[Senate Hearing 111-853]
[From the U.S. Government Publishing Office]
S. Hrg. 111-853
REAUTHORIZATION OF THE NATIONAL FLOOD INSURANCE PROGRAM
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
ON
EXAMINING COMPREHENSIVE FLOOD INSURANCE REFORMS AND THE REAUTHORIZATION
OF THE NATIONAL FLOOD INSURANCE PROGRAM
__________
SEPTEMBER 22, 2010
__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
CHRISTOPHER J. DODD, Connecticut, Chairman
TIM JOHNSON, South Dakota RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York JIM BUNNING, Kentucky
EVAN BAYH, Indiana MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii JIM DeMINT, South Carolina
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin KAY BAILEY HUTCHISON, Texas
MARK R. WARNER, Virginia JUDD GREGG, New Hampshire
JEFF MERKLEY, Oregon
MICHAEL F. BENNET, Colorado
Edward Silverman, Staff Director
William D. Duhnke, Republican Staff Director
Beth Cooper, Professional Staff Member
Brett Hewitt, Professional Staff Member
Paul Revesz, GAO Detailee
Jim Johnson, Republican Counsel
Dawn Ratliff, Chief Clerk
Levon Bagramian, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
?
C O N T E N T S
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WEDNESDAY, SEPTEMBER 22, 2010
Page
Opening statement of Chairman Dodd............................... 1
Prepared statement........................................... 37
Opening statements, comments, or prepared statements of:
Senator Bunning.............................................. 3
Prepared statement....................................... 39
Senator Schumer.............................................. 4
Senator Tester............................................... 6
Senator Shelby
Prepared statement....................................... 38
Senator Johnson
Prepared statement....................................... 39
WITNESSES
Richard J. Durbin, Senator from the State of Illinois............ 6
Prepared statement........................................... 40
Roger F. Wicker, Senator from the State of Mississippi........... 7
Prepared statement........................................... 41
Orice Williams Brown, Director of the Office of Financial Markets
and Community Investment, Government Accountability Office..... 11
Prepared statement........................................... 44
Responses to written questions of:
Senator Reed............................................. 106
Sally McConkey, Vice Chair, Association of Floodplain Managers... 22
Prepared statement........................................... 85
Responses to written questions of:
Senator Reed............................................. 121
J. Nicholas D'Ambrosia, Vice President of Training and
Recruiting, Long & Foster...................................... 24
Prepared statement........................................... 95
Responses to written questions of:
Senator Reed............................................. 127
Stephen Ellis, Vice President, Taxpayers for Common Sense........ 26
Prepared statement........................................... 102
Additional Material Supplied for the Record
Prepared statement submitted by Senator Mark Pryor of Arkansas... 130
Letter submitted by Adam Kolton, Senior Director, Congressional
and Federal Affairs, National Wildlife Federation.............. 131
(iii)
REAUTHORIZATION OF THE NATIONAL FLOOD INSURANCE PROGRAM
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WEDNESDAY, SEPTEMBER 22, 2010
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 2:08 p.m., in room SD-538, Dirksen
Senate Office Building, Hon. Christopher J. Dodd, Chairman of
the Committee, presiding.
OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD
Chairman Dodd. The Committee will come to order. Let me
welcome all of our guests here in the--I was going to say we
are almost awash in humanity here for this hearing. It is not
quite a full room.
Senator Shelby will be here shortly. I gather from my good
friend Jim Bunning that there has been a Republican Conference
meeting, and Roger, you pointed out the same, so I presume they
will be coming in, but we will get underway. I have got an
opening statement to make, and Senator Bunning does. I think
Senator Schumer, as well, wanted to make an opening statement
when he comes, and we will get to you very quickly. In fact, if
they don't come in, we will just go to Jim and I and then we
will go right to you. I know you have got other issues. Senator
Johnson, Tim, is here with us. Tim, thanks for being with us.
Let me start, if I can, and first of all, I welcome, as I
said, everyone here this afternoon for the hearing on the
reauthorization of the National Flood Insurance Program, NFIP.
I want to thank Roger Wicker, our colleague from Mississippi.
Roger has talked to me on the floor on numerous occasions about
this issue, how important it is to his State. I promised him we
would get a hearing on all of this. There is a lot of interest
in the subject matter from a variety of different perspectives.
I am very aware of the Mississippi perspective and their
interest in the subject matter. I am sure Roger is going to
talk about it and others are.
We actually passed a bill out of this Committee, I think
last year, pretty overwhelmingly, and then it passed on the
floor pretty overwhelmingly. The House didn't, and now the
House has acted on a bill. I am not sure whether or not we are
going to respond to that or not. So we are kind of each getting
it done at different times, and unfortunately, not the same
time, so this afternoon's hearing is an important one.
NFIP, the Flood Insurance Program, is a very important
program, providing a range of benefits, as we all know, to deal
with the often overlooked but serious threat, floods, that
cause more damage and create more economic losses than any
other type of natural disaster. It may come as a surprise for
those who are not well versed in the subject matter, and while
the topic may bring Hurricane Katrina's Gulf Coast devastation
to mind, the truth is that floods can happen anywhere, and they
do.
Parts of my own small State of Connecticut were ravaged by
flooding this spring, and back in the 1950s, before a lot of
flood control programs, the entire Naugatuck Valley, the
central part of Connecticut where a lot of the early days of
the Industrial Revolution occurred, the Naugatuck River
overflowed and swamped one community after another all along
that flood plain.
Flood insurance provides critical assistance to 5.5 million
families and businesses, insurance to help them recover from
flood damages and mitigation assistance to help them avoid
damages in the future. It also provides a framework of
responsible floodplain management, requiring safer, more
environmentally sound development that limits Americans' flood
risks. Together, these measures have saved taxpayer money by
limiting the amount of emergency disaster assistance necessary
in the wake of flood events.
Despite these many benefits, the program faces some serious
challenges that threaten its ability to carry out its mission.
The hearings before this Committee in previous Congresses
revealed a number of issues in need of reform. Perhaps foremost
is NFIP's financial condition, which threatens the program's
long-term viability. Due to increased borrowing to pay claims
for catastrophic disasters in 2005 and 2008, the Flood
Insurance Program faces almost $19 billion in debt to the
Treasury, a sum that isn't likely to ever be repaid. Subsidized
rates for nearly 25 percent of policy holders do not reflect
the actuarially sound rates sufficient to cover expected
claims.
Another key issue is ensuring that citizens and the Federal
Government understand their risks. Despite mandatory purchase
requirements for properties in flood hazard areas, only about
half of all property owners in those areas actually participate
in the program, increasing their potential exposure to
devastating losses.
On top of this, until recently, FEMA had been using
outdated paper-based flood maps to assess risks. These and
other concerns caused the GAO to place the program on its High-
Risk List in 2006.
In the last Congress, Senator Shelby and I worked together
on flood insurance reform legislation to put the National Flood
Insurance Program on a stronger footing for the future. That
bipartisan, fiscally responsible legislation would have
provided comprehensive Flood Insurance Program reforms to
address these pressing issues that I have raised and talked
about this afternoon and would have reauthorized the program
for 5 years. It would have relieved the Flood Insurance
Program's debt while requiring actuarially sound premium rates.
We worked with Senator Jack Reed on the provisions to
strengthen FEMA's mapping capabilities to inform citizens of
their risks and actuarially set premium pricing. I know that
Senator Reed was disappointed not to be here today, but is to
be commended for his work on these provisions and improving the
mapping provisions.
In recent years, we have heard a number of proposals to
improve insurance options and delivery for so-called
``multiperil'' events such as those involving both wind and
water, for example, and for lowering the cost of insuring
against catastrophic natural disasters. Our legislation also
called for the creation of a National Commission on Natural
Catastrophic Risk Management and Insurance to provide expert
recommendations to the Congress on these very complex topics.
In 2008, the Senate adopted this legislation by an
overwhelming 92 to 6 vote on the floor of the Senate.
Unfortunately, we did not reach agreement with the House. Since
that time, the program has been operating under a series of
shorter-term extensions. And while our comprehensive
reauthorization discussions continue, I have been working with
my colleagues to ensure that the program remains in force.
Last night, the Senate approved a 1-year extension of the
Flood Insurance Program. A multiyear reform bill is preferable,
obviously, to an extension, in my view. However, such an
extension will, in my view, provide necessary program and
market stability to homeowners, lenders, and insurers while the
Congress further considers the next steps for the reform of the
Flood Insurance Program.
The purpose of today's hearing is to return to this
discussion of comprehensive flood insurance reform, something
all of us agree is absolutely essential. We are going to hear
from our distinguished colleagues, and we have been joined by
Senator Durbin, who has had a long interest in this subject
matter, and I have talked with him about mapping issues. I
mentioned already, Chuck, that you had some opening comments,
and Senator Schumer and I had a conversation the other evening
about a similar set of issues in New York. And I suspect we are
going to hear from a growing number of constituencies about the
mapping issues that I only initially heard from Dick Durbin,
who raised the issue initially about Illinois, but obviously a
growing problem across the country.
Before I turn to our panelists, Senator Shelby isn't here,
but Jim, why don't I turn to you for a couple of opening
comments you have, and then I will go to Senator Schumer. I
will then go to you. I don't know if you have any opening
comments, Tim, but if not, then we will go to our two
colleagues who are here.
STATEMENT OF SENATOR JIM BUNNING
Senator Bunning. Mr. Chairman, thank you for holding the
hearing.
One of my proudest accomplishments in the U.S. Senate was
authorizing the 2004 law that reauthorized the National Flood
Insurance Program. Senator Johnson was my Ranking Member at
that time, and Senator Sarbanes was very important in getting
that bill completed and through the U.S. Senate because he
added some very, very significant things that gave those people
that had a problem the right of appeal.
Chairman Dodd. Yes.
Senator Bunning. Now, it took us many years and many holds
of people to get it done, but we finally got the Vice President
of the United States and the head of FEMA held to get it done,
and we thank you for your help.
We worked very hard, as you did with Senator Shelby, in a
bipartisan way, including incentives for communities and
homeowners to mitigate flood risk when properties have a
history of serious and repeated flood damage, and we provided
long-term certainty for the program for property owners,
communities, and leaders. Thankfully, my bill ensured that the
Flood Insurance Program was in place before the Katrina
disaster hit.
Unfortunately, the law I wrote expired in September of
2008, and since then, as you said, Mr. Chairman, we have
extended the program only for short periods of time, and with
the latest extension of 1 year. But we need to get a permanent
law in place, and that is why we are here today to listen to
the suggestions of our colleagues in the Senate, and I want to
make sure that we do this before we get out, because I want
something to say before I leave this Congress at the end of the
year, and I hope you do, too.
Chairman Dodd. I do, too.
Senator Bunning. So I look forward to the input of Senator
Durbin and Senator Wicker and all of my colleagues on the
Committee. Thank you.
Chairman Dodd. Thank you very much.
Tim, do you have anything?
Senator Johnson. No, I will pass.
Chairman Dodd. OK. Chuck Schumer.
STATEMENT OF SENATOR CHARLES E. SCHUMER
Senator Schumer. Thank you, and first, I want to thank you,
Mr. Chairman, not only for holding this hearing, but for
lending an understanding ear to the problems, numerous, that we
have in New York. I want to thank Senator Shelby, Senator
Bunning, and my colleagues Senator Durbin and Senator Wicker
for testifying.
Now, National Flood Insurance is an important program that
has impacted people all across the country. But as I have
witnessed firsthand in my home State of New York, it is not
without its flaws. As the Senate debates reforms to the
program, it is important we examine the facts on the ground in
places like Nassau County on Long Island and in Western and
Central New York, as well.
Requiring homeowners in Flood Hazard Zones to purchase
flood insurance is a necessary goal and one in which the
Federal Government certainly has a role to play. But flood
insurance is expensive for families, often very, very
expensive. So we must do everything we can to ensure that as
FEMA modernizes its flood maps, it is accurately assessing what
areas are truly at risk of flooding.
Unfortunately, we are coming to find at home in New York
that the various technologies used by FEMA to draw the flood
maps are exhibiting real flaws and vulnerabilities to error,
resulting in thousands and thousands of New Yorkers being
required to purchase expensive new insurance even though they
live in an area that hasn't seen a serious flood for over a
century. Let me explain.
Flawed aerial and GIS survey data in places like Long
Island have resulted in updated flood zones that have ensnared
tens of thousands of residents who never planned or expected to
have to pay for costly flood insurance. In the area of Valley
Stream, for instance, in Nassau County, some 5,000 homeowners
were added to a High Risk Flood Zone. Longtime residents of
Valley Stream that have been through hurricanes and tropical
storms dating back to the 1950s are shaking their heads in
confusion and desperation, asking why Valley Stream, since they
have never reported a drop of flooding.
Last week, I visited Valley Stream Village Hill to meet
with local officials and community residents. They presented me
with an artifact of the past, the Village Board meeting minutes
after the devastating 1932 hurricane known as the Long Island
Express. While the minutes highlighted some downed trees and
wind damage, there wasn't a single report of flooding in areas
now in the High Risk Flood Zone.
It has also been reported that more than 50 percent of the
Long Island residents that have appealed FEMA's flood map
determination have won. In other words, they proved that the
mapping technology was inaccurate, but it cost them an arm and
a leg to even have to appeal.
Alarmingly, even FEMA officials on the ground themselves
have admitted that the mapping technology is flawed. This is
one of the reasons I requested a GAO report in 2009 to assess
the accuracy of the technology that FEMA deploys in its
mapping, and I look forward to seeing GAO's results later this
year.
I have personally witnessed the impact that these flawed
flood maps have on people's lives. I have sat in the homes of
New Yorkers in different parts of my State who are already
struggling to tread water in these challenging economic times
and now have the Government telling them they have to pay new
insurance premiums in excess of $2,000 a year.
Mr. Chairman, I truly believe that before we go any further
with the reauthorization of the Flood Insurance Program, we
need to apply the brakes and fix these problems. I agree with
the testimony of my friend and colleague, Senator Durbin, that
we should work to pass a moratorium on the mandatory purchase
requirement for 5 years until technological and implementation
issues can be resolved. This will give affected homeowners
ample notice and a thorough explanation of the mapping process
and how it impacts their lives so they are not caught by
surprise. I believe Congress should still offer residents in
high-risk areas flood insurance and make them aware of
potential risks, but we certainly should not mandate it before
the new technology and data are proven accurate. This
moratorium would give the Congress and FEMA more time to work
out kinks in the mapping process and technology and ensure we
implement the program in an accurate, effective, and responsive
way.
In conclusion, Mr. Chairman, the House wisely, in my
opinion, passed such a moratorium. Their flood insurance bill
championed by my colleagues in the House, Representatives
McCarthy and Maffei, both from parts of New York that have had
trouble with flood zones, with the FEMA flood mapping, includes
a 5-year delay followed by a 5-year phase-in of the flood
insurance purchase requirement. I encourage the Senate to
include the House-passed moratorium in the final flood
insurance reauthorization bill, and Chairman Dodd, as I
mentioned to you on the phone, I would like to work with you to
see if we could pass such a moratorium in the Senate, where I
believe there is rising support for such a policy. Thank you.
Chairman Dodd. Senator, thank you very, very much.
We have been joined by Senator Tester from Montana. Thank
you, Jon, for joining us. We are going to turn to our two
colleagues for any comments, unless you had a quick opening
comment, Jon, you wanted to make.
STATEMENT OF SENATOR JON TESTER
Senator Tester. It will be ultra-quick. First of all,
thanks to my two friends in the Senate for being here.
I think the Flood Insurance Program really falls into two
areas, number one, affordability, and sustainability for the
program. Both need to work. That is all. Thanks.
Chairman Dodd. That is about a succinct a description of
the hearing there ever was. I appreciate that.
Dick, we are delighted to have you before the Committee. I
will have you testify and give us your comments, and then
Roger, we will hear from you. I thank you both for being here.
STATEMENT OF RICHARD J. DURBIN, SENATOR FROM THE STATE OF
ILLINOIS
Senator Durbin. Thanks, Chairman Dodd and Members of the
Committee. I might say to Senator Tester, that was very un-
Senatorial of you.
[Laughter.]
Senator Durbin. I think Senator Schumer, my colleague, has
really summarized the State of New York's situation, comparable
to my State of Illinois. I am from downstate, from an area of
great rivers, Mississippi, Illinois, and others, born and
raised in that area, and I have seen my share of flooding in
the past. What came as kind of a surprise to us was in 2007, in
came FEMA and informed us that they were about to take a new
assessment of the levees and new floodplain mapping.
The first thing they did was said, we will do the Illinois
side of the river first. We will get to Missouri later--the
same watershed. Well, it created an economic dissonance, a
disadvantage on the Illinois side that we were going to have
ours mapped first and the cost imposed while those on the other
side--well, we fixed that. Thank you for helping us fix that,
Chairman Dodd. That provision at least applies to the entire
watershed now. Wait until they have completed it until you move
forward.
But the point that Senator Schumer made is one that is
included in the House Reauthorization Act, which I hope we will
consider. In this area, they took a look at all these levees by
the Mississippi River and they said, yes, we need to repair
them and make them better. So we will impose on our local
residents a new sales tax and generate in the three counties
affected $10 million a year to start repairing the levees. In 5
years, we will get it done. So it isn't as if they are walking
away from the challenge. They are accepting the challenge and
they are paying with local funds to do it. So we are suggesting
at least while they are doing this construction, do not impose
these new mandates on them. Give them this 5-year window to
take the money raised locally with whatever we can bring in
federally and do our best to upgrade the levees.
We estimate, as Senator Schumer said, this could cost
$2,500 a year. Imagine hitting a family in the midst of
recession with that kind of a bill, trying to hang on to their
homes and now more than $200 a month in a new flood insurance
requirement.
The second part of the bill, which Senator Schumer also
alluded to, was in the second 5 years, let us phase it in. Now,
I think that is a reasonable way to go. We have got self-help
going on locally. We have got people committed to getting the
job done and done right. And we are trying to phase it in in a
reasonable, affordable way, I might way, Senator Tester, so
that we ultimately have a sustainable program. But we can't
drop this in a matter of months or even a year or two on
everyone and say, take it or leave it. I think that is
fundamentally unfair and unreasonable. Up to 30,000 new
properties could be affected with this requirement for new
flood insurance.
Now, I say to people who ask me in this region, if you can
afford it, buy it. Buy it now. Protect yourself. Just as you
have fire insurance, if you can afford it, buy it. It is smart
advice, and if I owned a home in my area, I would do my best to
buy it. Some people just can't. They can't afford it. And so
that is what we are up against. We are trying to come up with a
reasonable alternative that will take care of it.
I would just conclude by saying that I think that, in
summary, your Committee's version of flood insurance--as you
craft your Committee's version of flood insurance legislation,
include language to achieve the following goals. Ensure FEMA
updates flood maps on a watershed basis. Delay the effective
date for mandatory purchase of flood insurance for areas that
have been newly mapped in a floodplain. Phase in flood
insurance rates for newly mapped areas over 5 years so we have
got a window here where this is happening in a gradual way.
Require FEMA, State, and local governments to undertake
extraordinary outreach to homeowners so that they understand
the real risk that could be involved here, the potential of it.
And offer discounted rates to newly mapped properties to
increase the number of homeowners who are into the habit and
custom of buying flood insurance.
Thanks for the opportunity to address the Committee.
Chairman Dodd. Thank you very much, Senator. I appreciate
your efforts and your interest in the subject matter.
Senator Wicker, we welcome you to the Committee.
STATEMENT OF ROGER F. WICKER, SENATOR FROM THE STATE OF
MISSISSIPPI
Senator Wicker. Thank you very much. Mr. Chairman, could I
ask that my full statement be included in the record.
Chairman Dodd. That is true on all statements and
documentation and so forth that you would like the Committee to
have, we will include in the record.
Senator Wicker. Thank you very much. I was reminded the
other day by Al Goodman, the Mississippi State Floodplain
Manager, that major flood disasters have often led to changes
in the law. For example, Hurricane Agnes in 1972 resulted in
the Flood Disaster Protection Act of 1973. Flooding on the
Mississippi River in 1993 prompted the National Flood Insurance
Reform Act of 1994. The Flood Insurance Reform Act of 2004 was
influenced by Hurricanes Andrew and Isabel.
Unfortunately, 5 years after Hurricane Katrina, that major
event has not prompted a reform in the law, and I would submit
to this Committee that in order to talk about hurricane
insurance, we have to talk about wind and water insurance. One
of the best things Congress could do for the vast coastal areas
of this country, not just my State of Mississippi but all of
the Gulf Coast States, including the States represented on this
panel, is to resolve the nuances associated with insuring
against hurricanes, and that involves insuring against flood
and wind.
For all practical purposes, private insurance coverage for
wind damage is no longer available in the Gulf Coast area since
Hurricane Katrina. Before the storm, the wind peril was
typically insured by basic hazard insurance policies, with the
exception of those living right on the beach. Today, in most of
Coastal Mississippi, individuals have to purchase wind coverage
through the State-run Wind Pool. State Wind Pools were
originally designed to be the insurer of last resort. However,
in recent years, State Wind Pools have unfortunately become the
rule, not the exception.
Now, as you know, in 2008, I attempted to address this
problem by offering an amendment that would have added wind
coverage to the National Flood Insurance Program on a voluntary
and actuarially sound basis. This multiperil concept has passed
the House of Representatives but failed in the Senate.
I would simply point out to my colleagues, I still support
the multiperil debate, although I understand the arguments
against it. Let me emphasize that it would be voluntary and
that the requirement would be that it be actuarially sound. If
that resulted in the wind portion of the premiums being too
high, then so be it, but that was what my amendment contained.
The major concern we have in Mississippi is that it takes
two kinds of insurance to cover a hurricane, flood insurance
through the NFIP and very expensive wind insurance through
either the Wind Pool, or if you can get it, private coverage.
After Hurricane Katrina, many property owners were forced to go
to court to decide who was responsible for the damage, wind or
water, even if they had all of the necessary insurance
policies. Other property owners had not purchased flood
insurance because they relied on Federal Zone Maps. When their
property was damaged by storm, the wind insurance adjustors
denied claims, ruling that the damage had been caused by water
alone.
Now, I recently introduced the Coordination of Wind and
Flood Perils Act. This legislation, S. 3672, addresses some of
the lessons learned following the wind versus water dispute
that occurred after Katrina. Individuals who had all of the
appropriate insurance, wind and water policies, were in many
instances caught in the middle and forced to go to court to
watch the insurers fight among themselves before they could be
indemnified for their loss.
The legislation I have introduced, S. 3672, would remove
the property owner from this debate and put the burden where it
belongs, on the insurers. The insurance industry already
coordinates benefits for other types of losses. If there is a
dispute under my legislation, the damages would be split evenly
between the insurers so the property owner would be compensated
in a timely manner. Then the insurers would appear before an
arbitration panel and the panel's decision would be binding.
Now, Mr. Chairman and Members of the Committee, there are a
few other lessons learned from Katrina and observations I would
like to make about NFIP.
Number one, after Hurricane Katrina, we learned that flood
hazard risk in many coastal areas of Mississippi and many parts
of the country was not accurately reflected by FEMA's flood
insurance maps. As a result, property owners outside the flood
zones had no NFIP coverage. With only wind insurance coverage,
these individuals were not properly insured for a hurricane.
Since property owners rely heavily on this information, I hope
Congress can work with FEMA to ensure that these maps are
accurately updated for all residents.
Number two, FEMA and many banks do a poor job of enforcing
the flood insurance requirement. Now, we have had testimony
about this from Senator Schumer today, but under the Flood
Disaster Protection Act of 1973, the purchase of flood
insurance is mandatory in flood zones if the consumer is using
a federally regulated lender. However, there is a breakdown
with the enforcement of this requirement. According to CRS, at
least eight Federal agencies are responsible for enforcing this
requirement.
Recently, the Wharton School of the University of
Pennsylvania surveyed insurance coverage among property owners
impacted by flood in Vermont. The study revealed that 45
percent of the victims of the flood who were required to have
insurance did not purchase it. With regard to private
insurance, lenders do a much better job of enforcing insurance
requirements. If a homeowner stops his payment, stops paying
his premium, the bank will purchase insurance for him and bill
the homeowner. The Chair himself today has pointed out that
some 50 percent of the people who are required to have flood
insurance somehow do not have flood insurance, and the Wharton
study documents this, too. Regulators and lenders routinely
fail to enforce the mandate enacted in the Flood Disaster
Protection Act. I hope the Committee will further investigate
this issue and report its findings. Why are hazard insurance
requirements enforced so well by lenders and the flood
insurance requirement enforced so poorly?
Of course, rates should be actuarially sound and
meaningful. Premium reductions should be offered for mitigation
improvements. I hope this Committee will study the work done by
the Wharton School in this area. These scholars proposed
linking NFIP policy to the mortgage, which would create a long-
term insurance policy tied to the length of the mortgage and to
the property itself. Having a long-term policy tied to the
property is one way to limit NFIP cancellations. This proposal
would also give meaningful premium reductions for mitigation
improvements. If a property owner knows they can save money
year after year by strengthening their homes above the building
code requirements, they will have a powerful incentive to do
so.
One final proposal that I would commend to this Committee
is the Travelers Coastal Wind Zone Plan. This proposal would
create an independent Federal commission to establish standards
for the wind peril in coastal areas. The Travelers plan allowed
insurance companies to purchase reinsurance from the Federal
Government to cover losses resulting from extreme events. In
addition, like the Wharton plan, the Travelers plan calls for
meaningful premium reductions for property owners who mitigate
by improving their homes.
I would simply summarize and say this, Mr. Chairman. There
are many things here that are long-term that are going to take
time. Two things ought to be fairly easy. There ought to be a
way to figure out how to enforce the mandate for property
insurance, and there ought to be a way to allow insurers to
coordinate benefits. Those are two simple things that could be
done relatively quickly, perhaps before the end of the year.
Earlier this year, the Sun Herald, a Mississippi Coast
newspaper, wrote in an editorial, ``Better protection for all
Americans living within harm's way of a hurricane would be
Katrina's greatest legacy.'' I agree. Five years after Katrina,
Congress still has an opportunity to make sure affordable wind
and water coverage can be provided to the millions of Americans
in coastal areas of our country.
Thank you, Mr. Chairman.
Chairman Dodd. Thank you, Senator Wicker, very, very much.
And let me thank you, Senator Durbin, as well.
I do not know if any of my colleagues have any questions
for our two colleagues here. If not, we appreciate very much
your testimony.
Dick, I thank you because you were the first one to bring
up the whole mapping issue to me a couple years ago, I guess it
was. And there are more and more Members doing so. You heard
Senator Schumer talk about it in New York. But it is not just
the two States. And so I appreciate that very, very much, and
it is obviously an issue.
I am going to turn to Senator Shelby to make some opening
comments.
Senator Shelby. No, no. I do not want to interrupt that. I
would just like for my opening statement to be made part of the
record.
Chairman Dodd. Absolutely.
Senator Shelby. Then I will my turn.
Chairman Dodd. OK. Very good.
Thank you both very, very much.
Let me introduce our panelists quickly here, panel two, and
then we will ask them to make some brief opening comments, if
they would. In fact, I will introduce all of them, panel two
and panel three.
Our first witness in panel two is Ms. Orice Williams Brown.
She is Director of the Office of Financial Markets and
Community Investment at the U.S. Government Accountability
Office. Ms. Brown has overseen the preparation of numerous
reports on the financial and operational health of the National
Flood Insurance Program, and we are very honored to have you,
Ms. Brown, with us this afternoon.
Our third panel will include Ms. Sally McConkey. I hope I
pronounced that correctly.
Ms. McConkey. Yes, Senator.
Chairman Dodd. I did. Thank you. Ms, McConkey is a senior
professional scientist at the Illinois Department of Natural
Resources State Water Survey. She is also the current Vice
Chair of the Association of State Floodplain Managers and will
be testifying on behalf of that organization this afternoon.
Next we will hear from Mr. Nicholas D'Ambrosia--I hope I
pronounced that correctly as well--who currently serves as the
Vice President of Recruiting and Training for the Long & Foster
real estate company, a very well known company. We all see Long
& Foster signs everywhere. He is also the Vice Chair of the
Maryland Real Estate Commission. Mr. D'Ambrosia is testifying
on behalf of the National Association of Realtors.
And our final witness today will be Mr. Steve Ellis, who is
Vice President of Programs at Taxpayers for Common Sense, where
he oversees programs and serves as a media and legislative
spokesperson. Mr. Ellis also served as a Coast Guard officer
for 6 years, earning both the Coast Guard Commendation Medal
and the Coast Guard Achievement Medal. And I am presuming by
that you spent some time in New London, Connecticut. Is that
correct?
Mr. Ellis. Yes, Senator.
Chairman Dodd. So you are going to claim some local
interest I have in that. It is a great school, too. Anyway, we
are delighted you are here. You know something about the water,
obviously.
I welcome all of our witnesses and, Ms. Brown, we will
begin with you. And let me just says on behalf of all of the
witnesses, whatever documentation or supporting evidence you
would like to have as part of this hearing record will be so
included. And if you could try and keep your remarks down to
about 5 minutes, I would appreciate it so we can get to some
questions. Thank you.
STATEMENT OF ORICE WILLIAMS BROWN, DIRECTOR OF THE OFFICE OF
FINANCIAL MARKETS AND COMMUNITY INVESTMENT, GOVERNMENT
ACCOUNTABILITY OFFICE
Ms. Williams Brown. Good afternoon. Chairman Dodd, Ranking
Member Shelby, and Members of the Committee, I appreciate the
opportunity to participate in today's hearing on the National
Flood Insurance Program.
As you know, GAO placed NFIP on its high-risk list in March
2006, after the 2005 hurricane season exposed the potential
magnitude of longstanding structural issues on the financial
solvency of the program, and brought to the forefront a variety
of operational and management challenges. FEMA continues to owe
the U.S. Treasury $18.8 billion from these losses and interest
expenses, which it is unlikely to be able to repay under the
program's current design.
My statement today is based on GAO's past and ongoing work
and focuses on NFIP's financial condition, its operational and
management challenges, and possible actions that could be taken
to address them. While the structural issues were well known,
the management challenges have become more evident in the past
several years. We have made recommendations addressing
virtually every aspect of the program. For example, we have
recommended that FEMA take action to improve NFIP's management
of data quality, the rate-setting process, oversight of the
insurers that sell flood insurance, the expense reimbursement
process, its contractor oversight, and its claims processes.
While preliminary results of our ongoing review of FEMA's
management reveal that many of these problems are ongoing, FEMA
has for the first time begun to acknowledge that it faces a
number of challenges and has displayed a willingness to engage
in a dialog with GAO about them. While acknowledgment of a
problem is an important first step, we also expect to see FEMA
take actions necessary to meaningfully address these
challenges.
We are currently completing a comprehensive review of NFIP
that builds on our past work and plan to issue a report early
next year. We hope this report will help provide a road map for
identifying root causes and addressing many of these
outstanding issues.
However, we also recognize that many of the challenges
facing the program will require congressional action. Moreover,
we understand that this is no small issue, given the
complexities of the program and the often competing public
policy goals, including having rates that accurately reflect
risk, encouraging participation, and limiting cost to the
taxpayer.
For example, while many premium rates for properties are
subsidized by law and rate increases are capped for a number of
reasons, including offsetting the cost of catastrophe relief,
these decisions involve tradeoffs that have to be balanced with
the goals of NFIP. Specifically, while mitigation is viewed as
vital to limiting the Government's exposure, charging rates
that do not reflect risk may hamper mitigation efforts by
encouraging property owners to build in harm's way and not
adequately mitigate. Moreover, the current NFIP structure
increases the likelihood that the program will have to borrow
from Treasury when losses exceed premiums collected, thereby
exposing taxpayers to greater financial risk.
Part of this conversation must include a dialog about the
appropriate role of Government in paying for losses from
natural catastrophes, which in 90 percent of the cases include
flooding. The other part deals with who should pay for losses;
that is, Congress must decide how much of the cost associated
with flooding the Government should pay versus property owners.
In closing, I would like to note that while the $18.8
billion that NFIP owes Treasury may not seem large by today's
standards, it is significant compared to NFIP's annual premium
revenue, which is just over $3.2 billion. This debt may also
continue to grow unless Congress and FEMA take action to begin
to address some of the program's operational and structural
issues.
Finally, one option to maintain subsidies but improve the
financial stability of NFIP would be to rate all policies at
the full risk rate and to appropriate the subsidized amount to
the program. This structural change would remove the financial
burden on NFIP by making the subsidy explicit and make the
actual flood risk more transparent to the property owner.
Thank you. This concludes my oral comments, and I am
prepared to answer any questions.
Chairman Dodd. That was excellent testimony. I really
appreciate it. As you know, many of us up here have a great
deal of respect for the GAO. They do great, great work, and I
do not know if you ever get the kind of credit you deserve for
the tremendous focus--you get to do what a lot of us would
probably like to do, and that is, you get to focus on a subject
matter and dedicate your professional lives to really
understanding it fully. And you obviously do in this area, so
we are very grateful to you for your work and that of your
staff and others that have worked with you to produce not only
your testimony today but your assessment and analysis.
You mentioned, obviously, a wide range of actuarial and
managerial problems at NFIP, and we have all heard about them.
We heard Senator Bunning going back to 2004 working on this
issue, and Senator Shelby and I did last year, and the House
has. We have just had a lot of interest. In every one of our
States, as I pointed out earlier, this is the one subject
matter that all of us, regardless of where you live, with the
exception of--I am not even sure I should say probably Nevada.
Maybe even out there at certain times of the year, it may be
actually subject to the same kind of problems. But the problem
is including an unfortunate but necessary step to cancel the
program's debt, and that is one of the issues.
I wonder if you could give us a sense of what the most
important steps might be to help to get the program on track
toward financial soundness and off the high-risk list. And,
second, GAO has been reviewing the Flood Insurance Program for
a few years. What progress has FEMA made, in your view, if any,
on implementing the GAO recommendations in recent years,
particularly regarding their premium rate structure and
ensuring that participating insurance companies are compensated
at reasonable rates?
Ms. Williams Brown. I will start with your first question
dealing with getting off the high-risk list. FEMA has taken one
of the important steps to start that process and to start a
dialog, and that is, acknowledging that there are issues that
need to be addressed and beginning to take steps and having a
conversation internally as well as with the GAO about what they
need to do.
There are a number of structural issues that we have
highlighted, including oversight of the WYOs, contractor
oversight, data quality issues, as well as the rate-setting
process. So I think from FEMA's perspective they would need to
address those issues. From a legislative perspective, it would
involve dealing with the structural issue that really continues
to impact the financial soundness of the program, and that has
to do with subsidized rates.
Chairman Dodd. Well, you have sort of answered the second
question in a way. You heard Senator Durbin and Senator Schumer
and others--and I do not want to put words in their mouths, but
proposing a delay or a phased-in approach for setting insurance
rates for homeowners in the new high-risk flood zones. Clearly,
this is going to lessen the impact on these homeowners, and
obviously at a time like that, I think all of us are very
sympathetic. I think Senator Durbin and Senator Schumer talked
about a $2,500 tax or fee the people would be paying, and
obviously at a time when you are trying to hold your families
together financially, that 200 bucks a month can be
devastating. So we understand that.
But there are downsides to such an approach. What might be
the impact on the fund and the general taxpayer? Because
everyone else ends up subsidizing this to some degree, so we
are all paying for it, which is one of the things we have got
to consider in all of this. It is not just the person who is in
the floodplain but all of us because the subsidies are paid
through tax dollars to support those efforts. Further, are
there any unintended consequences for homeowners' perception of
risk with such an approach in your view?
Ms. Williams Brown. I would agree with all of the above. I
think we have pointed out in our past work that the challenge
with subsidized rates, it impacts not only the program but it
does also give homeowners that live in high-risk areas a false
sense of security. But there is a tradeoff that we have also
acknowledged in our work, and that is, by increasing rates you
also risk fewer people participating in the program, and that
is something that has to be balanced.
One of the things that FEMA has attempted to do as they are
remapping, they have a program, a grandfathering program, that
allows a homeowner who currently lives in an area and they
purchase flood insurance, if they are remapped into a higher-
risk area, they have the possibility of retaining that lower-
risk rate. And according to FEMA, their rationale for this is
to balance the issue of someone had been living in an area,
they had been complying with the standards for that particular
zone, they are remapped and they are faced suddenly with the
potential for higher insurance rates and allowing them to keep
that lower rate.
So, you know, it creates a new set of subsidized
properties, but that is the tension that they are trying to
balance.
Chairman Dodd. I am going to turn to Senator Shelby right
away, but I wonder if you might comment--and maybe you did and
I did not pick up on it in your testimony. Obviously, listening
to Senator Schumer as well talk about the case in New York on
Long Island where all of a sudden for the first time they are
being mapped as being in a floodplain area where there is no--
and I am relying on his testimony, no historical evidence they
have ever had any problems, at least not within the historical
memory of the community, and all of a sudden being drawn into a
map. And I appreciate the fact that FEMA has done a much better
job than was the previous case in the mapping, and I appreciate
very much the work they are doing.
But I often get the impression that what--sort of get both
sides of this question, sort of hedging in that I get the
feeling that FEMA is kind of reaching maybe a little further--
this is just a general observation on my part--to put areas
more in a floodplain area to reduce the cost, increase the
obligation of the homeowner in that area to pick up the cost.
The other side, of course, wants just the opposite to happen in
a sense. There seems to be a calling for some neutral observers
here to help draw these maps in some ways so you can sort of at
least have an opportunity to have some debate, because it is
not a perfect science in these maps.
Do you have any comment on that?
Ms. Williams Brown. The only comment that I can make is
that in 2004, GAO looked at the mapping process and found
issues at that time with the mapping process. FEMA did a
midcourse adjustment so they really focused on true remapping
and not just updating and digitizing outdated maps.
We are currently in the process of looking at the status of
the map modernization effort, specifically looking at the
quality of the maps that are being used, and also looking at
the community outreach effort.
One issue based on our previous work, the remapping process
really relies on a partnership between FEMA and the
communities, and the communities have a role in some ways in
driving the quality of the information that is collected that
goes into the remapped areas. And one of the points that FEMA
has made historically is that communities that invest lots of
money in maps and good technology--North Carolina is one
example--they tend to produce higher-quality topography
information, and that is a key piece of information that goes
into the mapping process.
So, you know, it is definitely a challenge, and as you say,
it is that tension of communities do not want to be mapped into
higher areas. And FEMA is looking for trying to make sure that
they are capturing maps that accurately reflect the----
Chairman Dodd. Well, it might be helpful--because I can
just see this--Jim Bunning and I will be leaving, but I can see
this is a growing issue.
Ms. Williams Brown. Absolutely.
Chairman Dodd. And you do not have to have a Ph.D. in
political science to know that if you end up with what I would
call the perfect storm of members coming here on behalf of
their communities, just as Senator Schumer did on behalf of his
and Senator Durbin on behalf of his, any effort to try and deal
with this is going to collapse. And so we better understand
this issue and get around it or figure out a way to resolve it
in ways that do not end up sort of delaying what we must
confront, and that is having a National Flood Insurance
Program.
I do not expect this to be--it is not your job.
Ms. Williams Brown. Absolutely.
Chairman Dodd. I am using your presence here to make that
point.
Senator Shelby.
Senator Shelby. Thank you, Mr. Chairman.
I want to pick up on Senator Dodd's area of questions
dealing with mapping. It seems to me that mapping is the key to
an overall sound actuarial program. Without proper mapping and
updated maps, where is the program going? Do you have a
comment?
Ms. Williams Brown. I would agree mapping is key. It is
critical to the rate-setting process. They need accurate maps
to appropriately determine risks to the program and set rates
accordingly. So mapping is key.
Senator Shelby. But isn't there evidence of what areas are
subject to flooding? You know, historically, they have got maps
on all this. Maybe they are not up-to-date, but there is
evidence of where the tide comes in, you know, where it goes
out, rivers, hurricane, whether it is on the east coast or it
is on the gulf coast. There is data there if you can put it all
together, and it looks like with all of the software that we
have today, that that could be put together if there is the
political will to do it.
Ms. Williams Brown. I think, you know, the data is key, and
coming up with really good topographic information to go into
the mapping process is key. And the other challenge is the
topography is constantly changing. Areas are being developed,
erosion is taking place. So the mapping process really becomes
a never-ending process. Maps are going to have to constantly be
revisited and reevaluated.
Senator Shelby. Well, once you get the basic mapping
process up to speed--you know, we know things more than evolve.
They change fast. But it would be a lot easier to build on
layers of what you have. But we are not there yet, are we?
Ms. Williams Brown. In terms of where they are with the
mapping, I would say that the map modernization process is
still very much underway in terms of where FEMA is. I think the
current statistics that we have, FEMA tracks their progress
generally by the percent of population covered and also the
miles of streams covered. In our report on rate setting that we
issued in 2009, we tracked the amount by effective maps that
are in place, and I think as of 2008, 4 percent were effective
maps, and the 90-plus percent really reflected maps that were
in some stage of the process, but not finalized.
Senator Shelby. But on mapping, in the area of mapping,
would you say, again, that the key to having a meaningful,
substantive, actuarially sound Flood Insurance Program, we have
got to have mapping right?
Ms. Williams Brown. Mapping definitely has to be part of
it. The mapping has to be right.
Senator Shelby. Without the mapping data, the program will
always be suspect, to say the least.
Ms. Williams Brown. It raises a question.
Senator Shelby. That is right. It is my understanding that
the National Flood Insurance Program's goal of fiscal
solvency--Senator Dodd alluded to that--is defined as charging
premiums that will generate enough revenue to cover a
historical average loss year. How does the NFIP, the National
Flood Insurance Program, rate-setting policy compare to that of
private sector insurers? In other words, ma'am, how does the
private sector definition of the term ``actuarially sound''
compare with the NFIP's, the National Flood Insurance Program's
construct of generating enough premiums to cover ``a historical
average loss year''? Is there a disconnect here?
Ms. Williams Brown. There is definitely a difference
between the Flood Insurance Program and how private insurers
operate. One has to do with the issue of NFIP operating on a
cash-flow basis. That means that their goal is to bring in
enough premiums to cover losses on a year-to-year basis, and
they do not do any reserving. Private insurers----
Senator Shelby. No reserve for the future?
Ms. Williams Brown. No. And private insurers do not operate
that way. Reserving is a key based on risk in the future. The
National Flood Insurance Program also holds onto all of the
risk that it is exposed to; that is, they do not reinsure.
Private insurers commonly hold onto some portion of the risk
that they are exposed to, but they reinsure the majority of the
risks that they face.
And the other big difference is that the National Flood
Insurance Program basically takes all comers to their program.
So regardless of the risk level, if you want to purchase flood
insurance and your community is participating in the Flood
Insurance Program, you can get a flood insurance policy.
Private insurance companies do not do that. They factor in
risk, your loss history, and they use that information to
determine whether or not they will underwrite a policy for you.
Senator Shelby. Ms. Brown, Ms. Williams Brown, GAO, which
you represent, highlighted in its ongoing work examining FEMA's
management of the National Flood Insurance Program, FEMA does
not have an effective system to manage flood insurance policy
and claims data although investing roughly 7 years and $40
million on a new system whose development has been halted.
Why were the investments made in these critical operational
systems subsequently halted? Was it because they were not doing
the job, they were flawed at the outset or what? That is a lot
of money and a lot of years.
Ms. Williams Brown. Yes. The particular project in question
was called NextGen, and this particular system was to replace
their existing data management system. And they basically were
unable to shut down the old system and rely on the new system.
There were questions of quality, and there were questions of
whether or not it actually was performing as intended.
Senator Shelby. Ms. Brown, I know the Chairman has been
generous with my time here, but to sum it up, would it be fair
to say, one, this program is broken, it is not actuarially
sound? It is not going to be actuarially sound unless we do
massive reforms starting with mapping and getting into
something that is actuarially sound.
Ms. Williams Brown. Based on the work that we have ongoing,
we believe that, yes, the program needs to face some structural
overhaul. In terms of the operations of the program, there are
significant improvements that need to be made, and we do
acknowledge that FEMA, you know, in the 5 years that I have
been working on it, I am for the first time seeing an
acknowledgment that there are significant improvements that
need to be made in the operation and management of the program.
Senator Shelby. One last comment, if you would, Mr.
Chairman. Some of my colleagues want to add wind damage to all
of this. Have you seen some actuarial studies on what that
could possibly cost the taxpayer?
Ms. Williams Brown. We looked at the implications of adding
wind to this program, and we found that there would be--that
FEMA would face significant challenges given the current
condition of the Flood Program.
Senator Shelby. An astronomical problem.
Ms. Williams Brown. Potentially.
Senator Shelby. Sure. Thank you, Mr. Chairman.
Chairman Dodd. Thank you very much.
Senator Tester.
Senator Tester. Thank you, Mr. Chairman and Ranking Member
Shelby. I am going to kind of follow on some of the same lines
here.
The GAO has been really focused on the integrity of the
National Flood Insurance Program. An integral component, as
Senator Shelby has pointed out, is the accuracy and validity of
the maps. In Montana, because the Army Corps has said they are
not going to certify anymore, we have got some experience that
FEMA and our Army Corps are not always on the same page,
specifically as it results to the areas behind the levees. Have
you examined ways for FEMA and the Army Corps to be able to
work together better?
Ms. Williams Brown. On this specific issue, no.
We have looked at other mitigation programs and have
recommended that there be better interagency coordination. GAO
has been mandated to do a study looking at an interagency task
force that was supposed to be set up earlier this year. That
includes FEMA, the Army Corps and USGS, to specifically deal
with communities' challenges involving levees, and we are
supposed to then go in and look at how that process is
functioning and report on that on a periodic basis.
Senator Tester. OK. Would that oversight look into--what do
I want to say--the standards of which FEMA is requiring levees
to be versus the standards by which Army Corps is, and
determining if they are the same?
Ms. Williams Brown. We have not started that body of work,
but I would imagine yes.
Senator Tester. OK. You talked a little bit in your
previous answer about communities. Have you been able to
determine whether FEMA has worked with communities to help
mitigate the economic impact of the new maps?
Let me give an example. A town by the name of Miles City,
southeastern Montana, was a third in a floodplain. The maps
came back, and now two-thirds of the town is in a floodplain.
That is a big hit, as other people have mentioned here this
morning.
Have you been able to work with FEMA on ways to mitigate,
and, if you have, what recommendations have you given them?
Ms. Williams Brown. Well, the work that we currently have
going on, looking at the mapping, one specific objective deals
with outreach to the communities, but one program that FEMA
currently put in place to try to deal with some of the economic
impacts of being remapped is the grandfathering program. And we
have looked at the grandfathering program, and the
recommendation that we have made did not deal with how FEMA
dealt with the communities, but it really had to do with how
FEMA was managing that program internally in that they were not
able to track how many communities were actually being
grandfathered.
Senator Tester. OK. I can give you lots of examples, and
you know all these things, being in the position you are, but
for example, if you are thrown into a floodplain your flood
insurance rates tend to go through the roof. Is it within your
purview or do you plan on making recommendations to FEMA in
cases like that, how they can deal with communities in a way
that does not drive families into bankruptcy?
Ms. Williams Brown. The purposes of the grandfathering
program is that if you are in the zone that you are in, if you
are remapped into a higher risk zone, you are able to maintain
that lower premium.
Senator Tester. For how long?
Ms. Williams Brown. It stays with the property.
Senator Tester. Forever?
Ms. Williams Brown. So it does not end, as long as----
Senator Tester. It depends? If the ownership transfers,
then it would transfer?
Ms. Williams Brown. Yes.
Senator Tester. OK. All right, thank you.
You had spoken in your opening statement about a report
that you are working on, on the accuracy of FEMA's flood
mapping efforts.
Ms. Williams Brown. Yes.
Senator Tester. I think we are all interested in that. Is
there anything from that analysis you could share with us
today?
Ms. Williams Brown. I cannot. It should be issued the end
of the year.
Senator Tester. OK. Last, we talked a little bit about the
private sector with Senator Shelby, and I was curious. Is the
risk so great that the private sector will not touch this, or
is there insurance available in the private sector that is
affordable, outside of this?
Ms. Williams Brown. Generally, the Flood Insurance Program
is really it when it comes to flood insurance. There is some
coverage available for properties that are valued above the
$250,000 limit, and they want excess flood insurance coverage.
We did find some cases that there is that type of coverage
available.
Senator Tester. And so you are talking about a basic policy
that would be covered by NFIP and an additional policy that
would be covered by the private sector.
Ms. Williams Brown. Correct.
Senator Tester. OK. Thank you very much.
Thank you, Mr. Chairman.
Chairman Dodd. Thank you, Senator.
Senator Bunning.
Senator Bunning. Thank you, Mr. Chairman.
Ms. Brown, in your testimony, you mentioned several ways in
which some property owners are subsidizing other property
owners in the Flood Insurance Program. Can you briefly list the
different ways in which homeowners in risky areas can avoid
paying premiums that truly reflect the actual risk that they
have?
Ms. Williams Brown. One would be to be a pre-FIRM property,
meaning that the house was built----
Senator Bunning. Grandfathered.
Ms. Williams Brown. Grandfathered properties.
The other would be kind of the new generation of
grandfathered properties. Those are homeowners who are living
in communities, they have purchased a flood insurance property,
their community is remapped into a higher risk zone, and they
are able to retain that premium.
Senator Bunning. For how long?
Ms. Williams Brown. It stays with the property. There is
not a limit currently.
Senator Bunning. That is FEMA's present recommendations?
Ms. Williams Brown. Well, that is FEMA's current policy.
Senator Bunning. Interpretation?
Ms. Williams Brown. Yes.
Senator Bunning. All right. How would you grade the bill
the Senate passed in the last Congress and the bill that
recently passed the House in terms of improving the
relationships between the premium property owners pay and their
actual risk?
Ms. Williams Brown. Well, we note----
Chairman Dodd. I am listening very carefully. Go ahead.
Senator Bunning. Yes, I hope so.
[Laughter.]
Ms. Williams Brown. We note that both of them would address
the issue of some sort of phase-in for the pre-FIRM, or the
originally grandfathered, properties.
We also have looked at the house version in terms of
recommendations that we made and how it would address those.
One example has to do with properties that are subject to wind
and flood damage, and this would give FEMA access to the wind
file as well as the flood file, which is something that we had
recommended.
Senator Bunning. Are you telling me that GAO would
recommend that wind----
Ms. Williams Brown. No.
Senator Bunning. ----and water go together?
Ms. Williams Brown. No, no, no.
Senator Bunning. Please do not tell us that.
Ms. Williams Brown. No, no. What we recommended, we looked
at the issue of wind versus water, post-Katrina, and we found
that for adjusters that do a flood adjustment they get no
information about whether or not the private insurance company
paid anything on a wind claim, and they had no information or
access to the information on the possible wind portion.
Senator Bunning. Ms. Brown, do you have any indication that
FEMA has taken seriously GAO's recommendation to do more
detailed risk rating within an area, within a certain area,
like Long Island?
Ms. Williams Brown. We have made a number of
recommendations, and as of our most recent kind of broad-based
conversation with FEMA we have roughly 30 recommendations that
remain open. All of our recommendations dealing with rate-
setting continue to be open recommendations.
Senator Bunning. Somebody already asked you the question
about actual flood maps, so I will proceed to the next one.
Your testimony discussed a growing trend of Write-Your-Own
companies who managed a flood policy for the Government keeping
more and more of the claim payments that are supposed to go to
property owners, despite the fact that the companies bear no
risk of loss themselves. In your opinion, has FEMA taken this
issue seriously or made any attempt to ensure that the payment
it makes to those companies bears a direct relationship to the
costs that they are actually incurring?
Ms. Williams Brown. The one area that there has been
movement on this issue has to do with the claims portion of
what the WYOs receive. So this would begin to address the
Katrina phenomenon, and that is because of----
Senator Bunning. That was a $22 billion phenomenon.
Ms. Williams Brown. Yes. The high number of claims resulted
in the WYOs keeping a significant portion of the premiums that
they collected because it is based on an average of 3.3 percent
of the claims filed, so that portion. FEMA has changed the
formula somewhat to hopefully the WYOs do not end up with that
huge windfall if there is a catastrophic flood event.
But the other portion of the expense that the WYOs are
reimbursed for is roughly 30 percent; that still remains in
effect. So they still have the 30 percent, and they get another
portion on top of that, as well as a possible bonus. And we
have also made recommendations that they reevaluate their bonus
program.
Senator Bunning. FEMA needs to do a little recalculating.
Ms. Williams Brown. Well, yes. And we have suggested that
they made decisions about how to reimburse the WYOs early on in
the history of the program, and they have not leveraged the
years of data that have occurred since then in terms of actual
flood-related expenses for the WYOs, in determining how much
the WYOs need to be reimbursed based on their actual expenses.
Senator Bunning. Last question, some of my colleagues up
here think that we should have a phased-in version over five,
possibly, Senator Durbin said, 10 years. Five, Senator Schumer,
maybe five plus five more. In fact, if we do that, if the
Congress does it that way, you are absolutely correct that this
program will fall into an abyss and never pay for itself, and
the Government will be on the hook for more than the 18 plus
billion dollars it presently is.
Unless we can quantify the risk in the areas where the most
flooding takes place--that all has something to do with
mapping--we cannot get this program on a sound financial basis.
Is that accurate?
Ms. Williams Brown. I would say that addressing the subsidy
issue is critical to the future solvency of the program.
Senator Bunning. Thank you.
Chairman Dodd. Thank you, Senator, very much.
Ms. Brown, I am going to ask you just to stay at the table.
Senator Jack Reed, who is very involved in this issue, is
making his way over. So rather than excusing you, I will ask
you to kind of sit here while I invite our other two witnesses
to come on up and be at the table, and I have introduced them
already.
Welcome to the Committee once again. It is Sally McConkey
and Nick D'Ambrosia and Stephen Ellis, so if you will join us
and if you will just maintain a seat up there some place. I
thank all of you for being with us.
I think I notice that all of you were sitting here during
all of the testimony, including from Senator Durbin and Senator
Wicker, as well as the testimony of Ms. Brown as well. So you
have had the opportunity to hear sort of the drift.
And let me also offer to you the same I did the others
here. Full testimony as well as documentation and other
evidence will be included as part of the record.
I will begin in the order that I have introduced you, Ms.
McConkey, and so if you could try and limit it to about 5
minutes apiece it would be helpful.
STATEMENT OF SALLY MCCONKEY, VICE CHAIR, ASSOCIATION OF
FLOODPLAIN MANAGERS
Ms. McConkey. All right. Thank you. The Association of
State Floodplain Managers thanks you, Chairman Dodd and the
Committee Members for their attention to the need to
reauthorize and reform the National Flood Insurance Program,
and we really appreciate your holding this hearing.
The Association of State Floodplain Managers and its 29
chapters represent over 14,000 State and local officials, and
other professionals, who are engaged in all aspects of
floodplain management and hazard mitigation. So we have a real
interest in looking at the National Flood Insurance Program.
And I would also like to note that actually I am with the
Illinois State Water Survey at the University of Illinois, and
the program that I manage actually creates the maps for the
State of Illinois. We are under contract with FEMA, and we do
the mapping for the State of Illinois.
Today we have been requested to address why the NFIP needs
to be reauthorized, benefits of the program and what reforms to
the program are most important for Congress's consideration.
As already noted, the Flood Insurance Program was created
in order to provide flood insurance when there was a gap, that
it was not being provided by private insurance company. But
also it is noted there are really three strong tenets to the
program: It is the identification of the flood-prone areas, it
is doing mitigation in those areas and it is providing that
flood insurance, so that we can make sure that people can get
their lives back together quicker and that we are not spending
taxpayer dollars that would have been destined for disaster
relief.
But in that same spirit we need to keep in mind that as we
reform or look at reforms to the National Flood Insurance
Program, that these are interdependent, and a change to one
piece of the program is going to have impacts on others, and we
need to look at it holistically.
In a larger, even larger context, the Nation needs to
formulate a coherent policy to address the Nation's flood risk
management that considers policies across agencies and
programs.
The Federal Emergency Management Agency is tasked with
identifying those flood-prone areas which are shown on the
Flood Insurance Rate Maps, and because of growing concerns
about the inaccuracy and currency of those maps, map
modernization was funded to update the maps and use better
technology and new flood data. So, not unexpectedly, the areas
shown as prone to flooding have changed.
And it should be noted really that the assessments done so
far have shown that while there are many properties newly shown
in the flood plain there is almost an equal number of
properties no longer shown in the flood plain, as the maps are
improved and the accuracy is better. However, we are seeing few
challenges to the maps when the floodplains shrink.
Over the last decade, the failure of levees to perform as
expected and the resulting catastrophic flooding experienced by
so many have really brought into sharp focus the degraded
condition of our levees. And FEMA has had the unenviable
position of being the bearer of the message, the bad news, when
they roll out the new floodplain maps. A lot of times what is
wrong with the maps is the fact that people are upset and do
not believe that their levees do not provide protection
anymore. They are not really challenging the actual mapping
based on those assumptions.
While the spotlight is on our national flood risk, it is an
opportunity to really examine our entire flood risk management
policy and take real action to reduce that risk, and it needs a
solid foundation that has already been established based on
data, based on engineering and based on science. But the
results of many of these technical evaluations that have
already been done show areas that are going to flood, levees
that will fail or be overtopped, and we need to pay attention.
The insurance standard of a 1 percent chance event is not a
safety standard, and many of the insurance claims actually are
for properties that are not in mapped flood hazard areas.
I will offer this one example to show you how this can play
out. In 1999, the city of Gulf Port, Illinois, not Mississippi,
was successful in getting their levee accredited and shown as
providing protection from the 1 percent chance flood. In this
Midwestern town of about 750 people, nearly everyone dropped
their flood insurance.
Then in 2008, when we had the Mississippi floods, their
levee failed and the town was inundated. It was more than a
100-year flood actually. The town was inundated with over 10
feet of water. Only 28 people had flood insurance, and the rest
were wiped out. It devastated the community and actually the
county because of the tax base that was lost. The financial
consequences were huge. They still have not quite recovered.
Yet, in the local news, people were featured and quotes
were given with the people saying, FEMA said we did not need
flood insurance. That is what people perceived. It certainly
was not the message that FEMA gave them, but it was how they
perceived and interpreted the language of the floodplain maps
because they were not required to have flood insurance.
Therefore, they thought they would not flood.
Citizens deserve to know and understand their true flood
risk, and our national experience shows the true costs of
flooding. We have lost lives, businesses, communities disrupted
and growing costs to all taxpayers as has been noted, and we
need to equitably reduce those risks, not ignore them.
It is essential that the NFIP stay in place to continue
providing flood insurance, strengthen mitigation programs and
identify those flood hazard areas, and we really appreciate the
Senate's action this week to reauthorize the program for a
year. But we do need to go further and creatively rethink the
NFIP and look at our flood loss reduction policies.
FEMA has already begun a careful assessment, looking at
decades of research, holding listening sessions and self-
examination, and they will be providing recommendations to
Congress on how to rethink and redo the NFIP. ASFPM supports
providing time for FEMA to prepare this assessment and careful
consideration of their recommendations.
We support development of more effective incentives for
flood loss reduction in communities, particularly those that
are already using higher standards.
We support clear communication, and we see the need for
clear communication of flood risk to individuals through
improved outreach communication and support FEMA's new risk map
outreach and mitigation efforts. Delivery of updated floodplain
maps that inform citizenry of hazards should not be delayed.
We do need creative solutions to address the issues of
affordable insurance through appropriate mechanisms, such as
the means-tested vouchers for low income, at-risk citizens,
community--based flood insurance policies or levee district
flood insurance policies.
ASFPM supports forgiveness of the debt to restore stability
to the program but urges Congress to consider either clearly
stating that the NFIP is not intended to cover catastrophic
losses or adjusting the program so that it can handle them.
We believe the current problems confronting the program
offer real opportunity to adjust and improve our Nation's
efforts to protect our citizens and their property.
Thank you very much for this opportunity to testify, and I
am happy to take questions.
Chairman Dodd. Thank you very much.
Mr. D'Ambrosia.
STATEMENT OF J. NICHOLAS D'AMBROSIA, VICE PRESIDENT OF TRAINING
AND RECRUITING, LONG & FOSTER
Mr. D'Ambrosia. Chairman Dodd, good afternoon, Members of
the Committee. Thank you for inviting me to testify today
regarding the reauthorization of the National Flood Insurance
Program.
My name is Nick D'Ambrosia. I have been a realtor since
1973. I have held numerous positions throughout the realtor
organization. Most recently, I served on NAR's task force to
examine how to improve access to affordable property insurance,
including insurance for flooding. I, today, testify on behalf
of the more than 1.1 million members of NAR who are engaged in
all aspects of the real estate industry.
Since September of 2008, Congress has approved 8 short-term
extensions of the NFIP. Twice, it has been allowed to expire
for several weeks at a time.
My message today is very simple. We need to reauthorize and
strengthen this program for the long term. Anything less will
continue to undermine the fragile real estate market.
About a week from today, on September 30th, NFIP authority
is set to expire again for the 9th time in 2 years. We are
pleased that last night the Senate passed Senate Bill 3814 to
extend the deadline by 1 year, and 1.1 million realtors thank
the Senate and the Members of this Committee and you, Mr.
Chairman.
We would urge the House to quickly do the same, so that
Congress has time to complete work on the long-term reform
bill. This month-to-month approach has hindered recovering real
estate markets and increased uncertainty for the more than five
million taxpayers who depend on the NFIP for basic flood
protection.
While we are beginning to see some signs of stabilization,
the housing market is in a very precarious position, with sales
at 15-year lows, excess inventories and numerous foreclosures.
Commercial property values have fallen 43 percent across the
board since 2007. Our Nation cannot afford further negative
shocks to these markets.
The House has already passed its NFIP reform bill, H.R.
5114, which makes some difficult reform choices but also
reauthorizes the program for a full 5 years.
As the Committee considers legislation, we would ask that
you consider the following views regarding NFIP reform:
NAR supports reforms to strengthen the NFIP's solvency as
part of long-term reauthorization. Increasing participation
would increase funding for the NFIP, help property owners
recover from flood losses and decrease Federal assistance when
uninsured properties flood and suffer loss. To this end, NAR
strongly supports provisions for outreach and education to
consumers about the availability and importance of flood
insurance. Offering additional coverage for living expenses,
business interruption and replacement cost of contents would
attract new participants.
Maximum coverage limits for residences, nonresidential
properties and contents, which have not been adjusted for
inflation since 1994, should be updated to reflect today's
property values and provide fuller coverage.
NAR strongly supports extending and fully funding the
current pilot program to mitigate properties which have
repeatedly suffered insured flood losses. However, we do
continue to have concerns about how to phase in rates for pre-
FIRM properties without a demonstrated history of loss.
I would like to thank you again for the opportunity to
share the realtor community views on the importance of the
NFIP. NAR stands ready to work with Members of this Committee,
to develop meaningful reforms to the NFIP that will help
property owners and renters prepare for and recover from future
losses resulting from floods.
Chairman Dodd. Thank you very much, Mr. D'Ambrosia.
Mr. D'Ambrosia. Thank you, sir.
Chairman Dodd. I have just gotten a note by the way from
Senator Reed's staff. He will not be able to make it down. He
is going to submit some questions for you, Ms. Brown. I know he
does want to speak to you.
There is large group of constituents from Rhode Island who
are in town for the day, from the business community, and I
know that he and his colleague, Sheldon Whitehouse, are meeting
with those business people all day. I think he had hoped to get
away for a few minutes and just could not do so, but he wanted
you to know he is going to submit some questions for you. As I
mentioned earlier, Jack Reed has been very involved in this
issue.
So I appreciate your sitting at the table, but you are
excused if you like. Thank you.
Mr. Ellis, welcome.
STATEMENT OF STEPHEN ELLIS, VICE PRESIDENT, TAXPAYERS FOR
COMMON SENSE
Mr. Ellis. Thank you, Chairman Dodd.
Good afternoon. I am Steve Ellis, Vice President of
Taxpayers for Common Sense, a national nonpartisan budget
watchdog. Thank you for inviting me here today to testify on
reauthorizing the National Flood Insurance Program.
TCS is allied with SmarterSafer.org on NFIP reform. This
coalition represents a broad set of interests, from American
Rivers to Americans for Prosperity, from the National
Association of Mutual Insurance Companies to the National Flood
Determination Association. I would like to submit for the
record SmarterSafer.org's principles for NFIP reform.
Will Rogers observed that if you find yourself in a hole,
stop digging. Well, NFIP is $18.8 billion in debt to the
taxpayer and has annual revenues of $3.1 billion. With that in
mind, any reauthorization of NFIP must make significant changes
to put it on sounder financial footing, not dig a deeper hole
with loopholes, new insurance lines or undercutting the
program's ability to charge actuarially sound rates.
Before NFIP was created in 1968, the Presidential Task
Force on Federal Flood Control Policy wrote, ``For the Federal
Government to subsidize low premium disaster insurance or
provide insurance in which premiums are not proportionate to
risk would be to invite economic waste of great magnitude.''
Sounds about right.
To foster increased participation, the NFIP does not charge
truly actuarially sound rates. Fiscal solvency is defined as
charging premiums that will generate enough revenue to cover a
historical average loss year. Catastrophic loss years are
largely left out of the equation, and shortfalls are met by
borrowing from the U.S. Treasury, a significant subsidy in and
of itself.
Twenty percent of insured properties predate a community's
involvement in the NFIP, or Flood Insurance Rate Map, and pay
only 35 to 40 percent of their actual full-risk level premium.
Repetitive loss properties, as has been mentioned, represent
only 1 percent of the total number of policies, yet account for
up to 30 percent of the payouts under the program--like a
property owner in Houston, Texas that has received 1.6 million
in payouts for a house that is worth $116,000. We need to help
these people out, out of harm's way, and at the same time help
the taxpayer who is picking up the tab.
NFIP insurance rates are driven by maps of the Nation's
dynamic floodplains. Areas that were previously less likely to
flood could now be more likely. Levees that were adequate a
decade ago may provide far less protection due to poor
maintenance or increased flood elevations. The maps must be up
to date, accurate and based on the best available science. FEMA
has been modernizing the maps, and in some cases homeowners are
facing steep increases in premiums as we have heard earlier
today.
In response, several lawmakers have introduced legislation
to either roll back or delay mapping changes and commensurate
rate increases. The House included it in their NFIP
reauthorization. Absent strong scientific evidence of specific
inaccuracies, efforts to delay and forestall map revisions must
stop. Legislation does not alter geology. It may be popular to
delay map modernization or waive building standards, but what
makes good politics generally makes bad insurance policy.
Remember, regular homeowners insurance does not cover
floods. People deserve to know the costs and the risks of where
they live, and taxpayers deserve to have those who choose to
live in harm's way to pick up part of the tab. A better way to
ease any sticker shock would be to provide for a relatively
short phase-in of actuarial rates or other assistance.
Besides the mapping issue, there are other efforts that
would take a backhoe to NFIP's deep financial hole. One is the
addition of wind insurance. It simply does not make sense to
add a whole new business line to the already challenged flood
insurance program.
Another related area is the effort to create a new national
catastrophe reinsurance program for State-run reinsurers.
Private reinsurance, essentially insurance for insurance
companies, is widely available. However, some States want the
Federal Government to subsidize reinsurance rates as well.
The current NFIP model is clearly not sustainable. The
subsidies have to be phased out, and the program has to move
toward actuarial rates. This would help eliminate the cross
subsidies that have a few homeowners picking up the tab for
properties that have enjoyed subsidized premiums for decades.
There must be a strong commitment to help communities and
homeowners to reduce their flood vulnerability, eliminate the
problem of repetitive loss properties with elevation and
relocation programs, increase the availability of accurate
information about flood risks and ensure adequate enforcement
of program rules. Additionally, NFIP should begin to identify
pilot areas that the private sector can begin providing flood
insurance.
Last Congress, the Senate adopted important reforms as
well: mandated insurance in residual risk areas--those in a
natural floodplain but protected by a levee, flood wall or dam,
like those in Gulf Port, Illinois, as was mentioned earlier--
also charging rates sufficient to create a reserve fund for a
higher than predicted loss years.
The shaky foundation on which the flood insurance program
was based has enormous cracks. Congress and the Administration
can either create even greater cracks by adding new business
lines or delaying a shift to actuarial rates and updated flood
maps, or remake and strengthen that foundation by putting the
program on more solid financial footing.
Thank you very much.
Chairman Dodd. Thank you very much, Mr. Ellis. I appreciate
that.
Just to pick up on the wind issue, I have listened to
Senator Wicker and others come to talk about it. I am
sympathetic obviously to what they go through, but I do not
think there is anything.
You see the difficulty we have, even having passed a bill
last year pretty overwhelmingly, and I think people saw the
bill as being a pretty good piece of legislation. In fact, we
had some pretty good amendments that were offered that
challenged the very foundation of the legislation. That is the
obligation of those who choose to live in these areas picking
up I think it was a dollar a day. I think the average premium
was about $360 a year, and there was still awful resistance
even to that idea. They were not exorbitant costs, but it was
considered enough to at least provide the coverage for people
in those areas and reducing the exposure to people who live in
other parts of the Country that are being asked to subsidize
people's choices about where they live.
Let me ask you all a series of questions here if I can, and
then I will leave the record open for several days as well, so
that additional questions may be offered by my colleagues. I
think all of you, as I said earlier, were here for hearing
Senator Durbin's and Senator Schumer's remarks regarding the
flood mapping, and again you heard Senator Shelby and others
raise the issue and conversation with Ms. Brown as well on the
topic. She was asked about it. And I know, as we have
discussed, FEMA has been working on this to try and get this
right.
I was thinking as you were testifying. I mean today with
all of us having MapQuest and Google Earth. It's frightening
what you can pull up on your BlackBerry, let alone some high
powered computer, to hone in on exactly what is occurring in
almost anyone's backyard in the Country. So to me the
technology of mapping, it seems to be, ought to be fairly
sophisticated today and fairly accurate based on what you could
overlay and lap and historical records and the like.
Now last Congress, of course, we would have authorized more
funding for a technical advisory council to improve this even
further, the mapping. I wonder what your perspective is.
You sort of shared some, Ms. McConkey, on this already. I
gather you felt probably and somewhat disagreed with Senator
Durbin then, unless I misread what you said. I mean he came to
me early and talked about the mapping problems as he saw them
in southern Illinois. What is your take on that?
Ms. McConkey. The change in three counties--St. Clair,
Monroe, and Madison County are the locations where there has
been most of the focus of attention because of the levee
decertification.
Chairman Dodd. Right.
Ms. McConkey. And the new study that was actually shown was
a study done by the Corps of Engineers. People really have not
challenged the discharges or the elevations that the Corps of
Engineers came up with. What they were challenging was they did
not believe their levees were not going to hold against the
flood. The challenge was the viability of the levees, not the
quality of the engineering work.
Chairman Dodd. Unlike New York where they are challenging
the engineering and the level of the floodplain.
Ms. McConkey. Correct. That was the point I was making.
There is a certain amount of debate about coastal analysis that
is still a little bit more open than riverine analysis, which
is a little bit better established.
Chairman Dodd. Well, what do you recommend here? Because,
again, I can see this is a growing problem as you get the kind
of political influence coming to bear on the decision making,
we delay, you know, 1-year extensions, 1-year extensions in a
lot of this. I am anticipating a lot more interest in this as
you get these maps coming forward and communities reacting,
picking up the phone and calling their Congressman and their
Senators and coming before--either calling me or others and
saying you have got to get a moratorium, we cannot afford to do
this. Obviously, they have a pretty good case today given the
economies of scale.
I would ask all of you to comment on this. I understand
your point, Mr. Ellis. I agree with you on this. But I wonder
if you have any practical suggestions on how we might deal with
this?
Ms. McConkey. One thing that I think that is really
important to point out was the fact--the cause of the analysis,
looking at those levees down in the Metro East area, we became
aware of a real flood risk and a public safety issue. And I
think the biggest question we have before us is how we can deal
with the public safety issue. The affordability of the flood
insurance is a separate issue.
The fact that the maps were going to be going effective got
everyone's attention, and I think that a gradual phase-in--not
a 5-year moratorium but a gradual phase-in of the flood
insurance would keep that in the public eye, keep the focus and
the pressure on dealing with the real problem, which is the
degradation of the levees, and allow people to adjust and make
decisions over time. It is important to get that bill in front
of them, but it should be phased in.
Chairman Dodd. I should have asked you, by the way, he
makes the case about how you should be basing these maps on
watersheds. Do you agree with that?
Ms. McConkey. The analysis needs to be done based on
watersheds, and it was done on a watershed basis. It was just
the timing of actually coming out with the digital--with the
effective flood insurance rate maps, and that was more the
timing of the maps of the consequence in terms of the
equitability issue on when Illinois had to start buying flood
insurance versus Mississippi--Missouri.
Chairman Dodd. Let me ask either one of you, do either one
of you want to comment on these questions I have just raised?
Yes, Mr. Ellis.
Mr. Ellis. Sure. Mr. Chairman, I think that also--I think
that is exactly it. It was more about the fact that the cost of
owning a home east of the Mississippi River was going to be
higher relative to the cost of owning a home west of the
Mississippi River, and that was some of Senator Durbin's
concern and why he wanted to look at it rather than from a
scientific point of view, just sort of relative economics.
Because, clearly, the flood protection, you know, the issues
there are different. I mean, St. Louis has a flood wall. There
are levees in East St. Louis.
But then also I think the other point that I wanted to
raise about Senator Schumer's comments about, well, there had
never been flooding here before, well, geology changes. I mean,
we are spending millions of dollars every year pumping sand
onto Long Island's beaches to try to forestall erosion. So,
clearly, the land changes and so there are areas that did not
use to flood that are going to flood now just because of
development and other issues. So the idea that it never
happened or it did not happen when the Long Island Express came
through 70 years ago does not really get to the issue of the
maps. And I think absolutely there is going to be a lot of
controversy, I think you are absolutely correct, Mr. Chairman,
and that it is going to only build as the maps come out. But I
think that the idea that we would basically wait 10 years
before people would actually be paying the full freight of
where they live is doing a disservice to those people, one,
because there is an economic issue of where they can think
about what they can do and mitigate and other things, and it
really brings to bear some of the underlying issues of where
people choose to live; but also it is doing a disservice to all
of us because we are being stuck with that tab when it seems
likely that there are going to be several floods in these
areas, wherever they are in the country in that 10-year period
that they are not actually paying their way.
Chairman Dodd. Mr. D'Ambrosia.
Mr. D'Ambrosia. But the reality--I would just like to
address what was just said, if I may. The reality of the
taxpayers being stuck, the taxpayers pay one way or the other.
If there is no Flood Insurance Program, then the taxpayers end
up paying once the disaster occurs. And then there is the
taking care of the disaster. So it is a hard bullet to dodge.
You either address it up front and try to get as many people
into the program to create the funding necessary to do it, or
you are going to pay in the end, anyway.
Chairman Dodd. I was thinking as Mr. Ellis was talking, I
recall being--having spent a little time in Iowa a couple years
ago, the Missouri River in Kansas and Iowa, and how the
Missouri River changed course. And there was the debate over--
in fact, I think it went to the Supreme Court--as to whether or
not the boundary between those two States would change because
the river changed not long ago.
Mr. Ellis. Right.
Chairman Dodd. But you are absolutely right about that.
These things change all the time. And if Al Gore is right at
all, in Kansas you could be living on the shoreline.
Let me go back to the issue of the levees and the flood
control infrastructure issues, and I wonder if you might
elaborate--again, Ms. McConkey, let me ask you this as well.
Can you elaborate on the scope of this problem beyond your
Illinois perspective, obviously, and some examples of where
this need has been effectively addressed or examples of where
such infrastructure is falling apart that you are aware of
besides the one you talked about?
Ms. McConkey. Well, actually, there is--it is a national
issue. We are seeing a lot of the levees, particularly in
California, that have been identified as not meeting standards.
There are a number of levees in Illinois. There are hundreds of
cases. And I am a little bit stumbling right now to give you a
specific one like the Gulfport one, but I would point out that
there has been---- through the Water Act of 2007, the National
Committee on Levee Safety was convened, and they are--one of
the top things they did was to say that we need to have an
inventory of the levees that are in the Nation and also an
inspection of those levees. And that is ongoing right now
through the Corps of Engineers.
The problem is extensive. We could find--there is data on
the number of provisional letters of accreditation that FEMA
issued whereby when the maps were being done, if the levee
owners signed that they believed that the levees would provide
protection from the 1-percent flood, they thought that they
would build to provide the proper documentation, FEMA would
grant them provisional accreditation. Many of the new maps
rolled out with that provisional accreditation, and FEMA will
have numbers on the--they had 2 years to provide the data, and
there are hundreds of levee owners that are not--those letters
are coming due. It is time for them to show the data, and they
are not able to do it, and levees are being de-accredited
because the information is not there.
Chairman Dodd. But your association--do you have an
independent source of information on this, or are you just
relying on others?
Ms. McConkey. On the problem----
Chairman Dodd. Yes, just an idea of a cross-section of the
country. You mentioned California specifically, but do you have
other information about other States? Or do you have to go to
the Corps of Engineers for that kind of information?
Ms. McConkey. We do not have any independent information.
We would be relying on what the Corps has, and looking--
actually, I serve on the Review Committee for the National
Levee Safety Committee, so that is really my source of
information. But one thing that is important, back to my
testimony, is that we do need to look at these issues of
coordination between the agencies with the Corps and with the
Federal Emergency Management Agency and the USGS so that we
have coordinated policies that move us toward a safer
environment and mitigate our flood risk.
Chairman Dodd. Thank you.
Mr. D'Ambrosia, you mentioned in your testimony education
and outreach obviously is an important step for FEMA and the
communities to take to make sure their residents are aware of
the flood risks. Do you have any idea what FEMA is currently
doing to support this effort and what it could do to make it
better? And who in your view, an insurance agent, a real estate
agent, mortgage broker, Government official, who is the best
person to convey that kind of information?
Mr. D'Ambrosia. Well, what you see currently from FEMA is a
series of commercials telling people about flood insurance and
the opportunity that the properties have to flood. As far as
getting entities from the housing industry involved, the
National Association of Realtors itself is willing to go ahead
and talk and participate in those actions.
As was said earlier today, 50 percent of the people who are
in floodplains do not have flood insurance for a variety of
reasons, either they----
Chairman Dodd. How realistic would it be, with all due
respect, to have a real estate agent be reminding a home buyer
of some additional costs they are going to have to take? That
is not the kind of thing you want to raise with a buyer unless
it is mandatory where you have certain requirements under law
that you have got to meet. But assuming this is not being
followed to the letter with as much as 50 percent of the people
who are not complying, how--and I say this respectfully. But
how likely, if you are trying to make a sale and get something
done here, you say in the middle of that, ``By the way, I
forgot to tell you. You are going to owe another 200 bucks or
300 bucks a year for this stuff.''
Mr. D'Ambrosia. Well, Senator, as you mentioned earlier, I
sit on the Maryland Real Estate Commission, so we make rules
all the time that real estate agents have to go out and follow
and give disclosures and tell people they have to spend extra
money.
You know, part of it comes down to protecting the public,
and the reality is that without the flood insurance, you know,
as was mentioned earlier by Senator Tester, you know, there are
only a couple private companies out there--Chubb, Lloyd's of
London, I think there are two more--that will go ahead and even
address flood insurance with people. And usually they are
addressing it with high-cost homes and more wealthy people. You
know, for the person in the middle class who lives in a
community such as Chesapeake Beach, Maryland, where the homes
are smaller and they are old and have been there for a while,
there is nowhere for those people to turn when they want to go
ahead.
So if it comes down to that--since there is a paying,
anyway, either by all or by people who are buying in the
floodplain, there is no--things have to be paid for, and if it
has to be put forth to people you need this program, it is
going to cost you $200, it is always better to spread it out
over the group of the people rather than to concentrate it on a
few. Otherwise, you end up in a situation----
Chairman Dodd. What do you do in Maryland? What do you tell
people? What does Maryland require?
Mr. D'Ambrosia. Well, in Maryland, it depends on the area
which you are in. Ocean City, of course, and down through the
coastal regions. Maryland has more coast than any other part of
the country. So you have a lot of people that are affected by
it. It is presented to people. It is not required to be
presented, but it is presented by those sales people in those
various areas.
Chairman Dodd. As a regular matter?
Mr. D'Ambrosia. As a regular matter, because usually the
mortgage companies that are giving the loans in those areas
require it.
Chairman Dodd. Yes. Mr. Ellis, you mentioned that the Flood
Insurance Program was established with the goal of promoting
the wise use of floodplains, and obviously you are right in
that. And you and others have noted that communities continue
to develop in risky areas. I wonder if you have any more recent
examples of development that occurred after the inception of a
program that may have been unwise to build? I can think of
some, but do you have some that come to mind in your work?
Mr. Ellis. Well, you know, actually, not to pick on
Louisiana, but the whole area of New Orleans East developed
after the creation of the program, and actually you can look at
it, it kind of shows some of the problems with our whole flood
protection, flood insurance infrastructure where essentially
the Army Corps of Engineers built flood protection out in that
area, which then induced development behind the levee, which is
an area that got completely destroyed by Hurricane Katrina.
That was all in the 1970s, so after the development of--after
the Flood Insurance Program was instituted, and it also sort of
shows that some of the problems that we have is that right now,
you know, essentially for years we have dumbed down our
Nation's flood protection to the 100-year or the 1-percent
flood, because essentially communities knew that if you had a
levee that gave you 100-year protection, then you did not have
to buy flood insurance. And so that was always the target, was
to get something along those lines, when in reality we
recognize that it is far less protection than what communities
need, and that was why one of the things that I complimented
you on on your bill from last Congress was this idea that you--
mandatory in residual risk areas, the areas like Gulfport,
Illinois, purchase flood insurance, and it would be less
expensive than if you were actually in that floodplain. But you
are in the floodplain, you just happen to have manmade
protection. And I think that you can look along the Nation's
coastlines, and you can see all the development that has
occurred there. That is all the floodplain. I mean, I do not
think you are going to change that. People like to be near the
water. It is sort of a human instinct. And so it really is then
making sure that people know what their true cost is, not just
from an economic point of view for the taxpayer, but from a
human life point of view, people knowing that they are moving
into harm's way and some of the issues surrounding that.
Chairman Dodd. Well, I agree, and I am glad you pointed out
what we did last year in the bill. You understand the political
difficulty when all of a sudden the Federal Government starts
telling local communities how to develop land, let alone State
and local. I mean, you see those problems. But clearly we need
to. There is no question about it. It is a great disservice to
people, and obviously this runs directly, Mr. D'Ambrosia, in
the face of builders, realtors, and others, that the last thing
they want is big Government. Today we all know what is going on
politically in the country. But to talk about having--because
we all end up paying. Asking some taxpayer in Nevada or Idaho--
I am using those States somewhere in the Midwest--to pick up
the cost of people who make choices to live elsewhere or
communities or States that allow property to get developed in
areas where clearly they are at risk--I mean, these are hard
calls, but I do not need to tell you the political mine field
you enter when you start advocating suggestions like that. We
need leadership out of the real estate community and others to
help step up on these matters, or it is just going to get out
of control.
Mr. D'Ambrosia. Senator, if I may, and I totally agree with
what you just said. The flood insurance does not really spawn
the development. The development is going to happen in one way
or another. As Mr. Ellis pointed out, people like living by the
water. But also at one point in time there was a necessity for
people living by the water--Baltimore, Boston, where because of
shipping and everything else, fishing in Maryland--you
mentioned Maryland, the fishing industry in Maryland.
What happens, those properties are already there, they are
already developed. They are already in place, and there has to
be an avenue for those people to be able to transfer those
properties when the need arises.
Mr. Ellis. Mr. Chairman, I would just point out that there
is an existing program, just to challenge Mr. D'Ambrosia on one
little bit of this, and that is, the Coastal Barrier Resources
Act was created in 1982 and then expanded in 1980, and
essentially it was something where they would deny flood
insurance to undeveloped coastal barrier islands, and they
worked with the States to identify these. And the Fish and
Wildlife Service has done a study and has looked at property
that is right outside the CBRA unit, the Coastal Barrier
Resources Act unit, and they went inside. And really the key
subsidy that drives this sort of--that drives the development,
because you can still build in these areas. You just cannot get
any Federal subsidies for building or flood insurance, the
Flood Insurance Program. And the Fish and Wildlife Service has
documented that that is one of the key things in these coastal
areas that fuel development. And it is really amazing. You can
look at some of the aerial photos of these barrier islands, and
you can basically tell exactly where the line is. The really
popular areas still will build. People will privately insure.
But in many cases it is actually--you can see that flood
insurance is one of the key drivers or enablers of development.
Chairman Dodd. I recall, by the way, you mentioned East New
Orleans, flying in a helicopter just a few days after Katrina,
and that whole area, it was just stunning. All you could say to
yourself was, ``How did that ever get developed?''
Mr. Ellis. And, Mr. Chairman, actually in the 1970s when
the Corps first proposed this, because it was all supposed to
be in response to Hurricane Betsy, their flood protection, then
Congressman Livingston was a freshman, and he was on the
Committee there, and he basically challenged the Corps, saying,
``Well, why are you building levees where people are not in New
Orleans East''--because they were not there yet--``instead of
building higher and stronger levees where people are, in New
Orleans.'' It was really because that was the way that the
Corps did their analysis, and the economic benefit of
developing that basically virgin area was a much greater
benefit to overcome the cost of the project than to actually
put higher and better levees in New Orleans.
Chairman Dodd. Interesting. Well, listen, I thank you. You
have been very informative, very helpful, and enlightening as
well. I would love to tell you I know what is going to happen
here. I get uneasy about extended moratoriums and not really
addressing what we need to address. It is kind of a classic
response of Congress these days, kicking the can down the road.
But the problems do not go away. They only get worse. We have a
pretty good idea what needs to be done.
The mapping issue is one that has been raised here, and
that is going to be around. We have got to address that to some
degree. And I think having phase-ins, even the grandfathering
provisions we heard from Ms. Brown will help, I think, to ease
some of the political pressures against this. But I am not sure
we can get the kind of 92-6 vote again in the Senate, even with
that same bill and the same make-up of the place. We might have
difficulty getting there. But I wish we could get beyond the 1-
year extensions. Again, I am moving on and leaving, and others
will have to pick up this issue. But I would like to see if it
were not possible--and the House-passed bill, would you vote
for the House-passed bill, Mr. Ellis?
Mr. Ellis. No, sir, I would not.
Chairman Dodd. So you do not think we ought to try and do
that.
Mr. Ellis. No. I think that the House bill--it has the 5-
year--I mean, it has essentially what was proposed here, which
is 5 years waiting on the maps implementation and 5-year phase-
in of the cost. And that is just way too long.
Chairman Dodd. And I agree with you, but as a practical
matter, my concern is that that 5 years, we might look back a
year from now and say, ``You know something? Offer me the 5-
year and I will take it now,'' because I am fearful what I am
going to get is a 10-year proposal and so forth, as more of the
mapping issues come up, and others, and we might regret not
having grabbed what we could grab, and then work it over these
next 3 or 4 years. That is where the tipping points are
politically. I do not like them necessarily, but in the world
that I have to function in here--and this happens to me all the
time--I have to find out where the tipping points are
politically before I can get something done. I am not crazy
about five.
Mr. Ellis. Right.
Chairman Dodd. But if it is the only thing I can get versus
1-year extensions, inevitably----
Mr. Ellis. Well, I think that--I mean, the Senate has
always been sort of the bulwark on this issue, and, you know,
certainly I think that the one thing that the House did better
this time was that they did not include wind.
Chairman Dodd. They dropped wind.
Mr. Ellis. And so that is the one improvement. But I think
that working with the Senate, actually having more of their
imprint on the final product will turn out a much better
product than what the House got, and hopefully the 1-year
extension will continue to provide a little bit of pressure--
not be ridiculous. I agree the month-to-month extensions are
ridiculous and do not help anybody at all. But the 1-year
hopefully gives the new Congress enough time to sort of build
and to come up with something.
Chairman Dodd. There is an old Gaelic expression, ``From
your mouth to God's ears.''
Mr. D'Ambrosia. Senator, if I may, you know, one of the
things that I mentioned--and Mr. Ellis is correct--when you
have those lapses and then it takes time to go ahead and get
things approved and ramped up, everybody reacts differently.
Consumers react differently. They lose confidence. They drop
out of the market. They lose their loan lock. Lenders react
differently. You have some lenders who say, ``Oh, we know
Congress is going to reapprove this.'' And other lenders say,
``No, no, we are not going to settlement until it is in
place.''
So it goes ahead, and it causes literally thousands of
settlements to either be postpone or canceled. And we all know
how fragile the market is, and I am sorry I am myopic in my
focus on housing.
Chairman Dodd. No, no. It is your job.
Mr. D'Ambrosia. Housing does drive a lot of what goes on.
Chairman Dodd. So you would be--where do you come down? If
I just made you a Senator and you got a vote----
Mr. D'Ambrosia. We would be in favor of----
Chairman Dodd. You would vote it just to get something
going.
How about you, Ms. McConkey?
Ms. McConkey. We would not be in favor of the 5-year
extension. We would like to see what FEMA is going to come up
with in the next year on their recommendations for a real
rethink of the NFIP. There are a lot of issues that have come
up since those two bills were considered by the Houses, and I
think FEMA would be the best one to make some good
recommendations.
Chairman Dodd. Well, you have got some good Members here.
As I mentioned, Jack Reed has a strong interest in this subject
matter. You heard Senator Tester here. These Members will be
back. Senator Shelby has a strong interest in the legislation
as well, and Tim Johnson, so I am optimistic that the next
Congress and this Committee can pick this up and move forward
with it.
I cannot thank you enough, all three of you. Sorry we did
not have more colleagues here, but in the afternoon there are
all sorts of things going on up here in the last days before
the election starts, so we do not have as much participation.
But this is a subject matter in which there is a tremendous
amount of collegial interest, I can tell you, in the Flood
Insurance Program.
So I thank all three of you. We will leave the record open
for a few days.
Mr. Ellis. Thank you very much.
Ms. McConkey. Thank you very much.
Mr. D'Ambrosia. Thank you.
Chairman Dodd. The Committee will stand adjourned.
[Whereupon, at 4 p.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD
I welcome everyone here today for a hearing on the
``Reauthorization of the National Flood Insurance Program,'' or NFIP.
The NFIP is an important program providing a range of benefits to
deal with an often overlooked, but serious, threat. Floods cause more
damage and create more economic losses than any other type of natural
disaster. While the topic may bring Hurricane Katrina's Gulf Coast
devastation to mind, the truth is that floods can happen anywhere.
Parts of my home State of Connecticut were ravaged by flooding this
spring.
Flood insurance provides critical assistance to 5.5 million
families and businesses--insurance to help them recover from flood
damages and mitigation assistance to help them avoid damages in the
future. It also provides a framework of responsible flood plain
management, requiring safer, more environmentally sound development
that limits Americans' flood risks. Together, these measures save
taxpayer money by limiting the amount of emergency disaster assistance
necessary in the wake of flood events.
Despite these many benefits, the program faces serious challenges
that threaten its ability to carry out its mission.
Hearings before this Committee in previous Congresses revealed a
number of issues in need of reform. Perhaps foremost is NFIP's
financial condition, which threatens the program's long-term viability.
Due to increased borrowing to pay claims for catastrophic disasters in
2005 and 2008, the NFIP faces almost $19 billion in debt to the
Treasury, a sum it is unlikely to ever repay. Subsidized rates for
nearly 25 percent of policy holders do not reflect the actuarially
sound rates sufficient to cover expected claims.
Another key issue is ensuring that citizens and the Federal
Government understand their risks. Despite mandatory-purchase
requirements for properties in flood hazard areas, only about half of
all property owners in those areas actually participate in the program,
increasing their potential exposure to devastating losses. On top of
this, until recently, FEMA had been using outdated, paper-based flood
maps to assess risk.
These and other concerns caused GAO to place the program on its
High-Risk List in 2006.
In the last Congress, Senator Shelby and I worked together on flood
insurance reform legislation to put the NFIP on a stronger footing for
the future.
That bipartisan, fiscally responsible legislation would have
provided comprehensive NFIP reform to address these pressing issues,
and would have reauthorized the program for 5 years. It would have
relieved NFIP's debt while requiring actuarially sound premium rates.
We worked with Senator Jack Reed on provisions to strengthen FEMA's
mapping capabilities to inform citizens of their risk and accurately
set premium pricing.
In recent years we have heard a number of proposals to improve
insurance options and delivery for so-called ``multiperil'' events--
such as those involving both wind and water, for example, and for
lowering the cost of insuring against catastrophic natural disasters.
Our legislation also called for the creation of a National Commission
on Natural Catastrophe Risk Management and Insurance to provide expert
recommendations to the Congress on these complex topics.
In 2008, the Senate adopted this bipartisan legislation by an
overwhelming 92-6 vote. Unfortunately, we did not reach agreement with
the House. Since that time, the program has been operating under a
series of shorter-term extensions.
While our comprehensive reauthorization discussions continue, I
have been working with my colleagues to ensure that the program remains
in force. Last night, the Senate approved a 1-year extension of the
NFIP. A multiyear reform bill is preferable to an extension. However,
such an extension will, in my view, provide necessary program and
market stability to homeowners, lenders, and insurers while Congress
considers the next steps for the reform of the NFIP.
The purpose of today's hearing is to return to our discussion of
comprehensive flood insurance reform. We will hear from distinguished
colleagues and experts about the status of the NFIP and their
prescriptions for reform.
Before I introduce the panelists, I will turn to Senator Shelby to
see if he would like to make any opening remarks.
PREPARED STATEMENT OF SENATOR RICHARD C. SHELBY
Thank you Chairman Dodd.
The National Flood Insurance Program remains in serious trouble and
is in desperate need of reform. Every aspect of the program must
undergo significant revisions. This concern is clearly not partisan,
nor is it novel.
Since early 2006 the GAO has targeted this program as ``high risk''
because of both the massive debt problems plaguing the program and the
imbedded structural deficiencies.
During the 109th Congress, this Committee held multiple hearings on
ways to improve the Flood Insurance Program. Ultimately, with Chairman
Dodd's leadership, this Committee voted unanimously on a piece of
legislation that addressed many of the program's core deficiencies.
For example, the bill immediately eliminated subsidies on vacation
homes, businesses, and severe repetitive loss properties, and
established a process for the elimination of all subsidies in the
future.
The bill addressed insufficiencies in the current maps by setting
forth stringent standards that the program must use to complete the map
modernization process.
The bill provided both State and Federal bank regulators with more
tools to ensure that homes in a floodplain had the necessary coverage.
Finally, the legislation created a mandatory reserve fund to
provide additional funding to help pay future claims without further
need to seek contributions from the U.S. taxpayer.
The legislation passed by the Senate during the last Congress is a
good starting point. There are, however, several other reforms that
this Committee must consider.
First, the GAO is about to complete a number of studies on specific
aspects of the program, including a thorough examination of the
relationship between the program and the Write Your Own (WYO) insurance
companies.
We need to have a full understanding of the costs and benefits
provided by the Write Your Own program. If there is fat in this
program, we need to trim it.
In addition, we need to know more about who is using the flood
program to ensure that its resources are targeted. The Congressional
Budget Office (CBO) has determined that 12 percent of the homes
receiving subsidies under the program are worth more than $1 million.
We need to ensure that the program requires wealthy participants to pay
their full freight.
There also has been much attention focused on the mapping for this
program.
The map modernization process has been ongoing within the program
for several years. These maps are important for two reasons.
First, they serve as a warning for developers and homeowners about
the risk of developing or living in a floodplain.
Second, they ensure that individuals paying into the flood
insurance program are paying fair prices for coverage.
Several groups have stated that the program has not given
communities the ability to have input in the map making process.
While I believe that it is important that communities have a voice
in this process, I am concerned that many who wish to contribute only
are attempting to slow down the process of modernizing the flood maps.
Government transparency is crucial, but this process needs to take
place rapidly. Many of these maps are several decades old and do not
accurately outline the costs and risks of living within the floodplain.
Finally, the term ``actuarially sound'' must be defined in a manner
which ensures that the premiums cover the costs.
Once this definition is codified in statute, there will be no
question that we intend this program must be financially self-
sustaining.
Yesterday, I agreed to allow the program to be extended once again.
While there needs to be a degree of certainty for policy holders, we
are not serving the American taxpayer well by continually extending a
fundamentally flawed program.
The National Flood Insurance Program is broken. The sooner we get
around to fixing it, the better it will be for everyone.
Thank you Mr. Chairman.
PREPARED STATEMENT OF SENATOR TIM JOHNSON
Mr. Chairman, thank you for holding this important hearing
regarding the reauthorization of the National Flood Insurance Program
(NFIP).
The goal of the NFIP has always been to enable at-risk property
owners in participating communities to purchase insurance as protection
against potentially catastrophic flood losses. If such Federal
insurance were not available, citizens would be exposed to unacceptable
risk, and Congress would face ever-escalating requests for Federal
grants to rebuild uninsured flood-zone properties. Though the NFIP does
involve costs for the Government and for individuals in flood zones,
the program is a cheaper alternative to letting flood-zone properties
remain uninsured.
But this program has faced many challenges in recent years,
including an expansion in the size of the program, a debt to the
Treasury, repetitive lost costs, and the reality that the policies may
not be priced at their actuarial price. After Hurricane Katrina, this
Committee began bipartisan work on legislation to reform and
reauthorize the NFIP. While the Senate has passed legislation the past
two Congresses, differences between with the House and Senate
legislation have gone unresolved. Authorization for the NFIP has had to
be extended on a short-term basis as Congress works to resolve
differences over the longer-term reform.
These short term extensions have led to several temporary
terminations of the program. These temporary terminations are
disruptive, frustrating, and confusing to the many people who rely on
flood insurance; they also cause uncertainty for those Americans trying
to buy new homes. They also demonstrate how vital it is for Congress to
approve a long-term extension and eventual reform of the NFIP, which
would give certainty to those seeking to purchase flood insurance for
their homes. I am pleased that last night, the Senate approved an
extension for 1 year.
In addition, I have supported reauthorization and modernization of
the NFIP many times and continue to be hopeful that long-term reform
can be agreed upon within the Senate and successfully reconciled with
the House of Representatives. Now that we have approved a longer-term
extension of the NFIP, we can work on modernization proposals. While
the legislative days are numbered this year, making modernization
proposals unlikely, I hope my colleagues and I can begin work on a
modernization proposal that we can take up as soon as possible.
______
PREPARED STATEMENT OF SENATOR JIM BUNNING
Mr. Chairman, thank you for holding this hearing.
One of my proudest accomplishments in the U.S. Senate was authoring
the 2004 law that reauthorized the National Flood Insurance Program.
At the time, I chaired this Committee's Economic Policy
Subcommittee. We worked in a bipartisan way to improve the program,
including incentives for communities and homeowners to mitigate
flooding risk when properties have a history of serious and repeated
flood damage. And we provided long-term certainty for the program for
property owners, communities, and lenders.
Thankfully, my bill ensured that the flood insurance program was in
place before the Katrina disaster hit. Unfortunately, the law I wrote
expired in September of 2008, and since then, Congress has extended the
program for only short periods of time.
The program has lapsed twice this year, mainly because Congress
could not manage deadlines and short-term extensions were held hostage
in bills that were controversial.
Last night, the Senate passed yet another extension of the flood
insurance program, this time through September 30, 2011. If Congress
does not complete action on it, the program will lapse again next week.
We simply cannot keep kicking the can down the road. It is not fair
to property owners or to taxpayers.
There are several issues with flood insurance that are crying for
reform. Many people covered by the program are not paying premiums that
bear any relationship to their actual risk of flood damage, and other
property owners and taxpayers are subsidizing them. Flood maps need to
be updated. The program also owes $18.8 billion to the Treasury, with
interest, which is not sustainable.
The Senate passed a bipartisan reauthorization of the program in
the last Congress that would make several improvements, but it died
from inaction.
Reform and long-term renewal of the program is long overdue. I hope
this hearing moves us closer to a more stable and rational flood
insurance program.
Thank you, Mr. Chairman.
______
PREPARED STATEMENT OF SENATOR RICHARD J. DURBIN
Chairman Dodd, Senator Shelby, and Members of the Banking
Committee, thank you for this opportunity to testify on the importance
of the National Flood Insurance Program.
I would like to limit my testimony to one important issue--FEMA's
flood mapping program. This program is well underway in Illinois and
has affected thousands of homeowners and businesses in my State.
Metro East
As you know, FEMA is currently updating outdated floodplain maps
across the country.
The Metro East St. Louis area was one of the first areas in the
country to undergo this floodplain map modernization process. The
greater Metro East area is home to 150,000 people and dozens of
historic communities, including East St. Louis, where I was born and
raised.
In early 2007, FEMA informed the Illinois levee districts in Metro
East that their levees were not strong enough to be certified against a
100-year flood event. This lack of accreditation by FEMA means that
tens of thousands of homeowners will soon find themselves living in a
floodplain. This floodplain designation will also require these
property owners to purchase flood insurance.
FEMA originally decided to update flood maps on the Illinois side
of the river only. The Missouri side of the river was not scheduled to
undergo the new mapping process until well after the Illinois side was
completed.
Mapping on a Watershed Basis
With your help, language was included in the Fiscal Year 2009
Continuing Appropriations bill that aligned the mapping process for
both sides of the Mississippi river.
As the Committee develops its bill to reauthorize reform the flood
insurance program, I would encourage you to consider directing FEMA to
undertake its mapping process on a watershed basis. Floodwaters do not
stop at county or State lines and FEMA should recognize this by mapping
watershed by watershed.
Mandatory Flood Insurance
Floodplain designations by FEMA will require homeowners to purchase
flood insurance. In Metro East Illinois, up to 30,000 new properties
will be affected by this requirement. These individuals have lived in
the same location for many years outside of a floodplain.
Current law will require most of these homeowners to purchase flood
insurance immediately after the new flood maps become effective. This
could lead to an additional $2,500 per year on each mortgage. This
sudden spike in costs is especially problematic for many of my
constituents in Illinois who have struggled to make ends meet in this
economy.
Phasing in the New Expense
The House-passed flood insurance reauthorization bill includes a
provision that would delay the mandatory flood insurance purchase
requirement for 5 years in areas like Metro East, where new flood maps
are being implemented.
This delay would be followed by a 5-year period where insurance
rates would be phased in incrementally. This additional time would be
especially helpful for places like Metro East St. Louis, where the
local community has developed an aggressive plan to upgrade the levees
to ensure protection against a 100 year flood event.
The three counties affected in Illinois have imposed a sales tax
that will generate $10 million per year to be used on levee upgrades
and improvements. The levee rebuilding project is expected to take 5
years and ultimately deliver protection to the businesses and homes
behind the levees.
I encourage you to include the House-passed provision in your
version of a Flood Insurance Reauthorization bill. This provision will
give communities time to fully understand the new flood risk shown by
these modern flood maps while giving temporary relief to homeowners and
businesses.
Outreach and Education Are Critical
I would encourage you to delay this mandatory requirement only in
special circumstances. Temporarily lifting the flood insurance
requirement should only be offered to communities that have done
extraordinary outreach to provide flood risk information to residents
in these newly mapped floodplains.
Homeowners need to understand they are at risk. Levees do not
provide 100 percent protection, and having federally backed flood
insurance can help you rebuild your home and protect your mortgage if a
disaster strikes. Even though flood insurance may not be required, it
is important homeowners living in floodplains protect themselves with
insurance.
Unfortunately, even though flood insurance is required for everyone
with a federally backed mortgage, compliance rates are very low in the
Midwest. Recent research has shown only 20 percent of properties in a
100-year flood plain in the Midwest carry national flood insurance
policies.
Something needs to be done encourage these homeowners to protect
themselves. Extensive outreach combined with offering flood insurance
at preferred risk rates or lower may incentivize more people to carry
flood insurance than even mandating the purchase itself.
Senator Wicker has suggested offering long-term flood insurance
policies to increase compliance rates. This is an idea advocated for by
many academics and I encourage you to give that proposal consideration
too.
Conclusion
In summary, as you craft your Committee's version of flood
insurance legislation, I encourage you to include language to achieve
the following goals:
Ensure FEMA updates flood maps on a watershed basis;
Delay the effective date for the mandatory purchase of
flood insurance for areas that have been newly mapped into a
floodplain;
Phase-in flood insurance rates for newly mapped areas over
5 years.
Require FEMA, State, and local governments to undertake
extraordinary outreach to homeowners to make sure they
understand their risk and the consequences of not carrying
flood insurance; and
Offer deeply discounted rates to newly mapped properties to
increase the number of homeowners carrying flood insurance.
Thank you for the opportunity to address this Committee about this
important issue.
______
PREPARED STATEMENT OF SENATOR ROGER F. WICKER
Thank you, Chairman Dodd and Ranking Member Shelby. I appreciate
your holding this hearing, and I am grateful for the Committee giving
me the opportunity to appear today as a witness on the reauthorization
of the National Flood Insurance Program.
In this year alone, the National Flood Insurance Program (NFIP) has
lapsed three times, creating uncertainty and unnecessary problems for
property owners who rely on the NFIP for flood insurance. These lapses
drive up the costs of administering the program and delay purchases for
properties that require flood insurance prior to closing. I am glad
that the Senate voted last night by unanimous consent to extend the
NFIP through September of next year. However, in talking with
Mississippians, it is clear that the NFIP needs to be reauthorized on a
long-term basis and in a way that addresses some of the unique
challenges that residents along coastal areas face.
Although it has been 5 years since Hurricane Katrina made landfall,
we are still rebuilding on the Mississippi Gulf Coast. The storm may
have passed but remnants of Katrina remain. One of the greatest
examples of Katrina's lingering effects--and one of the biggest
impediments to our rebuilding efforts--is the lack of affordable
insurance. Not only is access to affordable insurance a challenge in
Mississippi, but it is also a problem from Texas, down to the tip of
Florida, and on up through the New England coastal States. The
affordability and availability of wind insurance is crucial in any
State where there is coastal exposure.
Last month, there were many speeches commemorating the anniversary
of Hurricane Katrina and the incredible progress that many States have
made since the destructive storm hit. The numerous ribbon cutting
ceremonies of new businesses, homes, and developments demonstrated the
remarkable work of the Gulf Coast communities in our efforts to
rebuild. As we celebrated this progress and the resilience of
Mississippians, we also recognized that there is more work that needs
to be done to better prepare us for another Katrina. One of the best
things that Congress could do for the Gulf Coast region--not just in my
State of Mississippi, but in all of the Gulf Coast States--is to
resolve the nuances associated with insuring against hurricanes.
For all practical purposes, private insurance coverage for wind
damage is no longer available in the Gulf Coast area since the
aftermath of Hurricane Katrina. Before the storm, the wind peril was
typically insured by basic hazard insurance policies with the exception
of those living on the beach itself. Today, in most of coastal
Mississippi, individuals have to purchase wind coverage through the
State-run windpool. State windpools were originally designed to be the
insurer of last resort. However, in recent years, State windpools have
unfortunately become the rule, not the exception.
In 2008, I attempted to address this problem by offering an
amendment that would have added wind coverage to the National Flood
Insurance Program on a voluntary basis. This multiperil insurance
concept passed the House of Representatives last Congress but failed in
the Senate. I understand the arguments on both sides of the multiperil
debate, but I believe using such an approach would address the basic
flaw in the current insurance system. And that flaw is this: it takes
two kinds of insurance to cover a hurricane--flood insurance through
the NFIP and very expensive wind insurance through either the windpool
or private coverage.
After Hurricane Katrina, many property owners were forced to go to
court to decide who was responsible for the damage, even if they had
all the necessary insurance policies. Other property owners had not
purchased flood insurance because they relied on the Federal flood zone
maps. When their property was damaged by the storm, the wind insurance
adjusters denied claims, ruling that the damage had been caused by
water alone.
I recently introduced the Coordination of Wind and Flood Perils
Act. This legislation, S. 3672, addresses some of the lessons learned
following the wind versus water dispute that occurred after Hurricane
Katrina. Individuals who had all the appropriate insurance--wind and
water policies--were, in many instances, caught in the middle and
forced to go to court to watch the insurers fight amongst themselves
before they could be indemnified for their loss. The legislation I
introduced would remove the property owner from this debate and put the
burden where it belongs--on the insurers. The insurance industry
already does this for many other types of losses. If there is a
dispute, the damages would be split evenly between the insurers so the
property owner would be compensated in a timely manner. Then, the
insurers would appear before an arbitration panel, and the panel's
decision would be binding.
There are a few other lessons learned after Katrina and
observations I would make about the National Flood Insurance Program:
1. After Hurricane Katrina, we learned that flood hazard risk in
many coastal areas of Mississippi, and other parts of the
country, was not accurately reflected by FEMA's flood insurance
maps. As a result, property owners outside of the flood zones
had no NFIP coverage. With only wind insurance coverage, these
individuals were not properly insured for a hurricane. Since
property owners rely heavily upon this information, I hope the
Congress can continue to work with FEMA to ensure these maps
are accurately updated for all residents.
2. FEMA and many banks do a poor job of enforcing the flood
insurance requirement. Under the Flood Disaster Protection Act
of 1973, the purchase of flood insurance is mandatory in flood
zones if the consumer is using a federally regulated lender.
However, there is a breakdown with the enforcement of this
requirement. According to the Congressional Research Service,
at least eight Federal agencies or Government Sponsored
Enterprises are responsible for enforcing this requirement.
Recently, the Wharton School of the University of Pennsylvania
surveyed insurance coverage among property owners impacted by a
flood in Vermont. The study revealed that 45 percent of the
victims of the flood who were required to have flood insurance
did not purchase it. With regard to private insurance, lenders
do a much better job of enforcing insurance requirements. If a
homeowner stops paying his premium, the bank will purchase
homeowners' insurance for him. However, as clearly documented
by the Wharton study, regulators and lenders routinely fail to
enforce the mandate enacted in the Flood Disaster Protection
Act. I hope the Committee will further investigate this issue
and report its findings.
3. Rates should be actuarially sound and meaningful premium
reductions should be offered for mitigation improvements. I
encourage this Committee to study the work done by the Wharton
School in this area. These scholars propose linking the NFIP
policy to the mortgage, which would create a long-term
insurance policy tied to the length of the mortgage and to the
property itself. Having a long-term policy tied to the property
is one way to limit NFIP cancellations. This proposal also
would give meaningful premium reductions for mitigation
improvements. When property owners know they can save money
year after year by strengthening their homes above building
code requirements, they will have a powerful incentive to do
so.
Another proposal I would encourage this Committee to consider is
the Travelers Coastal Wind Zone Plan. This proposal would create an
independent Federal commission to establish standards for the wind
peril in coastal areas. The Travelers' plan allows insurance companies
to purchase reinsurance from the Federal Government to cover losses
resulting from extreme events. In addition, like the Wharton plan, the
Travelers' plan calls for meaningful premium reductions for mitigation
improvements.
Al Goodman, the Mississippi State Floodplain Manager, wrote to me
this week and reminded me that major flood disasters have often led to
changes in the law. For example, Hurricane Agnes in 1972 resulted in
the Flood Disaster Protection Act of 1973; flooding on the Mississippi
River in 1993 prompted the National Flood Insurance Reform Act of 1994;
and the Flood Insurance Reform Act of 2004 was influenced by Hurricanes
Andrew and Isabel.
Earlier this year, the Sun Herald, a Mississippi Gulf Coast
newspaper, wrote in an editorial: `` . . . better protection for all
Americans living within harm's way of a hurricane would be Katrina's
greatest legacy.'' I agree. Five years after Katrina, Congress still
has an opportunity to make sure affordable wind and water coverage can
be provided to the millions of Americans in coastal areas of our
country.
Thank you.
______
PREPARED STATEMENT OF ORICE WILLIAMS BROWN
Director of the Office of Financial Markets and Community Investment,
Government Accountability Office
September 22, 2010
PREPARED STATEMENT OF SALLY MCCONKEY
Vice Chair, Association of State Floodplain Managers
September 22, 2010
The Association of State Floodplain Managers (ASFPM) thanks this
Committee, Chairman Dodd and Ranking Member Shelby, for your attention
to the need to reauthorize and reform the National Flood Insurance
Program (NFIP). We very much appreciate your holding this hearing and
appreciate the opportunity to share our thoughts on the current status
of the NFIP, challenges the program confronts and opportunities to
improve our Nation's efforts to reduce flood-related losses.
Unfortunately, the extensive work that went into the Flood Insurance
Reform Act, passed in different forms in the 110th Congress by both the
House and Senate did not result in new public law. Many of the elements
of that legislation are still highly relevant and in need of
resurrection. Beyond that, some other issues have emerged that point to
the need for further reform ideas.
Who We Are
The Association of State Floodplain Managers, Inc. (ASFPM) and its
29 Chapters represent over 14,000 State and local officials and other
professionals who are engaged in all aspects of floodplain management
and hazard mitigation, including management, mapping, engineering,
planning, community development, hydrology, forecasting, emergency
response, water resources, and insurance for flood risk. All ASFPM
members are concerned with working to reduce our Nation's flood-related
losses. Our State and local officials are the Federal Government's
partners in implementing flood mitigation programs and working to
achieve effectiveness in meeting our shared objectives. Many of our
State members are designated by their governors to coordinate and
implement the National Flood Insurance Program, and many others are
involved in the administration and implementation of FEMA's mitigation
programs. For more information on the Association, our Web site is:
http://www.floods.org.
Need To Reauthorize and Reform the National Flood Insurance Program
A reauthorization of 2-3 years is important for the stability of
the NFIP and the associated predictability is important for lenders,
the housing industry, home buyers, policy holders and the Write Your
Own (WYO) insurance companies which write flood insurance policies in
partnership with FEMA. Numerous recent periods of hiatus in the NFIP's
authorization have caused confusion, bureaucratic paperwork challenges,
legal worries, frustration (which has resulted in one major insurance
company pulling out of the WYO program) and delayed real estate
settlements in a difficult period for the housing industry.
Reauthorizations of several weeks or months do not provide stability,
confidence and predictability.
While a longer period of authorization is clearly needed, many
important reform ideas will need further evaluation and consideration
by the Committee. In the 2 years since the Senate passed its version of
H.R. 3121 in the 110th Congress, a number of additional issues have
emerged. These, largely involving the status of levees and other
infrastructure, the issuance of updated flood insurance risk maps and
the affordability of flood insurance, lead to reform considerations
that go beyond the reforms of the earlier legislation and may require
reconsideration of some of its provisions.
ASFPM believes that a 2-3 year reauthorization would provide the
needed reliability while allowing time for FEMA to complete its ``Re-
Thinking the NFIP'' project, including presentation of legislative
options and recommendations to the Congress, and for the Committee to
consider and act on those recommendations.
A Comprehensive Review of National Flood Insurance Program
Accomplishments and Shortfalls Is Needed for Long Term Reform
ASFPM applauds the constructive examination of the National Flood
Insurance Program (NFIP) launched by FEMA Administrator Craig Fugate.
Administrator Fugate has recognized both the value of the NFIP and the
need for a new phase of program growth and adaptation to changing
circumstances. During a Listening Session on the future of the NFIP
last November, Mr. Fugate challenged over one hundred invited
participants to think creatively about the overall value of the NFIP,
what it was intended to achieve, what is has and has not accomplished,
and needed changes, both small and large. \1\ One example to encourage
thinking big was whether or not the private sector could now handle and
provide flood insurance. Mr. Fugate has subsequently charged a FEMA
working group with assembling the recommendations, analyzing their
merits and feasibility, and then developing substantive recommendations
for moving the NFIP forward. The working group will evaluate not only
the suggestions from the recent and additional Listening Sessions, but
also the recommendations of a multiyear NFIP Evaluation led by the
American Institutes for Research, the results of several Government
Accountability Office Studies, Congressional Research Service studies,
and other reports. FEMA expects to have a number of substantive
additional reform proposals ready for Congressional consideration
within the next 2 years, when we urge your timely consideration.
---------------------------------------------------------------------------
\1\ ASFPM comments at the NFIP listening session appended to this
testimony.
---------------------------------------------------------------------------
The NFIP Challenges for Growth and Adaptation
The hurricane seasons of 2004 and 2005 involved catastrophic losses
well exceeding the average historical loss year, putting the program in
debt to the Treasury. The debt now stands at $19.6 billion. Due to two
mild loss seasons and a favorable refinancing of the debt, the NFIP has
been able to repay $589 million and the interest. However, full
repayment of the debt is not a reasonable expectation because mild loss
seasons cannot be expected to continue, the Nation's flood risk is
increasing due to development and more intense storms, the interest on
the debt will go up, and the annual program income is about $3.2
billion.
The poor condition of much of the Nation's infrastructure,
including levees, dams and other flood control structures, as well as
stormwater facilities, has become more evident. More accurate flood
maps now reflect the unreliable flood protection of levees and the
effects of development by showing some areas as now in the 100-year
flood hazard area (and, conversely, by showing many areas as no longer
in the 100-year flood hazard areas). It is important to note that
approximately as many properties are newly shown as out of a Special
Flood Hazard Area (SFHA) as are newly shown as in the SHFA. The
requirement to purchase flood insurance in areas newly shown to be at
risk of flooding is highlighting concern about affordability of flood
insurance. By the same token, if the new maps do not become effective,
those property owners now shown out of the SFHA will still be required
to purchase flood insurance.
Reflections and Questions
The Association of State Floodplain Managers concludes that the
NFIP has been successful in meeting a number of its original
objectives, but less so in reducing flood losses in the Nation. The
NFIP has, for example, required those living at risk to obtain flood
insurance, sparing taxpayers from paying many millions of dollars in
disaster relief, and enabling many citizens to more fully restore their
lives to normalcy after a disaster. Additionally, the NFIP has
prevented some unwise development and promoted some hazard mitigation
through local adoption of floodplain management ordinances. On the
other hand, too many Americans continue to build in at-risk locations,
including residual risk areas behind flood control structures and high
risk coastal areas, and collective flood losses for the Nation continue
to increase in real dollars. In the first decade of this century,
yearly flood losses have increased from $6 billion to $15 billion.
We recommend that Congress consider clarifying the intended
objectives of the NFIP so that the program can be evaluated
accordingly. For example, should the NFIP be expected to accommodate
catastrophic losses rather than the average historical loss year? If
so, are there realistic, affordable program adaptations that can
achieve that objective? If not, would it be best to clarify that the
program is not expected to cover truly catastrophic losses?
Other questions warrant examination. What adjustments are needed
for the program to be a more positive factor in reducing flood losses
in the Nation? What adjustments are needed to act on better risk
identification through improved maps? If the NFIP is to be a
significant tool in an integrated flood risk management approach, how
should it be altered to better support this objective? ASFPM has
endorsed the following concepts:
Integrate the NFIP with other Federal flood risk programs,
including the disaster relief program, Army Corps of Engineers,
Environmental Protection Agency (EPA), and Natural Resources
Conservation Service (NRCS).
Identify cross-program policy conflicts and inappropriate
incentives that increase risk.
Build State floodplain management program capability and
capacity to work with the 21,000 participating local
jurisdictions.
Delegate the floodplain management and mapping elements of
the program to qualified States, similar to programs managed by
the EPA and Department of Transportation.
Identify incentives and disincentives for State and local
governments to make the program more effective, since local
decisions determine how much development will be placed at risk
of flooding.
Evaluate the NFIP-funded mitigation grant programs to
determine whether they are effectively addressing the most
high-risk structures.
Other questions that need to be addressed include:
Should the flood maps better display the flood risk so that
communities and citizens understand that the flood risk does
not stop at the line on a map--and that considerable risk
exists beyond the ``100-year'' floodplain? (The average home is
occupied for more than 100 years, virtually assuring that every
home in the 100 year flood hazard area will flood in its
lifetime.)
Should insurance be required in residual risk areas behind
levees and below dams?
Should insurance be required in a broader area, such as the
200-year or 500-year floodplain?
Should critical infrastructure like hospitals, fire and
police stations and water supply and treatment plants be
regulated based on a larger flood, but one the Nation
experiences somewhere every year, such as the 500-year
floodplain?
Should flood insurance policies be long-term (20 years or
more) and tied not to the owner but to the property, regardless
of property transfers?
Should some noninsurance means be identified, like flood
insurance vouchers, to assist lower income property owners and
renters with the cost of flood insurance?
Broad Recommendations
Flood insurance should gradually move toward being actuarially
sound to reflect actual risk and enable market-based financial
decisions about how much risk-related cost to assume. We recognize that
there are affordability problems for some citizens currently living in
at-risk areas; this is more prevalent in older riverine areas than in
recently developed coastal areas or some newly developed areas behind
levees. The de-accreditation of levees and more accurate flood maps
have highlighted the affordability issue. We do not support efforts to
delay issuance of flood maps, withholding accurate information about
flood risk from citizens living and working in hazardous areas. We
suggest that this issue presents challenges, but ones that can lead to
constructive new growth and adaptation for the NFIP if done correctly.
To actually reduce flood-related loss of life and property in the
Nation, we must move toward a true flood risk management framework with
the Nation's policies and programs. A comprehensive flood risk
management program recognizes that:
Managing flood risk is a shared responsibility between
individual, private sector, community, State, and Federal
Government;
Flood risk is not isolated to the 100-year flood hazard
area but is rather a continuum of risk that crosses lines on a
map;
Development and other activity outside the 100-year
floodplain but in the watershed impacts flood levels--if we
only manage activity in that 100-year floodplain, we miss
opportunities to save lives and reduce flood damages and
impacts;
All structural protection measures will fail or be
overtopped at some point by some flood event;
Managing flood risk requires a mix of measures from
avoidance to retreat from high risk areas to consideration of
structural measures. Selection of only one structural measure,
such as a levee, leads to severe losses in catastrophic events.
Levee failure, high storm surge and 500-year events have shown
the need for a mix of approaches including elevation,
insurance, and structures;
Flood levels will increase in the future because
development increases runoff; and storms are intensifying;
Flood risk will increase as the natural resources and
functions of floodplains are altered by development since this
destroys the natural system that reduces the negative impacts
of flooding;
Flood risk management includes concepts such as
identification of flood risk, community planning to steer
development away from areas of risk, basing flood insurance on
actual risk, vigorous promotion and support of hazard
mitigation actions, and enabling citizens to better recover
from disasters by being insured to reduce their financial risk.
The U.S. Army Corps of Engineers has adopted the comprehensive
flood risk management approach in many of its programs at the national
level, but for this approach to be successful for the Nation, FEMA must
also actively promote the concept and integrate its programs for the
NFIP, mitigation and disaster relief internally, and integrate them
with programs of the Corps and other agencies that impact flood risk.
Consider a number of interesting ideas to address the affordability
problem. The long-term goal should be to eliminate premium subsidies:
an insurance program with subsidies is not an insurance program. We
understand the need to assist low income people with insurance premiums
for some specified length of time, or better yet, to assist them with
mitigating their property--upon demonstrated need. A program of flood
insurance vouchers to assist with purchase of flood insurance issued
through a means-tested program could be administered by the Department
of Housing and Urban Development. An analysis might show it would be
less costly for the taxpayer to pay for flood insurance vouchers for
low income property owners for a limited time rather than have the
taxpayer continue to pay disaster costs from the Disaster Relief Fund
every time that a community floods. This would also support more rapid
postdisaster restoration and community economic stability because
everyone would have flood insurance, which can also be applied toward
mitigation of their property after a disaster. If short term relief is
provided using the NFIP--through delayed mandatory purchase of
insurance, extension of time when policies can carry Preferred Risk
rates, or phase-in of actuarial rates; it must be recognized that none
of these are appropriate long term solutions--somebody in the Nation
will pick up those costs, mostly the Federal taxpayers. In conjunction
with such short term relief, FEMA should provide general information
about actuarial rates so people see what their true risk is, and at the
same time, provide substantial information about mitigation actions and
how much each action will reduce actuarial premiums in the future.
Group flood insurance could be developed by FEMA for mapped flood
hazard areas and areas mapped as protected by a levee, allowing a group
policy to be purchased by the levee district or other local taxing
entity for all residents of the area, thereby keeping costs down.
Remember, the more policies there are the lower the premiums everyone
pays.
The Nation must carefully balance the issue of who benefits and who
pays for development at risk. There are about 130 million housing units
in the U.S. Of that about 10 or 11 million are in flood hazard areas.
Of those in flood hazard areas, roughly half carry flood insurance.
This means 90 percent of the population does not live in identified
Standard Flood Hazard Areas, but continues to pay a large amount each
year for disaster relief for flooding, rebuilding damaged
infrastructure in flood areas, and may have to cover the $19 billion
debt of the NFIP. Yet those same taxpayers obtain few, if any, of the
benefits of that development. This points out the need to tie program
outcomes of the NFIP to these other programs like disaster relief
programs and programs of HUD, DOT, USDA and others.
Perspectives on the National Flood Insurance Program
FEMA reports that the NFIP has been self-supporting for 20 years.
From 1986-2005, prior to Hurricane Katrina, income from policy holders
covered claims and all operating expenses, including salaries and
expenses of the Federal employees who administer the NFIP and
floodplain management programs. From time to time the NFIP exercised
its authority to borrow from the U.S. Treasury when claims exceeded
short-term income. Importantly, the program was praised for its ability
to repay debts ahead of schedule and with interest. This would seem to
be the way Congress intended the program to function. The original
framers did not require the NFIP to set rates for truly catastrophic
flooding associated with extreme events like Hurricane Katrina, or to
have reserves to cover the fiscal impact such events would have on the
program. A significant, often unrecognized, and difficult to measure
benefit of the NFIP is the number of decisions people have made to
build on higher ground and the damage that doesn't occur because
buildings have been built to resist flood damage. Perhaps the original
framers considered it reasonable that taxpayers contribute to payment
of claims after extreme events that exceed the NFIP's capacity to pay
as part of the bargain for long-term overall improvement in the way we
manage flood losses--perhaps Congress could clarify this.
The NFIP has multiple goals, and providing flood insurance in order
to minimize direct Government subsidy of flood damage is one of the
goals. The consequence of having fewer people insured against known
risks would likely be greater reliance on taxpayer funded disaster
assistance and casualty loss tax deductions. Striking the balance
between a fiscally sound NFIP while having premiums that are
affordable--but that do not reward or encourage development in high
flood risk areas--is the challenge now facing Congress and the Nation.
The National Flood Insurance Program is now 42 years old. It was
created in 1968 by the Congress following several major studies in the
1950s and 60s, after which studies concluded that the private sector
did not offer insurance coverage for flood because only those who had
actually flooded would buy policies, contrary to a normal insurance
model which assumes a broad spreading of risk to cover losses. The lack
of information showing which properties were likely to flood added to
the private sector dilemma, which is less of a challenge now that FEMA
produces flood maps for 21,000 communities. The concepts embodied in
the NFIP were designed with the idea it would save the taxpayers' money
in disaster relief by requiring those living in at-risk locations to
pay something to cover their own risk, and to enable them to more fully
recover from flood damage than they could with only disaster relief.
The assumption was that this would reduce flood losses over time by
requiring local regulation of development in flood hazard areas as
communities voluntarily agreed to participate in the program in order
to make flood insurance available to community residents and
businesses.
The NFIP has gone through various stages of growth and adaptation
involving more, then less, then again more involvement with private
insurance companies and agents. After its first 5 years, Congress added
mandatory purchase of flood insurance in identified flood hazard areas.
By 1979, the program moved from the Department of Housing and Urban
Development (HUD) to the newly established Federal Emergency Management
Agency (FEMA). Initially some 70 percent of insured properties had
discounted policies because they were ``grandfathered'' since they were
built before the flood hazard area was identified. Now about 23 percent
of insured properties have these discounted rates. Many newly developed
properties have been built either in safer locations outside the 100-
year floodplain or built to NFIP standards (elevated to the 100-year
flood level) to mitigate possible flood losses.
During the 1980s, the goal of making the program self-supporting
for the average historical loss year was achieved, but the premiums did
not provide sufficient income to develop and maintain accurate flood
maps for 21,000 communities. There were no Congressional appropriations
for the program from 1986 until 2003, when it was agreed the Nation
needed a major map modernization effort requiring appropriated funds.
Most of the Nation's flood maps were found to be 10 to 20 years old,
not reflective of massive watershed and floodplain development, and
therefore not accurately representative of actual flood hazards.
A major report following the Midwest floods of 1993 found that only
10-15 percent of damaged properties had flood insurance. This led to
another set of improvements in the National Flood Insurance Reform Act
of 1994, including stricter compliance requirements for lenders and new
means of encouraging and supporting mitigation through the Increased
Cost of Compliance insurance coverage, establishment of the Flood
Mitigation Assistance program and authorization of the Community Rating
System to make lower premiums available in communities taking
significant steps beyond national minimum approaches to mitigate risk.
The Flood Insurance Reform Act of 2004 Act made a number of
improvements to insurance agent training and consumer provisions, and
enhanced and developed programs to address the problem of repetitive
flood losses.
Brief Observations on the Previous Senate-Passed Bill
There are a number of provisions in the flood insurance reform bill
passed by the Senate in May, 2008 that ASFPM finds helpful and would
hope to see included in a future reform measure. As noted elsewhere in
this testimony, we would recommend that a few provisions of that bill
receive further evaluation and perhaps, adjustment. Those would include
the provision for a 5 year reauthorization, the provision for inclusion
of catastrophic loss years in the calculation of average loss years and
the provision for a catastrophe reserve We would prefer to see a 2-3
year reauthorization and we recommend that the Committee give further
consideration to whether or not the NFIP should provide coverage of
catastrophic losses.
We appreciate the following provisions in the earlier legislation:
(not an all-inclusive list)
forgiveness of the current debt to the Treasury
increase in cap on annual premium increases to 15 percent
phase out of subsidies (discounts) for nonresidential and
nonprimary residence pre-FIRM structures and also for severe
repetitive loss properties where flood losses have exceeded
property value
substantial section authorizing ongoing mapping program to
include additional risk information and mapping of areas behind
levees, below dams and in the 500 year floodplain
provision for an Office of the Flood Insurance Advocate,
but only if a national office, thus restricting the
establishment of offices in FEMA Regional offices and temporary
local offices to situations following a flood event
increased penalties for lender noncompliance
escrow of flood insurance payments
notification of flood insurance availability outside of
SFHAs during real estate transactions (the Committee may also
wish to consider a requirement that landlords notify tenants of
availability of contents insurance)
Flood Mitigation Assistance Program [Section 1366 of the National Flood
Insurance Act of 1968 (42 U.S.C. 4104c)]
Add ``demolition and rebuilding'' as an eligible activity;
this not only achieves consistency with the NFIP-funded Severe
Repetitive Loss grant program, but gives another option that
makes sense in certain situations (areas other than high-risk
storm surge and floodway areas). Specifically, for some
communities, acquisition by fee simple acquisition of land and
relocation of the residents may not be the best solution, but
rather mitigation measures that help improve livability and
community integrity may be. Elevation-in-place is a feasible
measure for many buildings; however, for many older buildings
and certain types of buildings, it is more feasible or cost-
effective to demolish and rebuild a new building, as long as
sustainability and resilience are assured along with full
compliance with floodplain requirements and building codes
which address fire resistance, energy efficiency, and where
appropriate, resistance to other hazards such as hail, high
winds, and seismic forces.
Eliminate the limitation on aggregate amount of insurance
by striking subsection (f).
Specify that the funds for this program (Section 1367)
shall be available until expended (currently FEMA imposes a 2-
year limitation) and that the funds shall be made available
without offsetting collections through premium rates for flood
insurance.
Severe Repetitive Loss Grant Program [Section 1361A (42 U.S.C. 4102A)]
Correct an oversight and modify the definition of ``severe
repetitive loss property'' to include nonresidential properties
that have received the same number and value of claims.
Nonresidential properties make up a disproportionately large
share of all repetitive loss properties and we must be able to
pursue mitigation of these high-loss properties in order to
more effectively stem the drain on the Fund that is associated
with properties that receive multiple claims.
Delete 1361 A(g)(3)(A) and (B) so that the purchase price
offered would be determined only by the either the fair market
value immediately before the most recent flood event or the
current fair market value. It is complicated, confusing, and
expensive to have to determine the potential purchase price
four ways (and the purpose of the grant is not to enrich those
who unwisely paid more than a property's market value at the
time of purchase or who borrowed more than the property is
worth).
Grants for Direct Funding of Mitigation Activities for Individual
Repetitive Claims Properties [Section 1323 of the National
Flood Insurance Reform Act of 1968]
Current NFIP-supported mitigation grant programs provide cost share
funds to communities--and thus successful projects depend on community
participation. ASFPM has long supported community-based mitigation;
however, we recognize that some repetitive loss properties are in
communities that may not have the resources to participate. In order to
achieve the goal of reducing the repetitive loss drain on the National
Flood Insurance Fund, we urge the Committee to:
Clarify that FEMA has the authority to work directly with
certain property owners under this specific program, which was
authorized at $10 million each year. There are many
nonresidential properties that have received millions in flood
insurance claims. Allowing FEMA to selectively encourage very
high-loss property owners to consider mitigation will actually
implement paragraph (b) which calls for prioritizing the worst-
case properties to result in the greatest savings to the Fund;
Specify that at least two claims shall have been paid in
order for a property to be eligible;
Specify that the funds shall be made available until
expended (see, Section 1310(a)).
The following also comes from our recommendations on S2284
Create a New Section To Establish Priorities for NFIP-Funded
Mitigation Grant Programs. Direct FEMA to develop a mechanism to
recognize that mitigation of repetitive loss properties (of which
Severe Repetitive Loss properties are a subset), and that mitigation by
acquisition, are priorities. The former helps reduce the drain
represented by properties that receive repetitive claims; the latter is
the only mitigation activity that permanently avoids future damage,
while also providing benefits that are difficult if not impossible to
quantify. There are examples where FEMA has denied funding for homes
that have a computed benefit to cost ratio of 0.99. We appreciate that
FEMA has been criticized in the past for its policy of approving
buyouts for homes when the B:C is ``close'' to 1.0. The required new
section would fulfill Congressional intent and make implementation
easier and more consistent. It should also be clarified that mitigation
projects that include repetitive loss properties and SRLs are, by
definition, in the best interests of the NFIP and therefore FEMA should
develop a mechanism to recognize this. Report language can suggest that
FEMA use multipliers applied to the computed benefit-to-cost ratios as
proxies.
Create a new section as follows:
Sec. 1366A. (a) PRIORITIES FOR MITIGATION ASSISTANCE.--In the
administration of the mitigation assistance in Sec. 1323, Sec. 1361A,
and Sec. 1366, and notwithstanding the provisions of those sections,
the Director shall consider the following to be priorities and in the
best interests of the National Flood Insurance Fund:
1. mitigation activities that include repetitive loss structures, as
defined in Sec. 1370(a); and
2. mitigation activities that include severe repetitive loss
structures, as defined in Sec. 1361A; and
3. mitigation activities that include substantially damaged
properties, as defined in Sec. 1370(a); and
4. mitigation activities that include acquisition of properties with
structures;
5. mitigation activities that include other such properties as the
Director determines are in the best interests of the National
Flood Insurance Fund.
Sec. 1366A. (b) RECOGNIZING PRIORITIES.--The Director shall develop
a mechanism to recognize explicitly that mitigation activities
identified in paragraph (a) are priorities.
Implementation of the Increased Cost of Compliance Coverage as
Amended in 2004. ASFPM urges the Committee to request a report from
FEMA on implementation of the changes to Section 1304(b) that were
enacted in the Reform Act of 2004. This coverage (called ICC) has been
part of all policies on buildings in mapped special flood hazard areas
since about 1997. Total income associated with premiums for ICC greatly
exceeds the payments made to qualifying policy holders.
The Association of State Floodplain Managers appreciates the
opportunity to share our views, recommendations and concerns with you.
We hope these observations, based on our collective experience in
working to reduce flood risk in the Nation and in serving as FEMA's
partners in implementing the National Flood Insurance Program, will be
helpful as you work to improve the NFIP. We look forward to answering
any questions you may have and assisting the Committee in any way that
you find helpful.
PREPARED STATEMENT OF J. NICHOLAS D'AMBROSIA
Vice President of Training and Recruiting, Long & Foster
September 22, 2010
Introduction
Chairman Dodd, Senator Shelby, and Members of the Committee, on
behalf of more than 1.1 million REALTORS' who are engaged in
all aspects of the residential and commercial real estate sectors,
thank you for inviting me to testify today regarding reauthorization
and reform of the National Flood Insurance Program (NFIP).
My name is Nick D'Ambrosia. A REALTOR' since 1973 and
licensed in Maryland, Virginia, and the District of Columbia, I am
currently Vice President of Training and Recruiting for Long & Foster
Companies. Long & Foster is the largest independently owned real estate
company in the United States operating with 13,000 sales associates,
2,500 employees and 190 offices across seven States and Washington, DC.
I am also Vice Chair of the Maryland Real Estate Commission, where I
have served as chair and industry member since 2005. For many years, I
have been active within the National Association of
REALTORS' (NAR), holding significant positions at the
national and State levels, including President of the Maryland
Association of REALTORS', as well as the Prince George's
County Association of REALTORS'. I also served as a member
of NAR's Enlarged Leadership Team, Executive Committee, and Board of
Directors, as well as numerous NAR standing Committees, task forces and
presidential advisory groups. Most recently, I was a member of NAR's
Property Insurance Task Force that was charged with examining how
access to affordable property insurance for the plethora of natural
disasters, including flooding, might be achieved.
Since September of 2008, Congress has approved eight short-term
extensions of authority for the NFIP. On two occasions, Congress has
allowed authority for the program to expire for several weeks at a
time. Each time NAR estimates that tens of thousands of real estate
transactions were delayed if not cancelled. In addition, the many
shutdowns and short-term extensions have exacerbated uncertainty in
what are already troubled residential and commercial real estate
markets. Earlier this year, the House of Representatives passed H.R.
5114, the Flood Insurance Reform Priorities Act, to reauthorize the
NFIP for a full 5 years. While this bill makes some difficult changes
to the program, we would encourage the Senate to take up this
legislation so that the program may be reauthorized long-term and
continue writing flood insurance without further market disruption. We
also note several efforts underway for a straight year-long NFIP
extension, including one to September 30, 2011, in S. 3607 (Department
of Homeland Security Appropriations, FY2011) which has been approved by
the full Senate Committee. In any event, we would urge the Senate not
to let the NFIP lapse again which would only further undermine the
already fragile confidence in recovering real estate markets. At a
minimum, the Senate should pass the year-long extension, as part of
must-pass legislation or as a free standing bill.
The Importance of the NFIP
In 1968, the Congress established the NFIP because of the lack of
available flood insurance in the private market and the rising cost of
taxpayer-funded disaster relief to flood victims, which, up until that
time, had been the only way to pay for rebuilding after a flood. Still
today, virtually no market exists for flood insurance. According to the
General Accountability Office (GAO), only four large companies provide
``almost all the private flood insurance'' and only then for owners
with ``high net worth'' and properties valued at ``at least $1 million.
\1\ Most American taxpaying families and small business owners would be
priced out of what market exists for flood insurance were it not for
the existence of the NFIP. Without this critical program, most
Americans would not have access to a vital protection against loss of
life and property due to the very real risk of flooding.
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\1\ GAO, ``Information on Proposed Changes to the NFIP'', Report
to Representative Barney Frank, Chairman of the House Committee on
Financial Services, pp. 18-19.
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The most common natural disaster in the United States, each year
floods are responsible for 140 deaths according to NOAA and on average
$6 billion in losses by the U.S. Army Corps of Engineers' estimate. The
GAO put it best:
[B]ecause flooding is so widespread, it presents risks to a
large segment of the population. For example, we found that
between 1980 and 2005, approximately 97 percent of the U.S.
population lived in a county that experienced at least one
declared flood disaster; about 93 percent lived in counties
that had experienced two or more flood disaster declarations;
and 45 percent lived in counties that experienced six or more
flood disaster declarations. \2\
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\2\ GAO, ``Natural Hazard Mitigation: Various Mitigation Efforts
Exist, but Federal Efforts Do Not Provide a Comprehensive Strategic
Framework'', (August 2007), pp. 11-12.
Contrary to critic's assertions, the NFIP does not represent a
cross subsidy from the interior of the U.S. to coastal States. While it
is true that more than half the U.S. population lives within 50 miles
of the coast and has access to the NFIP in participating communities
(as does everyone else in a participating community), everyone benefits
from a national flood insurance program. We have appended to this
testimony a map developed by the GAO presenting the number of flood
disaster declarations by county between 1980 and 2005. Areas of the
country that have yet to experience flooding at a magnitude to warrant
a disaster declaration are shown in white. As you will note, there is
very little white space on the map. Maintaining access to affordable
flood insurance is, therefore, of critical national interest to the
whole of the United States, not just its coastal residents.
By providing flood insurance, the NFIP effectively reduces the
amount of Federal postdisaster assistance, paid by all taxpayers
including those in the interior. For example, of the $88 billion
obligated to Gulf Coast States after the 2005 hurricane season, $26
billion went directly to under-insured property owners according to the
GAO. \3\ That is $26 billion in taxpayer-financed rebuilding assistance
which would not have been necessary had more properties been insured,
because then, insurance--and not taxpayer-paid assistance--would have
paid for rebuilding those properties. Fortunately, there was an NFIP
that was authorized at the time to insure approximately half the
properties in the floodplains which were in the path of those 2005
mega-storms. \4\ But for the NFIP, the taxpayer-assisted number ($26
billion) would have been significantly higher.
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\3\ GAO, ``Natural Disasters: Public Policy Options for Changing
the Federal Role in Natural Catastrophe Insurance'', (November 2007),
Figure 3.
\4\ Pacific Institute for Research, ``Costs and Consequences of
Flooding and the Impact of the National Flood Insurance Program'',
(October 2006), p. 28 (hereafter, ``PIR Study''), p. 36.
---------------------------------------------------------------------------
Also, the NFIP reduces flood damage by requiring communities to
adopt and enforce strict floodplain management and mitigation
regulations as a condition for their residents to be able to buy NFIP
coverage. Nearly 20,000 communities have adopted these rules, averting
$16 billion in losses since 2000 alone according to the U.S. Department
of Homeland Security. Buildings constructed to NFIP standards
experience 80 percent less damage than those not built to standards. As
one program evaluation finds, the NFIP ``has clearly induced savings on
flood costs'' and that ``flood insurance has shifted the loss from
taxpayers to those who pay the insurance premium.'' \5\ In fact, the
NFIP saves taxpayers money as well as property.
---------------------------------------------------------------------------
\5\ PIR Study.
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Some have asserted that the NFIP encourages development of
``environmentally sensitive areas.'' Not so. Government-backed
insurance is not the deciding factor to locate in the floodplain.
According to NAR research, neighborhood quality or access to parks or
beaches is far more likely to drive the decision. Historically, this
country was built in floodplains along rivers and coastlines. Long
before the NFIP was even contemplated, New York, New Orleans, Boston,
Miami, St. Louis, Pittsburg, Cleveland, Houston, and Washington, DC,
were already well established in what today FEMA designates as the
floodplain. Since then, there have been program reforms which prevent
development of the most sensitive coastal areas. Under the Coastal
Barrier Resources Act of 1982, all of these areas are off limits to the
NFIP, though interestingly, not to privately financed development or
insurance. A report released in October 2006 that found ``[t]he common
belief that the NFIP has stimulated development that increased flood
losses is not supported by our findings.'' \6\ Whether national flood
insurance is available or not, there will continue to be floodplain
development; the difference is that the NFIP saves taxpayers money as
well as property.
---------------------------------------------------------------------------
\6\ Ibid., p. 41.
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Others have claimed that the NFIP writes policies in wealthy resort
communities, but for every policy holder in Hilton Head Island, SC, or
Naples, FL, there is one in a home on the Red River in North Dakota or
a rental property along the Missouri River in Iowa. The Congressional
Budget Office (CBO) has found no evidence to suggest that the NFIP
would cover larger or more luxurious structures, whether inland or in a
coastal area. \7\ Another study on the NFIP found that those in the
middle-income brackets were less likely to live in floodplain areas
than either of those in the highest or lowest income brackets. That
study noted that ``low income households [defined as $10,000-$30,000
per year] live in hazardous areas in order to find affordable housing
or because they work in water recreation areas and find the least
expensive housing nearby.'' \8\ If someone is able to afford a
multimillion dollar beach-front property or resort development, they
are going to look to insurance companies willing to write coverage
above the $350,000 coverage limits imposed by the NFIP (i.e., $250,000/
structure and $100,000 for contents). It is the lower and middle class
families, retirees on fixed incomes and locally owned small-business
owners who have been priced out of the private market for flood
insurance, for which this Federal program is designed.
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\7\ CBO, ``Value of Properties in the National Flood Insurance
Program,'' (June 2007), p. 7.
\8\ PIR Study, p. 43.
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NAR Urges Long-term NFIP Reauthorization
Since September 2008, Congress has adopted eight short-term
extensions of statutory authority for the NFIP--all within a few days
of the deadline. (This includes the current extension to September 30,
2010.) Twice, authority has been allowed to expire. Each time, NAR
estimates that tens of thousands of real estate transactions were
either delayed or cancelled. Without flood insurance, federally backed
mortgages may not be secured in residential or commercial real estate
transactions in nearly 20,000 communities across the United States.
Because the NFIP did not have authority to issue any policies, property
owners lost confidence that they would be able to renew their existing
policy when the time came. While we can quantify the cost of delaying
real estate closings, the shock to consumer confidence due to the many
stop-gap extensions is immeasurable. This month-to-month approach has
hindered a recovering real estate market and only exacerbated the
uncertainty for more than five-and-a-half million taxpayers who depend
on the NFIP as their main source of protection against floods.
On September 30, 2010, about a week from today, again NFIP
authority is set to expire. This will be the ninth time in 2 years that
the Congress will have to reextend this important program. Recently,
the House of Representatives passed H.R. 5114, the Flood Insurance
Reform Priorities Act to reauthorize the NFIP for a full 5 years. While
this bill makes some difficult changes to the program, we would
encourage the Senate to take up this legislation so that the program
may be reauthorized long-term and continue writing flood insurance
without further market disruption. We also note several efforts
underway for a straight year-long NFIP extension, including one to
September 30, 2011, in S. 3607 (Department of Homeland Security
Appropriations, FY2011) which has been approved by the full Senate
Committee. In any event, we would urge the Senate not to let the NFIP
lapse again which would only further undermine the already fragile
confidence in recovering real estate markets. At a minimum, the Senate
should pass the year-long extension, as part of must-pass legislation
or as a free standing bill.
Reforms of the NFIP
For over four decades, the NFIP has been largely self-supporting,
collecting sufficient premiums to cover claims and expenses. In the few
years when this was not the case, the program was able to pay back the
debt with interest according to the Congressional Research Service. \9\
But then in 2005, Katrina, Wilma, and Rita struck and shattered all
records including the highest number of Category 5 hurricanes in a
season, and the NFIP now owes approximately $19 billion to the U.S.
Treasury (including the nearly $3 billion for Ike and Midwest floods of
2008). 2005 was an anomaly. According to the Federal Emergency
Management Agency (FEMA), which manages the NFIP, this debt is greater
than the sum of all previous losses since NFIP's inception in 1968.
Accordingly, NAR supports reforms to strengthen the program's long-term
fiscal viability.
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\9\ Congressional Research Service, ``National Flood Insurance
Program: Background, Challenges, and Financial Status'', (July 2009).
---------------------------------------------------------------------------
At the same time, the housing market continues to be weak as the
country recovers from the longest recession since World War II. In the
months immediately following the expiration of the homebuyer tax
credit, home sales plunged to 15-year lows. Below is NAR's chart of
existing home sales. In addition to overall economic weakness,
including high unemployment, the housing market is plagued by excess
inventory of distressed properties including foreclosures. While
affordability remains strong and prices are beginning to show signs of
stabilization, the housing market is in a precarious position and
cannot afford any further negative shocks.
The commercial real estate market is also struggling amid the
greatest liquidity crisis since the Great Depression. Due to the
economic downturn, commercial property values have fallen 43 percent
across the board from their peak in 2007. Often it is the owner of
America's small businesses--the very engine of job creation and
innovation and the backbone of his or her local community--which has
suffered most. Compounded with nearly $1.4 trillion in commercial real
estate loans coming due over the next several years, and a very limited
capacity to refinance, the sales and leasing of commercial properties
have been dismal, hindering our Nation's economic recovery. Failing to
reauthorize the NFIP long-term not only exacerbates the market
uncertainties but also could leave many commercial property owners,
many of whom are struggling to stay afloat due to high vacancy rates,
without access to affordable flood insurance. The lack of flood
insurance for property owners, in many cases, would hold up the sale of
commercial properties, further contributing to the economic crisis.
Against this backdrop, NAR would encourage Congress to strike a
balance between the following NFIP reforms and real estate
affordability, especially for lower-income homeowners and renters who
often live in the Nation's lower-lying communities:
Coverage Limits. Additional coverage would attract new NFIP
participants. Increasing participation would lead to increased funds
for the NFIP, help property owners recover from flood losses and
decrease future Federal assistance when under-insured properties flood
and suffer loss. Adding options for living expenses, basement
improvements, business interruption and the replacement cost of
contents would help increase protection for home- and small-business
owners. Increasing the maximum coverage limits for residential
properties, nonresidential properties, and contents coverage would more
accurately reflect increases in property and contents values and
provide fuller coverage to policy holders. These limits have not been
adjusted despite inflation since 1994.
Education and Outreach. Educating consumers could also increase
participation. Many consumers may not be aware that flood insurance is
available to them or believe that a standard homeowner's policy would
cover flood damage, which is not true. Only 50 percent of homeowners in
the federally designated floodplain purchase flood insurance. \10\ NAR
would support provisions for outreach, education and information to
consumers about the availability and importance of flood insurance.
---------------------------------------------------------------------------
\10\ PIR Study, p. 36.
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Severe Repetitive Loss Properties. NAR strongly supports extending
and fully funding the pilot program to mitigate properties which have
repeatedly suffered insured flood losses. While less than 1 percent of
NFIP-backed properties fall into this category, severe repetitive loss
properties represent a disproportionate share of payouts from--and pose
a significant financial burden to--the NFIP. Yet the owners, despite
repeated losses, have declined a reasonable offer of mitigation funding
from FEMA. Moreover, research conducted by the Multihazard Mitigation
Council of the National Institute of Building Sciences has found that
each dollar spent on mitigation saves society an average of four
dollars. \11\
---------------------------------------------------------------------------
\11\ Multihazard Mitigation Council, ``Natural Hazard Mitigation
Saves: An Independent Study to Assess the Future Savings from
Mitigation Activities, Volume 1--Findings, Conclusions and
Recommendations'', National Institute of Building Sciences, Washington,
DC. (2005), p. 5.
---------------------------------------------------------------------------
Pre-FIRM properties. While NAR strongly supports phasing-in higher
rates, proportionate to risk, for properties with a repeated or
demonstrated history of loss, there is not an equally compelling policy
basis to phase-in the rate for all properties built prior to the
existence of the flood rate maps (pre-FIRM). In the mid-1970s, Congress
grandfathered these properties in under a rate less than the actuarial
(full risk) one, because they were built before the flood risk to the
community was known and could not have retrofitted to NFIP standards
immediately or cost effectively. Changing the rules in the middle of
the game for these property owners would have been perceived as unfair
and even punitive.
Unlike the repeated/demonstrated-loss properties, many pre-FIRM
properties have never filed a claim. Their flood risk has never
changed. Yet these owners, who have been paying into the NFIP for
years, could be expected to immediately pay significantly more under
previous legislative proposals. FEMA estimates that if the average pre-
FIRM policy were to pay the full actuarial premium, that premium would
be increased to about two and a half times the current level; some
properties could see the premium increase more than four-fold. There is
a limit to the amount that the insurance, or any other expense, may
increase before owners are either forced to sell their properties, or
go without insurance. This would have a particularly severely impact on
the cost of home ownership and rents especially in older communities as
well as those that rely on tourism. This could lead to additional
rounds of delinquencies, foreclosures and reduced property tax bases in
these communities.
Rate Structure. Over the years, Congress has considered a range of
proposals to strengthen the NFIP's long-term solvency, including
increasing the statutory limit on the annual rate increase, setting
minimum deductibles for claims and phasing in actuarial rates on the
less than 20 percent that are pre-FIRM properties. While we continue to
have significant concerns about the affordability of these reforms, we
would urge the Committee to:
1. Continue to include comprehensive coverage for all residential
and commercial properties, including multifamily housing,
nonprimary residential and commercial properties;
2. Spread out any rate increases evenly over the entire base over
time so that everyone has ample opportunity to adjust to the
increases and no one has to shoulder the entire increase in a
single year. For example, H.R. 5114 (as passed by the House)
would gradually phase-in the rate over at least a 5-year-period
that would not begin until 3 years after the date of enactment,
rather than immediately. In order to preserve the Federal flood
insurance program into the future, the real estate sector
recognizes the need for everyone to shoulder their fair share,
even if it means paying a little more;
3. Separate out multifamily rental properties of 4 or more units
from the nonresidential properties and exclude them from the
phase-in, due to affordability concerns. For the renter, the
apartment or house in which he or she is living is the primary
residence, but could be considered either a commercial property
or a nonprimary residence because it is non-owner-occupied.
Thus, if the discounted rate were eliminated, tenants would
face rent increases that would have a dramatic effect on
housing affordability, especially in the case of low and fixed-
income individuals and families;
4. Not adopt ``back-door'' or arbitrary rate increases for all NFIP
properties, by requiring FEMA to recalculate ``average loss
year'' to include catastrophic loss years ``in accordance with
actuarial principles.'' By law, rates are already set based on
actuarial principles (see, 42 USC 4015(b)(2)) so reiterating
this does not justify the new provision. However, including
outlier years in the calculation of average loss, as this
amendment would, will arbitrarily inflate the amount a rate
would have to cover and therefore the rate itself; and
5. Study the impact of any rate phase-in on pre-FIRM properties so
that the Congress would have a basis to evaluate and adjust the
phase-in as necessary. A similar study was included in the
House passed bill.
Reserve Fund. We support the concept of establishing a reserve fund
to cover the higher than average loss years. However, a previous
proposal would have required FEMA to build up the fund by annually
putting in hundreds of millions of dollars until an amount numbering in
the billions was reached. As a result, the Agency would have had to
raise rates somewhere in order to meet this annual quota, however it
could not have looked to property owners who were already experiencing
rate increases near the annual limitation. Instead it would have had to
look those who were voluntarily participating in the program which
could undercut future participation. We encourage Congress to ensure
that all participants are treated fairly and equitably as the reserve
fund is created.
Flood Mapping. Another issue that has been the subject of
discussion in recent years is requiring the purchase of flood insurance
in the 500-year floodplain. Properties in the 500-year floodplain face
a less-than-1-percent annual chance of flooding. This idea poses its
own set of challenges and concerns from NAR's perspective, and many are
similar to concerns faced by the NFIP in administering the current
program. FEMA has been trying to update the 100-year flood maps, but
the process itself of digitizing and modernizing is byzantine and slow.
Other concerns include accurate mapping of the 500-year floodplain, an
accurate assessment of the number of properties that will be impacted,
notification of property owners that they now must purchase flood
insurance, additional administrative burdens placed on FEMA to
administer a much larger program, and keeping homes affordable while
avoiding new and costly insurance requirements. Before imposing this
requirement on property owners already hard hit by the recession, NAR
would recommend a study to assess the costs and impacts of such a new
requirement on homeowners and local economies.
Conclusion
In summary, the NFIP fills a void in the private market for
critical insurance protections against flood losses which benefit the
Nation as a whole. While the House has passed a bill that makes some
difficult reforms to the program, it is preferable to the current
month-to-month stop-gap extension approach which has only undermined
confidence and exacerbated uncertainty in recovering real estate
markets. We would encourage the Senate to take up this legislation so
that the program may be reauthorized long-term and continue writing
flood insurance without further market disruption. We also note several
efforts underway for a straight year-long NFIP extension, including one
to September 30, 2011, in S. 3607 (Department of Homeland Security
Appropriations, FY2011) which has been approved by the full Senate
Committee. In any event, we would urge the Senate not to let the NFIP
lapse again which would only further undermine the already fragile
confidence in recovering real estate markets. At a minimum, the Senate
should pass the year-long extension, as part of must-pass legislation
or as a free standing bill.
Thank you again for the opportunity to share the
REALTOR' community's views on the importance of the NFIP.
NAR stands ready to work with Members of the Committee to develop
meaningful reforms to the NFIP that will help protect property owners
and renters and help them prepare for and recover from future losses
resulting from floods.
PREPARED STATEMENT OF STEPHEN ELLIS
Vice President, Taxpayers for Common Sense
September 22, 2010
Good afternoon, Chairman Dodd, Ranking Member Shelby, Members of
the Committee. I am Steve Ellis, Vice President of Taxpayers for Common
Sense, a national nonpartisan budget watchdog. Thank you for inviting
me here today to testify on reauthorizing the National Flood Insurance
Program (NFIP).
Taxpayers for Common Sense has advocated for reform of the National
Flood Insurance Program since our inception 15 years ago. This time is
easily divided into two sections. The first 10 years our concerns about
the program's subsidies and underlying risk to taxpayers were met with
skepticism from many quarters. But after the devastating hurricane
season of 2005 and with the nearly $20 billion the program is in debt
to the treasury, all have recognized NFIP is fundamentally flawed and
must be reformed. The question is how.
TCS is allied with SmarterSafer.org, a coalition in favor of
environmentally responsible, fiscally sound approaches to natural
catastrophe policy that promote public safety. The groups involved
represent a broad set of interests, from American Rivers to Americans
for Prosperity. From the National Association of Mutual Insurance
Companies to the National Flood Determination Association. \1\ The
depth and breadth of the coalition of consumer, taxpayer, environmental
and insurance industry groups underscores the importance of reforming
NFIP. I would like to submit for the record SmarterSafer.org's
principles for reform of the National Flood Insurance Program.
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\1\ Full list is available at www.smartersafer.org
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Stop Digging
Will Rogers' observation that ``if you find yourself in a hole,
stop digging'' has become a cliche, but it's hard to come up with one
more applicable to the flood insurance program.
The National Flood Insurance Program is $18.8 billion in debt to
the taxpayer \2\ and only has annual revenues of $3.1 billion. \3\ Even
if you exclude interest payments, it would take more than 6 straight
years with no claims to pay the debt back. Obviously, this isn't going
to happen. With that in mind, any reauthorization of the National Flood
Insurance Program must make significant changes to put it on sounder
financial footing, not dig a deeper financial hole with loopholes, new
insurance lines, or undercutting the program's ability to charge
actuarially sound rates.
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\2\ Statement of Orice Williams Brown, Director Financial Markets
and Community Investment, Government Accountability Office before the
Subcommittee on Housing and Community Opportunity, Committee on
Financial Services, House of Representatives. April 21, 2010. p. 1.
Available at http://financialservices.house.gov/media/file/hearings/
111/brown_4.21.10.pdf
\3\ Congressional Budget Office. ``The National Flood Insurance
Program: Factors Affecting Actuarial Soundness'', November 2009. p. 1.
Available at http://www.cbo.gov/ftpdocs/106xx/doc10620/11-04-
FloodInsurance.pdf
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Taxpayers are staring into a budgetary abyss with predicted average
deficits of $1 trillion a year over the next 10 years; \4\ we cannot
afford to bail out the flood insurance program again and again. People
need to be informed of their flood risk and take steps to financially
protect their own investments.
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\4\ Congressional Budget Office. ``Preliminary Analysis of the
President's Budget Request for FY2011'', March 5, 2010. Available at
http://www.cbo.gov/ftpdocs/112xx/doc11231/frontmatter.shtml.
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Unintended Consequences
After years of ad hoc disaster aid being meted out by Congress, the
National Flood Insurance Program was established in 1968 to create ``a
reasonable method of sharing the risk of flood losses through a program
of flood insurance which can complement and encourage preventative and
protective measures.'' \5\ The program was to make up for a lack of
available flood insurance. But even at that time Congress was warned
that it was playing with fire. The Presidential Task Force on Federal
Flood Control Policy wrote in 1966:
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\5\ P.L. 90-448.
A flood insurance program is a tool that should be used
expertly or not at all. Correctly applied it could promote wise
use of flood plains. Incorrectly applied, it could exacerbate
the whole problem of flood losses. For the Federal Government
to subsidize low premium disaster insurance or provide
insurance in which premiums are not proportionate to risk would
be to invite economic waste of great magnitude. \6\
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\6\ U.S. Task Force on Federal Flood Control Policy. ``A Unified
National Program for Managing Flood Losses'', August 1966. p. 17.
http://www.loc.gov/law/find/hearings/floods/floods89-465.pdf
Well, we know which way that story unfolded. Although subsidies
were largely envisioned to be limited and short-term, they weren't. And
while the program has encouraged standards and construction that help
reduce flood risks for participating communities, the availability of
cheap Federal flood insurance over the last several decades made it
financially attractive to develop in high risk areas. Along with other
factors, NFIP helped fuel the coastal development boom that increased
the program's risk exposure and losses.
To foster increased participation, the NFIP does not charge truly
actuarially sound rates, or increase rates based on previous loss
experience. The program's goal of fiscal solvency is defined as
charging premiums that will generate enough revenue to cover a
historical average loss year. \7\ That means catastrophic loss years
are largely left out of the equation. The program covers any fiscal
shortfalls by borrowing from the U.S. Treasury, which is a significant
subsidy in itself.
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\7\ Thomas L. Hayes and D. Andrew Neal. ``Actuarial Rate Review'',
Federal Emergency Management Agency. October 1, 2010. p. 5.
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NFIP's fiscal solvency is further challenged because properties
that predate a community's involvement in the NFIP or the applicable
flood insurance rate map (whichever is later) enjoy significantly
subsidized rates, paying only 35-40 percent of their actual full-risk
level premium. \8\ While the initial thought may be that because of
their vulnerability these properties wouldn't be long for this world, a
recent analysis by USA Today found 1.2 million buildings receive these
discounts. \9\ FEMA puts the percentage of properties in the NFIP
receiving subsidized rates as more than 20 percent. \10\
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\8\ Congressional Budget Office. Supra Note 3 at 6.
\9\ Frank, Thomas. ``Huge Losses Put Federal Flood Insurance
Program in the Red'', USA Today. August 26, 2010. Available at http://
www.usatoday.com/news/nation/2010-08-25-flood-insurance_N.htm
\10\ Hayes and Neal. Supra Note 6 at 22.
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Furthermore, properties experiencing repetitive losses make up a
disproportionate amount of the program costs. A repetitive loss
property is one that has had two or more claims of $1,000 over 10
years. These properties represent only 1 percent of the total number of
policies, yet account for up to 30 percent of the cost of claims. \11\
Properties like one in Wilkinson, MS, that has flooded 34 times since
1978 and received payments worth nearly 10 times the home's $70,000
value. Or another property owner in Houston, TX, that has received $1.6
million worth of claims for a house worth $116,000. \12\ We need to
help these people out--out of harm's way--and at the same time help the
taxpayer who is picking up the tab.
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\11\ Brown. Supra Note 2 at 8.
\12\ Frank. Supra Note 8.
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Maps Lead the Way
The NFIP is driven by maps. They determine the veritable alphabet
soup of what flood zone your structure is in: A, V, X, or variants
within each category. There's a map for that. Your property could be in
the 100-year floodplain or the 500-year floodplain; high-risk storm
surge zone or special flood hazard areas. Your property could predate
the flood insurance rate map (FIRM) or otherwise be eligible for
significantly subsidized premiums. The maps are key to the program's
success or failure. They must be up to date, accurate and based on the
best available science. This is why FEMA's map modernization program is
so critical to the long term fiscal viability of the program.
The Nation's floodplains are dynamic. Not just from natural forces,
but also the impacts of development and topographical changes. Areas
that were previously less likely to flood could now be more likely.
Levees that were adequate to provide 100-year protection a decade ago
may provide far less due to poor maintenance or increased flood
elevations due to increased runoff or new development.
Since 2003, FEMA has been working to update thousands of flood
maps. In addition, levees are being reviewed and in some cases
decertified for not meeting the required level of protection. According
to FEMA, the Nation's special flood hazard areas (SFHA) have grown in
size by 7 percent. While this revealed more land and housing is
vulnerable to flooding, other areas are less vulnerable. In fact, the
number of housing units in SFHAs has seen a net decrease of 1 percent.
\13\
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\13\ Testimony of Craig Fugate, Administrator, Federal Emergency
Management Agency, Department of Homeland Security before the
Subcommittee on Housing and Community Opportunity, Committee on
Financial Services, House of Representatives. April 21, 2010. p. 4.
Available at http://www.house.gov/apps/list/hearing/financialsvcs_dem/
fugate_4-21-10.pdf
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Not surprisingly, the map modernization effort has been met with
some controversy. In some cases, homeowners are facing steep increases
in premiums after many years of paying the same rate. While the uproar
is understandable, it doesn't change the underlying geology or the
risk. In some cases property owners that didn't have to purchase flood
insurance under existing law now find themselves required to do so. But
just because it isn't popular doesn't mean it's not the right thing to
do. What isn't the right thing to do is ignoring the realities on the
ground--literally--and not requiring flood insurance in these
instances. Because it means when the inevitable floodwaters appear, the
homeowner will not be covered by their regular insurance and the
taxpayer will be asked to open up their wallet to bail them out. In
fact in some cases it makes sense to purchase flood insurance even if
you are not required to do so.
It may be politically expedient and popular to delay map
modernization or waive building standards. But what may make good
politics generally makes bad insurance policy--and by extension with
Federal flood insurance--bad public policy. People deserve to know the
cost and risks of where they live. And taxpayers deserve to have those
who choose to live in harm's way pick up part of the tab.
I'm not here to say that FEMA and their maps are infallible.
However, absent strong scientific evidence of specific inaccuracies,
efforts to delay and forestall map revisions must stop. Legislation
doesn't alter geology. But that hasn't prevented various lawmakers from
introducing legislation to either roll back or delay mapping changes
and commensurate rate increases. The House-passed flood insurance
reauthorization bill from this summer would delay mandatory insurance
for special flood hazard zones and mandate a 5-year phase-in of rates.
A better way to ease any sticker shock would be to provide for
relatively short phase-ins of actuarial rates or other assistance.
Don't Make Matters Worse
Besides the mapping issue there are other efforts that would take a
backhoe to NFIP's deep financial hole. One is the addition of wind
insurance, which was wisely--and soundly--rebuffed by the Senate in
2007. It simply doesn't make sense to add a whole new business line to
the already challenged flood insurance program. FEMA has no experience
in pricing wind insurance, and the flood side has proven challenging
enough. Besides, there are existing private wind insurance providers.
Part of the whole rationale behind the creation of the NFIP was a lack
of private flood insurance providers. I recognize that in the aftermath
of Katrina there were concerns that in some cases insurance companies
categorized wind claims as flood claims to avoid payouts. That should
be investigated and corrected through appropriate mechanisms. But to
use those instances to justify a Federal wind insurance program is the
tail wagging the dog.
Another related area is the effort to create a new national
catastrophe reinsurance program for State-run reinsurers. Again, this
would represent a significant Federal expansion into the insurance
markets with little justification. Reinsurance--essentially insurance
for insurance companies--is widely available and used to hedge an
insurance company's risk. However, some States do not want to pay for
the actual risks, but want the Federal Government to subsidize
reinsurance rates as well. The legislation to create this program
asserts that the program would charge actuarially sound rates. \14\
This makes little sense. If this program's rates were truly actuarially
sound, they would exceed the private market's rates because the program
would be forced to sell reinsurance to a very narrow pool of high risk
States, whereas the private market could distribute the risk worldwide.
But, remember, the Federal flood insurance rates are supposed to be
actuarially sound as well. And we already know what happened there.
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\14\ H.R. 2555 ``Homeowners Defense Act'', Section 303(g).
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Reform the Program
Enough about what shouldn't be done, we all know there are big
problems, so what should be done to reform the National Flood Insurance
Program.
The current model is clearly not sustainable. The subsidies have to
be phased out and the program has to move toward actuarial rates. This
can be done with a maximum of 20 percent year rate increase for
properties paying nonactuarial rates. This isn't just about putting the
program on more solid fiscal footing and protecting taxpayers. This is
also about fundamental fairness within the flood insurance program and
eliminating the cross subsidies that has a few properties paying full
freight and picking up the tab for properties that have enjoyed
subsidized premiums for decades.
There must be a strong commitment to help communities and
individuals to reduce their flood vulnerability, including stronger
standards for floodplain management and mitigation. Congress should end
the problem of repetitive loss properties with elevation and relocation
programs, increase the availability of accurate information about flood
risks, and ensure adequate enforcement of program rules. In too many
cases it appears that communities or property owners have skirted
existing rules and rebuilt more than 50 percent of the property while
retaining subsidized rates.
More than 40 years have passed since the National Flood Insurance
Program was created. There have been significant advances in insurance
pricing, evaluation of risk, mapping and imagery. NFIP should work with
the private sector to identify areas that the private sector can begin
providing flood insurance. This shouldn't leave NFIP holding the bag
elsewhere and increasing levels of debt, but it is worth examining.
Finally, last Congress this Committee produced commendable
legislation to reauthorize the flood program. In addition to some of
the proposals previously mentioned this legislation mandated insurance
in residual risk areas--those in the natural floodplain but protected
by a levee, floodwall, or a dam. Citizens of New Orleans know all too
well that even after a levee is built, the risk remains. The
legislation also created a reserve fund for higher than predicted loss
years and directed NFIP to charge rates to establish and maintain a
balance equal to 1 percent total potential loss exposure in that fund.
These are also important elements of NFIP reform.
Conclusion
The National Flood Insurance Program is in trouble and is at a
crossroads. The shaky foundation on which it was based has enormous
cracks. Congress and the Administration can either remake and
strengthen that foundation by putting the program on more solid
financial footing or create even greater cracks by adding new business
lines or delaying a shift to actuarial rates and updated flood maps.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
FROM ORICE WILLIAMS BROWN
Q.1. FEMA Map Modernization Efforts. FEMA has indicated that by
the end of this fiscal year it expects to have preliminary
Flood Insurance Rate Maps (FIRMs) issued for 92 percent of the
Nation's population.
Can you describe the quality of the maps being produced by
FEMA? How can they be improved? How many of its ``updated''
maps are based on new data or modeling; how many are simply
digital maps based on old data?
A.1. The precise accuracy of a map is difficult to determine,
but as we reported in December 2010, the quality of data used
in developing a map is an important determinant of the map's
accuracy. We reported in our December 2010 report that FEMA
lacks a way to systematically track, at a national level, the
types of topographic data or level of project detail used in
each study, which limited their ability to effectively and
comprehensively describe the accuracy of flood maps. \1\ Thus,
FEMA lacks a basis to comprehensively describe the quality of
the maps being produced or to readily determine how many of its
maps are based on new data or modeling and how many are digital
maps based on old data. However, to help ensure map accuracy,
FEMA has implemented and tracks compliance of individual
mapping projects with three standards for ensuring the quality
of data used in developing flood maps: FEMA's Guidelines and
Specifications that define technical requirements, product
specifications for Flood Hazard Maps and related NFIP products,
and associated coordination and documentation activities; the
Floodplain Boundary Standard (FBS) designed to ensure the
locations of the predicted horizontal (floodplain boundary) and
vertical (base flood elevation) lines drawn on flood maps are
comparable to the topographic data that has been selected for
the study area; and two of three elements of the New, Validated
or Updated Engineering (NVUE) data standard that was
established to provide a basis for assessing the engineering
analysis used to develop flood elevations.
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\1\ GAO, FEMA Flood Maps: Some Standards and Processes in Place to
Promote Map Accuracy and Outreach, but Opportunities Exist to Address
Implementation Challenges, GAO-11-17 (Washington, DC, Dec. 2, 2010).
---------------------------------------------------------------------------
In our December 2010 report, we made five recommendations
designed to help FEMA address challenges in ensuring the
accuracy of flood maps and enhance FEMA's independent
verification and validation (IV&V) audit process. Specifically,
we recommended that FEMA:
1. Establish separate measures and collect data needed to
assess compliance with the Floodplain Boundary Standard
for detailed and approximate flood studies, \2\
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\2\ Detailed flood studies incorporate greater amounts of data or
more precise data into a map to provide greater granularity of
information, for example, by determining base flood elevations within a
Special Flood Hazard Area, to reduce uncertainty. In contrast,
approximate flood studies generally require less precision in flood
hazard data. For example, they are used for areas that are less subject
to development and do not require the establishment of a regulatory
base flood elevation.
2. Establish uniform guidance for the validation of existing
engineering data to help FEMA fully implement the NVUE
standard and provide a basis for mapping partners to
---------------------------------------------------------------------------
validate flood hazard data.
3. Implement probability sampling during the IV&V audit
process to the extent that the benefits outweigh the
costs, to ensure that the results are generalizable for
decision making;
4. Transfer IV&V duties back to an independent entity to
help ensure impartiality; and
5. Adopt a systematic approach to IV&V data collection, so
FEMA can better track map quality issues, more easily
analyze the data, and adopt a corrective action plan.
In commenting on the draft report, DHS stated that it
concurred with our recommendations to enhance its efforts to
improve the accuracy of maps and identified actions FEMA had
taken or plans to implement them. DHS similarly concurred with
two of our three recommendations to enhance its IV&V audit
process and identified actions FEMA had taken or plans to
implement them. DHS did not concur with our recommendation that
the Administrator of the Federal Emergency Management Agency
should transfer IV&V duties back to an independent entity to
help ensure impartiality. However, we continue to believe that
the program management contractor's programmatic
responsibilities and involvement prevent it from having a
clearly independent role in validating and verifying the
results of flood map production activities, because the
contractor has a vested interest in overall program
performance. Therefore, we believe that FEMA should transfer
independent verification and validation duties back to an
independent entity to help ensure impartiality.
Q.2. To what extent have funding limitations and program
metrics affected map quality?
A.2. Regarding the effect of funding limitations on map
quality, we reported in December 2010 that FEMA did not
generally provide funding for mapping partners to acquire new
topographic data prior to fiscal year 2010, in an effort to
conserve resources and share responsibilities, according to
FEMA officials. \3\ In a study commissioned by FEMA and issued
in 2009, the National Academies of Sciences concluded that the
quality of topographic data is the most important factor in
determining water surface elevations, base flood elevations,
and the extent of flooding and, thus, the accuracy of flood
maps for riverine areas, which account for approximately 95
percent of FEMA's flood maps. FEMA officials agreed that
accurate data are essential and that even the best models
cannot produce an accurate flood map with inaccurate inputs,
but they said there is a point of diminishing returns where the
cost of developing highly accurate topographic data outweighs
its overall benefit. Historically, studies at all risk levels
could have used the U.S. Geological Survey (USGS) National
Elevation Dataset as the best available data, if obtaining
better quality data was unaffordable, according to FEMA
officials. Officials from the Association of State Floodplain
Managers agreed with this characterization of historical
mapping efforts and said that cost constraints limit local
governments and mapping partners' ability to collect extensive
data, a situation that has resulted, in some cases, in poor map
quality. FEMA officials acknowledged that affordability issues
have been the main reason high risk areas may rely on USGS data
for their study. To address this issue, FEMA officials said
they planned to provide $80 million in funding in fiscal years
2010 through 2013 to acquire new topographic data.
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\3\ Topographic accuracy is a function of detail and age. Detail
is important because detailed topography has significantly fewer errors
than less detailed alternatives and better accounts for hydraulic
structures--structures that affect water flow--such as buildings,
dykes, river banks, and roads. Age is important because topography can
change over time due to development and ecological factors such as
erosion. The topographic data used in mapping studies can have
significant variances in age and detail, and thus, accuracy.
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Regarding the effect of program metrics on map quality,
prior to September 2010, FEMA lacked a metric for the quality
of topographic data beyond the minimum standards in its
Guidance and Specifications and delineated floodplains using
the ``best available'' existing topographic data for the area
being studied. In the absence of data provided by the mapping
stakeholder or newly developed for a flood mapping project, a
primary source for topographic data was the National Elevation
Dataset maintained by the USGS, which is over 35 years old on
average. FEMA's historical standards for new topographic data
required data that is about 10 times more accurate than USGS
topographic data and required topographic data acquired or
reviewed within the last 7 years to account for changes such as
human development. In September 2010, FEMA established new
standards for the level of topographic detail required to
ensure that the maps of those areas at the highest risk from
flooding have the most accurate topographic data, as suggested
by the National Research Council and FEMA's Risk MAP strategy.
FEMA published Procedural Memorandum 61 to update its
Guidelines and Specifications requiring mapping partners to
align FEMA's topographic data specifications to levels of risk
for flooding, as well as account for differing characteristics
of elevation that can affect the accuracy and precision of base
flood elevations. This procedural memorandum identifies the
specifications of elevation accuracy and precision needed based
on FEMA's previously identified risk classes for all 3,146
counties in the United States. As the National Academies of
Sciences report stated, the level of detail used in a study
should correspond to the area's risk. FEMA officials stated
that they will only be starting new studies in areas where
there are already existing updated and accurate topographic
data or in areas that have sufficient need and risk to
necessitate FEMA's funding the acquisition of such data.
In addition, we made several conclusions in our December
2010 report that led to the recommendations to enhance FEMA's
metrics for assessing the quality of flood maps discussed
above. Specifically, we concluded that establishing separate
measures of compliance for detailed and approximate studies
could allow FEMA to better use FBS compliance rates as a
measure of map accuracy; however, the data necessary to
accomplish this are presently not maintained by the agency. By
retaining and analyzing metadata, FEMA could report additional
information on FBS compliance and, thereby, have a potentially
better measure of map accuracy. Further, FEMA's NVUE standard
provides a basis for flood mapping partners to assess the
quality of new, validated, or updated engineering data in
revising maps; however, establishing uniform guidance for the
validation of existing data could help FEMA ensure mapping
partners are consistently validating data. This step could help
FEMA both track and report the accuracy of maps at the national
and regional levels and better assess mapping data needs.
Q.3. Can you discuss the level of coordination that exists
among FEMA and other relevant agencies, such as the Army Corps
of Engineers, NOAA, USGS, and others, in the development of
updated maps?
A.3. While we have not assessed the level of coordination that
exists among FEMA and other relevant agencies, such as the Army
Corps of Engineers, NOAA, USGS, and others, in the development
of updated maps, FEMA's Risk Mapping, Assessment, and Planning
(Risk MAP) Multi-Year Plan: Fiscal Years 2010-2014 discusses
FEMA's views regarding synergies with other Federal agencies.
According to the strategy, FEMA has engaged other Federal
agencies in productive partnerships that benefit each entity
and works to minimize duplication across the Federal
Government:
FEMA participates actively in National Digital
Orthophoto Programs (NDOP) and National Digital
Elevation Program (NDEP). \4\ These groups work to
maximize coordination of Federal mapping, focusing on
two key data themes of ground elevation data and ortho-
imagery (aerial photo base maps).
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\4\ The National Digital Orthophoto Programs (NDOP) was chartered
in 1993 as a consortium of Federal agencies with the purpose of
developing and maintaining national ortho-imagery coverage in the
public domain by establishing partnerships with Federal, State, local,
tribal, and private organizations. (see, www.ndop.gov). The National
Digital Elevation Program (NDEP) was established to promote the
exchange of accurate digital land elevation data among Government,
private, and nonprofit sectors and the academic community and to
establish standards and guidance that will benefit all users. (see,
www.ndep.gov/NDEP)
FEMA has an agreement with USGS to fully transfer
the management of base map imagery to the USGS to
eliminate redundancy and allow FEMA to focus on the
production and management of the flood hazard and flood
risk layers; FEMA has a Memorandum of Understanding
with the Census Bureau to share its inventory of local
GIS data; FEMA has a liaison relationship with National
Geodetic Survey to exchange technical expertise and
align flood hazard mapping and Height Modernization.
\5\
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\5\ Height Modernization is a program that uses the Global
Positioning System and other new technologies to increase the accuracy
of elevation measurements that comprise the vertical portion of the
National Spatial Reference System. (see, http://oceanservice.noaa.gov/
topics/navops/heightmodernization/)
FEMA coordinates with (1) the National Weather
Service to share flood hazard mapping data with the
National Weather Service Inundation Mapping Program,
(2) with the NOAA Ocean Service on coastal mapping
standards, coastal science issues, and participation on
the Interagency Working Group on Ocean and Coastal
Mapping, (3) with USACE and its Flood Risk Management
---------------------------------------------------------------------------
Program.
FEMA has an agreement with the United States Fish
and Wildlife Service to help ensure that Coastal
Barrier Resource Systems that affect the availability
of Federal flood insurance and other Federal funds are
accurately depicted on FIRMs.
Q.4. Do you believe that provisions included in the 2008 Senate
flood insurance reauthorization bill will improve the quality
of maps and coordination with other agencies and technical
experts?
A.4. Sections 18 and 19 of the 2008 Senate flood insurance
reauthorization bill (S. 2284) should help FEMA improve the
quality of maps and coordination with other agencies and
technical experts.
Section 18 reestablishes the Technical Mapping
Advisory Council. The Council began its work in 1996
and has submitted recommendations to the Director of
FEMA in each of its Annual Reports. While we have not
assessed the specific impact of FEMA's implementation
of the prior Council's recommendations in annual
reports, the intent of the reestablished Council as
stated in the draft bill supports FEMA's Risk MAP
strategy to continue collaboration with local, State,
regional, tribal, national, and other Federal partners.
Section 19 calls for FEMA to establish an ongoing
map update program that will include assessment of the
effects of erosion and climate change. This provision
should help prompt FEMA to address our outstanding
concerns regarding these issues. Specifically, we
identified concerns related to these issues in
assessing FEMA's rate-setting process for the National
Flood Insurance Program and in assessing financial
risks to Federal and private insurers. In assessing
FEMA's rate-setting process for the National Flood
Insurance Program (NFIP) in October 2008, we reported
that some experts have suggested that incorporating
ongoing and planned development, erosion trends, and
climate change into flood risk modeling would more
fully capture longer-term flood risk exposure, but FEMA
does not take these variables into account. \6\
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\6\ GAO, Flood Insurance: FEMA's Rate-Setting Process Warrants
Attention, GAO-09-12 (Washington, DC: Oct. 31, 2008).
FEMA's policy is to map Special Flood Hazard Areas (SFHAs)
based on current development conditions. However, as
floodplains are developed and more ground surfaces are
paved or made impervious (nonabsorbent), the risks and
expected elevations of flooding increase. As the
predicted elevation of the base flood increases, SFHAs
subsequently spread beyond mapped boundaries. As a
result, in rapidly developing watersheds or where
characteristics change significantly due to flood
control projects or other natural events, some FIRMs
may become outdated shortly after their completion. In
addition, some properties could be constructed without
proper protection from the flood hazard they may face
throughout their life span, and others could be
uninsured or subject to insurance rates that do not
---------------------------------------------------------------------------
accurately reflect flood risk.
FEMA's current flood hazard mapping procedures for coastal
areas incorporate storm-induced coastal erosion but not
long-term erosion. While shorelines, dunes, and bluffs
can retreat during a single storm, long-term erosion at
a shoreline is the net result of a variety of factors
such as sediment losses from storms and inundation from
sea level rise, averaged over several decades. We
recommended that the Secretary of the Department of
Homeland Security direct FEMA to take steps to ensure
that the data it uses accurately reflect the risk of
losses from flooding. These steps should include, for
example, verifying the accuracy of flood probabilities,
damage estimates, and flood maps; ensuring that the
effects of long-term planned and ongoing development,
as well as climate change, are reflected in the flood
probabilities used; and reevaluating the practice of
aggregating risks across zones. FEMA had not yet taken
action to address this recommendation.
In assessing the financial risks to Federal and private
insurers posed by climate change, we reported that one
important implication of Federal insurers' risk management
approach is that they each have little reason to develop
information on their long-term exposure to the potential risk
of increased low-frequency, high-severity weather events
associated with climate change. \7\ According to NFIP
officials, their risk management processes adapt to near-term
changes in weather as they affect existing data. As one NFIP
official explained, NFIP is designed to assess and insure
against current--not future--risks. Over time, agency officials
stated, this process has allowed their program to operate as
intended. However, unlike the private sector, the program has
not conducted an analysis to assess the potential impacts of an
increase in the frequency or severity of weather related events
on program operations over the near- or long-term. Agency
officials identified several challenges that could complicate
their efforts to assess these impacts at the program level.
NFIP officials stated there was insufficient scientific
information on projected impacts at the regional and local
levels to accurately assess their impact on the flood program.
We recommended that the Secretary of Homeland Security direct
the Under Secretary of Homeland Security for Emergency
Preparedness to analyze the potential long-term implications of
climate change for the National Flood Insurance Program and
report their findings to the Congress. FEMA has yet to issue
its report to Congress.
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\7\ GAO, Climate Change: Financial Risks to Federal and Private
Insurers in Coming Decades Are Potentially Significant, GAO-07-285
(Washington, DC: Mar. 16, 2007).
Q.5. Updating a Flood Insurance Rate Map (FIRM) does not
necessarily increase the number of properties subject to
National Flood Insurance Program (NFIP) mandatory purchase
requirements. Homeowners in special flood hazard areas (SFHAs)
may find their properties excluded from those areas when an
updated flood map is adopted.
Can you compare the number of properties have been added to
special flood hazard areas (SFHAs) to the number that have been
removed during the last several years of ``map modernization''?
A.5. Because FEMA does not assess the number of properties that
have been added to SFHAs or the number that have been removed
as a result of national flood mapping efforts, these data are
not collected or reported. FEMA's mapping efforts are designed
to establish the floodplain boundary that describes the SFHA,
the area where the NFIP's floodplain management regulations
must be enforced and where the mandatory purchase of flood
insurance applies; the agency does not determine whether
individual properties or buildings are within an SFHA.
Under current notification requirements, federally
regulated lenders, not FEMA, serve as the primary channel for
notifying property owners whose mortgaged properties are
subject to flood insurance requirements. When property owners
seek new financing--through purchase or refinance--federally
regulated mortgage lenders are required to determine if the
property is in the floodplain, and, if so, require the purchase
of flood insurance. Lenders are not required to monitor map
changes or to notify property owners with existing mortgages
whose properties are identified in a floodplain by remapping if
they are not aware of the change in status. \8\ Nonetheless, if
federally regulated lenders become aware of flood map changes
that affect properties for which they hold mortgages through
FEMA notifications or flood zone determination companies, then
they must notify the property owner and require the purchase of
flood insurance. \9\ The information that must be provided to
property owners is limited to notifying property owners that
their structure is in a floodplain, providing a definition of a
flood plain, and requiring the purchase of flood insurance if
they live in a participating NFIP community.
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\8\ In making loans, federally regulated lenders are required to
ensure that property owners purchase flood insurance if their mortgages
are secured by a structure located in a floodplain. Lenders are also
required to check the flood hazard status of a property when triggered
by statutory tripwires, such as loan renewal or extension.
\9\ Many lenders use flood zone determination companies to
determine whether properties require flood insurance as a result of
loan origination, loan assumption, or map changes. These companies use
FEMA flood maps and other data to ascertain if properties are situated
in flood zones.
Q.6. Can you comment on the public participation in the
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adoption of new maps and how that process can be improved?
A.6. The ultimate success of FEMA's flood mapping program
depends on the level of community investment and involvement in
the process. In our December 2010 report, we noted that FEMA
relies on local governments to provide it with notification of
changing flood hazard information and to work with FEMA to
collect the information needed to reflect the updated flood
hazards on the flood maps. As noted in our report. the National
Flood Insurance Act of 1968, as amended, and Federal
regulations require that FEMA communicate potential changes in
flood risk to the public when it decides to initiate a flood
mapping study and when it is ready to release preliminary maps.
Specifically, FEMA is required to notify local governments at
the beginning of the mapping process, \10\ and it must publish
the proposed base flood elevations in the Federal Register for
public comment and notify the local government of the results
of the study when FEMA is ready to release preliminary maps.
\11\ When the final map is approved, FEMA publishes another
Federal Register notice. \12\ FEMA is required to maintain
documentation of selected elements of its public notification
efforts. \13\ Outside of these statutory and regulatory
requirements, FEMA has historically focused its outreach
efforts on local government officials and has relied on local
officials to inform the community at large (i.e., the public)
of flood mapping efforts. \14\ However, we identified areas
where FEMA could improve these outreach efforts. For example,
FEMA is not ensuring that its mapping partners are complying
with public notification documentation requirements. Further,
FEMA is not collecting and analyzing data on appeals and
protests that could be used to gauge public acceptance of flood
maps.
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\10\ FEMA is required to contact community stakeholders, such as
the State coordinating agency and other appropriate community
officials, to discuss the intent and nature of the proposed flood map
study. 44 C.F.R. 66.5.
\11\ FEMA is required to publish the proposed flood elevations in
a prominent local newspaper at least twice during the 10-day period
following the notification of the community chief executive officer.
Property owners have 90 days from the second newspaper publication to
appeal the proposed flood elevations. 44 C.F.R. 67.4, 67.5.
\12\ Final flood elevations must be published in the Federal
Register and copies sent to the community chief executive officer, all
individual appellants, and the State-coordinating agency. 44 C.F.R.
67.11.
\13\ 44 C.F.R. 66.3, 67.3.
\14\ Federal law provides that FEMA must encourage local officials
to disseminate information concerning a flood mapping study widely
within the community, so that interested persons will have an
opportunity to bring all relevant facts and technical data concerning
the local flood hazard to the attention of the agency during the course
of the study. 42 U.S.C. 4107.
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To address challenges in improving community outreach, we
recommended that the Administrator of the Federal Emergency
Management Agency:
1. establish a mechanism to better ensure compliance with
the documentation requirements of public notification
regulations;
2. collect and analyze data on appeals and protests,
including those on ineligible appeals, to the extent
that the benefits outweigh the costs;
3. issue guidance to mapping stakeholders to standardize the
process for analyzing appeals and protests and
submitting this data to FEMA;
4. establish performance goals and measures for promoting
public acceptance of flood maps; and
5. develop a reporting structure for regions to use to
identify resources needed to conduct flood mapping
outreach activities, and implement a risk-based
approach to allocate outreach resources; and leverage,
as appropriate, existing FloodSmart marketing resources
and expertise to help increase public acceptance of
flood maps.
In commenting on the draft report, DHS stated that it
concurred with our recommendations to enhance its outreach
efforts and identified actions FEMA had taken or plans to
implement them.
Q.7. What responsibilities do FEMA and localities have to
inform the public about map updates at the outset of the
process? What is the most important aspect of the flood maps
for communities and property owners?
A.7. Federal regulations require that FEMA communicate
potential changes in flood risk to the public when it decides
to initiate a flood mapping study. At the beginning of the
mapping process, FEMA is required to notify local governments.
\15\ When FEMA is ready to release preliminary maps, the agency
must publish the proposed base flood elevations in the Federal
Register for public comment and notify the local government of
the results of the study. \16\ FEMA works with communities to
develop new flood hazard data or revise existing data during
the flood study process. In general, the study process includes
the following activities:
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\15\ FEMA is required to contact community stakeholders, such as
the State coordinating agency and other appropriate community
officials, to discuss the intent and nature of the proposed flood map
study. 44 C.F.R. 66.5.
\16\ FEMA is required to publish the proposed flood elevations in
a prominent local newspaper at least twice during the 10-day period
following the notification of the community chief executive officer.
Property owners have 90 days from the second newspaper publication to
appeal the proposed flood elevations. 44 C.F.R. 67.4, 67.5.
FEMA holds a scoping meeting with community
officials to identify where a new flood study is
necessary and the type of study and extent (number of
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stream miles) of the study.
FEMA undertakes a flood study to identify the flood
hazards and to develop Base Flood Elevations (BFEs)
(hereafter referred to as ``flood elevations'') and
floodways for the areas of study identified during the
scoping process. In addition, the mapping process
includes activities such as obtaining the base map,
incorporating Letters of Map Change, and developing the
flood hazard database.
The identification of flood hazards serves many important
purposes. Identifying flood hazards creates an awareness of the
hazard, especially for those who live and work in flood-prone
areas. Maps provide States and communities with the information
needed for land-use planning and to reduce flood risk to
floodplain development and implement other health and safety
requirements through codes and regulations. States and
communities can also use the information for emergency
management.
Each time FEMA provides a community with new or revised
flood hazard data, the community must either adopt new
floodplain management regulations or amend its existing
regulations to reference the new flood map and flood study. In
some cases, communities may have to adopt additional floodplain
management requirements if a new type of flood hazard data is
provided, such as a new flood zone.
Floodmaps are the tool FEMA uses to determine the flood
risk homeowners face. Prior to the establishment of NFIP,
homeowners had no mechanism to protect themselves from the
devastation of flooding and in many parts of the United States
unchecked development in the floodplain was exacerbating the
flood risk. In addition to providing insurance to property
owners, NFIP requires participating communities to enact local
floodplain management ordinances that minimize floodplain
development and encourage initiatives to reduce flood risk.
FEMA's Web site includes information whose purpose is to help
homeowners in locating and obtaining copies of their
perspective floodmaps, how to read them, and how to request map
changes that may be warranted.
Q.8. How are property owners informed after updated maps are
adopted? Do homeowners receive any specific information with
regard to their properties and how is that information
otherwise made available?
A.8. Federal regulations require that FEMA communicate
potential changes in flood risk to the public. When the final
map is approved, FEMA publishes a Federal Register notice. \17\
When the study is completed, FEMA provides the community with a
preliminary flood map and flood study for review. In addition,
FEMA may hold a public meeting--often referred to as the
``Final Meeting'' to explain and obtain comments on the
preliminary flood map and flood study.
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\17\ Final flood elevations must be published in the Federal
Register and copies sent to the community chief executive officer, all
individual appellants, and the State-coordinating agency. 44 C.F.R.
67.11.
FEMA provides a 90-day appeal period when new or
revised flood elevations are proposed. Before the
appeal period is initiated, FEMA will publish the
proposed flood elevation determinations in the Federal
Register and notify the community's chief executive
officer of the determination. FEMA will then publish
information about the flood elevation determinations at
least twice in a local newspaper. The appeal period
provides the community and owners or lessees of
property in the community an opportunity to submit
information on whether the flood elevations are
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scientifically or technically incorrect.
At the end of the 90-day appeal period, FEMA
resolves all appeals and finalizes the flood map and
flood study.
FEMA then issues a Letter of Final Determination
(hereafter referred to as the ``final letter''), which
establishes the final flood elevations, and provides
the new flood map and flood study to the community. The
final letter initiates the 6-month adoption period. The
community must adopt or amend its floodplain management
regulations during this 6-month period.
The flood map and flood study become effective at
the end of the 6-month period. The effective date is
also the date when flood insurance rates will be based
on the new flood data for new construction built after
this date. The effective map will be the one that will
be used by federally insured or regulated lenders to
determine if flood insurance is required as a condition
of a loan.
Q.9. What factors and data does FEMA consider from communities
and property owners in deciding whether to adjust maps?
A.9. According to FEMA, factors and data the agency may
consider from communities and all local, State, and Federal
stakeholders in deciding whether to adjust maps includes any
available information on Federal, State, or local flood
studies, flood control projects, bridges, culverts, or
developments or flooding concerns, and any efforts to gather
topographic mapping or aerial photography, or information on
significant floods.
Q.10. What funding and technical assistance, if any, are
provided to States and communities to help them develop their
own capacity to assist in mapping updates?
A.10. FEMA has established two programs to provide funding and
technical assistance to States and communities to help them
develop their own capacity to assist in mapping efforts, the
Cooperating Technical Partners (CTP) Program and the Community
Assistance Program.
The purpose of the CTP Program is to provide,
through a cooperative agreement, funds to better ensure
that CTP partners can perform program management and
technical mapping-related activities. Though there is
not a financial matching requirement under the CTP
Program except as defined by appropriations language,
the potential partner should demonstrate its ability to
leverage funding received from FEMA. CTP partners that
offer significant funding matches will be given
priority in allocating funding. FEMA may provide
technical assistance, training, and/or data to a CTP
partner to support flood hazard data development
activities. For example, fundable program management
activities include the development of State and local
business plans and/or updates, managing technical
mapping activities, conducting outreach, providing
training to State and local officials, staffing,
conducting pilot projects (as defined by the FEMA
regional office) and mentoring. Additional fundable
activities under the CTP program are summarized in the
table below.
FEMA established the Community Assistance Program
to provide funding to States to provide technical
assistance to communities that participate in NFIP and
to evaluate community performance in implementing NFIP
floodplain management activities. Among other things,
the program is intended to build State and community
floodplain management expertise and capability, and
leverage State knowledge and expertise in working with
their communities. FEMA Regional Offices and the
designated State agency negotiate an agreement that
specifies activities and products to be completed by a
State in return for funds. In addition, each State is
required to develop a 5-Year Floodplain Management Plan
(5-Year Plan) describing the activities to be completed
using Community Assistance Program funding and how the
required performance metrics will be met. Performance
standards that address quality of service are to be
developed and measured. There is a 25 percent non-
Federal match for all States receiving Community
Assistance Program funds. The fundable CAP activities
include:
Performance measurement/5-Year Plan Updates;
State model ordinance research and development;
Ordinance assistance;
Tracking and reporting floodplain management
data;
Community assistance visits and community
assistance contacts;
Outreach, workshops, and other training;
General technical assistance;
Mapping assistance;
Coordination with other State programs and
agencies; and
Assistance to communities in responding to
disasters.
Q.11. The House has adopted language in its NFIP
reauthorization bill that would establish a 5-year moratorium
on the mandatory purchase requirement for properties that are
mapped into a special flood hazard area.
Will this provision have any effect on properties that are
removed from a special flood hazard area as the result of the
adoption of an updated flood map? In other words, would the
owners of these properties be able to drop their flood
insurance as the result of the new map?
A.11. Section 6(a)(i)(1) of H.R. 5114 proposes a 5-year delay
in the effective date of the mandatory purchase requirement
specifically for properties in areas that were not previously
designated as having special flood hazards. As a result, it
would not apply to changes in premium rates for properties in
areas that were previously designated as having special flood
hazards but are no longer so designated.
Q.12. Is there any way to quantify the impact this provision
would have on the financial standing of the program?
A.12. The impact of a potential delay in the mandatory purchase
requirement for newly remapped properties depends on the
premiums that would be paid for coverage on those properties
and the losses they would experience once they enter the
program.
The nature of NFIP is such that it primarily insures
properties with the highest risk of loss, such as those in
SFHAs that are subject to the mandatory purchase requirement.
In addition, many of the properties in SFHAs qualify for
subsidized premium rates that do not fully reflect the risk of
loss from flood damage. The potential impact of a delay in the
mandatory purchase requirement would depend on the mix of
properties that ultimately ended up in the program after the
end of the 5-year period and the occurrence of flood losses. If
that future mix of properties paralleled that currently
experienced by the program, where just under 25 percent of
properties receive subsidized rates, it is possible that adding
more properties could actually worsen the financial stability
of the program. That is, to the extent that floods do not occur
in the added areas, the property owners there would contribute
premiums to NFIP but not losses, and thus be a benefit to the
program's financial standing. On the other hand, if they do
experience losses, it is possible that, because of the
properties receiving subsidized premium rates, NFIP could pay
out more in damages than it collected in premiums. Ultimately,
the impact of adding more properties and a potential delay in
adding these properties would depend on the mix of properties
added to the program and occurrence of flood losses in the
areas added.
Q.13. Despite mandatory participation requirements, many
homeowners do not buy or maintain flood insurance. Can you
describe the reasons for this and do you have any suggestions
on how to improve participation in NFIP?
A.13. While federally regulated lenders are not to make or
renew loans on properties in participating communities that are
in SFHAs unless the property is covered by flood insurance, the
extent to which some homeowners might not purchase such
insurance is not known and is a subject of disagreement. As we
testified in 2007, viewpoints differ about whether lenders were
complying with the flood insurance purchase requirements,
primarily because the officials we spoke with did not use the
same types of data to reach their conclusions. \18\ For
example, FEMA officials believed that many lenders frequently
were not complying with the requirements, an opinion that they
based largely on estimates computed from data on mortgages,
flood zones, and insurance policies; limited studies on
compliance; and anecdotal evidence indicating that insurance
was not always purchased when it was required. In contrast,
Federal banking regulators, based on their loan reviews during
bank examinations, believed that noncompliance with mandatory
purchase requirements was very low. As we reported in 2002, in
neither case did the studies or examinations offer a
statistically valid projection of the overall participation
rate. \19\ However, a 2006 FEMA-commissioned study of
compliance with the mandatory purchase requirement estimated
that compliance with purchase requirements, under plausible
assumptions, was 75 to 80 percent in special flood hazard areas
for single-family homes that had a high probability of having a
mortgage. The analysis conducted did not provide evidence that
compliance declined as mortgages aged. At the same time, the
study showed that about half of single-family homes in special
flood hazard areas had flood insurance. \20\
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\18\ GAO. Federal Emergency Management Agency: Ongoing Challenges
Facing the National Flood Insurance Program, GAO-08-118T (Washington,
DC: Oct. 2, 2007).
\19\ GAO, Flood Insurance: Extent of Noncompliance with Purchase
Requirements Is Unknown, GAO-02-396 (Washington, DC: Jun. 21, 2002).
\20\ RAND Corporation, The National Flood Insurance Program's
Market Penetration Rate: Estimates and Policy Implications, 2006.
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With respect to why homeowners might not purchase or
maintain required flood insurance, in a previous report we
noted that the general public lacks an awareness and
understanding about natural hazards and risk. \21\ That is,
individuals often have a misperception that natural hazard
events will not occur in their community and lack a full
understanding of the likelihood of an event occurring. As a
result, homeowners might be motivated to forego the purchase of
flood insurance when possible. With respect to why lending
institutions might not enforce mandatory purchase requirements,
as noted above, disagreement exists over whether and to what
extent this is an issue.
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\21\ GAO, Natural Hazard Mitigation: Various Mitigation Efforts
Exist, but Federal Efforts Do Not Provide a Comprehensive Strategic
Framework, GAO-07-403 (Washington, DC: Aug. 27, 2007).
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In order to determine how best to increase mandatory
participation beyond its current level, whatever it may be,
knowing the extent to which compliance is lacking at loan
origination, flood insurance renewal, or both is critical.
However, disagreement exists over where compliance is lacking
and challenges exist to obtaining that information. In our 2002
report, we did analyses that suggested (with some limitations)
that noncompliance at loan origination was not a major problem.
FEMA, Federal banking regulators, and lenders all agreed with
this assessment. However, the 2006 Rand study found no strong
evidence that compliance with mandatory requirements declined
over time. \22\ Fully assessing compliance would require
property-specific data on mortgages, flood zone determinations,
and flood insurance policies, obtained both at loan origination
and at various points during the life of the loan. However,
there are a number of challenges to obtaining and assessing
this data. These include establishing data reporting
requirements for lenders to provide relevant mortgage data,
designating an organization to receive and compare these data,
and determining the costs and benefits of obtaining these data.
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\22\ RAND Corporation, The National Flood Insurance Program's
Market Penetration Rate: Estimates and Policy Implications, 2006.
Q.14. Can you comment on how innovations such as group
insurance and community insurance can increase participation?
Can these measures help reduce costs? What obstacles prevent
---------------------------------------------------------------------------
them from being adopted?
A.14. FEMA's Group Flood Insurance Policy is a 3-year policy
with limited coverage purchased on behalf of recipients of
Federal disaster assistance following a natural disaster, often
low-income persons or those on fixed incomes. For example,
following hurricanes Katrina and Rita, group flood insurance
policies were purchased on behalf of 36,285 Louisiana
homeowners as part of the Federal assistance provided to those
homeowners. According to FEMA, the purpose of these group
policies is to allow property owners time to recover from the
disaster and to be in a better position to buy flood insurance
for themselves after the expiration of the 3-year policy term.
If property owners do not purchase their own flood coverage at
that time, they will forego future Federal disaster assistance.
While this is not an area that GAO has studied, understanding
the percentage of those covered under group policies that
ultimately purchased their own policies after the 3-year term
expired would be informative in understanding the program's
impact on participation.
Community flood insurance, as proposed by some industry
advocates, would allow communities participating in NFIP to
purchase one policy that would cover all structures within the
community. NFIP would determine the premium rate for the
community, which would then, in turn, determine how to allocate
the cost of the total premium among its residents. While this
is not an issue where we have done analyses, it raises
questions that would need to be answered, including whether a
community policy would increase participation, whether such a
policy offers cost savings to NFIP or policy holders, and would
any savings to NFIP outweigh the challenges involved in
implementing such a policy.
Q.15. FEMA's Community Rating System (CRS) provides localities
with an opportunity to reduce premiums for property owners if
they adopt measures beyond what is required under NFIP in order
to protect against flood damage. Can you comment on CRS as a
tool to reduce risk as well as insurance premiums? How can it
be improved to meet these goals?
A.15. In a 2007 natural hazard mitigation report, we noted that
community planning and mitigation activities, including those
done through CRS, can help reduce the risk of loss from natural
hazards, and should involve land use plans, building codes, and
hazard control structures. \23\ We also noted that while less
than 5 percent of communities participating in NFIP
participated in the CRS program, those participating
communities represented around 67 percent of policy holders. We
did not analyze the extent to which the CRS program reduced
risk or insurance premiums, but we did note that CRS, like
other hazard mitigation activities, faced several challenges.
For example, mitigation efforts are often constrained by
conflicting local interests, cost concerns, and a lack of
public awareness of the risks of natural hazards and the
importance of mitigation. Any efforts at improving the
program's ability to reduce risks and premiums would thus need
to address these challenges.
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\23\ GAO, Natural Hazard Mitigation: Various Mitigation Efforts
Exist, but Federal Efforts Do Not Provide a Comprehensive Strategic
Framework, GAO-07-403 (Washington, DC: Aug. 22, 2007).
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------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
FROM SALLY MCCONKEY
Q.1. FEMA has indicated that by the end of this fiscal year it
expects to have preliminary Flood Insurance Rate Maps (FIRMs)
issued for 92 percent of the Nation's population. a) Can you
describe the quality of the maps being produced by FEMA? How
can they be improved? How many of its ``updated'' maps are
based on new data or modeling; how many are simply digital maps
based on old data? b) To what extent have funding limitations
and program metrics affected map quality? c) Can you discuss
the level of coordination that exists among FEMA and other
relevant agencies, such as the Army Corps of Engineers, NOAA,
USGS, and others, in the development of updated maps? d) Do you
believe that provisions included in the 2008 Senate flood
insurance reauthorization bill will improve the quality of maps
and coordination with other agencies and technical experts?
A.1. FEMA expects to have issued Preliminary DFIRMs for 92
percent of the population through the Map Modernization
initiative that is just being completed. The quality of the
mapping will vary depending on the funding available for the
study, when the particular mapping project was initiated and
the level of State and community involvement in the process.
a) The single most important factor in the quality of the
map is the funding available for producing the map. If
the map simply digitizes old data, or is done by
approximate or limited detail methods, or with old and
inadequate topo maps, the quality of the map may well
not be adequate. Because there was limited funding,
FEMA chose to digitize existing data for most of the
mapping under the map modernization program. Due to
program metrics which required that new maps be issued
for specified percentages of the population in
specified periods of time, the original phase of Map
Modernization resulted mostly in moving the mapping
inventory from paper maps to a digital platform. The
funds allocated were not sufficient to include new
engineering analyses for all studies and still meet
program metrics. The conversion to the geospatial
platform was a significant increase in the quality of
the mapping simply through better registration to
accurate base maps and enhanced further where updated
high resolution topography was available. The quality
of the maps will also vary depending on when in the Map
Mod they were produced. Over the course of Map Mod
(midcourse adjustment) quality assurance checks were
implemented which resulted in improving the quality of
the maps. The quality of the maps will vary depending
on what quality assurance controls were in place when
the maps were prepared. Many States were closely
involved with decision making regarding the extent of
new engineering data incorporated. Through the
Coordinated Needs Mapping System database development
currently underway, FEMA will have data on adequate
engineering studies and those needing new engineering
that can be used to prioritize future studies during
Risk MAP. The maps can be improved by expanding State
and community participation in the process and by
processes to improve the accuracy at every step in the
process. This may result in slowing down the number of
maps produced, but will greatly improve community
acceptance of the maps.
b) Funding for Map Mod was not sufficient to secure new
engineering study data for all counties in the Nation.
FEMA and the States had to weigh trading new study data
for fewer maps moved to digital formats. Because of
funding limitations there remain counties that still
have only paper maps and areas where the study data
does not reflect existing conditions. When States did
not actively participate in the planning process for
DFIRM mapping, the FEMA program metrics were the
drivers in prioritizing projects and the scope of work.
c) The level of coordination between FEMA and the USACE has
been steadily improving. At the national level there
have been regular meetings such as the
Intergovernmental Food Risk Management Committee
(IFRMC) which is an ongoing process to involve State
and local mapping and flood risk management partners.
The USACE Silver Jackets Program is one good mechanism
to gain the regional/State level coordination.
d) The 2008 Senate bill has a number of important mapping
provisions, e.g., authorizing continued funding for
mapping that will have an impact on improving flood
hazard identification and coordination among agencies.
The 2008 Flood Insurance Reform bill, as passed by the
Senate, provides for significant additional mapping
tasks such as mapping the 500 year floodplain, areas
affected by erosion and areas affected by sea level
rise. The measure also includes provision for inclusion
of mapping data from other Federal agencies, such as
the Army Corps of Engineers' inundation maps and the
Fish and Wildlife Services' Coastal Barrier Resource
Zone (COBRA) maps.
Q.2. Updating a Flood Insurance Rate Map (FIRM) does not
necessarily increase the number of properties subject to
National Flood Insurance Program (NFIP) mandatory purchase
requirements. Homeowners in special flood hazard areas (SFHAs)
may find their properties excluded from those areas when an
updated flood map is adopted.
Can you compare the number of properties have been added to
special flood hazard areas (SFHAs) to the number that have been
removed during the last several years of ``map modernization''?
A.2. Updating the Flood Insurance Rate Maps does not
necessarily increase the number of properties shown in the
floodplain. There are two independent sources that indicate the
number of properties newly shown in a SFHA is very nearly the
same number of properties removed from a SFHA, within about 1
percent. In May 2010, FEMA used a large sample of completed
digital flood maps and compared the change of housing units
which had a change in SFHA (in or out) and found a positive 1
percent increase in housing units now shown in a SFHA. The
National Flood Determination Association did a preliminary
evaluation of changes in property determinations for SFHA and
that data indicated about as many properties were newly
identified in an SFHA as properties newly shown no longer in an
SFHA. It is important to keep in mind that in part, Map
Modernization was initiated because Flood Insurance Rate Maps
had inaccuracies due to a variety of reasons, so changes in the
SFHA would be expected.
Q.3. Can you comment on the public participation in the
adoption of new maps and how that process can be improved?
A.3. Public participation, including community leaders and
staff, is extremely important throughout the mapping process
for many reasons. FEMA's Risk MAP plan for 2010-2014 emphasizes
public engagement starting even earlier in the study to improve
the process. With full engagement this should reduce the number
of communities and/or community leaders who have concerns with
the technical data and the areas shown at risk of flooding on
the Flood Insurance Rate Maps. The motivation for denying that
flood risk exists varies as do the tactics to delay showing the
risk on the map.
Improved capacity for FEMA and the States to provide
technical assistance to communities could enhance their ability
to effectively engage in the process and to facilitate public
participation.
Q.4. What responsibilities do FEMA and localities have to
inform the public about map updates at the outset of the
process? What is the most important aspect of the flood maps
for communities and property owners?
A.4. FEMA has certain prescribed responsibilities with respect
to public notification, which varies depending on the nature of
the mapping projects. Local governments that participate in the
NFIP also have responsibilities to notify their citizens who
are at risk of flooding, which is the role of accurate maps.
Some communities and States send postcards to their citizens
who are shown in mapped flood hazard areas. Communities and
property owners often do not fully appreciate their exposure to
floods and thus object to maps showing areas that are special
flood hazard areas. Frequent, sustained communication about
flood risk and risk management is needed, not just during the
mapping process, but as part of an ongoing awareness.
Q.5. How are property owners informed after updated maps are
adopted? Do homeowners receive any specific information with
regard to their properties and how is that information
otherwise made available?
A.5. Property owners may be informed about updated mapping
through a number of channels. The minimum requirement is a
public notice in the local newspaper. More often property
owners are alerted to a change in the flood hazard status of
their property when a federally backed mortgage is in place and
periodically reviewed. The most effective means of
communication is when the local entities reach out to the
public with data about the flood hazard identification. FEMA's
Risk MAP program will take advantage of the digital platform of
most floodplain maps by using geospatial analyses to identify
properties that have a changed flood hazard status during
mapping updates. This will allow focused outreach to those
property owners. The Risk MAP product is called ``changes since
last map'' and should be supported. However, preparing such
products will utilize mapping dollars and adequate funding to
continue to produce new maps needs to be augmented with
adequate funding for outreach and communication.
Q.6. What factors and data does FEMA consider from communities
and property owners in deciding whether to adjust maps?
A.6. Communities and individuals can submit to FEMA their
concerns about inaccurate mapping. These are typically
anecdotal, but could include technical data. The Risk MAP plan
incorporates objective information such as the validity of the
engineering data based on changes in watershed development or
storm events, availability of topographic data, risk (often
represented by population) and other data that communities
provide in identification of projects. Communities have the
responsibility to notify FEMA when there are changes in the
watershed or more specifically changes to the watercourse that
effect the extent of flooding. Unfortunately, many communities
are lax in providing this information. Continued, persistent
outreach and education to communities is essential. Communities
and individuals may ignore requests for participation and for
data and only engage after the mapping is complete and they
become aware of changes. Other communities are actively engaged
in working with FEMA and the State to provide data and input,
thus resulting in accurate maps.
Q.7 What funding and technical assistance, if any, are provided
to States and communities to help them develop their own
capacity to assist in mapping updates?
A.7. Cooperating Technical Partnerships is the mechanism in
which qualified communities can participate in the mapping
process with FEMA. A few larger communities have that
expertise, but generally States or counties enter into the
partnership with FEMA. When FEMA has a mapping project, whoever
is responsible for the project development is required to
engage and invite the communities to participate in the mapping
process through a series of required notifications and
meetings, which has some funding as part of the study costs.
Additional capacity at FEMA to provide mapping partners with
specific funding and guidance to ensure communities can more
fully participate in the process would be helpful.
Q.8. The House has adopted language in its NFIP reauthorization
bill that would establish a 5-year moratorium on the mandatory
purchase requirement for properties that are mapped into a
special flood hazard area. a) Will this provision have any
effect on properties that are removed from a special flood
hazard area as the result of the adoption of an updated flood
map? In other words, would the owners of these properties be
able to drop their flood insurance as the result of the new
map? b) Is there any way to quantify the impact this provision
would have on the financial standing of the program?
A.8. a) Yes. Properties no longer shown as being in a Special
Flood Hazard Area (SFHA) would no longer be required to
purchase flood insurance. b) ASFPM assumes that FEMA would be
able to provide an estimate based on projected numbers newly
out of a SFHA and newly in a SFHA. FEMA is likely to make an
effort to retain policies on properties newly mapped as out of
a SFHA, but those policies would be available at a
significantly reduced premium rate.
Q.9. The House's proposed moratorium on the mandatory purchase
of flood insurance will not prevent the adoption of new maps.
As a result, the risks depicted on new maps will be known and
disclosed. a) With updated maps in hand, how do you believe
lenders will react? Can and will lenders still require
homeowners to purchase flood insurance, notwithstanding the
moratorium, in order to limit their risk? b) If new maps are
not adopted or disclosed to the public, what are the
consequences to public safety, property risk, etc.?
A.9. a) There may be some compliance questions since lenders
are expected to utilize the most recently issued flood
insurance rate maps. Response to this question is not within
the ASFPM's area of expertise, so we hesitate to speculate. b)
Not disclosing flood risk information to the public means that
the Government is withholding information that is critical to
individual decisions about safety and protection of life and
property and to local community decisions about management of
flood risk and future development and redevelopment.
Q.10. Despite mandatory participation requirements, many
homeowners do not buy or maintain flood insurance. Can you
describe the reasons for this and do you have any suggestions
on how to improve participation in NFIP?
A.10. The provision of mandatory insurance applies to only a
subset of property owners, those with federally backed
mortgages. Property owners who own their homes outright or do
not have a federally backed mortgage may not be aware that
their property is in the floodplain. However, perception of
lack of risk by property owners is likely the primary reason
that flood insurance is not purchased or purchased and dropped.
Those who have not experienced a flood do not comprehend or
acknowledge the damage they could face. Often, property owners
believe the Federal Government will cover their loss from
flooding, but while disaster assistance provides some minor
assistance, it does not provide good financial security that
insurance would provide. Affordability is another reason
mentioned by some for not purchasing flood insurance or for
dropping insurance. For this reason ASFPM has suggested a
voucher program in HUD to provide means tested vouchers for
flood insurance for those who truly cannot afford it.
Q.11. Can you comment on how innovations such as group
insurance and community insurance can increase participation?
Can these measures help reduce costs? What obstacles prevent
them from being adopted?
A.11. Innovations such as group insurance and community
insurance show great promise for a number of reasons. Group
insurance for those protected by structures, such as levees,
integrates the insurance as part of their flood risk reduction
plan and ensures that everyone, regardless of their mortgage
type or lack of mortgage, has insurance in these areas of
residual risk. Individuals often have little or no input on
decisions that can increase their individual or their
communities' exposure to flooding or increased risk.
Communities guide land use decisions and infrastructure
support; thus are the appropriate stewards to ensure adequate
insurance protection to reflect the risk associated with those
decisions. They can choose to make development decisions that
reduce their risk and lower premiums, or they can make bad
development decisions, which will impact all citizens in the
community who will then pay higher premiums. Group insurance
for areas behind levees or community group policies could
greatly incentivize community or levee district officials to
take actions to reduce risk, resulting in lower premium costs.
In these situations, the cost of coverage would presumably be
built into local tax or fee structures.
FEMA is engaged in a major study of ways to improve the
NFIP called ``Re-thinking the NFIP,'' with a report and
recommendations expected within the next year. Ideas such as
these group policies are among those under study.
Q.12. FEMA's Community Rating System (CRS) provides localities
with an opportunity to reduce premiums for property owners if
they adopt measures beyond what is required under NFIP in order
to protect against flood damage. Can you comment on CRS as a
tool to reduce risk as well as insurance premiums? How can it
be improved to meet these goals?
A.12. CRS is indeed an important tool for communities to take
actions to reduce flood risk or to educate their populations on
flood risk and mitigation options--resulting in reduced
premiums. Communities are rated according to their actions and
activities in this regard. One way to improve communities'
ability to participate in the CRS program and improve their
ratings would be to improve support and funding for the
Community Assistance Program (CAP). Through the CAP program
State NFIP Coordinators can work directly with communities in
their jurisdictions to understand this fairly complex program
and to upgrade their CRS approaches.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
FROM J. NICHOLAS D'AMBROSIA
Q.1. The House's proposed moratorium on the mandatory purchase
of flood insurance will not prevent the adoption of new maps.
As a result, the risks depicted on new maps will be known and
disclosed.
With updated maps in hand, how do you believe lenders will
react? Can and will lenders still require homeowners to
purchase flood insurance, notwithstanding the moratorium, in
order to limit their risk?
A.1. The National Association of REALTORS' (NAR)
supports provisions which help property owners adjust to rate
increases when a property is newly mapped into the floodplain.
While this would effectively delay the Federal mandate, it
would not prohibit the lender from requiring flood insurance.
Once the property is mapped into the floodplain, lenders would
still have a strong financial interest to limit their risk.
Q.2. If new maps are not adopted or disclosed to the public,
what are the consequences to public safety, property risk,
etc.?
A.2. It depends on the accuracy of the new flood maps. If the
maps were accurate, adopting and disclosing them could reduce
risks to property and public safety. However, there is also
considerable evidence to the contrary. For example, during the
hearing, Senator Schumer pointed to the example of Wheatfield,
NY, where FEMA recently removed hundreds of properties from the
new maps after the town challenged the findings. These are
owners that were required to buy flood insurance when, in fact,
the risk did not justify the cost. NAR supports improving the
accuracy of flood mapping technology, to enhance public safety
and reduce property risk.
Q.3. Despite mandatory participation requirements, many
homeowners do not buy or maintain flood insurance. Can you
describe the reasons for this and do you have any suggestions
on how to improve participation in NFIP?
A.3. Flood insurance is required to obtain a federally related
mortgage loan. The requirement does not apply to cash
purchasers (up to 28 percent of purchases according to a recent
NAR survey) or those financing with a private lender which is
not federally regulated nor sells to a GSE. NAR believes that
an incentive-based approach would strengthen program
participation. Adding types of coverage to include living
expenses and business interruption and updating coverage limits
(that have not been adjusted since 1994) would make the NFIP
more attractive to voluntary participants. There could be more
education and outreach to address common myths which get in the
way of participation.
Q.4. Can you comment on how innovations such as group insurance
and community insurance can increase participation? Can these
measures help reduce costs? What obstacles prevent them from
being adopted?
A.4. As Resources for the Future describes this concept,
One way to ensure that all homeowners will be covered
when a flood strikes is for the NFIP to insure
communities instead of individuals. As Leonard Shabman
has discussed, local governments or flood risk
management districts could purchase a policy from the
NFIP that would cover all the structures in the
jurisdiction, for all flood risk and not just 1
percent, up to the NFIP coverage limit ($250,000
building coverage for residences and $500,000 building
coverage for businesses). The local entity would
recover the cost by assessing each property, perhaps as
an incremental increase to the property tax. The local
jurisdiction could decide how to allocate costs,
whether based on FEMA rates or otherwise. As a result,
any cross-subsidization in prices would become a local
issue, not a Federal one. (Please see Carolyn Kousky,
``Reforming the National Flood Insurance Program,''
Issue Brief 10-01 [February 2010]).
Requiring every property owner in a community to purchase
flood insurance, even when the flood risk does not justify the
cost, is not the answer. While this may broaden the rate base
and reduce the cost per property, objections to expensive flood
insurance which is not necessary, would present the most
significant obstacle to widespread community adoption.
Q.5. FEMA's Community Rating System (CRS) provide localities
with an opportunity to the reduce premiums for property owners
if they adopt measures beyond what is required under NFIP in
order to protect again flood damage. Can you comment on CRS as
a tool to reduce risk as well as insurance premiums? How can it
be improved to meet these goals?
A.5. NAR supports voluntary, incentive-based approaches to
mitigation such as CRS's. However, only a fraction of NFIP
communities participate and we have not received many comments
from REALTORS', who could benefit from improving
program participation. Lack of education about CRS benefits and
requirements have been cited as contributing factors
(www.ksda.gov/dwr/content/314/cid/1715). At least one expert
has pointed to the link between the CRS and the Building Code
Effectiveness Rating Schedule as a potential deterrent; for
more, please see: www.sgccnetwork.ning.com/group/
hazardresilience/forum/topics/flood-insurance-
premium?commentId=3284163 percent3 AComment
percent3A4397&groupId=3284163 percent3AGroup percent3A4276.
Additional Material Supplied for the Record
STATEMENT SUBMITTED BY SENATOR MARK PRYOR
Chairman Dodd and Vice Chairman Shelby, thank you for holding
today's hearing on the National Flood Insurance Program. I appreciate
your attention to this important topic.
For the past several years, I've been working to address FEMA's
flood map modernization process. In Arkansas, we have had repeated
problems with the implementation of the Flood Map Modernization
Program. The problems center around two basic themes. The first is in
regard to levee certifications. We have some communities that gained
ownership and responsibility of their levees years ago--maybe 30 or 40
years ago. And these levees may or may not have been maintained
properly.
We can play the blame game all we want, but the point is that now
we are in a situation where there are a good number of locally owned
levees that need serious repairs and modernizations in order to be
certified. This takes money. These communities lack the resources to
certify and potentially repair the levees. There is very little Federal
money available to help communities bring their levees up to code which
can result in a community's inability to have levees depicted on the
flood maps. And in some cases, they do not have adequate time to
complete repairs and upgrades before the flood maps are finalized.
The second theme is in regard to what happens after a levee is
certified--either by the U.S. Army Corps of Engineers or by another
entity. There are ongoing issues in Arkansas regarding the proper way
to depict the level of protection provided by a certified levee on the
updated flood maps. This is a huge issue in my State because the
classification of certified levees on FEMA's updated maps affects both
fairness and economic development.
The Mississippi River, which is the eastern border of my State, has
a vast levee system that protects the communities along the river. This
is a $32 billion investment of Federal, State, and local funds. I have
concerns that this significant investment in flood protection is not
being accurately depicted on FEMA's flood maps. I also have concerns
that if a needed repair is identified during the certification process,
that there is not adequate time and money for the U.S. Army Corps of
Engineers to complete necessary upgrades or repairs before the maps are
finalized.
We need some real solutions to the problems we're facing. Many
Senators have been working on this issue for a long time with very
little real, concrete progress made on addressing our concerns about
transparency, flexibility and communication. I am frustrated, my
constituents are frustrated and I am sure many of my colleagues are
frustrated. I am frustrated because it seems like FEMA has dismissed my
concerns as trivial rather than working with Congress to find a real
solution to the problems facing my constituents.
Let me emphasize that I do support modernizing our maps. I think
it's a good thing to do and something that we should do. I am not
supportive of the way in which the flood maps have been updated. There
are several things I'd like to see change in order to make this process
run more smoothly.
First, I support a 5 year moratorium on mandatory flood insurance
purchase for communities that are newly mapped as ``special flood
hazard areas.'' Representative Waters included a provision to do this
in her legislation, H.R. 5114. Second, I would like to see a 5-year
phase-in of flood insurance premiums for individuals purchasing flood
insurance for the first time. This provision is also included in H.R.
5114.
Third, I would like to see FEMA differentiate the Mississippi River
and Tributaries levee system from other levee systems on their maps.
This levee system is one the most, if not the most, advanced and
successful flood control structures in the world. This is a result of a
$32 billion Federal, State, and local investment. That investment
should be shown on FEMA's flood maps.
In closing, I'd like to again thank Senators Dodd and Shelby for
holding today's hearing and for allowing me to provide a statement. I
will continue to work to address the problems that my constituents are
facing with regard to the National Flood Insurance Program and FEMA's
Map Modernization Program. I look forward to working with the Banking
Committee in doing so.
LETTER SUBMITTED BY ADAM KOLTON, SENIOR DIRECTOR, CONGRESSIONAL AND
FEDERAL AFFAIRS, NATIONAL WILDLIFE FEDERATION