast 
and hits Long Island--and, as a result of that, we are non-
renewing, we are just canceling or not issuing new policies, 
and canceling old policies as they come up for renewal, in 
large scale in that area. So he all of a sudden was getting the 
same phone calls that we get here in Florida and other places 
where they couldn't get policies and national underwriters 
would come in. And here was just the speculation that maybe 
over time there is going to be a very bad storm.
    Yes, and I think that is very helpful in understanding the 
question of crowd-out. Again, it is a matter of understanding 
risk. Everyone understands there are certain places in the 
country that are going to pay more. We get it. We are looking 
for stability, that there is a predictability and stability. We 
need to know that there is mitigation responsibility in 
homeowners, so the Category 1, 2, or 3, in the form of a storm 
like ours is probably not as damaging, other than trees falling 
over, maybe some minor damage. In California, if homes are 
built to earthquake standards, that many of the homes can be 
fortified and built to new standards. I am all for the building 
codes. And I think that is probably the right thing.
    Mr. Chairman, if I can also, very briefly--
    Chairman Moore of Kansas. Certainly.
    Mr. Klein. --acknowledge, there are a number of people in 
the audience who are elected officials and others. I just want 
to--since they are here, I want to acknowledge them. State 
Representative Kelly Skidmore is here. We also have 
Commissioner Mack Bernard from Delray Beach.
    Chairman Moore of Kansas. Yes.
    Mr. Klein. And we have a representative from State 
Representative Joe Abruzzo's Office here. Barbara Zee and Ken 
Lassiter are here from COBRA. Long time friends, and people who 
have been very involved from the very beginning of these 
issues. I just wanted to acknowledge and thank them for their 
involvement and their interest.
    Mr. Geller. Mr. Chairman?
    Chairman Moore of Kansas. Yes, sir?
    Mr. Geller. May I briefly comment, 30 seconds or less, on 
what Congressman Klein--
    Chairman Moore of Kansas. 30 second or less, yes, sir.
    Mr. Geller. Congressman Klein, we found from COIL the most 
expensive natural--the most expensive hurricane won't hit 
Florida. It will hit New Jersey on its way up to New York. The 
same problems we are having here right now, Houston, coastal 
Texas, the entire Gulf Coast, as you mentioned, New York, New 
England. It is not a Florida issue. These same issues are 
occurring everywhere around the country. Not in California, 
simply because they are not buying insurance. But the most 
expensive natural disaster is clearly not in Florida.
    Thank you, Mr. Chairman.
    Chairman Moore of Kansas. I thank the witnesses for their 
statements, and this panel is now excused. And I will invite 
our third and final panel to take their seats, please.
    Good afternoon. I am very pleased to introduce our final 
panel of witnesses for this morning's hearing. For this panel, 
we will hear from retired Admiral James M. Loy, former 
Commandant of the United States Coast Guard, and former Deputy 
Secretary of the U.S. Department of Homeland Security.
    And second, but certainly not least, we will hear from Ms. 
Vicki Williams, outreach coordinator for the My Safe Florida 
Home Program.
    Without objection, I will state to the witnesses that your 
written statements will be made a part of the record, and you 
will each be recognized for a 5-minute statement summarizing 
your written statements.
    Admiral Loy, you are recognized, sir, for 5 minutes. I 
appreciate your being here today.

    STATEMENT OF ADMIRAL JAMES M. LOY, USCG (RET.), FORMER 
COMMANDANT OF THE U.S. COAST GUARD; FORMER DEPUTY SECRETARY OF 
   THE U.S. DEPARTMENT OF HOMELAND SECURITY; AND NATIONAL CO-
                CHAIRMAN, PROTECTINGAMERICA.ORG

    Admiral Loy. Thank you, Mr. Chairman, and thank you for 
your long service of effort focused on your constituents, and 
specifically your work on national preparedness.
    Chairman Moore of Kansas. Thank you.
    Admiral Loy. Mr. Klein, your thoughtful and constant 
leadership on this legislation is important to all of us. With 
my 5 minutes, I am going to try to just do two things.
    Chairman Moore of Kansas. One moment. Can you just move the 
microphone a little closer, sir? Thank you.
    Admiral Loy. Sketch quickly the ProtectingAmerica.org 
agenda, and then perhaps a couple comments on H.R. 2555, the 
Homeland Defense Act of 2009. PA.org is a national campaign co-
chaired by my colleague, James Lee Witt, and myself. Our 
coalition now numbers about 300-plus organizations and over 
20,000 individual members. We count the American Red Cross, the 
International Association of Fire Chiefs, insurance companies, 
emergency managers, small businesses, and Fortune 100 companies 
among our members, and we represent every State in the Nation. 
We came together in 2005 to raise the national awareness 
concerning our collective responsibility to prepare and protect 
American, and specifically American homeowners, from natural 
catastrophes. And especially, as, Senator Geller, on your last 
panel, focused in on mega natural catastrophes. We have 
discussed these issues with thousands of Americans, and have 
come to focus on two fundamental ideas.
    First, we need a comprehensive and integrated public/
private partnership to prepare and protect homeowners. It is 
not just about insurance, it is not just about mitigation, it 
is not just about public education, but all of those things, 
integrated together.
    Second, we need affordable and available homeowners' 
insurance across our country. As to the first, the 
comprehensive solution, in my mind, needs to have four parts: A 
modified insurance construct along the lines that we have 
spoken about already this morning with your other panel 
members, that includes State and national level catastrophe 
funds; a strong mitigation effort that includes meaningful 
building codes, meaningful land use policies, and the strong 
enforcement of both; impactful public education programs that 
convince homeowners and convince families, and businesses, and 
communities to act decisively on these preparedness 
opportunities that are provided to them; and then first 
responder support, knowing full well that in any of these 
instances, first responders are our first challenge to deal 
with constructively. And I am happy to expand on any of those 
four program elements during our Q and A.
    Second, recognizing that we are focused on catastrophic 
events, it is important to document that our domestic P&C 
insurance system has served us as a nation very well for over 
200 years. What should simply be unacceptable is this build, 
destroy, rebuild, and hope cycle that we seem to have found 
ourselves in associated with catastrophic natural disasters. 
This is even truer today in these very difficult economic times 
when such an event actually threatens the wellbeing of our 
housing and lending sectors, as well as our insurance sector. 
The American people have simply lost their appetites for 
bailouts. Imagine their frustration in the wake of another 1906 
San Francisco earthquake when the losses are estimated to be in 
excess of $450,000,000,000. Or another 1938 Long Island 
Express, as just discussed in the previous panel, which, if it 
should happen just 20 miles west of where it happened in 1938, 
would result in inestimable damage to New York City.
    The key to better financial preparedness is a national CAT 
fund backing up those States which voluntarily establish State 
level funds keyed to their individual and unique exposures. 
This would create a privately financed and federally 
administrated layer of reinsurance to complement and stabilize 
private market reinsurance alternatives, and ensure our goal of 
greater availability and affordability of residential property 
insurance.
    In the interest of time, I would like to comment on several 
ongoing discussions concerning H.R. 2555. First, some critics, 
and it has already been brought up this morning, suggest that 
the PA.org agenda would only encourage people to own homes in 
high exposure areas. I think such arguments, frankly, are the 
stuff of red herrings and straw men. The fact is, 57 percent of 
American citizens already live there. And if we never built 
another stick of housing on the East, West, or Gulf Coasts, or 
in America's heartland, 6 of 10 families would still be at 
risk, and we would owe them a better construct than they have 
today.
    The PA.org agenda is instead a reasonable and actuarially 
sound approach that recognizes today's threat and sets private 
money aside to deal with it.
    Second, regarding prevention and mitigation, we support the 
hybrid approach which keeps the mitigation program centered in 
HUD, but we have to connect it in some fashion to the privately 
financed CAT funds, which can spin off significant investment 
income to groups like the Red Cross and first responders, to 
strengthen their ability to deal with after those storms go by.
    And, third, we look forward to further discussions with 
both of you regarding attachment points for State and national 
CAT funds, and the guarantee of loan concepts. The latter 
should be designed to be complementary, not substitutional, to 
the reinsurance fund. The lender or guarantor of last sort, 
that concept contained in last year's H.R. 3355 may very well 
be worth reconsidering.
    Mr. Chairman, Mr. Klein, thank you again for the 
opportunity to discuss the PA.org agenda, and we look forward 
to working with you as you pass this important legislation for 
our country.
    [The prepared statement of Admiral Loy can be found on page 
77 of the appendix.]
    Chairman Moore of Kansas. Thank you, Admiral Loy. And I 
will now recognize Ms. Williams for 5 minutes, ma'am.

STATEMENT OF VICKI WILLIAMS, OUTREACH COORDINATOR, THE MY SAFE 
                      FLORIDA HOME PROGRAM

    Ms. Williams. Chairman Moore, thank you. I am grateful to 
be here to discuss the success of the My Safe Florida Home 
Program.
    First, let me explain the catalyst for the program, the 
creation in 2004 and 2005. The windstorms that blew over 
Florida inflicted $33,000,000,000 in insured losses on 2.8 
million Floridian homeowners. There are approximately 4\1/2\ 
million single-family site built homes. The amount of insurance 
exposure is about $2.3 trillion. The average age of the homes 
that I am talking about, site built single-family homes, is 
about 24 years old in Florida.
    In 2005, the National Institute for Building Sciences 
concluded that for every dollar invested in mitigation, there 
is a savings of $4. The legislature created the My Safe Florida 
Home Program to help protect property of Floridians and save 
money on insurance premiums. The goals that were set were to 
use $250,000,000 and provide free home inspections to 400,000 
Floridians. This excluded manufactured housing, multi-family 
housing; all openings must be covered for the value to be there 
in the mitigation. And I can say that the values certainly are 
affected of these type of homes. The mobile home insurance is 
very difficult to obtain. Replacement value declines on those 
type of properties. And, frankly, there are no SHIP funds for 
those risky structures, as well. That is the First Time 
Homebuyer Grant funds. The providing matching grants part of 
the $250,000,000 was to give homesteaded Floridians up to 
$5,000. And we thought there would be 35,000 Floridians that 
could be served.
    I have provided a PowerPoint, of which you may have a copy 
in front of you; I am not certain. There is a map that shows a 
snapshot of the 400,176 inspections that were completed. It was 
based along the coastline. The results on the map are showing 
geographically where the inspections were done. As you can 
imagine, in the middle of the State, there weren't quite as 
many inspections; there are not as many people living there. 
The surveys of inspection customers after our services were 
provided, we asked for their feedback. They were motivated to 
get safety information. Tell me how I can protect my house the 
best way. And, also, of course, the insurance savings. About 40 
percent of the people wanted safety info; about 30 percent of 
the people--39 percent of the people wanted that savings on 
their insurance. We found about a quarter of those people 
pursued getting their houses strengthened without using any 
grant funds, And 91 percent of the people who used the program 
found that they rated it as being an excellent or good program. 
The majority were willing to pay about $3,200 to match the 
grant that they received.
    There is another map showing you geographically where the 
dollars went. A snapshot of 31,593 homes that used the grant 
money and hardened their house. I can tell you that number 
would be higher. I know many people that, as the economy 
turned, were unable to fund their part of the matching grant 
program. About 46 percent of the people who got the grants were 
from south Florida; 22 percent from the West Coast; 16 percent 
from the East Coast; and 15 percent from the Panhandle. Of the 
homes that were awarded grant funds to protect all the 
openings, the average increase in strength to the house went up 
36 percent. As you are probably aware, there is a scale of zero 
to 100 on this inspection report, and the average hurricane 
rating was 44. On average, homeowners are seeing 27 percent 
reduction in premiums. That is an average. On our coastline in 
south Florida, I can tell you that amount went well over a 
third of the premium for most people in savings.
    Here is the results. Jobs were created. The return on 
investment for this State of Florida program, retrofitting an 
average of 320 homes every week. This created about 1,000 jobs 
in every week. That is with an earmark of $160,000,000 for 
grants to perform retrofits. Of $120,000,000 that was paid out 
in grants to buy the materials and pay to get them installed, 
there was sales tax, 6 percent, that is $7.5 million in sales 
tax revenue.
    More than 900 inspectors were trained to help perform 
$58,000,000 worth of inspections over a 2-year period of time. 
This inspection is valid for 5 years, and can be used again 
when the homeowner is shopping for renewal policies. One risk 
modeler suggested this program reduces catastrophic exposure by 
as much as 26 percent in Florida, and that Florida gets $1.50 
return for every dollar invested. Intangibly, the peace of mind 
that people get knowing how they hardened their home, and the 
monetary relief to the family's budget, is priceless.
    Thank you.
    [The prepared statement of Ms. Williams can be found on 
page 116 of the appendix.]
    Chairman Moore of Kansas. Thank you, Ms. Williams. I am 
going to recognize myself for 5 minutes for questions.
    As a former Deputy Secretary of DHS, Admiral Loy, I am 
interested in your views. Is there a role for the Federal 
Government, not just in the clean-up, but going one step 
further in dealing with these issues and how they impact the 
availability and affordability of homeowners' insurance?
    Admiral Loy. There absolutely is, sir. As I think a number 
of your witnesses have already testified, the harsh reality is 
that this is a national problem and deserves national attention 
and a national solution. The notion of a national CAT fund as a 
backstop to those States which voluntarily put together their 
State level catastrophe funds is, in my mind, the right answer 
to this adjusted insurance construct. Beyond that, the 
existence of such funds, where one can mandate in the 
legislation that the invested income, in part, can be donated 
towards mitigation strategies, public education programs, and 
even equipment and training support for first responders where 
appropriate, allows a national solution to find its way towards 
these local challenges that are, as Senator Geller has already 
testified, a national reality, not just something that happens 
in the State of Florida.
    Chairman Moore of Kansas. Thank you, sir. Ms. Williams, the 
My Safe Florida Home Program sounds like a very effective one 
that is having a real impact. Other than participating directly 
in the insurance market, are there other steps the Federal 
Government can take or should take to reduce the cost and 
increase the availability of homeowners' insurance in disaster-
prone areas?
    Ms. Williams. The vision in our State agency would be that 
grant program partnerships could work the best, where our State 
matches Federal dollars. And insurance, as it gets harder to 
obtain, as groups such as Citizens Property Insurance are 
requiring roof inspections for renewals, tightening the 
guidelines for having a structure that is not risky, the impact 
will continue to assist homeowners in Florida. In 2005, the new 
building codes created a less risky structure and a 
significantly less premium for the same type of home.
    Chairman Moore of Kansas. Admiral Loy--
    Admiral Loy. If I might add--
    Chairman Moore of Kansas. --do you have any thoughts on 
that?
    Admiral Loy. --some thoughts.
    Chairman Moore of Kansas. Yes, sir, please.
    Admiral Loy. One of the ideal strengths of the National 
Catastrophe Fund matched up with the State funds would be that 
the monies needed for the program you just described and were 
chatting with Ms. Williams about could very well be either a 
combination of grants on the Federal level and invested income 
yields from those State level catastrophe funds to be part of 
that matching system.
    In other words, if we are dealing with an actuarially sound 
system to begin with, that is actually breeding dollars to do 
the good things that we want to do in the other areas of 
interest, mitigation, public education, first responders, that 
is what I mean by a comprehensive, integrated system, not just 
focusing on one element of it.
    Chairman Moore of Kansas. I see. I am going to recognize my 
colleague, Congressman Klein, for 5 minutes of questions, sir.
    Mr. Klein. Thank you, Mr. Chairman. Thank you both for 
being here. Admiral Loy, thank you for your service to our 
country as a Commandant of the Coast Guard and our homeland 
security efforts. I think most people understand homeland 
security is not just about military security; it is about 
presenting also for the civil side of things. And we know that 
natural disasters, or man-made disasters, require planning in 
advance, and, of course, FEMA on the back side. And we are all 
pretty excited about having Craig Fugate as our new FEMA 
Director, who is a product of Florida, and many of us worked 
with him. And he really understands Florida's issues.
    Admiral, let me just, if I can, one of the things that we 
have been talking about is whether the idea that we are 
presenting in this legislation really sort of distorts the 
public perception of risk, and will be adverse to people making 
decisions about whether they should live a certain place, 
live--build on the coast, live on the coast. I mean, again, I 
think you started out with your comment that a big percent of 
the people, if they didn't build another stick, you know, 
anywhere--
    Admiral Loy. They are already there.
    Mr. Klein. --on the coast or anywhere else, and also the 
recognition that a lot of the natural disaster damage occurs 
inland. It has nothing to do with the coast of the United 
States.
    Can you just share with me whether you think this 
legislation helps or hurts that good public policy initiative.
    Admiral Loy. Well, I think the key there is your last 
phrase, sir. This is about good public policy. And good public 
policy has to not only deal with what might be, but what is. 
And the harsh reality and the facts of the moment are that 6 
out of 10 families already live in those exposed areas, with a 
dramatically higher exposure than elsewhere. If you match up 
that harsh reality with a system that is designed around 
actuarially sound premiums, then you are serving the national 
well-being, not trying to focus on whether or not somebody is 
going to make an individual decision to pick up and move to the 
West Coast of Florida just because they imagine there are 
affordable and available insurance rates there. The 60 percent 
of us all who are already there, or in the New Madrid Fault 
zone, or in the California earthquake zones, already exposed, 
deserve as much of our national attention as do anyone making 
an individual decision.
    Mr. Klein. And then, too, that would argue that, 
particularly because we are asking them to shoulder the 
burden--
    Admiral Loy. Absolutely.
    Mr. Klein. --something that is actuarially sound--
    Admiral Loy. That is the actuarially sound side of this 
whole equation, yes, sir.
    Chairman Moore of Kansas. Yes.
    Mr. Klein. Ms. Williams, also, I am very much in favor of 
the My Safe Florida Home Program. I am a little disturbed that 
the money wasn't put into the last legislative session. But it 
has been very successful. And, again, one of the things we have 
in this proposed piece of legislation is to learn from that 
experience in Florida. Florida has been a little ahead of the 
curve because of some of the experiences we have had. But the 
idea of leveraging matching dollars or things like--just share 
with us, meaning for the chairman and for our record, why you 
think it is so important for us to have these kinds of 
programs, which of course will hopefully reduce the exposure.
    Ms. Williams. Well, as you are aware, with the population, 
they have to go where the jobs are. And our urban site in 
Florida is coastline. Since there has been automation, there 
are not as many farming jobs, and that is what the middle of 
the State is primarily all about. But the matching grant 
program works so well with homeowners in the State of Florida. 
I believe that we are seeing the possibility, with the 
discussion of national catastrophe funds and how to allocate--
every State has its own peril in disaster--but this would allow 
a State to effectively and creatively utilize a partnership 
based on the standards that we have used to train, have an 
infrastructure, to be certain that these reports were accepted.
    To me, there was a lot of work done to create and build 
that program. That is part of where some of this funding had to 
go, to create it. So incorporating some Federal dollars into it 
would seem as if it is just the most advantageous to everyone, 
so you don't recreate a new program, spend new money on 
something that you have to start all over again.
    Mr. Klein. And the last thing I would like to ask you is at 
a national level, I am constantly asked this as a sponsor of 
the bill, along with many co-sponsors around the area, why is 
this something that--is this being accepted? Are people around 
the country receptive to this, as opposed to previously this 
has been a Florida experience. You have been traveling.
    Admiral Loy. Absolutely.
    Mr. Klein. Can you share with us what sort of--what 
interior--what concerns the interior and other places?
    Admiral Loy. Yes, sir, indeed. And I think there are a 
couple of just sort of metrics that you can look at real 
quickly, sir. First of all, your 50-plus cosponsors of the 
legislation represent 22 or 23 States at this point. It is not 
just a set of Representatives from the constituencies back home 
who are only in Florida. This is a very, very national 
reflection.
    Second, we have spoken, I have gone and done editorial 
boards across the country, and the reality is that Americans 
are quite willing to pay that actuarially sound rate, and 
recognize that the system is designed to be there where the 
payment is attendant to the risk that you are willing to take 
for yourself and for your family.
    That is the notion of actuarial soundness, which has been 
an underpinning of our insurance industry for a long time. What 
is unpredictable, to use, again, Senator Geller's words, is 
these mega catastrophes that come by, where the--the pinning of 
predictability is an attempt to associate with the kind of 
damages that are going to occur.
    This extraordinary program that Ms. Williams is talking 
about, the My Safe Florida Home Program, is just one of those 
examples. And if you talk to Craig Fugate, if you talk to my 
counterpart and Co-Chair, James Lee Witt, who was the FEMA 
Director during President Clinton's Administration, and if you 
talk to folks who have just left that particular position, they 
understand the national quest to do the right thing at the end 
of the day. James Lee Witt will talk about not only focusing on 
an individual homeowner and his home, which is a mitigation 
strategy attendant to building codes and the enforcement 
thereof, but also perhaps land use adjustments that are seeking 
national support for local solutions. And when you gain the 
national support for a local solution, you have in fact found 
yourself in the realm of serving the American public the way it 
needs to be served.
    Chairman Moore of Kansas. Thank you, sir. And I want to 
thank our witnesses in this panel and the other panels who have 
testified today. You have been very, very helpful, I think, in 
our understanding of some of the issues facing our country, and 
what we need to do, and maybe can address these.
    Also, I am going to say by enacting creative solutions like 
Congressman Klein's Homeowners' Defense Act, we will begin to 
take steps to provide real solutions that will benefit 
homeowners, communities, and taxpayers.
    I look forward to working with our witnesses and my 
Republican and Democratic colleagues in Congress on these 
important issues. The Chair notes that--and I want to thank 
Congressman Klein for being a host down here, number one, and 
number two, for his excellent questions and participation in 
this panel today.
    If you have additional questions for this panel, you may 
submit those questions in writing, Congressman Klein. Without 
objection, the hearing record will remain open for 30 days for 
Congressman Klein and myself to submit additional questions, 
and we would ask that witnesses provide their written responses 
to those questions.
    This hearing is adjourned, and I thank everybody for your 
participation.
    [Whereupon, the hearing was adjourned.]
                            A P P E N D I X



                              July 2, 2009




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