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


                        FLOOD INSURANCE REFORM:
                        A TAXPAYER'S PERSPECTIVE

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              JUNE 7, 2017

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 115-21
                           
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]        

                                      

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
28-176 PDF                  WASHINGTON : 2018                     
          
----------------------------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, 
U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free). 
E-mail, [email protected].                            
                           
                           
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

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

                              ----------                              
                                                                   Page
Hearing held on:
    June 7, 2017.................................................     1
Appendix:
    June 7, 2017.................................................    53

                               WITNESSES
                        Wednesday, June 7, 2017

Berni, Caitlin, Vice President, Policy and Communications, 
  Greater New Orleans, Inc.......................................     7
Ellis, Steve, Vice President, Taxpayers for Common Sense.........     5
Lehmann, R.J., Senior Fellow, R Street Institute.................    12
Saks, Joshua, Legislative Director, National Wildlife Federation.     9
Sternhell, Rebecca Kagan, Deputy Director and General Counsel, 
  New York City Federal Affairs Office...........................    10

                                APPENDIX

Prepared statements:
    Berni, Caitlin,..............................................    54
    Ellis, Steve.................................................    62
    Lehmann, R.J.................................................    73
    Saks, Joshua.................................................    81
    Sternhell, Rebecca Kagan.....................................    90

              Additional Material Submitted for the Record

Hensarling, Hon. Jeb:
    Written statement of the National Association of Home 
      Builders...................................................    96
    Written statement of the National Multifamily Housing Council 
      and the National Apartment Association.....................    98
    Written statement of the Reinsurance Association of America..   102
Lynch, Hon. Stephen:
    Written statement of the Consumer Federation of America......   104
    Joint written statement of CIAB, IIABA, NAIFA and PIA........   107
    Written statement of the Credit Union National Association...   110
    Written statement of Mitchell J. Landrieu, Mayor, City of New 
      Orleans....................................................   111
    Written statement of the National Association of REALTORS...   112

 
                        FLOOD INSURANCE REFORM:
                        A TAXPAYER'S PERSPECTIVE

                              ----------                              


                        Wednesday, June 7, 2017

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:35 a.m., in 
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Members present: Representatives Hensarling, Lucas, Posey, 
Luetkemeyer, Huizenga, Duffy, Hultgren, Ross, Pittenger, 
Wagner, Barr, Rothfus, Messer, Williams, Poliquin, Love, Hill, 
Emmer, Zeldin, Trott, Loudermilk, Mooney, MacArthur, Davidson, 
Kustoff, Tenney, Hollingsworth; Waters, Maloney, Velazquez, 
Meeks, Capuano, Clay, Lynch, Scott, Green, Cleaver, Moore, 
Perlmutter, Himes, Foster, Delaney, Sinema, Beatty, Heck, 
Vargas, Gottheimer, Gonzalez, Crist, and Kihuen.
    Chairman Hensarling. The Committee on Financial Services 
will come to order.
    The Chair is authorized to declare a recess of the 
committee at any time.
    Today's hearing is entitled, ``Flood Insurance Reform: A 
Taxpayer's Perspective.''
    The Chair now recognizes himself for 3 minutes for an 
opening statement.
    Today, we have 5 million households who are part of the 
National Flood Insurance Program (NFIP). Clearly, these people 
need some level of security, continuity, and predictability for 
their homes. They also deserve some fairness with respect to 
rates in the face of mapping issues and numerous cross-
subsidies, because unfortunately today, many moderate- and low-
income individuals actually subsidize others.
    But there is another group that deserves fairness as well, 
and that is the 110 million households who are not part of the 
National Flood Insurance Program, who subsidize the program. 
Ninety-six percent of Americans are currently subsidizing 4 
percent. We know this is a program that is nearly $25 billion 
underwater and runs an actuarial annual deficit of $1.4 
billion. It is unsustainable.
    The 96 percent of Americans have their dreams, they have 
their hopes, and they struggle to continue to bail out and 
subsidize a program that unfortunately is unsustainable.
    Before me and to my left and right is the national debt 
clock. It continues to spin out of control. I know some view 
this as some kind of partisan ploy. It is not. Perhaps others 
have grown accustomed to it, perhaps they are even anesthetized 
by it. But instead, it is something that should frighten us and 
it is something that should anger us. It is not something we 
can tax our way out of. As Lady Thatcher once said, sooner or 
later you run out of rich people.
    I, for one, cannot look my children in the eyes and be 
complicit or complacent in the national debt that threatens 
their future. It is not fair. We must act. It is both an 
economic and moral imperative. Now is the time, as the NFIP is 
up for reauthorization.
    There are a number of items that we must discuss and 
reform. One is mitigation. Mitigation can often be cost-
effective. It is a classic case where an ounce of prevention is 
worth a pound of cure. And I would ask that all fiscal 
conservatives be open to such.
    Another is premiums: 31 cents of every premium dollar goes 
to marketing and servicing of policies; this deserves 
attention. And only 46 cents is available to pay claims; this 
also deserves attention.
    Risk transfer requirements are necessary as are catastrophe 
bonds. We have challenges in multiple lost properties where 
roughly 2 percent of all properties account for almost 25 
percent of claims. And it begs the question, how many times 
should taxpayers be called upon to rebuild the same property?
    But most importantly, gradually, over time, we must 
transition all to actuarial sound rates, otherwise we are 
helping put more people in harm's way.
    Equally important to both taxpayers and ratepayers is 
opening up the program to private market competition. 
Notwithstanding Congressional intent, the Federal Government 
has an effective monopoly. We lose out on competition, we lose 
out on innovation which is a consumer's best friend.
    I want to thank the many Members who have worked on this 
bill on a bipartisan basis. I want to especially thank Chairman 
Duffy for his leadership, Chairman Luetkemeyer before him, and 
the gentlelady from New York, Ms. Velazquez, on the other side 
of the aisle. This is a problem that is not going away and 
there is a better, smarter way to handle flood insurance.
    I now recognize the ranking member for 3 minutes.
    Ms. Waters. Thank you, Mr. Chairman.
    And welcome to all of our witnesses.
    We are here to discuss draft legislation to reauthorize the 
National Flood Insurance Program. This hearing is critically 
important. The NFIP is set to expire in a matter of months and 
we simply cannot allow the program to lapse.
    For years prior to the passage of Biggert-Waters, Congress 
had been extending the NFIP for just months at a time. Twice, 
this led to shutdowns, including one that stalled more than 
40,000 home sales in 1 month alone. These short-term extensions 
place communities at risk and undermine our housing market.
    That is why, Mr. Chairman, we cannot let politics get in 
the way of the work of legislating to keep flood insurance 
available and affordable. While there are certainly some 
provisions in the draft package of legislation before us today 
that seem to be reflective of the ideas that I and many of the 
Democrats and Republicans that I have worked with on this 
program share, it absolutely falls short in many respects.
    Our requests are simple: provide a long-term 
reauthorization to ensure stability and confidence in the 
market; address the debt and the billions of dollars it costs 
policyholders already struggling with unaffordable premiums; 
provide robust affordability assistance to those who may 
literally lose their homes if we do not act; put guardrails in 
place to ensure that the development of a private market does 
not threaten the affordability and availability of coverage; 
invest heavily in mapping and mitigation, which we know saves 
more money than it costs; and put policyholders first by 
bringing transparency, accountability, and oversight to the 
various entities that participate in the program.
    Mr. Chairman, I truly believe that this reauthorization can 
be bipartisan, but I am concerned that if you do not heed my 
call to work together on the details of this package, it will 
cause irreparable harm to the millions of Americans who rely on 
the NFIP to protect their homes and businesses.
    Thank you, and I yield back the balance of my time.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from Wisconsin, Mr. 
Duffy, chairman of our Housing and Insurance Subcommittee, for 
2 minutes.
    Mr. Duffy. Thank you, Mr. Chairman. And I want to thank you 
for holding this important hearing.
    And I thank our witnesses for being here today. I am 
looking forward to your testimony and also hearing where 
everyone stands in this committee.
    And to the ranking member, I appreciate her comments. But I 
think a lot of her concerns are addressed in this bill and I 
look forward to continuing to work with her and other Democrats 
on an important issue that is nonpartisan. This is an issue 
that affects a lot of families in a lot of places across our 
country, some of them in wealthy areas, but many people who 
come from very impoverished areas rely on flood insurance to 
make sure they can keep their homes.
    But this is the third hearing we are having on this issue. 
We have had two on the Housing and Insurance Subcommittee. One 
was a hearing with FEMA and the other was a hearing with 
stakeholders in communities that rely on flood insurance.
    As the chairman mentioned, I think there are a few key 
parts of this discussion draft. One is on mapping. We 
continuously hear complaints about the mapping process and how 
people are mapped and how unfair it is. Chairman Luetkemeyer 
did a lot of work on this and I think we are striking the right 
balance on reforms to make sure mapping is done correctly.
    Another area of concern is Hurricane Sandy and the Sandy 
claims process. Those in the Northeast have been very 
aggressive and focused on making sure there are lessons that 
were learned from Sandy and we take those lessons learned into 
reforms into this package. And I think it has been a unique 
coalition of Republicans and Democrats working together to make 
sure that we had those reforms contained in this bill.
    We have a great component for mitigation, helping families 
mitigate their homes with about a billion dollars over a 5-year 
period of time of this bill.
    One of the key components is Mr. Ross's provision, which is 
that our private markets: one, can lower the exposure of the 
American taxpayer; and two, will offer better rates to 
homeowners who can't get a market-based rate from the NFIP.
    I have a lot more to say, but my time has expired and I 
yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now yields 2 minutes to the gentleman from 
Missouri, Mr. Cleaver, ranking member of our Housing and 
Insurance Subcommittee.
    Mr. Cleaver. Thank you, Mr. Chairman, and Ranking Member 
Waters.
    Good morning, and thank you for the opportunity to speak 
today to our full committee.
    I have been able to work over the past weeks with Chairman 
Duffy who has released six draft proposals designed to 
reauthorize the National Flood Insurance Program. And I think 
there are a number of things in there that many of us will 
happily embrace.
    And there are some things that I think will require some 
significant debate. It is not in our best interest, for 
example, to continue to pile debt upon debt with the $24 
billion we already owe as a result of this program. And so I 
think there should be a way for us to get that debt out of the 
way, have it forgiven and start over in a new program. And for 
us to do that, it would also be helpful if we could have the 
reauthorization extended for a 10-year period.
    If we do that, we will allow for the real estate industry 
and, frankly, FEMA to have some time of stability. And I think 
if we are really interested in getting the private sector to 
become more involved, the opportunity for the expansion also, I 
think, is a magnet for greater participation as we move into 
the next few years with the private sector.
    I have had a number of private conversations with Mr. 
Duffy. I have had meetings and roundtables with those in the 
private sector. I think everybody agrees that we need to do 
this. I look forward to the hearing today and hopefully some 
increased flexibility on some of the other issues that I have 
mentioned.
    Chairman Hensarling. The time of the gentleman has expired.
    We now welcome the testimony of our panel, whom I will 
introduce as a group. First, Mr. Steve Ellis is the vice 
president of Taxpayers for Common Sense. Mr. Ellis joined 
Taxpayers for Common Sense in 1999. Prior to that, he served as 
an officer in the United States Coast Guard for 6 years.
    Second, Ms. Caitlin Berni is the vice president for policy 
and communications at Greater New Orleans, Inc. Welcome. 
Greater New Orleans, Inc., is a regional economic development 
alliance serving the 10-parish region of southeast Louisiana. 
Ms. Berni is responsible for directing the organization's 
policy work at the Federal and State level and serves as the 
primary liaison with Congressional, State, and local elected 
officials.
    Third, Mr. Josh Saks is the legislative director of the 
National Wildlife Federation. He coordinates outreach on clean 
water and wetlands issues, energy policy, Federal 
appropriations for wildlife conservation, and protection of 
public lands in Alaska and the Rocky Mountain West.
    Fourth, Ms. Rebecca Kagan Sternhell is the deputy director 
and general counsel at the New York City Federal Affairs 
Office. Ms. Sternhell was most recently a deputy assistant 
administrator at the U.S. Small Business Administration.
    Finally, Mr. R.J. Lehmann is a senior fellow, editor-in-
chief, and co-founder of the R Street Institute. He is the 
author of the 2012, 2015 editions of R Street's Insurance 
Regulation Report Card and numerous other R Street policy 
papers. Before joining R Street, he served as deputy director 
of the Heartland Institute's Center on Finance, Insurance, and 
Real Estate.
    Welcome, to each and every one of you. Thank you for 
agreeing to testify.
    I know some of you have testified before us before, so you 
know the drill. For those who do not, you will be yielded 5 
minutes for an opening statement, and without objection, each 
of your written statements will be made a part of the record.
    At this time, Mr. Ellis, you are recognized for 5 minutes 
for your testimony.

STATEMENT OF STEVE ELLIS, VICE PRESIDENT, TAXPAYERS FOR COMMON 
                             SENSE

    Mr. Ellis. Thank you, Mr. Chairman. Good morning, Chairman 
Hensarling, Ranking Member Waters, and members of the 
committee.
    I am Steve Ellis, vice president of Taxpayers for Common 
Sense (TCS), a national, nonpartisan budget watchdog. Thank you 
for inviting me to testify on the upcoming reauthorization of 
the National Flood Insurance Program.
    Taxpayers for Common Sense is allied with SmarterSafer, a 
coalition in favor of promoting public safety through fiscally 
sound, environmentally responsible approaches to natural 
catastrophe policy. The groups range from free market and 
taxpayer groups to consumer and housing advocates to 
environmental and insurance industry interests.
    Mr. Saks's and Mr. Lehmann's organizations, the National 
Wildlife Federation and the R Street Institute, are also 
members of SmarterSafer.
    This brings me to the first of two issues I was asked to 
address, whether the NFIP represents an ideal model for the 
effective protection of residential and commercial property 
owners from the damages related to flooding. The quick and 
obvious answer is no, the NFIP is far from ideal. The program 
was created in 1968 to reduce ad hoc disaster payments and to 
deal with the perceived lack of available and affordable flood 
insurance.
    Nearly half-a-century on, it is nearly $25 billion in debt 
to taxpayers and there have been enormous technological 
innovations that enable insurers to accurately price risk and 
provide products and coverages unavailable through the NFIP. 
Today, the industry is clamoring to write flood and remove some 
of the risks from taxpayers, like they do elsewhere in the 
world.
    Though the NFIP provides critical insurance coverage to 
those at risk, the program must be significantly reformed to 
ensure that it is financially sustainable, provides sufficient 
incentives for reducing future flood damages and 
vulnerabilities, better protects taxpayers who have repeatedly 
backstopped the program, and better protects the environment 
and promotes nature-based mitigation solutions for the long-
term benefit of homeowners and taxpayers.
    We applaud the committee for putting legislative pen to 
paper and releasing their proposals. While we would like to see 
some changes and improvements, the legislative drafts provide a 
great start to the process.
    TCS believes that the rates in the program must over time 
be linked to risk while understanding that there may be some in 
the program who will need assistance in order to pay higher 
rates or reduce their risk. Currently, subsidies are 
effectively hidden from the homeowner, which eliminates any 
price signal of risk or incentive to mitigate to reduce the 
risk, thereby the premium.
    To that end, we are pleased that the committee proposal 
includes provisions to make premium methodology more clear to 
the policyholder as well as an explanation of their full flood 
risk and increased public access to historic loss and flood 
claims information.
    We are opposed to the artificial rate cap in the 
legislative proposal. A better approach is to target any 
premium assistance to those who need it and to encourage and 
target mitigation measures that could serve to reduce rates by 
reducing risk.
    We are pleased to see that H.R. 1422, the Flood Insurance 
Market Parity and Modernization Act, was incorporated into the 
legislative proposals. H.R. 1422 would ensure that the private 
sector flood insurance counts for the purposes of the mandatory 
purchase requirements.
    The private sector is now writing first-dollar flood 
insurance, even in the highest-risk areas. There are 20 
companies writing private flood insurance in Florida, home to 
nearly 40 percent of the NFIP policies. A majority of these are 
writing flood coverage in the highest-risk areas. TCS believes 
that the mapping fee on NFIP and private policies in the 
legislative proposal should be transparent to the policyholders 
as to its providence and use.
    On mapping, we support the legislative proposal for greater 
public involvement, use of risk assessment tools in determining 
rates, and directing FEMA to work with the Technical Mapping 
Advisory Council to improve the mapping process.
    Going further, FEMA should be required to move to a system 
of more granular property-level mapping, as has been done by 
States like North Carolina.
    TCS is pleased to see the committee included provisions to 
require an annual independent actuarial review of of the NFIP 
as well as provisions to increase the use of risk transfer 
tools. The greater information requirements as well as the 
gradual removal of subsidies and shift toward risk-based rates 
for multiple-loss properties makes sense.
    I recognize the value of targeting mitigation assistance to 
these properties, but it should be means-tested. If a homeowner 
can afford to mitigate, they should not be subsidized to do so.
    TCS also supports provisions that prospectively restrict 
access to NFIP for properties with extreme loss profiles and to 
not make available Federal flood insurance to high-risk 
properties that are added to the special flood hazard area as 
well as high-value properties when private coverage is 
available and relatively affordable.
    Again, TCS congratulates the committee on providing a 
responsible, thoughtful legislative start to NFIP 
reauthorization. While I noted some differences, we are ready 
to work with the committee to make reforms to the NFIP to 
ensure the program is sustainable in the long term.
    The second issue I was asked to address is the cause of 
NFIP's $1.4 billion annual premium shortfall and what reforms 
are necessary to ensure the program collects sufficient revenue 
to pay claims. My testimony ought to address that topic 
throughout.
    With better property-level mapping, a focus on mitigation 
and risk reduction, and a move to risk-based rates with 
targeted subsidies and private sector competition, we believe 
the NFIP will be strengthened and more people will be able to 
purchase needed flood coverage.
    Thank you for inviting me to testify. I am happy to answer 
any questions you may have.
    [The prepared statement of Mr. Ellis can be found on page 
62 of the appendix.]
    Chairman Hensarling. Ms. Berni, you are now recognized for 
5 minutes for your testimony.

    STATEMENT OF CAITLIN BERNI, VICE PRESIDENT, POLICY AND 
           COMMUNICATIONS, GREATER NEW ORLEANS, INC.

    Ms. Berni. Thank you, Mr. Chairman. Good morning, Chairman 
Hensarling, Ranking Member Waters, and members of the 
committee. I am honored to speak to you today about the package 
of bills proposed to reauthorize the National Flood Insurance 
Program.
    My name is Caitlin Berni and I am the vice president of 
policy and communications at Greater New Orleans, Inc. (GNO), 
the economic development organization for southeast Louisiana.
    Since April 2013, GNO, Inc. has led the Coalition for 
Sustainable Flood Insurance, a national alliance of 
approximately 250 organizations across 35 States, formed during 
Biggert-Waters implementation.
    Our coalition was a driving force behind the passage of the 
Homeowner Flood Insurance Affordability Act, compromise 
legislation that was cosponsored by more than 235 members of 
this body, passed with 306 votes, representing the overwhelming 
support of both caucuses, and passed the Senate with the 
support of 72 Senators.
    Since the passage of the 2014 law, our coalition has 
focused on advocating for a stronger policy framework for the 
NFIP. There are four primary policy areas that will provide for 
this stronger framework: mitigation; mapping; affordability; 
and program participation.
    Let me start by recognizing that there is no simple answer 
to the complex challenge of maintaining premium affordability, 
keeping the NFIP on sound financial footing, ensuring taxpayer 
protections, and accurately communicating risk. And this is not 
just about our coastal cities. Flood, and therefore flood 
insurance, matters for the entire country. Flooding is the most 
common natural disaster in the United States, affecting 
communities in each of the 50 States and territories.
    That said, our coalition is concerned that the committee's 
approach on several provisions may result in some of the same 
unintended consequences primarily around affordability and 
sustainability that arose during the implementation of the 
Biggert-Waters Act.
    Our coalition is concerned that increasing the floor of 
rate increases from 5 percent to 8 percent will have a 
detrimental effect on premium affordability. While the bill 
does propose to lower the overall premium cap from 18 percent 
to 15 percent, increasing the floor will negatively impact many 
more policyholders than lowering the ceiling will help, 
especially when considering that premiums are increasing an 
average of 6.3 percent this year.
    The rate structure and affordability provisions included in 
the 2014 law will eventually result in higher flood insurance 
premiums for all rate classifications already and increasing 
rates will likely result in affordability challenges during the 
midst of this next reauthorization period. We urge Congress not 
to increase rates or surcharges in this reauthorization.
    Another critical tool to preserving affordability is to 
maintain grandfathering so that those property owners who did 
everything as they were told by building to code will not be 
faced with rate shocks when their communities adopt new maps. 
Accurately communicating and assessing risk is a top priority 
for our coalition.
    We support the committee's proposals to improve mapping, 
including using better technology in map development and 
streamlining the mapping and appeals process. However, the 
current map process often results in communities having to 
fight inaccurate maps that do not take into account locally 
built flood protection features, which results in artificially 
inflated risk. We must question whether we can truly determine 
actuarial rates if they are based on flawed mapping.
    Ultimately, mitigation is the real answer to preventing 
flood losses and reducing taxpayer exposure to flooding. We are 
concerned that the committee's approach does not provide 
communities with the tools needed to effectively implement 
mitigation plans and will not accomplish reducing flood losses 
or taxpayer exposure. Congress should instead consider 
redirecting the surcharges in the 2014 law to better funding a 
disaster mitigation and the flood mitigation programs. This 
proposal will yield approximately $400 million annually for 
flood mitigation activities.
    However, our coalition does support several provisions in 
this package, including improving map development, 
strengthening the CRS program and modernizing ICC coverage. But 
given the past record of broad bipartisan support for 
affordable, sustainable flood insurance, we urge Congress to 
pass a multi-year reauthorization by September 30th that 
ensures affordability, improves mapping, increases support for 
mitigation activities, and increases flood insurance coverage 
across America.
    Again, thank you for the opportunity to speak to you today 
and for your service. I look forward to answering your 
questions.
    [The prepared statement of Ms. Berni can be found on page 
54 of the appendix.]
    Chairman Hensarling. Mr. Saks, you are now recognized for 5 
minutes for your testimony.

   STATEMENT OF JOSHUA SAKS, LEGISLATIVE DIRECTOR, NATIONAL 
                      WILDLIFE FEDERATION

    Mr. Saks. Thank you, Mr. Chairman. Chairman Hensarling, 
Ranking Member Waters, and members of the committee, I am 
Joshua Saks and I serve as the legislative director for the 
National Wildlife Federation (NWF), the Nation's largest 
member-based conservation group representing 6 million members 
and supporters and affiliate organizations in 51 States and 
territories.
    NWF is also a member of SmarterSafer, as was mentioned 
before.
    I appreciate the opportunity to testify today regarding the 
committee's proposal to reform and reauthorize the National 
Flood Insurance Program. But first, allow me to say a few words 
about NWF's interest in flood insurance.
    Floodplains, the flood-prone bottom lands that cradle 
rivers, streams, and oceans are where the land and the waters 
meet. Naturally functioning floodplains provide vital habitat 
for countless wildlife species as well as a number of other 
ecological benefits. As such, healthy floodplains are key to 
NWF's mission of protecting and preserving America's wildlife.
    But for today's purposes and more broadly speaking, healthy 
natural floodplains provide the best flood protection money can 
buy. Yet, while the NFIP was created with the intention of 
slowing or preventing new flood-prone coastal and river 
development, the current floodplain management system in the 
U.S. is not working. Instead of reducing floodplain 
development, flood-prone coastal population growth and 
development in the U.S. has skyrocketed since the program's 
creation.
    The coastal area that covers 17 percent of the Nation's 
land area is now home to half of its population. NFIP has 
contributed to this problem by encouraging development in 
flood-prone areas by charging subsidized rates and masking 
flood risk. In addition, the subsidized rates have failed to 
send market signals to encourage mitigation.
    To address this, NWF encourages the NFIP to charge risk-
based rates and encourage mitigation. For these reasons, NWF 
supports proposed efforts by the committee to ensure rates 
continue to move towards risk-based while providing some 
measures to keep flood insurance affordable.
    NWF is comfortable with the limitation on rate increases 
included in the committee's draft bills. We believe that this 
allows FEMA the flexibility to continue to move towards risk-
based market signals while limiting the potential impact on 
short-term increases.
    NWF also applauds the committee for allowing States the 
ability to create flood insurance affordability programs, the 
first time Congress has addressed affordability outside of the 
rate structure. We recommend the inclusion of additional 
provisions that would provide means-tested assistance to low-
income homeowners with a preference toward mitigation 
assistance rather than premium support.
    While NWF supports the committee's proposals to keep flood 
insurance premiums affordable, we believe the best way to keep 
rates low and to protect people and property is through 
proactive mitigation. In other words, we need to reduce 
people's rates by reducing their risk, not by subsidizing risk.
    A considerable amount of data shows this would be the most 
cost-effective way. Several analyses have shown a $2 to $6 
return on every dollar spent on flood mitigation. But not all 
mitigation is created equal. Community-wide, nature-based 
mitigation should be used whenever possible. These are 
practices that protect, restore or, in some cases, even create 
natural features that reduce erosion and flooding.
    NWF urges the committee to consider any and all ways to 
drive immediate investment in this kind of mitigation. We 
applaud the increase to ICC compliance coverage to help cover 
the cost of mitigation measures that would reduce flood risk, 
but loans are not enough to upgrade America's resilience to 
flooding. America needs immediate investment in coastal and 
river resilience and we encourage the committee to consider any 
and all ways to increase pre-disaster mitigation spending, 
including empowering FEMA to analyze whether it is most cost-
effective to provide premium support or upfront mitigation 
dollars.
    We also encourage the committee to consider spending a 
portion of the NFIP reserve fund dollars on up-front pre-
disaster mitigation.
    NWF applauds the risk reduction planning provisions of the 
proposal, a key step in protecting communities. We believe that 
it is essential to target flood-prone hot spots to create 
detailed plans to reduce flood risk and to implement them.
    We support the Royce-Blumenauer proposal to create 
mitigation plans for communities with multiple, severe, 
repetitive loss properties, and request that the committee find 
a way to ensure that the plans include community-wide, nature-
based mitigation.
    We also believe that the proposal to create a pilot program 
for buyouts of severe, repetitive loss properties for low-
income homeowners would ultimately provide the best type of 
mitigation, that which avoids loss of life and property by 
restoring lowlands to healthy, naturally functioning 
floodplains.
    Americans cannot wait until the next storm for long-term 
planning to take hold and we encourage the committee to find 
ways to invest immediately in community-wide mitigation.
    Finally, NWF believes that the discussion draft before us 
today represents true progress towards reforming the NFIP. We 
thank the committee for its work and I am happy to answer any 
questions you may have. Thank you.
    [The prepared statement of Mr. Saks can be found on page 81 
of the appendix.]
    Chairman Hensarling. Ms. Sternhell, you are now recognized 
for 5 minutes for your testimony.

   STATEMENT OF REBECCA KAGAN STERNHELL, DEPUTY DIRECTOR AND 
     GENERAL COUNSEL, NEW YORK CITY FEDERAL AFFAIRS OFFICE

    Ms. Sternhell. Thank you, Chairman Hensarling, Ranking 
Member Waters, and the New York delegation Members--Mrs. 
Maloney, Ms. Velazquez, Mr. Meeks, Mr. King, Mr. Zeldin, and 
Ms. Tenney--for the opportunity to testify here today.
    I bring the perspective of New York City as it engages with 
the NFIP. Many of the challenges the City faces, urban cores, 
waterfront development, and riverine communities, are common 
across communities nationwide. But New York has them on a 
larger scale.
    When Hurricane Sandy hit in 2012, the city was in the 
process of remapping, as the City's flood maps had not been 
updated in over 30 years. As the floodplain continues to grow 
with more extreme weather events, the NFIP will continue to 
play a critical role for our property owners. It is our 
position that the NFIP must be preserved.
    As we talk about the program today, I hope to emphasize 
that at the end of the day we are talking about real people, 
real taxpayers and their homes where they raise children and 
seek refuge. The property is almost always most homeowners' 
largest tangible asset and nest egg. Too often as this 
discussion proceeds, we can lose sight of this point. It is 
easy to glibly say people need to move or too bad, it is quite 
another to talk face-to-face with a constituent who must leave 
the home that has been in their family for generations, or to 
let them know that their property has little to no value 
because of insurance costs and policy made many miles away in 
Washington, D.C.
    The remainder of my testimony will focus on the chief 
concerns of our residents and the legislation being discussed 
today. The issue of greatest concern is affordability. A few 
months ago, the City was pleased to share with this committee 
and other stakeholders a RAND report commissioned to look at 
what affordability meant and model out options to remedy the 
issue.
    There are three major findings I wish to highlight here: 
grandfathering of properties is one of the most effective 
affordability tools available; targeted, means-tested vouchers 
or credits are the most cost-effective tools available; and 
mitigation is cost-effective with greater premium reductions 
and grants in support of it. Given this, we are concerned about 
the proposal in the integrity bill that ostensibly eliminates 
grandfathering after 2021.
    The affordability issue also looms large in the proposed 
integrity bill that would in many ways disallow any new coastal 
or riverine development and at the same time foreclose the NFIP 
as an option to many residents.
    Section eight would not allow NFIP coverage for new 
construction in the SFHA. In order to be eligible for NFIP plus 
the mandated 10 percent surcharge, the State would need to 
certify that insufficient private coverage is available. This 
must be done year-over-year adding bureaucracy and complication 
to the NFIP.
    Most troubling to residents is the resultant uncertainty as 
to whether their coverage will be dropped by the NFIP from one 
year to the next. What if no coverage is available that they 
can afford? More importantly, what happens with maintaining 
continuous coverage or if no private insurer will insure a 
given property?
    The situation becomes nightmarish for taxpayers and has the 
potential to leave many in a doughnut hole of no coverage. I 
would strongly urge the committee to revisit, if not eliminate, 
this provision and instead find a way to work within the 
mitigation bill.
    Hundreds of communities would face the threat of being 
kicked out of the NFIP because of a small number of properties 
with repeat claims. According to an analysis of FEMA data, 33 
of the members of this committee, spread equally across party 
lines, would have at least one community in their district 
potentially kicked out of the NFIP or sanctioned under this 
provision. These numbers grow far worse with the proposed 
change to the definition of multiple-loss property and severe, 
repetitive loss in the integrity bill that would qualify even 
more communities for sanctions.
    Another area of concern is the elimination of the non-
compete clause for write-your-own companies. Past witnesses 
representing the insurance industry in Congressional hearings 
have admitted to cherry-picking the policies which will leave 
the NFIP with only the riskiest properties, thus undermining 
its solvency.
    Rather than a dualistic approach, sharing all or sharing 
nothing, the City would like to offer a third way: eliminating 
the non-compete for a subset of properties, the A through D 
properties, for example. They can be a proving ground to 
validate or dispel fears about cherry-picking FEMA's book. The 
committee could set a timeframe for this and a review, ensuring 
the review is conducted by a non-stakeholder third party, 
invest the administrator with the authority to reinstall or 
remove more non-competes. This need not be an all-or-nothing 
proposition.
    Lastly, after the experience with the Sandy claims process 
and fraud, we wholeheartedly endorse the revisions to the 
claims process. We would also offer that a provision be 
included such that none of the rights to appeal, litigate, or 
review documents can be waived in court.
    I thank the committee again for their time and attention 
today and I am happy to answer any questions.
    [The prepared statement of Ms. Sternhell can be found on 
page 90 of the appendix.]
    Chairman Hensarling. Mr. Lehmann, you are now recognized 
for 5 minutes for your statement.

  STATEMENT OF R.J. LEHMANN, SENIOR FELLOW, R STREET INSTITUTE

    Mr. Lehmann. Chairman Hensarling, Ranking Member Waters, 
and members of the committee, my name is R.J. Lehmann. I am 
senior fellow, editor-in-chief, and co-founder of the R Street 
Institute. R Street is a think tank based here in D.C. that 
seeks to promote free markets and limited effective government.
    Our insurance project highlights the crucial role that 
competitive private insurance markets play in helping society 
evaluate, mitigate, and manage risk. Unfortunately, despite 
reforms passed by this committee and ultimately signed by 
President Obama in 2012, NFIP premiums still do not reflect the 
full risk of loss. The program is not sustainable in its 
current form, as evidenced by its $25 billion debt.
    To prepare for shifting risks, to ensure that markets 
function properly and to protect taxpayers from the exploding 
costs of disaster assistance, we believe it is essential that 
we begin to transition to a private, risk-based insurance 
market for floods.
    Shifting flood insurance to the private sector will mean 
bringing powerful catastrophe models to bear, to more 
accurately segment and price property-level risks. It will mean 
having companies compete to fashion products that are more 
attractive to policyholders and that better meet their needs.
    Progress has already been made in the area of reinsurance. 
The NFIP historically relied on the Treasury whenever its 
losses exceeded its resources. But earlier this year, FEMA 
executed its first private reinsurance transaction and we are 
pleased to see that the legislation would incorporate 
Representative Luetkemeyer's proposal to require FEMA to use 
reinsurance to lower taxpayers' direct exposure to catastrophic 
loss.
    The legislation also makes changes to better capitalize the 
NFIP's reserve fund which can be used to buy reinsurance. We 
support those changes, but we think reserve fund charges should 
be based on the risks posed by each individual property. The 
current assessments, which are based on a flat percentage of 
total premium, actually serve to magnify inequities between 
properties that pay subsidized rates and those that pay full 
risk rates.
    When it comes to primary flood insurance, the private 
market currently is only about 12 percent of the size of the 
NFIP, but it is growing, and this legislation would address 
several concerns that have so far hindered its growth. It would 
remove the restriction that prohibited write-your-own insurers 
from selling standalone coverage outside the NFIP. We are 
pleased also that it incorporates the Ross-Castor bill to 
clarify that private coverage can be used to meet the mandatory 
purchase requirements.
    One area where we think it does fall a little short is in 
granting NFIP claims data access. ZIP Code and Census bloc-
level data isn't sufficient for insurance underwriting. 
Property-level data is essential. We understand that there are 
privacy concerns, but we think that those can be resolved 
through nondisclosure agreements.
    There has been the concern raised that a more active 
private market would destabilize the NFIP by allowing insurers 
to cherry-pick low-risk policies until it was left a high-risk 
pool. But the program already serves as a high-risk pool. Only 
a relatively small number of homeowners buy flood insurance. 
Compare that with the United Kingdom where flood insurance is 
sold privately, 95 percent of homeowners have flood insurance 
coverage. The vast majority of existing NFIP policyholders 
reside in 100-year floodplains. That is a high-risk cohort. 
There are, by and large, no cherries to pick.
    Reducing the size of the program reduces its overall 
exposure and the potential burden it can place on taxpayers.
    The single-biggest impediment to a larger private market 
remains the fact that the program does not completely charge 
risk-based rates, both subsidized policies and grandfathered 
policies. We support moving to risk-based rates for all NFIP 
policies over time with an understanding that lower-income 
policyholders may need assistance. Such assistance should be 
targeted, limited, means-tested, and executed outside of the 
rate structure of the NFIP. And we support the draft 
legislation's proposal to authorize States to begin crafting 
affordability programs.
    We oppose the legislation's proposal to decrease the cap on 
annual rate increases. And we strongly oppose the $10,000 hard 
cap. While we understand that this will affect very few 
properties, the concern is, once it is introduced as a 
statutory mechanism, it could be lowered by a future Congress 
or even potentially by an Executive Order. And in addition, any 
premium relief, we believe, has to be conditioned on some form 
of disaster mitigation.
    So in closing, I would like to reiterate our support for 
the broad contours of the proposed legislation. Making the 
transition to private flood insurance or at least more private 
flood insurance is complicated, but not nearly as complicated 
as continually rebuilding flood-prone communities.
    And I would be glad to answer any questions the members 
might have.
    [The prepared statement of Mr. Lehmann can be found on page 
73 of the appendix.]
    Chairman Hensarling. Thank you.
    The Chair now recognizes himself for 5 minutes for 
questioning.
    So, Mr. Ellis, it appears we have had testimony before that 
bringing in private market competition, which apparently some 
oppose, can have the effect of actually lowering rates. I 
believe it was last year we heard from the Pennsylvania 
insurance commissioner, Ms. Miller, who cited several different 
cases where one Pennsylvanian was charged a $7,500 annual 
premium under NFIP, but found private coverage for $1,415. 
Another homeowner was quoted a $6,000 annual premium by NFIP, 
but found a surplus line for only $900. She went on to cite 
several other examples, yet we have a very small private 
market. So why do we have such a small private market?
    And I think also in previous testimony, you addressed the 
situation in Florida. Could you elaborate on capacity and the 
ability of the private market to help drive rates down?
    Mr. Ellis. Sure. Thank you very much, Mr. Chairman. The 
simple fact is, the only reason why someone would leave the 
NFIP to go to a private policy is if they got a better rate or 
they got a better product or both. And so we are just giving 
consumers choice. And certainly, that would be a way to drive 
down rates. Also, they could bundle that coverage. There is a 
company in Wisconsin that is doing that, that makes it part of 
the overall homeowner's insurance. Certainly, that was what Mr. 
Lehmann was referring to in the U.K.
    And then in Florida, what we saw with their citizens 
program was that actually when they did a take out of insurance 
policies from their wind pool there that actually the insurance 
companies took out policies from all across the different risk 
spectrum. It wasn't simply just lower-risk properties.
    Chairman Hensarling. If I could interrupt, another witness 
mentioned the threat of cherry-picking. So are you saying that 
the empirical evidence in Florida is otherwise?
    Mr. Ellis. Correct. It was a study done by the Reinsurance 
Association of America that showed that, no, they want to--
because one is, is that is where you are going to be able to 
make more money, quite frankly, is the higher risk and that is 
what insurance companies are in the business of doing. But then 
also it is that they need to diversify their portfolio and 
there are a lot of different reasons why an insurance company 
would want to necessarily have higher risk and then could lay 
off that risk in other parts of the world through reinsurance.
    It is a simplistic view to just think about it as cherry-
picking. It is not really the way the business would approach 
it.
    Chairman Hensarling. Mr. Saks, I don't want to put words in 
your mouth, but I thought I heard you say that we need 
affordability through mitigation instead of subsidies. Is that 
the essence of what you stated?
    Mr. Saks. Yes, sir.
    Chairman Hensarling. So could you expound a little bit on 
your organization's preferred method of mitigation and why that 
is preferable to subsidy?
    Mr. Saks. We believe that whenever a community can take 
steps to mitigate on the community-wide level, whether it is 
through natural features, which is best, or through levees or 
seawalls or other things like that, you are going to do the 
most to keep people's rates low. And we prefer that because at 
times it will provide the actions we like as opposed to 
continuing to provide subsidies.
    Chairman Hensarling. This is one you endorse? Did I 
understand you to endorse the Royce-Blumenauer bill as part of 
your testimony?
    Mr. Saks. That is correct.
    Chairman Hensarling. Okay. So this would be the essence of 
what you are trying to achieve?
    Mr. Saks. The Royce-Blumenauer bill will push communities 
to take a long-term view of planning how to mitigate flood 
risk. And we support that notion.
    Chairman Hensarling. Okay.
    Ms. Berni, Ms. Sternhell, if I heard your testimony 
correctly, you do not advocate premium increases for current 
NFIP holders, is that correct?
    Ms. Berni. Yes, sir, Mr. Chairman. We would advocate that 
the committee leave the current rate structure.
    Chairman Hensarling. And I understand. So you would like 
the current rate structure left as is. We have correspondence 
from CBO saying the program is running at a $1.5 billion 
actuarial shortfall a year. So it has an actuarial need for $5 
billion, but it is only bringing in $3.6 billion. We have 
similar information from GAO and FEMA. So are you advocating, 
Ms. Berni, as I understand it, that this should be a continued 
subsidy, that it is the taxpayer who should make up this 
shortfall? Is that correct?
    Ms. Berni. No, sir. I think we would argue that, as I 
mentioned in my verbal testimony, flooding does affect every 
State across the Nation and so this is a program that does 
benefit citizens.
    Chairman Hensarling. Okay, but who is supposed to make up 
the shortfall? If it is not ratepayers, then it is taxpayers. 
Who else is there? Am I missing somebody?
    Ms. Berni. We have some premium information from 2004 to 
2016 that shows the NFIP, with the exception of Hurricanes 
Katrina and Sandy and the 2016 losses, that the program 
ultimately does break even with the exception of a few 
catastrophic loss years.
    Chairman Hensarling. I have to tell you, that is not what 
CBO has said, it is not what GAO has said, and it is not what 
FEMA has said. And if I have the data correct, 3 of the 6 
costliest flood events have happened in the last 6 years.
    Mr. Saks, does your organization see flooding events 
becoming less severe or more severe with the passage of time?
    Mr. Saks. Mr. Chairman, flood events are happening more 
often and they are more severe.
    Chairman Hensarling. Okay, thank you.
    I am out of time.
    The Chair now recognizes the ranking member for 5 minutes.
    Ms. Waters. Thank you very much. Mr. Chairman, I really 
wish I had time to deal with two of the issues that have been 
identified by our witnesses. The private insurers, for example, 
I recall they left the market following Katrina and I guess 
every disaster. But I remember Katrina very vividly because I 
was in Mississippi and New Orleans and the private market 
abandoned those communities. So I don't have time to get into 
it.
    But on this mitigation, I believe in mitigation, too. 
However, there is not a dollar in the chairman's bill for 
mitigation. So where is it going to come from?
    Let me go on with some of the other things I want to deal 
with. I hope some of the other Members will take up these 
issues of private insurers and mitigation.
    The Republican bill attempts to respond to affordability 
challenges in the NFIP, but I am concerned that on the whole, 
the proposal does not meaningfully address affordability, and 
in some cases may actually make matters worse.
    On the whole, are you concerned that policyholders may 
actually be worse off with the increased costs called for in 
this bill? What should we do instead to keep premiums 
affordable? And this question is for Ms. Sternhell.
    Ms. Sternhell. Yes. We are concerned about affordability. 
And certainly raising the floor plus the 1 percent of reserve 
fund, which effectively is a 50 percent increase, so rates 
would have to go up 9 percent annually, basically, where they 
are currently escalating year-over-year at about 6 percent, 
does nothing to help the affordability situation.
    And in addition, we have long advocated, especially with 
the RAND report, to have an affordability program that utilizes 
means-tested vouchers or credits. The program proposed here in 
the legislation actually imposes additional surcharges to pay 
for that, so you are sort of taking with one hand and giving 
with another. So that, while well-intentioned, and we would 
gladly work with the committee to develop something else, isn't 
really going to get us as far as we need to towards the 
affordability.
    Ms. Waters. Well, you alluded to it. Adding all of the 
various premium increases, surcharges increases, reserve fund 
assessment, increases in calls for increased cross-
subsidization, you are saying that it seems that the 
policyholder is going to be paying much more in flood insurance 
under this bill.
    Can you talk a little bit about what that will mean? I was 
one of the authors of the Biggert-Waters insurance program 
which had all of the unintended consequences that I worked very 
hard to undo because we saw the premiums rise substantially. 
And some folks had premiums that matched their mortgage and 
they wouldn't be able to afford those kinds of premium costs. 
Could you share with us the other kinds of problems that these 
increases would cause the average homeowner?
    Ms. Sternhell. Certainly. And one of the ones we are 
already starting to see is distortion in real estate markets 
where people maybe want to get out of the floodplain and want 
to move, but nobody wants to buy that home because of the 
property value and because of the insurance costs affiliated 
with that property. So that affects not only that individual 
homeowner, but also you start to have community-wide level 
effects; I think it is down in Virginia where you are seeing 
this, where there are recurring floods and people would like to 
get out, but there is not an effective mechanism to do it or 
one where they can financially afford to even leave and start 
over somewhere else.
    Ms. Waters. I would like to just ask--I had not planned on 
asking this question or talking about it, but I believe that we 
absolutely should forgive all of this debt. And, of course, the 
chairman adamantly disagrees with that.
    Does anybody agree with me, have you taken a look at the 
debt and the interest that we are paying on this debt? Do you 
have any thoughts about it?
    Mr. Ellis. Congresswoman Waters, we are opposed to 
forgiving the debt at this time. We want to see more 
significant reforms in the program and think that is an 
important means to concentrate the mind on those reforms. If 
sometime in the future, I think that it would be reasonable.
    Ms. Waters. Before my time is up, give me one significant 
reform that would reduce these premiums.
    Mr. Ellis. I think it is about mitigation and about 
reducing risk through--
    Ms. Waters. There is no mitigation in the bill.
    Mr. Ellis. --reducing rates through reducing risk.
    Ms. Waters. How should it be done in the bill? How should 
it be identified? Mitigation, what are you talking about?
    Mr. Ellis. I am talking about what Mr. Saks referred to, 
which is community-wide mitigation is a better tool than even, 
like, individual homeowner mitigation.
    Ms. Waters. What is community-wide mitigation?
    Mr. Ellis. Pardon me?
    Ms. Waters. What are you talking about with community-wide 
mitigation? What are you talking about?
    Mr. Ellis. I'm talking about restoring wetlands. I am 
talking about removing structures, doing buyouts in certain 
cases. That type of approach is going to be more beneficial to 
the remaining homeowners than other ones.
    Ms. Waters. So you think communities should get together 
and come up with some money to pay for this kind of mitigation 
that you are talking about?
    Mr. Ellis. We do have pre-disaster mitigation programs. We 
have programs through the Army Corps of Engineers.
    Ms. Waters. No, not the Army Corps of Engineers.
    Mr. Ellis. We are supportive of creating a loan program 
with the FHA.
    Ms. Waters. Okay, reclaiming my time.
    Mr. Ellis. Yes, ma'am.
    Ms. Waters. You are alluding to the nonexistent. And so 
until you can identify, and this chairman, where the money is 
going to come from for mitigation, I don't think it is a 
credible way by which to talk about reform.
    I yield back the balance of my time.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Wisconsin, Mr. 
Duffy, chairman of our Housing and Insurance Subcommittee.
    Mr. Duffy. Thank you, Mr. Chairman.
    I wasn't going to go here either, but let us stick on the 
$24.6 billion debt. If that $24.6 billion was forgiven, would 
the program then be solvent next year, the year after, 5 years 
from now? Or is the CBO correct in that we will run a billion-
plus-dollar deficit every year from this point forward?
    Mr. Ellis. That is correct, Congressman. And actually, one 
of the largest loss years in the program's history was just 
last year where really the only storm that people really think 
about is Hurricane Matthew and some other flooding events. And 
so certainly, this program, while it does sort of teeter on the 
brink of solvency, these larger events are going to drag it 
down inevitably.
    Mr. Duffy. So forgiving the debt doesn't make the program 
solvent, it is going to continue to run deficits, even if the 
debt was forgiven. Is that a fair enough point, Mr. Ellis?
    Mr. Ellis. Yes, Congressman Duffy.
    Mr. Duffy. Okay. I want to just quickly talk about 
grandfathering, Ms. Berni.
    And welcome, it's good to see you here.
    Ms. Berni. Thank you.
    Mr. Duffy. On grandfathered properties, is it only poor 
people who own grandfathered homes, or are there poor people, 
medium-wealth people and wealthy people who have properties 
that are grandfathered?
    Ms. Berni. So we would define grandfathering as any 
property that was built to code at the time of construction. 
Then when a new map is introduced in their community, that 
property would be able to retain credit for building according 
to code. And so that is what we want to program.
    Mr. Duffy. Right. So it is not just poor people whose 
properties have been grandfathered, it is wealthy people who 
have also been grandfathered in as well, right?
    Ms. Berni. Correct. It is people who did everything that 
they were told to do from FEMA.
    Mr. Duffy. That is the right answer. So it is rich people, 
medium-wealth folks, and poor people who are grandfathered. And 
who in the program subsidizes those wealthy people who are 
grandfathered in the program? Isn't it all other ratepayers? So 
don't you actually have poor people who are paying an 
actuarially sound rate, those who aren't pre-FIRM or 
grandfathered? Aren't they actually paying higher rates to 
subsidize rich people who have been grandfathered?
    Ms. Berni. So about the grandfathered properties--
    Mr. Duffy. Yes or no?
    Ms. Berni. --if you have built to base flood elevation and 
you have built to that standard, then FEMA considers you as 
mitigating the risk against having to pay a claim.
    Mr. Duffy. But you could be making a million dollars a year 
and you could have your home that is grandfathered in and you 
are getting a subsidized rate that a poor person in Louisiana 
who is paying a higher rate to subsidize that wealthy 
individual. That is correct, isn't it? I am not wrong on that 
point.
    Ms. Berni. I would respectfully disagree. There was a 
property that we often used as an example last time around--
    Mr. Duffy. Does anyone else disagree with me on that point?
    Mr. Ellis, am I right on that point?
    Mr. Ellis. Yes, I agree with you, Congressman.
    Mr. Duffy. We have poor people subsidizing rich people in 
the current status of this program.
    Mr. Ellis. And the Government Accountability Office has 
documented massive cross-subsidies in the program, yes, sir.
    Mr. Duffy. Mr. Saks, do you agree with that? Am I wrong?
    Mr. Saks. No, you are not wrong.
    Mr. Duffy. Thank you.
    Mr. Lehmann?
    Mr. Lehmann. That is correct. And in addition, we don't 
actually, at this point, know how many grandfathered properties 
there are. FEMA is still studying that issue and is not 
expected to have a complete report until late next year.
    Mr. Duffy. I find that to be outrageous, that we have a 
program where poor people can actually subsidize rich people 
who can afford to pay an actuarially sound rate.
    Let us go to another point. In our bill--
    Ms. Velazquez. It happens every day.
    Mr. Duffy. What is that? I'm sorry, I missed that.
    If we can look out to 4 years from now, 4 years from the 
enactment of the bill, we are going to remove million-dollar 
homes from the program if your State commissioner certifies 
that a private market exists. Now, not multi-family units, we 
are talking specifically replacement costs for an individual 
home of a million dollars or more. Does anybody think that is a 
bad policy, on the panel?
    Ms. Sternhell. I do.
    Mr. Duffy. Why is that?
    Ms. Sternhell. Because setting that threshold doesn't 
consider the costs of construction in a lot of different 
regions. And the example I will give here is where you have 
attached homes and the engineering itself to actually rebuild, 
if you need to do that, can actually cost a million dollars.
    Because defining single-family homes is actually one to 
four families within a given property. So if I have my home and 
we rent out the top two floors because that is how we can 
afford to stay in our home, it may cost a million dollars or 
just over to actually rebuild that property. It is not that I 
am so rich necessarily, but that property, which is where my 
family has lived and we have rented it out to be able to live 
there, it may cost that much and now I am no longer able to 
obtain NFIP coverage and will be forced to go to the private 
market.
    Mr. Duffy. So if you have a home that has a replacement 
cost of a million dollars or more, it is your testimony that we 
should not, if a private market exists, move that property into 
the private market, we should actually keep them in the NFIP 
and potentially they could be grandfathered and they could be 
subsidized as well?
    Does that make sense to you, Mr. Lehmann?
    Mr. Lehmann. No, we support the--
    Mr. Duffy. Mr. Saks, does that make sense to you?
    Mr. Saks. Our view is that all properties need to be 
insured at a risk-based rate; it doesn't matter who provides 
the insurance.
    Mr. Duffy. Mr. Ellis?
    Mr. Ellis. I agree with my colleagues.
    Mr. Duffy. Can I just ask one quick question? We are moving 
from 31 percent on the write-your-own commission to 25 percent. 
Does anyone disagree with that provision of the bill? Do we 
have agreement there?
    Ms. Berni?
    Ms. Berni. Yes.
    Mr. Duffy. Okay. I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Cleaver, ranking member of our Housing and Insurance 
Subcommittee.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Mr. Ellis, I may have misunderstood you, and I looked for 
it in your written comments, and you didn't have it, but I 
thought I heard you say that the private sector is clamoring 
for greater participation.
    Mr. Ellis. Yes, sir.
    Mr. Cleaver. What private sector? Insurance or some other?
    Mr. Ellis. Yes, the insurance industry. Certainly, some of 
the members of SmarterSafer are insurance companies and 
reinsurance companies. They are advocating for reforms to 
actually be able to compete in the market.
    Certainly, Mr. Ross and Ms. Castor's legislation is 
supported by many insurance companies because they want to 
actually write in the flood insurance market. And we have seen 
after Biggert-Waters a lot of companies started interests in 
New York and in--
    Mr. Cleaver. Okay, thank you. That is different than what 
you said. It is different because you threw the statement out 
and you didn't add anything to it. The truth of the matter is 
they are not clamoring for it unless there are reforms. And one 
of the reforms, the lengthening of the reauthorization, giving 
them more time to look at what is at risk and all components of 
insurance, including reinsurance.
    The other question that I have for Mr. Saks and you, is you 
mentioned that more people would be at risk as time moves on. 
Why?
    Mr. Saks. From an environmental perspective, we are seeing 
tremendous sea-level rise, we are seeing land loss, we are 
seeing more frequent and more severe storms. And simply by not 
stepping up to provide mitigation and a response, the risk will 
continue to grow.
    Mr. Cleaver. You are absolutely right. I wish I had been in 
Paris with you giving me those comments.
    I was reading an article in National Geographic, which says 
that by 2021, between 4 million and 13 million more Americans 
will be at risk, from New York to South Carolina to Florida to 
California as a result of climate change.
    So, Mr. Ellis, you and I may have disagreed on something 
else earlier, but you also said the same thing. So climate 
change is having an impact on national flood insurance, is that 
right?
    Mr. Ellis. Yes, I would agree with that. Yes, absolutely, 
Congressman.
    Mr. Cleaver. Okay. Thank you very much for getting that 
information out.
    The other question that I have is, somebody had mentioned 
grandfathering earlier. Who was that?
    Ms. Berni. I spoke about that.
    Mr. Cleaver. Okay. So are you aware that FEMA actually 
doesn't even keep records of grandfathering?
    Ms. Berni. Yes, sir, because they define the policy as 
actuarially rated when it is written.
    Mr. Cleaver. In your opinion, is that the appropriate--
    Ms. Berni. Yes. We believe this policy should be maintained 
so that anybody who did as they were told and followed the 
advice of the Federal Government and built according to the 
strong standards that FEMA sets out in their maps should be 
provided with protection and should be given credit for doing 
as they were told.
    Mr. Cleaver. Okay.
    One more question, I will do this quickly. But I agree with 
increasing policyholder participation in the NFIP program, 
especially when you see we had a colleague, Cedric Richmond, 
who represents Baton Rouge, and I think 80 percent--80 
percent--of the people who were adversely impacted did not have 
any kind of flood insurance. What would you suggest as a means 
of addressing this problem?
    Twenty percent of all of the flood claims came from 
individuals who didn't have insurance.
    Ms. Berni. Yes, thank you for that question. You raise an 
important point. The Baton Rouge event that happened last 
August, as you referenced, about 80 percent of folks didn't 
have flood insurance. And I am sure that is hard for you all to 
understand after everything that has happened in Louisiana in 
the last 12 years, but Baton Rouge is about 100 miles away from 
the coast. This was a riverine backwater event. It could have 
happened anywhere. And so we have really tried to think about 
ways to get people to buy more insurance.
    As Mr. Saks mentioned, flooding is happening with more 
frequency and greater severity.
    Mr. Cleaver. Why?
    Ms. Berni. Because of climate change.
    Mr. Cleaver. Oh, my goodness.
    [laughter]
    Ms. Berni. And so we believe that encouraging people to buy 
more flood insurance both brings revenues in line with costs 
and will provide for greater protections for the taxpayer down 
the line as well. Ultimately, the NFIP was formed to put some 
of the people in flood-prone areas to have more skin in the 
game rather than just having it all funded directly from the 
taxpayer.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Luetkemeyer, chairman of our Financial Institutions 
Subcommittee.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    And welcome to all the witnesses this morning.
    Mr. Ellis, I want to start with you this morning. There are 
several things I want to get to here. Reinsurance, mitigation 
and rates are the things I want to talk about quickly here.
    With regards to reinsurance, to me it seems like it is very 
important. We have had the discussion already this morning 
about the fact that we have had these major catastrophes that 
accumulated $24.6 billion worth of debt. And while the FEMA 
NFIP program has the ability to purchase reinsurance, it has 
not done so until recently when they found out that we are 
going to try and force them to do it. Now they are starting to 
have a little pilot program where they are starting to nip 
around the edges on it.
    So I guess my question for you is, do you think it is a 
good idea to put the private sector on the risk for this 
excessive occurrence that would happen rather than the 
taxpayers?
    Mr. Ellis. Absolutely, Congressman. I think that it is 
important to lay off that risk on the private markets and then 
the private markets can lay off that risk all around the world 
or use catastrophe bonds or other means. And that is what 
insurance companies do to mitigate the risks rather than just 
simply borrowing more from taxpayers.
    Mr. Luetkemeyer. Okay. Is there enough capacity in the 
system that you see?
    Mr. Ellis. My understanding was that the most recent 
issuance was oversubscribed, was that there was more companies 
wanting to sell reinsurance to the NFIP than were actually able 
to.
    Mr. Luetkemeyer. Mr. Lehmann, I see you nodding your head. 
You are apparently in agreement with that?
    Mr. Lehmann. Yes, absolutely.
    Mr. Luetkemeyer. Very good, thank you.
    With regards to mapping, I have a kind of unique situation 
from the standpoint that I have the Lake of the Ozarks in my 
backyard. And the Lake of the Ozarks is a man-made lake as a 
result of a dam. It is a hydroelectric dam that produces 
electricity for a local utility. And because of topography of 
the area, you have 1,150 miles of shoreline, which is more 
miles of shoreline than the State of California. And because it 
is not a core lake, you can build right down on it. So as a 
result of this, I have a flood insurance problem in my 
backyard, which is where I live, the size of the State of 
California. So to me, mapping is extremely important.
    And I offered a bill to try and improve the ability of FEMA 
to be able to do something with their mapping process. Because 
in testimony in this committee some time ago, the director made 
the statement that--I asked him the question, how often do you 
think you are going to get back to be able to map these 
properties around the country? So, an average of 7 years. That 
means anywhere from 5 to 12 years before you are going to get 
to some of these properties probably. He said, yes, that is 
true.
    So what we did in our bill was say, if at the end of 3 
years you haven't been able to get back to these properties, 
the local folks should be able to remap their own things. And I 
will give you an example. At the Lake of the Ozarks, for 
instance, there are 27,000 people with a piece of property 
around this lake and that means you have 300 or 400 letters of 
map amendment (LOMAs) every year that cost $300 or $400 or $500 
a piece. This is ridiculous. So if the communities wanted to 
get together to do this to be able to remap their communities, 
it seems to me like they should be able to do that.
    What do you think of that idea, Mr. Ellis?
    Mr. Ellis. I think as long as there are adequate safeguards 
and standards that meet what the Technical Mapping Advisory 
Committee is laying out currently for FEMA, that makes sense. I 
also noted in my testimony that the State of North Carolina, 
for instance, took mapping money and actually used aircraft to 
do LIDAR elevation data in their higher-risk counties. So that 
is certainly an area where they took the bull by the horns and 
did a better job for their consumers and actually made all that 
information available online.
    Mr. Luetkemeyer. Ms. Berni, would that be helpful in your 
area, to allow the local communities to be able to remap 
everything to make sure they are accurate?
    Ms. Berni. Yes, absolutely. One of the big things we have 
advocated for is greater local stakeholder involvement. We have 
seen, though, that a lot of times local communities oftentimes 
don't even have the funding to appeal the maps. So we would 
request or respectfully request that the committee just 
consider funding for additional mapping increases. But yes, we 
would support this proposal and additional local stakeholder 
input in mapping.
    Mr. Luetkemeyer. Thank you very much.
    With regards to the replacement cost rates, we have had a 
discussion in this area a little bit, but it seems to me and 
one of the things that we did, I have offered a bill with 
regards to this, and basically it takes the Florida model which 
shows that it can be done and done successfully. But what we 
are doing is the average home is $167,000 and basically people 
under $167,000 are supporting and subsidizing those above it 
when you have one rate across-the-board.
    It would be like if you had a $167,000 house, but yours was 
only $50,000 in value versus $250,000 in value, but you are 
charged one premium across-the-board. To me, this is nuts. This 
doesn't take into account the value of the property. So I think 
it is very important that we get back to replacement cost 
values.
    Mr. Lehmann, what do you think about that? I know you had 
some testimony with regards to the risk-based rates.
    Mr. Lehmann. Right. My understanding is that FEMA's current 
methodology uses a sort of national average for replacement 
costs as opposed to property-level replacement costs or even 
local replacement costs. There would have to be a process. I 
know there are contractors who provide that data, data and 
analytics firms.
    Mr. Luetkemeyer. It would seem to me that it would also 
make the rates more competitive.
    Mr. Lehmann. Absolutely. And currently, there is no doubt 
that a property that is more expensive to repair is--
    Mr. Luetkemeyer. Yes. So if you have lower-income folks who 
have a $50,000 house, even though we would restructure the 
program, they are going to get a break on this premium.
    Mr. Lehmann. That is correct.
    Mr. Luetkemeyer. Thank you very much.
    I yield back, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney, ranking member of our Capital Markets Subcommittee.
    Mrs. Maloney. Thank you, Mr. Chairman.
    And I would like to first of all thank the City of New York 
and Mayor de Blasio's office for commissioning a RAND study of 
flood insurance for New York, which examines a number of 
different policy options to ensure that flood insurance is 
available and affordable for middle-class families.
    And I would like to ask unanimous consent to place in the 
record the RAND report.
    Chairman Hensarling. Without objection, it is so ordered.
    Mrs. Maloney. Thank you very much.
    First of all, I would like to ask Ms. Sternhell, section 
two of the Flood Risk Mitigation Act would penalize communities 
with more than 50 repetitive loss properties or more than five 
severe, repetitive loss properties if they don't have a 
community-wide plan for addressing these specific properties.
    And my question is, does it make sense for entire 
communities to have to develop a plan to deal with just five 
properties and to potentially be kicked our of the National 
Flood Insurance Program if they don't make sufficient progress 
on this plan? And aren't these thresholds way too low? What is 
your opinion?
    Ms. Sternhell. On having a plan? Absolutely, yes, I agree 
we should. On being kicked out? Absolutely not. And on the 
thresholds? Yes, they're far too low, especially when you 
consider the size of some of the communities. New York City's 
floodplain, based on the pre-FIRMs that are undergoing revision 
right now, has over 70,000 structures. So it is one thing if 
you have a few hundred structures and say, okay, five very bad 
apples and you need to deal with this. It is another thing if 
you have over tens of thousands of structures.
    Moreover, sometimes these properties aren't located in 
contiguous regions. We have the five boroughs, for example. We 
could have problems in Staten Island, two opposite sides of the 
island, a property in Queens and then two in Brooklyn miles 
away from one another. We are happy to develop plans, but at 
what cost then to deal with these and to remedy these? And what 
then becomes available to us?
    Would the committee be suggesting we utilize eminent domain 
or something that severe to remedy these properties? And with 
what funding available, given pre-disaster mitigation funding 
is not hugely available and it is not nearly robust enough to 
meet the need of the Nation?
    Mrs. Maloney. And do you think it is fair for entire 
communities to be sanctioned under this provision?
    Ms. Sternhell. No, I don't. And FEMA already has some 
authorities to suspend communities for failure to manage their 
floodplains properly. I don't know why we would need these new 
additional sanctions or provisions to kick whole communities 
out. Certainly, again, we absolutely endorse developing new, 
rigorous floodplain management plans, but not such that we 
could eventually be kicked out because we are trying our best.
    Mrs. Maloney. Okay. Now, I would like to ask you also about 
section eight of the National Flood Insurance Integrity 
Improvement Act, which would prohibit these policies altogether 
after 4 years for new structures that are either in special 
food hazard areas or that have a replacement cost of more than 
a million dollars. Even if FEMA temporarily waives this 
prohibition, which you can only do for 1 year at a time and 
only if private market insurance is not available, there will 
be a 10 percent surcharge on these policies for these new 
structures.
    How would this provision affect New York City?
    Ms. Sternhell. It would create real problems in terms of 
redevelopment on the floodplain and three issues really. First, 
the one from the taxpayer perspective of whether you will have 
an NFIP versus depending on whether the State goes ahead and 
makes the case. It is entirely possible that there is 10 
percent market penetration in one part of the City, but not 
elsewhere. But now that person and that homeowner is foreclosed 
from accessing the NFIP. So that gets to choice. And 
foreclosing on the choice, we do not object to people going out 
and getting private insurance. If they get a better rate, go 
ahead. But foreclosing the option of the NFIP is a real 
problem.
    Mrs. Maloney. Now, do you think it is fair for homeowners 
to be penalized really for the private market's failure?
    Ms. Sternhell. No, I don't. Not at all.
    Mrs. Maloney. It is not available usually, Okay.
    Ms. Sternhell. Certainly, some development can actually 
help make communities more resilient even. Taking over a 
parking lot and putting resilient housing there can actually 
protect a neighborhood.
    Mrs. Maloney. And as you noted in your testimony, in some 
ways, flood insurance is very different in New York City. For 
example, some mitigation options that are available in other 
communities, such as elevating the house, is simply not an 
option in New York City when you have tall buildings 50 stories 
and even higher, you can't do that. And the mitigation options 
that we do have in New York don't get enough credit in the 
current program.
    So do any of these flood insurance bills address this 
issue?
    Ms. Sternhell. Not to the degree we would like to see.
    Mrs. Maloney. And could more be done to make sure that the 
mitigation options that are available to large urban areas, 
like New York, get the credit they deserve for lowering risk to 
the National Flood Insurance Program?
    Ms. Sternhell. Yes, if I may very quickly answer.
    Chairman Hensarling. Quickly.
    Ms. Sternhell. Yes. If we could actually look and see that 
mechanicals are a big part of every claim, let us lift the 
mechanicals and then let us reduce the premium because we got 
things out of harm's way.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentlelady from Missouri, Mrs. 
Wagner, chairwoman of our Oversight and Investigations 
Subcommittee.
    Mrs. Wagner. Thank you, Mr. Chairman.
    And thank you all for appearing today to discuss the 
reauthorization of the flood insurance program which is, as we 
all know, set to expire this year in September. This is an 
important issue for the St. Louis region and, in particular, my 
2nd Congressional District which has seen two major floods, in 
fact two 500-year floods in less than 2 years.
    With the NFIP being $24.6 billion in debt, as has been duly 
noted, it is important to make sure that there are reforms to 
the program necessary to keep it solvent and continue providing 
coverage for those who live in the areas that truly need it.
    To help offset this burden on the NFIP, I believe a strong 
private market is important for offering consumers more than 
one choice and giving them flexibility and options at 
oftentimes greater affordability in the coverage they are 
seeking.
    Mr. Lehmann, when the NFIP was created in 1968, the belief 
was that the private insurance markets lacked the data and the 
ability to assess flood losses. What has changed in terms of 
data, technology, and the market's ability to assess risk since 
then, sir?
    Mr. Lehmann. So there are a couple of aspects. There is the 
issue of the modeling is the first major answer. Modeling was 
introduced in the 1980s and has progressed significantly since 
then. Also in the 1960s, you still had a lot of smaller 
regional insurance companies that had solvency risk and not the 
deep reinsurance markets that we have today. So the market has 
changed significantly and larger companies, it is a global 
industry where risk gets sort of segmented and chopped up and 
sent around the world, which is a good thing. And keeping risk 
on our shores is not something that we want to encourage.
    Mrs. Wagner. Do you believe, sir, that private capital 
would retreat from the market in those cycles where there are 
significant floods, for instance?
    Mr. Lehmann. There is a noted, in the property casualty 
insurance industry, cycle of capacity expanding and rates 
dropping and capacity shrinking and rates increasing. So that 
is normal, but it is a cycle. When rates go up, that attracts 
more capital and brings rates back down again. So we saw that 
after Hurricane Katrina. We certainly saw it after September 
11th. We have been in a soft market for some time, so even 
Hurricane Sandy did not have the effect of making capital 
retreat. It has stayed soft all through that.
    Mrs. Wagner. Interesting. Your testimony refutes the notion 
that private sector cherry-picking the lowest-risk properties 
will destabilize the NFIP, which is something we hear often, to 
be perfectly honest. Can you provide more detail on that?
    Mr. Lehmann. I would not dispute that subsidized properties 
are unlikely to be moved out of the NFIP until they pay risk-
based rates. That is true. But it is not the level of risk. 
There are subsidized properties that are higher and lower risk. 
There are high-risk properties that pay relatively a lot for 
the risks that they face. And there are low-risk properties 
that don't pay enough.
    So it is a question of, does the risk match the premium? 
Those where the premium exceeds the risk will be the first to 
go, but that is not the same thing as cherry-picking. The 
program itself is a high-risk program and every policyholder in 
that program presents a potential cost to the taxpayers, which 
is why on an annual basis it is not actuarially sound.
    Mrs. Wagner. Will private insurance companies need to take 
on higher-risk properties in order to kind of chase the yield?
    Mr. Lehmann. They will take on high-risk properties where 
the high-risk property presents an appropriate return for them. 
I live in Florida, and that is something we have seen in 
Florida, in the citizens depopulation program, that high-risk 
properties, particularly in south Florida, are among the most 
attractive to the private market.
    Mrs. Wagner. Which barriers with the NFIP prevent private 
insurance from entering the market? And how do these 
legislative drafts today help solve some of those problems, Mr. 
Lehmann?
    Mr. Lehmann. There remains some confusion about what counts 
for the mandatory purchase agreement. The Ross-Castor language 
looks to address that. We do think there is still some 
confusion, even with that bill, in that the Federal banking 
regulators have not weighed in yet, and we don't know when they 
will. And so in the interim, we would like that language to be 
self-executing so that where a State insurance commissioner 
decides, determines that a policy is appropriate, that it will 
meet the mandatory purchase requirement. That is the top.
    Mrs. Wagner. My time has expired. I yield back, Mr. 
Chairman.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentlelady from New York, Ms. 
Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    And let me take this opportunity to thank you and my 
colleague, Mr. Duffy, for working with me to address so many of 
the claims processing problems New Yorkers faced after 
Hurricane Sandy. I was pleased to see many sections of my bill 
were included in the discussion drafts we are reviewing today.
    While I have concerns with portions of these discussion 
drafts, it is my hope that we can continue to work in a 
bipartisan manner to address these concerns and pass a long-
term reauthorization of the program.
    Ms. Sternhell, as you know, New Yorkers were devastated by 
Hurricane Sandy, particularly my Congressional district. 
Following the storm, there weren't enough qualified, licensed 
engineers available to assess homeowners' damage, exacerbating 
many of the problems homeowners faced after the storm.
    Can you please speak to the importance of having qualified, 
licensed engineers participate in the assessment of storm 
damage?
    Ms. Sternhell. Certainly. I think it comes down to trust 
and trusting that what you are being told is fact and you can 
trust and rely upon what they are telling you as you proceed 
not only to rebuild, but to pursue your claim.
    We dealt with an analogous situation with the rapid repairs 
program. We needed licensed electricians and plumbers 
immediately available to come and do work so we knew work was 
being done correctly. And that was such a big part of the 
claims process and the frauds where you would have individuals 
who maybe weren't engineers and maybe were assessors, but 
didn't necessarily have skills or weren't equipped to deal with 
the certain situations they were presented with. So we would 
absolutely endorse this provision.
    Ms. Velazquez. Thank you.
    Ms. Sternhell, in your testimony you suggest that a 
provision be included in the NFIP policy contracts that 
notifies policyholders that they cannot waive the right to 
appeal, litigate or review documents in a contract. Can you 
explain why inclusion of such a provision is important to a 
homeowner pursuing a flood claim?
    Ms. Sternhell. Certainly. When people are in a vulnerable 
state, we would like to ensure that they preserve their rights. 
They may not need to exercise them, but they retain those 
rights. And so we would not want to see a situation where, by 
virtue of signing an insurance agreement or maybe even having 
an assessor or adjuster, anybody can come by and ask you to 
sign a waiver of some sort, you no longer have the remedies you 
are entitled to under this legislation.
    Ms. Velazquez. Thank you.
    And, Ms. Sternhell, the National Flood Insurance Program 
Policyholder Protection and Information Act of 2017 requires 
the FEMA Administrator to consider the differences in 
properties located in coastal and inland areas when calculating 
annual premium rates. What would this provision mean for 
policyholders living in the coastal areas of the U.S., many of 
whom already pay higher premiums than most other NFIP 
policyholders?
    I know that there was an exchange previously, but I would 
like to offer this opportunity for you to expound on how it is 
going to impact those who live in coastal areas.
    Ms. Sternhell. Certainly. What is confusing a little bit 
about this provision is that coastal residents already pay V 
zones. And so there is already a mechanism within the program 
to actuarially rate coastal properties with the V zone 
designation. So that already is present within the NFIP 
program.
    Ms. Velazquez. What will this provision mean for the 
residents of New York City, specifically?
    Ms. Sternhell. To be honest, Congresswoman, I am not 
exactly sure. What I would hate to see is that further 
divisions that aren't based on sort of accurate mapping or 
actuarially principles further creating a divide. Not only do 
we have coastal V, but we also have riverine communities, so we 
have the full gamut and understand the spectrum of rates and 
zones that can be available.
    Ms. Velazquez. Thank you.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from Michigan, Mr. 
Huizenga, chairman of our Capital Markets Subcommittee.
    Mr. Huizenga. Thank you, Mr. Chairman.
    And I am going to try to--I have a lot of material, so I 
will try to move along quickly.
    And I am going to start with you, Mr. Ellis. As pointed out 
by Chair Wagner, in 1968, we might not have had the ability to 
do what we can do today as far as data collection and all those 
things. But how would you gauge the private sector's appetite 
for entering the flood insurance marketplace? And how much of 
what currently is in that public space do we estimate that they 
could absorb?
    Mr. Ellis. As I indicated in my testimony, Congressman, and 
this kind of gets to the comments about clamoring, that 
actually under the current provisions of the flood insurance 
program, so with no further reforms, we have about 20 companies 
that are writing first-dollar flood insurance in the State of 
Florida and they are writing in all the various risk profiles. 
That is where 40 percent of the NFIP policies. So, clearly, 
there is an interest there.
    And it also would get to I think one of the questions about 
getting more people with flood insurance. The more we normalize 
the flood insurance experience, that is it part of a rider on 
your existing homeowner's policy, more people are going to be 
insured. And that is what we should be trying to get is more 
Americans actually having flood insurance than do today so you 
don't have what happened in Baton Rouge where you don't have so 
many people actually only getting a few thousand dollars in 
disaster response instead of getting, in that case, $87,000 in 
flood insurance payments.
    Mr. Huizenga. Okay. And do consumers benefit when there is 
only one choice?
    Mr. Ellis. Absolutely, Congressman. And as I said before, 
the only reason why anyone would opt for a private policy is 
they got a better price or a better product or both.
    Mr. Huizenga. Okay.
    Ms. Berni, we have learned a lot, hopefully we have learned 
a number of things since 1968. I am curious what you believe 
has changed in terms of data, technology, markets' abilities to 
assess risk. And since 2012, what happened with the development 
of a private flood insurance market?
    Mr. Lehmann. Since 2012, a lot of it did start with 
Biggert-Waters and the acknowledgment that subsidized rates 
were going to start to recede and that grandfathered rates, 
that was--
    Mr. Huizenga. Was that pun intended, receding on the 
flood--
    [laughter]
    Mr. Lehmann. Yes.
    Mr. Huizenga. Just curious.
    Mr. Lehmann. There would be risk-based rates, that we would 
be gradually moving to risk-based rates did begin to interest 
private insurers in writing much more than they had been.
    Among the things that have changed that has brought in more 
private capital is simply the fact that home prices have 
increased. So we have a $250,000 statutory limit, and so you 
have much more umbrella coverage, excess coverage. Private 
insurers are writing that, they are becoming comfortable with 
the risk. They are buying reinsurance for it. And once they get 
to that level of comfort, they are ready to write it at the 
first dollar.
    Mr. Huizenga. You believe that consumers should be involved 
and engaged in this, right?
    Mr. Lehmann. Absolutely.
    Mr. Huizenga. Okay.
    How about local entities, local governments?
    Mr. Lehmann. Certainly, yes. We support Mr. Saks, his 
proposals of community-based mitigation. We think that is 
appropriate and, of course, in addition to hardening 
properties, elevating and so forth.
    Mr. Huizenga. Yes. I think that is what a lot of us are 
concerned with. I grew up in a flood zone, in a floodplain. We 
had to lobby our local county road commission to change a 
bridge that they tried to say removed as much water, and 
clearly it didn't because we haven't been flooded or my parents 
haven't been flooded.
    Ms. Sternhell, we did just pull Mayor de Blasio's executive 
budget, $82.2 billion. My understanding is the RAND 
Corporation, the most aggressive mitigation grant and loan 
estimation was $100 million of that. And as I do the math here, 
I think that is .00121655 percent of the entire New York City 
budget.
    Ms. Sternhell. I will take your word for it.
    Mr. Huizenga. And it seems to me, at some point or another, 
we have to have our local entities step into that gap as well.
    And with that, my time has expired.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New York, Mr. 
Meeks.
    Mr. Meeks. Thank you, Mr. Chairman.
    And I, too, want to thank you and the ranking member, and 
Mr. Duffy, and Mr. Cleaver, for working on this bill and trying 
to make it a bipartisan bill, for surely when we talk about 
these floodwaters, I believe as a result of global climate 
change, this is an area that we need to figure something out 
because it comes to all regions of the country. It affects all 
parties and all individuals. So I am hopeful that we can 
continue in that same vein and working together and ultimately 
come up with a product that is good for everyone.
    With that, I was intrigued in listening to some of the 
conversation and the questions and answers going back and 
forth. And I come from a district that was devastated by 
Hurricane Sandy. And this whole issue of grandfathering is 
extremely important to me.
    If you look at the communities in my district, especially 
those in Nassau County and along the Rockaway Peninsula, you 
find individuals who are--many of them are not rich. Many of 
them are not poor, but they are middle-class, hardworking 
individuals who are trying to live the best that they can and 
the American Dream. They made sacrifices to own their home.
    So I would like to ask Ms. Kagan Sternhell first about 
these grandfathering provisions and what happens if they were 
removed. Because when I talk to my constituents, some will just 
talk about how their premiums will increase by thousands of 
dollars and then they couldn't afford the homes because they 
are paying day-to-day, struggling day-to-day to pay their 
mortgage, et cetera. Then what happens to these hardworking, 
middle-class Americans?
    So may you elaborate on the value of grandfathering and the 
implications removing grandfathering would have on the 
affordability of a house for a hardworking, middle-class 
family?
    Ms. Sternhell. Yes. And, to what Caitlin has elaborated on 
an others, we believe grandfathering is important because where 
you have built to code and done as you have been told, you 
should not be penalized as the world changes around you 
necessarily. Now, that is not to say that the communities and 
the City itself is undertaking a number of mitigation measures 
and certainly around your district with the Rockaway hardening, 
but for a lot of these individuals that is part of the reason 
we commissioned the RAND study to look at what this means and 
develop the thing called a pity ratio which looks at sort of 
the cost of carrying a home, independent of just necessarily 
home value or income, certainly factoring income in, but 
whether your insurance-burdened, which actually hits at some of 
these middle-class individuals and these homeowners to say, 
okay, by virtue of these insurance rate increases or 1 percent, 
2 percent, what have you, it becomes unaffordable to even live 
in your home.
    And so that is why grandfathering was sort of highlighted 
in that report as one of the most effective tools. And then one 
of the even more cost-effective tools was actually means-tested 
targeted vouchers or credits to help individuals stay in their 
homes.
    Mr. Meeks. Thank you.
    And I want to stay with you, Ms. Sternhell, because I think 
in your testimony you noted that proposals to disallow the 
National Flood Insurance Program coverage for new construction 
and special flood hazard areas are misguided, I think that was 
your word. And from what I have read, I think I agree with you 
considering that approximately 400,000 New Yorkers live in 
these areas. And a smart alternative would be to require 
sustainable construction in high-risk communities, I believe.
    For example, in New York we saw new construction in New 
York City communities, including Battery Park and Arverne by 
the Sea, emerged relatively unscathed from Hurricane Sandy 
because they were built for resiliency.
    Could you provide an alternative proposal that would 
protect taxpayers from risks, yet maintain NFIP's accessibility 
to homeowners in flood-prone areas like Nassau County and the 
Rockaways?
    Ms. Sternhell. Absolutely. So for individual homeowners, 
the City immediately changed its building code following 
Hurricane Sandy such that any new construction has to be built 
to what the current FEMA standard is plus additional feet of 
freeboard. And so that if anything is going to be rebuilt, you 
have to be building to a more resilient standard and one that 
considers the environment.
    So there are sort of City-level things we can do in 
addition to the Staten Island sea wall and programs like the 
Staten Island Bluebelt, which are actual wetlands that we have 
built that do ponding and where you can't actually have great 
drainage. They will actually feed in, absorb water and drain it 
out to the sea, further protecting communities, just as Mr. 
Saks has talked about. So we absolutely endorse the green 
infrastructure options.
    And again, sort of general routing and with an eye to new 
construction codes, continuing to make sure that if we are 
going to put things within our floodplain, that we do so in a 
smart manner and with ways that truly consider what is going to 
happen in the next 10, 15, 20, years.
    Mr. Huizenga. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Florida, Mr. 
Ross, for 5 minutes.
    Mr. Ross. Thank you, Mr. Chairman.
    Mr. Chairman, I want to thank you for having this hearing 
today. I think this is something that is long overdue, and 
especially in light of the expiration of the NFIP by the end of 
September. We have our work cut out for us.
    And as we go back over the last 50 years since the NFIP was 
created in 1968, a time when we were trying to put men on the 
moon and technology was at its infancy as we know it today, we 
also saw that there were limited building codes, limited zoning 
restrictions, urban sprawl and, therefore, a market that just 
did not want to particulate in the flood insurance arena and 
so, therefore, we engaged the Federal Government with warnings, 
knowing that if we did so for very long, it would create a 
moral hazard, which we are at today.
    So my concern, and I will start with you, Mr. Ellis, is in 
1968, one of the underlying reasons for the National Flood 
Insurance Program was that there was not available technology, 
mapping and data that would justify being able to accurately 
assess the risk and, therefore, we couldn't place it on the 
market. What has happened since then? Have we seen an 
advancement that might make it a little bit more realistic as 
to what the risk may be?
    Mr. Ellis. I would venture, Congressman, that my iPhone 
probably has about as much computing power as a whole room did 
at that time of computers. And so I think that we have moved 
dramatically, technological advances in modeling, and Mr. 
Lehmann referred to some of these earlier, in that we are in a 
much different place, and then also just the way the insurance 
industry has changed dramatically in that timeframe and about 
being able to lay off risk worldwide. And so we are just in a 
different place where it makes sense to shift more of the risk 
to the private sector.
    Mr. Ross. And we have seen greater capacity, would you not 
agree? That there is sufficient capacity out there in the 
private sector to come in and take a sizable, if not all of the 
risk that is being borne by the NFIP.
    Mr. Ellis. Absolutely, and probably beyond that, hopefully, 
as taking on more and more people get flood insurance. 
Absolutely, Congressman.
    Mr. Ross. But the barriers that have been created over the 
last 50 years have allowed us to kind of limit the involvement 
of the private sector except for what has come back since 2012. 
So my purpose here today is to, quite frankly, talk about the 
Insurance Modernization and Parity Act that I filed last year, 
that we passed overwhelmingly in this House.
    And my concern is that we desperately need to have the 
ceding of risk to private capital in order to make a viable 
market that is competitive and good for the consumers. Would it 
not be a good first step to make sure that we allow for those 
barriers of private capital to be broken down to allow the 
State regulators to do what they do best, not only in terms of 
solvency, but consumer protections, and at the same time allow 
to exist as it has been for the last 50 years, the safety net 
of the NFIP so if those consumers out there feel prejudice, 
they won't be?
    Mr. Ellis. Absolutely, Congressman. You actually undersold 
your bill. It wasn't just overwhelmingly, it was 419 to zero, 
which is not very many substantive pieces of legislation pass 
unanimously in the House, and so absolutely. This is just a 
common-sense approach that there is never an intent that people 
couldn't buy private flood insurance, there is no prohibition 
that you shouldn't be able to buy flood insurance. And this 
just says, all right, as long as you get something that is 
comparable, you can actually have that and meet your mandatory 
purchase requirement.
    Mr. Ross. And as a result, we created a subsidy, a 
subsidized market that, in effect, flies in the face of the 
laws of economics because, Mr. Lehmann, as you pointed out, 
there may be a spike in rates, but it is not rates that create 
the problem, it is the return on the investment of that capital 
that is at risk.
    So in other words, if you have capital that is at risk, but 
you can reduce that risk, you can get a higher rate of return, 
but yet have a lesser rate that you are charging the consumer. 
Is that not true?
    Mr. Lehmann. That is absolutely true.
    Mr. Ross. The only way that happens, though, is if you 
bring that capital in to assess that risk. So instead of having 
the NFIP out there saying we are going to just do a one-size-
fits-all policy premium, we actually invite those carriers to 
come in and do what they do best, and that is put their capital 
at risk and manage that risk. And if we are going to make this 
change to where we want people to feel as though they have not 
only the comfort of knowing they are insured, but also to know 
that they are going to be able to find it at an affordable 
rate, we have to open up the markets.
    And so my next question, and I would offer this to the 
panel is, what significance is mitigation? We have housing 
stock out there that has been built for years, we have no 
aggressive policy to try to make these more resilient, to 
remediate them. Who would like to just in 30 seconds address 
mitigation?
    Mr. Saks. Congressman, if I could, I would like to say of 
course mitigation is the key to affordability. It is also an 
essential right now. And we have had a lot of discussion about 
grandfathered properties and subsidized rates. And I would say 
one of the troubles with properties like that is that they are 
not sending a market signal that is encouraging people to take 
matters into their own hands and take pre-disaster, mitigative 
action.
    Mr. Ross. Which is absolutely necessary and maybe we should 
do it through tax incentives, maybe we should do it through 
private/public partnerships with some of our building supply 
companies that can come in there and allow them to finance at 
zero or no rate to be able to do this mitigation that is so 
necessary.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Georgia, Mr. 
Scott.
    Mr. Scott. Thank you very much, Mr. Chairman.
    My major concern is making sure that those families who are 
most at risk can obtain affordable flood insurance. And that, 
Mr. Chairman, if I might say a word to you on that, is what is 
missing in this bill.
    Let me just give you an example of what I am talking about. 
In this bill, my Republican friends have put into this bill 
what is referred to as a voluntary buyout program. And my 
understanding is that it is to discourage repetitively flooded 
properties from rebuilding after flooding. But there is no 
money there. If we ever had a glaring example, Mr. Chairman, as 
to why we need to enlarge this.
    It is important that we have a bipartisan flood insurance 
bill and I believe we are going to have one. But I want to make 
this point. FEMA has declared that for every dollar that we 
spend on flood insurance to help people, we save the taxpayers 
$4. I think that is gone from here and I am very perplexed by 
it. But there is in this bill a buyout program. Now, how can 
you buy something out when you don't have money attached to the 
program?
    Can I get the panel to address this?
    Mr. Saks, let me start with you because I enjoyed your 
commentary. You talked about mitigation. You talked about not 
increased funding, but you did talk about affordability and 
mitigation. Here you have this program and I think it has some 
promise, it is a good program, but how can you have a buyout 
program and you don't have any money attached to it to do the 
buyout?
    Mr. Saks. Thank you, Congressman. And I do believe that the 
committee should find more ways to invest in mitigation. And I 
offered some solutions to that in my testimony.
    With regard to the buyouts, I believe the intent is that 
would draw on existing programs that currently pay for buyouts 
and this would target people into it, but I am not sure of 
that. But there is existing money currently for buyouts in the 
flood program.
    Mr. Scott. And there is my point. Because let us be 
realistic here. Where are the buyout possibilities? Where is 
the greatest impact of this? Do you know where it is? It is in 
the lower-income areas, it is where developers went in without 
adequate mapping, built housing on the lower plain, and you 
know who moved into those? It wasn't your wealthy people. They 
have money and they have enough sense to know that, why am I 
going to buy a house in a low-plain area?
    So my point is, what I want from you all is to share with 
the chairman and with this committee that we need to do more 
mitigation, affordability, and if we have a great program like 
this for voluntary buyouts, understand that the greatest impact 
we can make for FEMA's investment return of every dollar, they 
get $4 for the taxpayers, we have to look at it the fact that 
it is the lower-income people who don't have that choice, who 
see a home develop there and boom.
    I am a living witness to this. Three years ago, Atlanta's 
whole metro area was flooded. Six Flags Over Georgia is in my 
district, and you all saw it. We went and got Vice President 
Joe Biden who flew down with us, and looked at it. And you know 
who lived in those areas? They were lower-income people. They 
can't do it.
    So I think in our haste to, and I am very hasty in saving 
the taxpayers money, but a return of $4 for every $1, helps us 
get to that point and we will have a bipartisan bill.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Illinois, Mr. 
Hultgren.
    Mr. Hultgren. Thank you, Mr. Chairman.
    Thank you all so much for being here. This is an important 
discussion and something that we have to get done, we have to 
make sure that there isn't any type of lapse.
    And I think there is basically among most of us a shared 
commitment that we want to make sure that who need flood 
insurance, can afford it, but also that we, as best as we can, 
make sure that taxpayers aren't on the hook, that we get 
markets working again. And that is really what I want to see 
happen.
    So I thank you for the information that you have given to 
us and the important steps that we are taking and hopefully we 
can move this forward quickly and get some important work done 
so that markets are not disrupted at all, and this can keep 
flowing.
    My district is just west of Chicago, but many of my 
constituents live in floodplain areas along the Fox River or in 
the lake country which is kind of in the northern counties of 
Illinois. In fact, Illinois has the Nation's largest inland 
system of rivers, lakes, and streams. And 12 percent of the 
entire land area in Illinois is mapped as floodplain.
    What is important, though, for all my constituents, whether 
they live in a high-risk area or not, is to understand the 
risks of their own property and also that they are empowered to 
make responsible decisions of how to manage that risk.
    I remain eager to hear ideas about how to reform what I 
think most of us would agree is a broken flood insurance 
program, $25 billion in debt and growing; it just isn't 
sustainable. It is irresponsible government and it is unfair to 
taxpayers. We also have to make sure, though, that flood 
insurance remains available to those who need it and choose to 
use it responsibly.
    I want to address my first question to Mr. Ellis. In your 
testimony, you say, ``Masking subsidies with lower rates 
prevents policyholders from understanding their true level of 
risk.'' I wonder if you could expand on the moral hazards that 
subsidies create. And would a change to how this subsidy is 
delivered help consumers make more informed decisions regarding 
flood insurance?
    Mr. Ellis. Thank you, Congressman. And I would argue that 
the fundamental, basic responsibility of government is to 
protect their constituents, and yet you have this program where 
people are being subsidized to live and continue to live in 
harm's way. And that is one of the things that bewilders me 
somewhat in talking about artificially holding down rates 
rather than doing other things to make flood insurance more 
affordable.
    And also, the other thing that I would point out is that 
the discussion draft that was provided did have a bunch of 
transparency measures so that we actually have an effective 
risk communication, that people understand that they are at 
higher risk, which could incentivize them to mitigate their 
risk and have a better understanding.
    Mr. Hultgren. That is great. That is absolutely what we 
want, is where possible to make sure that good decisions are 
made to mitigate risk. I think it also just drives us crazy 
when we see these repeat offender properties that so much money 
is poured into. We have to continue to figure that out and deal 
with that.
    I wonder, Mr. Saks, if I could jump to you. One of the 
provisions in the draft legislation, which was also included in 
Ranking Member Waters's proposal, would prohibit the NFIP from 
selling new policy coverage to future structures built in 
today's highest-risk areas. By limiting future risk into the 
NFIP, what effect would this have on the fiscal health of the 
program? And is this a risk the private market would be willing 
to take on?
    Mr. Saks. First, I will answer in reverse order. I believe, 
yes, the private market would take this risk on and they have 
said as much.
    I think for the view of the National Wildlife Federation, 
our interest has always been that rates send a market signal to 
slow development and we continue to support that notion.
    Mr. Hultgren. Okay.
    I am going to finish up with Mr. Lehmann. I wonder if you 
can go into this, and maybe open it up to others as well, but 
one of the most fundamental aspects of the National Flood 
Insurance Program and for all flood insurance is reliable data 
and accurate mapping. And it has been one of the, I think, 
greatest frustrations for many of my constituents and other 
folks in Illinois, frustration that the maps just don't really 
reflect the risk. Despite dramatic developments in flood 
modeling and mapping technology, the average map is 35 years 
old, according to the Association of State Floodplain Managers.
    How can the entire flood insurance system, private and non-
private entities, better utilize the available technology? And 
I wondered if you could maybe talk a little bit about your 
views of the value of LIDAR technology, light detection and 
ranging technology.
    Mr. Lehmann. Sure. And that has been mentioned by other 
witnesses before. We know about North Carolina's experience 
with LIDAR. We think that is a valuable tool. We think FEMA 
should be required to use it, LIDAR and other modern methods, 
to get property-level data, which would also help with many of 
the subsidized properties that currently don't have flood 
elevation certificates. Ninety-seven percent of them don't have 
flood elevation certificates.
    Mr. Hultgren. Thank you all so much.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Florida, Mr. 
Crist.
    Mr. Crist. First, I want to thank Chairman Hensarling and 
Ranking Member Waters for holding this important hearing today.
    And I want to thank our witnesses for taking the time to be 
with us and share your expertise.
    As my Florida colleagues can attest to you, our State is 
the biggest player in flood insurance in the country. And 
within Florida, my home, Pinellas County, St. Petersburg, 
Clearwater, is ground zero. We are literally a peninsula. 
Pinellas County is on the peninsula of Florida. We are 
surrounded by water. My constituents rely on the National Flood 
Insurance Program for economic security as well as peace of 
mind, which is why it is so important that we reauthorize this 
program on time and why I am concerned to see that some of 
these drafts don't contain legislative language that would do 
that, because I think that is our number-one priority. It is my 
hope and my belief that this will be remedied very quickly.
    It is also my hope that we can work together to address 
some of the affordability concerns that I have and others 
share. It is clear that these bills propose several changes to 
address both affordability as well as solvency.
    Ms. Sternhell, taken together, do you believe that these 
bills will decrease or increase the costs for policyholders?
    Ms. Sternhell. I believe ultimately they will increase the 
cost to policyholders. The City's position is that if you can 
get a private flood policy, please go ahead, and we do not 
object to individuals and the private market being able to 
count as part of your mandatory purchase requirement.
    But what that will then do is start to encourage, 
especially if the non-compete agreements fall away, as 
currently presented in this legislation, individuals to come 
in, private entities to come in and take the less risky 
policies. They may be located in a V zone, but it may not be a 
risky policy.
    And as Mr. Lehmann himself as testified, it needs to make 
market sense, they need to make a profit. And even in the study 
of the Reinsurance Association, cited by a number of the 
panelists here today, they even note that for policies to come 
out of NFIP and to make sense, they have to be profitable for 
the private insurance industry.
    NFIP was created because there was a market failure, and so 
by its very nature it has high-risk policies and people who 
could not necessarily get coverage in the private market. What 
this is trying to do and by forcing people to private coverage, 
it may not be affordable for them by foreclosing the option of 
NFIP and not leaving that as an option, but the alternative 
only being private. It may become more unaffordable for them 
and for that we are very concerned.
    Mr. Crist. Thank you.
    Ms. Berni, would you agree?
    Ms. Berni. Forgive me, yes, I would agree. As Ms. Sternhell 
mentioned, between the floors going up from 5 percent to 9 
percent and also the increases in the surcharges, we are very 
concerned that this would overall increase the cost of the 
policy for folks across America.
    Mr. Crist. Thank you. In my home of Pinellas County, 69 
percent of all policies in the special flood hazard area are 
non-waterfront and have home values of just $170,000 or less. 
This is the middle class, these are working families. This is 
the American Dream for them.
    We have the power and the moral responsibility to help 
these folks. But if our committee puts flood insurance out of 
reach for the middle class, those families in my district and 
elsewhere would have done everything right, but they could lose 
it all. I am certain that it is not the intent of this 
legislation and that we can work together to produce a strong, 
timely, and affordable reauthorization of the National Flood 
Insurance Program.
    I yield my time back, Mr. Chairman. And thank you again.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from North Carolina, 
Mr. Pittenger.
    Mr. Pittenger. Thank you, Mr. Chairman.
    And thanks to each of you for your testimony today and your 
good thoughts and counsel.
    Chad Berginnis, executive director of the Association of 
State Floodplain Managers, mentioned in his testimony in March 
of this year the term ``freeboard,'' which means the committee 
has adopted a building standard that is higher than the base 
flood evaluation for 100-year floodplain. What would be the 
impact of a national standard requiring all newly constructed 
properties to meet this freeboard standard?
    We will start with you, Mr. Ellis.
    Mr. Ellis. We haven't taken a position on national building 
standards. We think that we have done some things and 
advocating disaster relief that States that actually do have 
stronger building standards that that would make sense.
    Also, we have supported basically that any Federal 
investments actually go to having a higher freeboard, but we 
haven't talked about it for homeowners; they are all 
developments.
    Ms. Berni. If I may, we also, in the City of New Orleans, 
have an additional foot of freeboard that is required in our 
building codes. And we are working very hard to make sure that 
we are increasing mitigation and increasing standards and 
making our community more flood-resilient as well. And so we 
are taking the steps proactively.
    Mr. Saks. I would say that it is an important part of 
reducing flood risk, but it's only one part of the puzzle. And 
many of the other mitigation steps I talked about today also 
need to be included.
    Mr. Pittenger. Thank you.
    Ms. Sternhell. I would say from New York City's 
perspective, within months of Hurricane Sandy hitting, the city 
council went ahead and changed the building code and we now 
require two feet of freeboard for new development.
    Mr. Pittenger. Thank you.
    Mr. Lehmann. And I would just echo Mr. Ellis's comments.
    Mr. Pittenger. Thank you.
    In North Carolina this past year, we suffered an enormous 
flood, a thousand-year flood from Hurricane Matthew. Much of 
that was in my district. I have a very rural district that 
includes two of the counties that were hardest hit in the 
State. It was devastating. I was there for the third time going 
over that region just this last week with our sheriffs.
    I had interesting conversations with the mayors and the 
sheriffs of each of these towns. And these small towns--
Laurinburg, Fayetteville, Hope Mills--saw all of the homes 
being abandoned. And I asked them the question, what is our 
responsibility in our government toward the NFIP relative to 
people building in new construction? One is a Democrat, and two 
are Republicans, so it wasn't a Republican issue, but it is a 
moral concern to me of the obligation that we have as 
legislators and representatives of the taxpayers.
    And to a person, they all said, well, we really believe 
that there should not be an engagement for new construction 
because that is something that seems it would incentivize 
people to continue the same obligation and losses.
    What are your thoughts on that?
    Mr. Ellis. Certainly, one of the things that was brought up 
when Congressman Meeks was talking about or doing his 
conversation was about the development in New York City and 
denying flood insurance to some of these high-risk 
developments, future developments. To me, if they are building 
appropriately, if they are building to mitigate the risk, the 
private sector is going to come in, it is going to be something 
that is affordable and it is something that is going to be 
interesting to them. And so--
    Mr. Pittenger. So say it is affordable and it is a prudent 
investment and a business opportunity for private insurance, 
then do we really need NFIP?
    Mr. Ellis. I think that we are going to have to have the 
NFIP, at least in some form, in the near term and we are 
eventually, hopefully, transitioning to having more Americans 
buying flood insurance and having a more robust private flood 
insurance market.
    Mr. Pittenger. Do you understand the moral obligation we 
have of causing this issue to continue, exacerbating the 
problem?
    Mr. Ellis. Absolutely. And as I said before, one of the 
fundamental responsibilities of government is to protect their 
constituents, to protect their people, and yet we have a 
program that subsidizes and encourages people, not to just 
build in harm's way, but to remain in harm's way, to keep them 
at risk.
    Mr. Pittenger. And just to the point, we do have a 
responsibility to protect the taxpayer.
    Mr. Ellis. Absolutely, Congressman.
    Mr. Pittenger. And apparently, there hasn't been enough of 
that since we are $24 billion in debt.
    Does anybody else have any more comments? We have 20 
seconds.
    Ms. Sternhell. I would just add that, with regard to the 
floodplain and disallowing the NFIP to participate, as Mr. 
Ellis said, with new, resilient construction, we continue 
talking about greater choice, greater choice, so leave the NFIP 
in as a choice.
    Mr. Pittenger. Again, that is the backdrop and obligation 
of the taxpayer for people continuing to build in areas that 
are floodplain areas.
    Thank you very much.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Washington, Mr. 
Heck.
    Mr. Heck. Thank you, Mr. Chairman.
    Mr. Saks, I would like to walk through a door that 
Congressman Cleaver unlocked, if he didn't crack open a little 
bit. If I read the website of the National Wildlife Federation 
correctly, it would be that the organization subscribes to the 
scientific consensus that in fact planet Earth is experiencing 
climate change, it is having consequences and will continue to 
so in an increasing amount. Is that a fair characterization?
    Mr. Saks. Yes, sir, that is correct.
    Mr. Heck. I also read this line on your website, 
``Scientists have concluded that most of the observed warming 
is very likely due to the burning of coal, gas, and oil. Other 
reasonable explanations, most notably changes in the sun, have 
been ruled out.''
    So can I fairly infer, therefore, that the National 
Wildlife Federation believes that climate change is primarily 
caused by human activity? Is that fair?
    Mr. Saks. That is correct.
    Mr. Heck. I also read other language that led me to 
conclude that the organization believes that one of the 
consequences of climate change is increased extreme weather 
occurrences, like drought and fire danger and hurricanes, 
hurricanes which result in flooding. Is that correct, Mr. Saks?
    Mr. Saks. That is correct.
    Mr. Heck. Is it also true, by the way, that the 
organization is advocating that Members of Congress voice their 
opposition to the President's withdrawal from the Paris 
accords?
    Mr. Saks. That is correct.
    Mr. Heck. Do you see the connection between my line of 
questioning and our subject here today?
    Mr. Saks. I do. And I agree. I would also make the point, 
though, that primarily when I come to work every day and think 
about this program, I think of it as a land-use program first 
and foremost before I think climate. Climate, of course, is an 
exacerbator and a driver here, but--
    Mr. Pittenger. And indeed, the primary cause of 
exacerbation.
    I have another line of questioning if I may, for any 
members of the panel. I am not exactly sure who would be most 
appropriate. I was actually reading through section eight of 
the National Flood Insurance Program Integrity Improvement 
Act--it would be the biggest mouthful to name a proposed bill 
imaginable--which excludes certain types of property from NFIP 
coverage, but allows State insurance regulators to waive those 
exclusions if they find a market contraction.
    I am going to put aside for the moment whether or not that 
is good policy and focus on the conditions under which a State 
regulator can issue a waiver because, well, frankly, to me, 
they seemed needlessly complex. I would invite you to check on 
pages 29 and 30, the conditions under which a State regulator 
could indeed issue a waiver. I find them confusing. I find them 
basically duplicative. I find my characterization of them just 
now a gross understatement in that regard.
    And frankly, to me, it seems like we should either say we 
trust the State regulators and their knowledge of conditions in 
the market that they know best, and after all they are, in most 
States, elected or appointed and it is the repository of deep 
expertise in this regard, and we defer to them about whether to 
exercise a waiver like this.
    Or if we decide to be more prescriptive about what we want 
States to do, be forthright about that, be upfront about that, 
be clear about that, be less confusing. This section seems like 
it is trying to have it both ways, giving State regulators 
waiver authority and then making them jump through a lot of 
confusing hoops to use it that serve, in my opinion, no useful 
purpose.
    So my question to any of the witnesses is, why all this 
complexity? Why not just say, again, we trust the States, we 
trust the State regulators, and have a simpler, more 
straightforward waiver?
    Ms. Sternhell, I am calling upon you because you grabbed 
your microphone.
    Ms. Sternhell. Fair enough, sir. I would agree, and part of 
what gives us concern about this is the year-to-year nature of 
this, that I can be somebody who has new construction, we have 
been granted a waiver, I have NFIP, now there are hearings, I 
don't know if next year I have to have it or if I need to seek 
out a private policy now. And what this does, if somehow that 
coverage lapses because there is ambiguity in the system and 
now I no longer have maintained continuous coverage or there is 
an event when I am sort of in that doughnut hole.
    And there is also the concern that some people may not be 
able to get private coverage. And so there may be sufficient 
penetration elsewhere, but not where I am located. And based on 
how my State has defined it, I am now sort of in a doughnut 
hole of no coverage available to me.
    Mr. Pittenger. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Pennsylvania, 
Mr. Rothfus.
    Mr. Rothfus. Thank you, Mr. Chairman.
    Mr. Lehmann, in your testimony, you expressed support for 
Chairman Luetkemeyer's Taxpayer Exposure Mitigation Act which 
has been incorporated into our package. As you know, this bill 
would require FEMA to use reinsurance and other risk transfer 
tools to reduce taxpayer exposure to catastrophic losses.
    You testified, ``As FEMA gains more experience buying 
reinsurance and as reinsurers gain more experience absorbing 
risk from the NFIP,'' you anticipate that future risk transfers 
could be significantly larger.
    As you know, under our proposal, private insurers will 
begin to take a greater share of the flood insurance market as 
well. Can you describe the role that reinsurers will play in 
the flood insurance market as the private sector's share 
increases?
    Mr. Lehmann. Sure. I would say there was some discussion 
earlier about whether insurance companies are clamoring for 
flood risk. In the reinsurance market, there is no question 
that they are. The reinsurance market has been a soft market 
for quite some time. There is more capital than there is risk 
and they desperately want more risk to take on. So reinsurers 
are very eager.
    The first reinsurance transaction this year was 
oversubscribed. There were many companies that wanted to take 
part that weren't able to. So I think that reinsurers will be 
taking the lead in a lot of cases and providing capacity and 
that the primary insurers will follow. Once there is available 
reinsurance for private primary flood insurance, more will 
enter the market on that side as well.
    Mr. Rothfus. Okay. Can you talk about how this would impact 
consumers?
    Mr. Lehmann. We think it is unquestionably a good thing for 
consumers because you would only be buying a private policy if 
you have a better deal, if you have a better product or you 
have a cheaper product. For taxpayers as well, reinsurers 
participating in taking out risk from the NFIP means that we 
should have less examples of the sorts of borrowing that led us 
to a $25 billion debt.
    Mr. Rothfus. You also mentioned in your testimony about the 
U.K. as an example of a place where a healthy private flood 
market has taken root. Can you talk a bit about how the U.K. 
and perhaps other countries have been able to foster a private 
flood insurance market?
    Mr. Lehmann. So in the U.K., flood insurance is included as 
a part of homeowner's insurance. It is actually required. That 
is not an approach that we at R Street would necessarily 
endorse in the United States, but on a State-by-State basis, 
States will determine whether an all-risk policy is something 
they think is appropriate. And it has been proposed many times 
in the past.
    We think that moving in the direction of more private flood 
insurance makes that a possibility, but it is one among a menu 
of options.
    Mr. Rothfus. Mr. Ellis, I want to talk a little bit about 
some State issues here. As you know, some have expressed 
concerns about consumer protections for homeowners who purchase 
insurance through surplus lines.
    My own State's insurance commissioner, Teresa Miller, 
testified before this committee in support of Representative 
Ross's bill last Congress and expressed a high level of comfort 
with not admitting carriers. Is there evidence to show that 
State insurance commissioners or State regulators have not 
protected consumers, particularly with policies sold through 
non-admitted carriers via surplus lines?
    Mr. Ellis. Not to my knowledge, Congressman. And this is 
sort of the natural wave of evolution of an insurance product 
is to go through surplus lines and then to admitted carriers.
    Mr. Rothfus. Would you agree or disagree that insurance 
products sold to non-admitted carriers via surplus lines brings 
much-needed insurance products and services to consumers?
    Mr. Ellis. Absolutely, Congressman.
    Mr. Rothfus. Mr. Ellis, in your testimony you discussed the 
GAO's finding that large cross-subsidies are built into the 
NFIP and that they are largely benefiting high-income 
homeowners. I know Chairman Duffy talked a little bit about 
this earlier. But can you talk a bit about why the program's 
current structure creates this dynamic and how the committees 
may address this problem?
    Mr. Ellis. Absolutely, Congressman. And actually, the exact 
figures from the Government Accountability Office is that 78 
percent of subsidized properties in the NFIP are located in 
counties with the highest home values, so the top 3 deciles, 
while only 5 percent of subsidized properties are in counties 
with the lowest home values, the bottom 5 deciles.
    And so what has happened is that a lot of these are these 
grandfathered properties, these pre-FIRM properties that are 
staying here and that are getting these subsidies, whereas when 
there is some new development, they are paying the full freight 
and disproportionately subsidizing those wealthier homeowners.
    Mr. Rothfus. Thank you.
    I yield back, Mr. Chairman.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Lynch, for 5 minutes.
    Mr. Lynch. Thank you, Mr. Chairman.
    First of all, I would like to ask for unanimous consent to 
enter into the record some letters expressing concern with the 
draft bills from various stakeholders, including housing, 
insurance and consumer advocates and lenders.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Lynch. Just for the record, there are statements from 
the National Association of REALTORS; the Council of Insurance 
Agents and Brokers; the Consumer Federation of America; and the 
Credit Union National Association, all concerned about 
provisions of the bill.
    So, Ms. Berni and Ms. Sternhell, in reading this bill, 
there is sort of a pattern that emerges, and that is that the 
burden and the cost shifting seems to go from the national 
level really to fall on the States and local governments. There 
is no money at all for mitigation.
    So any mitigation that is going to be done in accordance 
with this bill will have to be done by the City of New Orleans 
or the town of Scituate, Massachusetts. It will fall on those 
localities actually to take those mitigation steps, as well as 
a voluntary buyout program, but there is no money, there is no 
money on the Federal level for that.
    So I would imagine that New York, after a Superstorm Sandy 
situation, or New Orleans or Florida would have to come up with 
that. So it seems to be taking the burden off of the Federal 
taxpayer and putting it on the locality.
    And as well on the commercial properties, it introduces the 
opportunity for cherry-picking which would, again, shift costs 
to a smaller group of people away from the larger group of 
people.
    And I am just wondering, the whole principle behind 
insurance is to really spread risk and this bill seems to have 
the opposite effect. It actually concentrates the risk on a 
smaller number of people who are more vulnerable. And I just 
wanted to get your opinions, Ms. Sternhell, and Ms. Berni, am I 
wrong on this?
    Ms. Berni. Respectfully, sir, we would agree with your 
assessment. We are supportive of improvements to the program, 
but not in a way that destabilizes the NFIP.
    With regard to mitigation, it has been a leading policy 
area that we have advocated for. And we have included in our 
written testimony some potential ideas for increasing funding. 
One additional idea could potentially be to freeze just the 
interest accrual on the debt for the duration of this 
authorization. That is about $400 million a year to provide for 
greater funding for mitigation. That would provide greater 
benefit rather than just moving money from one Federal 
Government pocket to another.
    And then another concept we will mention is just increasing 
program participation. Again, it will reduce taxpayer exposure, 
reduce the risk of flood losses, and potentially bring in more 
revenues from healthy premiums that are being paid into the 
NFIP. And so we think those should be some additional proposals 
the committee should consider ahead of reauthorization.
    Mr. Lynch. Great. And the idea of going for private 
insurance, that lowers the level of participation in the NFIP, 
right?
    Ms. Berni. Yes. We support the private market coming in as 
long as it is done alongside a healthy and sustainable NFIP.
    Mr. Lynch. Okay.
    Ms. Sternhell?
    Ms. Sternhell. I wholeheartedly concur with that. That was 
why the approach the City has offered is one that can dispel 
fears or validate them--
    Mr. Lynch. Right.
    Ms. Sternhell. --about what the private market would do to 
the NFIP and its ability to pool risk appropriately.
    Mr. Lynch. One other provision that I notice in this bill 
is that ostensibly it lowers the maximum mandatory rate from 18 
to 15 percent, but on the other end it increases what is now 
probably around a 5 percent average rate of contribution and 
bumps that up to 8 percent. When you look at FEMA's numbers, no 
one is paying 18 percent.
    Ms. Sternhell. Correct.
    Mr. Lynch. No one is paying 18 percent, so that is kind of 
fake. So no one really benefits from that, but a whole lot of 
people who are paying between 5 and 6 percent are going to be 
bumped up to 8 percent and that is the real impact of the bill. 
Is that how you see this?
    Ms. Sternhell. Yes. And we would even argue that it is 9 
percent with the additional charge on the service--
    Mr. Lynch. That is right, I forgot about the surcharge. 
Yes, good point.
    Ms. Sternhell. I agree.
    Mr. Lynch. Okay.
    I think my time has just about expired, so I yield back.
    Thank you for your testimony.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from New Jersey, Mr. 
MacArthur.
    Mr. MacArthur. Thank you, Mr. Chairman.
    My home is in New Jersey, so we know all about flood and 
flood insurance. I had to smile earlier when there was talk 
about the mapping. We built a home some years ago and when I 
got the flood map, my living room was in one flood zone and my 
bedroom was in a different flood zone. It is not that big of a 
house, but that is the way the mapping was.
    But my questions are on other subjects. We are one of the 
States with the highest participation in the NFIP. And we also 
were hurt the most by Sandy. Half of all New Jersey Sandy 
losses occurred in my district, so this is very important to 
me.
    And I wanted to ask, do any of you know how many Americans 
live in coastal communities, coastal counties, counties that 
abut the ocean? Anybody?
    Mr. Lehmann. It is about half, I believe.
    Mr. MacArthur. It is about 140 million people. How does it 
affect, beyond the homeowner who has had a flood loss, who else 
is affected by flooded communities in general? I will take a 
brief answer from anybody.
    Ms. Sternhell. You can look at a State's economy. If you 
have the Jersey shore where you have the boardwalk and a 
tourism economy, you have social networks. Apart from a 
homeowner trying to rebuild, kids being able to go to school, 
infrastructure more broadly to rebuild.
    Mr. MacArthur. Yes, so other businesses, State and local 
taxes get affected, Federal taxes get affected by business 
decline and that is exactly what I have seen back at home.
    I want to be clear, I absolutely support the reforms in the 
bill because the reality is the program won't be sustained if 
we don't fix it. We can't just keep running in arrears, we have 
to fix this. But I want to make the point that this is much 
bigger than the individual policyholder.
    And in fact, if we have less policyholders, those are the 
very people and businesses that will be at the front of the 
line to get FEMA grants and we will be spending Federal dollars 
without having gotten the benefit of individual premiums paid 
in for that. So we have to get this right.
    I have questions in just a couple of areas. The first is 
new construction, this elimination after 4 years. And I do 
support lifting up a private market. I have spent my whole 
career in insurance and there should be a more robust flood 
market out there.
    I want to ask, though, the 10 percent threshold, that if 
there is 10 percent market penetration by uninsured, and I 
think, Mr. Ellis, I will start with you on this, is it possible 
that you could have 10 percent, even 50 percent, even a higher 
market penetration, could you have that, but have an individual 
not be able to find flood insurance on their particular risk?
    And bear in mind, these are homes that probably are older 
if they are being torn down and now they would be subject to 
more rigorous zoning restraints, they would be more flood proof 
properties. But is it possible an individual could find no 
access to insurance in an otherwise robust private market?
    Mr. Ellis. I am assuming it could be possible, although for 
the exact reasons that you outline, Congressman, about the 
zoning and the new development and then also the fact that a 
developer is going to want to sell that home to somebody and 
part of getting that home is going to have flood insurance.
    Mr. MacArthur. Is it possible, and I have spent 30 years in 
insurance and I spent some of those years in the flood market, 
but it has been a while since I have rolled around in that 
industry. Do any of you think it would be reasonable to require 
agents, because they are agents of the flood program, require 
them to either provide an alternative private market quote or 
certify that none is available? Would that be a practical 
requirement of agents?
    Mr. Lehmann. I don't know that you could get agents to--you 
have a certain number of appointments and there could be a 
conflict there regarding are you representing your company or 
are you representing NFIP.
    Mr. MacArthur. I am running out of time, so I have one more 
question. It is for Ms. Berni. You said in your opening remarks 
that the 8 percent floor hurts more than the 6 percent ceiling. 
We do have to get people toward risk-based rates. We have to 
for this program to be sustained. What would you suggest would 
be an appropriate floor for premium increases?
    Ms. Berni. The Biggert-Waters Act required that subsidized 
properties go to full risk rates. And the 2014 law maintained 
that. And so we feel that the 5 percent floor is sufficient, 
especially when considering that last year, FEMA increased 
premiums 5.4 percent on the base rate, but 6.3 percent when 
including fees.
    Mr. MacArthur. My time has expired. Thank you.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Tennessee, Mr. 
Kustoff.
    Mr. Kustoff. Thank you, Mr. Chairman.
    And thank you to the witnesses for being here this morning 
and now this afternoon to testify.
    If I could, regarding the flood mapping, and, Mr. Ellis, if 
I could address this to you, we have heard today that reforms 
are desperately needed to the NFIP. And to me, there is 
probably no statistic that is any more glaring than the fact 
that the program is almost $25 billion in debt.
    But as we look at the flood mapping reforms, I could share 
an example with you that recently I met with a constituent of 
mine who owns a house that was built in the 1970s. The home is 
not located near a major river, it is not located near a 
tributary, and FEMA has never required the individual, the 
owner, to purchase flood insurance. Even during the 100-year 
flood of the Mississippi River in 2011, the home did not 
sustain any flood damage.
    However, 2 years ago in 2015, FEMA determined that a 
portion, not the whole house, but a portion was located in the 
flood zone and the owner was mandated to purchase flood 
insurance. My question to you is, how after 45 years of owning 
a home is it suddenly designated as being located within a 
flood zone without having any history of flooding?
    Mr. Ellis. Congressman, and I obviously don't know the 
exact circumstances of this situation, you outlined them, but 
certainly, because of other development patterns, because of 
other changes, a home could move from being not in a flood zone 
to actually being in a flood zone. It could have been just 
outside of it or whatever. I don't know the exact circumstances 
here.
    But it does get back to, again, that it is in the 
homeowners' interests to have a better mapping program, to have 
more confidence in the mapping program, because if you don't 
have confidence then we are just going to continue to have 
these fights about, am I in the floodplain or not in the 
floodplain? And if you are just barely outside of the 
floodplain, you still have a significant amount of flood risk, 
Congressman. And certainly the people in Baton Rouge found that 
out, that they may not have been required to purchase flood 
insurance, but they sure wish they had.
    Mr. Kustoff. If a property owner wants to dispute the 
decision by FEMA, can you describe the process for doing so?
    Mr. Ellis. Normally, they have to get, particularly if it 
is a grandfathered property, which I am assuming this house is 
built in the 1970s, probably was before the flood insurance 
rate map was done, that they have to get an elevation 
certificate, which can be several hundred dollars, which, 
depending on who the person is, could be a huge cost.
    And that is why we have really pushed to follow things like 
North Carolina has done, where the State took their mapping 
money or took the mapping money and did LIDAR for all the 
higher-risk areas and actually provided that information to the 
public, and I think that is the more responsible way. And that 
is why we are pushing for FEMA to have more granular data in 
this reauthorization.
    Mr. Kustoff. Thank you very much.
    Mr. Lehmann, if I could, my district or part of my district 
runs along the Mississippi River. And I am interested in how we 
calculate premiums for inland properties as opposed to coastal 
properties and specifically properties that are protected by 
levees and dams. Can you explain how FEMA differentiates 
between inland and coastal properties when assessing that risk?
    Mr. Lehmann. That is not my area of expertise. I couldn't 
tell you that.
    Mr. Kustoff. Okay. Do any of the witnesses know?
    Mr. Ellis?
    Mr. Ellis. They have certain higher designations, like, for 
instance, if you are at risk of storm surge and things along 
those lines, you have the V zone, which is going to have a 
higher premium than you would have in a coastal area.
    Also, NFIP, if you are behind a levee and the levee 
provides a hundred-year level of protection or more, you are 
considered not to be in the special flood hazard area anymore. 
I would argue you still have a residual risk. It is probably 
still in your interest to purchase flood insurance. It would be 
cheaper because of that level of protection, but they are 
supposed to take that into account.
    Mr. Kustoff. And looking at those rates and the NFIP 
program for authorization, the draft, do you believe that the 
premium rates will be lower for inland property owners?
    Mr. Ellis. Generally, depending on whether they are there 
has certainly been significant flooding on the Mississippi 
River. I first got into this whole area when I was in the Coast 
Guard and Base St. Louis flooded in 1993 and I was out there 
for that. So, there would be some risk, but it would be less 
than for some of the higher-risk coastal areas like Florida.
    Mr. Kustoff. When the consideration is being done for 
premiums, should the inland properties located within the flood 
protection structures, like levees or dams, should they be 
assessed differently?
    Mr. Ellis. My understanding is that they are currently, 
Congressman. They take into account the level of protection. 
And again, though, my concern would be that there is some 
residual risk. We certainly have seen levees fail in areas and 
that is something where those people would be flooded just like 
they were in the regular floodplain.
    Mr. Kustoff. Thank you.
    I yield back my time.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Ms. 
Tenney.
    Ms. Tenney. Thank you, Mr. Chairman.
    I just have a couple of issues. I come from upstate New 
York, where we don't really have any what you would think major 
flooding, but we have had major flooding. A lot of it I would 
like to place on the fault of government in some cases.
    I would like specifically just to quickly mention something 
as I think it is something that we can address on the Federal 
level, having to do with the Department of Environmental 
Conservation in New York State. And unfortunately, what has 
happened is a lot of the intervention from the State and 
Federal side of it has prevented our local governments from 
being able to protect themselves from really just heavy rains, 
not necessarily what we have termed hundred-year floods.
    And I just want to point out one thing that is particularly 
difficult for an area like where I live, which is a small city, 
suburban area. Article 15 of the Department of Environmental 
Conservation Regulations talks about protections of waterways 
and streams. And it names as its three goals relating to water 
policy is the establishment of regulations compatible with 
protections and enhancement of the present potential values of 
the water resources, to protect the public health and welfare, 
and that are consistent with the reasonable economic and social 
development of the state, including protecting the human 
environment.
    This article has been interpreted to protect, 
unfortunately, the fish environment, I might add, for lack of a 
better term, in the middle of a human environment where an area 
that was once industrialized, we are seeing an inability of the 
local governments to be able to even participate in managing 
the streams and waterways because we are creating, let us put 
it this way, artificial trout spawning areas in the middle of 
former industrial areas where basically the trout don't make it 
too far down the stream.
    But toward that, it has caused an imbalance in our water 
table and caused a lot of flooding in areas that have not 
received flooding in many, many years. Just the high incidence 
of rain has caused us to have massive flooding and massive 
requests for aid from the Federal Government.
    And this brings me to two big issues that I wanted to have 
possibly Ms. Berni address since you are in that area. One is 
on the ability of the local governments to be able to map what 
true flood zones are and the ability to participate and get 
assistance from FEMA in areas where these--we can't correct 
these areas immediately dealing with the Department of 
Environmental Conservation, but allowing FEMA to be able to 
come in and say the local governments can determine where flood 
zones are to drive down the costs of flood insurance, to have 
the availability of flood insurance through NFIP and with the 
fiscal idea in mind of eventually bringing NFIP's fiscal shift 
to the taxpayers back in line.
    So maybe, Ms. Berni, you could address this issue as to 
your experience in an area which is truly in a flood zone.
    Ms. Berni. Yes, absolutely. So in south Louisiana since 
Katrina, we have worked, several local governments have taxed 
themselves in order to generate more money to build local flood 
protection features. And we have had to work very closely with 
FEMA through the development of new maps to get those locally 
built flood protections, levees, drainage, improvements 
included onto the map.
    We had a lot of trouble when the first iteration of maps 
were redone for several parishes because they didn't take those 
locally built flood protection features into account. Several 
communities in Louisiana are now part of a pilot program called 
the Levee Analysis Mapping Procedure, LAMP process, which was 
established to essentially help give credit for some of these 
local flood protection features.
    And so we are working very closely and it has certainly 
been our experience that local governments and local levee 
districts and local floodplain managers have the most and need 
to really be involved through the mapping process as well.
    And so I believe the Technical Mapping Advisory Council is 
getting more engaged toward this as well. But local 
governments, when they are able to provide maps, deliver 
ultimately a better product working with FEMA.
    Ms. Tenney. Great. So this is something that you think is 
feasible that we could do, provide to New York. Because really, 
we technically really aren't in a flood zone, but we have 
created such a disastrous scenario in our very rural inland 
region of the State that we actually do have problems. We have 
had massive flooding. I would love to see us roll back the 
cost, obviously make the National Flood Insurance Program more 
affordable, reduce the burden on the taxpayers and taking the 
risk on this.
    But I appreciate your comments. And just wanted to--I think 
I am losing my time here. But I want to say thank you, that I 
hope that we can find a resolution here that would give our 
local governments the opportunity to protect themselves since 
our State Government doesn't seem to be interested in allowing 
them to protect themselves and our taxpayers and the value of 
our properties.
    Ms. Berni. Absolutely.
    Ms. Tenney. Thank you so much.
    I yield back my time.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Indiana, Mr. 
Hollingsworth.
    Mr. Hollingsworth. Good afternoon, thank you all for being 
here. I really appreciate all of the great testimony.
    I wanted to put a bit of a face on the flood insurance 
program and flooding. As the chairman said, I represent 
Indiana, and in a small, rural community we had a flood a 
couple of weeks ago. But the story starts far before that. 
Brooklyn Bush started her American Dream on June 1st of 2015. 
She opened a small hair salon. Her mom had owned a hair salon 
before that. And she opened it on Water Street, which, by the 
way, isn't in a hundred-year floodplain.
    And then on May 19th of this year, because of 30 minutes of 
really, really hard rain where more than 6 inches fell during 
that 30 minutes and in the previous few hours before that, her 
entire hair salon was flooded, not flooded by 6 inches, not 
flooded by 12 inches, but flooded 5 feet deep in her hair 
salon. And so her American Dream ended that day and she is 
struggling to get back on her feet.
    Now, somewhat lost in the conversation about how we help 
individuals get flood insurance who are in hundred-year 
floodplains are those that we need to ensure have access to it, 
because one of the things that she talked about was, I would 
have bought flood insurance, but no one talked to me about 
flood insurance. I am outside the hundred-year floodplain.
    And I think one of the things we need in terms of a private 
market participation is more people understanding and pushing 
this product and helping people understand their risks.
    Mr. Lehmann, I think you talked about this earlier with the 
high percentage of people outside of the hundred-year 
floodplain or the percentage of the population that purchases 
inside the hundred-year floodplain, but not outside of it, 
while there is still risk there.
    Can you talk a little bit about how we might expand the 
program because of the access to private capital and the access 
to private insurers?
    Mr. Lehmann. Sure. I would like to expand who buys, expand 
take-up, write, whether it is in the NFIP or in private 
insurance. We prefer that more risk be shifted to private 
insurance.
    Mr. Hollingsworth. Yes.
    Mr. Lehmann. If there are private products that agents can 
make some money selling, they will definitely do their best to 
market it to a broad range of people.
    Historically, it has basically been tied to your mortgage. 
If you were required to get it, that is who got it. And that is 
who was ever told about it.
    There have been efforts--FloodSmart is a pretty good effort 
to try to spread the word beyond that cohort. It is not 
terribly successful. I couldn't tell you if the ROI was worth 
it for the government to spend that money, but it is a public 
good.
    Mr. Hollingsworth. Ultimately, I think what you said I 
really latch onto, is that if we align the incentives for 
individual sellers of this product to sell private products to 
individuals, then those individuals would be more likely to 
purchase it and we will see up-take, not only in the hundred-
year areas, but also in other areas. And I totally believe what 
you are saying.
    I think Mr. Ellis talked about this a few minutes ago with 
Baton Rouge--I believe you brought up the example of people who 
would have liked to have purchased it, but might be outside the 
hundred-year floodplain?
    Mr. Ellis. Absolutely, Congressman. As a matter of fact, I 
have the numbers right here. After the Baton Rouge flooding, 
the average NFIP payment was $86,500. If you didn't have flood 
insurance, the average individual disaster aid payment was 
$9,150. And so really, you want to have more people getting 
flood insurance.
    And I sympathize with Ms. Bush, your constituent. What we 
are hoping is that you develop a greater private flood 
insurance market so that the insurance agents, the people who 
sold her her other business insurance, are going to understand 
this better, are going to say, hey, here is this other product, 
you are not in the higher-risk area, you are not in the 
hundred-year floodplain, so it shouldn't be that much more 
expensive. But if you do have a disaster, which they do happen, 
then you are going to be covered.
    Mr. Hollingsworth. Right. And I think that stems from 
getting more and more private players into the market, more and 
more opportunities.
    Mr. Ellis. Absolutely.
    Mr. Hollingsworth. The other thing that came up in this was 
how vanilla the current product is and how we need more private 
players in the market so that we can develop different policies 
that cover different types of people.
    And one example was also some apartment dwellings were 
flooded, and the contents inside, and while the structure may 
have been covered, the contents inside weren't. And we have to 
make sure that we develop those policies. And I think that 
comes through more private players, being able to develop 
different types of products that ultimately people will or 
won't buy and those that they will buy are successful over the 
long run.
    Any comment on that, Mr. Lehmann?
    Mr. Lehmann. Yes, certainly. On the commercial side, NFIP 
doesn't provide much in the way of business interruption 
insurance.
    On the personal residential side, if you need to stay in a 
hotel while your home is being worked on, there isn't coverage 
for that.
    These are the sorts of things, product features that you 
would expect in the private market.
    Mr. Hollingsworth. Right. In a private market where people 
begin to decide what they want and what they don't want. And 
companies are incentivized to offer more and more products, 
just like we see in other insurance products. Companies develop 
gap measures to be able to account for what people need.
    The last question I wanted to ask you, Mr. Saks, was, Mr. 
Heck had brought up some of the maybe increasing challenges 
associated with climate change and other reasons why the risk 
may be increasing for flooding around the country. I guess what 
I think about it is, if the risk goes up, but we fail to make 
any changes to the pricing on the policies, wouldn't we expect 
the program itself to be less and less actuarially sound over 
time?
    Mr. Saks. I think that is correct. I would add one point to 
what you were saying before, which is we encourage that FEMA 
map beyond the hundred-year floodplain, not necessarily the 
purchase. But Ms. Bush should have known she had flood risk.
    Mr. Hollingsworth. Right, thank you so much.
    I appreciate it and I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    For what purpose does the gentleman from Massachusetts seek 
recognition? Unanimous consent requests?
    Mr. Lynch. Yes, I do, Mr. Chairman. I ask unanimous consent 
to place in the record a letter from Mitch Landrieu, Mayor of 
the City of New Orleans, citing concerns regarding the lack of 
affordability and the flood mapping process and lack of 
mitigation.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Lynch. Thank you.
    Chairman Hensarling. There being no other Members in the 
queue, I want to thank each of our witnesses for coming to 
testify today. We are most appreciative.
    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.
    This hearing stands adjourned.
    [Whereupon, at 1:09 p.m., the hearing was adjourned.]

                            A P P E N D I X



                              June 7, 2017
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


                                  [all]