[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]




 
                        FLOOD INSURANCE REFORM:


                        A COMMUNITY PERSPECTIVE

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         HOUSING AND INSURANCE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 16, 2017

                               __________

       Printed for the use of the Committee on Financial Services

                            Serial No. 115-5
                            
                            
                            
                            
 
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PETER T. KING, New York              MAXINE WATERS, California, Ranking 
EDWARD R. ROYCE, California              Member
FRANK D. LUCAS, Oklahoma             CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   NYDIA M. VELAZQUEZ, New York
STEVAN PEARCE, New Mexico            BRAD SHERMAN, California
BILL POSEY, Florida                  GREGORY W. MEEKS, New York
BLAINE LUETKEMEYER, Missouri         MICHAEL E. CAPUANO, Massachusetts
BILL HUIZENGA, Michigan              WM. LACY CLAY, Missouri
SEAN P. DUFFY, Wisconsin             STEPHEN F. LYNCH, Massachusetts
STEVE STIVERS, Ohio                  DAVID SCOTT, Georgia
RANDY HULTGREN, Illinois             AL GREEN, Texas
DENNIS A. ROSS, Florida              EMANUEL CLEAVER, Missouri
ROBERT PITTENGER, North Carolina     GWEN MOORE, Wisconsin
ANN WAGNER, Missouri                 KEITH ELLISON, Minnesota
ANDY BARR, Kentucky                  ED PERLMUTTER, Colorado
KEITH J. ROTHFUS, Pennsylvania       JAMES A. HIMES, Connecticut
LUKE MESSER, Indiana                 BILL FOSTER, Illinois
SCOTT TIPTON, Colorado               DANIEL T. KILDEE, Michigan
ROGER WILLIAMS, Texas                JOHN K. DELANEY, Maryland
BRUCE POLIQUIN, Maine                KYRSTEN SINEMA, Arizona
MIA LOVE, Utah                       JOYCE BEATTY, Ohio
FRENCH HILL, Arkansas                DENNY HECK, Washington
TOM EMMER, Minnesota                 JUAN VARGAS, California
LEE M. ZELDIN, New York              JOSH GOTTHEIMER, New Jersey
DAVID A. TROTT, Michigan             VICENTE GONZALEZ, Texas
BARRY LOUDERMILK, Georgia            CHARLIE CRIST, Florida
ALEXANDER X. MOONEY, West Virginia   RUBEN KIHUEN, Nevada
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana

                  Kirsten Sutton Mork, Staff Director
                 Subcommittee on Housing and Insurance

                   SEAN P. DUFFY, Wisconsin, Chairman

DENNIS A. ROSS, Florida, Vice        EMANUEL CLEAVER, Missouri, Ranking 
    Chairman                             Member
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
STEVAN PEARCE, New Mexico            MICHAEL E. CAPUANO, Massachusetts
BILL POSEY, Florida                  WM. LACY CLAY, Missouri
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
STEVE STIVERS, Ohio                  JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois             DANIEL T. KILDEE, Michigan
KEITH J. ROTHFUS, Pennsylvania       JOHN K. DELANEY, Maryland
LEE M. ZELDIN, New York              RUBEN KIHUEN, Nevada
DAVID A. TROTT, Michigan             VICENTE GONZALEZ, Texas
THOMAS MacARTHUR, New Jersey
TED BUDD, North Carolina


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 16, 2017...............................................     1
Appendix:
    March 16, 2017...............................................    37

                               WITNESSES
                        Thursday, March 16, 2017

Berginnis, Chad, Executive Director, Association of State 
  Floodplain Managers............................................     8
Hecht, Evan, Chief Executive Officer, the Flood Insurance Agency.     9
Luckman, Melissa H., Director, Disaster Relief Clinic, Touro Law 
  Center.........................................................     5
Terchunian, Aram V., Coastal Geologist and Environmental 
  Scientist......................................................     6

                                APPENDIX

Prepared statements:
    Berginnis, Chad..............................................    38
    Hecht, Evan..................................................    58
    Luckman, Melissa H...........................................    73
    Terchunian, Aram V...........................................    85  

              Additional Material Submitted for the Record

Duffy, Hon. Sean:
    Written statement of CIAB, IIABA, NAIFA, and PIA.............    93
    Written statement of the Consumer Mortgage Coalition.........   100
    Written statement of the National Association of Mutual 
      Insurance Companies........................................   113
    Written statement of the Property Casualty Insurers 
      Association of America.....................................   116
Cleaver, Hon. Emanuel:
    Written statement of the National Association of Federal 
      Credit Unions..............................................   124
Green, Hon. Al:
    Written statement of the Greater Houston Partnership.........   126
    Written statement of the Houston Association of REALTORS....   127
    Written statement of the City of Houston.....................   128
    Written statement of the Communications Workers of America, 
      AFL-CIO....................................................   129
    Written statement of the Harris County Flood Control District   130
Hecht, Evan:
    Written responses to questions for the record submitted by 
      Representative Duffy.......................................   132


                        FLOOD INSURANCE REFORM:



                        A COMMUNITY PERSPECTIVE

                              ----------                              


                        Thursday, March 16, 2017

             U.S. House of Representatives,
                            Subcommittee on Housing
                                     and Insurance,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 3:21 p.m., in 
room 2128, Rayburn House Office Building, Hon. Sean P. Duffy 
[chairman of the subcommittee] presiding.
    Members present: Representatives Duffy, Ross, Royce, 
Pearce, Posey, Luetkemeyer, Stivers, Hultgren, Rothfus, Zeldin, 
Trott, MacArthur, Budd; Cleaver, Velazquez, Capuano, Sherman, 
Beatty, Delaney, and Gonzalez.
    Ex officio present: Representatives Hensarling and Waters.
    Also present: Representative Green.
    Chairman Duffy. The Subcommittee on Housing and Insurance 
will come to order. Today's hearing is entitled, ``Flood 
Insurance Reform: A Community Perspective.'' Without objection, 
the Chair is authorized to declare a recess of the subcommittee 
at any time. Also, without objection, members of the full 
Financial Services Committee who are not members of this 
subcommittee may participate in today's hearing for the 
purposes of making an opening statement and questioning the 
witnesses.
    The Chair now recognizes himself for 3 minutes for an 
opening statement. I want to welcome our members, witnesses, 
and audience to the Housing and Insurance Subcommittee's second 
hearing in as many weeks on the National Flood Insurance 
Program (NFIP). On Thursday, we had a productive discussion 
with Roy Wright to get FEMA's perspective on the NFIP. Today, 
we will get a community perspective. We are joined by four 
great witnesses, each of whom comes with a different set of 
experience and expertise.
    In what 60 Minutes dubbed, ``The Storm After the Storm,'' 
more than 140 NFIP policyholders who submitted flood claims due 
to damages caused by Superstorm Sandy were told by FEMA that 
they could have their claim files reviewed. FEMA's 
unprecedented Sandy claims review process was prompted, at 
least in part, by a Federal judge's finding of reprehensible 
gamesmanship by a professional engineering company that may be 
widespread. As a result of the claims review process, and with 
legal help from people like Melissa Luckman, nearly 82 percent 
of the claims closed by FEMA received additional payment of 
nearly $185 million. I look forward to hearing from Ms. Luckman 
about the process and ways that Congress can help prevent 
situations like this from ever happening again in the future.
    I also look forward to hearing from Mr. Terchunian, who has 
decades of experience in coastal hazard area management and 
coastal property protection on Long Island, which was also hit 
especially hard by Superstorm Sandy. I hope that he and Mr. 
Berginnis can share their views on floodplain management and 
mitigation, which we know from last week's hearing, can save 
taxpayers $4 for every $1 of investment.
    Finally, we need to look beyond the NFIP monopoly to a 
robust private market that can better serve communities through 
competitive rates and services. Mr. Hecht's company is the 
largest writer of private insurance in the country, and we will 
be looking to him to share his views on how to do just that.
    I now recognize the gentleman from Missouri, the ranking 
member of the subcommittee, Mr. Cleaver, for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman. Late last week, we 
held a hearing on FEMA's perspective on the National Flood 
Insurance Program, gaining, I think, some important insight 
from Mr. Roy Wright. I would encourage the committee to 
continue engaging with FEMA as we move forward towards flood 
insurance reauthorization. This is especially important as the 
President's Fiscal Year 2018 budget contained significant cuts 
and changes to FEMA. It is extremely disappointing to see that 
the President's budget would eliminate discretionary funding 
for FEMA mapping and mitigation activities. If anything, we 
should be increasing congressional support for these vital 
activities.
    Today, we will hear the community's perspective on the 
NFIP, giving us a broader understanding of the challenges 
facing the program and the areas in need of improvement.
    Following Superstorm Sandy, which resulted in $65 billion 
in damages, allegations began to surface regarding the 
underpayment of policyholder claims, fraud, and altered 
engineering reports. As homeowners slowly recover from Sandy, 
we must continue to hold those who did wrong accountable for 
their actions.
    Now, I am extremely encouraged that this committee is 
working and is committed to working on NFIP reauthorization, 
and as this discussion continues, we must do so with a goal of 
ensuring affordability of flood insurance premiums for our 
constituents. The program does little good if consumers are 
priced out of the market and priced out of homes. I would like 
to yield the last minute to the gentleman from California, Mr. 
Sherman.
    Mr. Sherman. I thank the ranking member. I just want to 
join with him in my concern about this idea of cutting the 
budget for the mapping program. The idea that mapping is not an 
appropriate Federal Government expenditure would come as news 
to Thomas Jefferson, who sent Meriwether Lewis and William 
Clark to map the Louisiana Purchase. If it was a good 
expenditure of Federal funds then, and I think it was, then it 
is a good expenditure that benefits all Americans. If your home 
isn't on the map, that is also useful information. But more 
importantly, the mapping process, the insurance process, is 
designed to reduce the future supplemental appropriations when 
we have the next disaster, and with global warming, there will 
be more weather disasters and flood disasters. So if we can 
have an effective Flood Insurance Program that starts with 
mapping, we can avoid the huge supplemental appropriations. And 
so many Members come and pound the table and say the Federal 
Government shouldn't be subsidizing, shouldn't be doing this, 
and yet I see them on the Floor when we have a real disaster 
and millions of Americans are uninsured, and they are voting 
for the supplemental appropriation as we all do, because we all 
have a heart. I yield back.
    Chairman Duffy. The gentleman yields back. The Chair now 
recognizes the gentleman from Florida, Mr. Ross, the vice 
chairman of the subcommittee, for 2 minutes.
    Mr. Ross. Thank you, Mr. Chairman, and thank you for 
calling this important hearing. As we continue our efforts to 
reauthorize and reform the National Flood Insurance Program 
before September 30, 2017, we have a lot on our plate, and we 
are glad that you are here to help us try to solve some of 
these issues.
    The NFIP provides flood insurance coverage to more than 5 
million policyholders across the Nation. At the same time, it 
faces serious financial challenges as it is nearing $25 billion 
in debt. As a result, the Government Accountability Office 
(GAO) has considered the program to be a high-risk since 2006. 
Damage from flooding has become more frequent and more severe 
over the past 2 decades despite the NFIP floodplain management 
efforts. Also, homeowners with NFIP policies have been left 
with more questions than answers about how their families can 
rebuild and recover from recent catastrophic storms. As this 
committee and Congress as a whole moves forward with flood 
insurance reforms, we must do so with homeowners in mind across 
the country.
    Severe storms transcend the typical partisan divisions we 
see on Capitol Hill. On this issue, Congress must move beyond 
political differences and put forward critical NFIP reforms to 
protect taxpayers and improve the program now, and very 
definitely for the future.
    As a Member of Congress from Florida, I am committed to 
ensuring that property owners have uninterrupted access to 
affordable flood insurance products which allow them to recover 
from devastating storms more quickly. I am also committed to 
ensuring that homeowners and communities have opportunities to 
mitigate against flood risks prior to a disastrous weather 
event. Mitigation is one of the best avenues that we can 
pursue.
    Thank you again, Mr. Chairman, for calling this important 
hearing, and I am excited about this opportunity to receive 
testimony from this diverse panel of witnesses. I yield back 
the balance of my time.
    Chairman Duffy. The gentleman yields back. We now welcome 
our witnesses today. For introductions, first we have Ms. 
Melissa Luckman. Ms. Luckman is the director of Touro Law 
Center's Disaster Relief Clinic, which provides pro bono legal 
services to Sandy victims. For over 4 years, Ms. Luckman has 
been helping homeowners navigate the NFIP's process, seeing the 
program from the perspective of the policyholder. The Law 
Center has helped put over $2.3 million back into the Long 
Island community as a result of their work.
    I now recognize the gentleman from New York, Mr. Zeldin, 
for the introduction of Mr. Terchunian.
    Mr. Zeldin. Thank you, Mr. Chairman. It is my pleasure to 
introduce to the Housing and Insurance Subcommittee today Mr. 
Aram Terchunian. He is a resident of New York's First 
Congressional District, and has over 30 years of experience in 
storm mitigation and costal restoration work. His company, 
First Coastal, deals with the NFIP on a daily basis, helping 
homeowners navigate the complicated process and red tape they 
face when seeking an improvement in their premiums after an 
investment has been made to elevate a home or take other steps 
to protect a property. He is also the wildlife commissioner of 
the Village of West Hampton Dunes, a coastal community where 
storm mitigation is top priority. Many homeowners rely on the 
National Flood Insurance Program. I thank Aram for being here 
today to share his experience and perspective with our 
subcommittee on this important topic, and I yield back.
    Chairman Duffy. Our next witness is Mr. Chad Berginnis, the 
executive director of the Association of State Floodplain 
Managers, also from the great State of Wisconsin. With nearly 
25 years of experience, he is a nationally recognized expert in 
natural hazard management, flood-loss reduction, and land use 
planning at the State, local, and private sector level. 
Welcome.
    I now want to recognize, Mr. Ross, our vice chairman, for 
the introduction of Mr. Hecht.
    Mr. Ross. Thank you, Mr. Chairman. And it is my pleasure to 
introduce to the Housing and Insurance Subcommittee Mr. Evan 
Hecht, the founder and CEO of the Flood Insurance Agency, which 
is based in Gainesville, Florida. They wrote their first 
private flood insurance policy in our State on October 24, 
2013. Today, they have over 3,285 active private flood market 
policies in Florida. Visiting your company's website, I am very 
impressed with the positive response your flood insurance 
policies have received. Florida homeowners deserve more choices 
when it comes to flood insurance. I am excited for the 
subcommittee to receive your testimony and for you to be able 
to provide a perspective outlining the unique needs of our 
State and the benefits homeowners can receive from an increase 
in private flood options. Thank you, Mr. Hecht, for joining us, 
and I yield back the balance of my time.
    Chairman Duffy. The gentleman yields back. The witnesses 
will now be recognized for 5 minutes to give an oral 
presentation of their testimony. And without objection, the 
witnesses' written statements will be made a part of the 
record. Once the witnesses have finished presenting their 
testimony, each member of the subcommittee will have 5 minutes 
within which to ask the panel questions.
    On your table, there are three lights: green means go; 
yellow means you have one minute left; and red means your time 
is up.
    With that, Ms. Luckman, you are now recognized for 5 
minutes for your oral presentation.

  STATEMENT OF MELISSA H. LUCKMAN, DIRECTOR, DISASTER RELIEF 
                    CLINIC, TOURO LAW CENTER

    Ms. Luckman. Good afternoon, Chairman Duffy, Ranking Member 
Cleaver, and members of the subcommittee. My name is Melissa 
Luckman. I am the director of the Touro Law Center Disaster 
Relief Clinic. While we assist homeowners with various 
categories of assistance, flood insurance has always been our 
primary focus. I want to thank you for the opportunity to 
testify about the National Flood Insurance Program, and to 
provide suggestions for reform as we quickly approach the 
September 2017 expiration of this program. To date, we have 
spoken with over 5,000 households, and have represented over 
1,400 homeowners with various Sandy issues. We have provided 
assistance to homeowners with supplemental insurance claims, 
flood insurance appeals, flood insurance litigation, and most 
recently, assistance with the FEMA Sandy claims review process.
    First and foremost, I would like to state that I do believe 
the NFIP should be reauthorized as it provides a valuable 
subsidized flood insurance policy to thousands of homeowners in 
the United States. However, there must be significant reform to 
ensure the program functions in a more efficient manner than it 
does today. The greatest lesson learned from my involvement 
with flood insurance claims is the simple concept of getting it 
right from the start. It is imperative that we shift our focus 
from a reactive response to proactive education to ensure a 
full and complete recovery to create a more sustainable future, 
not only for our country, but also for the National Flood 
Insurance Program.
    My proposals for reauthorization are as follows: first, I 
believe there should be a standardized requirement of education 
and certification for all actors connected to an NFIP policy, 
which would include WYO staff adjusters, independent adjusters, 
engineers, and sales agents. Standardization and continued 
educational requirements for all actors engaged would implement 
quality control among those participating in the NFIP.
    Next, I believe there needs to be additional requirements 
of policyholder acknowledgment and inspection at the inception 
of an NFIP policy. In the wake of Sandy, policyholders voiced a 
host of complaints with regard to their flood insurance 
coverage. Those most commonly expressed were that they carried 
a structure policy of $250,000 when they didn't have a 
mortgage, or a mortgage of under that amount; that they 
believed that they had contents coverage, which they actually 
did not have; and that they were not aware of the limitations 
on basement coverage. Quite often, policyholders who could 
barely afford their premiums felt the cost was not worth the 
coverage. A simple solution to these issues is a requirement 
that all NFIP policies be accompanied by an acknowledgment 
which must be executed by the policyholder and the sales agent 
at the inception of a policy which speaks to these issues.
    I also believe that there is a necessity for a baseline 
photographic inspection which should take place at the 
inception of an NFIP policy. Similar to the issuance of a 
homeowner's insurance policy, there should be the requirement 
of a photographic inspection completed for the property for 
which flood insurance is being sought to ensure that the 
information set forth in the application is correct.
    With regard to the claims and appeals process, I have 
proposed five reforms in my written statement, but would like 
to discuss two here today.
    First, I believe a policyholder should be advised in 
advance who the adjusting and engineering companies will be who 
will be assigned to their claim. Thereafter, the homeowner 
should be afforded a reasonable opportunity to research and 
investigate that company with the option to veto and request 
another company be reassigned.
    Second, I believe that the appeals process should be 
handled by a neutral arbitrator who is not employed by FEMA. 
With regard to mitigation and the increased cost of compliance, 
post-Sandy, we saw two items that homeowners struggled with the 
most, and that is the cost of accessibility, post elevation, 
and additional costs policyholders face when complying with 
local building codes. I believe that these are two very 
important items that policyholders need for recovery which 
could potentially be covered under ICC coverage without the 
trigger of substantial damage. The hot topic post-Sandy, of 
course, is litigation costs, and who covers those costs. I do 
believe that policyholders who act in good faith through the 
submission of a claim, throughout the appeals process, and are 
forced to pursue litigation, should be compensated with 
reimbursement of legal fees.
    I have reviewed the recently introduced legislation by 
Congresswoman Velazquez, and I believe that Congress should 
pass this legislation or adopt many of these ideas into the 
final reauthorization bill. That bill, and my proposals here 
today, are common-sense reforms which will lead to a stronger 
and more cost-effective NFIP.
    To summarize my comments here today, getting it right from 
the start is the key which will allow a quicker and stronger 
recovery, as well as a more resilient future.
    [The prepared statement of Ms. Luckman can be found on page 
73 of the appendix.]
    Chairman Duffy. Thank you, Ms. Luckman. The Chair now 
recognizes Mr. Terchunian for 5 minutes.

    STATEMENT OF ARAM V. TERCHUNIAN, COASTAL GEOLOGIST AND 
                    ENVIRONMENTAL SCIENTIST

    Mr. Terchunian. Good afternoon. My name is Aram Terchunian, 
and for 35 years, I have been helping people identify coastal 
risk, mitigate coastal risk, and recover and adapt when risk 
becomes reality. Thank you to Chairman Duffy, Ranking Member 
Cleaver, my Congressman, Lee Zeldin, and the subcommittee for 
this opportunity to speak on the topic of flood insurance 
reforms. Congressman Zeldin has been a true leader in working 
with our communities and the U.S. Army Corps of Engineers to 
help to mitigate against future disasters.
    The NFIP has helped save lives, properties, and resources 
through a classic carrot-and-stick program of incentives and 
regulations. However, changing technology, science, and policy 
have created new opportunities to improve that system. In a 
nutshell, newer buildings that are constructed and maintained 
to the NFIP standards and ICC building codes are experiencing 
far less flooding damage than older legacy homes that do not 
meet present standards. Moreover, those areas protected by 
well-designed, built, and maintained flood risk reduction 
projects, such as beach and dune restoration, experience 
significantly less damage during extreme events.
    The goal, in my opinion, is to decrease the number of pre-
FIRM substandard structures and increase flood protection and 
resiliency projects. West Hampton Dunes is a small, 2-mile 
village on the barrier island of Long Island. In 1992, a 
coastal storm pierced the island, creating a one-mile inlet and 
destroying almost 300 homes. At the time, West Hampton Dunes 
was used as the poster child for how to mismanage a beach. 
Today, this humble community is the blueprint for coastal 
management and flood insurance modernization. It is a net 
economic generator to the local, regional, and national 
economy, as well as the NFIP premium pool. The barrier island 
was rebuilt through a beach and dune project engineered and 
supervised by the U.S. Army Corps of Engineers. The Village 
then embarked upon an aggressive program of sand fencing and 
beach grass planting that increased the dune. The Village also 
implemented zoning measures that allowed property owners to 
build as much as 4 feet above the NFIP 100-year flood level 
without a zoning variance.
    In the 22 years since the project was constructed, there 
have been zero houses lost and only minimal flood damage 
claims, even after Superstorm Sandy. This is an example of how 
integrating flood protection projects with locally implemented 
NFIP and zoning regulations, and locally driven beach and dune 
enhancements, resulted in a resilient community that is a net 
benefit to the NFIP.
    Conversely, surrounding communities that did not have an 
engineered flood protection project, and were populated by a 
substantial number of pre-FIRM buildings, suffered terribly 
during Sandy. The human anguish in these areas exceeded even 
the substantial flood insurance, infrastructure, and natural 
resource losses.
    Local communities are incentivized if they can provide 
increased flood and erosion protection to their community at 
minimal cost. However, many communities do not have the 
technical staff to prepare and review the community rating 
system applications. Aid to those communities and simplifying 
the CRS application process would benefit many policyholders at 
a small cost. Rewarding communities that streamline permitting 
under local zoning code when complying with NFIP flood mapping 
removes a tremendous cost and time impediment for homeowners. 
Pre-disaster mitigation planning is not being transformed into 
mitigation projects because of a lack of funds. The effect of 
recent premium increases is disproportionately impacting 
middle- and lower-income families. The payback period to raise 
an existing pre-FIRM home into compliance is too long. As a 
result, homeowners do not elevate their homes before 
experiencing flood damage. Post-disaster programs, such as the 
increased cost of compliance coverage, are insufficient to 
elevate a typical home on Long Island, where costs run up to 
$200,000, and the program maximum is $30,000.
    Simply stated, we must convert more pre-FIRM homes to NFIP-
compliant homes faster, and policyholders are the key to the 
process. Homeowners will elevate and flood-proof their homes 
before the flood if it is in their immediate financial 
interest. The financial stick of increased premiums without a 
commensurate financial carrot will not work. It is not 
reasonable to expect a consumer to invest up to $200,000 for an 
annual payback of $4,000 to $5,000. In summary, the NFIP plays 
a critical role in protecting the citizens of our Nation. Thank 
you very much.
    [The prepared statement of Mr. Terchunian can be found on 
page 85 of the appendix.]
    Chairman Duffy. Thank you. The Chair now recognizes Mr. 
Berginnis for 5 minutes.

STATEMENT OF CHAD BERGINNIS, EXECUTIVE DIRECTOR, ASSOCIATION OF 
                   STATE FLOODPLAIN MANAGERS

    Mr. Berginnis. Thank you, Chairman Duffy, Ranking Member 
Cleaver, and members of the subcommittee for holding this 
important hearing and inviting the Association of State 
Floodplain Managers (ASFPM) to testify. I am Chad Berginnis, 
executive director of ASFPM, whose 17,000 members include many 
of the boots-on-the-ground State and local officials who 
implement the NFIP.
    I will begin by saying that the NFIP is the Nation's most 
widely implemented flood risk management program. In fact, I 
almost wish it had a different name because it works to reduce 
risk in four important ways: making publicly available mapping 
to show risk areas; community adoption and enforcement of flood 
risk reduction standards; risk reducing mitigation of existing 
at-risk structures; and finally, the sale of flood insurance.
    The program benefits not only policyholders, but the public 
and communities. For example, buildings compliant with NFIP 
standards result in nearly $2 billion a year in losses avoided 
nationally. The 1.2 million miles of flood mapping in the 
country allow not only policyholders, but citizens, emergency 
managers, planners, public works officials, and others to know 
the flood risks in their areas and to take action to reduce 
those risks.
    Mitigation programs, increased costs of compliance, and 
flood-mitigation assistance are cost-effective, resulting in $5 
in benefits for every $1 invested, and have provided $1.3 
billion in mitigation funds for reducing risks of thousands of 
structures since 1997. These measures not only help individual 
property owners, but strengthen neighborhoods and communities, 
and reduce blight.
    I say all of this to convince you that this nearly 50-year-
old program has very important benefits that serve taxpayers 
and policyholders alike. Our written testimony offers 20 
specific reform ideas, and for the balance of my testimony, I 
want to highlight four of the areas that are most important to 
ASFPM.
    The first is to deal with the debt, and not only the 
current debt, but also to create long-term solutions to ensure 
that we effectively deal with catastrophic events in the 
future.
    The second is to reaffirm the commitment and enhance the 
Flood Mapping Program. One of the most critical and important 
elements of the 2012 Biggert-Waters Reform Act was the 
authorization of the National Flood Mapping Program. It was the 
absolute right policy, yet we have not yet finished the job of 
mapping the country. Chairman Duffy, many of the flood maps in 
your rural district are not modernized. The problem is that the 
priorities of the mapping program to date have been to map 
existing at-risk areas. As a result, mapping never gets ahead 
of development, while these areas are still cornfields, and 
instead, sets up a dynamic that makes everybody mad.
    When development occurs, the floodplain is put on an area 
by FEMA, and everybody down the line from property owners to 
REALTORS to local officials are upset because they are now not 
only in the floodplain, but have to deal with flood insurance 
standards after the fact. We still have 2.3 million miles of 
unmapped streams, rivers, and coastlines in the United States, 
many residual risk areas that are not mapped, and some mapping 
information that is not publicly available. We must do better 
and we need your help.
    The third is to strengthen the mitigation components of the 
NFIP and to use them more often in a pre-disaster setting. This 
is particularly true with increased cost of compliance. 
Additionally, ICC should be expanded in application and scope, 
including raising the maximum ICC amount, and clarifying that 
it is available in addition to the maximum claim amount.
    Finally, ASFPM believes there are reforms needed related to 
private insurance and that they should be focused on ensuring 
that other elements of the NFIP are not weakened, and that the 
NFIP and private flood are on equal playing field, and that 
through competition and cooperation, we grow the overall policy 
base. To this end, there are two critical reforms. The first is 
a requirement that all private policies sold to meet the 
mandatory purchase requirement of the NFIP include an 
equivalency fee that is equal to the Federal policy fee on NFIP 
policies. Currently, this fee pays for 100 percent of the 
floodplain management in the NFIP, and roughly 50 percent of 
the mapping budget. If the NFIP ultimately loses policies due 
to competition, there will be fewer resources to help 
communities and States with floodplain management and mapping.
    The second is a requirement that private flood insurance 
policies meet mandatory purchase requirement to only be sold in 
NFIP-participating communities. Currently, most communities in 
the country participate in the NFIP, so while the private 
market is in the early stages, let's enlist private industry to 
be partners to encourage communities to stay in the program.
    Because our members have enrolled nearly all of the 22,000 
communities in the NFIP, we uniquely understand their reasons 
for joining. The primary reason is accessibility to flood 
insurance. ASFPM fears that if private flood insurance is 
available with no requirement to join the NFIP, communities 
could drop out of the program. Thank you for listening to our 
concerns, and we will be happy to answer any questions.
    [The prepared statement of Mr. Berginnis can be found on 
page 38 of the appendix.]
    Chairman Duffy. Thank you. The Chair now recognizes Mr. 
Hecht for 5 minutes.

  STATEMENT OF EVAN HECHT, CHIEF EXECUTIVE OFFICER, THE FLOOD 
                        INSURANCE AGENCY

    Mr. Hecht. Thank you, Chairman Duffy, Ranking Member 
Cleaver, and members of the subcommittee. My name is Evan 
Hecht, and I am the CEO of the Flood Insurance Agency. Thank 
you for this opportunity to testify. The mission statement of 
my company is to provide affordable flood insurance to the 
maximum number of property owners and business owners in the 
United States. We have been an active marketing participant of 
the Write-Your-Own National Flood Insurance Program for almost 
30 years. For the past 3\1/2\ years, we have underwritten and 
distributed private market flood, an alternative to FEMA flood 
insurance.
    We are one of the largest, if not the largest, writer of 
private flood insurance currently in the United States, 
providing over $3.5 billion of property coverage to more than 
18,500 consumers.
    Private flood insurance alternatives to FEMA's NFIP have 
now become commonplace. They first became available 
simultaneously with the unintended consequences of the Biggert-
Waters Flood Insurance Reform Act in October of 2013. Our 
company is just one private market provider, and every day, we 
renew a previously written policy every 6 minutes, and we write 
a new policy every 10 minutes. The general public's knowledge 
of the existence of alternatives to the NFIP is readily 
evidenced, considering a unique user visits our website every 
52 seconds.
    While it is understandable that some might believe the 
private market would only want to write FEMA's best risks, and 
leave all the poor risks in the NFIP, from our point of view, 
almost exactly the opposite is taking place. Nearly all of our 
18,500 risks were FEMA-subsidized policies, the policies FEMA 
believes are 45 to 50 percent underpriced. Our risk selection 
is based on reports from the GAO to Congress summarizing total 
premiums received and claims paid from 1978 to 2011, comparing 
actuarial results to subsidized results.
    The subsidized premium increases over the past 10 years 
have far outpaced the actuarial premium increases during the 
same time period. I have provided three examples of actual rate 
increases. An actuarially rated policy for a property in 
California has increased 65 percent over 12 years, while a 
subsidized rated policy written in Illinois has increased 153 
percent over 11 years, and another subsidized rated policy 
written in Louisiana has increased 285 percent over 10 years. 
All of our 18,500 private market flood policies are written 
with Lexington Insurance Company, a member of AIG, or Lloyd's 
of London. Both are surplus lines insurers.
    More than 2,000 of our policies are in Pennsylvania. 
Pennsylvania Insurance Commissioner Teresa Miller, in her 
recent letter to interagency financial regulators states: ``I 
would note that even with the increased surplus lines 
activities for residential coverage over the past 11 months, 
the Pennsylvania Insurance Department has not received a single 
complaint concerning a surplus lines carrier.''
    The recent flooding in and around Baton Rouge, Louisiana, 
is the fourth most costly event in the history of the NFIP, and 
was a good test case for the surplus lines private flood 
market--381 of our private policies suffered flood damage, 
totaling over $30 million. Our average time to settle a claim 
was 66 days. To the best of my knowledge, zero complaints have 
been filed with the Louisiana Department of Insurance. I have 
included, in my written testimony, two of the many testimonials 
clients take the time to post on our website, one saving a 
client enough money to stay in their home, and the second, 
offering to cook us dinner due to a positive claims experience.
    I urge Congress to pass the Flood Insurance Market Parity 
and Modernization Act that passed the full House of 
Representatives with bipartisan support during the last 
session. This legislation provides much-needed clarity to 
support the growth of a robust private marketplace.
    I thank the members of the subcommittee for allowing me to 
testify before you today. I wholeheartedly support your mission 
and offer you my continued efforts should you request them.
    [The prepared statement of Mr. Hecht can be found on page 
58 of the appendix.]
    Chairman Duffy. Thank you, Mr. Hecht. And thank you to the 
whole panel for your testimony. The Chair now recognizes 
himself for 5 minutes for questions.
    Mr. Hecht, as you mentioned, Mr. Ross has a piece of 
legislation which passed in the last Congress--and he has 
introduced it in this Congress--making it easier for lenders to 
accept private flood insurance. Do you think his bill will go a 
long way to helping us create a private market?
    Mr. Hecht. I do, Mr. Chairman. The bill does two very 
important things: it clarifies that surplus lines insurers 
would qualify as acceptable private policies; and the very last 
paragraph of that bill talks about recognizing private policies 
as continuous coverage so that someone leaving the National 
Flood Insurance Program coming into the private marketplace 
would have the ability to go back into the National Flood 
Insurance Program with no penalty. Both of those would help a 
robust private market.
    Chairman Duffy. And so beyond Mr. Ross' bill, anything else 
you think we could do or should include in legislation that 
would help develop a private market? If not, that is okay. This 
is the silver bullet.
    Mr. Hecht. I think that there are interpretations currently 
that FEMA is making that are detrimental to a private market. 
FEMA has taken three very specific actions just since we 
started writing policies that make it much more difficult. 
First, they removed a cancellation provision. Previously, an 
NFIP policy could be cancelled and replaced with a private 
market policy. Policies can no longer be cancelled for that 
reason.
    Second, policies that are prepaid, so a FEMA flood policy 
when it renews, the Write-Your-Own companies, or the NFIP 
direct, issues renewal bills for those policies 65 to 70 days 
before the policy renews. Most policies are escrowed by 
lenders. When the lender pays the renewal premium, sometimes 60 
days in advance, sometimes 45 days in advance, FEMA has taken 
the position that once that policy goes into force, the 
policyholder is no longer allowed to cancel that policy.
    Chairman Duffy. Does the private market work like that?
    Mr. Hecht. No.
    Chairman Duffy. I want to quickly move on to a couple more 
questions. Roy Wright testified last week, and he commented 
that compensation for Write-Your-Owns could be decreased. Do 
you agree with that?
    Mr. Hecht. I absolutely agree with that.
    Chairman Duffy. What would a competitive compensation be 
for the Write-Your-Owns, do you think?
    Mr. Hecht. We pay every one of our 2,000 agents a 10 
percent commission.
    Chairman Duffy. How much?
    Mr. Hecht. Ten percent.
    Chairman Duffy. Ten percent. Okay. I want to move on to the 
repeated-loss properties. Mr. Terchunian, basically, we have 
85,000 properties that account for 24 percent of the losses of 
the NFIP, or basically 2 percent of properties that account for 
24 percent of the loss. Some have said, well, listen, if you 
are paying for a property's value 2 or 3 times, shouldn't you 
be taking some action to move them out of the flood program, or 
do we have to spend dollars up front to help mitigate these 
properties? But what do you think we should do with this small 
number of properties that account for such a large portion of 
the cost of the NFIP?
    Mr. Terchunian. That is the case across-the-board, how do 
you deal with this repetitive-loss issue? Clearly, if you have 
that small a number of properties, I think you can focus an 
extreme effort into sitting down with each one of those 
property owners and trying to help them through the process of 
getting their homes elevated. I have dealt with a lot of 
property owners after the fact who are just thrilled with the 
fact that they got their house elevated. They are so much more 
comfortable. They are so much happier where they are after the 
fact, but you couldn't get them there before the disaster. We 
are talking about people who have repeated the same thing over 
and over again. I really believe that you need, in the same way 
the NFIP does it now, a carrot and a stick. Listen, we will 
help you, and this is the path to get it done. If you don't 
want to do it, it is going to cost you more money.
    Chairman Duffy. Okay. Back to Mr. Hecht. Looking at new 
construction, if we stand up a private market, at some point in 
the future, whether it is 3 or 4 or 5 years down the road, do 
you have an opinion on whether new construction should be 
allowed into the NFIP, or new construction should be driven to 
the private market? And could the private market take those 
newly constructed homes?
    Mr. Hecht. I listened to Mr. Wright come up with that 
suggestion. I don't agree with the suggestion. I don't know of 
a way that you would make it mandatory for the private market 
to insure those properties. If they are not eligible to be 
insured in the National Flood Insurance Program, how can you 
guarantee that they are going to have coverage at all?
    Chairman Duffy. Then should they be built?
    Mr. Hecht. I think you are talking about something that is 
already built.
    Chairman Duffy. No. I am talking about new construction.
    Mr. Hecht. Right. So you mean you would need to have flood 
insurance prior to getting a building permit?
    Chairman Duffy. We will circle back. My time is over, and I 
want to be respectful. I am now going to recognize the 
gentlelady from New York, Ms. Velazquez, for 5 minutes.
    Ms. Velazquez. Thank you, Mr. Chairman, and thank you, Mr. 
Cleaver, for allowing me to go next.
    Ms. Luckman, you and I agree that policyholders should have 
advance notice of an adjuster or engineer who is coming to 
inspect a flood claim, and be provided with an opportunity to 
veto and request reassignment. I have included this idea in my 
legislation, H.R. 1423. Can you explain why this reform is 
necessary in light of the fraud and underpayment of claims that 
took place after Sandy?
    Ms. Luckman. What happened after Sandy was we saw the same 
bad actors repetitively hitting multiple homes on the same 
block, and they really--they weren't punished at all. I think 
that homeowners should have advance notice of who is going to 
be assigned to their claim with the reasonable opportunity that 
they can research that company, and see if they were connected 
back to Hurricane Sandy fraud, and see if there is some other 
type of fraud. And what we have seen working at the clinic is 
that a lot of this information is available online. So I think 
it is only fair that a homeowner has a reasonable opportunity 
to look into those adjusting and especially engineering 
companies. An engineering report can make or break a flood 
insurance adjustment when you are talking about a foundation. 
So they should absolutely be provided with that right.
    Ms. Velazquez. Thank you. Ms. Luckman, following Sandy, a 
number of New York policyholders who have been denied coverage, 
or suspected their claim has been underpaid, feel they do not 
have the financial resources to assert a legal claim against 
the Write-Your-Owns. In response, my legislation provides for 
the reimbursement of legal fees and litigation expenses for 
prevailing policyholders. Do you think the reimbursement of 
legal fees and litigation expenses will level the playing field 
for policyholders against the Write-Your-Owns, and empower them 
to pursue a potential claim?
    Ms. Luckman. Yes. Reimbursement of legal fees would be a 
huge advantage for homeowners. My clinic is State-funded. We 
are permitted to cover all filing and litigation costs for our 
homeowners, which can run upwards of $800 to $1,000. Many of 
these homeowners who were shortchanged immediately post-storm, 
they did not have those funds to go into Federal court and to 
pay those fees. So if a homeowner knows that they have acted in 
good faith, they have submitted a claim, and they have gone 
through the appeals process, and they are still being 
improperly underpaid, if they know that they can have legal 
costs reimbursed, it will level the playing field. And I think 
that, quite honestly, it would put some skin in the game for 
the Write-Your-Own carriers, who, right now, they are not any 
loss. Unfortunately, the Federal Government covers their legal 
costs, and there is no one left helping these homeowners with 
their litigation costs.
    Ms. Velazquez. Thank you. And my last question, Ms. Luckman 
is, following Sandy, a number of policyholders voiced 
complaints regarding the coverage they thought they had, versus 
the coverage they actually had. In response, my legislation, 
H.R. 1423, calls for a disclosure document, an acknowledgment 
document or company, the purchase of a standard flood insurance 
policy. Based upon your work with Sandy victims, will these 
documents provide policyholders with a better understanding of 
what is and is not covered under the flood policy?
    Ms. Luckman. Yes, absolutely. A separate acknowledgment 
that a homeowner and a sales agent would have to execute at the 
time that they take out a National Flood Insurance Program 
policy would absolutely make them more educated on what their 
coverage is on the home. What we saw after Sandy was a lot of 
litigation from homeowners against their sales agents. They 
were really not aware of whether they had contents coverage, 
whether they didn't, what the basement limitations were. Many 
homeowners unfortunately were carrying $250,000 of structure 
coverage when maybe they didn't necessarily need that coverage 
because they didn't have a mortgage, and then we saw a lot of 
lawsuit filed against sales agents.
    So I think a separate acknowledgment form would protect 
everybody. I think it would protect the sales agents selling 
the National Flood Insurance products. I think it would protect 
the homeowners, so at least that they are on notice, that they 
are aware of what their policy says and what their true 
coverage is. And I think it results in less litigation, which 
would benefit the National Flood Insurance Program.
    Ms. Velazquez. Thank you. I yield back.
    Chairman Duffy. The gentlelady yields back. The Chair now 
recognizes the Vice Chair of the subcommittee, the gentleman 
from Florida, Mr. Ross, for 5 minutes.
    Mr. Ross. Thank you, Mr. Chairman. Mr. Hecht, I appreciate 
your testimony because it seems to me that what your insurance 
company is doing is that they are actually assessing the risk 
independent of FEMA. Is that pretty accurate?
    Mr. Hecht. That is accurate.
    Mr. Ross. And in that assessment of risk, you look at the 
subsidized risk as opposed to the actuarial adequacy of the 
risk, and it appears as though, and according to your 
testimony, that the bad risks are really being accepted by the 
private market. Is that also correct?
    Mr. Hecht. Correct.
    Mr. Ross. And in defining your rate--and I am not asking 
you to give up anything proprietary--you look at factors, or 
would you look at factors other than just elevations and 
mapping that FEMA does?
    Mr. Hecht. Yes.
    Mr. Ross. In fact, you probably get a little bit more 
granular, don't you?
    Mr. Hecht. Yes.
    Mr. Ross. Because your capital is at risk, is it not?
    Mr. Hecht. Correct.
    Mr. Ross. And you want to make sure that what you do is 
right, not only for the consumer, but also for the capital that 
you are trying to protect?
    Mr. Hecht. Correct.
    Mr. Ross. Which is why we call it insurance, because it is 
risk management and not relief, which is what I think a lot of 
people expect when they pay subsidized policies, is relief 
instead of insurance. And getting back to insurance, what 
incentives do you offer for mitigation, if any?
    Mr. Hecht. We do not have a mitigation offer at this point. 
We do have credits for deductibles. We do have credits for--
    Mr. Ross. So you can have different various deductibles?
    Mr. Hecht. We do. We also give credit for insuring a home 
fully to value.
    Mr. Ross. You go over the $250,000?
    Mr. Hecht. We do.
    Mr. Ross. And you do your own claims management, too, don't 
you?
    Mr. Hecht. We do.
    Mr. Ross. So you have over 2,000 agents selling, and you 
have your own claims management, and you testified today that 
you can, in one case, you resolved all those claims within an 
average of 66 days, which is pretty phenomenal, isn't it?
    Mr. Hecht. 66 days was satisfactory, yes.
    Mr. Ross. But you are in the private market, okay, which is 
why we need you. And we talked about the Flood Insurance Market 
Parity Act, and I appreciate your comments on that, and I 
appreciate the chairman's comments on that. Would it not be 
appropriate to get this put into law sooner than the expiration 
of the National Flood Insurance Program at the end of 
September?
    Mr. Hecht. It affects us every day, Congressman. It would 
help us if it were passed immediately.
    Mr. Ross. And not only would it help your company, but it 
would also help the consumers, and it would show this Congress 
that the private market not only has the capacity, but the 
appetite to enter this flood insurance market that is 
affordable and available to all consumers?
    Mr. Hecht. I am an advocate of your legislation.
    Mr. Ross. Thank you. Let's talk about something else. One 
of the things that Roy Wright testified to last week was that 
50 percent of those who are receiving policies, who are in 
mandated flood insurance zones, let their coverage lapse, and 
there seems to be no enforcement. Does anybody on the panel 
have a suggestion as to how we maintain continuous coverage so 
we don't have a lapse in coverage and an even greater liability 
to the National Flood Insurance Program? Ms. Luckman, I will 
start with you.
    Ms. Luckman. With regard to coverage lapses, I think that 
homeowners need to be aware of their renewal timeframe, and I 
think that better notice needs to go out to them. I believe 
right now they get a 90-day notice.
    Mr. Ross. And that is a notice from FEMA, right?
    Ms. Luckman. Right. I believe that is a notice that has to 
go from Write-Your-Owns (WYOs) or the NFIP--
    Mr. Ross. And it should go to additional insureds, should 
it not, such as the mortgagee?
    Ms. Luckman. Absolutely.
    Mr. Ross. And there should be an enforcement of that, 
should there not be?
    Ms. Luckman. Absolutely.
    Mr. Ross. Mr. Terchunian?
    Mr. Terchunian. Again, thank you, Mr. Ross. I think your 
question is dead on point. We all get mortgage statements, and 
associated with that is the homeowner's insurance, and if you 
don't have it, the bank gets it for you and bills you. I don't 
see why we can't do it the same way with flood insurance.
    Mr. Ross. I agree. Almost like an escrow?
    Mr. Terchunian. Exactly.
    Mr. Ross. At least we know we maintain coverage.
    Mr. Terchunian. Exactly.
    Mr. Ross. Mr. Berginnis?
    Mr. Berginnis. This has been a recognized issue within the 
program in every reform at least since 2004. I might suggest 
that at least when you look at the buckets of the mandatory 
purchase, you certainly have the regulated lenders, but you 
also have direct agency lending. And then you also have kind of 
this thing that is over here where folks who receive disaster 
assistance are supposed to purchase and maintain coverage as 
well. And at least in those latter two areas, we really do kind 
of question the amount of oversight that is being exercised 
right now.
    Mr. Ross. So we need greater oversight of the continuous 
coverage?
    Mr. Berginnis. Yes, sir.
    Mr. Ross. I agree with that. Mr. Hecht, any suggestions?
    Mr. Hecht. I think the percentage of penetration of 
mandatory purchase is understated. There is a robust lender-
placed--
    Mr. Ross. Forced-placed?
    Mr. Hecht. Forced-placed, flood insurance, and I believe 
that is where a lot of those policies are.
    Mr. Ross. So would the forced-placed be through the private 
market, or would it be through the NFIP?
    Mr. Hecht. It could be through the NFIP, through the MPPP 
program, but 99 percent of it currently is in the private 
market.
    Mr. Ross. I appreciate that. My time is up. I yield back.
    Chairman Duffy. The gentleman yields back. The Chair now 
recognizes the ranking member of the full Financial Services 
Committee, the gentlelady from California, Ms. Waters, for 5 
minutes.
    Ms. Waters. Thank you very much, Mr. Chairman. I really do 
believe that we need to have some major changes in the National 
Flood Insurance Program, and I am absolutely focused on the 
debt and trying to understand why it is that we have a $25 
billion debt that we are paying $400 million a year interest on 
that debt, a total of $6 billion in principal and interest 
since 2006. And if I understand correctly how the program 
operates, when FEMA needs money because of the catastrophes 
that we have, we have to go to the Treasury and we have to 
borrow the money. And so we are paying interest to the 
Treasury, and we go back and borrow from the Treasury, and we 
have a $25 billion debt, and we have this relationship that 
doesn't make good sense to me. I want to know from Mr. 
Berginnis, don't you think it is time we forgive this debt, and 
if we forgive the debt and we were not paying this interest, 
couldn't we put that money into mitigation? What do you think?
    Mr. Berginnis. Yes, Congresswoman, absolutely yes. In the 
history of the program, I think it is important to recognize 
that the program, as designed, was not designed to deal with 
the catastrophic loss here. And, in fact, in the 1980s, there 
were a couple of times that Congress did forgive the debt in 
the program. But then from the late 1980s to 2004, the program 
operated as it was designed to. Of course, we had the Florida 
hurricanes and Hurricane Katrina, and the debt skyrocketed from 
that point. One of the points in our testimony is that had 
Congress forgiven the debt at the time, and I believe the debt 
was about $18.5 billion then, then there would have been 
resources available likely in Sandy and even in 2016 to pay the 
claims that we have.
    This issue of not dealing with the debt, not only do we 
need to address it from the standpoint of the current program 
right now, but we need to have a longer-term framework to deal 
with catastrophic losses, because even though FEMA has 
implemented the financial risk management tools that Congress 
has required of it, I am still concerned about these 
catastrophic events.
    Ms. Waters. Okay. As I understand it, there are several 
ways that mitigation is done. Some mitigation is done by FEMA. 
Some is done by the Army Corps of Engineers. And I think I 
talked to some locals down in Louisiana at one point when I 
visited, about them participating in mitigation efforts. How 
does this all work? Does the Corps of Engineers work with FEMA 
to make some determination about what mitigation can be done 
and where?
    Mr. Berginnis. It works in a variety of ways. Typically, in 
larger mitigation projects for bigger communities, communities 
will tend to work with the Corps of Engineers a little bit 
more. They can work with them exclusively. But the FEMA 
mitigation programs are available across the country to 
communities large and small, so we tend to see that smaller 
communities will tend to utilize the FEMA mitigation programs. 
There are some cases where the mitigation project may implement 
several different kinds of methods, and you actually match 
funding for multiple programs, and then supplement that with 
local resources. So it really can vary widely across the 
country, but that is also why we need the different 
authorizations for mitigation.
    Ms. Waters. Lastly, I want to ask--I think there is 
something that I agree with Mr. Duffy on, and this is quite 
unusual, but I understand he may be interested in limiting 
development in floodplain areas. I think I agree with that. 
What do you think?
    Mr. Berginnis. One of the original purposes of the program 
was to steer development away from high-risk hazard areas, and 
it is the one unfulfilled part of the program itself. And so, 
to the extent that the program can help make that a reality, we 
would definitely agree with that.
    Ms. Waters. Thank you. I yield back.
    Chairman Duffy. The gentlelady yields back. We agree on 
more than just that, Ranking Member.
    The Chair now recognizes the gentleman from California, Mr. 
Royce, for 5 minutes.
    Mr. Royce. Thank you, Mr. Chairman. Mr. Hecht, you 
testified that, of course, no private market provider will 
choose to write FEMA's severe repetitive loss properties, and 
really, that is no surprise, because repeatedly, flood 
properties make up 1 percent of those insured by NFIP, but it 
represents 25 to 30 percent of all the flood claims, and so 
they are not a good risk for private insurers, or for the 
American taxpayer. And today, Congressman Blumenauer and I 
introduced a bill, H.R. 1558, the Repeatedly Flooded 
Communities Preparation Act, and the concept here is to 
proactively reduce flood risk, instead of continuing our 
current model of rebuilding these properties over and over 
again. The way we do it, and let me just give you by way of 
example, we have a couple of cities here, Tulsa and Charlotte, 
both have had very pronounced success in decreasing flood risk, 
because what they did was proactively take on a plan for storm 
water management--that is the first thing they did; promoting 
voluntary buyouts, sometimes that can be effective; reviewing 
new development proposals for flood impacts every time one came 
up; and steering development away from risky areas.
    So that is part of their plan. Many of their peers, though, 
many of the other cities and communities have not kept up with 
that kind of approach. So what this bill would require is that 
communities with a large amount of repeatedly flooded 
properties implement plans to have that city council or those 
counties put forward that plan for lowering flood risk, and 
then in terms of keeping the records, holds them accountable 
for failing to act. That is what the bill does. And I would 
just ask for thoughts on this issue, and I also would ask Mr. 
Hecht a follow-up question here that I wanted to get to, and 
that is, do you think the home-buying public truly grasps flood 
risk? Is this registering with them? Do they understand how 
subject to hazard their property is when they talk with their 
REALTOR? Do they understand how flood risks change over time 
when areas nearby are developed, or when a forest fire might 
occur? And so, maybe I could ask the panel also on that aspect 
about recommendations for how we can change this lack of 
education on flood risk? Besides just what we can do at the 
county level or city level, how do we improve takeup rates for 
flood insurance and strengthen these mitigation efforts?
    Mr. Hecht. Let me address both of your questions. My 
statement that, of course, we would not want to write severe 
repetitive loss properties is a statement that we would not 
want to write severe repetitive loss properties at rates that 
were competitive with FEMA, because FEMA charges much too 
little for the severe representative loss properties. In the 
Wharton study last year regarding consumer recognition of flood 
risk, consumers actually think their property is going to flood 
more than it actually does. They overestimate that, but they 
underestimate the amount of damage that an actual flood would 
do.
    Mr. Royce. Would any other members of the panel like to 
jump in on that?
    Mr. Berginnis. Congressman Royce, we have taken a look at 
the legislation that you and Congressman Blumenauer have 
introduced, and actually, we are supportive, and one of the 
things that we like about it is that it does have a measure of 
accountability. Under current law, which comes from the 
Stafford Act, community mitigation plans are required to, at 
least, assess how many representative loss properties there 
are, but it doesn't really require them to do anything about 
it. So I think the innovative element to this legislation is 
that it does have some requirements there to actually do some 
planning and actually mitigation of those or face some 
potential consequences.
    In terms of the broader education and awareness of risk, 
and I go back to a statement I made in my testimony, we have 
to, first of all, map all of these areas in the country. 
Oroville Dam, I think, is a great example in California: 
200,000 people evacuated, far beyond what the mapped floodplain 
showed. Yet how many of those people knew that they were in 
basically either a dam failure or dam release inundation zone? 
Probably none of them, because that information, while it has 
been produced, is not publicly available.
    Mr. Royce. Thank you. I thank the panel. Our time has 
expired. But transparency is part of this answer. Thank you 
very much, Mr. Chairman.
    Chairman Duffy. The gentleman yields back. The Chair now 
recognizes the ranking member, the gentleman from Missouri, Mr. 
Cleaver, for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman. Ms. Luckman, thanks 
for being here. Ms. Velazquez was talking about how helpful you 
had been to her community after Sandy. And she assured me that 
if I asked you this question, you were going to answer it in 
the fashion in which I wanted.
    We are seriously--and I think the chairman of the 
subcommittee would agree--dealing with the issue of mapping and 
mitigation activities. And so when we learned today that the 
President zeroed out in his budget discretionary appropriations 
for NFIP's map of the mitigation activities, because we think 
that it would be devastating, what do you think we can do to 
enhance the program if it is zeroed out?
    Ms. Luckman. I think this really goes back to education. I 
think if that, unfortunately, is the end result of his budget, 
I think we need to look to other sources of education that 
would or could appropriately advise a homeowner or a 
policyholder of their flood risks.
    Something that my statement speaks to is NFIP-certified 
agents. So I think that if you have a standardized education 
that is required by the NFIP, that information can be given to 
homeowners upfront, I think that would at least provide them 
with the same information that mapping and risk evaluation 
would.
    Mr. Cleaver. But it wouldn't--they are still going to have 
a serious problem, a homeowner problem. But--
    Ms. Luckman. I think the only way to reduce that problem 
would be to increase ICC, maybe the scope of increased cost 
compliance, maybe allow homeowners to mitigate now. Instead of 
waiting until post-disaster, being able to mitigate their 
properties pre-disaster, I think, would at least put them in a 
safer spot that would raise them out of the flood zone, the 
immediate flood zone.
    Mr. Cleaver. Mr. Terchunian?
    Mr. Terchunian. On that same question, I think FEMA has 
come a long way in their mapping program. I am a user of that 
program, and my clients use it and call me up and say, I looked 
at my property, and we start talking about the level of risk.
    That being said, just like in broadband, they need to go 
the extra mile. And I think that is an important aspect of 
bringing both the education component but the actual mitigation 
component to the individual policyholder.
    Mr. Cleaver. I think probably there are a number of Federal 
agencies that use FEMA, use the mapping. They don't help pay 
for it. And now, nobody is going to pay for it if this is 
approved. Is this disastrous, Mr. Hecht?
    Mr. Hecht. Mr. Cleaver, as part of my written testimony, I 
suggested, similar to Senator Warren yesterday and some of the 
other panel members, that private policies are assessed a fee, 
the same policy fee that the Federal policy has, and that we 
remit that money to FEMA to augment the money that you have for 
the mapping.
    The private market is going to use independent mapping, but 
we are also going to have to rely on your mapping because of 
the mandatory purchase guidelines. So I am a big supporter of 
our participation in your effort.
    Mr. Cleaver. In your testimony, Mr. Terchunian, you mention 
that the cost of elevating a home in Long Island is between 
$100,000 and $150,000. And I think everybody would agree--or 
most of us would agree that elevation is the best way to 
mitigate against flooding. It is time-consuming and very 
costly. Is there any way we can improve homeowner mitigation 
efforts?
    Mr. Terchunian. Yes, sir, Mr. Cleaver. I believe that we 
have to get ahead of the flood curve with these property 
owners. After a flood, there are so many different dislocations 
that occur: waiting for approval time; getting through the 
insurance process; and then having to go to a zoning board.
    If we can figure out a way to incentivize the property 
owner before a flood occurs, their life will be better, their 
policies will be better, and we will be living in a safer 
community.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentleman from New Mexico, Mr. 
Pearce, for 5 minutes.
    Mr. Pearce. Thank you, Mr. Chairman.
    I appreciate everyone's testimony today.
    Now, the National Flood Insurance Program was created in 
1968 because we didn't have a private flood line and it was 
trying to stop the tremendous losses to the taxpayer.
    Mr. Terchunian and Mr. Berginnis, if I were going to kind 
of try to summarize your viewpoints, you both would sort of 
favor transitioning from a national flood insurance program to 
a national mitigation program, is that correct? I hear a really 
heavy emphasis.
    Mr. Terchunian. I would have to say at least 50/50.
    Mr. Pearce. Okay. Mr. Berginnis?
    Mr. Berginnis. Yes, definitely increasing the mitigation 
component would be helpful.
    Mr. Pearce. So, Mr. Berginnis, on page 9 of your testimony, 
you talk about the $1.3 billion in mitigation. And getting 
about 2,000 houses per year for 5 years, that is--so is that 
all that the mitigation did or is the $1.3 billion spread out?
    Mr. Berginnis. The 1.3 billion was spread out. I did not 
have the data from FEMA to calculate the total amounts.
    Mr. Pearce. The 2,000 houses, just kind of accessories, 
they are in addition to everything else they did, or is that 
the focal point?
    Mr. Berginnis. The 2,000 was just for a certain time period 
where I had the data for that.
    Mr. Pearce. I understand, but I am trying to get an 
approximate figure. Mr. Terchunian had said that it could cost 
up to $200,000. And if I divide the number of houses, 10,000 
into the $1.3 billion, I get $130,000 per house, which falls 
into his category, close enough for the discussion.
    So when I just do the math in my head, do you have any idea 
how many houses out there that we need to mitigate?
    Mr. Berginnis. There are a lot of them out there. I think 
what you have in terms of--
    Mr. Pearce. One million? 100,000?
    Mr. Berginnis. In terms of repetitive loss and severe 
repetitive loss properties, we are probably talking about 
160,000 houses.
    Mr. Pearce. 160,000?
    Mr. Berginnis. But those are ones that have repetitive loss 
claims. That doesn't mean that is all the ones that are 
actually at risk. There is a lot of older buildings out there--
    Mr. Pearce. I understand, but I am just trying to get a 
feel for it.
    Mr. Berginnis. So 160,000 could be the--
    Mr. Pearce. If we are going to convert this into a 50/50 
program, we need to know what it is going to cost us, because--
    Mr. Berginnis. Yes.
    Mr. Pearce. --you are not claiming that mitigation is going 
to stop the debt. In other words, if we were to pay off the 
debt completely, we are going to still owe debt in 3 or 4 more 
years because we are not going to be able to get everything 
done at once.
    Mr. Hecht, do you have any policies up in that Long--or 
wherever Mr. Terchunian is talking about, the 300 houses. Do 
you all insure up in that Long Island area?
    Mr. Hecht. We do not write policies on Long Island.
    Mr. Pearce. Okay. How about down in the area, Katrina area, 
right there in the--
    Mr. Hecht. We do not write policies in New Orleans.
    Mr. Pearce. Okay.
    Mr. Hecht. We do write policies in 36 States and 2,000 
communities.
    Mr. Pearce. Okay. I understand. Of course, I haven't 
investigated it, but what I was getting at is, could there be 
an accusation by people who are critical of you that you kind 
of cherry pick through? Could you write a plan, just sitting 
here today, if we had enough time, could you write a plan that 
would insure everybody up and down the spectrum in the flood 
map--or in the NFIP program or is that too complex? Is that 
very complex?
    Mr. Hecht. We would be able to write policies at premiums, 
but the premiums would not be competitive with FEMA. That is 
why we are not--
    Mr. Pearce. Okay. That is kind of what I am getting at. 
Right.
    Then, Mr. Terchunian, you state on page 2 about the 22 
years. I know there have been 10 events in that area. Have any 
of them squared up right on that same area where this is a good 
analysis? Has the mitigation defeated an event similar to 1992 
that is the basis of your testimony on the first pages?
    Mr. Terchunian. Yes, I would call Superstorm Sandy an 
equivalent of that.
    Mr. Pearce. Close enough. Fair enough. That is good enough.
    Now, on page 5 in your testimony, you talk about--or page 
6, that it is unreasonable to expect a consumer to invest 
$200,000 for an annual payback of $4,000 to $5,000. So you then 
would want the taxpayer to do it. Would it be reasonable that 
the taxpayer, if they subsidize this, would get the first 
$200,000 if they sell their home?
    Because you are basically transferring value from people 
out in New Mexico who live in trailer houses. Fifty percent of 
my constituents live in trailer houses, and you want us to 
subsidize them, because it is unreasonable to expect them to do 
that for a $4,000 to $5,000 return in that area. My taxpayers 
are getting no return on it, and I don't know exactly how I 
would go back and convince them that is reasonable. The term 
``snowflake'' in New Mexico in July comes to my mind.
    Thanks. I yield back.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentlelady from Ohio, Mrs. 
Beatty, for 5 minutes.
    Mrs. Beatty. Thank you, Chairman Duffy, Ranking Member 
Cleaver, Chairman Hensarling, and Ranking Member Waters.
    First, let me just say thank you to all the witnesses here 
today. This is a good day for me because I heard my ranking 
member and Chairman Duffy agree on something we should do, and 
that just has inspired me so much, that I know if I would ask 
all of you--
    Chairman Duffy. Would the gentlelady yield? I don't know 
that I have agreed to anything here.
    Mrs. Beatty. I am doing this really for the chairman, not 
the subcommittee chairman; the chairman at the end. So I am 
going to say some really nice things today. And I think you 
will agree with me that, obviously, September is not that far 
away, and we certainly--I see you are nodding already--want to 
get this reauthorized. It certainly sounds like there are 
enough things that if we work together on, I think we could 
make this happen.
    Would anybody disagree with that?
    Okay. And you are all experts. So our experts, Mr. 
Chairman, are saying we have a lot of good things on both 
sides.
    Now, I am from Ohio. I know we have an expert from Ohio. 
And so when I think about--in my conversations with Ohioans, 
there is a perception amongst some of them that the floodplain 
was expanded to subsidize higher-risk policyholders in maybe 
States like Florida or Texas. And I think many members of this 
committee, including myself, would like to see the private 
sector play more of a role in the floodplain insurance 
marketplace, because it could be especially beneficial to the 
pockets of Ohioans who are required to buy flood insurance.
    I think my ranking member, Mr. Cleaver, kind of posed this 
question to you, Mr. Hecht, when he was giving his remarks. My 
concern is somewhat in the same light. And my question for you 
is, if we see private insurers take market shares from the NFIP 
and the proposed budget cuts to FEMA materialize, what would 
happen to FEMA's budget in mapping and mitigation under this 
scenario?
    Mr. Hecht. Well, I--
    Mrs. Beatty. I am going to go to Ohio first.
    Mr. Hecht. Okay.
    Mrs. Beatty. I want him to either expand on what you were 
saying or agree or elaborate.
    Mr. Berginnis. As I have included in my written testimony, 
the floodplain management function, again, that is technical 
assistance to States, to communities, the FEMA staffing, and 
the entire ball of wax is 100 percent paid for through that 
Federal policy fee. And so if we go from, let's say, 5.5 
million policies that we had in the program to, let's say, 3 
million, that is a significant reduction. Half of the mapping 
budget comes from that same Federal policy fee, so, again, the 
reduction would be significant.
    On the mitigation side, one thing I would point out is that 
ICC has its own policy surcharge, so it is kind of on a per-
policy basis. So it is not as sensitive to that other than, I 
think, the fact, to point out that if we do work to expand 
private insurance, that we would strongly recommend that one of 
the coverages that needs to be in place for private policies, 
especially in the A zones where codes are required, is 
something similar to ICC, like ordinance and law coverage, so 
that the property owner can access additional funding to 
mitigation.
    Finally, the Flood Mitigation Assistance program is 100 
percent funded through premium dollars. So, again, a 
substantial reduction in policies equals a substantial 
reduction in FMA funds.
    Mrs. Beatty. Thank you so much. I have a little less than a 
minute left.
    Ms. Luckman, what would be the one thing you would say to 
us--since in your written testimony you said you would like to 
see it reauthorized. You were very clear on that. What would 
you say to us to help us get there on time? Some of your 
colleagues have also said they didn't want to see it extended 
or short-term ranges. What would you say to us?
    Ms. Luckman. I do think it needs to be done in a timely 
manner. I think there are a lot of very minor administrative 
tweaks that I have spoken about that can be made very quickly. 
There is no cost associated with them, and it really does help 
the program run more smoothly.
    And I also think that when we start looking at the 
relationship between the NFIP and the Write-Your-Own carriers, 
if we look to maybe implement some additional penalties NFIP 
can enforce against the WYOs or just bad actors in general that 
have been involved, whether they be adjusters or engineering 
firms, I think that it would expedite the process. I think that 
there would be safeguards in place for the NFIP and for all 
included agents.
    Mrs. Beatty. Thank you, Mr. Chairman.
    Chairman Duffy. The gentlelady yields back.
    The Chair now recognizes the former Chair of this 
subcommittee, now the Chair of the Financial Institutions 
Subcommittee, Mr. Luetkemeyer, for 5 minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    And I thank the panel today. It is a great panel. You all 
are very informative, and I appreciate your being here.
    Mr. Hecht, quick question for you. We had a great 
discussion so far on private sector involvement in flood 
insurance. What do you see as the capacity for the private 
sector to get involved? How much more--I think Mr. Berginnis a 
minute ago said 5.5 million policies in NFIP. How many of those 
do you think the private sector could absorb in, say, 5 years 
time, if there was ability to be--for instance, Mr. Ross' bill 
would pass and there would be able to be purity with the 
policies?
    Mr. Hecht. That is really a question for the capital 
markets, not a question for the distribution system. We 
currently--we have written 18,500 policies. The capital markets 
that have provided us with capacity, we would be able to maybe 
double what we have written so far. At that point, we are going 
back to the capital markets and asking which other capital 
markets would like to provide capacity.
    Mr. Luetkemeyer. Okay. As a private insurance company, you 
have reinsurance, I guess?
    Mr. Hecht. Now, I am--
    Mr. Luetkemeyer. You are the agent?
    Mr. Hecht. Yes, I am an administrator. I am a program 
administrator and a cover holder, so I am not the insurance 
company.
    Mr. Luetkemeyer. Okay.
    Mr. Hecht. So Lexington Insurance Company, part of AIG, 
they have reinsurance. It kicks in at a $1.5 billion level. 
Some of our syndicates at Lloyd's of London have reinsurance 
that participates as low as $1.5 million, so that is a 1,000 
times difference in terms of a factor of 1,000, in terms of--
    Mr. Luetkemeyer. The reason for that is they just wanted--
some can absorb the risk and others can't or--
    Mr. Hecht. Correct.
    Mr. Luetkemeyer. Okay. Mr. Berginnis, you were talking 
quite a bit about mapping. And it has been mentioned here 
already today that the President looks like he is wanting to 
zero out the mapping efforts here.
    One of the things--one of the ways that I think and what we 
are suggesting here that we can solve the problem is that if we 
allow the private sector to local communities, the local--
whether it is city, county, subdivision, wherever it may be, to 
be able to map their own area. Today's ability of these 
communities to get this mapped is not within their ability to 
pay for it because the cost has come down so much. Is that 
something that could be done if you had a certain level of 
criteria there that would allow the local communities to do 
that?
    Mr. Berginnis. So States and communities can actually do 
some of their own mapping right now under the FEMA program. It 
is called the Cooperating Technical Partners.
    Mr. Luetkemeyer. Right. Right.
    Mr. Berginnis. And sometimes, like at the State level, they 
will actually do it in-house, but they can also contract with 
the mapping and modeling community that does a great job with 
that.
    One of the things I would say, though, is that we are 
seeing the cost coming down. And one of the things that the 
FEMA flood mapping program, I think, that is a credit to them 
is to take advantage of those latest technologies as well as 
experiment with those cheaper costs.
    The Chair of our organization, Ceil Strauss, from the State 
of Minnesota, they are a CTP, and they are currently doing some 
large-scale mapping in rural Minnesota for as low as $200 a 
stream mile. To do a detailed flood study, we are probably 
talking about--
    Mr. Luetkemeyer. Okay. Very good.
    I have one more question I want to get to before my time 
runs out here.
    I want to go back to Mr. Hecht. You were talking a while 
ago about actuarial rates. I know that Mr. Ross is from Florida 
and his State went to replacement cost rates based on the value 
of the home such that if you had a $50,000 house, you would be 
based on the cost to replace the house versus a $250,000 house. 
How would that structure work for you in your policies, you 
think?
    Mr. Hecht. I am really not sure that I understood that 
question in terms of--
    Mr. Luetkemeyer. Okay. Do you settle claims at actual cash 
value or replacement cost?
    Mr. Hecht. I'm sorry. Our policy is identical to FEMA's 
policy. It is word-for-word. So there are certain structures 
that qualify for replacement cost and there are certain 
policies that qualify for actual cash value.
    Mr. Luetkemeyer. Okay. With regards to the rates, what 
about--how would it affect the rates if you went to replacement 
cost rates and availability of that sort of coverage to the 
insured?
    Mr. Hecht. The actual cash value settlement reduces claims 
by approximately 22 percent. So the rates would go up 
approximately 22 percent, again, on just those properties that 
are currently written at actual cash value. About 60 percent of 
our policies qualify for replacement cost, the same as the 
National Flood Insurance Program.
    Mr. Luetkemeyer. Okay.
    Mr. Hecht. Commercial properties are at actual cash value. 
Non-owner-occupied residential structures are at actual cash 
value. Those are the ones that you're talking about.
    Mr. Luetkemeyer. Very good. Thank you very much.
    My time has expired. Thank you, Mr. Chairman.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentleman from Michigan, Mr. 
Trott, for 5 minutes.
    Mr. Trott. Thank you, Mr. Chairman.
    I thank the panel for their interesting testimony. And I 
want to ask the entire panel--and start by thanking Mr. Hecht 
for your comments because it gives me confidence that the 
private sector can fill the void that we are hoping to solve by 
making this program sound.
    But my concern is that 1.6 percent of the policyholders, so 
roughly 85,000 people of the 5.1 million, account for 24 
percent of the claims. And so any solution has to deal with 
creating an actuarial rate that is going to make the program 
solvent. I am interested in your comments on how we can 
transition to that without creating sticker shock for the 
homeowners and how we can do it without disrupting the real 
estate markets by causing the premiums to become unaffordable?
    Mr. Hecht. I think anything--the rates for severe 
repetitive loss properties have to be coincident with the risk. 
If the policyholder is not going to pay for that risk, then it 
has to be dealt with in some kind of an entitlement program 
mode. The insurance companies are not going to subsidize that 
risk. The risk is what the risk is. We are not going to compete 
at the rates that FEMA is currently charging for that 1 percent 
of the policies.
    Mr. Trott. Any other panel members?
    Mr. Berginnis. One of the things that we suggested is a 
mitigation surge, maybe where one or a couple-year 
appropriation to actually take care of those properties, 
mitigate those to where the flood insurance would be less 
expensive.
    Mr. Trott. To that point, though--and, Mr. Terchunian, you 
commented about the cost of raising a home, $100,000 to 
$200,000, and you had commented, one of you, that there are 
160,000 properties potentially in that category. That is $160 
billion. Right? $100,000. Let's round down and call it $100,000 
instead of $130,000 or $200,000. It is 160,000 properties, that 
is $160 billion.
    As an aside, since this hearing began, we have added $150 
million to our debt, so that is a little footnote. Is the 
mitigation really going to be part of any solution? Because 
that seems like a large number under any calculation.
    Mr. Terchunian. The answer to the question is that we are 
paying it now, but we are paying it in post-disaster dollars, 
which are much more expensive than mitigation dollars. So, it 
is pay me now or pay me later. That is the situation the 
taxpayer is in right now.
    And the gentleman from New Mexico asked, why should they be 
subsidizing people on Long Island? We are doing it, and we need 
to stop doing it. And the way to stop doing it is when you 
have--is to take--85,000 homes sounds like a lot, but it is 
not.
    On the south shore of Long Island in Mr. Zeldin's district, 
we are going to elevate 4,500 homes in the next couple of 
years. Now, that was spurred on by Sandy, but that is a project 
that has been decades in the making. We can do this around the 
country if we boil it down to bite-sized pieces and take it on 
one at a time.
    Mr. Trott. Ms. Luckman, any--
    Ms. Luckman. Yes, I agree. I think mitigation is key, and I 
think it needs to be upon community resiliency. I think if you 
took communities one at a time, block by block, and if you 
mitigated those homes and elevated them, then we may be 
spending more money out-of-pocket right now, but it will 
definitely result in less flood claims down the line, less 
repetitive loss claims, and it would definitely benefit the 
future.
    Mr. Trott. Ms. Luckman, at the Law Center, how many people 
have you helped with their claims, to navigate that claims 
process?
    Ms. Luckman. Through the claims process, we had 10 cases 
that we took through litigation, and we have just over 100 
claims in the Sandy claims review process right now.
    Mr. Trott. Okay. In how many of those claims, would you 
say, you saw abuse for the homeowners or unfair results in 
terms of how they were treated?
    Ms. Luckman. All of them. Right now, we have received--
between litigation and the Sandy claims review process, we are 
over $3 million that we have been able to put back into 
people's pockets. And we still have another 42 cases that need 
to go through that neutral level of review in the Sandy claims 
review process.
    Mr. Trott. Mr. Hecht, so let's fast forward maybe 10 years 
from now. Let's assume the private sector is playing a greater 
role. I am interested, if we got rid of the noncompete clause, 
would that--what impact that would have. And then long term, if 
we came up with a model that dealt with the repetitive loss 
properties in a fair manner so people could be transitioned and 
not lose their homes because of increases, do you see a need 
for the NFIP long term?
    Mr. Hecht. I do see a need for the NFIP. The general 
principle of insurance is the distribution of risk. What the 
private market brings to the NFIP right now is a further 
distribution of risk. So whatever the percentage is, if the 
NFIP ended up with 80 percent of the risk and the private 
market ended up with 20 percent of the risk, it is spread so 
that the taxpayer is not on the hook for 100 percent. They are 
on the hook for 80 percent of a disaster.
    Mr. Trott. Thank you.
    Chairman Duffy. The gentleman's time has expired.
    The Chair now recognizes the gentleman from Pennsylvania, 
Mr. Rothfus, for 5 minutes.
    Mr. Rothfus. Thank you, Mr. Chairman.
    Mr. Hecht, I want to talk a little bit about your 
experience. I think $3.5 billion in coverage for 18,000 
customers, approximately?
    Mr. Hecht. Correct.
    Mr. Rothfus. So I guess you are one of the largest private 
flood insurers out there.
    As you note in your testimony, there is an ongoing debate 
about whether private sector flood providers like yours would 
be prone to cherry picking as they begin to play a greater role 
in the industry. You seem to believe that cherry picking 
concerns are misplaced. Can you elaborate on why you disagree 
with this commonly held belief?
    Mr. Hecht. Yes. Thank you for the question.
    The last actuarial rate review that FEMA reported to 
Congress was in 2011, in substantiation of the 2009 rates. When 
we look at that review, the policies that FEMA says are 
actuarial produced $121 of loss for every $100 of premium. It 
had a 121 percent loss ratio. Their actuarial policies had a 
121 percent loss.
    The subsidized policies only had 114 percent loss. The 
subsidized policies are a better insurance risk to value for 
the private market. That was as of 2009. That is why, in my 
testimony, what I did was I substantiated that the rates for 
subsidized policies have increased at a much faster pace than 
the actuarial policies.
    The subsidized policies are the policies that we now 
consider rate adequate. FEMA's worst performing category of 
risk was elevation rated A zones. For that 32-year period, the 
loss ratio was 163 percent. Their preferred risk policies, the 
loss ratio for that 32-year period was 133 percent. Yet their 
most hazardous classification of velocity, V zones, during that 
same 32-year period, the loss ratio was 47 percent.
    As a private insurer, I want to write risks that are going 
to have a 47 percent loss ratio, not a 163 percent loss ratio. 
We are not cherry picking the risks. We think FEMA has it 
upside down.
    Mr. Rothfus. Interesting.
    We have often heard in this committee that the private 
sector needs access to more NFIP data in order to expand its 
role in the flood insurance market. Could you elaborate on what 
types of data would be useful to firms like yours?
    Mr. Hecht. We do not have any granular level data now. Most 
insurance risks are written at an individual level. It does no 
good to know whether your high school class had 32 speeding 
tickets if you are going to underwrite an automobile policy. 
What is relevant is, does the driver that you are going to 
insure have a speeding ticket?
    FEMA releasing claims data on a community-level basis does 
nothing for us to select risk.
    Mr. Rothfus. You noted in your testimony that my home 
State's insurance commissioner, Teresa Miller, recently wrote 
that, ``Even with the increased surplus lines activity for 
residential flood coverage over the past 11 months, the 
Pennsylvania Insurance Department has not received a single 
complaint concerning a surplus lines carrier.''
    Commissioner Miller's assessment suggests that private 
sector insurance providers can deliver a high level of service, 
maybe even better service than the NFIP. Do you believe that 
consumers are well-served by the NFIP in its current form?
    Mr. Hecht. I think we can do a better job.
    Mr. Rothfus. What are some of the common complaints that 
you hear from customers about their experiences with the NFIP?
    Mr. Hecht. On our website, we allow consumers to post 
testimonials, and one, two, or three consumers take their time 
every single day to tell us what we are doing right. And our 
rates are lower, our service is better. A live individual picks 
up the phone, a live licensed agent counsels them on what 
insurance they need. We are there to make changes on their 
policy almost instantly when they request a change. Our claims 
were settled in 66 days. We simply do a better job right now.
    Mr. Rothfus. Thank you, Mr. Chairman. I yield back.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentleman from California, Mr. 
Sherman, for 5 minutes.
    Mr. Sherman. Thank you.
    Mr. Berginnis, the President's budget request which was 
released this morning would completely eliminate discretionary 
appropriations for the NFIP mapping and mitigation activities. 
How is that going to impact those activities?
    Mr. Berginnis. It would be devastating. And the reason is 
that because mapping is the cornerstone of everything else the 
NFIP does, the mitigation, the land use, and even the 
insurance. And what will end up happening is that the inventory 
we have will begin to decay, because flood maps do have to be 
updated periodically, and we won't be able to do new flood 
mapping.
    Mr. Sherman. And then how will that impact our ability to 
properly assess the risk to discourage building where it is 
particularly dangerous and to properly assess the amount 
homeowners and others should pay for their insurance?
    Mr. Berginnis. It will degrade that capability 
significantly, and that degradation will increase over time as 
the maps get older. And that--not unlike the situation we had 
in the late 1990s, before the map modernization program where 
Congress saw fit to invest more funding in mapping.
    Mr. Sherman. In your testimony, you recommended that 
private flood policies include a fee equivalent to the Federal 
policy fee to help continue to pay for the floodplain mapping 
and the floodplain management standards programs. I just want 
to clarify with you your proposal.
    Do you suggest that the fee apply only to policies written 
in special flood hazard areas or to all private flood policies?
    Mr. Berginnis. We would think that, at a minimum, it should 
be associated with those in the special flood hazard areas, and 
kind of the hook to do that would be those needed to meet the 
mandatory purchase requirement.
    Mr. Sherman. Do you have a suggested dollar amount in mind 
that you would recommend as the equivalency fee?
    Mr. Berginnis. We call it the equivalency fee because it 
would be pegged at the same amount as the Federal policy fee so 
that the NFIP and private policies would be on the same playing 
field.
    Mr. Sherman. And what impact do you think this new 
surcharge would have on private insurers' appetite to enter the 
flood market? What about the cost to consumers of private flood 
policies?
    Mr. Berginnis. Certainly, there is going to be a 
sensitivity to cost on any insurance product. But I was 
actually quite happy to hear my fellow witness, Mr. Hecht, as 
the largest writer of private flood, recognize the value of the 
mapping and endorse the concept.
    Mr. Sherman. And what impact do you estimate the surcharge 
would have on emerging technology or innovation in the mapping 
field?
    Mr. Berginnis. I think it will have a positive impact, 
because when you have the resources to invest in mapping, you 
can investigate those emerging technologies. When you don't 
have the funds, you are essentially just trying to play catchup 
and really don't have the resources available.
    Mr. Sherman. The President's budget request also proposes 
to restructure selected user fees for the NFIP in order to 
``ensure that the cost of government services is not subsidized 
by taxpayers who do not directly benefit from those programs.'' 
This sounds like the Trump Administration may be proposing to 
have NFIP policyholders pay the full cost of mapping activities 
because President Trump assumes that no one else benefits from 
those programs.
    Can you talk about how FEMA's flood maps provide benefits 
for people in communities beyond just the NFIP policyholders?
    Mr. Berginnis. Yes, absolutely. Actually, a colleague 
forwarded me a case study recently from the Louisiana flooding, 
where a person who was not even a policyholder was close to the 
Amite River. Their son was a REALTOR, and the son began to 
talk to him about the potential need to evacuate and that there 
are these FEMA flood maps online.
    And after they looked at the flood maps and determined that 
the crest was higher than what the map showed, it showed that 
all the evacuation areas were pretty much going to be blocked. 
And so it would help that individual, non-NFIP related, to 
actually evacuate, possibly saving lives and certainly saving 
property.
    Mr. Sherman. I yield back.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentleman from New York, Mr. 
Zeldin, for 5 minutes.
    Mr. Zeldin. Thank you, Mr. Chairman.
    And first off, just on behalf of my constituents and 
everyone on Long Island who cares very deeply about this issue, 
I want to thank the committee for the countless meetings, 
conversations, the emails, all the questions that have been 
asked just to understand the practical impacts of the NFIP on 
individual lives.
    This hearing is called, ``Flood Insurance Reform: A 
Community Perspective.'' And this committee has focused a lot, 
since I joined it a couple of months back, on getting the 
impacts on each individual committee.
    There was a lot of focus here today on mitigation. I would 
love to be able to take that to the next level. And if you 
wouldn't mind, Mr. Terchunian, I will put you on the spot 
first.
    You mentioned how homeowners on the east end of Long 
Island, or a community like yours, West Hampton Dunes, make 
investments in mitigation. An important goal is to get clarity 
from FEMA as far as what mitigation will lower NFIP premiums 
and improve maps.
    So taking this conversation to the next level, what is the 
most effective policy approach to make sure homeowners or 
municipalities who mitigate get a clear return on their 
investment? We are expressing our positions with regards to 
dollars that should be saved from mitigation. What should 
FEMA's response be as far as changing policy?
    Mr. Terchunian. I think there are two groups who are 
affected by that: the entire community that is in the 
floodplain and is paying flood policies; and the individual 
policyholders themselves.
    The FEMA rating process is reasonably opaque. I find myself 
often in conversations with the property owner, the private 
insurance agent, and we can't get the FEMA underwriter on the 
same telephone call with us to explain why things are being 
rated the way they are.
    That process needs to change and needs to become utterly 
transparent, because there is poor predictability and I don't 
know whether it is because the rater is not hearing what is 
being said or it is not being communicated properly to them. 
But that entire process has too many layers. It needs to be 
much more direct so that the policyholder themselves, as Ms. 
Luckman said, understands what it is they are buying and what 
it is that they may want to buy.
    The second aspect of it has to do with the community rating 
system (CRS). The community rating system is a great idea. It 
says, hey, listen, if you do a better job than NFIP requires, 
we are going to benefit everybody in the community. The problem 
is the CRS is a difficult program, and there is a lot of 
criteria in there that, at least in my opinion, doesn't advance 
community resiliency, but you can't get to the next level 
without it.
    So I think that process, number one, the CRS process needs 
to be simplified. I think it is too complex. And number two, 
small communities who don't have staff and can't afford to hire 
need to be helped through that process, and because CRS is one 
of the ways where you reach from the NFIP through the local 
community directly to the policyholder.
    Local communities send out tax bills once or twice a year. 
There is no reason that the people who live in the floodplain 
can't get a notice in their tax bill, but it doesn't happen 
unless there is the linkage between the NFIP and the local 
community.
    Mr. Zeldin. And for anyone else on the panel, if you want 
to join in, is there anything that hasn't been said during this 
hearing of what FEMA should do to improve policy so that 
homeowners understand exactly what their investment and 
mitigation is going to return as far as a reduction of premium? 
Is there anything else as far as the FEMA end of things that we 
haven't discussed yet in the hearing?
    Mr. Berginnis. I think one element is just increasing the 
level of property owner awareness of mitigation. It has been, 
in my experience and that of a lot of our members, that people 
don't necessarily know what to do. So they either talk to 
experts, maybe they talk to their floodplain managers. And so 
there really isn't a good mechanism right now to proactively 
educate property owners, even if they had the resources to do 
it, the fact that, okay, here is the risk and here is what you 
need to do to mitigate.
    Mr. Zeldin. And if in the days ahead, the weeks ahead, any 
additional insight on this mitigation component that wasn't 
brought up during this hearing, to be able to supplement your 
remarks here and your written testimony, I certainly would 
appreciate. I am sure--I can't speak for everyone else, but I 
would imagine everyone would appreciate that insight.
    So thank you again, Mr. Chairman, for your focus on these 
issues impacting my congressional district, the greatest 
congressional district of America, New York One.
    Chairman Duffy. The gentleman yields back.
    From the second greatest congressional district in the 
country, the Chair now recognizes the gentleman from Illinois, 
Mr. Hultgren, for 5 minutes.
    Mr. Hultgren. Thank you, Mr. Chairman.
    Thank you all for being here. Again, this is a very 
important subject for all of us.
    But I want to address the first question to Mr. Hecht, if I 
could. As you are aware, companies who write NFIP policies must 
sign a noncompete clause, which pushes those companies to the 
sidelines in terms of developing and offering private flood 
insurance policies.
    Two-point question, if I could: One, could you discuss how 
this could derail efforts for private sector innovation and 
participation in the flood insurance market? And two, would you 
support legislation that eliminates the noncompete clause now 
required by FEMA?
    Mr. Hecht. Let me answer the second one. It is easier. Yes, 
I would support the legislation. And the cause and effect, 
capacity is what the private market needs to take on a bigger 
share of the National Flood Insurance Program. And the Write-
Your-Own companies, if they are precluded from participating in 
the private market, then you have taken that capacity out of 
the marketplace. There is no reason to take that capacity out 
of the marketplace.
    I listened to Mr. Wright's testimony to the Senate 
yesterday where he described that his reasoning was that these 
Write-Your-Own companies had access to proprietary data and 
that they could choose just the best risks and leave him with 
the worst risks.
    Again, the private market is going to write the risks that 
they want to write. It is not a matter--we don't necessarily 
agree with FEMA on what the right risks are, but that financial 
arrangement should be amended.
    Mr. Hultgren. Thank you.
    Ms. Luckman, I wonder if I could address a couple of 
questions to you. 60 Minutes did a story on the Sandy claims 
review process in 2015, in which homeowners were interviewed 
about falsified engineering reports done on their homes after 
Superstorm Sandy. According to the story, engineers found 
flooding to be the cause of structural damages, only to learn 
later that their reports were changed by the insurance company, 
who, by the way, take on none of the loss risk as a Write-Your-
Own company. According to 60 Minutes, insurance companies have 
argued the reason the engineering reports were changed was to 
allow for a peer review process, which is a standard practice 
in the insurance industry.
    First question: Is it common for an engineering report to 
be changed without the knowledge of the engineer who prepared 
the report?
    Ms. Luckman. No, I don't believe that is common practice. 
And if it was truly peer review, the secondary person reviewing 
a report would have also been a licensed engineer.
    What we saw, especially in the cases of HiRise Engineering, 
is that Mr. Pappalardo, against whom the AG had recently 
pressed criminal charges, wasn't even a licensed engineer. He 
was just purely making changes to reports, rubber stamping 
them, and sending them out the door to deny damage.
    Mr. Hultgren. What do you believe accounts for the 
inexplicable fraud in the claims process, especially adjusters 
and engineering reports? What accounts for that fraud, do you 
think?
    Ms. Luckman. First and foremost, I think the fear, that we 
have heard from many adjusters that we work with, that if they 
overpay a claim, that there is that fear of audit; that FEMA 
may come back and say, why did you overpay the claim, whether 
it be $10, $1,000, or $100,000; and that there needs to be put 
safeguards in place that there needs to also be an audit for 
underpayment. And I think if there was audit for underpayment, 
we wouldn't have seen nearly half of the fraud that we saw in 
the review process.
    Mr. Hultgren. That maybe answers my last question, but I 
will ask it still: What do you think we can do to prevent 
something like this from happening again? Do you think that is 
the answer?
    Ms. Luckman. I definitely think there needs to be an audit 
requirement for underpayments. I think the messaging needs to 
be clear that there will be an audit for under- and 
overpayments. Payments should be proper. If an adjuster is 
getting paid to adjust a claim, they need to adjust it 
properly. And if they are unable to do that, then they should 
not be allowed to participate in the National Flood Insurance 
Program.
    Mr. Hultgren. Mr. Hecht, if I can go back to you, one last 
question with my one last minute. In your testimony, you 
mention a FEMA-subsidized rate policy written in Illinois in 
2006 for $998 that renewed this year for $2,525, an increase of 
153 percent over 10 years. You go on to say that private market 
providers may choose to write FEMA-subsidized risk.
    Is this policy in Illinois an example of where the private 
market could step in and provide better terms than the 
government? I could just see private providers take on a 
greater role in the market, but I am also a little surprised 
you can compete with government-subsidized policies.
    Mr. Hecht. Correct. The rate increases that FEMA has taken 
on subsidized policies have opened the door for the private 
market. We are the largest writer of private flood insurance 
currently. We do have competition. There are several other 
private market providers. All of them, to the best of my 
knowledge, are concentrating on writing FEMA's subsidized 
risks. It is not my company that is not cherry picking that 
term. The entire private market is doing what we are doing.
    Mr. Hultgren. Again, thank you all. This is obviously an 
important topic. We will keep learning from you and hopefully 
having ongoing communication.
    I yield back, Mr. Chairman. Thank you.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentleman from Texas. I would 
just note that he is not on the subcommittee, that is why he 
goes last, but we welcome him here for his questions. Mr. Green 
is recognized for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman. And thank you for 
allowing me to be an interloper today. I thank the ranking 
member as well. They are both friends, and I enjoy working with 
them.
    Mr. Hecht, you insure properties in some 36 or 37 States; I 
am not sure which. I have seen the two numbers, 36 and 37. Do 
you insure any properties now or have you ever insured any 
properties in Houston, Texas?
    Mr. Hecht. Yes.
    Mr. Green. If you have insured properties in Houston, 
Texas, you are familiar with the Memorial Day flood that caused 
over $100 million in damages, approximately, and you are 
familiar with the Tax Day flood that caused about $1.9 billion, 
depending on who is counting and how you count, in damages. 
Now, you probably also are aware of the fact that Congress has 
appropriated funds to mitigate and eliminate some of these 
damages. The Army Corps of Engineers has on its docket--there 
are projects that when completed would mitigate and eliminate a 
lot of these damages.
    The question I have for you is this: Given that we have 
these $100 million floods--there is some debate as to whether 
they are 100-year floods, but very little debate about the 
cost--and people are victims more than once in certain areas, 
and it is prognosticated that if we completed the projects that 
have been authorized by Congress, money not appropriated, we 
would eliminate and mitigate a lot of this flooding.
    Your policyholders who are suffering because the projects 
that we have authorized have not had appropriate 
appropriations, they have to suffer flooding more than once. Do 
you tell them that they should elevate, knowing that if the 
flood control district had the money to properly mitigate they 
might not have to elevate? Are you following me, Mr. Hecht?
    Mr. Hecht. Yes, I am following you.
    Mr. Green. How do your property--your persons that you have 
insured, how do they respond to this circumstance, which is not 
entirely unique? There are other places in the country where 
similar circumstances exist. How do they respond to this?
    Mr. Hecht. Actually, there are other places in the country 
where similar circumstances exist. We paid $30 million for 
flood claims in Baton Rouge just a few months ago. That is a 
project that had already been approved. That project was 
approved 10 years ago and never came to fruition.
    Had the mitigation project, the floodplain management 
project in Baton Rouge been accomplished, we wouldn't have paid 
$30 million. People wouldn't have had to have elevated their 
houses, they wouldn't have had to move out of their houses, 
they wouldn't have had to rebuild their whole lives. So I am a 
big fan of mitigation projects.
    Mr. Green. And obviously, the people that you insure, they 
mitigate because they raise the level of their properties. That 
is a form of mitigation, isn't it, when they elevate their 
properties?
    Mr. Hecht. Yes.
    Mr. Green. They are doing this, in some cases, because we 
are not appropriating the moneys that we have authorized. And 
in Houston, for example, we need about $311 million. That $311 
million hasn't been spent, but after the fact, post-disaster, 
we end up spending hundreds of millions of dollars.
    There has to be a point wherein we do this thing called 
cost-benefit analysis, that we are so fond of talking about 
here, and at some point we have to fund these projects and 
spend less on what we will call the front end of the process as 
opposed to more on what we will call the back end of the 
process. Are you in agreement with me, Mr. Hecht?
    Mr. Hecht. I am.
    Mr. Green. Okay. Does anybody differ with me on the panel? 
Everybody agrees.
    I am going to move to do something quickly. I have some 
documents that I would like to introduce into the record, 
without objection, hopefully, Mr. Chairman: A resolution from 
the Harris County Commissioners Court signed by all 
commissioners supporting reauthorization; a statement from the 
Communications Workers of America indicating that they would 
support the completion of these flood control projects; a 
letter from the City of Houston signed by Mayor Turner 
indicating that some 2,700 homes were damaged in the April 18th 
floods; a letter from the Flood Control District indicating 
that they could use the $311 million to help mitigate and 
eliminate; a letter from the Houston Partnership indicating 
that about $1.9 billion in damages were done with one of the 
floods, the Tax Day flood; and a letter from the Houston 
REALTORS Association indicating that the 2016 Tax Day flood 
caused 1,362 homes to be damaged that were within the 100-year 
floodplain.
    Mr. Chairman, I ask that these be added to the record.
    Chairman Duffy. Without objection, the documents will be 
included in the record.
    Mr. Green. Mr. Chairman, if I may say so, just in closing, 
I was disappointed to hear that the President was going to cut 
$190 million from the discretionary appropriations in NFIP, but 
I was also even more disappointed to learn that he is 
appropriating $4.5 billion for Executive Orders, one of which 
is to deal with a wall that Mexico is supposed to pay for.
    I yield back the balance of my time.
    Chairman Duffy. The gentleman yields back and is well over 
a minute beyond his 5 minutes.
    The Chair now recognizes the ranking member, Mr. Cleaver.
    Mr. Cleaver. Mr. Chairman, I have a communication from the 
National Association of Federal Credit Unions addressed to both 
you and me that I would like to have introduced into the 
record.
    Chairman Duffy. Without objection, the document will be 
included in the record.
    Chairman Duffy. The gentleman yields back.
    I want to thank our panel for their testimony today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    Again, I want to thank you for your time today and your 
testimony, for helping this panel get up to speed on your 
experience so we can develop the best product possible in a 
timely manner.
    With that, and without objection, this hearing is now 
adjourned.
    [Whereupon, at 4:15 p.m., the hearing was adjourned.]

                            A P P E N D I X


                             March 16, 2017
                             
                             
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