[Senate Hearing 115-16]
[From the U.S. Government Publishing Office]




                                                         S. Hrg. 115-16


        REAUTHORIZATION OF THE NATIONAL FLOOD INSURANCE PROGRAM

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

                                HEARING

                               before the

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

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                                   ON

 EXAMINING THE REAUTHORIZATION OF THE NATIONAL FLOOD INSURANCE PROGRAM

                               __________

                        MARCH 14 AND MAY 4, 2017

                               __________

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


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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
BOB CORKER, Tennessee                JACK REED, Rhode Island
PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
DEAN HELLER, Nevada                  JON TESTER, Montana
TIM SCOTT, South Carolina            MARK R. WARNER, Virginia
BEN SASSE, Nebraska                  ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas                 HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota            JOE DONNELLY, Indiana
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada

                     Gregg Richard, Staff Director

                 Mark Powden, Democratic Staff Director

                      Elad Roisman, Chief Counsel

                      Travis Hill, Senior Counsel

                      Jared Sawyer, Senior Counsel

                Brandon Beall, Professional Staff Member

                Graham Steele, Democratic Chief Counsel

            Laura Swanson, Democratic Deputy Staff Director

           Beth Cooper, Democratic Professional Staff Member

            Erin Barry, Democratic Professional Staff Member

             Megan Cheney, Democratic Legislative Assistant

                       Dawn Ratliff, Chief Clerk

                     Cameron Ricker, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)





























                            C O N T E N T S

                              ----------                              

                        TUESDAY, MARCH 14, 2017

                                                                   Page

Opening statement of Chairman Crapo..............................     1

Opening statements, comments, or prepared statements of:
    Senator Brown................................................     2

                                WITNESS

Roy E. Wright, Deputy Associate Administrator for Insurance and 
  Mitigation, Federal Emergency Management Agency................     3
    Prepared statement...........................................    36
    Responses to written questions of:
        Senator Shelby...........................................    41
        Senator Heller...........................................    45
        Senator Tillis...........................................    48
        Senator Kennedy..........................................    52
        Senator Donnelly.........................................    56

              Additional Material Supplied for the Record

Letter submitted by the National Multifamily Housing Council and 
  the National Apartment Association.............................    60
Statement submitted by the Property Casualty Insurers Association 
  of
  America........................................................    64
Testimony submitted by the Consumer Mortgage Coalition...........    72

                              ----------                              

                         THURSDAY, MAY 4, 2017

                                                                   Page

Opening statement of Chairman Crapo..............................   111

Opening statements, comments, or prepared statements of:
    Senator Brown................................................   112

                               WITNESSES

Steve Ellis, Vice President, Taxpayers for Common Sense, on 
  behalf of the SmarterSafer Coalition...........................   113
    Prepared statement...........................................   139
Michael Hecht, President and Chief Executive Officer, Greater New 
  Orleans, Inc., on behalf of the Coalition for Sustainable Flood 
  Insurance......................................................   115
    Prepared statement...........................................   144

                                 (iii)

Larry Larson, Director Emeritus, Association of State Floodplain 
  Managers, Inc..................................................   117
    Prepared statement...........................................   149
    Responses to written questions of:
        Senator Scott............................................   161
        Senator Heitkamp.........................................   161

              Additional Material Supplied for the Record

SmartSafer National Flood Insurance Program Reform Proposal, 
  February 2017..................................................   166
An Illustration of the Benefits of Private Market Depopulation 
  and Reinsurance Risk Transfer..................................   177
Statement of the Reinsurance Association of America..............   180
Letter submitted by the Consumer Federation of America...........   181

 
    REAUTHORIZATION OF THE NATIONAL FLOOD INSURANCE PROGRAM--PART I

                              ----------                              


                        TUESDAY, MARCH 14, 2017

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:03 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Mike Crapo, Chairman of the 
Committee, presiding.

            OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

    Chairman Crapo. This hearing will come to order.
    We are joined by Roy Wright, Deputy Associate Administrator 
of Insurance and Mitigation at the Federal Emergency Management 
Agency. Mr. Wright, thank you for being here with us today. He 
returns to the Committee following his testimony last September 
on recommendations from the Technical Mapping Advisory Council.
    Today he will provide testimony on the operations and 
financial condition of the National Flood Insurance Program, 
steps FEMA has taken to implement legislative reforms, and to 
recommend potential legislative reforms.
    Our Nation has seen some of the most devastating natural 
disasters in its history the last two decades. These 
catastrophes displace families, harm businesses, and disrupt 
lives.
    The NFIP was created nearly five decades ago as the rising 
cost of providing post-disaster relief fell on taxpayers. The 
program's mission is to expand homeowners' access to flood 
insurance in exchange for local communities reducing their 
exposure to flood risk.
    Currently, the NFIP administers approximately 5.1 million 
policies, totaling $1.25 trillion in coverage across 22,000 
communities.
    Unpredictable weather and changing topography leave 
businesses and households across thousands of communities 
vulnerable. Since 2005, Hurricanes Katrina, Irene, Superstorm 
Sandy, and others have overwhelmed gulf and coastal communities 
and drastically increased claims.
    But flood disaster is not unique to the coasts and gulf as 
nearly one-fifth of all NFIP claims come from outside of high-
risk areas. The frequency and scale of recent catastrophes have 
pushed the program to amass $24.6 billion in debt with the 
United States Treasury Department. The program's structural 
issues must continually be addressed so that it can better 
withstand strenuous conditions.
    Throughout its history, Congress has acted to significantly 
reform the program to make it more efficient and effective. 
Since 2012, legislative action has improved communication of 
actual flood risk and spurred communities toward better 
floodplain management while also balancing affordability to 
promote widespread flood insurance adoption.
    But there is still work to do. Today Mr. Wright will 
provide recommendations on how to improve the program, for 
example: how FEMA can use technology, such as LIDAR, to create 
maps that better reflect true flood risk; how to best promote 
the growth of the private insurance market so that 
policyholders have more options--and in some cases, more 
affordable options than offered through the NFIP--and risk is 
shared by both the Government and the private sector; and how 
long the program should be reauthorized to ensure that reforms 
can be implemented and the market has greater certainty.
    Senator Brown and I have started working together on a 
bipartisan basis to hear the thoughts and concerns of various 
stakeholders and Members of the Committee, and we look forward 
to working with FEMA to understand the legislative changes that 
can help the NFIP achieve its goals.
    Senator Brown.

               STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Mr. Chairman, for calling this 
hearing today on the reauthorization of the NFIP. Mr. Wright, 
thank you for joining us again. Your comments were helpful last 
time. We look forward to that again.
    The most common and costly natural disaster facing our 
constituents is flooding, yet it is hard to insure against 
that. There was almost no private market before the advent of 
the NFIP almost 50 years ago.
    With a growing population and with a changing climate, our 
entire Nation will continue to grapple with this issue in the 
years ahead. We will have a direct impact on Ohioans and on 
other Americans who experience flooding. We will also have an 
indirect impact on all taxpayers no matter where they live as 
the country seeks to help families and communities recover from 
these events.
    NFIP is a critical component of our Nation's response to 
the threat of flooding. It seeks to combat the effects of 
flooding through four interrelated components: flood insurance 
to help property owners recover quickly after a flood and 
reduce the need for Federal emergency appropriations; second, 
floodplain management to minimize damage to people and property 
through the adoption of local ordinances and building codes; 
third, floodplain mapping to identify flood hazards and 
communicate that risk to homeowners and communities; and, 
fourth, mitigation to help remove property from harm's way 
through property-level and community investments that reduce 
the overall level of risk.
    Today Mr. Wright will share FEMA's views about 
reauthorization of the path forward for NFIP. To help inform 
this process, I would like to get a sense of where FEMA is in 
implementing reforms Congress enacted in 2012 and 2014. I would 
also like to hear about FEMA's progress in implementing its 
administrative transformation efforts to improve the NFIP 
following Superstorm Sandy.
    I look forward to working with Chairman Crapo and the 
Members of this Committee to strengthen NFIP and the country's 
comprehensive approach to mitigating flood risk through a 
timely reauthorization. Welcome back. Thank you.
    Chairman Crapo. Thank you, Senator Brown.
    Mr. Wright, you may proceed.

STATEMENT OF ROY E. WRIGHT, DEPUTY ASSOCIATE ADMINISTRATOR FOR 
 INSURANCE AND MITIGATION, FEDERAL EMERGENCY MANAGEMENT AGENCY

    Mr. Wright. Good morning, Chairman Crapo, Ranking Member 
Brown, and Members of the Committee. Thank you for the 
opportunity to testify today.
    I want to discuss four core principles for reauthorization 
today: first of all, on-time, multiyear reauthorization; 
second, we need to increase the flood insurance coverage across 
the Nation through both an expansion of the private flood 
insurance markets as well as the National Flood Insurance 
Program; we need to address barriers to meeting the needs and 
demands of our customers; and, fourth, we need to bring 
transparency to the financial framework of the National Flood 
Program.
    As both Mr. Crapo and Mr. Brown mentioned, flooding is the 
most frequent and expensive disaster; 98 percent of the 
Nation's population are in the 22,000-plus communities that 
rely on the National Flood Insurance Program. And we deliver 
for 5.1 million policyholders through 73 private insurance 
companies that participate with us.
    Due to the nature of flooding, impacts can vary 
significantly each year. After 15 years of lower-than-expected 
damages, Hurricanes Katrina, Rita, and Wilma hit the Nation in 
2005. These three catastrophic events resulted in NFIP claims 
totaling 8 times the size of any prior year in the history of 
the program.
    Rather than directly providing the funds to meet these 
requirements, Congress directed the NFIP to pay for the 
catastrophic losses through funds borrowed from the Treasury. 
Paying the insured losses in 2005 required the NFIP to borrow 
$17.5 billion.
    In 2012, Hurricane Sandy hit the east coast and resulted in 
more than 144,000 claims. The program paid out an initial $8.4 
billion to policyholders. With the corrective actions FEMA 
took, the NFIP has since paid out an additional $350 million.
    Since Hurricane Sandy, FEMA has been transforming the NFIP 
customer experience and improving oversight and engagement of 
our Write Your Own companies. FEMA, using its own authorities, 
has implemented a new appeals process, improved oversight of 
Write Your Own companies, with special attention to litigation. 
We have streamlined the process for making regular changes to 
FEMA's relationship with the private sector partners. And we 
have begun to modernize the product to better provide the 
coverages that policyholders want and expect.
    The NFIP has also implemented changes to take a more 
proactive role in disaster readiness and response. 2016 is a 
case in point. We issued advance payments to policyholders of 
up to $10,000 while their full claims were processed. We 
increased the coordination with State insurance commissioners. 
We deployed our insurance staff directly down range as part of 
the field operations. And we had far more proactive 
communication with policyholders and Write Your Own insurers.
    I would assert that FEMA's performance in 2016 demonstrates 
the corrective progress we have made. While there was no single 
catastrophic disaster in 2016, the multiple flooding events in 
Louisiana, Texas, and several other States during Hurricane 
Matthew resulted in the third largest payout in the NFIP's 
history. The incurred losses from 2016 events will total more 
than $4 billion.
    The residual debt from Katrina plus Sandy and then this 
past year's loss leaves the program with liabilities to the 
Treasury now totaling $24.6 billion. Moving forward, the annual 
interest-only payments are nearing $400 million. So we are 
going to return to the core principles for reauthorization that 
I highlighted.
    First, the NFIP needs an on-time, multiyear 
reauthorization. Simply, the stability of the real estate and 
mortgage markets depend on this.
    Second, the reauthorization should recognize the need to 
increase flood insurance coverage across the Nation in both 
high- and moderate-risk areas.
    FEMA recognizes that there is a growing interest by private 
insurers to offer flood insurance protection. FEMA supports 
this because an insured survivor--regardless of whether they 
purchase their coverage through the NFIP or on the private 
market--will recover more quickly and more fully. To these 
ends, we must realize it will take time for the private market 
to adapt to the market currently served by a public program.
    If the private market were to glean only our lower-risk 
policies, the NFIP would be left with all of the highest-risk 
policies. This could lower NFIP premium revenue while 
increasing potential claims payouts. Such an action would leave 
the program with even more financial risk, with greater 
reliance on taxpayers and the Treasury each and every year.
    As we look forward, a number of opportunities could be 
explored. Congress could identify a future point in time by 
which flood policies for all new construction would be provided 
solely by the private market. When coupled with ongoing 
floodplain management and building code enforcement, these new 
residential structures would be built to insurable levels for 
risk that the private market could assume.
    Third, we need to remove barriers to providing 
policyholders the coverages they want and need, addressing 
higher coverage limits, single deductibles, and losses, 
including basements.
    And, finally, we would be better off in the future 
regarding the National Flood Insurance Program if we truly had 
a sound financial framework. We need to price the risk, make it 
plain, whether this is done through increasing premiums, 
reducing risk through mitigation grants, or discounts directed 
by Congress. The solvency of the program depends on it.
    Thank you, Mr. Chairman, for the opportunity to speak with 
you today, and I look forward to the conversation.
    Chairman Crapo. Thank you very much, Mr. Wright.
    Before we begin the questions, I want to ask all of our 
Members to please stay very close to your 5 minutes. In the 
last hearing, which I started doing this, we all started taking 
a minute or two more, and ultimately some of our newer Members 
had to sit around for a long time before we got to them. So I 
will follow this rule. I started it last time. But I just ask 
you, if you get close to the end of your 5 minutes, to wrap it 
up.
    Mr. Wright, between 2008 and 2012, the NFIP saw 17 short-
term extensions and 4 expirations. What are the consequences 
for existing and prospective policyholders of letting the 
program expire?
    Mr. Wright. We absolutely need to do everything in our 
power to ensure that this is done on time and for a multiple 
set of years. When this program expires or lapses, we put 
ourselves in a position that we have a dampening effect or even 
an absolute limiting effect on the real estate and mortgage 
markets. Any structure, any residential home that is going to 
have a federally backed mortgage needs to have the availability 
of flood insurance. When the program lapses, we cannot write 
new policies.
    Chairman Crapo. All right. Thank you. Many States across 
the country have experienced the devastation of wildfires in 
recent years. In Idaho, recent wildfires have destroyed 
businesses, caused health problems, and scarred public lands. I 
am concerned that wildfires also make certain areas at a higher 
risk of flooding.
    Mr. Wright, can you walk the Committee through the impact 
wildfires have on flood risk?
    Mr. Wright. Absolutely. So for those of you who are not 
from areas of the country where we deal with wildfires, after 
you have a fire there in that wildland area, you see those 
black scars. Those scars are ostensibly an asphalt slip-and-
slide. When water hits it, nothing absorbs, everything conveys. 
And so for the 3 to 5 years immediately after a wildfire, the 
flooding risk in those adjacent areas at the bottom of that 
watershed increases.
    One of the things that the Committee did in 2012 was ensure 
that we had authorities related to post-wildfire, and so when a 
wildfire has been on public lands, our normal 30-day wait 
period is waived and homeowners can move promptly to have the 
coverages they need. Really, it is that 3- to 5-year period of 
time until that can regenerate and grow, but it clearly 
exacerbates the flood risk, sir.
    Chairman Crapo. And is the authority that was already 
granted adequate?
    Mr. Wright. I do think that from a flood insurance 
perspective, those authorities have proven useful. I think what 
I am not yet seeing is enough of an uptick after the event, 
after that fire, to ensure that there is sufficient coverage. 
So the ability to sell, the ability to make it available 
immediately, the authorities are there. We think we need to 
continue to collaborate on ways to make sure that people 
understand that risk and that they should be buying insurance 
in the immediate period afterwards.
    Chairman Crapo. And if there were authorities that would 
help to mitigate the risk itself, that would be helpful as 
well.
    Mr. Wright. It is, and so through some of the other 
authorities that FEMA has that have since expired under the 
Stafford Act, we ran a pilot so that post-wildfires, when many 
States or communities get the Fire Mitigation Assistance 
Grants, we were making available fire mitigation immediately 
afterwards. We considered it an emergency protective measure, 
and there were a series of projects that could be done to 
stabilize that area to minimize that flood risk going forward. 
While outside of the Flood Insurance Act, the other part of my 
job related to the Stafford Act, I think that is the kind of 
authority that we could truly use again.
    Chairman Crapo. Thank you. And in October 2012, Pew 
Charitable Trust noted that historically repeatedly flooded 
properties have accounted for just 1 percent of the properties 
within the National Flood Insurance Program policies, but about 
25 to 30 percent of the claims. To what extent are repetitive 
loss properties and severe repetitive loss properties 
responsible for the program's current financial problems?
    Mr. Wright. So I want to take this from two angles. At the 
top forward piece, these repetitive properties are a drag on 
the program. They constitute a disproportionate kind of payout, 
and we need more authorities, I would say, to address that. I 
would highlight, though, that today there are multiple 
definitions of ``repetitive loss'' in the National Flood 
Insurance Act. We would do well to harmonize those, first of 
all; make it clear where we should go from a mitigation 
perspective; and I would assert to you we need to look at are 
there points by which they have experienced enough damage that 
if they are not willing to take the offer of mitigation and 
have us acquire that property, we need to look at whether or 
not we should still be making flood insurance available to them 
at the discounted prices that many of them receive with 
grandfathering subsidies.
    Chairman Crapo. Thank you very much.
    Senator Brown.
    Senator Brown. Thank you, Mr. Chairman.
    Mr. Wright, we have seen media reports that the 
Administration is considering cuts to the FEMA budget of 11 
percent in order to fund the Mexican wall, the border wall. 
Regardless of your personal view of the wisdom of building the 
wall, tell us, if you would, what the effects of an 11-percent 
cut would be on FEMA's flood mapping efforts. And how would 
cuts to the mapping budget square with the effort to improve 
flood mapping in order to better identify and mitigate the risk 
of flooding?
    Mr. Wright. Senator Brown, I have seen the reports, and I 
think that at this point I am not aware that the final 
decisions have been made from the President's budget, and so I 
think it is premature for me to speak about those specifics. I 
would refer you to the Office of Management and Budget. Once we 
see those, I would be happy to talk through those specifics.
    I think to your point, though, about mapping, we need to 
look at a couple of the elements. So this Committee helped 
insert an authorization level related to the mapping so that we 
would understand risk. That is at $400 million a year under the 
current act. We have never been appropriated equal to that 
level. For this past year, we had a combined mapping budget of 
about $311 million; $190 million of that was directly 
appropriated, and the balance of that was paid for by fees.
    We will see where the budget proposal comes down the road 
on this, but, clearly, the investment in mapping is one that 
requires resources. And when we are looking broadly across a 
budget, that includes tradeoffs.
    Senator Brown. Considering the pressure on the budget with 
a defense spending increase of whatever the President has 
called for, $50 billion up, and a major capital expenditure 
like the wall, it is hard to believe there is not going to be 
some hit that you are going to need to figure out when you 
determine these questions.
    One of the TMAC recommendations was developing a 5-year 
plan for map development. Talk to us about this plan and how it 
would further mapping improvements that we discussed at the 
hearing back 6 months ago.
    Mr. Wright. Absolutely. So since that point, we have 
actively begun implementing that recommendation. It is being 
advanced in two ways.
    First of all, I am looking holistically at where does the 
program need to go. We are looking at technologies, what kind 
of investments. I would highlight particularly our attention to 
ensure that there is elevation data available across the 
Nation.
    But the second piece I think really gets to the root of the 
element that the Technical Mapping Advisory Committee asked us 
to address. This spring we are engaging with States across the 
country to begin to lay out what the sequencing of maps would 
be, because as we had done in the past and given the budget 
uncertainty that had been suspended, we used to go through a 
process so they could see it coming and they knew when we would 
be coming to their community next. Regardless of what happens 
in the budget, we are moving with the States to implement that 
recommendation now.
    Senator Brown. In the September hearing, we discussed the 
tension between risk-based flood-insurance rates and affordable 
rates for low- and moderate-income homeowners. Congress 3 years 
ago directed FEMA to develop a draft affordability framework 
for the NFIP. What is the status of the affordability 
framework? And when do you expect to send it to us?
    Mr. Wright. So the affordability framework is due to the 
Committee in September of this year. We have worked with the 
Government Accountability Office as well as the National 
Academies of Science in terms of building this.
    One of the things that we have been able to do since I saw 
you last fall was to begin a partnership with the Census Bureau 
by which we are going through and doing data matching of our 
policyholders against what we can know from census data. It is 
a controlled environment that is going to give us some better 
insights into it. We are already seeing very clear data that 
say that those who live in the high risk of flooding make tens 
of thousands dollars less than those who live outside on 
average.
    At this point, though, we are just at the beginning of 
getting those data. That is then being brought together with a 
series of policy options. I look forward to wrapping up that 
initial work inside the agency here in the next couple of 
months, and then we will begin the process of collaborating 
with the Administration in order to be able to transmit a 
report to you this fall.
    Senator Brown. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Kennedy.
    Senator Kennedy. Thank you, Mr. Chairman.
    Mr. Wright, do you know a company by the name of U.S. 
Forensic?
    Mr. Wright. I am aware of the company.
    Senator Kennedy. I believe they got in a little bit of 
trouble representing some of the companies after Hurricane 
Sandy. Is that correct?
    Mr. Wright. That is correct.
    Senator Kennedy. What was that trouble?
    Mr. Wright. And so they were involved in some of the cases 
where engineering reports were required after the event, and 
some of their work was sloppy at best or dead wrong at worst.
    Senator Kennedy. They altered some reports, didn't they?
    Mr. Wright. That is my understanding.
    Senator Kennedy. OK. And they were sanctioned by a Federal 
judge. Is that correct?
    Mr. Wright. So there were a couple of companies from the 
engineering space that were involved in this. Given some things 
that played out with this, there were some sanctions that were 
done.
    What we have done is collaborate with the Attorneys General 
in both New York and New Jersey, as well as with the Department 
of Homeland Security's Inspector General. Those are the folks 
who have the authorities and powers to follow through on those 
questions.
    I would highlight that one of the companies--not the one 
you are mentioning now--was convicted, given some work by the--
--
    Senator Kennedy. Well, you are familiar with the flooding 
we had in March and April last year in Louisiana.
    Mr. Wright. Very much so.
    Senator Kennedy. What is U.S. Forensic still doing 
engineering work now in Louisiana?
    Mr. Wright. So I cannot prohibit the use of the company 
unless we have gone through a complete debarment process. The 
convicted company has been debarred. Otherwise, that is the 
collaboration that we are doing with the Inspector General.
    What I can do and have done is fundamentally change the 
quality control of all of the work that is done by engineers, 
so that as the various companies are involved in it, I can be 
assured of the outcomes.
    Senator Kennedy. Well, the Federal judge in New Jersey 
accused this particular firm--these are the judge's words, not 
mine--of ``reprehensible gamesmanship.'' That is not enough to 
get you off the list?
    Mr. Wright. Based on that, we worked and are continuing to 
supply information to the State Attorneys General in New York 
and New Jersey who have the law enforcement capabilities to 
take actions against them.
    Senator Kennedy. OK. Are you familiar with an attorney by 
the name of Gerald Nielsen?
    Mr. Wright. I am.
    Senator Kennedy. I believe he had some difficulties in 
representing some clients after Hurricane Sandy, too, did he 
not?
    Mr. Wright. That is my understanding.
    Senator Kennedy. Could you tell me about that?
    Mr. Wright. So I have never met Mr. Nielsen. My 
understanding is that he is employed by some of the Write Your 
Own companies to represent them in litigation.
    Senator Kennedy. His firm that he was representing was 
sanctioned $1 million for violating discovery orders in 
litigation after Hurricane Sandy. Is that right?
    Mr. Wright. I am not aware of the specifics related to 
sanctions related to him.
    Senator Kennedy. OK. You are not familiar at all with that?
    Mr. Wright. You listed a dollar value. I am not aware--I 
understand that he was called in to account by a judge, and 
based on this, I will tell you that more holistically, not just 
that action, I have looked at and continue to collaborate with 
the Inspector General to look holistically at the actions of 
these lawyers.
    Senator Kennedy. Well, he is still representing the WYO 
companies, is he not?
    Mr. Wright. My understanding is there are Write Your Own 
companies who still use him, yes.
    Senator Kennedy. And why is that?
    Mr. Wright. So they have choices to use lawyers. As they do 
that process--again, this goes back to the engineering side--if 
a lawyer has been debarred or disbarred, then I can prohibit 
their use. What I can do and did roll out last summer was 
fundamental changes to how we oversee all of the litigation 
work that is done. And so while I do not get to choose the 
lawyers, I do get to influence and ultimately direct the 
litigation strategy about when we should pursue that in court 
and when we should step back and say the right thing to do is 
settle on this case.
    Senator Kennedy. Well, if I understand your testimony, you 
do not do anything unless somebody is disbarred if they are an 
attorney, or if they are an engineer unless they are what?
    Mr. Wright. I can change the quality standards. I can hold 
them to those from a control perspective. The ultimate 
selection of those is left to the Write Your Own companies 
unless they have been debarred.
    Senator Kennedy. And you do not have any influence 
whatsoever? You cannot pick up the phone and call these 
companies and go, ``Hey, we have got some problems here''?
    Mr. Wright. Sir, I think the companies know my opinion of 
these various actors. The kind of open questions given their 
actions that brought on questions of the credibility of the 
program, I have spoken very plainly about that. But, again, 
sir, folks have rights to due process, and I do not have the 
ability single-handedly to remove any one player.
    Senator Kennedy. Thank you, Mr. Chairman.
    Chairman Crapo. Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman.
    I am pleased that we are starting the process to reform and 
reauthorize the National Flood Insurance Program early so that 
we have enough time to fix this complex program once and for 
all. For 231,000 New Jerseyans, this is an incredibly important 
program, as we saw in Sandy. And in the aftermath of Sandy, I 
saw firsthand all the problems with the program and the work 
that needs to be done.
    Sandy was a natural disaster, but the delays, the denials, 
the disputes they encountered throughout the flood insurance 
claims process, that was a man-made disaster--the arbitrary 
rules, inflexible deadlines, the gaping loopholes, the 
``gotcha'' clauses, the chronic underpayments, the constant 
run-around.
    So with this experience fresh in mind, I am eager to lay 
out the reforms that I hope the Committee will fight for in the 
days and weeks ahead. Certainly I will. My goal is to make the 
Flood Insurance Program simple, affordable, fair, efficient, 
and accountable to consumers and taxpayers. Americans deserve a 
program that is sustainable for taxpayers, affordable for 
homeowners, and accountable to everyone.
    Now, I would like to follow up on Senator Kennedy's 
questions about the Nielsen firm. In the aftermath of Sandy, 
thousands of New Jerseyans faithfully paid their flood 
insurance premiums for years, often decades, without ever 
making a claim, and then had the rug pulled from underneath 
them when they were significantly underpaid by FEMA's private 
insurance contractors. And the appeals process, which was 
fundamentally broken at the time, many were forced to go 
through the frustrating, time-consuming, and expensive process 
of going to court to get what they were entitled to.
    FEMA's private contractors account for more than 90 percent 
of the cases the Nielsen law firm did everything in its power 
to drag out the proceedings, draining time, resources, and 
money from Sandy victims who had little to spare of each. 
Rather than work in the interests of justice, the Nielsen law 
firm filed countless frivolous motions seeking to run up their 
legal fees, which Nielsen himself bragged would surpass $100 
million.
    To add insult to injury, these millions of dollars came 
partially from the very policyholders he was fighting in court. 
He dealt with Sandy victims like they were the perpetrators, 
enriching himself as their expense, bullying, scaring people 
out of court, hiding documents. And when they finally got 
caught and were excoriated by a Federal judge for a ``shocking 
effort to curtail inquiry'' and a level of admonishment rarely 
seen in Federal litigation, the judge said, ``I find that 
counsel for Wright violated its obligations to comply with this 
Court's discovery orders . . . unreasonably prolonging this 
litigation, imposing unnecessary costs upon plaintiffs and 
further contributing to the unwarranted delays.'' There is not 
a morsel of regret by that firm.
    So to my knowledge, this law firm is still representing 
Write Your Own's in lawsuits. Isn't that true, Mr. Wright?
    Mr. Wright. That is my understanding as well.
    Senator Menendez. So a firm with such a troubled and 
possibly illegal past can be given the opportunity to represent 
FEMA even though they have such a record?
    Mr. Wright. Yes, sir.
    Senator Menendez. Well, so are you telling me that FEMA 
does not have hiring and firing authority for these attorneys, 
even though FEMA is on the hook financially and has its 
reputation on the line?
    Mr. Wright. We do not. Instead, what we have is two things.
    In the aftermath of Sandy--and you were involved with my 
predecessors to move much of this along the road--FEMA withdrew 
all of the cases so that we could personally manage those with 
our staff.
    And, second, we changed the way by which litigation 
oversight takes place going forward.
    Senator Menendez. Would giving FEMA the authority to choose 
or at the very least approve a private attorney's representing 
them help you control legal expenses and speed up the 
resolution of lawsuits?
    Mr. Wright. I think it is one of the elements, sir, that we 
need to look at.
    Senator Menendez. Let me ask you in a different context, 
Write Your Own's, FEMA contracts with private insurance 
companies to sell and service its flood insurance policies. 
Despite taking on none of the risk, these Write Your Own's, as 
they are known, reap significant profits from the program. In 
fact, estimates show that the Write Your Own's pocketed more 
than 43 cents of every dollar in premiums in the year Sandy 
hit. That is an awful lot of money for an insurance company 
that does not bear any of the risk.
    Is it appropriate for these private companies that have no 
skin in the game to receive more than a third of all premiums 
collected?
    Mr. Wright. Mr. Menendez, we need to pull down the costs; 
we need to make all of this far more efficient. I would want to 
highlight for you, though, as we look at compensation, you 
know, as we look at the standard compensation of 30.5 cents, 
the first 15 to 17 cents go to agents who are small business 
owners in your State. I want to make sure that we are fair to 
them. They are the sales force we need on the ground. We then 
look at the State taxes we also pay out of that. So I can look 
at the dimensions of it. You guys have directed us in the last 
cycle to change this. We are in the process of taking that on 
from rulemaking. We have collaborated with the Government 
Accountability Office whose report on this, I think in 
December, is one that I have learned quite a bit from.
    But to simply say it, sir, we need to pull down the costs. 
We need to make this more efficient as we go forward.
    Senator Menendez. Well, Mr. Chairman, 43 cents on every 
dollar to a private insurance company that is not on the hook 
for anything does not seem to me to be a system that ultimately 
works in the interest of the taxpayer. I have a lot more 
questions. I will submit them for the record.
    Chairman Crapo. Thank you, Senator Menendez.
    Senator Rounds.
    Senator Rounds. Thank you, Mr. Chairman.
    Let me provide a little bit of the other side of this. In 
my former life, I was a property and casualty agent, and the 
agency that we had actually participated in the Write Your Own 
Program, and we wrote flood insurance through a private 
carrier, and we did it as much as a service for those 
individuals that we wrote their other property and casualty 
for. It was a challenging part, and yet writing it through a 
carrier that you also did other business with made it easier to 
work through the processes.
    I agree with you that the reauthorization is critical and 
that it should be timely and that it should be one that runs 
over a period of years. I also agree with you that there should 
be more insurance coverages being written, particularly those 
in areas in which you are actually collecting a fair premium 
for a fair risk, meaning those with less hazards.
    Personally, I have flood insurance on my home, and in 
looking at how that was written, it is in a category which is 
the least expensive of the categories. But there is a limit on 
it of $250,000 for structure, and at one time I think that 
would probably cover a lot of the structures that are out 
there. But as homes have continued to increase, if you look at 
the insurance values, most insurance companies that write 
homeowners' coverages will tell you that they want to be able 
to insure to the value of a home, and the reason is because, in 
the case of a loss, you are always going to, as the carrier, 
pay for that part of the loss, unless you have a contract in 
place that says if you are not fully insured they are only 
going to pay a percentage of the loss involved.
    I am wondering if the National Flood Insurance Program 
should perhaps take a look at either increasing the total 
amount of structure coverage, particularly in those areas where 
it would be perhaps more profitable to write and, thus, gain 
more premium dollars, and also it looks to me like since you 
have a larger risk in some of your homes, you avoid the 
adversity of insuring the first $250,000 of any loss that 
occurs.
    Have you thought about that in terms of what your options 
might be?
    Mr. Wright. Yes, sir, and I appreciate the question and the 
nuance that you have offered inside of this. The $250,000 limit 
is set by statute. It was last adjusted in 1994. Very clearly, 
the value of homes has gone up over the last 20-some-odd years.
    We would benefit from an increase in that. I think at the 
time that number was calibrated to the kind of Freddie/Fannie 
side of, you know, those conforming loans. That number sets up 
at $427,000 today. And there is a very real problem, in my 
estimation, related to underinsurance that you are highlighting 
there by which ostensibly a $250,000 full payout on that policy 
could very well just be a 50-percent loss.
    And so this is an adjustment that I would be happy to work 
with you all on. It is one that should be addressed.
    Senator Rounds. It most certainly would bring more what I 
would call ``healthy'' or ``profitable'' premium dollars into 
the program.
    Mr. Wright. Well, and I think this is an important point. 
To the degree that we allow that to go up, I would assert that 
it should only be on the actuarially sound rates only----
    Senator Rounds. Yes.
    Mr. Wright. ----so that we are not increasing the risk on 
the grandfathered and pre-firm side of the equation, and it 
would increase the revenue into the program and help us remain 
more financially sound.
    Senator Rounds. It would seem to me, though, also that you 
may be working at odds against yourself if all new construction 
you were looking at--if you simply allowed that to be written 
outside the program, it would appear to me that you are 
basically taking older homes then and you are not taking newer 
homes that may very well be in areas with appropriate flood 
protection. I think I would caution against a broad approach 
suggesting that the flood insurance not participate in those 
markets as well.
    Mr. Wright. So I appreciate that, sir. As I look at it, 
there has been a desire from many to see the private market 
expand. And from a public policy perspective, the more people 
who are covered, the better. I want people covered whether it 
is through private or through----
    Senator Rounds. But if you are taking the risk on the rest 
of it, you have to spread the risk. If you take the healthiest, 
as I would call it, of the premium dollars, the most 
profitable, and allowing the outside market to have that, that 
hurts you in the long run with the National Flood Program.
    Mr. Wright. Over a 10-year horizon, it would. You are 
correct.
    Senator Rounds. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Senator Tester.
    Senator Tester. Let us follow on with that conversation, 
and that is, if private insurers are allowed into the 
marketplace, then we have a bill to do that. And they take up 
the lowest-risk policies and leave you with the highest-risk 
policies. And I know you said that the more people insured, the 
better. Doesn't that put your NFIP in a greater risk situation?
    Mr. Wright. Whatever we do down this line needs to be 
measured in terms of what it sees to go forward. Ceding some 
space to the private markets, which has been--and I know that 
you have advocated for that in your bill--there are a lot of 
folks who do not have the coverages they need. And so I will 
approach the entry, or expansion because they already exist in 
the market today on the private sector side from a mutual gain 
theory, as long as we mutually gain.
    What I have to see us guard against is a point by which 
they start culling through my book, which is why I looked at 
the new risk and said if we are going to give some space, let 
us give it on the new side. What I do not want them doing is 
arbitrarily culling through the book, taking the lowest risk, 
and leaving us--we are already the residual market. We would 
move to the insurer of last resort. And at that point, Mr. 
Tester, I am convinced we would be in a position by which we 
would require infusions of cash every single year.
    Senator Tester. So--and if you do not today, I would not 
expect you to have--do you have any recommendation on language 
that could prevent that kind of culling through the books?
    Mr. Wright. So I can follow up with you. I think one of the 
elements has to do with what we do with the ``noncompete 
provision'' that is in our current arrangement. Some people 
misunderstand this. Agents have no prohibitions. The only 
people who sell policies are agents, and they can sell whatever 
product they want to sell.
    Senator Tester. Yes.
    Mr. Wright. What we say to the Write Your Own's, frankly, 
the way any business would work, is you have all of our 
proprietary data; it is covered in our instance, because we are 
a Government program, under the Privacy Act. You cannot 
arbitrarily cull through that and say we want to take one-third 
of the policies and shift them off the book because you have an 
insight that no one else has.
    Senator Tester. Got you. OK.
    You talk about an on-time, multiyear reauthorization. I 
assume you are talking 5 years, or are you talking a different 
number?
    Mr. Wright. Senator Tester, multiyear is what matters to 
me. You know, I look at the kind of complexity of this that 
sits in front of us. Multiple years.
    Senator Tester. OK. So the recommendation from NFIP is you 
do not really care if it is 3, 5, or 7, just so long as----
    Mr. Wright. As long as we have multiple years. We need to 
see consistency in the marketplace.
    Senator Tester. All right.
    Mr. Wright. The last time, Congress did some work in 2012, 
came back in 2014. I am less concerned about that than in 
showing there is stability in the marketplace.
    Senator Tester. OK. You also talked about pricing risk, and 
a lot of that risk pricing deals with maps. We have gotten a 
lot of feedback on the accuracy of the maps from the people who 
live there in different places, and maybe some of them are 
wrong, but some of them are probably right, too.
    Do you guys have any idea on how accurate the maps are at 
this moment in time as far as your ability to price risk? Are 
they 10 percent accurate, 90 percent accurate, or 75 percent 
accurate?
    Mr. Wright. So I believe that the maps today are credible. 
In 2014, you all directed us to work with the Technical Mapping 
Advisory Committee to look at this, and last fall, the 
Administrator of FEMA certified the credibility of the product.
    There is an open question related to precision, which I 
think is where you are going with this.
    Senator Tester. That is correct.
    Mr. Wright. And precision comes down to how much can we 
afford to buy. It is a resource question. Precision costs more 
money. So what we have tried to do is collaborate with 
communities, ensure that we are getting the data from them so 
that we are not duplicating any effort, and continuing to build 
on this. I am convinced that the technology can help us, but 
one of the predicates on that requires us to have digital 
elevation data in all of these all across the country.
    Senator Tester. Very quickly so I do not not obey the 
Chairman, but the map revision process for communities, are you 
happy with that? Is it timely?
    Mr. Wright. So the map revision process can and needs to go 
faster.
    Senator Tester. Yes.
    Mr. Wright. But let me nuance it down two lines. I am 
particularly looking--I think we should work with the Committee 
on this. When a community is submitting data and it is 
submitted and it goes through the early processes without 
objection, I would like to see us hit the accelerator on it.
    Senator Tester. OK.
    Mr. Wright. I want to be careful not to remove the due 
process, because a community may think this is a good idea, but 
an affected property owner wants to be able to appeal. We have 
got to hold that tension together. But when the community is 
bringing me the data, we do not see objection, we should hit 
the accelerator.
    Senator Tester. Thank you, and I apologize, Mr. Chairman.
    Chairman Crapo. That is all right this time.
    Senator Scott.
    Senator Scott. On behalf of Senator Tester, I will yield 
back 21 seconds before I am finished here. Do not worry.
    [Laughter.]
    Senator Scott. Mr. Wright, thank you for being here this 
morning, and my question really does piggyback on Senator 
Tester's and your conversation around technology, where we are 
and what kind of technology are we using today, what kind of 
technology are we going to, and how will that technology open 
the door for the private sector to become, the private insurers 
to become more involved in it. Because as I look at the State 
of South Carolina, we are in desperate need of remapping, and 
you are going through that process, which, of course, causes 
consternation and challenges as well.
    Communities like Beaufort County, where Hilton Head is--
most of us know where that is--has not been remapped in about 
20 years, which is consistent, I think, throughout the State.
    The 1,000-year flood that we had in 2015--and I will say 
that FEMA did a pretty darn good job, so thank you for your 
participation and your assistance during that challenging 
storm. The reality, however, is that most of us would assume 
that in South Carolina the coastal exposures received a lot of 
the pain and suffering, when, in fact, as you know, the inland 
communities--Florence and Columbia because of the dams that 
were broken and other situations--challenged folks who never 
heard the words ``flood insurance'' from their agent----
    Mr. Wright. Right.
    Senator Scott. ----because there was never a thought that 
it would be needed. I think about the same situation in 
Louisiana and around the country where the flood impact is now 
in areas that are likely not mapped for it, perhaps impossible 
to do so, but if we are going to have more private insurers 
coming into the market hopefully to help reinforce the market, 
and we are going to have better predictions on where the 
possibility of the impact will be, the last few storms suggest 
that we have some ways to go, or perhaps it is just not 
possible at this point to get there.
    Mr. Wright. So there are maps under development, and so in 
the case of South Carolina, we pass 100 percent of those funds 
directly to the State through a Cooperating Technical 
Partnership, and they provide the leadership on the ground for 
this. So even in Beaufort County, those maps are in draft and 
working with the community, but they are not yet in effect.
    Let me talk about the inland piece, and let me go to 
technology. From an inland perspective, you are absolutely 
right. It is interesting. I talk to the folks on the coast, and 
they go, ``Well, we survived this.'' I am, like, ``Whoa, whoa, 
whoa. What you survived is not what the communities in Florence 
and Columbia and others did.''
    From an insurance perspective, it did go well beyond the 
high-hazard area that was mapped, but I would tell you we had 
an insurance problem inside the high-risk area, way too little 
participation and penetration.
    Senator Scott. Always do.
    Mr. Wright. And particularly in the neighborhoods that I 
was in. I know that you traveled through that area as well. A 
lot of these were renters, so they were landlord-owned. And so 
I look at the renter side of the equation. Only 1 percent of my 
book is sold to renters. And how do we help them understand 
that for $100 or $150 they could have an amazing amount of 
coverage so that they could rebuild their lives?
    To the technology point, when you do a map, you have got to 
have a ground elevation; you have got to know how much water is 
going to come and how deep it is going to be. And then, 
finally, how does it interact with the built environment? We 
have to have good, solid ground elevation data. We do that with 
LIDAR technology. Frankly, we need that across the country, and 
right now we buy that in piecemeal. But if we had that combined 
with where the structure locations are--and we are making 
progress there, but not fast enough across the country. I think 
technology takes a much larger bump. At that point we could 
literally have people with their smartphones showing us 
pictures of where their base floor is. We could write it in a 
much simpler way. I do agree with Senator Menendez we need to 
have a simpler product than we have today. It is far too 
complex, and technology helps us get there. But technology even 
helps meet the point of the claim. High-end claims still need 
an adjuster on the ground, but if I am looking at a wet carpet 
style claim for $10,000 to $15,000, some pictures taken in an 
app on your phone is absolutely sufficient for us to be able to 
move.
    Senator Scott. Having sold flood insurance for a while, I 
thank God that I no longer sell it. But it was an important 
part of what we did for a living, and trying to find a way to 
mitigate the concerns of the average person in the average 
place in the country, and specifically in South Carolina, is a 
troubling task for the private sector.
    Mr. Wright. Yes.
    Senator Scott. Socioeconomic impact, a lot of folks think 
about Hilton Head, Kiawah, many of the coastal exposures, and 
think about the colossal palaces built on the coast. The 
reality of it is that there are a number of heirs property 
where you have small structures with folks who simply cannot 
afford--since Tester has left, I am going to reclaim my 21 
seconds--any real increases in flood insurance.
    Is there a method to measure and/or compensate for the 
socioeconomic areas or no?
    Mr. Wright. So today under the act, I do not have any 
authority to look at socioeconomic impacts. As we look at the 
affordability study that I was asked about a bit earlier, we 
are looking at these dimensions. We will be able to bring more 
information forward to you.
    Senator Scott. Thank you.
    Chairman Crapo. Senator Schatz.
    Senator Schatz. Thank you, Mr. Chairman.
    As you know, by statute FEMA is required to reevaluate the 
flood insurance maps every 5 years. What is the percentage of 
maps that are actually redrawn every 5 years?
    Mr. Wright. So at the 5-year piece, we do an evaluation of 
them. In many cases we find that they are sound and can be 
maintained. At other points the investment needs to be made.
    Senator Schatz. Are you reevaluating all of the maps every 
5 years?
    Mr. Wright. We are doing that evaluation every 5 years. The 
flip side of this goes to the mapping side. Once I know that, I 
then have to have the resources to invest. Today about 59 
percent of the stream miles meet standards. So once we get to 
that point, I have got a gap that I need to fill.
    Senator Schatz. So 59 percent are meeting your standard, 41 
percent need----
    Mr. Wright. Require additional investments and engineering 
and analysis, yes, sir.
    Senator Schatz. OK. And you are saying that the map--the 
maps are credible but not precise. Is that correct?
    Mr. Wright. Yes, sir.
    Senator Schatz. What does it mean to be credible but not 
precise?
    Mr. Wright. So we have a way, given what we know about the 
ground elevation, given what we know about the amount of water 
and where the structures are, we draw a map. We start looking 
at things structure by structure by structure, and there is a 
level of precision when they do that radar-based elevation. And 
we have some parts of the country where, you know, 6 inches 
means you are in or you are out, and many of these kinds of 
pieces start getting into I want you to know that my ground 
floor is actually 3 inches, 6 inches higher than what we were 
able to do in our watershed-based analysis.
    Senator Schatz. And in the big picture, obviously, the more 
precise, the lower the risk, and the better the risk pricing 
is. Is that correct?
    Mr. Wright. The more precise is actually going to move 
people in and out, so when you get to----
    Senator Schatz. Sure, there will be winners and losers for 
sure.
    Mr. Wright. Precision increases our ability to address the 
concern about exactly who belongs----
    Senator Schatz. To price risk accurately.
    Mr. Wright. Yes, sir.
    Senator Schatz. And what you are saying is it costs money 
to do the redrawing of the maps.
    Mr. Wright. Yes, sir.
    Senator Schatz. And that is something that the Committee 
has to authorize and then has to be appropriated? How does that 
work?
    Mr. Wright. Correct. So in the current--based on the 2012 
authorization, Congress authorized $400 million a year; that is 
paid in a combination of appropriated dollars and fee. Today, 
or at least in 2016, there were--$311 million was as much as we 
brought.
    Senator Schatz. So your current funding allows you to do 
about a little less than two-thirds of what needs to be done.
    Mr. Wright. Yes, sir.
    Senator Schatz. OK. And according to the American Action 
Forum, of the approximately 1.5 million structures in the 
special flood hazard areas that are required to have flood 
insurance, almost half are not in compliance with the law. 
First of all, do you agree with those numbers?
    Mr. Wright. So as we look at this element, there are a lot 
of data regarding how many structures are or are not under the 
mandatory----
    Senator Schatz. Well, let me ask the question this way: 
What is your estimation of the rate of compliance?
    Mr. Wright. So I have seen reports from 35 percent to 55 
percent in terms of the compliance. It varies different places 
across the country.
    Senator Schatz. Is it your job to get that number up?
    Mr. Wright. Sir, I do not under the act have the 
responsibility or authorities related to mandatory purchase. 
Those belong to the lending regulators, including the Office of 
the Comptroller of the Currency.
    Senator Schatz. OK. And I am sure you are aware the number 
of billion-dollar disasters has grown significantly in recent 
years, from an average of fewer than 3 per year in the 1980s to 
15 last year. As you know, FEMA does not have the luxury to 
pretend climate change does not exist because it deals with 
consequences on a daily basis. Without getting you into a 
political conversation, how does the NFIP account for sea level 
rise and the increased severity of storms that are coming with 
climate change?
    Mr. Wright. Thank you for the question. We have 
responsibilities and authorities under both the Stafford Act as 
well as the National Flood Insurance Act to concern ourselves 
with future risk. Climate is one of those. I would also point 
out the continuing development in the built environment also is 
part of that risk. Those authorities are very plain, and they 
continue to be ones that we implement.
    The Technical Mapping Advisory Committee brought me a 
series of recommendations related to future risk last year. 
Some of them require new science to frankly be developed, but 
we are beginning to make progress on that.
    I would draw the distinction, though, on future risk, 
whether it is climate or through changes in the built 
environment. We only charge premiums based on today's risk. I 
do not charge someone a premium based on a risk they will not 
experience for 20 years. But the other side of the program has 
to do with land use, and the point by which future risk needs 
to be absolutely taken hold of says we are building today 
knowing that these risks continue to change, and we expect them 
to grow in some particular areas. We should be building higher 
and stronger every single time so that those who live there, 
those who own those homes going forward, will be able to 
withstand whatever comes their way.
    Senator Schatz. Thank you, and I will just add that with 
respect to the built environment, point taken. With respect to 
climate change, it is both a current and a future risk at this 
point.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Heller.
    Senator Heller. Mr. Chairman, thank you. And, Mr. Wright, 
thank you for being here also.
    A quick question. How familiar are you with the current 
flooding situation in Nevada?
    Mr. Wright. I am familiar with what has played out in 
recent weeks, both up in the Carson City area, particularly 
there in that whole western part around Reno.
    Senator Heller. Thank you. We have four counties right now 
that have submitted for Federal help and have received it from 
the Administration. We are certainly appreciative of it. We 
have had 200 percent precipitation after 5, 6 years of drought. 
It is kind of nice to see it. We would wish that, you know, it 
would not come all at once, but it did and we are not going to 
complain about it. But we have the obvious concerns that are 
going to occur.
    Last week, I joined with my colleague Senator Masto, the 
Governor, and Congressman Amodei on a second request. Are you 
familiar with this second request?
    Mr. Wright. I understand that a second request is being 
reviewed at this point. No decision has been made.
    Senator Heller. And I am aware of that also. My biggest 
fear right now is going to be runoff this spring. We have got 
200 percent snowpack up in the mountains, what that is going to 
bring, and if it is unusually warm this spring, you can imagine 
the concerns that we might have.
    What I guess I need from you is a commitment that FEMA will 
be proactive in helping these Nevada communities as they 
prepare for flooding soon.
    Mr. Wright. In much the same way as we did for the events 
in the prior weeks, we will be there. We will partner with the 
Governor in terms of the requests that come this way. My 
brother lives in Carson City. I saw the pictures from this last 
piece, the water literally coming down the road. It is clearly 
a place by which we need to cooperate with those local 
emergency managers, but also for those who have flood 
insurance, I want to make sure that there is timely payment of 
any claims that come in for those----
    Senator Heller. That was my next question, the commitment 
for those timely payments to these local communities.
    Mr. Wright. Absolutely. And so the kind of changes we have 
made to push out advance payments early to them so they have 
early dollars on the ground, and the commitment you can have 
from me is as we see those pieces coming forward, we will stay 
in touch with you and make sure that all the needs are met.
    Senator Heller. And I appreciate those comments. We have in 
northern Nevada a combination of Reno, Sparks, Washoe County, 
and the U.S. Corps of Engineers, they have been working on a 
flood control program for the Truckee River as long as I have 
been here in Congress. And it is progressing, but obviously 
funding is the mechanism by which they can complete that 
particular project.
    Obviously, the U.S. Corps of Engineers plays a major role, 
but how can FEMA provide more mitigation, financing resources 
for community-level flood control projects?
    Mr. Wright. So there are two separate lines on this. When 
we are looking at projects the Corps of Engineers is authorized 
to do, without violating the duplication of programs, I cannot 
commingle with them. Congress has to appropriate those dollars 
and move them forward. There are other projects in the affected 
area, and we do have grant programs that the States can avail 
themselves to specifically related to flood mitigation. But if 
it is that specific larger-scale project that the Corps of 
Engineers is doing, I can only work through their appropriation 
lines.
    Senator Heller. All right. Mr. Wright, thank you very much 
for your time. Thank you for being here today.
    Mr. Chairman, I will turn it over.
    Chairman Crapo. Thank you, Senator.
    Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. Thank you, Mr. 
Wright, for your testimony.
    I want to talk a little bit about the Flood Insurance 
Program through the lens of a really bad flood not far from 
here in Ellicott City, Maryland--not a coastal area, an inland 
area. And the title of an article that came out after the flood 
last summer was, ``Flood insurance woes push Ellicott City 
businesses under heavy water.'' And it documents a number of 
scenarios. One are the people who did not buy flood insurance; 
they thought it was too expensive. But I want to focus on some 
that did buy either flood insurance or thought they were 
covered by other insurance.
    Some that bought flood insurance say that the companies 
were reneging on their promises, shirking claims, and offering 
limited coverage, leaving many small businesses unsure of how 
they will recover from uninsured losses that are in the 
thousands of dollars. These are small businesses on Main Street 
in Ellicott City.
    One person in particular, Robin Holliday, who is the owner 
of HorseSpirit Gallery, which is a fine art gallery, said she 
had been duped by her flood insurance provider. She purchased a 
policy that covered $150,000 in damages, but the company only 
covered $2,500 for art damaged by the flood.
    A couple questions. One, where is the recourse for one of 
these people who feels that they have been totally taken 
advantage of? Is it through the State insurer? Is it through 
you? Is it a combination? How do we make sure people get 
recourse without people pointing fingers at one another?
    Mr. Wright. Absolutely. So a very deep flood in the 
historic section of Ellicott City. We had about 70 insurance 
claims that were filed with the National Flood Insurance 
Program. We talked a bit earlier about the private markets, but 
I want to touch on this because many businesses buy their 
coverage on the private market, not from me. And so the first 
thing we have got to find out is: Was it through the National 
Flood Insurance Program? Or did they buy this through their 
broader commercial policy?
    That said, we stood up an improved appeals process last 
year. To the degree that they are not satisfied with the 
adjudication of that claim, they have rights to come into our 
appeals process and have that absolutely reconsidered.
    Senator Van Hollen. Good. We are going to want to work with 
you on that.
    Now let me ask you about business interruption insurance 
because, as I understand it, the current Flood Insurance 
Program does not cover that. Is that correct?
    Mr. Wright. That is correct, sir.
    Senator Van Hollen. And there are a lot of people who they 
may not have flood insurance, but they bought this business 
interruption insurance in the event that their business is hit 
by a catastrophic event. And just to quote somebody who had 
major losses as a result of that, the owner of the Southwest 
Connection and Fudge Shop, again, on Main Street, found out 
that that business interruption policy would have covered civil 
unrest, it would have covered fire, it would have covered an 
earthquake, but it did not cover flood.
    So my question to you is: In order to avoid confusion, 
should we consider allowing you, through the Federal insurance 
program, to offer some kind of product with respect to business 
interruption insurance? And would that not, number one, protect 
people who thought that they were covered? Because there is a 
lot of confusion here. And could it also maybe help you 
increase your pool?
    Mr. Wright. So I absolutely think--and this goes--that we 
need to explore this. Today the act requires me to list all the 
terms and conditions of the policy, standard flood insurance 
policy, in the Code of Federal Regulations. My agency is not 
fast to do rulemaking. On average, it takes 7 years. And so one 
of the steps we could do through reauthorization is remove the 
requirement for me to have all the terms and conditions in 
regulation. It still should go through a public process and be 
transparent. But that would open up these opportunities, and we 
can look at any other kind of barriers so that we can offer the 
coverages people want.
    I think as we look at this, when too many people are not 
covered--and we saw much of that in Ellicott City. But when 
people do have the coverage and they do pay for that, it is the 
kind of piece by which we should offer them on an actuarial 
basis the coverage they want.
    Senator Van Hollen. I look forward to working with you on 
this, Mr. Chairman, because as you can imagine, there are a lot 
of people who they have been paying their premiums, and then, 
you know, disaster strikes. They say to themselves, ``Hey, you 
know what? This is why I have been paying these premiums day in 
and day out for my business interruption insurance,'' only to 
discover that that is not covered. And it would be very helpful 
and avoid a lot of the confusion if we could work with you so 
you could provide that kind of product.
    Just a comment with respect to the intensity of weather 
events and costs driven by climate change. I would say that in 
my State of Maryland, Mr. Chairman, in Annapolis, we have the 
Naval Academy. We had a hearing there maybe a year and a half 
ago, and the superintendent of the Naval Academy, the Admiral, 
testified about much increased flooding in Annapolis that was 
causing more severe damage to his facility, which he 
attributed--this is the Admiral--to climate change and the 
intensity of weather events such that we have been seeing.
    So I would point out and I think you know, Mr. Wright, that 
a lot of actuaries are now talking about the importance of 
costing in the impact of climate change, and it sounded to me 
from your answer like you are taking into account those costs 
and those risks. Is that the case?
    Mr. Wright. We do take into account the future expected 
losses. For me--and part of this was the nuance I was trying to 
drive--you highlight a place--and we see this play out in 
places like Annapolis where they are having sunny-day flooding 
that are playing out for them. Those kinds of pieces absolutely 
demonstrated in the maps, brought into the cost.
    There are risks that have not yet been realized. Those are 
the kind that we try to do through land use, hoping to ensure 
that people are not there or they are built higher and 
stronger, rather than waiting until the day that we have to 
raise their premium.
    Senator Van Hollen. Thank you. Just to Senator Schatz's 
point then, those costs you are already seeing them obviously 
in places like Annapolis.
    All right. Thank you, Mr. Chairman.
    Chairman Crapo. Senator Tillis.
    Senator Tillis. Thank you, Mr. Chair. I apologize for being 
late. We have a competing Senate Armed Services hearing that I 
am bouncing to and from.
    Mr. Wright, thank you for being here. In North Carolina, we 
had the Matthew event not long ago and other water events that 
have really demonstrated the challenges that we have around 
trying to mitigate the future risk of flooding in the urban 
areas and rural areas across the State. Could you talk a little 
bit to me about what we should--what you would like for us to 
do or what the Department or what FEMA is going to do to 
possibly increase some of the work that would come under ICC, 
particularly in communities where we are trying to go into 
Fayetteville where we have got a clear indication of threats 
after Matthew, and in Mecklenburg County, what more we need to 
do there? I know when you were asked the question over in the 
House committee, you were saying, ``It sounds like a great 
idea. I would need more revenue.'' But has there been any work 
done to project what the long-term savings may be if we were 
able to make that investment?
    Mr. Wright. So we have not fully studied the various 
increments of increase. So the increased cost of compliance is 
a mini-grant program inside an insurance program that we run. 
It is 30,000 today. It does not--and this is very clear to us. 
It does not cover the full cost of elevating a home to bring it 
into compliance. It is simply assisting with that.
    For me, this goes down to should we continue to view it as 
a grant program or should we view it as an insurance provision 
the way that laws and ordinances coverage might look. Clearly, 
for the homeowner that lives there, that kind of investment 
would not only raise the value of their home but ensure that 
they could withstand the----
    Senator Tillis. What about an instance where maybe a local 
county is trying to acquire property that does not have a 
building on it to basically--to reduce the risk of any sort of 
flood damage when and if that particular property is flooded in 
the future?
    Mr. Wright. So I would not view that one through the 
increased cost of compliance, but I would look at in terms of 
the other grant programs we offer through flood mitigation and 
the like. We have partnered--I think Charlotte-Mecklenburg is 
actually held up as one of the best examples in the country in 
terms of what does it mean to acquire property. Essentially, 
how do you make room for the river as a way to mitigate those 
future losses?
    Senator Tillis. I would like to talk a little bit about 
your IT modernization projects within FEMA and then also talk 
about what you would consider to be the best way to get the 
topological data that we need going forward in terms of 
mapping. You are probably familiar with North Carolina. We are 
using different kinds of techniques to do mapping, LIDAR being 
one of them, versus the traditional send a surveyor out and 
capture data. So it is a two-part question. One, let us just 
talk about your general IT modernization. The other one is 
maybe increased collaboration with States and different 
techniques getting the information we need to have a better 
handle on the future risk.
    Mr. Wright. So on the IT modernization piece, let me go to 
my insurance operations dimension. We continue to use a 
mainframe, and so we have kicked off--and have done a lot of 
reviews over the last 2 years. There had been a couple of 
attempts at modernization that had not produced the successes 
that were necessary. We have changed our approach on this, and 
recently we were given approval last fall from the Department 
of Homeland Security and Office of Management and Budget to 
proceed. Rather than do the big Waterfall overflow, we are 
doing an Agile Development Process, and the first couple epochs 
will begin to come out this spring, starting with data 
analysis, but then we will move to the financial dimensions and 
the like.
    On the technology related to mapping, the LIDAR-based 
technologies that are used in the State of North Carolina are 
the only technologies that meet our standards any longer, so 
there are no surveyors going out and doing metes and bounds. 
North Carolina has been a leader in this space. In fact, John 
Dorman chairs my Technical Mapping Advisory Committee, and many 
of those kinds of pieces have been adopted over the last 
decade, and he has advocated for those in the recommendations.
    The related element I would highlight, though, is--and we 
saw this in the Matthew event--the best maps are important 
input, but we then need to translate that into insurance 
uptake, because as we saw, far too few have the insurance they 
need, even those that were in the identified areas for the 
highest risk.
    Senator Tillis. Thank you.
    Thank you, Mr. Chair.
    Chairman Crapo. Senator Heitkamp.
    Senator Heitkamp. Mr. Chairman, I see my colleague Senator 
Reed is here. I know they have an important hearing. If he 
wants to go ahead of me, that is OK.
    Senator Reed. I thank the Senator very much. Am I 
preempting anybody else? Forgive me. Thank you. You are 
incredibly gracious. No, we are not.
    Thank you, Mr. Wright, for your testimony. Thanks for 
coming up to Rhode Island last year. You did a superb job.
    One issue that is very important is mitigation to avoid 
some of these costs. We have been thinking about a program that 
is similar to the Clean Drinking Water Act Revolving Fund where 
States would be able to have the ability to lend out to 
homeowners and to properties to mitigate under the supervision 
of FEMA. But just in general, can you talk about mitigation and 
how it plays a role in the Flood Program?
    Mr. Wright. Absolutely. So the mitigation investments are 
clearly the way that we buy down these risks across the 
country. You know, we have had studies in the past, a dollar 
invested has a $4 return.
    FEMA uses three different programs. Today one of them is 
directly tied to the Stafford Act post-event. The second one is 
a pre-disaster one. And then I have one called ``Flood 
Mitigation Assistance'' that we do that is funded by 
policyholders. The hard part about mitigation is we all know 
that higher and stronger is better. I want to see more 
neighborhood-scale mitigation play out. Yes, we need to do the 
individual structures, but what does it mean to see a community 
and how do we define ``green and gray infrastructure''?
    And so this idea related to some kind of revolving fund, we 
would have to see the details of that. But I think it is those 
kinds of elements as we look at infrastructure investments 
across the country; we have got to find ways to ensure that 
those investments are made in a way that a community scale 
really buys down this risk.
    Senator Reed. And you said what is one of the magic words 
these days, ``infrastructure.'' So you would see part of any 
infrastructure plan that we would agree with and move forward 
as including flood mitigation as an important infrastructure?
    Mr. Wright. It would be premature for me to speak to 
specifics related to an infrastructure plan. That said, I do 
think as this is being developed, it is an important element 
related to whatever investments we make related to 
infrastructure. We should do them expecting them to provide 
service and protection for the next 50 to 75 years, and we 
should take all that we know about the science related to 
future risk. I particularly pay attention to the flooding side 
as well as the seismic dimensions in those parts of the 
country.
    Senator Reed. Thank you.
    You testified last week about support for flood risk 
disclosure. Could you give us an idea of what things should be 
disclosed?
    Mr. Wright. So today most States require disclosure at the 
point of sale, and I was asked in the House hearing a bit about 
this, and I demur a bit because I really do think this is 
something that States are best positioned to understand and 
govern. I do not have the ability to an enforcement element.
    That said, when someone is purchasing their home, they 
should know what the risk of flooding is. They should know what 
their earthquake risks are. They should have the risks related 
to a dam or levee that may fail. I just think that we are best 
positioned to do that in a way that collaborates with the 
States and the communities who understand that best.
    Senator Reed. But the risk disclosure should be broad, not 
just narrow, not the 100-year but the 500-year----
    Mr. Wright. I would agree.
    Senator Reed. Yes, thank you. And just a final point. The 
National Flood Insurance Program does a lot more than just 
reimburse people for damage.
    Mr. Wright. Yes, they do.
    Senator Reed. They do floodplain mapping assistance; they 
do mitigation assistance, as you pointed out, because it is the 
premiums that are paying for what you are doing, oversight, et 
cetera. Sometimes there is discussion of just substituting the 
Federal plan with private insurers. How do we do that and still 
maintain the ability to do these other activities?
    Mr. Wright. Well, I think as we look at this--and I have 
seen a couple proposals. I do not have a specific one to make 
today. But I will tell you that I look at the investments that 
are made into mapping, into floodplain management, into the 
grant programs. And over the last 25 years, billions of dollars 
have been paid by policyholders. To the degree that other 
markets are taking that, I do believe we need to very carefully 
consider how they would benefit from what is now a public good 
and how those bills should be paid.
    Senator Reed. Thank you very much, and let me again thank 
Senator Heitkamp for her extraordinary generosity. Thank you.
    Chairman Crapo. Thank you.
    Senator Cotton.
    Senator Cotton. Thank you, Mr. Chairman. And, Mr. Wright, 
thank you for your appearance before us today to talk about how 
we can fix the Flood Insurance Program.
    Like many other Federal programs, I think the Federal Flood 
Insurance Program was started with the very best of intentions. 
Farmers and other Americans of limited means who could not 
afford private insurance could use a helping hand. Today, 
though, this program also helps many of them stay out of 
bankruptcy when disaster strikes, and that is a good thing. But 
it is time to acknowledge some hard truths. It is $25 billion 
in debt. And while the program does help some Americans with 
moderate incomes, as well as farmers, it also takes money from 
working-class Americans to subsidize beach homes for the rich.
    In one wealthy Massachusetts town, 150 properties received 
$60 million in payouts over time. That works out to about 
$400,000 each. A single $1 million home has been rebuilt 10 
times, so we are not talking here about the poor or the 
downtrodden. If you can afford a $1 million beach estate in 
Nantucket, you do not need middle-class workers to foot the 
bill for your flood insurance. You should be buying your own 
insurance with your own money from a private insurance company.
    In fact, if the Government was not offering such lavish 
support, there would be private plans to choose from. But 
because the Government program can run up billion-dollar 
deficits, it is difficult for any private insurance company to 
compete. No private insurer has access to the unlimited credit 
line known as the U.S. Government.
    So, Mr. Chairman, I agree that we need to work to fix this 
program on behalf of fairness, on behalf of efficiency, and on 
behalf of hardworking taxpayers who pay into this program every 
year and do not get value for their dollars.
    Mr. Wright, the program is spending $25 billion more than 
it is taking in. It is fair to say it is subsidizing 
homeowners. Is that correct?
    Mr. Wright. There are subsidies and grandfathering that are 
provided for under the statute.
    Senator Cotton. And there is no cap on the value of a home 
that can get a Federal policy. Is that right?
    Mr. Wright. That is correct.
    Senator Cotton. So you can get a plan no matter how much 
money you make?
    Mr. Wright. There are no income-based thresholds under the 
Flood Insurance Act.
    Senator Cotton. You can get a home no matter how rich you 
are?
    Mr. Wright. There are no economic elements in the National 
Flood Insurance Act for me to discriminate.
    Senator Cotton. You can get a policy no matter how 
expensive your home is.
    Mr. Wright. We are capped at the amount of coverage we 
would offer. We would only offer $250,000 worth of coverage.
    Senator Cotton. But that is a cap on the value, not a cap 
related to the overall price of the home?
    Mr. Wright. Correct. But it caps how much I would pay back 
to them.
    Senator Cotton. So if you are a rich billionaire who has a 
beach home, then you can get a coverage policy from the Flood 
Insurance Program for the first $250,000, and then surely you 
would buy private insurance for the remaining value of your 
home. Is that right?
    Mr. Wright. Presumably so.
    Senator Cotton. Is there any reason that rich billionaire 
could not buy private insurance for the first $250,000?
    Mr. Wright. If they would like to avail themselves of the 
private market, they could do so.
    Senator Cotton. It seems they would have the means to do so 
if they can afford the multimillion-dollar beach home and the 
private coverage over the $250,000 cap, wouldn't they?
    Mr. Wright. It seems reasonable.
    Senator Cotton. You state in your testimony that private 
insurers are gaining increasing interest in offering such 
insurance. Is that right?
    Mr. Wright. Yes, sir.
    Senator Cotton. Do you think that there is some tendency 
for private insurers to be crowded out of the market by the 
National Flood Insurance Program, which can run a $25 billion 
deficit?
    Mr. Wright. I do not know that we are crowding out. I think 
there are a lot of properties that need the insurance that do 
not have it. And so as I said earlier, I think a mutual gain 
approach on this is one by which we could all collectively 
benefit. We do need to make sure that we do not create an 
environment by which we cull off the cheapest risk in my book 
so that I would require an infusion of cash every single year 
because I am left simply as the insurer of last resort.
    Senator Cotton. I think we can all agree that we would not 
like to see an infusion of taxpayer cash repeatedly into the 
program, that we would like the program to focus on those 
Americans who need it most or who are most financially 
vulnerable and who live in places that may not be as pretty and 
scenic as America's beautiful beaches, but not subsidize rich 
billionaires and their beach homes to the extent that we are 
doing now.
    Thank you, Mr. Wright. Thank you, Mr. Chairman.
    Mr. Wright. Thank you.
    Chairman Crapo. Thank you.
    Senator Heitkamp.
    Senator Heitkamp. Thank you, Mr. Chairman. A couple quick 
questions.
    Obviously, we are concerned about flooding in the northeast 
corner of my State. Drayton continues to struggle with the 
order from FEMA to take down the levee. They have sent you a 
request. Have you acted on that?
    Mr. Wright. I understand that the request has arrived at 
FEMA. We have not taken action yet on it.
    Senator Heitkamp. And when can I expect that action?
    Mr. Wright. So right now I am looking--we need to read 
through that. We have another month in terms of the period of 
time that is in front of us. And as I discussed with you 
earlier, I also need a sense of what the solution is that is 
going to follow, and we will continue to collaborate with you 
and the rest of the delegation on that.
    Senator Heitkamp. Well, there is a famous saying: Winter is 
coming, but in North Dakota, spring is coming.
    Mr. Wright. Absolutely.
    Senator Heitkamp. And if you could expedite the review, I 
do not think that we can solve all the problems with that levee 
in this review, but, you know, getting an approval or an 
extension so that we can assure the people of Drayton that they 
are going to have flood protection during what looks like 
increasingly will be necessary given their flood situation.
    Mr. Wright. And the very clear commitment that I will make 
to you, Senator Heitkamp, is we will not be taking any adverse 
action while there is any flood fight that is going on.
    Senator Heitkamp. But it would be nice to know that in 
writing, and so please expedite your review.
    The second issue is basement exemptions.
    Mr. Wright. Yes.
    Senator Heitkamp. Obviously, we have a number of 
communities in North Dakota--of the 53 nationwide, 14 are in 
North Dakota--where these homeowners have taken extra 
precautions to qualify for the basement exemption. We have a 
very high water table in a lot of our flood areas.
    What is your personal position on continuing the basement 
exemption?
    Mr. Wright. I think the basement exemption makes sense. I 
think that the examples there in North Dakota are a case in 
point, and when the maps were updated in those communities, 
over the last year, I reissued that exemption.
    Senator Heitkamp. Yes. I think we would like to see a 
continuing commitment to do that, especially because what we 
end up doing is waterproofing those basements and reducing your 
risk. And so----
    Mr. Wright. I think the current practice makes good sense 
in this context. I think there is a narrow set of communities 
where this applies. These that you are highlighting are 
included there, and I have no interest in changing that policy.
    Senator Heitkamp. Terrific. Thank you so much.
    Let us get back to private flood insurance because I think 
that one of the concerns that I have as we go forward is what 
we have been talking about here, which is cherry-picking. But 
we do see a desperation from people to try and figure out how 
they can lower costs. Whether we can spread the risk beyond the 
taxpayers, as Senator Cotton explained, we are, in fact, 
subsidizing this program. I think the 500-pound gorilla that we 
have not talked about yet in this Committee hearing is: Is 
there a political will to continue to subsidize the same way we 
subsidize crop insurance for farmers? Will we ever get to--I 
mean, if we could ever get to a risk pool that would, in fact, 
be broad enough that private insurance could, in fact, enter 
the market, make money, and provide the coverage, we do not 
need this program. Is that correct?
    Mr. Wright. If we were in a position by which flood cover 
was included in a homeowner's policy the way that they are in 
some other countries, you are correct.
    Senator Heitkamp. Have you ever looked at a process whereby 
we could cover catastrophic loss, you know, what that would be, 
and then leave the kind of day-to-day kind of operations of 
flood insurance, you know, up to $250,000 to the private 
insurance market?
    Mr. Wright. So this is a piece from a historical 
perspective that was experimented with. There is an authority 
that still exists under the National Flood Insurance Act that 
was used up until 1986 by which they did that. The companies do 
not appear interested in that, to my knowledge, in terms of 
categorically taking over all the first $250,000.
    I think that whatever steps we take in this reauthorization 
need to put us on a vector, and if that is the choice of where 
Congress wants us to go, we can develop it in that way.
    Senator Heitkamp. Well, I think that was the choice they 
made in Biggert-Waters, but now you see we are all here 
screaming that did not work, because when we take the 
participation of the Federal taxpayer out of this, what we see 
is maps that include more property, and that is probably a 
product of what is actually happening day to day, more and more 
flooding. But we also see increased premiums. And so at some 
point, we have to make a decision in Congress what exactly this 
Flood Insurance Program should look like. And I think that your 
job would be to present a range of options so that we can best 
evaluate which one fits and we can know what the risk is to the 
American taxpayer.
    I am out of time. Thank you so much, and thank you for your 
commitment to Drayton.
    Mr. Wright. Thank you.
    Senator Brown [presiding]. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman.
    After Hurricane Katrina and Superstorm Sandy, Congress 
recognized that it needed to modernize the National Flood 
Insurance Program, NFIP, to make it more financially sound. And 
now we are about to reauthorize this program, and I think it is 
critical for us to remember that NFIP is not just an insurance 
program. It is a comprehensive flood risk reduction program 
that is comprised of insurance, flood mapping, floodplain 
management, and flood mitigation. Each of these four missions 
plays an important role in reducing flood risk, and each is at 
least partially funded by user fees and surcharges.
    Now, by contrast, we have been talking about private flood 
insurance; it does not pay any of these user fees and 
surcharges, which means that as this market expands, there will 
be fewer contributions that will help pay for the flood 
mapping, the floodplain management, and flood mitigation.
    I support private sector insurance, but only if the playing 
field is level for Government insurance and private insurance.
    Mr. Wright, do you believe that private primary policies 
should include NFIP equivalency fees and surcharges to ensure 
that the private sector is sharing in the national costs of 
flood mapping and floodplain management?
    Mr. Wright. Thank you, Senator Warren. I absolutely think 
that requires consideration in this reauthorization.
    Senator Warren. I did not ask if it required consideration. 
I asked if you think that is what we ought to do.
    Mr. Wright. I think it has to look at what the 
implementation would look like. It would require us to work 
across 50 insurance commissioners. So the implementation side I 
would need to work on, but, yes, these are public goods that 
should be paid for.
    Senator Warren. Good. That is what I want to know, because 
I think that is exactly right.
    Now, if the private market significant expands, how will 
that affect NFIP's ability to carry out some of its core 
missions?
    Mr. Wright. So to the degree that the private market 
expansion comes by a mutual gain--because there are millions of 
structures at risk that do not carry the insurance today. As 
long as we have mutual gain, I actually think all of us are 
better off. If that gain in the private market comes by simply 
culling and reducing my policy base, that is a point by which 
the income and revenue goes down, and the concerns you 
highlight become realized.
    Senator Warren. All right, because I think this is a very 
important part of this, that we have got to make sure that we 
are still maintaining these other functions, that we have 
enough resources to be able to do them. Someone has to pay for 
fund mapping and for plain management, and over time letting 
private plans crowd out Federal plans and at the same time skip 
out on the bill could destroy this funding. And I think that is 
a bad idea.
    There have also been recent media reports that President 
Trump is thinking of charging flood insurance policyholders to 
build his dumb wall between the U.S. and Mexico. Mr. Wright, 
this Trump tax on flood insurance would increase the cost of 
flood insurance for all policyholders, rich or poor, and do 
nothing to minimize flood risk. Is that right?
    Mr. Wright. So I am aware of the reporting that you are 
referencing. I have not seen the final decisions made related 
to the budget, and so I cannot speak to those specifics. I have 
got to refer that to the Office of Management and Budget. Once 
we have the budget in hand, I would be happy to discuss the 
specifics with you.
    Senator Warren. Well, OK. I understand that we do not have 
the specifics yet, but we changed the law in 2014 because 
hundreds of thousands of families said they could not afford 
higher payments. And now it appears that at least one of the 
options that Donald Trump is considering for paying for the 
wall between the United States and Mexico that he wants to 
advance would be to do that by raising millions of dollars from 
people who are currently paying for flood insurance. So we 
would be building this wall at the expense of families who are 
already struggling to pay for flood insurance. Isn't that 
right?
    Mr. Wright. Clearly, I am concerned about the affordability 
piece of this, and anything that increases the rates, whether 
it is because the actuarial tables tell me to do so or that 
these are surcharge have an impact on their ability to retain 
the coverage they need.
    Senator Warren. All right. You know, this is not the only 
dumb idea we have seen for funding this wall. Apparently, the 
Administration is also considering slashing funding for airport 
security, for port security, and for the Coast Guard. I 
understand that the President may be embarrassed that his 
ridiculous wall plan is outrageously expensive. And I 
understand that he might be embarrassed that Mexico is 
obviously not going to pay for it. But Congress should not cut 
funding for vital security or raise premiums on homeowners just 
to help bail him out on his very bad idea.
    Thank you, Mr. Chairman.
    Senator Brown. Thank you, Senator Warren.
    Senator Cortez Masto.
    Senator Cortez Masto. Mr. Wright, good morning.
    Mr. Wright. Good morning.
    Senator Cortez Masto. Nice to meet you. An hour and a half. 
The questions are almost done.
    I want to follow up, though. The senior Senator from Nevada 
asked you questions about the flooding. Obviously, that is a 
concern of mine as well, and I kind of want to put it in 
perspective. And I know it is something you are reviewing, but 
on March 9th of this year, Governor Sandoval requested that a 
major disaster declaration be made for the State of Nevada as a 
result of severe winter storms, straight-line winds, flooding, 
and mudslides beginning on February 5th and continuing.
    The Governor specifically requested individual assistance 
for the counties of Elko and Washoe; public assistance, 
including direct Federal assistance, for the counties of 
Douglas, including the Washoe Tribe of Nevada and California; 
Elko, including the South Fork Band of Te-Moak Tribe of Western 
Shoshone; Humboldt and Washoe and the independent city of 
Carson City; and, three, hazard mitigation statewide.
    FEMA indicates that about 40 claims under the National 
Flood Insurance Program have been filed so far by Nevada 
homeowners. I know you have promised to cooperate with the 
Governor, and you stated to my colleague that you would ensure 
there is timely payment for claims. But does FEMA yet have a 
sense of how many homeowners impacted by the recent flooding in 
northern Nevada were National Flood Insurance Program 
policyholders?
    Mr. Wright. So there are ongoing preliminary damage 
assessments that were done cooperatively obviously that will 
influence the declaration decision. On the insurance side of 
the equation, you have laid out the numbers in terms of what we 
have seen so far. We usually hear from people once they are 
back in their homes, so I began to see initial claims filed 
somewhere around day 3 to 5, and the majority of those claims 
are in during that first month. Clearly, anytime during the 
first 60 days after an event, they can file a claim. As we see 
those numbers change, I will make sure you that you are aware 
of that.
    Senator Cortez Masto. OK. I appreciate that. And as part of 
your analysis, will you also be determining how many homeowners 
were not mapped into mandatory purchase areas and, therefore, 
may not be insured by the program?
    Mr. Wright. So as we look at this in--I keep going between 
the two sides of our authorities, the National Flood Insurance 
Act and the Stafford Act. So on the Stafford Act side, as we 
look in those reviewed in terms of the declaration request, the 
uninsured side does come into play on that dimension, and I 
know that my colleagues have been working with the State to pay 
attention to that.
    Senator Cortez Masto. OK. And so for that reason, and just 
what you said, can I have a commitment--obviously, at times it 
is hard when policyholders are filing claims and it takes time 
for them to go through that process--that you would consider 
extending the date, as you have done in other----
    Mr. Wright. So let look at the progress up to this point, 
and if there appears to still be a stream of them coming in, we 
will take the appropriate action with the extensions.
    Senator Cortez Masto. OK. Thank you.
    If FEMA faces cuts under President Trump's upcoming budget, 
as we have heard, how might that impact your ability to fulfill 
policyholder claims?
    Mr. Wright. So it is premature for me to speak related to 
the budget. What I can tell you is the claims are paid 
specifically out of premiums, and so I have never seen a budget 
proposal that has tried to take those premium dollars. Those 
are dedicated under the National Flood Insurance Act to pay 
claims.
    Senator Cortez Masto. All right. So it is safe to say that 
my homeowners may not be impacted at all based on the claims 
that they made in the flooding that has happened to them. Is 
that correct?
    Mr. Wright. We signed a contract with the folks who have 
flood insurance. It has the full faith and credit of the United 
States behind it. We will meet our commitments.
    Senator Cortez Masto. Great. Thank you. And then in 2014, 
Congress created the Office of the Flood Insurance Advocate to 
advocate for fair treatment of policyholders and property 
owners. Can you tell me how you work with the Flood Insurance 
Advocate to address some of the issues they identified in the 
recent reports?
    Mr. Wright. Yes. So I appointed David Stearrett as the 
Flood Insurance Advocate. He has a whole office behind him. He 
has an element of independence that is kept, and so he submits 
he reports both to me as well as to the FEMA Administrator. I 
get reports and input from him every 60 days in terms of the 
throughput of issues that are coming in from a case management 
perspective. And then once a year, he has a broader report that 
is directed to me and then made public.
    You have obviously and your team has looked at those 
elements. They particularly highlight ensuring that people get 
the refunds that they need. They look to make sure people are 
getting the right underwriting costs on the way through.
    I will tell you that I find this to be one of the most 
important parts of the recent legislation. I think people 
having a final place where they can go, where they are 
frustrated and confusing dealing with our program, can go get a 
fair shake. It is a relief valve that is there. I have found it 
very beneficial, not just for the hundreds of folks who have 
come through it, but maybe even more important to me, as I look 
at my responsibilities across the program, it turns us into a 
learning organization. When I get those reports, when I get 
those highlighted issues, we go to solve them so that future 
policyholders will not have that frustration.
    Senator Cortez Masto. Thank you. And I have to run to a 
competing committee meeting. Mr. Chair, I have one more 
question, with your indulgence.
    Senator Brown. Of course.
    Senator Cortez Masto. This involves our rural and tribal 
communities, because I know in 2012 there was a study by the 
Government Accountability Office that noted that FEMA has not 
placed a high priority on mapping rural areas, including many 
tribal areas, for flood risk; and most tribal lands remain 
unmapped. Can you comment on any progress FEMA has made in this 
area since the 2012 study?
    Mr. Wright. Yes. So it is true that the unmodernized 
products are in a rural context, the places where we have not 
got those updates maps. So 96 percent of the Nation's 
population have modernized products, but that remaining 4 
percent is on one-third of the land mass across the country. 
And so this is a place that requires resources. We should 
finish modernizing those products. We absolutely should, and 
that may be something we should look at in reauthorization.
    As we work with tribes, we try to do this with a true 
appreciation and understanding of the sovereignty that they 
have. And so I try to do this in a way where, when they are in 
the watershed that is there, we consult with them. We have 
authorities to map. We also have authorities about whether or 
not they come into the program. And I want to do that in a 
collaborative way with the tribal leadership so that they can 
avail themselves of all of the kind of support that FEMA may be 
able to do--some of this under the National Flood Insurance 
Act, some of it under Disaster Relief Fund and the Stafford 
Act.
    Senator Cortez Masto. So you have a plan to do just that?
    Mr. Wright. Yes, ma'am.
    Senator Cortez Masto. Thank you.
    Senator Brown. Thank you, Senator Cortez Masto.
    Senator Menendez.
    Senator Menendez. Thank you. Let me thank the Chairman for 
indulging and keeping the hearing open, and thank you as the 
Ranking Member for staying. I know you have other issues to 
deal with. But for over a quarter of a million New Jerseyans, 
this is an incredibly important program, so I just have a 
couple other questions.
    Currently, FEMA can deny funds to repair the foundation of 
a structure if it determines the foundation was damaged due to 
what is called ``earth movement'' rather than by flood waters. 
This is the case even though the flood waters likely caused the 
earth movement that damaged or destroyed the foundation. We had 
a lot of arbitrary decisions that all of a sudden there was a 
denial for policyholders because there was earth movement. But 
the earth never moved until the flood came. And so countless 
claims were denied, and it led to disparate results since the 
determination of whether the damage was caused by flood or 
earth movement is unclear and difficult to assess.
    Wouldn't you agree, Mr. Wright, that this is an area that 
needs a better definition, as technical as it is, because it 
seems to have been used arbitrarily and capriciously a fair 
number of times?
    Mr. Wright. It is a point that would benefit from far more 
clarity. Frankly, for me the distinction here is whether or not 
it was a preexisting condition to the structure, and so I 
acknowledge this ``earth movement'' term causes a lot of 
confusion.
    When you look at the specifics of how we are directed to 
implement this, from an indemnification perspective I only pay 
for a claim that was caused. And so if the flood waters caused 
any kind of structural movement, we should pay. And if this is 
a 70-year-old home that has settled over the preceding 70 years 
and has cracks in the foundation that precede the flood event, 
well, then I should not pay for that. That is not a coverage 
that was included under the standard flood insurance policy.
    Senator Menendez. All right. I appreciate that distinction, 
but making it clear is going to be critically important because 
there are many people who did not have cracks in their 
foundations before, but suddenly they were denied based upon 
this. So it is something I would like to work on with you all 
as we have reauthorization.
    Mr. Wright. You have my commitment.
    Senator Menendez. I appreciate that.
    Now, I am glad to hear that you embrace the independent 
advocate. It is something that I helped created.
    Mr. Wright. You did.
    Senator Menendez. Would it be fair to say that the reforms 
that FEMA undertook, both with your predecessor and you as a 
result of the appeals process, is something that you would 
embrace incorporating into a new reauthorization?
    Mr. Wright. So the appeals process that is there is 
something that I would embrace codifying. I think that clearly 
it was authorities that even go back to 2004 that created this. 
The way it was implemented, as I have spoken to you in the 
past, was insufficient and did not have sufficient credibility 
from where I sat. We made those changes. I think they are 
proving beneficial, but codifying that so that any future 
person who is leading this program would not be able to change 
that basis.
    Senator Menendez. I appreciate that, because as a result of 
our work in the aftermath of Sandy and the denial of many 
claimants, I think we came to a better process and a fairer 
process. And it is something that I would like to see 
incorporated in the final new legislation.
    Let me ask you one last question. The NFIP has borrowed 
nearly $25 billion to pay claims for large disasters, $17 
billion from Katrina. And I think one of the things we never 
mentioned here is the fact that about $10 billion of that debt 
was incurred by a cause of the Army Corps' levee failure during 
Katrina. So I do not understand why current policyholders 
should pay for that mistake. It is the mistake of another 
Federal agency that has a tremendous burden on this program. So 
it is something to be considered here, because you are now 
paying, as I understand it--and correct me if I am wrong--about 
$400 million in interest on the debt last year alone, which is 
10 percent of the premiums that you receive on an annual basis, 
that $400 million paid by policyholders, real people who are 
struggling to afford their flood insurance.
    Do you not believe that we should be looking at how that 
debt is dealt with, especially in the fact that so much of it 
is caused by the errors of another Federal entity? How much 
would premiums have to increase, for example, in order to pay 
down the debt?
    Mr. Wright. So there is no practical way for us to pay the 
nearly $25 billion in debt. Full stop. If I was to do that with 
premium holders, I would have to make an exponential shift in 
premiums in order to make that happen. And you are correct. You 
know, as we look back, nearly $10 billion of that loss in 
Katrina we can attribute to those levee failures. And you are 
also correct about the interest, because ultimately I am not 
positioned to make principal payments, but I am required to 
service that debt.
    So I have a generally favorable interest rate with the 
Treasury that, combined, about 1.6 percent is what my interest 
rate is today. But as interest rates go up, that continues to 
be a burden. And it is not just $400 million a year. Over the 
last dozen years, we are approaching $4 billion that we have 
paid simply servicing the debt. Those are dollars I simply take 
out of my premium revenues and transfer. That burden alone is 
to the point by which my recent borrowing in January included 
borrowing so that I could make my interest payment this month.
    Senator Menendez. So, in essence, Mr. Chairman, what we are 
doing is we are paying ourselves interest on a debt that we 
have largely created in great part by the levee failures, $10 
billion right there alone. And so instead of having this type 
of money either be invested in the program or ultimately 
reducing the debt, we are paying interest to ourselves because 
it is the Federal Government, FEMA, paying the Treasury at the 
end of the day.
    So it is pretty amazing to me that when I borrow--if I lend 
myself money and then I ultimately pay myself interest, that 
normally does not happen. We are robbing from Peter to pay 
Paul, but, unfortunately, it is the policyholders that get 
affected here at the end of the day. So I appreciate your 
insight to that.
    Thank you, Mr. Chairman.
    Senator Brown. Thank you, Senator Menendez.
    Mr. Wright, thank you for your testimony and your public 
service.
    All Members of the Committee will have 1 week to send you 
letters and questions and more comments, and we would 
appreciate it if you would answer those requests and questions 
as quickly as possible. And thank you again.
    Mr. Wright. Thank you.
    Senator Brown. The Committee is adjourned.
    [Whereupon, at 11:45 a.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
                  PREPARED STATEMENT OF ROY E. WRIGHT
 Deputy Associate Administrator for Insurance and Mitigation, Federal 
                  Emergency Management Administration
                             March 14, 2017
Introduction
    Good morning Chairman Crapo, Ranking Member Brown, and Members of 
the Committee. My name is Roy Wright and I am the Deputy Associate 
Administrator for Insurance and Mitigation--responsible for directing 
the Federal Emergency Management Agency's (FEMA) risk management, 
mitigation, and flood insurance programs. Thank you for the opportunity 
to testify about the National Flood Insurance Program (NFIP), including 
FEMA's efforts to transform the program in recent years and to request 
considerations for Congress' reauthorization of the NFIP before it 
expires in September 2017.
NFIP Background
    Flooding is the most frequent and expensive disaster in the United 
States; 90 percent of natural disasters in the United States involve a 
flood. Homeowners insurance does not typically include coverage in the 
event of flooding, and historically flood insurance was not widely 
available. If it was, it was very expensive. Congress established the 
NFIP in 1968, which FEMA's Federal Insurance and Mitigation 
Administration (FIMA) administers.
    There are four key elements of the NFIP:
    Identifying and Mapping Flood Risk: Working closely with 
communities, FEMA identifies flood hazards through scientific and 
engineering methods. FEMA then maps those hazards on a Flood Insurance 
Rate Map (FIRM). The FIRM is used to help communicate flood risk to 
communities and the public, and is used for floodplain management and 
flood insurance requirements.
    Floodplain Management: Floodplain management includes actions that 
communities can take to reduce flood damage to both new and existing 
buildings and infrastructure. The NFIP plays a role in encouraging 
communities to adopt and enforce floodplain management regulations 
including zoning codes, subdivision ordinances, building codes, or 
special purpose floodplain management ordinances. By law, FEMA can only 
provide flood insurance to those communities that adopt and enforce 
floodplain management regulations that meet or exceed minimum NFIP 
requirements.
    NFIP floodplain management requirements are a cost-effective way to 
reduce the flood risk to new buildings and infrastructure. Internal 
FEMA studies have found structures built to NFIP standards experience 
73 percent less damage than structures not built to these standards; as 
a result, the standards reduce flood losses by $1.9 billion per year.
    Flood Insurance: The NFIP makes flood insurance available for 
homeowners, renters, and business owners in for 5.1 million 
policyholders in 22,235 NFIP-participating communities in all 50 States 
and 6 territories. Seventy-three private insurance companies 
participate in the NFIP's Write Your Own (WYO) Program, selling and 
servicing NFIP policies under their own names. FEMA also writes and 
services some policies outside the WYO Program through NFIP Direct, a 
vendor that FEMA contracts with and oversees. The NFIP underwrites, and 
bears the risk, on all NFIP policies, whether sold by private companies 
or NFIP Direct.
    The NFIP functions like other insurance programs, in which 
policyholder premiums help cover insured losses. Flood insurance helps 
homeowners recover following a flood. For example, following the 
flooding in Louisiana in August 2016, insured survivors filed 29,557 
claims and, to date, the NFIP has paid more than $2.3 billion in 
claims. Conversely, FEMA's Individual Assistance grant program has paid 
more than $758 million to more than 82,000 individuals and households. 
The average NFIP payment in Louisiana (for the August 2016 flooding) is 
approximately $86,500 per policyholder while the average individual 
assistance payment is approximately $9,150. FEMA's Individual 
Assistance program is not designed to compensate for all losses that a 
survivor may have experienced. The NFIP is a far more comprehensive 
program to help homeowners get back on their feet. Homeowners should 
not rely on potential grant programs to support them following a flood, 
as they only provide emergency assistance and are not designed to 
repair or rebuild damaged property.
    Incentivizing Risk Reduction Through Grants and Premium Discounts: 
FEMA manages the Flood Mitigation Assistance (FMA) grant program, 
authorized by the National Flood Insurance Act. This program, designed 
to reduce or eliminate claims, provides funding to State, local, 
tribal, and territorial communities for projects that reduce or 
eliminate long-term risk of flood damage to structures insured under 
the NFIP. Typical projects may include acquisition of repetitive loss 
properties, elevation of buildings, and neighborhood-scale flood 
defense investment. One hundred percent of the funding for this program 
is paid through premiums on NFIP policies.
    The National Institute of Building Sciences' Multi-Hazard 
Mitigation Council estimates that for every dollar FEMA invested in 
mitigation between 1993 and 2003 (which includes, but is not limited 
to, FMA programs), society as a whole saved four dollars due to reduced 
future losses. Mitigation programs save the American public an 
estimated $3.4 billion dollars annually through a strategic approach to 
natural hazard risk management, including the value of more stringent 
building codes.
    FEMA also created the NFIP Community Rating System (CRS) in 1990 as 
a voluntary program for recognizing and encouraging community 
floodplain management activities that exceed the minimum NFIP 
standards. Any community in full compliance with the minimum NFIP 
requirements may apply to join the CRS. More than 1,400 communities 
around the Nation participate in the CRS, accounting for 3.8 million 
policyholders. Under the CRS, FEMA discounts NFIP policyholders' flood 
insurance premium rates to reward community actions that meet the three 
goals of the CRS, which are: (1) reduce flood damage to insurable 
property; (2) strengthen and support the insurance aspects of the NFIP; 
and (3) encourage a comprehensive approach to floodplain management. 
Lower flood-insurance rates are just one of the benefits of joining the 
CRS; CRS floodplain management activities also provide enhanced public 
safety and reduced damage to property.
The Financial Impacts of Catastrophic Disasters on the NFIP
    While Congress appropriates funds for flood mapping, FEMA covers 
the vast majority of NFIP costs--including operations, floodplain 
management, risk mapping, and grants--through premiums, fees, and 
surcharges from the 5.1 million policyholders participating in the 
program.
    Due to the nature of flooding, impacts can vary significantly each 
year. After 15 years of lower than expected damages, Hurricanes 
Katrina, Rita, and Wilma hit the Nation in 2005. These three 
catastrophic events resulted in an annual NFIP claims total eight times 
the size of any prior year in the program's history.
    As a mandatory Federal program, the NFIP met its commitment to 
policyholders and paid all claims as outlined in their insurance 
policies. However, to meet these requirements Congress directed the 
NFIP to pay for the catastrophic losses through funds borrowed from the 
U.S. Department of Treasury (Treasury). By the end of the claims 
process for these events, the NFIP had borrowed $17.5 billion.
    In 2012, Hurricane Sandy hit the East Coast and resulted in more 
than 144,000 NFIP claims. The program paid out an initial $8.4 billion 
to policyholders. As a result, the NFIP borrowed an additional $6.25 
billion from the Treasury to ensure proper payment of all claims. The 
volume of claims in the aftermath of Hurricane Sandy was much larger 
than NFIP typically encounters, and policyholders had concerns that 
FEMA and WYO companies were not handling their claims fairly. FEMA 
subsequently set up a Sandy Claims Review process to contact all 
policyholders who had claims and offer them an additional examination 
of their claim. The NFIP has since paid out an additional $350 million 
to policyholders, and based on this experience, FEMA took steps to 
reform key aspects of the program to be more customer-centric.
    While there was no single ``catastrophic'' disaster in 2016, the 
multiple flooding events in Louisiana, Texas, and several States during 
Hurricane Matthew resulted in the third largest claims payout year in 
the NFIP's history. Though the NFIP is still processing claims, 
projected payouts from 2016 flood events total more than $4 billion. In 
January 2017, the NFIP borrowed an additional $1.6 billion from the 
Treasury to cover claims, pay interest on the debt, and ensure capacity 
to pay future claims. Liabilities to the Treasury now total $24.6 
billion and, moving forward, require annual interest-only payments of 
nearly $400 million dollars.
    It is important to note that the latest private sector catastrophe 
modeling demonstrates that none of these events is outside the expected 
range of NFIP losses. A single storm that results in a loss to the NFIP 
of the size that occurred in Hurricane Katrina ($16.3 billion) has a 1 
to 2 percent chance of occurring in any given year, while a single 
storm that results in a loss as large as the one that occurred in 
Hurricane Sandy has a 4 to 5 percent chance of occurring in any given 
year. NFIP losses experienced during an event such as the August 2016 
storm that caused inland flooding in Louisiana has a 4 percent chance 
of occurring each year. Moving forward, FEMA anticipates having another 
loss year like those cited above within the next decade.
NFIP Transformation and Lessons Learned
    Following Hurricane Sandy, FEMA has taken steps to transform the 
NFIP customer experience and improve oversight and engagement with WYO 
companies.
    FEMA designed and implemented a new appeals process to improve 
customer service and transparency to policyholders. The Agency 
established an Appeals Branch in the Policyholder Services Division, 
which remains independent from the Product Delivery Division that 
oversees the claims process.
    FEMA also improved its oversight when WYO companies respond to 
litigation to ensure that policyholders are treated fairly. FEMA 
established the Office of Chief Counsel WYO Oversight Team. This team 
works with FEMA's Industry Management Branch to enhance FEMA's 
oversight of the WYO program and WYO litigation to include oversight of 
expenses and implementation of a national legal strategy for flood 
insurance claim litigation with an emphasis on early alternate dispute 
resolution. Further, FEMA removed the NFIP's Financial Assistance/
Subsidy Arrangement with WYO companies from regulation. It is no longer 
necessary to include a copy of the Arrangement in Title 44 of the Code 
of Federal Regulations. This process was time-consuming and created a 
delay to make any administrative updates or changes in regulation. Now, 
the process is streamlined to improve the ability of FEMA and its 
industry partners to negotiate operational adjustments and corrections 
more quickly and efficiently.
    The NFIP has also implemented changes to take a more proactive role 
in disaster readiness and response. During recovery from the Louisiana 
floods and Hurricane Matthew, FEMA successfully executed components of 
the new Flood Response Playbook to support insured survivors, 
including:

    Issuing advance payments to policyholders of up to $10,000 
        while the NFIP processes their full claims;

    Coordinating with State insurance commissioners and WYO 
        companies to ensure the NFIP meets policyholder needs;

    Deploying FIMA staff to directly support field operations;

    Providing analytical support to assist FEMA operational 
        leadership in making resource decisions; and

    Proactively communicating with WYO insurers and with 
        policyholders through disaster-specific bulletins, webpages, 
        and fact sheets.

    In 2016, the NFIP made more than $4 billion claim payments to 
83,000 insured survivors. This major year of flood losses highlighted 
the success of recently implemented NFIP reforms, as well as the 
importance of continuing to improve customers' experience with the 
program. By the end of 2016, FEMA closed 92 percent of the claims from 
the mid-summer severe storms in Louisiana. In the first 30 days of the 
incident, FEMA authorized and issued almost $300 million in advance 
payments to the NFIP policyholders in Louisiana who sustained damages 
by the flood, providing expedited relief to disaster survivors.
    FEMA continues to work on other initiatives to support 
policyholders, including:

    Simplifying the claims process through improved proof of 
        loss and other forms;

    Modernizing the underwriting process; and

    Redesigning the risk rating system to help customers better 
        understand their flood risk.
Successes From Recent Legislative Reforms
    Recognizing the need for NFIP reforms in 2012, Congress acted by 
passing the Biggert-Waters Flood Insurance Reform Act of 2012 (BW12). 
This statute served as a key first step to strengthen the NFIP's fiscal 
soundness by addressing discounted premiums and giving FEMA new tools 
to manage risk exposure. In March 2014, Congress passed the Homeowner 
Flood Insurance Affordability Act of 2014 (HFIAA), repealing certain 
provisions of BW12 and modifying components of the NFIP including flood 
insurance, flood hazard mapping, grants, and floodplain management.
    FEMA has completed implementation of several of key provisions of 
these laws, including:

    Establishing the Technical Mapping Advisory Council: BW12 
        directed the creation of the Technical Mapping Advisory Council 
        (TMAC). The Council reviews FEMA's mapping program and develops 
        recommendations for improving it. During its assessment, the 
        TMAC found that the mapping program, when applied as designed, 
        results in technically credible flood hazard data in areas 
        where FIRMs are developed or updated, and also provided 
        recommendations to enhance the program in the future. FEMA has 
        established a consistent, integrated, and transparent process 
        to assess and respond to all TMAC recommendations. FEMA has 
        fully implemented 4 of the Council's 22 recommendations 
        outlined in the 2015 report through current operations or 
        ongoing initiatives, and has initiated implementation on an 
        additional 17 recommendations. This year, we began 
        implementation of a TMAC recommendation to develop a national 
        5-year operations plan to help us bridge operations from our 
        current status to where we are headed in the future.

    Designating an Office of the Flood Insurance Advocate 
        (OFIA): HFIAA directed FEMA to establish the OFIA in 2015, and 
        the office has experienced significant growth and increased 
        capability since its inception. The OFIA provides assistance to 
        policyholders who are unable to get the support they need after 
        using other existing resources. The OFIA helps coordinate 
        referrals, verify insurance rate information, educate on flood 
        risks and rates, and communicate program changes. Through a new 
        customer relationship management tool, OFIA is able to capture 
        data and provide insights into issues faced by policyholders in 
        order to inform program improvements.

    Unifying the FMA Grants Programs: Prior to the passage of 
        BW12, there were three flood grant programs: FMA, Repetitive 
        Flood Claims, and Severe Repetitive Loss. BW12 eliminated the 
        Repetitive Flood Claims and Severe Repetitive Loss programs and 
        added funding for the mitigation of repetitive loss and severe 
        repetitive loss properties under the FMA program. Since 
        unification of the programs, demand for FMA grants has exceeded 
        available funds so FEMA awards grants to those projects that 
        provide the most risk reduction benefit.

    Establishing a Reserve Fund: BW12 directed FEMA to set up a 
        reserve fund for meeting the expected future obligations of the 
        NFIP, including payment of claims, claim adjustment expenses, 
        and the repayment of amounts outstanding under any note or 
        other obligation issued by the Administrator. In 2016, the 
        Reserve Fund paid out $1.3 billion in claims to insured 
        survivors. The NFIP has also paid for reinsurance through the 
        Reserve Fund, consistent with its designated purpose for 
        meeting expected future obligations.

    Managing Risk through Reinsurance: BW12 gave FEMA the 
        authority to obtain reinsurance from the private reinsurance 
        and capital markets. Reinsurance is an important financial risk 
        management tool used by private insurance companies and public 
        entities to protect themselves from large financial losses by 
        diversifying risk across multiple markets. FEMA executed a 1-
        year agreement, effective January 1, 2017, with a consortium of 
        25 reinsurers. Under the agreement, reinsurers agreed to 
        indemnify FEMA for flood claims paid during 2017 on an 
        occurrence basis. The layer is structured to cover 26 percent 
        of losses between $4 billion and $8 billion. This agreement 
        transferred a combined total of $1.042 billion of the NFIP's 
        flood risk to the private reinsurance market. This reinsurance 
        placement stands as a first of its kind for a Federal program.
FEMA's Core Principles for Reauthorization
    Through internal analysis and lessons learned, FEMA offers the 
following principles that would improve NFIP effectiveness as Congress 
considers reauthorization.
    First, the NFIP reauthorization should be enacted before the 
September 30, 2017 expiration of the program, and should extend the 
program for multiple years. The stability of the real estate and 
mortgage markets depend on an on-time, multiyear reauthorization. All 
federally backed mortgage lenders are required to verify that 
properties in special flood hazard areas (SFHA) have flood insurance 
policies prior to approving a mortgage. During periods in the past when 
the NFIP's authorization lapsed, or was only extended for a short 
period, uncertainty about flood insurance availability impacted 
property owners' ability to buy and sell homes in high risk flooding 
areas.
    Second, the reauthorization should recognize the need to increase 
flood insurance coverage across the Nation. At a national scale, 
estimates lead us to believe as little as one third of residential 
properties in the SFHA have NFIP policies. Yet flooding can happen 
anywhere. Floods are not wholly contained within SFHAs. Over the past 
10 years, approximately 20 percent of all NFIP claims come from low to 
moderate-risk policyholders.
    Flood insurance facilitates the ability of a property owner or 
renter to recover after a flood, whether the insurance is provided by 
the NFIP or private insurers. FEMA recognizes that there is a growing 
interest by private insurers to offer flood insurance protection. FEMA 
supports this because an insured survivor--regardless of where they 
purchase their coverage--will recover more quickly and more fully. Two 
related areas require attention. First, it will take time for the 
private market to adapt to a market currently primarily served by a 
public program. Second, if the private market were to glean only the 
lower-risk policies, the NFIP would be left with all of the highest-
risk policies. This could lower NFIP premium revenue while increasing 
potential claims payouts. Such actions would leave the program and 
taxpayers with even more financial risk.
    As we look forward to the next several years, a number of 
opportunities should be explored that could provide for the growth of 
the private market for flood insurance. Improving the Nation's overall 
flood resiliency will depend on finding an appropriate balance between 
reducing risk to the taxpayer through a greater private sector role 
while sustaining a robust and affordable Federal program. Among the 
ideas to explore would be identifying a future point in time by which 
flood policies for all new construction would be provided by the 
private market. When coupled with ongoing floodplain management and 
building code enforcement, these new residential structures would be 
built to insurable levels of risk for the private market.
    In some States, the private flood market already provides excess 
and surplus coverage as well as ``flood riders'' on some homeowner's 
policies. While the private markets are expanding, FEMA is exploring 
improving the suite of options available for NFIP policies, such as 
including increased policy limits deck and basement coverage, and 
various deductible levels. The NFIP would collect additional premiums 
commensurate with any extra coverage policyholders select. Moreover, by 
providing coverage options that customers need, the additions could 
attract new NFIP customers improving the program's financial stability 
expanding the number of Americans with flood insurance. FEMA also 
recognizes the unique challenges that farmers may experience when 
navigating the NFIP's current requirements with regards to agricultural 
structures. These agricultural needs can be addressed through this re-
authorization.
    Additionally, the statutory definitions of ``repetitive loss'' must 
be brought into alignment so that there is consistency across program 
elements. Properties that experience multiple losses have an 
increasingly adverse impact on the financial stability of the program. 
Congress has previously acknowledged this circumstance, and should 
explore caps on cumulative losses that well exceed policy limits and 
the value of the structure. As the program moves forward, NFIP premiums 
should reflect a property's true risk. We need to move from today's 
program, which delivers only a final premium which may be lower than a 
current estimate of the full risk rate, to a program which clearly 
communicates the full risk rate and any discounts (such as pre-firm 
subsidy, newly mapped subsidy, or grandfathered rates). Given concerns 
related to affordability, it may take some time, but the program needs 
to be on a course to eventually arrive at full risk rates for all 
policyholders. This includes addressing grandfathered and subsidized 
rates.
    Ultimately, the premium paid for flood insurance must reflect the 
risk--whether this is done by increasing premiums, reducing risk 
through mitigation grants, or a combination thereof--the fiscal 
solvency of the program depends on it. This is central to a sound 
financial framework for the NFIP. The NFIP currently carries a debt of 
$24.6 billion dollars which is serviced through increasingly large 
interest payments. It is important to note that nearly all of the flood 
programs mandated by law--programs to reduce risk, the administrative 
costs of WYO companies, and the payment of interest on the debt--are 
funded solely through the payment of premiums.
Conclusion
    To reiterate, flooding continues to be the most common and costly 
natural disaster in the United States, with the greatest damage 
potential of all natural disasters worldwide. Over the past 50 years, 
the NFIP has helped communities, households, and businesses reduce 
flood risk, supported flood risk analysis and mapping projects, 
expanded sound floodplain management practices across the country, and 
reduced the financial burden to survivors when floods occur. We 
recognize that the Nation faces broad public policy questions around 
flood insurance affordability, continued development in flood-prone 
areas, the soundness of the NFIP's financial framework, and greater 
private sector participation in flood insurance markets.
    Through all of this, FEMA's priority is to increase flood insurance 
coverage so that disaster survivors can recover more quickly and fully 
after flood events. Through a timely, multiyear reauthorization, 
Congress would enable FEMA to continue supporting those who take steps 
to protect their homes and businesses.
    Thank you again for affording me the opportunity to speak with you 
today about this program. I am happy to respond to any questions you 
may have.
        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SHELBY
                       FROM ROY E. WRIGHT

Q.1. Mr. Wright, we have discussed on several occasions the 
accuracy of the information that determines risk in the 
National Flood Insurance Program (NFIP).
    What is the status of FEMA's attempt to have a Flood 
Insurance Program with accurate actuarial data, and what 
further steps is FEMA taking to achieve this goal?

A.1. As part of FEMA's efforts to improving the quality of data 
used in the delivery of the NFIP, FEMA is looking to redesign 
its approach to risk rating. To ensure FEMA follows leading 
practices used in the industry for rating natural catastrophe 
risk, including considerations of the actuarial data used, FEMA 
is conducting market research through a Request for Information 
(RFI) that was issued on January 24, 2017. The RFI can be found 
here: https://www.fbo.gov/
index?s=opportunity&mode=form&id=557d24817170f
7475b0f 445f44f9c73d&tab= core&_cview=1
    In addition to the RFI, FEMA conducted market research 
calls to identify data tools and models that should be used for 
risk rating, including tools to determine replacement cost 
values. The market research was conducted to determine industry 
capabilities in the following areas:

  1.  Assessment of the current state of catastrophic risk 
        rating and classification programs;

  2.  Design of alternate risk rating models;

  3.  Testing of the alternate risk rating models; and

  4.  Implementation of alternate models.

    FEMA is working to develop a new rating methodology. Once 
developed, FEMA will begin a multiyear implementation of the 
new methodology, which will be carried out in tandem with a 
redesign of our IT systems and will be aligned with 
improvements to our insurance product.

Q.2. Mr. Wright, FEMA is not the only Federal agency that is 
actively tracking real-time data to assess flood risks in 
different communities across the nation. However, it appears 
that this information is often not communicated across all 
agencies, even though many are working towards the same goal.
    Would it be helpful for all agencies that track floodplain 
data to work together to share and communicate this data?

A.2. FEMA is working and collaborating with the other Federal 
agencies that are involved in the collection, evaluation, and 
use of flood risk data to promote sharing of floodplain data. 
Together, we are working to improve the ways that we develop, 
share, and communicate this information, so that communities 
will be better able to understand their flood risks. 
Interoperable datasets that are collected and consolidated 
using consistent and clear standards across the Federal family 
will yield higher quality floodplain data more efficiently, for 
both real-time assessments and hazard identification. This 
would also lead to simpler, consistent outputs from the Federal 
agencies informing more effective decisions at the state and 
local level. The availability of this data could also better 
incentivize innovation.
    One area where FEMA is modeling this behavior is 
topographic data acquisition. FEMA recognizes that quality 
topographic data is not only essential for credible flood 
hazard mapping but for a multitude of other functions of the 
Federal Government, states, local communities, and others. 
Thus, FEMA's formal policy is to ensure that all topographic 
information acquired to support flood hazard mapping is 
compliant with U.S. Geological Survey (USGS) 3D Elevation 
Program (3DEP) standards to ensure that the information can be 
leveraged across Federal agencies.
    There are a multitude of datasets that routinely inform 
real time response, short term planning, and long term 
strategic decisions and come from a number of agencies across 
the Federal family. For FEMA to achieve its mission, ``To 
support our citizens and first responders to ensure that as a 
Nation we work together to build, sustain and improve our 
capability to prepare for, protect against, respond to, recover 
from and mitigate all hazards'', numerous resources are 
required. These resources include, for example, gauge data from 
the National Oceanic and Atmospheric Administration (NOAA) and 
USGS, critical infrastructure information from the U.S. Army 
Corps of Engineers (USACE) and others, land use change 
datasets, demographic and population information, power grid 
information from the Department of Energy, and many other 
sources which must come together routinely. One venue, in 
particular, where these datasets can and should come together 
to improve operational efficiency across the Federal family 
during times of flood related disaster is the National Water 
Center within NOAA. Similarly, in the coastal communities, many 
of these datasets come together on NOAA's Digital Coast 
website. FEMA is committed to continued collaboration with its 
Federal Partners and welcomes efforts to ensure that agencies 
are incentivized and encouraged to work together and share and 
communicate this data more routinely and consistently.

Q.3. Mr. Wright, since the enactment of Biggert-Waters, FEMA 
has attempted to strike an appropriate balance between 
protecting individuals and the stability of the NFIP.
    Can you commit to fully evaluating further policy proposals 
to improve the NFIP?

A.3. We commit to fully evaluating further policy proposals to 
improve the NFIP.
    The Affordability Framework is due to Congress in September 
2017. FEMA is working diligently to meet the deadline.

Q.4. Mr. Wright, the Technical Mapping Advisory Council (TMAC) 
created a list of 22 recommendations to improve FEMA's flood 
mapping data.
    What is the status of implementing TMAC's recommendations?

A.4. The 22 recommendations generally fall into 3 key 
categories: (1) credible flood data, (2) improved access and 
ease of use of FEMA mapping products, and (3) more customer-
oriented products. FEMA has communicated a fundamental 
agreement with all 22 of the recommendations and is currently 
working toward implementation of each. While FEMA has used 
existing mechanisms to implement several of the recommendations 
related to credible flood data, we are actively building a 
better infrastructure to ensure increased simplicity and ease 
of use of NFIP products and services. Currently, FEMA is 
working to implement a 5-year mapping, planning, and 
prioritization framework and improved measures for FEMA hazard 
mapping, and finishing several ongoing improvements to our 
Cooperating Technical Partners (CTP) program, consistent with 
the TMAC's recommendations. In addition, FEMA is exploring how 
to implement some of the customer-oriented product 
recommendations that are transformative in nature. FEMA has 
taken on two Customer Experience endeavors; one for NFIP 
policyholders and one for communities. FEMA is leveraging the 
findings from the Customer Experience for Policyholders effort 
to kick off an effort to redesign flood risk-rating to better 
meet identified needs of NFIP policyholders. The outputs of 
these ongoing initiatives are currently being used to refine 
and add clarity to the long-term trajectory of the mapping 
program and the larger NFIP. Each of these 22 recommendations 
are addressed in greater detail in a response to Congress that 
will be delivered this summer.

Q.5. When considering a reauthorization of the NFIP, what steps 
would you recommend that Congress take to improve the accuracy 
of flood mapping information?

A.5. The most critical and foundational element of credible 
flood mapping is high-resolution topography. For this reason, 
FEMA has and will continue to make targeted investments, 
consistent with USGS 3DEP standards, in high-resolution 
topography prior to all flood mapping efforts that FEMA 
undertakes. These data offer value beyond just the NFIP and 
should always be considered when evaluating the needs of any 
flood hazard mapping program.
    While we continue to make these strategic investments and 
to deliver credible flood hazard information, these efforts 
must be met with the complementary advances we are making in 
our actuarial underwriting practices so that insurance premiums 
better reflect the risk that our mapping analyses yield. 
Nothing is more powerful to communicate the risk than a pricing 
signal.

Q.6. Mr. Wright, an important feature of the NFIP is FEMA's 
role in communicating the real risks of certain floodplains.
    In addition to the work FEMA is doing to implement more 
actuarially sound rates, what steps is FEMA taking to use the 
latest technology to inform individuals of the actual risk 
associated with living in certain floodplains?

A.6. As you mentioned, the Federal Insurance and Mitigation 
Administration (FIMA) is beginning to update the National Flood 
Insurance Program's (NFIP) risk rating model. The NFIP's 
current approach to risk rating was modeled on insurance 
industry practices at the time the NFIP was established. Since 
that time, the insurance industry has developed more efficient 
and accurate approaches to risk rating. FIMA has an opportunity 
to modernize its risk rating approach to deliver accurate, 
cost-effective ratings of flood risk to property owners. While 
this transformation may take up to five years to design and 
fully implement, it will have lasting impacts across FIMA 
operations and result in long-term program stability, increased 
simplicity and ease of use of NFIP products and services, and 
an improved value proposition for customers. A new risk rating 
approach could influence not only the rating of insurance, but 
also flood hazard mapping and the implementation of floodplain 
management requirements.
    In addition to risk rating, FEMA continues to work in a 
variety of other ways to provide accurate risk information and 
increase risk awareness. The FEMA Risk Mapping, Assessment, and 
Planning (Risk MAP) program was designed to align efforts 
within FEMA to help individuals and communities understand and 
take actions to manage their flood risk. Risk MAP defined new 
digital, geospatial mapping products to communicate flood 
hazards and flood risk more effectively than the traditional 
flood maps that have been used for years to administer the 
legal requirements of the NFIP. These products include maps of 
flood depths that allow individuals to envision the direct 
impact on their property of floods of various magnitudes and 
detailed risk assessments that quantify the potential losses 
for communities and neighborhoods over time. FEMA continues to 
work with our stakeholders on how to improve these products to 
communicate flood risks more effectively.
    The Technical Mapping Advisory Council (TMAC) established 
by the Biggert-Waters Flood Insurance Reform Act of 2012 has 
also made several transformative recommendations of ways that 
FEMA can further leverage technology to fundamentally shift how 
FEMA communicates risk. These recommendations include shifting 
the delivery of FEMA's flood mapping information to a fully 
database-driven digital display environment and moving to 
structure-specific risk assessments. FEMA currently maintains 
the regulatory flood hazard information for the nation in the 
National Flood Hazard Layer (NFHL) geospatial database. This 
data is updated daily as revisions and amendments are processed 
and FEMA provides a database-driven viewer for this data 
online. Over the next few years, FEMA will design and construct 
a new system that builds on existing capabilities, leverages 
the innovative projects its partners are currently undertaking, 
integrates the new Risk MAP products, and provides the 
foundation for the future of the mapping program. FEMA will 
also evaluate technologies, data sources, and trends for flood 
risk quantification aimed at moving to a structure-specific 
risk assessment model in the context of the overall effort to 
redesign our risk rating methodology.
    Another foundational element of credible flood mapping is 
high-resolution topography. For this reason, FEMA has and will 
continue to make targeted investments, consistent with USGS 
3DEP standards, in high-resolution topography prior to 
undertaking all flood mapping efforts.
    Finally, FEMA has directed the Write Your Own (WYO) 
Insurance Companies to review all NFIP policies to determine 
the current risk information for each property. While the 
grandfathering rating procedure remains in place, this will 
allow FEMA to communicate the current flood risk to NFIP 
policyholders. FEMA is also able to explain the current policy 
rating to policyholders and discuss how and when an Elevation 
Certificate can be useful.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR HELLER
                       FROM ROY E. WRIGHT

Q.1. In your testimony you stated that FEMA recognizes that 
there is a growing interest by private insurers to offer flood 
insurance protection. Does FEMA support current legislative 
efforts to clarify that lenders can accept private flood 
insurance as meeting mandatory purchase requirements? Would 
eliminating the noncompete clause for companies that write 
flood insurance through the NFIP's Write Your Own program help 
provide more flood insurance coverage options for homeowners 
and businesses?

A.1. In helping the Nation prepare for, mitigate against, 
respond to, and recover from flood disasters, FEMA's priority 
is to extend opportunities for flood insurance coverage. 
Survivors of flood disasters can recover more quickly and more 
fully if they were insured against flood losses, whether they 
purchase that insurance from the NFIP or through private flood 
insurance markets. There is great opportunity to increase 
levels of flood insurance coverage around the Nation given that 
a large percentage of homes in high and moderate risk areas 
remain uninsured. Private sector providers of flood insurance 
can play an important role in increasing coverage.
    To that end, FEMA would be happy to work with Congress on 
legislative efforts to clarify that federally regulated lenders 
and Federal agencies can accept private flood insurance to meet 
the mandatory purchase requirements.
    An individual can purchase an NFIP flood insurance policy 
either: (1) directly from the Federal Government through a 
direct servicing agent (known as NFIP Direct), or (2) from a 
private insurance company through the Write Your Own (WYO) 
Program. FEMA enters into a standard Financial Assistance/
Subsidy Arrangement (Arrangement) with the WYO companies, which 
addresses the terms and conditions for administering NFIP 
policies.
    Article XIII of the Fiscal Year 2017 Arrangement, entitled 
``Restriction on Other Flood Insurance,'' restricts WYO 
companies from selling certain competing standalone flood 
insurance products. This provision traces back to the inception 
of the WYO Program in 1984 and is intended to prevent WYO 
companies from deriving undue advantage from participating in 
the WYO program. The restriction does not prevent:

  1.  Independent agents from offering both NFIP flood policies 
        and private flood policies at the same time;

  2.  WYO companies from offering coverage in excess of NFIP 
        flood policies; or

  3.  WYO companies from offering a non-NFIP endorsement of 
        flood coverage to a homeowner insurance policy.

    FEMA encourages WYO companies to offer private flood 
coverage through these avenues commensurate with the flood 
risk. Some WYO companies currently offer coverage through these 
avenues, though many do not, despite the fact that all WYO 
companies are free to do so. Accordingly, it is unclear at this 
time how much removing the restrictions in Article XIII of the 
Arrangement will help increase the availability of private 
flood policies.

Q.2. Earlier this year FEMA announced it had secured more than 
$1 billion in reinsurance from 25 reinsurers. This was only the 
second time in history reinsurance had been secured for the 
NFIP. Does the NFIP plan on purchasing any more reinsurance 
from the private market this year?

A.2. In January 2017, FEMA made a cornerstone placement of 
reinsurance to establish a multiyear NFIP Reinsurance Program. 
FEMA does not intend to buy more reinsurance in 2017. FEMA will 
evaluate its opportunity to renew and expand upon the 
cornerstone placement in January 2018.
    In practice, this looks like:

    Upgrading the Reinsurance Program's vision, 
        strategy, and operations based on 2017 lessons learned 
        to optimize a future multiyear program.

    Expanding the NFIP's flood modeling capabilities.

    Engaging industry partners to incorporate best 
        practices from the private sector.

    The multiyear Reinsurance Program vision is:

    Financial Strength: To strengthen the NFIP's 
        financial standing by sharing financial risk with 
        private industry at a price that is fair to the Federal 
        Government.

    Level of Risk: To manage claims exposure by 
        lessening the need to incur additional Treasury debt.

    Stability: To stabilize NFIP's annual expenditures 
        in order to operate within a predictable and defensible 
        annual budget.

    Customer Experience: To foster strong trust-based 
        relationships with policyholders based on delivering 
        consistently outstanding support during and after major 
        floods.

    Efficiency: To institutionalize effective program 
        and financial management discipline to ensure informed, 
        data-based decision making.

    Transparency: To enhance the credibility of the 
        NFIP with Federal, state, and local decision-makers and 
        the private sector thought leaders through bilateral 
        learning and sharing of detailed risk information.

Q.3. The NFIP has eliminated the ability for a consumer to 
cancel their NFIP policy if it is being replaced by a similar 
non-NFIP policy. This basically disincentives homeowners to 
purchase a private flood insurance policy to replace a more 
expensive NFIP policy. Is the NFIP aware of the impact this 
policy is having and how soon will the NFIP reinstate the 
needed cancellation code to allow homeowners to receive a pro 
rata refund for cancellation due to purchase of a duplicate 
policy at any time?

A.3. FEMA's current regulations restrict the agency's ability 
to issue refunds for cancelled policies. As explained in 44 CFR 
61.5(c), the seasonal nature of flooding may encourage some 
policyholders to only maintain policies during time of the year 
more prone to flood and then cancel policies during lower risk 
months. Accordingly, FEMA's regulations only permit refunds 
after an insured sells their interest in the insured property. 
44 CFR 62.5 also describes circumstances allowing for refunds 
related to changes in applicable flood maps and the ending of 
mandatory purchase requirements. These regulations do not 
provide for refunds related to policyholders obtaining a 
private flood insurance policy.
    FEMA understands the impact of the current regulation and 
is seeking regulatory changes to allow FEMA to cancel the NFIP 
policy with premium refund when the insured has obtained a 
replacement flood insurance policy through the private company. 
In the interim, FEMA currently notifies policyholders at 45 
days prior to the expiration date of the NFIP policy. This 
should allow policyholders sufficient time to coordinate the 
end of their NFIP policy with the beginning of their private 
policy.

Q.4. Currently, the NFIP does not consider actual replacement 
costs when establishing a customer premium, but it is my 
understanding that FEMA is working to develop methods to obtain 
a verifiable replacement cost value when a policy is sold. I 
also understand that FEMA must redesign its rating systems in 
order to implement actual replacement costs. What is the 
current status of FEMA's efforts to obtain the necessary data 
and development of new rating systems? Also, what is your 
current timeline for completion for each of these initiatives?

A.4. As you mentioned, FIMA is beginning to update the NFIP's 
risk rating model. The NFIP's current approach to risk rating 
was modeled on insurance industry practices at the time the 
NFIP was established. Since that time, the insurance industry 
has developed more efficient and accurate approaches to risk 
rating. FIMA has an opportunity to modernize its risk rating 
approach to deliver accurate, cost-effective ratings of flood 
risk to property owners. While this transformation may take up 
to five years to design and fully implement, it will have 
lasting impacts across FIMA operations and result in long-term 
program stability, increased simplicity and ease of use of NFIP 
products and services, and an improved value proposition for 
customers. A new risk rating approach could influence not only 
the rating of insurance, but also flood hazard mapping and the 
implementation of floodplain management requirements.
    To ensure FEMA follows industry best practices for rating 
natural catastrophe risk, including considerations of the 
actuarial data used, we are conducting market research through 
a Request for Information (RFI) issued on January 24, 2017. The 
RFI can be found here: https://www.fbo.gov/ 
index?s=opportunity&mode= form&id= 557d24817170f7475b0f 
445f44f9c73d&tab= core&_cview=1
    In addition to the RFI, FEMA conducted market research 
calls to identify data tools and models that should be used for 
risk rating, including tools to determine replacement cost 
values. The market research was conducted to determine industry 
capabilities in the following areas:

  1.  Assessment of the current state of catastrophic risk 
        rating and classification programs;

  2.  Design of alternate risk rating models;

  3.  Testing of the alternate risk rating models; and

  4.  Implementation of alternate models.

    FEMA is working to develop a new rating methodology. Once 
developed, FEMA will begin a multiyear implementation of the 
new methodology, which will be carried out in tandem with a 
redesign of our IT systems and will be aligned with 
improvements to our insurance product.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
                       FROM ROY E. WRIGHT

Q.1. Mr. Wright, you stated that Increase Cost of Compliance 
(ICC) is a ``mini-grant'' mitigation program and there is an 
obvious assumption that when a structure is brought into 
compliance the flood risks are reduced; however, they are not 
eliminated. If the ICC program only funds elevations and 
demolitions, it seems the NFIP is incentivizing people and 
property to remain in some hazardous locations that may not be 
compatible with community plans. Wouldn't it be more effective 
to provide owners and the community a choice to eliminate the 
flood risk by allowing the comparable ICC amount to be used for 
demolition and acquisition costs as a means of compliance? This 
would eliminate the risk in appropriate situations and allow 
for greater coordination on the distribution of ICC funds to 
ensure the property owner is fully aware of all mitigation 
opportunities that exist, as well as, the risks and building 
restrictions that still remain if the property owner elects to 
elevate.

A.1. The Increased Cost of Compliance (ICC) provision of the 
Standard Flood Insurance Policy (SFIP) provides policyholders 
an individual choice to mitigate flood damaged property through 
elevation, relocation and demolition. The original intent of 
ICC was set forth in the National Flood Insurance Reform Act of 
1994, Section 555, which required the NFIP to provide insurance 
coverage for the increased cost of complying with local and 
State land use laws that require elevation of structures that 
have been substantially or repetitively damaged by a flood 
event. In general, substantial damage means ``damages from any 
origin sustained by a structure whereby the cost of restoring 
the structure to its before damage condition would equal or 
exceed 50 percent of the property's market value before the 
damage.'' Therefore, ICC provides additional funding to 
policyholders for the consequential cost to comply with state 
or local building laws during reconstruction. Prior to ICC, a 
policy holder was only reimbursed for the cost to repair the 
actual physical damages to the structure, but did not receive 
funding for mitigation opportunities to protect the structure 
against future flooding. Instead of encouraging people to 
remain in the flood hazard area, ICC provisions added 
mitigation options of elevation, demolition and relocation to 
reduce future flood risk.
    Currently, ICC claims payments are limited to $30,000. In 
most cases, this would not cover the entire costs of a property 
acquisition. In addition, there is no buyout authority within 
the ICC program to enable property acquisition and ownership 
transfer to a community that would allow the property to be 
maintained as open space.
    However, ICC is available to be used for acquisition if the 
local community chooses to participate in a Federal grant 
program. In a FEMA grant, ICC funding can be used as the non-
Federal cost share to support a homeowner's decision for 
acquisition. One such FEMA grant program, Flood Mitigation 
Assistance (FMA) provides funding for reducing or eliminating 
the long-term risk of flood damage to structures insured under 
the NFIP. FMA funding is appropriated by Congress out of the 
National Flood Insurance Fund (NFIF). After a flood event, many 
homeowners bring their homes in compliance with the local flood 
standard, through the use of ICC funds toward elevation, 
relocation, demolition or acquisition, thereby removing or 
reducing their flood risk.

Q.2. If FEMA cannot pay back its debt, what percentage of an 
increase in policy premiums would it take to pay back that 
debt?

A.2. Given the current state of the program, on average, 
premiums would need to at least double to repay the debt within 
ten years. This estimate comes with two important caveats:

  1.  repayment of the debt cannot be guaranteed if the NFIP 
        sustains a large event within the ten year period, and

  2.  such large, unprecedented premium increases to the 
        entirety of NFIP policyholders would probably greatly 
        reduce the number of policies in force due to 
        policyholders leaving the program, and therefore, the 
        NFIP would still not have the revenue necessary to pay 
        back the debt.

    For a detailed examination of the NFIP's ability to repay 
the debt, please refer to our December 17, 2014 report to 
Congress, in which we outlined four different ten year 
repayment strategies in the Appendix D. Two scenarios looked at 
increases in the reserve fund assessment to pay off the debt, 
and two scenarios explored debt forgiveness. At that time, we 
would have needed to either implement an immediate 76 percent 
reserve fund assessment, whereby premiums would almost double, 
or phase in a reserve fund assessment that would increase to 
113 percent, whereby premiums would comply with the statutory 
15 percent premium increase limitation but would more than 
double over the ten year period, to repay that debt within ten 
years. Since the issuance of that report, the NFIP's 
policyholder base has declined and our debt has increased 
following the flooding of Calendar Year 2016.

Q.3. What is FEMA doing to modernize its IT systems? In April 
of 2016, the GAO did a study recommending that FEMA fully 
define its investment board's roles and responsibilities and 
procedures for selecting and overseeing investments, update its 
strategic plan and complete plans for IT modernization, and 
establish time frames for completing workforce planning 
efforts. In addition the GAO also recommended that FEMA should 
establish policies and guidance for implementing key IT 
management controls & DHS concurred with those recommendations. 
How is FEMA comporting with the GAO study? Do you agree with 
the GAO's assessment of the NFIP particularly relating to IT 
issues? What efforts have you taken to work with FEMA 
management on IT issues? What recommendations would you make to 
help improve the NFIP program and move it off of the high-risk 
list?

A.3. FEMA's Component Acquisition Executive (CAE) is leading 
the management and response for the April 2016 Government 
Accounting Office (GAO) study for overseeing investments. The 
CAE has put into place several processes and procedures to 
improve our oversight of investments and modernization efforts, 
such as conducting FEMA Acquisition Review Boards (ARB) and 
establishing CAE Executive steering committees. For Information 
Technology (IT) modernization, FEMA is participating as one of 
the five Department of Homeland Security's (DHS) Agile Pilot 
Programs. These programs are subject to routine oversight by 
the DHS Financial Systems Modernization Executive Steering 
Committee, as well as the DHS ARB. The ARB recently approved 
the NFIP IT Modernization Program, known as PIVOT, to enter the 
Obtain Phase and is running several months ahead of schedule 
due to the deep engagement and commitment from FEMA and DHS to 
make sure this program is successful.
    We do agree with the GAO study that IT issues must be 
addressed for the NFIP to be more effective and efficient, and 
to that end, not only have we launched the NFIP IT 
Modernization Program (PIVOT) mentioned above, but as FIMA has 
reorganized, we invested in developing a Federal oversight 
staff and establishing an Insurance Systems Branch.

Q.4. Mr. Wright, in your testimony, you stated that ``the 
program needs to be on a course to eventually arrive at full 
risk for all policyholders [and] [t]his includes addressing 
grandfathered and subsidized rates.''
    This could take some time to achieve, how long do you think 
it would take to resolve this matter and arrive at a property's 
true risk? In the marketplace, especially at a local community 
level, there is significant fear of the unknown-what is your 
ideal timeline?

A.4. Some policyholders' rates are far below the rate that 
reflects their current flood risk. Under current law, the rates 
on certain pre-FIRM subsidized policies--including those for 
nonprimary homes, severe repetitive loss properties, 
businesses, and substantially damaged structures--are required 
to increase by 25 percent annually. The rates on all other pre-
FIRM subsidized policyholders must increase at least 5 percent 
per year but no more than 15 percent as a class and 18 percent 
per policy on an annual basis.
    But not all policyholders are on track to move to rates 
that reflect their current risk. For example, while subsidies 
for pre-FIRM structures and unfunded discounts for newly mapped 
policies are being removed, other discounts, including 
grandfathered discounts, have not yet been phased out. Also, 
towards the lower end of the range allowable for the mandatory 
annual rate increases (e.g., an increase of 5 percent per 
year), it could take much longer than 10 years to move to full-
risk rates.
    In short, consideration should be given to phase out 
discounts for all policyholders not paying rates that reflect 
their current risk. And, as I stated in my testimony, this is 
especially true for those that have incurred multiple losses. 
Furthermore, addressing affordability for low-income 
policyholders can ameliorate rate increases for those 
individuals for whom NFIP rates present a true financial 
burden.
    But, as you point out, giving policyholders and markets 
predictability about the timeline for phasing out subsidies and 
discounts is important. We are exploring options for phasing 
out remaining subsidies and discounts over a realizable 
timeframe, such as a ten year horizon.

Q.5. What legislative changes are needed to ensure that FEMA 
has adequate safeguards and controls in place to prevent 
improper payments from its flood insurance and disaster 
recovery programs?

A.5. There is a robust statutorily-required process in place to 
address improper payments in flood insurance and disaster 
recovery programs. The Improper Payments Information Act of 
2002 (IPIA) requires Federal agencies that are susceptible to 
issuing significant improper payments to take specific steps to 
identify and prevent improper payments. Congress later added 
the Recovery Audit Act that replaced and consolidated the 
requirements of both IPIA and the Recovery Audit Act. The 
Improper Payments Elimination and Recovery Act of 2010 (IPERA) 
amended the Act and required an increase in diligence of 
auditing Federal agencies to prevent improper payments. A 
subsequent statute, the Improper Payments Elimination Recovery 
Information Act of 2012 (IPERIA), was also enacted. It requires 
Federal agencies to improve the quality of oversight for high 
dollar and high-risk programs. It mandates that agencies share 
data on improper payments they recovered and identify ways to 
increase recovered amounts. To comply with these laws, the FEMA 
Office of the Chief Financial Officer leads the IPIA/IPERA/
IPERIA efforts to assess the National Flood Insurance Program 
and to identify and recover overpayments.
    Furthermore, FEMA Hazard Mitigation Assistance (HMA) 
programs have regulatory (2 Code of Federal Regulations) and 
programmatic procedures, including internal controls, to 
prevent improper payments to the extent possible.
    FEMA will continue to identify and eliminate improper 
payments, in accordance with statutory requirements and 
regulations.

Q.6. Does FEMA maintain a central data warehouse or database 
where it might be able to undertake data analysis to better 
understand its program performance and effectiveness? Would 
better, more complete data help FEMA in the administration of 
these programs?

A.6. FEMA does centrally manage the transactional history of 
the NFIP policies and claims, though we are working to update 
our system for these data. The NFIP's IT Modernization effort 
(known as PIVOT) will improve access to the historical record 
of the NFIP for data analysis, performance management, and 
program policy development. The new system will not only 
provide near-real time access to NFIP claims and policy data, 
it will also enable industry standard practices--such as 
Customer Relationship Management and case tracking--to help 
give FEMA better insight into the customer experience and 
program performance. In addition, we will have much timelier 
insight on the program's financial position.
    As we have awarded our new NFIP Direct contract, we have 
created a ``laboratory'' to test potential program and product 
changes to determine how they affect the customer experience 
and program performance. We have also established an Industry 
Management Branch and a Program Management Branch to improve 
our coordination and oversight efforts to ensure that 
contractors meet program and contractual performance standards. 
Lastly, we have established an Analytics and Policy Branch, 
charged with the dual mission to ``serve as the data hub and 
analytic center for Federal insurance'' and ``promote the 
continuous improvement of NFIP practices and policies.'' The 
analytics and policy functions are within the same branch to 
enable policy decisions to consider data insights.
    To support the above efforts, FEMA staff are committed to 
developing requirements for and building an Enterprise Data 
Warehouse, which will enable us to leverage ``big data'' from 
numerous sources to perform data analytics and gain insight on 
the impacts of flooding, potential program changes, and ensure 
that we are supporting the response and recovery efforts post-
disaster. Better and more complete data pertaining to 
policyholder characteristics, flood risk, and the built 
environment will enhance FIMA's ability to undertake data 
analysis to better understand its program performance and 
effectiveness.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR KENNEDY
                       FROM ROY E. WRIGHT

Q.1. Under the Homeowner Flood Insurance Affordability Act of 
2014, Congress required FEMA to develop a Draft Affordability 
Framework ``that proposes to address, via programmatic and 
regulatory changes, the issues of affordability of flood 
insurance sold under the National Flood Insurance Program, 
including issues identified in the affordability study . . . ''
    When will FEMA complete this study?

A.1. The Affordability Framework is due to Congress in 
September 2017. FEMA is working diligently to meet the 
deadline.

Q.2. The Homeowner Flood Insurance Affordability Act of 2014 
requires gradual rate increases to properties now receiving 
artificially low (or subsidized) rates instead of immediate 
increases to full-risk rates required in certain cases under 
BW-12. FEMA is required to increase premiums for most 
subsidized properties by no less than 5 percent annually until 
the class premium reaches its full-risk rate. With limited 
exceptions, flood insurance premiums cannot increase more than 
18 percent annually.
    What percentage do you anticipate premium rates increasing 
for these subsidized properties by over the coming years and 
what considerations will be taken into account to reach this 
decision?
    How many policyholders are paying subsidized rates? What 
percentage of the total policyholders do these subsidized 
ratepayers represent.

A.2. Under the current statute, certain pre-FIRM subsidized 
policies-including those for nonprimary homes, Severe 
Repetitive Loss properties, businesses, and substantially 
damaged structures-are required by statute to increase 25 
percent annually until they reach full actuarial rates (42 
U.S.C. 4015 (e)(4));(42 U.S.C. 4014(a)(2)(A)-(E). All other 
pre-FIRM subsidized policyholders, including primary single 
family residences, must increase at least 5 percent but no more 
than 15 percent as a class and 18 percent per policy (42 U.S.C. 
4015 (e)(1) through (3)). The increase for any given year is a 
balance of many factors, primarily a balance between 
affordability to the property owner and program solvency of the 
insurance fund. Premium increases at the higher end of the 
range would tend to increase the overall amounts collected from 
policyholders, unless the increases induce policyholders to 
drop their coverage. Premium increases at the lower end of the 
range will barely exceed inflation and could take years, even 
decades, to reach full risk for some, but will retain more 
policyholders. Each year, the Federal Insurance and Mitigation 
Administration sets the increase factor for the following 
year's rate changes. This year, FEMA increased premiums for 
pre-FIRM primary single family residences at the lower end of 
allowable range with average increases of 5.5 percent beginning 
on April 1, 2017. On October 1, 2017, we will announce rate 
increases that will become effective on April 1, 2018.
    As of the beginning of Fiscal Year 2017, roughly 800,000 or 
16 percent of policyholders pay pre-FIRM subsidized rates, 
roughly 200,000 or 4 percent of policyholders pay Newly Mapped 
subsidized rates, and roughly 20,000 or less than 1 percent of 
policyholders pay rates in the other subsidized categories.

Q.3. Flood insurance policyholders are often unaware of the 
exclusions and limitations in their policies until they have a 
claim. In contrast, these same people have a much better 
understanding of their homeowners insurance policy and the 
various optional coverages and benefits the homeowners policy 
provides. The consumer's lack of understanding about their 
flood policy results in complaints, coverage disputes and 
sometimes lawsuits when they become aware at the time of claim 
that there is no coverage under the NFIP flood policy for loss 
to their basement, for building code upgrades during repair, or 
for additional living expenses to pay for alternative lodging 
when their home becomes uninhabitable due to flooding. They 
cannot understand why these coverages are available under their 
homeowners policy but not the NFIP policy. Many complaints 
about flood insurance arise from coverage disputes and the fact 
that the NFIP policy's coverage is not as robust as consumers 
expect.
    What steps are you taking to minimize coverage disputes and 
improve customer satisfaction?

A.3. FEMA is committed to making our products and procedures 
easier-to-understand for the policyholder. Under the Bunning-
Bereuter-Blumenauer Flood Insurance Reform Act of 2004 (FIRA), 
Public Law 108-264, 118 Stat. 725, 42 U.S.C. 4001, Congress 
requires the NFIP to ensure that policyholders receive 
important information about their flood insurance coverage. In 
October 2005, in an attempt to help policyholders understand 
their coverage prior to a flood, FEMA began providing 
policyholders with: (a) the property's flood loss history 
information, as required by FIRA, Section 202 (a)(4); (b) the 
claims handbook, as required by FIRA, Section 204; (c) the 
acknowledgement, as required by FIRA Section 203; (d) a summary 
of coverage; (e) a copy of the flood insurance policy; and (f) 
a cover letter referencing these enclosures.
    FEMA is also currently re-writing the NFIP Claims and 
Underwriting Manuals in plain language to provide consistent 
guidance for adjusters and insurance examiners as they interact 
with NFIP policyholders. Additionally during recent flooding 
events, FEMA prepared and distributed an ``NFIP Claims Process 
Fact Sheet'' that guides policyholders through the claims 
process and clearly explains the steps to take if they do not 
agree with the adjuster's estimate.
    FEMA also improved our appeals process to better serve our 
customers--providing greater transparency, access, and 
accountability. FEMA has dedicated insurance examiners 
specializing in appeals. FEMA tracks each step of the appeals 
process to increase accountability, assure quality, and make 
the process more timely and efficient.
    During the appeal review, FEMA ensures the adjustor and 
Write Your Own (WYO) company or NFIP Direct Servicing Agent 
applied FEMA's rules correctly. FEMA begins with the materials 
submitted by the customer, either by mail or using a new email 
option ([email protected]), in support of the 
appeal. FEMA identifies the information needed to resolve the 
appeal at the outset, and works with the WYO companies to 
ensure that information is received as quickly as possible. 
FEMA encourages carriers to resolve issues in favor of 
policyholders based on FEMA's input whenever possible. 
Regardless of whether FEMA upholds or overturns the original 
denial, FEMA explains every detail of the decision to the 
policyholder in writing at the completion of the review. The 
decision sets forth the key facts, the relevant rules, and how 
those rules apply to the situation presented on appeal.

Q.4. Can you assure us that every person who lives in a special 
flood hazard zone and has a federally backed mortgage has flood 
insurance?
    If not, can you estimate it?
    What prevents you from knowing this figure?

A.4. Section 102 of the Flood Disaster Protection Act of 1973 
(42 U.S.C. 4012a) requires Federal lending regulators and 
Federal agencies that provide direct housing assistance, 
including mortgage loans, to require properties located in a 
Special Flood Hazard Area (SFHA) to obtain flood insurance. As 
such, FEMA has a very limited role in the monitoring and 
implementation of the mandatory purchase requirement. As 
explained below, FEMA does not have current, definitive 
information on the compliance rate for mandatory purchase 
properties, because FEMA does not regulate or carry out the 
mandatory purchase requirement.
    From FEMA's perspective, flood insurance take-up is much 
broader than the mandatory purchase requirement. While the 
mandatory purchase requirement is one way to increase 
participation in the National Flood Insurance Program, it only 
targets those homeowners in the SFHA with federally backed 
mortgages. FEMA considers its market for flood insurance to 
include all potential flood insurance purchasers, regardless of 
their mortgage status. Flood insurance take-up or market 
penetration is not synonymous with those people subject to the 
mandatory purchase requirement.
    FEMA commissioned an analysis in 2014 that explored 
penetration rates and mandatory purchase compliance, but we do 
not currently have a basis to validate the compliance rate in 
that analysis. In the three years since FEMA commissioned the 
analysis, FEMA has learned more about its own data and the 
potential limitations of the analysis.
    Other entities have examined mandatory purchase compliance. 
For example, the National Academies of Sciences (NAS) Report: 
Levees and the National Flood Insurance Program notes that 
estimates of the mandatory purchase requirement compliance have 
been between 50 and 78 percent. However, the NAS study also 
notes that ``studies indicate that estimates of both market 
penetration in the SFHA and compliance with the mandatory 
purchase requirement have varied considerably and are very 
sensitive to the assumptions made in the study process.''
    FEMA does not know which properties are subject to the 
mandatory purchase requirement. We obtain no data on insurance 
requirements beyond those who may receive a FEMA grant under 
the Stafford Act following a disaster. FEMA does not track 
compliance with the mandatory purchase requirements primarily 
because we have no available data on which residential 
structures have a federally backed mortgage.
    While FEMA does not have access to mandatory purchase 
compliance rates, we do have estimated market penetration rates 
for NFIP flood insurance. Market penetration is a measure of 
flood insurance take-up and we calculate this penetration rate 
based on the number of NFIP insured residential structures 
compared to the number of residential structures overall. This 
includes NFIP insurance only, and does not include private 
flood insurance policies. FEMA does not define market 
penetration in terms of mandatory purchase compliance, because 
the NFIP total market includes all potential flood insurance 
purchasers, regardless of their mortgage status.
    FEMA estimates that market penetration in SFHAs varies 
state to state, ranging from 6 percent to 65 percent with a 
national average of 30 percent. In other words, FEMA estimates 
that nationwide, approximately 30 percent of the residential 
structures in the SFHA carry NFIP insurance. FEMA believes that 
the statewide totals provide an accurate market penetration 
estimate for the majority of states. Regardless of how well 
mandatory purchase is enforced, this low rate indicates that 
the majority of homes at high risk of flood do not have NFIP 
flood insurance policies. In case of a major flood, uninsured 
residents will not be able to recover as quickly or as fully as 
insured individuals will.
    FEMA will continue to refine its methodology and utilize 
additional data to provide more accurate state and county-level 
estimates of NFIP market penetration in the future.

Q.5. Prior to Biggert Waters 12, were all of the post firm 
policyholders paying actuarial rates for FEMA flood insurance 
policies?
    Given the fact that BW12 forced the inclusion of 
catastrophic lost years in the actuarial rate calculations, 
would you say that post BW12 the post firm policyholders are 
paying greater that the actuarial rates?

A.5. In response to the first question in this QFR, post-FIRM 
policyholders in the following classes paid less than actuarial 
rates prior to enactment of the Biggert-Waters Flood Insurance 
Reform Act of 2012:

    Pre-1981 V-Zone Policies: Pre-FIRM and Post-FIRM 
        properties in a V zone, built before FEMA introduced 
        wave height into its coastal maps.

    Zones AR and A99: Pre-FIRM and Post-FIRM 
        Policyholders in areas with levees under construction 
        or reconstruction were rated as if the levee was 
        complete.

    Group Flood Insurance Policy: Low-cost policy 
        issued to homeowners who did not have NFIP coverage 
        prior to receiving Federal disaster assistance for 
        flood damage. These were issued to both pre-FIRM and 
        post-FIRM structures.

    Emergency Program: Policyholders in a community in 
        the initial phase of participating in the NFIP when 
        flood hazard information was not yet available. (This 
        category is not technically post-FIRM, since the 
        community had not yet adopted a FIRM, but is included 
        in this answer to complete the list of subsidized rates 
        other than pre-FIRM rates that were in effect prior to 
        the Biggert-Waters Flood Insurance Reform Act of 2012).

    In response to the second part of the question, FEMA has 
always considered the full range of all possible loss years, 
including catastrophic years, in its calculation of actuarially 
rated policies. Both the likelihood that catastrophic years 
occur and the possibility of higher damages resulting from 
catastrophic events are included in FEMA's rate setting 
practices. Therefore, the statutory requirement to reflect 
catastrophic loss years did not alter FEMA's rate setting 
practices.

Q.6. How much money does FEMA pay annually in interest to the 
Federal treasury for its debt?

A.6. The NFIP carries $24.6 billion in debt to the Department 
of Treasury. The program pays nearly $400 million per year in 
interest to the Treasury on these borrowed funds. Since 
Hurricane Katrina, the NFIP has paid over $3.4 billion in 
interest to the Department of Treasury. In FY17, FEMA 
anticipates that it will pay an additional $390.2 million in 
interest.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
              SENATOR DONNELLY FROM ROY E. WRIGHT

Q.1. Mr. Wright, in recent years, communities across my state 
have shared with me their frustrations with FEMA, NFIP, and the 
flood mapping process. The mapping program, particularly when 
it needs amending, can be costly and time-consuming for 
communities, who often have difficulty getting suitable answers 
or assistance when complicated situations arise.
    Do you believe recent internal changes, such as the 
Technical Mapping Advisory Council (TMAC), have improved FEMA's 
coordination and communication with impacted communities?

A.1. Yes, FEMA's coordination and communication with 
communities expanded significantly and continues to improve as 
a result of a number of internally-driven initiatives. Several 
TMAC recommendations have enhanced those efforts. In 
particular, two recommendations in the 2015 TMAC Annual Report, 
Recommendations No. 1 and No. 15, focus on ensuring that FEMA's 
products meet the needs of their users and that FEMA's 
communication conveys the importance of addressing flood risk 
for more resilient communities today and in the future. Many of 
these recommendations are intended to ensure that FEMA provides 
better data and information so that communities can make better 
risk-informed decisions. FEMA is actively implementing both of 
these recommendations through our Customer Experience for 
Communities initiative, a multiyear effort that was initiated 
in 2016.
    FEMA can help a community become more resilient provided 
the community is prepared to be an active and full partner in 
planning and implementation. As users of flood risk data and 
products, communities are also customers. Thus, excellent 
communication and strong relationships are crucial in our 
engagement with communities. FEMA aspires to provide clear, 
direct, and timely communication as well as products and 
processes that are easy to navigate, and to foster trusting 
relationships with our state, local, tribal, and territorial 
partners.
    We have made significant progress toward this goal. In 
2015, FEMA created the Community Engagement and Risk 
Communication (CERC) initiative to help FEMA do a better job of 
talking and working with communities nationwide to help them 
understand and manage their flood risk in a way that is 
participatory and productive. As mentioned above, FEMA is 
implementing the Customer Experience for Communities initiative 
to determine how we might better improve our engagement with 
communities. Our exploratory efforts, which included a number 
of community interviews and site visits, resulted in the 
proposal of several new initiatives aimed at improving how we 
work with communities through the National Flood Insurance 
Program (NFIP). Over the next year, FEMA will continue to act 
upon lessons learned via the Customer Experience for 
Communities effort, while re-designing the approach FEMA 
follows when working collaboratively with communities to update 
flood risk. It is important for FEMA to do so in a manner that 
is flexible enough to account for communities with varying 
capabilities of assessing and managing their risks.

Q.2. What are the most common concerns and complaints heard 
from communities about the mapping process? What more can be 
done to assist small and rural communities concerned by the 
costs and time-consuming nature of challenging flood hazard 
maps?

A.2. As part of our ongoing multiyear Customer Experience for 
Communities effort, FEMA has had a number of conversations with 
National Flood Insurance Program (NFIP) participating 
communities regarding the challenges they face while working 
with FEMA to update their flood insurance rate maps. Most 
often, communities asked for increased engagement and public 
education, shorter map development timelines, and the 
flexibility to tailor our processes and procedures to better 
align to their individual needs. As a result of this feedback, 
FEMA is taking a comprehensive look at how we engage with 
communities during a Risk MAP project and designing a 
streamlined and segmented approach to support the needs of 
communities with varying capacities and capabilities. Under 
this new approach, we would provide more flexibility for our 
customers that seek to take a more active role in updating 
their flood risk assessment data and associated products, while 
providing additional support to small and rural communities 
that might not have the same levels of expertise or resources. 
We are also identifying ways to shorten the process while 
engaging more members of a community, introducing and/or 
leveraging tools that afford more visibility into our process. 
Later this summer we will test these new streamlined approaches 
with communities; we plan to roll out successful changes in 
FY18.

Q.3. Mr. Wright, I have repeatedly heard complaints from 
homeowners, small businesses, and even realtors, about the 
cost-prohibitive nature of the appeals process. If you are 
drawn into a flood map, the financial burden is on the taxpayer 
to prove their case and successfully challenge. If they don't 
win the appeal, it will have been very expensive. That is a 
financial risk many families and businesses cannot afford to 
take.
    Are there ways to improve the appeals process to eliminate 
the financial disincentives to challenging a potentially 
erroneous flood map?

A.3. Throughout an ongoing flood study to update a Flood 
Insurance Rate Map (FIRM), better communication with the 
affected communities during the study process can avoid the 
need for an appeal or, in the event of an appeal, help reduce 
the costs of challenging potential errors on a FIRM. In 
accordance with 44 C.F.R. ' 67.6, appeals must be accompanied 
by data supporting the view that the flood hazard information 
proposed by FEMA is scientifically or technically incorrect. 
This technical data to support an appeal must be provided by 
licensed professionals. Helping communities during and after a 
flood study to understand the requirements for submitting an 
appeal, including the need for technical data, may help reduce 
their costs for providing this information.
    The most efficient way for local communities to contribute 
to enhancing their updated flood map is to participate in the 
mapping process during an ongoing study and to alert FEMA at 
that time to any additional relevant information that they want 
it to consider, preferably before or while the preliminary maps 
are being prepared. Community officials are given several 
opportunities prior to the statutory 90-day appeal period to 
understand the engineering methodologies and techniques that 
will be used to update the FIRM. Participation in Flood Risk 
Review meetings can be valuable to all parties, including and 
giving communities the opportunity to present information to 
FEMA that may guide the depiction of revised floodplains. 
Through the early involvement of a community in the mapping 
process, resources can be saved by avoiding the need for 
potential challenge after the FIRM is prepared.
    Flood hazards change over time, as do the available 
technologies and methodologies for studying them. FEMA's goal 
in this area is to provide communities across the Nation with 
high-quality flood maps and other tools that they can use to 
identify and mitigate their flood risk and the potential 
impacts of flooding. Using more precise flood hazard mapping, 
residents and businesses are better equipped to make informed 
decisions about their flood risk and take appropriate measures 
to protect themselves and their property.
    It should be noted that a FIRM can be revised at any time, 
and community officials may submit scientific or technical data 
to FEMA to support specific map revisions after an updated FIRM 
goes into effect. All requests for map revisions should be 
submitted through the Chief Executive Officer of the community 
as the community must adopt any changes to the FIRM to maintain 
its participation in the NFIP. To help communities compile the 
data required to support map revision requests, FEMA has 
developed step-by-step instructions and forms, which are 
available on the FEMA website at http://www.fema.gov/mt-2-
application-forms-and-instructions. Following a review of the 
community's map revision request and supporting data, FEMA will 
revise the FIRM and the Flood Insurance Study report, if 
appropriate. This type of revision is generally issued within 
90 days of the date all required data are received, and most 
revisions will be effective within 120 days of the date they 
are issued. For questions about FEMA's map revision processes, 
your constituents can contact the FEMA Map Information exchange 
at 1-877-336-2627.





              Additional Material Supplied for the Record



 LETTER SUBMITTED BY THE NATIONAL MULTIFAMILY HOUSING COUNCIL AND THE 
                     NATIONAL APARTMENT ASSOCIATION
                     
  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
                   
 
 STATEMENT SUBMITTED BY THE PROPERTY CASUALTY INSURERS ASSOCIATION OF 
                                AMERICA




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



         TESTIMONY SUBMITTED BY THE CONSUMER MORTGAGE COALITION




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]










    REAUTHORIZATION OF THE NATIONAL FLOOD INSURANCE PROGRAM--PART II

                              ----------                              


                         THURSDAY, MAY 4, 2017

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:04 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Mike Crapo, Chairman of the 
Committee, presiding.

            OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

    Chairman Crapo. This hearing will come to order.
    During our last flood insurance hearing, Mr. Wright 
outlined FEMA's four core principles for reauthorization, 
including: an on-time, multiyear reauthorization; increasing 
flood insurance coverage through both the NFIP and the private 
markets; addressing barriers to meeting the needs and demands 
of their customers; and enhancing the transparency of the 
program's financial framework.
    Another takeaway from the hearing was that FEMA is still in 
the process of implementing some of the 2012 and 2014 reform's 
major provisions.
    FEMA also continually receives recommendations for more 
improvements from groups that were created by the laws. For 
instance, both the re-established Technical Mapping Advisory 
Council and the newly established Office of the Flood Insurance 
Advocate recently released their annual reports outlining 
additional changes for mapping and consumer experience.
    I encourage FEMA to continue its important work 
implementing previous reforms and making appropriate 
improvements. Even so, there is still much work to do.
    The NFIP expires at the end of September unless 
reauthorized by Congress. Working together and balancing 
reforms that protect taxpayers and assist consumers, we can 
reauthorize the program on time.
    To build upon our previous hearing, organizations 
representing a diverse set of the program's stakeholders join 
us today to provide their recommendations.
    I look forward to engaging our witnesses on a number of 
important questions, including: how to offer consumers more 
choice by growing the private market and ensuring shared risk 
by both the Government and the private sector; how new and 
better technologies, such as LIDAR, can be more incorporated in 
mapping; how to continue toward risk-based rates while 
balancing affordability; and how long the program should be 
reauthorized.
    Senator Brown and I continue, on a bipartisan basis, to 
receive the thoughts and concerns from the program's 
stakeholders. We have also been gathering priorities for the 
program from Committee Members.
    I want to thank each of our witnesses today for joining us 
today and look forward to hearing your ideas.
    Senator Brown.

               STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Mr. Chairman. I appreciate your 
having this hearing today.
    This is the Committee's second hearing on reauthorization 
of NFIP. As we have discussed before, flooding is the most 
common and costly natural disaster facing our constituents 
today. At my every Thursday morning coffee, there were a number 
of people there today interested in it. In my State, it may not 
be as important on the surface as a number of other States, but 
it clearly matters in pretty much every State of the Union. So 
thank you to the witnesses. Thank you for the work you have 
done.
    With a growing population and a changing climate, our 
entire Nation will continue to grapple with this issue in the 
years ahead. Many often associated flooding with coastal States 
that bear the brunt of devastating hurricanes, like Katrina and 
Superstorm Sandy. We know this is an issue that affects people 
in my State and all other States. The sheer power of heavy 
rainfall combined with a river, stream, or other body of water 
can have tragic and costly results, as we are seeing right now 
in the Midwest.
    In my own State, northwest Ohio, the flattest part of the 
State and generally the lowest part of the State, is also under 
threat of flooding today.
    NFIP seeks to combat the effects of flooding through four 
interrelated components: flood insurance, floodplain 
management, floodplain mapping, and mitigation. Because these 
activities are intertwined, it will be important for us to be 
aware of how policy changes in one area can affect others.
    Today we will hear stakeholders' views about 
reauthorization and the path forward for NFIP. I am also 
interested to hear your views about the implementation of 
authorizing bills we enacted in 2012 and 2014. FEMA is still 
working to implement many of these changes.
    I look forward to continuing to work with Chairman Crapo 
and the Members of this Committee to strengthen the NFIP and 
the country's comprehensive approach to mitigating flood risk 
through a timely reauthorization, and we recognize, of course, 
the date of expiration. It is important for homebuyers that 
Congress not let this program expire.
    Thank you.
    Chairman Crapo. Thank you, Senator Brown.
    Today we will first receive testimony from Steve Ellis, 
vice president of Taxpayers for Common Sense, on behalf of the 
SmarterSafer Coalition.
    Next we will hear from Michael Hecht, president and CEO of 
Greater New Orleans, Inc., on behalf of the Coalition for 
Sustainable Flood Insurance.
    And then, finally, we will hear from Larry Larson, director 
emeritus and the senior policy advisor for the Association of 
State Floodplain Managers.
    I want to remind our witnesses that we ask you to keep your 
oral testimony to 5 minutes. Your written testimony will be 
included in the record, and you will have ample opportunity to 
respond and supplement your first statements.
    I also want to remind our Senators to honor the 5-minute 
rule in their questioning.
    With that, please proceed, Mr. Ellis.

STATEMENT OF STEVE ELLIS, VICE PRESIDENT, TAXPAYERS FOR COMMON 
         SENSE, ON BEHALF OF THE SMARTERSAFER COALITION

    Mr. Ellis. Thank you, Mr. Chairman. Good morning, Chairman 
Crapo, Ranking Member Brown, Members of the Committee. I am 
Steve Ellis, vice president of Taxpayers for Common Sense, a 
national nonpartisan budget watchdog. Thank you for inviting me 
to testify on the National Flood Insurance Program. With the 
recent flooding in several States, this hearing is tragically 
timely. My sympathies are with those who are affected by those 
floods.
    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 coalition ranges from free market and 
taxpayer groups to consumer and housing advocates to 
environmental and insurance industry groups.
    The NFIP is nearly $25 billion in debt and must be reformed 
to ensure it is financially sustainable, has sufficient 
incentives for reducing future flood damages and 
vulnerabilities, provides better protection for taxpayers, and 
that it promotes mitigation solutions that have long-term 
benefits.
    SmarterSafer released a reform proposal in February. TCS 
supports this proposal and I request it be included in the 
record.
    Chairman Crapo. Without objection.
    Mr. Ellis. The four main recommendations are:
    Risk analysis and mapping must be up to date and must 
provide property level elevation data.
    Rates must be tied to risk, with assistance for mitigation 
and premium support for low-income homeowners.
    Increased Federal investments and efforts on mitigation 
both at a property level and community wide so that we are 
reducing rates by reducing risk.
    And ensuring consumer choice and private sector competition 
which will also reduce taxpayer exposure.
    To help people understand their risk and ensure proper NFIP 
rates, maps must be up to date and accurate, and property 
elevations or effective proxies must be known. Private 
companies already perform assessments of risk to individual 
properties--something that is not currently reflected in FEMA 
maps. FEMA must be required to update its maps, include the 
best science on known conditions and risks, but also conduct 
(or purchase) property-level (or close to) risk assessments. 
FEMA should be required to assess elevation at a higher 
resolution or conduct more granular analysis. This is something 
that is possible. The State of North Carolina has undertaken a 
mapping effort where they have not only gotten property level 
data at a reasonable cost, but they have a digital system to 
allow property owners to search and understand their risk, 
potential flood premiums, and mitigation options.
    The Government Accountability Office has documented large 
cross-subsidies in the program, many of which benefit high-
income homeowners, finding that over 78 percent of subsidized 
properties in NFIP are located in counties with the highest 
home values, while only 5 percent of subsidized properties are 
in counties with the lowest home values.
    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 risk. 
Masking subsidies with lower rates prevents policyholders from 
understanding their true level of risk. A 2014 FEMA report 
noted that the presence of subsidies ``removes the incentive to 
undertake mitigation efforts, thereby encouraging ever 
increasing societal costs.''
    Instead, premium assistance should be targeted to those who 
need it and encourage and fund mitigation measures that could 
serve to reduce rates by reducing risk. These mitigation 
efforts should be targeted at higher-risk and lower-income 
property owners.
    In April, the GAO noted: ``Prioritizing mitigation over 
premium assistance could address the policy goal of enhancing 
resilience because it would involve taking steps to reduce the 
risk of the property, thus reducing the likelihood of future 
flood claims and potentially reducing long-term Federal fiscal 
exposure.''
    Also, as rates gradually increase, there is more incentive 
for individuals and communities to mitigate. We know that each 
dollar of mitigation reduces post-disaster costs by $4 or more.
    The private sector is now writing first dollar flood 
insurance, even in the highest-risk areas. There are roughly 20 
companies writing private flood insurance in Florida, home to 
nearly 40 percent of NFIP policies. A majority of these are 
writing flood coverage in the highest risk areas.
    Competition provides consumers choice in flood policies, 
instead of forcing homeowners into a one-size-fits-all 
Government policy. It also takes risk off of taxpayers. I 
request to include for the record a recent analysis done by the 
Reinsurance Association of America on Florida Citizens Property 
Insurance Corporation, a State-run, subsidized wind insurer.
    Chairman Crapo. Without objection.
    Mr. Ellis. They reviewed an initiative to get the private 
sector to ``take out'' policies, resulting in a two-third 
policy reduction for the program. Instead of choosing only low-
risk properties, private insurers took out properties across 
the risk spectrum, including those along the coast in the 
highest-risk areas. This left a smaller, stronger insurance 
program that could meet its obligations.
    Senators Heller and Tester's Flood Insurance Market Parity 
and Modernization Act clarifies that private flood insurance 
can be used to meet mandatory purchase requirements and puts 
the regulatory responsibility where it belongs--on the State 
insurance commissioners. A version of this bill passed the 
House last year 419-0.
    I strongly believe the burgeoning flood insurance industry 
will lead to more homeowners purchasing needed flood coverage.
    Finally, there is no need for the Federal Government to 
further extend into the catastrophe insurance market through 
reinsurance or increasing coverage limits or other means.
    Thank you very much for the opportunity to testify today. I 
look forward to your questions.
    Chairman Crapo. Thank you very much, Mr. Ellis.
    Mr. Hecht.

   STATEMENT OF MICHAEL HECHT, PRESIDENT AND CHIEF EXECUTIVE 
OFFICER, GREATER NEW ORLEANS, INC., ON BEHALF OF THE COALITION 
                FOR SUSTAINABLE FLOOD INSURANCE

    Mr. Hecht. Thank you. Good morning, Chairman Crapo, Ranking 
Member Brown, and Members of the Committee. I am honored to 
speak to you today about reforming and modernizing the National 
Flood Insurance Program. My name is Michael Hecht, and I am 
president and CEO of Greater New Orleans, Inc., the 10-parish 
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. We were 
formed in the wake of the implementation of the Biggert-Waters 
Act, when homeowners across the Nation began to see 
skyrocketing rate increases due to a combination of the removal 
of grandfathering and new and often inaccurate maps. CSFI 
became a driving force behind the passage of the Homeowner 
Flood Insurance Affordability Act, which was signed into law in 
March 2014.
    As was made clear in these previous debates, there is no 
simple answer to the complex puzzle of flood insurance. 
Simultaneously maintaining premium affordability, keeping the 
NFIP on sound financial footing, and accurately communicating 
risk is indeed a challenge. But it is in the national interest 
to recognize that, first of all, all 50 States have experienced 
floods in the past 5 years; and, second, that many of these 
communities exposed to flood risk are vital hubs of domestic 
energy production, international trade, finance, agriculture, 
and other nationally significant economic and defense 
activities. Simply put, affordable and sustainable flood 
insurance is integral to ensuring that these communities 
continue their vital contributions to America. With this in 
mind, CSFI is focused on advocating for a better framework, 
recognizing the complexity but also the importance to America 
for getting it right.
    There are four primary areas in which we are advocating for 
this framework. We denote them by the acronym of AP, or MMAP.
    The first ``M'' is mitigation. The long-term solution to 
flood insurance absolutely lies in mitigation--reducing the 
risk of flood losses before a disaster occurs. This is clearly 
the best means of reducing economic loss and protecting 
taxpayer interests, and it is vastly preferable to ejecting 
households and businesses from NFIP via unaffordable flood 
insurance premiums.
    The second ``M'' is mapping. Enhancing the way we assess 
and communicate risk through improvements to the mapping 
process will protect communities and the NFIP over the long 
term. The more accurate information that we have, the better.
    The ``A'' is for affordability. Premiums must remain 
affordable in order to keep communities across America 
economically viable.
    And the final ``P'' is for program participation. Adopting 
policies that encourage more people to buy flood insurance will 
make both the program more financially sustainable and help 
communities recover more quickly after an unexpected event.
    Of note, last week, Senator Bill Cassidy and Senator 
Kirsten Gillibrand released a discussion draft that includes 
many of the provisions for which CSFI is advocating, and I 
strongly urge the Committee to give the legislation thoughtful 
consideration as we move toward reauthorization.
    In terms of mitigation, despite our current coordinated, 
multilayered approach to flood mitigation, substantial sums of 
taxpayer funds are appropriated each year in response to 
disaster damage caused by flooding. Aggressively addressing 
flood risks at the regional and community levels while 
providing homeowners options and resources to lower flood risks 
will save lives and properties and reduce flood damage, claims, 
and premiums. A policy that could be included would be 
redirecting premium insurance surcharges included in HFIAA 
actually toward mitigation in the first place. That could be 
$400 million annually for mitigation.
    In terms of mapping, accurate mapping is fundamental to 
assessing and communicating risk and pricing it appropriately. 
The current mapping process often results in communities having 
to fight inaccurate maps that do not take into account locally 
built protection features or building off inadequate mapping.
    So, for example, in the 2016 floods in Baton Rouge, 
Louisiana, over 80 percent of flood victims did not have flood 
insurance. I know it is easy for those of you not from 
Louisiana to question why they did not have flood insurance 
given what has occurred in Louisiana over the past 12 years. 
The answer is that many of those communities were not mapped 
into a flood zone or were only in optional purchase areas. More 
accurate mapping would have prevented this.
    In terms of affordability, this is the bedrock of our 
policy. When homeowners across the Nation face skyrocketing 
premiums, legislators reasserted the long-held view that 
premium affordability is fundamental. So in policies to 
maintain affordability, preserving grandfathering is most key.
    And then, finally, under program participation, we have to 
recognize that, unfortunately, NFIP participation is declining. 
According to FEMA, we have gone down from 5.7 million in 2009 
to only 5.1 million now, almost an 11-percent decline. A policy 
to potentially address this would be to offer a default opt-out 
flood policy as a standard part of the homeowners flood 
insurance package. NFIP could be directed to test offering 
consumers a default flood insurance option whereby homeowners 
would be required to actively decline, or opt out of, flood 
insurance coverage when they get their general homeowners 
insurance.
    Finally, we do think that the private market can play an 
important role in terms of bringing discipline into this 
market. We should just do it in a thoughtful and considerate 
way.
    In closing, four parts of MMAP: mitigation, mapping, 
affordability, and participation. I thank you for the 
opportunity to speak with you today about reauthorizing and 
reforming the National Flood Insurance Program and for your 
service to America. The Coalition for Sustainable Flood 
Insurance stands ready and willing to assist the Committee as 
we work to reauthorize by September 30th.
    Thank you, Chairman.
    Chairman Crapo. Thank you, Mr. Hecht.
    Mr. Larson.

 STATEMENT OF LARRY LARSON, DIRECTOR EMERITUS, ASSOCIATION OF 
                STATE FLOODPLAIN MANAGERS, INC.

    Mr. Larson. Thank you, Chairman Crapo, Ranking Member 
Brown, and the Committee, for holding this important hearing. I 
am Larry Larson, director emeritus of the ASFPM, whose 17,000 
members include many of the boots-on-the-ground State and local 
people who actually implement this program and working with 
their private sector partners.
    I will begin by emphasizing that the NFIP is not an 
insurance program. It is the Nation's major flood risk 
management program that happens to have four legs to it, and we 
have talked about those already this morning: mapping, 
floodplain management, flood mitigation, and flood insurance. 
All of those work together, and you cannot upset one without 
making sure the others are not adversely impacted.
    The program benefits not only policyholders but all 
taxpayers and communities. For example, building compliant with 
NFIP standards saves nearly $2 billion a year, most of which 
would be picked up in disaster relief by the Federal taxpayers. 
The 1.2 million miles of flood mapping in the country will 
allow not only policyholders but citizens, emergency managers, 
insurance agents, and the rest to have the information they 
need to take action to reduce that risk.
    The mitigation programs in the NFIP--Increased Cost of 
Compliance, part of the policy, and Flood Mitigation Assistance 
program are cost-effective, resulting in $5 saved for every $1 
invested. These programs have provided $1.3 billion in 
mitigation since 1997. They not only help individual property 
owners, but strengthen neighborhoods, communities, and reduce 
blight. And while the NFIP can always be improved, we do not 
believe it is broken, and it does not need massive reform, but 
it can use some reforms.
    We are pleased to see the bipartisan comprehensive NFIP 
reauthorization discussion draft from Senators Cassidy and 
Gillibrand that was previously mentioned. It has some good 
ideas that we would like to see pursued. At the same time, we 
are concerned about the 10-year reauthorization timeframe. We 
do not believe that it is appropriate, and I think Congress 
needs some more oversight during that period of time.
    Our written testimony today, while it covers 20 specific 
reform ideas, I am going to concentrate now on four of them.
    First is to deal with the debt, not only the current debt 
but the long-term solution to the debt. If the debt in Katrina 
had been resolved after Katrina, the NFIP would have been able 
to handle Sandy without additional borrowing. That is the 
reality.
    Second is to reaffirm your commitment to and enhance the 
Flood Mapping Program. The 2012 act had an excellent mapping 
section. I think Congress did a great job on that, and we need 
to continue and finish the job of mapping. Many maps in rural 
districts, for example, in your States have not even yet been 
developed. Only a third of the Nation's streams and coasts have 
been mapped. We need to get mapping ahead of development. If we 
do not get it ahead of development and development occurs 
without regulation, without guidance, then FEMA comes in and 
maps it, and then everybody gets upset. People not only are 
annoyed because they think they were put in a floodplain, which 
was always, of course, there, but now they have built too low 
and their flood insurance premiums are too high. So we need to 
get ahead of that development.
    Third is to strengthen the mitigation components of the 
NFIP. ICC has some existing authority in the law that is not 
being fully implemented. We think that that is important and 
that ICC must be available in addition to the basic policy 
beyond the limits.
    Finally, there are many interested in promoting private 
flood that we have heard about this morning. Congress must 
ensure the other three elements of the NFIP are not weakened 
and that the NFIP and private flood are on an equal footing. We 
can grow the policy base, but to do that, two critical reforms.
    First is the requirement that private flood policies must 
meet the mandatory purchase requirements of the NFIP and pay an 
equivalency fee because they use the maps and they use the data 
that are necessary. Currently, the fee pays for 100 percent of 
the floodplain management to help 22,000 communities, and it 
pays for roughly half on the flood mapping. For every million 
policies lost to the NFIP, the NFIP will lose $50 million to 
run the program. The policy fee is not a tax. It is a user fee, 
and we need to make sure that we understand that.
    Second is the requirement that private flood policies 
should only be sold in NFIP-participating communities so that 
we do not lose that policy base and the communities belonging 
to the program so we can guide future development in losses. We 
need to do that to make sure we do not increase future disaster 
costs.
    Thank you very much.
    Chairman Crapo. Thank you very much, Mr. Larson.
    I am going to switch places with Senator Scott on our list 
on the Republican side here and let him go first. He has got 
something he has got to get to right away. So, Senator Scott, 
please proceed.
    Senator Scott. Thank you, Mr. Chairman. And thank you, Mr. 
Chairman, for hosting this hearing that is very important to my 
State of South Carolina. I will tell you that I have spent 
about 15 years as an agency owner for Allstate writing flood 
insurance policies, responding to flood insurance claims, going 
to homes that have been flooded, and watching the families try 
to piece their lives back together.
    As a Senator in 2015, we had the 1,000-year flood in South 
Carolina that devastated so many families, and, unfortunately, 
as I was going door to door in Sumter, South Carolina, some of 
the folks did not have flood insurance. I would venture to say 
almost no one had flood insurance policies in Sumter, South 
Carolina, because they did not think they needed flood 
insurance policies because, based on the maps, they did not 
need flood insurance policies.
    This is very concerning to me as we want the NFIP to be 
there not only for South Carolina but for States all across the 
Nation. Mr. Hecht, you testified that all 50 States had 
experienced flooding. And if I heard you correctly, 40 percent 
of all those policies, so about 5.1 million policies in force, 
two out of five of all the policies written are in the State of 
Florida. That means that Florida and South Carolina and other 
States are disproportionately represented, along with North 
Carolina, but at the same time, in Louisiana, at the same time, 
when you circle those three or four States, you probably have 
75 to 85 percent of all the policies, which means that we are 
carrying a disproportionate burden on the flood issue, though 
the flood experience is nationwide.
    Did I understand that correctly?
    Mr. Hecht. Yes, Senator, that is correct, that the vast 
majority of the policies are in Louisiana and Florida and some 
parts of the east coast. But we do know now that we can 
experience flood across the country, and that really nowhere, 
even areas in the mountains, can experience flooding.
    Senator Scott. Does that not reinforce the necessity--and 
the panel can discuss this, if you would like--for nationwide 
mapping and for it to be as clear and accurate as possible?
    Mr. Hecht. Yes, sir, I would agree for nationwide mapping, 
and I think the issue of accuracy is critical. We want to know 
to as granular a level as possible, using new technology, the 
actual risk of actual individual properties.
    Senator Scott. Mr. Ellis.
    Mr. Ellis. Absolutely, Senator Scott. I think that we all 
agreed, I think, in our testimony that mapping is critical, and 
doing it nationally, and then also, as I cited, you know, 
leadership from States like North Carolina where they did LIDAR 
data down to higher-risk areas, that this is actually possible 
and it is actually reasonable pricing.
    Senator Scott. Yes, sir. Any comments, Mr. Larson, before I 
go on?
    Mr. Larson. Yes, I agree with you. Our mapping report 
indicates that the entire Nation should be mapped and can be 
for about $4 billion, what we have already spent for mapping, 
because we have a lot better technology, and LIDAR mapping will 
really make it accurate.
    Senator Scott. Thank you, sir.
    Another concern of mine is that everyone has talked about 
the importance of mitigation, and my understanding is that 
about 1 percent of the policies in the NFIP represent about 30 
percent of the claims, and that the repetitive loss 
conversation and issue, that some properties, those properties 
actually have had two or more claims in the last 10 years, and 
a part of mitigation should be considered as it relates to 
those policies that have loss after loss after loss and are 
rebuilding and rebuilding and rebuilding.
    I am not much for mandates, but is there any conversation 
about voluntary buybacks or something where we would eliminate 
that exposure?
    Mr. Hecht. Senator, I think that for some properties, that 
might be an appropriate conversation. For many others, it might 
simply be an issue of increasing the Increased Cost of 
Compliance coverage so that individuals do have adequate funds 
to raise their homes or otherwise mitigate and prevent future 
incidents.
    Senator Scott. Thank you.
    Mr. Larson. Increased Cost of Compliance is the most 
effective mitigation tool the NFIP has. It is there immediately 
for the property owner, and it helps them recover quickly, and 
we do need to expand it and use it broadly.
    Senator Scott. Mr. Chairman, I am running out of time, but 
I do want to submit a question for the record and perhaps get 
the answer later, because you have been very kind and gracious 
with your time. But I know in South Carolina there are parts of 
our State where zoning regulations have allowed for more 
construction that appears to have exacerbated the situation for 
homeowners where apartments have been built and the easements 
and the way that you design the drainage system, it drains down 
in the neighborhoods. I would love to hear your response to the 
need for us to coordinate with local officials to prevent and/
or absorb some of the costs associated with those changes in 
zoning that have an impact on others.
    Thank you.
    Chairman Crapo. Thank you. And to the witnesses, you can 
answer that question in writing afterward, and you probably 
will receive other questions from Senators that we will ask you 
at the conclusion of the hearing to respond to.
    Senator Scott. Thank you, Chairman.
    Chairman Crapo. Thank you, Senator.
    Senator Brown.
    Senator Brown. Thank you, Mr. Chairman.
    This is a question for all three of you, starting with Mr. 
Larson, and then Mr. Hecht and Mr. Ellis, if you would. Some 
have proposed means-tested subsidies like vouchers to help 
lower-income homeowners afford flood insurance. Starting with 
you, Mr. Larson, give us your thoughts on such an approach. If 
you support it, how do you think it should be structured and 
how would we administer it?
    Mr. Larson. We like that idea of low-cost loans for 
mitigating the properties. Rather than subsidized insurance, 
which goes on forever and ever, as you know, we have already 
done 48 years in the NFIP. If we help subsidize mitigation, 
then the property is safer; the property owner can afford the 
insurance, and the taxpayer helps pay off that loan in some 
ways. But then the process is over, and we do not have to keep 
going back and back.
    So I think it can work. It may have to happen outside the 
NFIP. But the process, as you know----
    Senator Brown. What do you mean outside----
    Mr. Larson. In other words, rather than cross-subsidizing 
that money out of the fund, flood insurance fund, it may need 
to be appropriated funding, because there are benefits to the 
taxpayer as well as the other policyholders.
    Senator Brown. OK. Mr. Hecht.
    Mr. Hecht. Senator, I do agree as well that since 
affordability is the fundamental issue, this is one way to get 
at that by helping low- and moderate-income individuals. We do 
not have a framework right now, and I apologize. We can come 
back with some thoughts on how to implement that. But I would 
like to emphasize what Mr. Larson said, and that is that to the 
degree that we can put funds into mitigation up front and 
outlay that expense today, we are going to save the need to 
subsidize down the road. Long-term mitigation is the solution 
for this challenge.
    Senator Brown. OK. Mr. Ellis.
    Mr. Ellis. Thank you, Senator Brown. We certainly agree, I 
mean, the best way to reduce rates is by reducing risk and make 
the insurance more affordable. That said, what we have 
supported and is in our policy proposal, both SmarterSafer and 
Taxpayers for Common Sense, is some means-tested assistance for 
homeowners that need it, and so we have done it at 80 percent 
of the median income, and basically our housing allies in the 
SmarterSafer Coalition have pointed to, you know, working 
with--being creative in setting up loan programs or using 
existing loan programs, for instance, with the FHA to help 
homeowners do their mitigation up front, and then also--but in 
some cases, we are going to have to provide subsidies.
    And the last thing I would say is what is really critical 
is to have that done outside the rate structure so that the 
rate is a risk indicator to people so that people need to know 
what their risk is, and the way you know that is if you see you 
have a high rate, you still may be paying less, but you 
actually have that risk communication factor. So we also would 
say that is critical, too, Senator.
    Senator Brown. How did you settle on the 80 percent of 
median income?
    Mr. Ellis. My understanding is that is the standard for a 
lot of the housing programs, as far as for low-income 
assistance, and so I really would rely on--we can get back to 
you on that more, but I would really rely on the National 
Housing Council Coalition, which is a member of SmarterSafer.
    Senator Brown. OK. Thank you. And also, for the whole 
panel, we hear about FEMA's existing Cooperating Technical 
Partners Program meant to increase local participation in the 
data-gathering and mapping process. Each of you in written 
testimony expressed the need to improve flood map accuracy and 
increase outreach to local communities in the mapping process. 
Mr. Larson especially talked about obviously the more and more 
useful technology.
    My questions are this: Has the Cooperating Technical 
Partners Program given communities sufficient opportunity to 
contribute data and knowledge of local conditions in the 
mapping process? And, second, are there ways that we could 
improve this to get the full benefit of the local expertise to 
build local capacity and limit expensive appeals? Mr. Ellis, do 
you want to start with that?
    Mr. Ellis. I have not been as much involved in the mapping 
process. We have made recommendations as far as improving it, 
and so as far as the communities, I think that Mr. Hecht and 
Mr. Larson would actually be better able to answer that 
question for you, sir.
    Senator Brown. Mr. Hecht.
    Mr. Hecht. Thank you, Senator. I think that the impulse to 
have locals provide more information is better because it will 
give us more data and also, of course, locals understand what 
their man-made and natural features are.
    The challenge that we see in southeast Louisiana is that 
those communities that have more funds and more bandwidth are 
able to do this. Those that simply do not have the funds or the 
manpower to do so simply do not. And so increasing their 
capacity through some type of grant or other funding mechanism 
might be a way to help increase the data coming from local 
counties.
    Mr. Larson. We strongly support the CTP program. Some 
communities, usually the ones that have capability, and States 
being CTPs know what is going on in their communities within 
their States. Having them help with the mapping programs makes 
for making sure everything is included up front, so we are not 
missing areas that are going to be developed tomorrow and all 
those sorts of things. CTP is a very good program that needs to 
be expanded.
    Senator Brown. Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    I will take my questioning period now. First I want to 
focus on prioritization. Between 2008 and 2012, our program, 
the NFIP, sought 17 short-term extensions and lapsed four times 
in 2010. That process was not healthy for policyholders or for 
the market. During this reauthorization effort, we must work 
together and deliver an on-time product.
    To each of you, I would like you to just respond on how we 
narrow the set of issues, if that is what becomes necessary, 
and deliver an on-time product. In other words, how would you 
balance between taxpayer protection reforms and affordability 
and mitigation reforms, balance or prioritize among them? Why 
don't we start with you, Mr. Ellis?
    Mr. Ellis. Thank you very much, Mr. Chairman. We certainly 
support and want to see the reauthorization done before 
September 30th of this year. But it is also very critical to 
get it right because it is likely to be a 5-year 
reauthorization, and so we are going to be stuck with that for 
that period of time.
    And so, as you listen to the panel, I think that we have 
highlighted areas of mapping, mitigation, affordability, but 
also continue to move toward risk-based rates, and then, last, 
private competition. So, for instance, the legislation that 
passed the House last year 419-0, we think that should be a 
critical part of it as well.
    Chairman Crapo. Thank you.
    Mr. Hecht.
    Mr. Hecht. Thank you, Senator. I do think that getting this 
done and continuing is critical. I will remind everybody as 
well that September 30th is the middle of the flood season, so 
that timing is very particular to those of us that are in those 
areas, and the market is looking for reassurances so that they 
can continue and homes can continue to close.
    In an attempt to try to get our arms around this to 
prioritize, we did come up with the acronym of MMAP, or AP. 
Within that, I would say that the ``A,'' the affordability, is 
kind of the fundamental bedrock of this program working going 
forward. That being said, long term, the first ``M,'' 
mitigation, is the way that we actually work our way out of 
this over time. And then within that, mapping using 
improvements in technology and participation, getting 
individuals who should have flood insurance to carry it, are 
incremental improvements we should try to make by September 
30th.
    Chairman Crapo. All right. Thank you.
    Mr. Larson.
    Mr. Larson. Yes, if we look at those four legs, I concur 
with much of what has been said. Mapping, let us get the 
mapping done. Let us get that mapping ahead of development, and 
that means let us invest in the mapping. We now have the 
technology to do that.
    Flood risk management, let us make sure all 22,000 
communities that are now in the program stay in the program and 
not drop out because, oh, they can go to the private sector and 
get their insurance.
    So then let us get on to mitigation, and I agree with what 
Mr. Hecht has said. That is how we work our way out of this 
affordability issue. So we have got to be able to help those 
who cannot make it, because most of the unaffordable stuff is 
properties that have been there for a long time, long before 
there was an NFIP. So we have got to help them get out of that 
process. So by doing that, I think we start on that process, 
and then we balance that, because that is how the taxpayer 
reduces their long-term cost. This program was created to 
reduce disaster costs. So those ties must be together.
    Chairman Crapo. Thank you. And, Mr. Larson, a consistent 
recommendation we hear from stakeholders is to modify mapping 
for better accuracy and risk assessment. We have heard it here 
today. Significant attention was given to mapping in the 2012 
and 2014 reforms, and FEMA is continually receiving feedback 
from the Technical Mapping Advisory Council. Is it a question 
now of simply providing adequate funding to get the job done? 
Or do we need additional reforms and improvement of the mapping 
programs?
    Mr. Larson. By and large, FEMA is now in a position to 
produce good, accurate maps. Technology has done that. LIDAR is 
a big issue. So funding LIDAR and getting that completed for 
the Nation through USGS--they are doing a fabulous job, but 
that needs about 8 year's worth of funding for that digital 
elevation program.
    The technology in hydrology and hydraulics is there. 
Remember, in your 2012 act, you said, FEMA, you need to make 
sure you take into account future conditions. So that has not 
yet been incorporated, but needs to be--sea level rise, for 
example.
    Chairman Crapo. All right. Thank you very much.
    And one last question. It is no secret that the NFIP is in 
poor financial condition. Mr. Wright testified in our last 
flood insurance hearing that there is no practical way for FEMA 
to repay the $24.6 billion in debt that they have amassed. Some 
of you have talked about in your testimony the structural 
challenges the program still faces. Mr. Ellis, can you 
provide--and I am just about out of time, so very quickly, 
please--additional details on your top two priorities to 
strengthen taxpayer protections in the program?
    Mr. Ellis. Well, certainly it is to continue the movement 
toward risk-based rates and to actually only provide subsidies 
to those who actually need it, and then funding mitigation. So 
those would be the top priorities.
    Chairman Crapo. All right. Thank you.
    Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman. Thanks to the 
panel. I am glad we are still focusing on this issue on behalf 
of the Committee. I appreciate the Committee's leadership in 
this regard.
    In the aftermath of Superstorm Sandy, we experienced the 
best and the worst of the National Flood Insurance Program--
painful frustrations, endless delays, in some cases outright 
fraud on behalf of private contractors of FEMA.
    Now, many have said that we should eliminate the NFIP and 
simply leave homeowners and communities at the mercy of private 
insurance companies. I think property values would drop, 
causing a housing crisis, housing stock that is coming back. So 
while some might think privatizing the program is a simple 
solution, the truth is far more complicated and dangerous.
    Mr. Larson, what would be the impact on rates, 
accessibility, and community resiliency if the NFIP was 
eliminated?
    Mr. Larson. Well, it would be dramatic, not only for the 
real estate industry but for the people involved. So I do not 
think--we need to go much further to incorporate the private 
sector. In the end, someday we may want community-based 
insurance where the communities do the right things in order to 
keep their insurance rates down, tying those things together. 
But in the meantime, we have got to make slow transitions 
toward that and making sure we do not lose the NFIP along the 
way, and those other key three legs. It is important to do 
that. You cannot just eliminate the NFIP.
    Senator Menendez. So when we talk about the financial state 
of the program, much has been made of the debt largely occurred 
as a result of failures of flood levees by the Army Corps of 
Engineers in Louisiana in Hurricane Katrina. It is about $12 
billion. And some have argued that premiums should be increased 
dramatically to get the program back on sound financial 
footing.
    I for one think the rates are already incredibly high for 
so many families, and instead of continuing to ask them to pay 
more, we should do better to control costs and make the program 
run more efficiently.
    One of the biggest costs to the program is fees paid to 
private insurance companies to service policies and adjust 
losses. In fact, approximately one-third of all premiums goes 
to these private insurance companies and their vendors, with 
that number reaching 42 percent after Sandy. And what makes 
this number even more egregious is the fact that these 
insurance companies do not bear any risk. The NFIP covers all 
losses and insurance companies profit risk-free.
    In fact, the GAO has found repeatedly that FEMA does not 
know the actual costs of their contractors, nor how much profit 
they are bringing in. As the report said last December, I 
quote, ``FEMA continues to lack the information it needs to 
determine whether its compensation payments are appropriate and 
how much profit is included in what it pays Write Your Own 
companies.''
    So it is no surprise then that policyholders as a whole are 
paying over 50 percent more for private insurance companies to 
administer policies than for FEMA to do it themselves.
    So, Mr. Hecht, are homeowners getting their money's worth 
with private insurance companies serving the NFIP?
    Mr. Hecht. Thank you, Senator, for that question. I think 
that there is a lot of complexity to this that has to be looked 
at. If you look at the commissions that the Write Your Owns are 
getting, the largest percentage of that I think is what is 
getting paid to the individual agents, in some cases upwards of 
20 percent. And the question is: Is that the appropriate 
amount?
    Another question is: Should you get paid the same amount 
for writing a policy as you get for simply renewing it year 
after year?
    We should also consider about whether as premiums go up, 
maybe the percentage should go down because you are doing the 
same work, but you are getting more funds.
    And then, finally, on the flip side, I think there is a 
consideration to can we do things to actually reduce the 
complexity of the program itself so that the administration of 
it in the field requires less steps and is inherently less 
expensive. A lot of ways to take a bite of this apple.
    Senator Menendez. When you have no liability and all the 
upside, you know, that is--we would all like to have that 
business. But it is also challenging to me when we talk about 
increasingly moving to a more private-sector based insurance 
that at the end of the day, what happens when you get companies 
that will cherry-pick the properties that are the least 
possible loss consequence and then what is left.
    I just do not know how we ask homeowners to pay higher 
premiums to cover $400 million per year in interest payments to 
ourselves, to the Federal Government, mostly because of that 
levee failure in Louisiana. That is pretty crazy.
    And a final point. We need to do, I would say, Mr. 
Chairman, a lot more on mitigation. If we look at what we 
spend, we spent $277 billion on disaster assistance from 2005 
to 2014, with FEMA only designating a mere $600 million to its 
pre-disaster mitigation program. That is 461 times more money 
that we spent on recovery from a flood than mitigating against 
one. And I think we need to be looking at that mitigation 
element significantly as part of controlling costs, and I 
appreciate the Chair's attention.
    Chairman Crapo. Thank you, Senator Menendez. We appreciate 
your interest and help on this.
    Senator Rounds.
    Senator Rounds. Thank you, Mr. Chairman.
    First of all, I think there is a real need for the 
nationwide mapping to be expedited and then maintained. In my 
former life, I was a insurance agent. We had an insurance 
agency with multiple locations around the State of South 
Dakota, and we were one of the agencies that actually sold the 
Write Your Own products, I believe, through separate carriers, 
and it truly simplified the process of being able to assist our 
clients, our customers, who were writing homeowner policies.
    I am just curious because it seems to me that--and I should 
also say this: I am also a recipient of a flood insurance 
policy. I have a flood insurance policy that I purchased on a 
home in 2011, and I continue it in effect. And in doing so, I 
kind of learned a little bit more about the program than what I 
really wanted to at one point, and I can tell you that while I 
have never had a loss on a homeowner's policy, I thought I was 
going to with regard to the National Flood Insurance Program.
    There is a provision, and particularly with those in the 
areas that have been identified as having a lower risk than 
other areas--and I am going to lay this out, and maybe you can 
look at this. But in a Category A situation, as an example, you 
can buy a quarter-million dollars of insurance coverage for 
flood for about $300 a year, with about a $5,000 deductible, or 
something like that, if my memory serves me correct. And yet a 
lot of homes today, particularly newer homes going up, easily 
exceed $250,000 in value.
    One of the rules that any insurance underwriter will tell 
you is that you insure to value or you have a coinsurance 
clause of some sort placed on the policy, because if you do 
not, regardless of which part of the risk is lost, the company 
actually pays from dollar one or after a deductible.
    So you could have a half-million-dollar home sitting in a 
fairly protected class that still buys flood insurance, but you 
have committed yourself, when you buy or sell a quarter-
million-dollar policy, that you are going to pick up the first 
quarter-million dollars in losses.
    There is no insurance company out there that does that on 
any other type of a risk. Every underwriter out there 
understands that if you want more premium dollars, 
particularly, as I call it, ``healthy premium dollars,'' you 
allow the value in those areas, in those areas which are 
actually healthy premium dollars, profitable premium dollars, 
to go up.
    I think one of the simple ways to actually bring more 
premium dollars into the program is to invite higher limits to 
be sold in some of those areas. You are going to pick up the 
first quarter-million no matter what, and yet you ought to be 
able to collect premium dollars on closer to the full value of 
a home.
    This was first done, these numbers, a quarter-million, was 
put in in 1984. Even at 2 percent, you should easily be at 
$400,000 as an upper limit. And, remember, you are going to pay 
the first quarter-million no matter what you do today. So why 
not collect the premium dollars based upon more dollars 
actually at risk, but with a higher percentage of not having to 
pay anything out, if you follow me.
    And then along with that, it seems to me that--and I would 
like your thoughts on that, but along with that, it seems to me 
that we ought to be making it easier for the rest of those 
private carriers out there to write a flood insurance, 
particularly in those areas that have a lower risk across the 
country, every homeowner policy, whether it is a special form 
or a broad form policy--most of them write a special form 
today--all have an exclusion for flood insurance--or flood. But 
if there was a provision to allow for an add-on feature in 
those areas that have the least amount of risk but for people 
that want to be risk averse to buy that product as a part of a 
homeowner's policy as an add-on, it seems to me that we could 
add a lot of, once again, healthy premium dollars back into the 
mix to help offset the losses in those higher-risk areas. And I 
would like your thoughts on that, if you could. And, once 
again, I have used up most of my time making a statement, but I 
would like that. And if we run out of time, I will ask it for 
the record.
    Mr. Ellis. Thank you, Senator Rounds. We do not support 
expanding the program. The private sector is there. There are 
private sector alternatives to add on to carry that extra 
dollar. I understand your point, but from our perspective, it 
is better to limit the risk to the taxpayers.
    And then on your second point, just trying to be brief, we 
definitely think that there should be the ability to do add-ons 
to the policy. But we also think that the private sector can 
write in a lot of these areas, both the high-risk areas and the 
lower-risk areas.
    Mr. Hecht. Thank you, Senator. I actually agree with your 
point, spoken like somebody with years of experience in the 
industry. I believe that the Cassidy-Gillibrand bill does 
actually double potential coverage to $500,000 for homes and $1 
million for business.
    And then to your second point, the idea that we are 
exploring this, could you have actually an opt-out that is 
there by default when you are closing on your home as part of 
your homeowner's insurance that many people would simply opt in 
by default to carrying flood as part of their overall policy? 
Maybe you could modify RESPA to make that happen.
    Mr. Larson. I agree on the caps, increasing the limit. 
Private insurance is already being sold by numerous companies, 
so I am a little confused about why we need to open up the 
market more. It is already happening.
    Senator Rounds. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. I thank all of 
you for your testimony today.
    I want to dig a little deeper into the issue of the flood 
maps and the accuracy of the flood maps. As I understand it, a 
few years ago there was an Executive order from the Obama White 
House that requires FEMA to take into account the impact of 
climate change in projecting flooding. Is that the case? Mr. 
Larson.
    Mr. Larson. Well, all the agencies, it was said in your 
decision-making process try to include climate change in that 
Executive order. It was also in BW-12 that essentially said you 
need to look at future conditions when you are doing the 
mapping.
    Senator Van Hollen. Right. And so, in your opinion, are we 
adequately taking into account all those future conditions, 
including sea level rise at this point in time?
    Mr. Larson. As you know, the maps that were done, for 
example, after Sandy still do not include sea level rise. FEMA 
has not yet been able to incorporate those issues. There are 
some steps that need to happen. We also, in terms of climate, 
need to have some agreement across the Federal agencies and the 
experts upon what--you know, are you going to use this number, 
this number, or this--you know, we need to have some agreement 
on that process.
    Senator Van Hollen. In terms of the level of sea level rise 
projected?
    Mr. Larson. Correct, for example.
    Senator Van Hollen. And do you know of any process ongoing 
now that would do that? After all, President Trump recently 
eliminated an Executive order from the previous Administration 
that was supposed to look at mitigating the impact of climate 
change. I do not know if that is impacting this program at all 
at this point.
    Mr. Larson. I think at this point we need to get the 
processes into place, and that really has not started yet. I do 
not know that it will be----
    Senator Van Hollen. So let me just ask, because this is 
obviously--as you pointed out, adequately projecting for the 
impact of sea level rise is directly related to, you know, the 
accuracy of the mapping. So do you have any recommendations as 
to what needs to be done in order to do this and do it as fast 
as we need to do it?
    Mr. Larson. I think the agencies--the Corps of Engineers, 
FEMA, USGS--those technical agencies can get together and 
agree. What are going to use for sea level projections? Are we 
going to use the upper-middle? Are we going to pick the middle? 
What is the appropriate one? They agree on it, we all start to 
use that. Same thing with increased intensity of storms. As we 
know, storm intensity has gone up 45 percent in some areas, 60 
percent in others, in the Northeast. So we need to have some 
agreement on the process we are going to use and the 
appropriate hydrology we are going to use for those. And it is 
broad across-the-board increases amongst the players involved.
    Senator Van Hollen. I do not know if any of the other 
witnesses have----
    Mr. Hecht. Well, I would just add one kind of corollary 
point to this, Senator, that we also need to allow for partial 
mapping. We need to allow counties, or parishes in our case, to 
adopt parts of the map that they think do reflect current and 
future conditions while they still work on the others. I think 
more granularity as well as better projections will give us 
better mapping over time.
    Senator Van Hollen. Mr. Ellis.
    Mr. Ellis. We certainly agree, Senator Van Hollen, on the 
granularity, and then also about really trying to adjust to 
where the maps are not just a static line on a piece of paper 
or a digital line, but actually risk assessment and getting 
more toward that characterization, which is what we have 
testified on.
    Senator Van Hollen. Right, and I think especially in 
Louisiana and other places, we have seen dramatic flooding 
outside--you know, more than the 100-year flood projections 
would suggest, especially with these heavy-rain downfalls.
    Let me ask you all a question. The Trump administration's 
skinny budget that was submitted calls for a $190 million cut 
to the appropriation for mapping of NFIP programs. Can you all 
let us know what impact that would have on our ability to do 
what all of you gentlemen are talking about the need to move 
forward?
    Mr. Larson. Well, essentially what is happening is that 
appropriated money is kind of what is paying for new maps. The 
fee income that is coming in kind of keeps the program running 
and works with the communities and the maps. So appropriated 
money is really needed to get mapping done in the Nation. That 
is why we support the Cassidy-Gillibrand that says let us do 
$500 million a year for 10 years and get the mapping done for 
the entire Nation and get ahead of that development.
    Mr. Ellis. Senator Van Hollen, I will just add that I think 
in the skinny budget it failed to recognize--I mean, they claim 
that it was because all the costs should be internalized to the 
program and failed to recognize the benefit to communities and 
to outside that are not necessarily in the program, but knowing 
what the flood zones are, whether you are going to place a 
hospital, and knowing that you do not want to put that in a 
special flood hazard area or other infrastructure. And so there 
is greater benefit than just to the people who are paying NFIP 
policies.
    Senator Van Hollen. I appreciate it. Thank you. Thank you 
all.
    Chairman Crapo. Thank you.
    Senator Tillis.
    Senator Tillis. Thank you, Mr. Chair. Gentlemen, thank you 
for being here. I am from North Carolina and proud to have 
been, as part of the State legislature, on the forefront of 
getting funding to advance mapping in the State, and hopefully 
we can make progress on a national basis.
    Mr. Hecht, you made a comment that I want to go back, and 
some of my questions are in line with Senator Menendez's. If 
you accept that half of the $24 billion debt right now is 
related to the events from Katrina and Rita, then the other $12 
billion may speak to some of the business practices that we 
need to take a look at compensation structures for the Write 
Your Own, for the insurance companies that are working in the 
program.
    Do you feel like we have adequate controls, or do you feel 
like that at least our relationship with these third parties is 
similar to the kinds of relationships other insurers have with 
third parties in terms of compensation models and reimbursement 
models? I will start with you, but anybody who would like to 
opine on it.
    Mr. Hecht. Thank you, Senator. I think it is clear that we 
need more information and better data and comparisons to the 
private sector in this. We do not get from the GAO and others 
enough data to understand really the fidelity of that 
relationship.
    Senator Tillis. The sort of fundamental process, as you 
alluded to, in terms of compensation structures, sound like 
they were maybe circa 1970s compensation structures. Mr. Ellis.
    Mr. Ellis. Senator Tillis, certainly we agree that we need 
to have more data and we need to be able to compare to the 
private sector. I would also--and make sure that we are in 
alignment and recognizing the amount of risk, or not risk, that 
these companies are taking on. And I am speaking for Taxpayers 
for Common Sense here.
    But, also, you know, I think that Senator Menendez's 
argument also makes the case for more private sector 
involvement in flood insurance. I mean, then you do not have 
the Government making some of these decisions about what are 
the compensation structures, what is this? It is actually a 
competitive marketplace, and companies are going to pay their 
agents what is going to get them to be able to sell more 
policies.
    Senator Tillis. I would tend to agree with that.
    I want to move on to something else and stay within time, 
and that is the ICC program. I have received a fair amount of 
feedback from various governmental agencies that feel like they 
would like to see some changes that really allow for more 
demolition and acquisition, and we have actually proposed to 
the Banking Committee a few things, one having to do with claim 
limits, and I was just trying to go through some of the major 
provisions, raising--the claim limits should be raised to at 
least 60,000. I will not get into the specifics of the 
provisions.
    But what they are saying is we would like to actually 
acquire property, demolish buildings, remove the threat. Do you 
all generally think the changes to the ICC program that would 
lead to that end are something we should consider? Mr. Larson.
    Mr. Larson. I think definitely the ICC should be moving in 
that direction. We have communities in Charlotte-Mecklenburg 
that are trying to use ICC for those purposes, and it is----
    Senator Tillis. I live in Mecklenburg.
    Mr. Larson. Yes, right. And so the ICC can be that tool, 
but it needs to be opened up to allow the tool to be used.
    Senator Tillis. Yes, and I think we need it to be more 
agile. One thing that we have suggested is waiving rulemaking 
requirements so that it could be--remove impediments, 
basically, to making ICC changes so that we could act more 
swiftly.
    Mr. Hecht.
    Mr. Hecht. I agree as well. Mr. Larson made a subtle but 
very important point up front, which is that the National Flood 
Insurance Program is not really an insurance program. It is a 
land-use policy. I think as part of that, we should be smart 
about how we manage our lands and our building going forward.
    Senator Tillis. You see that in Mecklenburg County, down in 
Fayetteville, which was hard hit by Matthew. There are a number 
of instances where, if we reform this program, we can remove 
the future threat in flood-prone areas, and that is why I am 
hoping the Committee will indulge us on some of the suggestions 
that we have made for the program changes.
    Also, with respect to mapping, you said something 
important, and that is having the level of granularity so that 
you can really rate for the risk. When I first moved to North 
Carolina in 1998, I bought a house on Lake Norman, and I had to 
get flood insurance. Now, my physical structure was 12 feet 
above a 1-mile dam down the river on Lake Norman, and there was 
maybe about a 10-square-foot part of my beach that was in the 
floodplain, and I had to get insurance. So that is actually an 
area where perhaps I did not--or if I had to get it, it should 
not be at the level that others that are sitting at the level 
of the dam. And I think that granularity with mapping is the 
way that we get through those disparities.
    Mr. Hecht. As well, Senator, with structures and the type 
of structure and whether it is integral to your primary 
residence.
    Senator Tillis. Yeah, so if there is no structure there----
    Mr. Larson. And the new mapping does that. LIDAR will do 
that. It will get that granularity.
    Senator Tillis. It may have been one of the reasons why I 
supported the funding at the State level.
    [Laughter.]
    Senator Tillis. Thank you, Mr. Chair.
    Chairman Crapo. Thank you.
    Senator Tester.
    Senator Tester. Yes, thank you, Mr. Chairman. Thank you for 
having this hearing.
    I have just got a couple questions, and this is for you, 
Mr. Ellis. You spoke of the bill that Senator Heller and I 
have. I just want to get your perspective on if you believe 
Congress should pass a multiyear authorization. And if that 
reauthorization were to pass, would that help us build out a 
private insurance program, working in tandem with NFIP, or 
would it not?
    Mr. Ellis. I certainly think that it would help build out a 
private insurance program, and your legislation, which we 
strongly support, simply clarifies something that was already 
in Biggert-Waters that said that you can have a private flood 
policy to meet the mandatory purchase requirement.
    And then, second--and I think this is really important--it 
does have the provision about that you can go back and forth 
from NFIP to the private sector back to NFIP without losing any 
grandfathering or anything else like that.
    And then, last, it is important that it puts it into the 
insurance commissioners--the State insurance commissioners are 
the ones who will be regulating it.
    Senator Tester. So we have got two different lines to go on 
this. The first one is I think there is some heartburn with our 
bill or with the private insurance that if the event comes, the 
insurance will not be there to the degree that they need it. 
Could you talk about that and how we can ensure that the 
private insurance would be just as good as any other insurance 
that is out there?
    Mr. Ellis. Well, that is certainly going to be the job of 
the State insurance regulators, making sure that policyholders 
are not being duped or are getting a bad product.
    And then the other thing, I think--and this kind of came up 
when I was talking about having sort of a policy rider added 
on. Senator Rounds was talking about this. You know, the more 
we make flood insurance to be a normal insurance product, 
something that people just get or their insurance agent asks 
them, ``Do you want this?'' we are going to get more people 
covered. I mean, right now we already have a problem with 
adverse selection. The only people buying flood insurance are 
the people who are the most likely to need it. We should see 
more people buying flood insurance, as Senator Scott mentioned 
about the people in South Carolina, how so many of them did not 
have flood insurance, and that is the real tragedy. And it was 
pointed out by FEMA in previous testimony that in the flooding 
that happened in Louisiana a year or so ago, the average NFIP 
payment was about $87,000. If you did not have flood insurance, 
you got about $9,000 in disaster assistance. And so that is a 
real problem, and so we want to see more and more people buying 
flood insurance.
    Senator Tester. OK. So has anybody done any actuarials on 
if private insurance competition would help bring down the 
rates?
    Mr. Ellis. Certainly it seems--you know, the only reason 
why you would go to a private sector policy over an NFIP policy 
is if you got a better rate or a better policy or both. And so 
certainly that is what we are seeing, and we have seen--you 
know, as I mentioned in my testimony, there are about 20 
companies writing private flood insurance in Florida, where 
there is 40 percent of the NFIP policies. And so, clearly, 
there is some interest because somebody is buying those 
policies.
    Senator Tester. One last question, and any of you can 
respond to these, by the way. I am picking on Mr. Ellis, but it 
does not necessarily have to be that way.
    There are some that will say if the private insurers get in 
the market, they will cherry-pick the policies that have less 
potential for a claim, and it will leave the National Flood 
Insurance Program with only the policies that have the most 
likelihood of flooding. Could you respond to that?
    Mr. Ellis. Well, the Reinsurance Association of America, 
their analysis--and we are trying to look at this as an analog 
of the Florida windstorm insurance and the depopulation of that 
where they had the private sector come in and take out 
policies, about two-thirds of the policies out of the program. 
We found that they took policies from coastal areas, from all 
over the place. And then, second, the flood insurance companies 
that are writing in Florida, more than half of them are writing 
in the V zones, so in the higher-risk areas. So, clearly, there 
is an appetite for risk.
    And that gets to the last point, which is if you are an 
insurance company, if you do not take on risk, you are not 
going to make money. And so, clearly, that is part of the 
incentive, because a lot of the flooding--and FEMA will tell 
you this--occurs outside of the high-risk areas. So you are 
writing a lower insurance rate policy, but you are still going 
to have to pay claims. So you want to get a higher rate of 
return by writing higher-risk policies.
    Senator Tester. OK. And so we have--and I live on the 
Northern Plains, OK? So flooding is not something that we have 
much of--not that it could not change with climate change. But 
we have a situation where storms are happening in places they 
have not happened before, and then flood insurance is like, for 
instance, crop hail insurance, if you do not get hailstorms 
very often, you pay a pretty low rate. I would imagine it is 
the same thing for flood insurance.
    What do you say for those companies that may be insuring in 
places where the flood is very unlikely, but it seems like 
those unlikely events are happening with more regularity, 100-
year events are happening with more regularity?
    Mr. Larson. Well, we see more of that happening all the 
time. Storm intensity is happening. I mean, we call things ``a 
1,000-year flood.'' Well, it is not a 1,000-year flood at all. 
It may be a 1,000-year rainfall, but not a flood. So we will 
see companies dealing--the advantage of private is adding to 
the base. As long as we do it in a way that does not upset the 
four legs of the NFIP and pulls it out so that communities 
start dropping out of the NFIP, because if they do that, we 
will not be guiding future development, and that needs to 
happen in a balanced fashion.
    Senator Tester. Well, I just want to thank you all for your 
testimony and appreciate your answers.
    Chairman Crapo. Thank you.
    Senator Kennedy.
    Senator Kennedy. Thank you, Mr. Chairman. I want to thank 
all three of you gentlemen. I have learned a lot listening to 
you today. I especially want to thank Mr. Hecht. He has become 
an expert the Flood Insurance Program and is recognized as such 
in my State, and I think here in Washington, DC.
    Mr. Ellis, let me ask you, I will start with you, if I 
could. As I appreciate it, you want to give more authority to 
the State insurance commissioners?
    Mr. Ellis. We want to, in the Heller-Tester bill, 
essentially have them be the regulators of the private 
insurance market. Yes, sir.
    Senator Kennedy. OK. They have done a good job with health 
insurance. In my State--I cannot speak for other States, but in 
my State, the main job of our insurance commissioner is to hold 
fundraisers with the insurance industry. I am just going to be 
blunt.
    Mr. Ellis. Well, I can say, Senator, you know, earlier 
Senator Menendez talked about the experience of his 
constituents dealing with FEMA and the Write Your Owns, and in 
that case, they would have been able to go to the State 
insurance commissioner to hold those companies to account, 
which was not happening with FEMA, sir.
    Senator Kennedy. Right.
    Mr. Larson. I would like to remind people that the fraud 
that happened in Sandy was done by the private sector. It was 
not FEMA changing the reports. So is there--the concern with 
this will upset the national program by not looking at how this 
will apply to four legs of a stool. So insurance commissioners 
in all 50 States will now treat it differently? That is a 
little concerning.
    Senator Kennedy. Yeah, if they will do their job, and if 
they are willing to make the insurance industry mad sometimes.
    How much do you think, gentlemen, we could knock that $25 
billion debt down if we stopped paying interest to ourselves?
    Mr. Hecht. Senator, I think that the amount is about $400 
million a year of that interest that could get applied to that, 
or we could apply it toward mitigation to make the program more 
sound over time. What we are doing right now, taking it out of 
one pocket and putting it in the other, does not seem to be 
serving anybody best interests over the long term.
    Senator Kennedy. And that $25 billion, it is not like we 
went down to the local bank and borrowed $25 billion and we 
have got to pay interest. We are paying interest to ourselves, 
right?
    Mr. Larson. About $4 billion so far, and like I say, if the 
debt after Katrina would have been forgiven, the NFIP could 
have handled Sandy without additional borrowing.
    Mr. Ellis. I would just flag, Senator, that is how 
intergovernmental debt is treated across the board, including 
things like Social Security and other areas.
    Now, if we wanted to talk about not paying interest, I 
would certainly entertain that at Taxpayers for Common Sense. 
But I just want to flag that is the standard for how Government 
operates.
    Senator Kennedy. OK. And, Mr. Ellis, I am not disagreeing 
with you. You make really good points. I am all for--I mean, I 
am a taxpayer, and I believe in common sense, too. So I am with 
you.
    [Laughter.]
    Mr. Ellis. I appreciate that, Senator.
    Senator Kennedy. If you do not mind me asking, where do you 
live?
    Mr. Ellis. I live in DC.
    Senator Kennedy. OK. Do you carry flood insurance?
    Mr. Ellis. No. I rent a condo, and so I am well above----
    Senator Kennedy. OK. Well, let me tell you part of the 
problem. I am going to make a----
    Mr. Ellis. One thing I would just add, sir, is that I was 
an officer in the Coast Guard, and so I have definitely dealt 
with flooding and those issues. And so I understand that.
    Senator Kennedy. I did not mean to insinuate you are not--
please, that is not what I meant.
    Let me make a prediction on your condo, OK? You get 26 
inches of rain in 2 days, you are going to flood. You are not 
in a floodplain. You live on Mount Everest, you get 26 inches 
of rain in 2 days, you are going to flood. And that is what 
makes this whole situation difficult.
    But in my State, I will tell you what the--it does not do 
any good to give people insurance if they cannot afford it. We 
tried that with the Affordable Care Act. It did not work. So 
you have got to start with affordability, and there is nothing 
wrong with starting with affordability.
    I want to ask Mr. Hecht a question. Can you explain what 
would happen in Louisiana, Mr. Hecht, if--we have got over 
100,000 policyholders. What would happen if the lower-risk 
policies were moved to private insurers and the commercial 
properties were exempted? What do you think would happen?
    Mr. Hecht. We would see slowly the decimation of our 
coastal communities.
    Senator Kennedy. Kind of like with Biggert-Waters.
    Mr. Hecht. What we began to see was a spiraling where 
people could not afford their homes. They were going to walk 
away from them. That was going to impact the banks. That would 
then impact the tax base. It is a cascading effect, sir.
    Senator Kennedy. Look, I think everybody was well 
intentioned with Biggert-Waters. But 150 years ago, doctors 
used to believe their patients with the best of intentions. If 
it killed their patients, they stopped doing it. So it is 
really easy to talk about risk-adjusted rates, but we do not 
live in ``La La Land.'' That is a movie.
    Mr. Ellis. I would just add, Senator, we have talked about 
affordability, and affordability is part of our proposal. We 
want to make sure that people are able to have flood insurance, 
and we would like to see more Americans carry flood insurance.
    Senator Kennedy. You ought to buy some.
    Mr. Ellis. Thank you very much, Senator.
    [Laughter.]
    Senator Kennedy. Thank you, Mr. Chairman.
    Chairman Crapo. Thank you, Senator.
    Senator Reed.
    Senator Reed. Well, thank you very much, Mr. Chairman, and 
thank you, gentlemen. I apologize. I have a simultaneous 
hearing in Armed Services, so I could not be here for the 
entire testimony.
    Mr. Larson and Mr. Hecht, the Flood Insurance Program does 
much more than just provide flood insurance. It provides flood 
assistance, flood mapping. It provides mitigation assistance, 
outreach, oversight. If we go more toward a private marketplace 
of flood insurers, can you comment on or suggest actions we can 
take to maintain these other aspects of the Flood Insurance 
Program? Mr. Hecht, please.
    Mr. Hecht. I apologize. Could you repeat the beginning of 
the question? I was talking to the Senator as you--I apologize.
    [Laughter.]
    Senator Reed. Let me repeat it. The Flood Insurance Program 
provides much more than simply reimbursement to people who 
suffer damage: flood mapping, mitigation, a whole host of 
issues that are critical to communities and critical to 
resiliency. If there is a more pronounced private insurance 
aspect, how do we in Congress maintain those activities for the 
National Flood Program? Do you have any ideas or suggestions?
    Mr. Hecht. I think it is a critical point that we 
understand that those structures remain in place and that FEMA 
is mandated and is funded to do so, mapping and mitigation, 
again, being the two key things that over time are going to 
reduce the risk for the entire system. And so I do think it is 
critical that we do not simply say we are going to leave this 
to the private sector, that we go toward a hybrid model that 
increases competition and the discipline of the program, but 
does not abandon those pillars of long-term sustainability.
    Senator Reed. Mr. Larson, please.
    Mr. Larson. Yes, you know, some of the private sector 
insurance industry is saying, well, there should not be a 
policy fee on the private sector, and that the taxpayers should 
fund that through appropriations. My answer to them is as soon 
as you get Congress to appropriate $250 million to take care of 
those other activities, we will get rid of the policy fee. But 
unless we have a level playing field, the whole house of cards 
comes down.
    Senator Reed. Thank you.
    Mr. Ellis, you are looking at a private sector that you 
would and I think we would all suggest has more flexibility. Do 
you think we should give the NFIP more flexibility in terms of 
insurance, what they can do so they can be more competitive 
with the private sector, so that people really do have choices?
    Mr. Ellis. I think that there is, Senator, problems and 
challenges within the NFIP, and it is a program that exists--I 
do not think that exists to provide flood insurance to people, 
but I think that expanding it and trying to compete with the 
private sector, it kind of gets away from what the initial 
intent was. Basically, the reason why we created NFIP in 1968 
or Congress created NFIP in 1968 was because of the failure in 
the private marketplace. The private marketplace now wants to 
write flood, so why are we trying to crowd them out or 
outcompete them with the NFIP program?
    Senator Reed. Well, they want to write private flood 
insurance if they can make money on it. But as 1968 suggested, 
there are many parts of the country and areas where they do not 
think they can make money, and then that leaves not an 
opportunity but, I would argue, an obligation for us to step 
in.
    One of the issues, too, you know, you have pointed out how 
in Florida, for example, there is a very active private market. 
Coming from a coastal State, the Ocean State, I have noticed 
that a lot of the homes around the coast are quite expensive, 
and I believe there are limits on what the NFIP can write. I 
think it is $250,000 for the structure, $100,000 for contents. 
So, frankly, a lot of the private sort of flood insurance are 
necessitated because the value of the home is way beyond what 
could be done. So, you know, that is where I think the private 
insurers are coming in, and they are doing very well because 
they can charge rates to those homeowners that are, you know, 
cost-effective for them.
    Mr. Ellis. But they are actually doing first dollar 
insurance in Florida, Senator, and we assume--and part of it is 
because just like NFIP reflects, 40 percent of NFIP is in 
Florida because that is--I mean, as much as it is the Ocean 
State in Rhode Island, you know, there is a lot more----
    Senator Reed. But, again, I think when we look at this 
private participation, some of it is as a result of very 
expensive real estate located--and it is not just Rhode Island. 
It is the gold coast of Florida and other places where the NFIP 
program, if it would be taken up by these--but they are too 
expensive, the homes.
    So, again, I want to thank you gentlemen for your testimony 
and for what you have been doing to help us go through this and 
think about it. Thank you.
    Chairman Crapo. Thank you, Senator Reed.
    Senator Warren.
    Senator Warren. Thank you, Mr. Chairman.
    So Congress enacted the Biggert-Waters Flood Insurance 
Program Reform Act to make the National Flood Insurance Program 
more financially sound and to accurately reflect the true cost 
of flood insurance.
    Now, as part of the plan to achieve those goals, right now 
some Senators want to dramatically increase the number of 
private policies. And I am not against private sector 
insurance, but there would be real costs to simply turning over 
the Federal program to the private sector.
    The NFIP has a four-pronged comprehensive flood risk 
reduction program that is comprised of insurance, flood 
mapping, floodplain management, and flood mitigation. And these 
four missions, each of them is critical to reducing the impact 
of dangerous floods. And each is funded, at least in part, by 
user fees and surcharges added to the Federal premium.
    So private insurance companies benefit from those services, 
but private flood insurance does not contribute to any of these 
other critical missions. As the number of private policies 
grow, it is critical that the private sector contributes its 
fair share to the flood management functions of NFIP.
    So, Mr. Ellis, let me just start with you. You have 
previously testified before Congress, stating that--and I am 
going to quote you here--``The primarily private sector program 
is where flood insurance is heading, but Congress should be 
intentional about this development and ensure the mitigation 
benefits achieved by NFIP are retained and funds for mapping 
maintained.''
    Do you believe that private primary policies should include 
NFIP equivalency fees and surcharges to ensure that the private 
sector is sharing the national costs of flood mapping and 
floodplain management?
    Mr. Ellis. Taxpayers for Common Sense certainly believes 
that, yes, Senator.
    Senator Warren. Thank you.
    Mr. Hecht, do you agree?
    Mr. Hecht. Senator, I agree completely. If we consider that 
mapping and mitigation are the long-term solutions for all of 
America, then all of America should be supporting these 
initiatives.
    Senator Warren. All right. And, Mr. Larson, do you agree?
    Mr. Larson. Yeah, the private sector should be on a level 
playing field and pay the policy fee.
    Senator Warren. So either everybody pays the fee or nobody 
pays it, right?
    Mr. Ellis. But, Senator Warren, one thing I would flag is 
that it should be specifically delineated so that people know. 
That is one of the problems with the Flood Insurance Program 
now, that that fee has been kind of hidden into the overall 
rate rather than actually being explicit.
    Senator Warren. Fair enough. I am all for transparency with 
consumers so they know what they are paying for. But those who 
buy private insurance and those who buy public insurance should 
be paying the same set of fees to get us forward in the future.
    OK, good. I think this is just really important because 
shifting to private insurance is not going to work if private 
insurance does not contribute the fees we need to flood mapping 
and floodplain management and flood mitigation.
    So I want to ask another question, if I can, in the time I 
have left. As we have heard, mitigation is a vital part of 
NFIP's flood-resilient efforts. And, in fact, the GAO recently 
reported that it estimated that for every dollar spent on 
mitigation, losses were reduced by an average of about $4.
    Now, Congress currently subsidizes NFIP rates to make flood 
insurance more affordable, but mitigation loans could be 
another tool to lower the cost of flood insurance. A Wharton 
University study that you may be familiar with has shown that 
low-interest loans to elevate or flood-proof structures in 
high-risk areas could lower flood insurance premiums for many 
homeowners and also decrease the Government subsidization 
assistance.
    So, Mr. Larson, when it is economically appropriate, do you 
believe that offering mitigation loans to elevate flood-proof 
or flood-proof high-risk homes can be an effective way for NFIP 
to minimize flood risk and damage for homeowners?
    Mr. Larson. Absolutely. Subsidizing mitigation rather than 
subsidizing insurance is----
    Senator Warren. Right.
    Mr. Larson. ----actually the way you want to go, and, in 
fact, the other side of that coin is those repeat losses, right 
now, you know, the NFIP has no ability to ultimately say no, no 
matter whether you have had claims five times the value of your 
structure. Maybe that is something that should be considered, 
too.
    Senator Warren. I think this point about mitigation is kind 
of opening a new lens that we should be looking at this. You 
know, the Government typically offers low-interest SBA loans to 
help homeowners rebuild after a disaster has damaged their 
homes. I think it would be a smart idea for the Government to 
do more to help homeowners prevent damage by making their homes 
more resilient before damage strikes.
    Mr. Hecht, you wanted to add on that?
    Mr. Hecht. I did just want to say, Senator, we visualized 
this about getting on the left side of the disaster curve. We 
tend to always operate in the acute moment, and then in the 
aftermath, we need to pull back to the left side, and everybody 
is going to win--the Government, the taxpayer, the citizen.
    Senator Warren. That sounds like a much more cost-effective 
way to deal with this problem. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you very much, Senator Warren.
    That concludes the Senators' questioning, and that will be 
the end of the hearing. I would like to thank our witnesses 
again. Both your written and your testimony here today at the 
hearing has been very helpful to us. We are going to continue 
to proceed to meet the deadline and to beat the deadline and 
get a reauthorization done on time. And we will continue to 
seek your assistance, the witnesses, as we work on that 
process. In fact, you can expect questions from Senators, I 
assume.
    I will tell all the Senators that we have 7 days in order 
to submit those questions, and I will not put a time limit on 
you, but please respond to the questions very promptly as we 
will be moving ahead on this rapidly.
    With that, the hearing is adjourned.
    [Whereupon, at 11:25 a.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
                   PREPARED STATEMENT OF STEVE ELLIS
     Vice President, Taxpayers for Common Sense, on behalf of the 
                         SmarterSafer Coalition
                              May 4, 2017
    Good morning, Chairman Crapo, Ranking Member Brown, 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 opportunities and challenges facing the 
National Flood Insurance Program (NFIP). With the recent flooding in 
several States just in the past week this hearing is tragically timely. 
My sympathies are with those affected by the floods. TCS has worked on 
flood insurance issues and reform of the program for our entire 21 
years of existence and I've been involved in flood issues dating back 
to my days as a young Coast Guard officer dealing with the aftermath of 
the Great Midwest Flood of 1993. This is a critical issue for taxpayers 
and smart public policy that protects people and property.
    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 involved represent a broad set of interests, from free 
market and taxpayer groups to consumer and housing advocates to 
environmental and insurance industry groups. \1\ For a decade the 
coalition has advocated reforms in the National Flood Insurance Program 
that ensure the program is smarter and safer for those in harm's way, 
the environment, and for Federal taxpayers.
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     \1\ Full list of groups is available at www.smartersafer.org.
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    Though the NFIP provides critical insurance coverage to those at 
risk, the program must be significantly reformed to ensure it is 
financially sustainable, that there are sufficient incentives for 
reducing future flood damages and vulnerabilities, that it provides 
better protection for taxpayers who have repeatedly backstopped the 
program, and that it better protects the environment and promotes the 
use of nature-based mitigation solutions that have a long term benefit 
for homeowners and the taxpayers.
    SmarterSafer released a comprehensive flood insurance reform 
proposal in February that is attached to this testimony as an addendum. 
TCS supports this proposal and I request it be included in the record. 
The recommended reforms are grouped in four main areas:

  1.  Risk analysis and mapping must be up to date and must provide 
        property level elevation data.

  2.  Rates must be tied to risk, with support for mitigation and 
        premium support for low-income homeowners.

  3.  Increased Federal investments and efforts on mitigation both at a 
        property level and community wide, so that we are reducing 
        rates by reducing risk.

  4.  Ensuring consumer choice and private sector competition which 
        will also reduce taxpayer exposure.
Background on the National Flood Insurance Program
    It is important to understand the context of how the Nation got 
into the flood insurance business. After years of ad hoc disaster aid 
being meted out by Congress, the National Flood Insurance Program 
(NFIP) was established in 1968 to create ``a reasonable method of 
sharing the risk of flood losses through a program of flood insurance 
which can complement and encourage preventative and protective 
measures.'' \2\ The program was to make up for a perceived lack of 
available flood insurance. But even at that time Congress was warned 
that it was playing with fire. The Presidential Task Force on Federal 
Flood Control Policy wrote in 1966:
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     \2\ P.L. 90-448.

        A flood insurance program is a tool that should be used 
        expertly or not at all. Correctly applied it could promote wise 
        use of flood plains. Incorrectly applied, it could exacerbate 
        the whole problem of flood losses. For the Federal Government 
        to subsidize low premium disaster insurance or provide 
        insurance in which premiums are not proportionate to risk would 
        be to invite economic waste of great magnitude. \3\
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     \3\ U.S. Task Force on Federal Flood Control Policy. ``A Unified 
National Program for Managing Flood Losses''. August 1966. p17. http://
www.loc.gov/law/find/hearings/floods/floods89-465.pdf

    With the program nearly $25 billion in debt to taxpayers, it is 
clear that the program has resulted in a waste of great magnitude and 
not promoted a wise use of floodplains. In fact it represents a 
significant lost opportunity to strengthen our country's protections 
against natural disasters. Although subsidies were largely envisioned 
to be limited and short-term, they weren't. And while the program has 
encouraged standards and construction that help reduce flood risks for 
participating communities, the availability of subsidized Federal flood 
insurance over the last several decades made it financially attractive 
to develop in high risk areas. Along with other factors, NFIP helped 
fuel the coastal development boom that increased the program's risk 
exposure and losses.
$25 Billion in Debt and Subsidized Rates
    There is a general misperception that NFIP is financially healthy 
but for a couple of large storms--namely Katrina and Sandy. However, 
for years prior to Katrina, NFIP teetered on either side of solvency, 
covering shortfalls with Treasury borrowing and repaying the loans in 
years of surplus. Then in 2005, the inevitable happened--a catastrophic 
loss year--and after Katrina, Rita, and Wilma, the program was roughly 
$18 billion in debt to the Treasury. That was followed by the 
Superstorm Sandy losses in 2012 which resulted in the program being $23 
billion in debt to taxpayers.
    Losses continue to grow, however, with 2016--as a result of 
Hurricane Matthew and several other rain events--representing one of 
NFIP's largest loss years with $3.7 billion in payouts triggering 
additional borrowing from the Treasury. The program is now nearly $25 
billion in debt to U.S. taxpayers. As storms and flooding become more 
frequent and more severe, the debt in this program will only continue 
to grow. Nuisance flooding, disaster declarations, and billion dollar 
disasters are all on the rise; leaving the flood program as is 
basically guarantees additional borrowing from the Treasury.
    To put the program's debt into perspective, FEMA data indicates 
that in 2016 the 5.1 million policies resulted in $3.3 billion in 
premium to insure $1.25 trillion worth of property. \4\ The Government 
Accountability Office has estimated that approximately 20 percent of 
policies are explicitly subsidized and paying only 35-45 percent of 
their actual full-risk level premiums. \5\ These numbers have likely 
changed some subsequent to the enactment of the Homeowners Flood 
Insurance Affordability Act of 2014, also known as Grimm-Waters.
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     \4\ Federal Emergency Management Agency. Available at: https://
www.fema.gov/statistics-calendar-year.
     \5\ Government Accountability Office. ``Flood Insurance: More 
Information Needed on Subsidized Policies''. July 2013.
---------------------------------------------------------------------------
    As this Committee well knows, reforms to the NFIP were enacted in 
the Biggert-Waters Flood Insurance Reform Act of 2012 to align premiums 
with risk, which would not only help program solvency, but also help 
policyholders better understand their risk and take measures to 
mitigate that risk. Despite some concerns, TCS and SmarterSafer 
supported the 2012 legislation while also favoring additional efforts 
to help address affordability. Unfortunately, in Grimm-Waters, Congress 
rolled back many of the reforms that would have led to more actuarial 
rates. The rollbacks actually exacerbated the inequities in the 
program, placing surcharges on policies to pay for continued subsidies.
    The authorization for NFIP expires September 30, 2017. Before the 
long-term reauthorization in 2012, NFIP required 17 extensions after 
the 2004 reauthorization expired in 2009 and even occasionally lapsed 
only to be temporarily reauthorized retroactively. We think all 
involved should work together so the program doesn't lapse again. That 
said, TCS believes that a 5-year reauthorization schedule is preferable 
to a longer one that would delay adjustments and reforms to the 
program. To put it in perspective, if the 2004 reauthorization would 
have been for 10 years, the 2005 storm season and Superstorm Sandy 
would have occurred in that time period with no opportunity to make 
clearly needed reforms.
Risk Analysis and Mapping
    FEMA is required to map the Special Flood Hazard Area (SFHA). This 
delineates the area considered to have a one percent chance of flooding 
in any given year (so-called 100-year floodplain) and therefore has a 
mandatory purchase requirement for federally backed mortgages. These 
maps are the backbone of the NFIP and are used to determine rates. 
However, the flood maps do not look at property level risk or 
elevation, and this means that there is a lack of confidence in maps 
and the risk analysis provided by those maps. The current lack of 
confidence in the flood maps hobbles FEMA implementation of the 
program.
    Mapping is both a challenge and an opportunity. Technology has 
enabled greater level of detail and accuracy in mapping. It also can be 
used by the private sector for more intensive risk analysis and 
modeling that can benefit private sector flood insurance alternatives 
(and NFIP as well) particularly in providing risk-based coverage in 
areas outside the SFHA. In addition, flood claims should inform 
mapping. While it is true that just because a property has never 
flooded in no way guarantees it won't flood, the converse does provide 
an indicator. Absent significant mitigation action for structural 
changes, a property that has flooded is certainly at risk of flooding 
again. Yet, in a three-part series published in early 2014, NBC News 
documented instances where FEMA agreed to remap out of the floodplain 
large condominiums built in previously flooded areas. \6\ One company 
head that made the remapping program his business (only for commercial 
properties, not residential) dubbed himself Robin Hood. Hardly. Maps 
have to be accurate for both sides. Taxpayers and ratepayers.
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     \6\ Dedman. ``Why Taxpayers Will Bail Out the Rich When the Next 
Storm Hits U.S.''. http://www.nbcnews.com/news/investigations/why-
taxpayers-will-bail-out-rich-when-next-storm-hits-n25901-NBC-News
---------------------------------------------------------------------------
    Mapping also has to be smarter. Private companies are using tools 
that enable property level mapping and elevation. The SmarterSafer 
reform proposal includes requiring FEMA to move to a system of more 
granular, property level mapping. This would not only ensure proper 
risk analysis and rates, but it would take the onus off of homeowners 
who now have to go through a burdensome and expensive process if they 
believe they are mapped incorrectly. To ensure that maps are accurate 
and inform property owners, Government officials, and the public at 
large, SmarterSafer urges Congress to make revisions to FEMA's mapping 
requirements. Many of these recommendations are consistent with those 
of FEMA's own Technical Mapping Advisory Council.
    To help people understand their risk and to ensure proper NFIP 
rates, maps must be up-to-date and accurate, and property elevations 
(or effective proxies) must be known. Private companies already perform 
assessments of risk to individual properties--something that is not 
currently reflected in FEMA maps. FEMA must be required to update its 
maps, include the best science on known conditions and risks, but also 
conduct (or purchase) property level (or close to) risk assessments. 
The Government must continue to map for purposes of the Special Flood 
Hazard Area designation (which triggers mandatory purchase 
requirements); however, this is not enough. FEMA should be required to 
assess elevation at a higher resolution or conduct more granular risk 
analysis. This is something that is possible--the State of North 
Carolina has undertaken a mapping effort where they have not only 
gotten property level data at a reasonable cost, but they have a 
digital system to allow property owners to search and understand their 
risk, potential flood premiums and mitigation options. FEMA should be 
required to move in this direction.
    There are also many different Federal agencies that engage in 
mapping. This should be more coordinated and shared among agencies to 
avoid duplication. This is also where--and I know this is also outside 
the committee's jurisdiction--the Nation's mitigation and pre-disaster 
programs have to dovetail with NFIP and post-disaster response.
    More needs to be done for the public to have a greater 
understanding of their flood risk. As discussed earlier, FEMA is tasked 
with mapping the SFHA for the mandatory purchase requirement. That is a 
Federal mandate that isn't likely to change. However these maps are 
static--lines on a map designating various flood risk areas and 
charging various rates based on those risks. If a homeowner has an 
elevation certificate that proves they are elevated ``out'' of the 
floodplain they can have those rates adjusted. But the creation of the 
rates are sort of a black box and it is not entirely clear that even 
``full-risk'' rates are actuarially sound. \7\ In some cases there are 
significant cross-subsidies where lower risk properties pay more to 
maintain subsidies for higher risk properties.
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     \7\ Beider. ``Understanding FEMA's Rate-Setting Methods for the 
National Flood Insurance Program''. Congressional Budget Office. 
October 7, 2014. Available at: https://www.cbo.gov/sites/default/files/
presentation/49441-femaratemethodsnfip.pdf.
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Risk-Based Rates, Targeting Mitigation, and Premium Support
    NFIP has subsidized rates in the program virtually since its 
inception, regardless of need. FEMA estimates 20 percent of properties 
in the program pay subsidized rates, but that doesn't include 
properties with grandfathered rates where the flood zone designation 
has changed. Even with the properties that are paying supposed risk-
based premiums, the fact that the program can borrow from the Treasury 
is a built in subsidy. The GAO has documented large cross-subsidies, 
many of which benefit high-income homeowners. \8\ The Government 
Accountability Office found that over 78 percent of subsidized 
properties in NFIP are located in counties with the highest home values 
(the top three deciles), while only 5 percent of subsidized properties 
are in counties with the lowest home values (the bottom five deciles). 
\9\ This represents a real challenge to the program's sustainability.
---------------------------------------------------------------------------
     \8\ Supra note 5.
     \9\ U.S. Government Accountability Office. July 2013. Flood 
Insurance: More Information Needed on Subsidized Properties. 
(Publication No. GAO-13-607). Retrieved from: http://www.gao.gov/
assets/660/655734.pdf.
---------------------------------------------------------------------------
    TCS and SmarterSafer believe that 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 and thereby the premium. Masking subsidies 
with lower rates prevents policyholders from understanding their true 
level of risk. As was noted in the FEMA privatization report mandated 
by Biggert-Waters, subsidized rates ``can promote (and have promoted) 
poor decisions on the part of property owners and political 
representatives . . . they also create a moral hazard, especially when 
the subsidies are not well targeted.'' \10\ The report continues that 
the presences of subsidies ``removes the incentive to undertake 
mitigation efforts, thereby encouraging ever increasing societal 
costs.''
---------------------------------------------------------------------------
     \10\ Oliver Wyman. Flood Insurance Risk Study: ``Options for 
Privatizing the NFIP''. P60 Available at: http://www.floods.org/ace-
files/documentlibrary/2012_NFIP_Reform/
Reinsuring_NFIP_Insurance_Risk_and_Options_for_Privatizing_the_NFIP_Repo
rt.pdf.
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    A far better approach is to target any premium assistance to those 
who need it, and to encourage and fund mitigation measures that could 
serve to reduce rates by reducing risk. These mitigation efforts should 
be targeted at higher risk and lower income property owners.
    While affordability must be addressed, we must also separate out 
those who truly cannot afford their risk based rates and those who need 
time to plan for rate increases, but for whom those rates would not 
cause a substantial hardship. TCS and SmarterSafer recommends that as 
rates move to risk-based, Congress ensure that there is assistance for 
those in need--but it must be done in a means-tested, targeted, and 
time-limited manner outside the rate structure. Under the SmarterSafer 
proposal, low-income property owners would be eligible for this premium 
support. However, premium support is not the preferred option for 
reducing premiums--we should be doing more to reduce premiums by 
reducing risk.
    While noting some of the challenges of creating a premium 
assistance program, an April 2017 Government Accountability Office 
report on flood insurance noted: ``Prioritizing mitigation over premium 
assistance could address the policy goal of enhancing resilience 
because it would involve taking steps to reduce the risk of the 
property, thus reducing the likelihood of future flood claims and 
potentially reducing long-term Federal fiscal exposure.'' \11\
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     \11\ Government Accountability Office. ``Flood Insurance: 
Comprehensive Reform Could Improve Solvency and Enhance Resiliency''. 
April 2017.
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    We believe FEMA should be working to conduct cost-benefit analyses 
so that subsidies can be used for mitigation where cost-effective. In 
addition, FEMA should be required to work with private lenders as well 
as the Federal Housing Administration to develop or modify existing 
loan products that homeowners could use to mitigate thus reducing their 
flood-insurance rates.
Increased Emphasis on Property and Community Wide Mitigation
    Subsidized rates provide a disincentive to mitigation, but as rates 
gradually increase there is more incentive for individuals, and by 
extension communities, to mitigate. This should be encouraged by 
further Federal investment. We know that each dollar of mitigation 
reduces post-disaster costs by four dollars or more. \12\ Instead of 
providing premium subsidies the goal should be to reduce rates by 
reducing risk. Conversely, subsidizing rates does not reduce risk to 
people and property, in fact it encourages people to develop or stay in 
high risk areas. FEMA's subsidies should be used for mitigation where 
possible and cost-effective. SmarterSafer's proposal also includes a 
number of recommendations to better target mitigation funds to 
homeowners and communities most at risk, to provide additional 
flexibility for increased Cost of Compliance funds and to strengthen 
the Community Rating System to incentivize nature-based mitigation 
approaches.
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     \12\ Multi-Hazard Mitigation Council. ``Natural Hazard Mitigation 
Saves: An Independent Study To Assess the Future Savings From 
Mitigation Activities''. Available at: https://c.ymcdn.com/sites/
www.nibs.org/resource/resmgr/MMC/hms_vol1.pdf.
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    There is a greater benefit from larger scale, community wide 
mitigation efforts than mitigating house by house or property by 
property. In addition, this type of mitigation often becomes a 
community amenity that can actually increase home values beyond the 
flood damage reduction benefits alone. FEMA should establish a system 
to promote mitigation of groups of adjacent properties in order to 
maximize flood damage reduction and provide additional opportunities 
for preservation of wetlands and other natural buffers against storm 
surge and other flooding. Under the SmarterSafer reform proposal, FEMA 
would be required to identify `Flood Hotspots'--communities with 
clusters of, or significant numbers of, severe repetitive loss 
properties and areas with a significant number of properties at high 
flood risk. These areas would be required to work with FEMA to develop 
plans to reduce flood risk, with a priority for nature-based, 
nonstructural mitigation.
Consumer Choice and Private Sector Competition
    Though for many years NFIP was the only viable option for flood 
insurance, the private sector has begun to write first dollar flood 
insurance, even in the highest risk areas. For instance, there are at 
least 19 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, and many are providing much 
higher coverage limits.
    This provides needed competition in the flood marketplace--it 
provides consumers choice in flood policies, instead of forcing 
homeowners to purchase a one-size-fits-all Government policy that is 
significantly limited. It also takes risk off of the Federal 
Government, helping to stabilize the flood program and reduce the 
burden on taxpayers. I request to include for the record a recent 
analysis done by the Reinsurance Association of America (RAA) of a 
comparable public insurance system for hurricane risk--Florida Citizens 
Property Insurance Corporation, a State-run, subsidized wind insurer. 
This analysis reveals the results of an effort to get the private 
sector to ``take out'' policies from the program--an exodus of nearly a 
million policies out of a million and half total. But instead of 
choosing only low risk properties, private insurers took out properties 
across the risk spectrum, including those along the coast in the 
highest risk areas. This left a smaller, stronger State run insurance 
program that could meet its obligations. While it is an extrapolation, 
the RAA analysis concludes that private sector engagement in flood 
insurance would ``be extremely beneficial to both policyholders, 
taxpayers, and NFIP.'' \13\ Through private competition, purchase of 
reinsurance and a continued move toward risk based rates, NFIP would be 
able to meet its obligation in a 100-year flood with little Treasury 
borrowing.
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     \13\ Reinsurance Association of America. ``Private Flood Improves 
NFIP's Stability''.
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    S. 563, The Flood Insurance Market Parity and Modernization Act--
introduced by Committee Members Sens. Heller (R-NV) and Tester (D-MT)--
is the first step towards leveling the playing field for private sector 
flood insurance and bringing competition and consumer choice to the 
flood insurance marketplace. TCS and SmarterSafer believes that private 
sector participation would increase coverage while decreasing the cost 
for consumers, and should be encouraged. Consumers should be able to 
choose private flood insurance policies, potentially with terms and 
coverage that can be tailored to the interests of the consumer, as well 
as better incentives for mitigation. In fact, private flood policies 
could allow property owners to purchase enough coverage to ensure they 
can rebuild after a storm, not constrained by NFIP limits or by the 
amount of the mortgage.
    S. 563 would ensure that private flood insurance counts for 
purposes of the mandatory purchase requirements, and would also provide 
an important consumer protection that ensures rate stability for 
consumers if they leave NFIP for private coverage and then come back to 
NFIP. This bill is merely a clarification that Congress never intended 
for homeowners to be required to purchase flood coverage through the 
Federal Government, only that they had to have coverage if they were in 
the 100-year floodplain and had a federally backed mortgage. An 
identical version of this bill passed the House of Representatives 419-
0 last year. This represents a broad, bipartisan recognition that 
consumers should be given choices in flood coverage and the 
unanticipated regulatory hurdle to acceptance of private flood coverage 
should be addressed.
    The idea is not that private companies will only compete for the 5 
million polices in NFIP already covered by flood insurance. The goal is 
to ensure that more people around the Nation purchase needed flood 
coverage. Recent flooding events have sadly demonstrated that many 
people who need coverage do not have it. The average NFIP payment for 
the 2016 flooding in Louisiana was $86,500, the average individual aid 
payment was $9,150. Absent flood insurance the homeowner is left with 
low interest Small Business Administration loans to rebuild. Piling a 
loan on top of a mortgage to rebuild a currently uninhabitable house is 
not conducive to efficient and resilient rebuilding.
    Also, there is no need for the Federal Government to further extend 
into the catastrophe insurance market through reinsurance or other 
means.
Additional Thoughts
    Adverse Selection--The simple fact is that most of the people who 
are purchasing flood insurance are those most likely to get a payout. 
As I indicated there are 5.1 million policies in the program. According 
to the U.S. Census Bureau there are 134 million housing units \14\ in 
the country and even leaving out multi-unit structures--that could be 
purchasing flood insurance--and commercial properties, roughly 5.4 
percent of the houses in the country have flood insurance. Just about 
everybody has some level of flood risk, but for the most part, unless 
it's acute, they don't buy it. This means that NFIP as currently 
structured is essentially a high risk pool covering the most at-risk 
properties; the $25 billion in debt shows this to be the case. This 
concentration of risk has put significant strain on the program, 
particularly given the lack of risk based rates. The private sector 
would most likely not concentrate all of their risk in flood, but would 
have diverse risk pools; in addition they could write multi-peril 
insurance that includes flood and other risks, making the pricing for 
the peril less, and they can also lay off risk on the worldwide 
reinsurance marketplace.
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     \14\ http://quickfacts.census.gov/qfd/states/00000.html
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    Reinsurance--FEMA's recent purchase of reinsurance demonstrated 
that there is interest and capacity in the reinsurance markets to take 
on U.S. flood risk. Obviously industry will have to gain a greater 
understanding of the nature of the underlying flood risk in the NFIP 
portfolio, but that can be managed through responsible data sharing. 
Laying off risk on the private sector will help protect taxpayers from 
debts racked up by future large storms.
    Disaster Assistance--NFIP's inter-relationship with Federal 
disaster aid programs under the Stafford Act is both an opportunity for 
reform and a challenge to a more rational holistic Federal approach.
    An observation from a the 2014 FEMA privatization report `` . . . 
highly publicized instances of Federal aid following catastrophic 
events have also created a public perception that individual property 
owners do not need to insure against low-probability high severity 
flood events, effectively creating moral hazard.'' \15\ What people are 
not realizing is that the vast majority of the aid goes to rebuild 
public and Federal infrastructure, not individuals to help them move on 
after disaster. A 2014 study by the Wharton Center for Risk Management 
and Decision Processes at the University of Pennsylvania found that 
increasing disaster assistance by $1,000 reduced subsequent insurance 
coverage by $6,000. \16\
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     \15\ Oliver Wyman. Flood Insurance Risk Study: ``Options for 
Privatizing the NFIP''. P52 Available at: http://www.floods.org/ace-
files/documentlibrary/2012_NFIP_Reform/
Reinsuring_NFIP_Insurance_Risk_and_Options_for_Privatizing_the_NFIP_Repo
rt.pdf.
     \16\ Kousky, Michel-Kerjan, Raschky. ``Does Federal Disaster 
Assistance Crowd Out Private Demand for Insurance?'' Available at: 
http://opim.wharton.upenn.edu/risk/library/WP2013-
10_FedDisasterAssistance.pdf.
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Conclusion
    There are a number of reforms that Congress should make when it 
reauthorizes the NFIP to ensure the program is sustainable in the long 
term. With better, property level mapping, a focus on mitigation and 
risk reduction, a move to risk based rates with targeted subsidies, and 
private sector competition, we believe NFIP will be strengthened and 
more people will purchase needed flood coverage.
                                 ______
                                 
                  PREPARED STATEMENT OF MICHAEL HECHT
 President and Chief Executive Officer, Greater New Orleans, Inc., on 
        behalf of the Coalition for Sustainable Flood Insurance
                              May 4, 2017
    Good Morning Chairman Crapo, Ranking Member Brown, and Members of 
the Committee. I am honored to speak to you today about reforming and 
modernizing the National Flood Insurance Program (NFIP). My name is 
Michael Hecht, and I am the President and CEO of Greater New Orleans, 
Inc., the 10-parish economic development organization for Southeast 
Louisiana. Since April 2013, GNO, Inc. has led the Coalition for 
Sustainable Flood Insurance (CSFI), a national alliance of 
approximately 250 organizations across 35 States. CSFI was formed in 
the wake of the implementation of the Biggert-Waters Act, when 
homeowners across the Nation were facing skyrocketing rate increases 
through a combination of the removal of grandfathering and new maps, 
which often times were inaccurate. CSFI was a driving force behind the 
passage of the Homeowner Flood Insurance Affordability Act (HFIAA), 
which was signed into law in March 2014.
    As was made clear in those debates, there is no simple answer to 
the complex problem of maintaining premium affordability, keeping the 
NFIP on sound financial footing, and accurately communicating risk. And 
it is in the national interest to recognize that many communities 
exposed to flood risk are hubs of domestic energy production, 
international trade, national and international finance, agriculture 
production, and other nationally significant economic and defense 
activities. Affordable and sustainable flood insurance is an integral 
component of ensuring these communities continue their vital 
contributions to America. CSFI is now focused on advocating for a 
stronger policy framework for the NFIP that recognizes the economic, 
cultural, defense, and other national contributions made by communities 
exposed to flood risk.
    There are four primary policy areas CSFI has focused on that will 
provide for this stronger framework, denoted by the acronym ``MMAP'':

    Mitigation--A comprehensive approach to reducing flood 
        losses before a disaster occurs is a more effective means to 
        reducing economic loss and protecting taxpayer interests, than 
        ejecting households and businesses from NFIP via unaffordable 
        flood insurance premiums

    Mapping--Enhancing the way we assess and communicate risk 
        through improvements to the mapping process will protect 
        communities and the NFIP over the long-term

    Affordability--Premiums must remain affordable in order to 
        keep communities across America economically viable

    Program Participation--Adopting policies that encourage 
        more people to buy flood insurance will help to bring the 
        program's costs in line with revenues in a responsible way and 
        help communities recover more quickly following a flood event

    My testimony today will explain the policy suggestions we've 
proposed in this framework. CSFI has also produced a whitepaper series, 
which has been submitted for the record, that makes the case for these 
proposals in greater detail.
    Of note, last week, Senator Bill Cassidy and Senator Kirsten 
Gillibrand released a discussion draft that includes many of the 
provisions for which CSFI is advocating. The Cassidy-Gillibrand 
legislation will reform and modernize the NFIP; improve how risk is 
assessed and communicated; keep insurance affordable; increase options 
for mitigation; and, allow for some responsible private market entry 
provisions, among other policy priorities. I strongly urge this 
committee to give the legislation thoughtful consideration as we move 
towards reauthorization on September 30.
Mitigation
    Flooding is the most common natural disaster in the United States, 
affecting communities in each of the 50 States and territories. Across 
the Nation, States and municipalities have worked diligently to reduce 
the frequency and impact of flooding in their communities even while 
resources to reduce flood losses remain limited.
    Effective flood mitigation is a multifaceted enterprise. The 
Federal and State governments share significant responsibilities in the 
planning, design, construction, and maintenance of major flood control 
projects that protect hundreds of millions of homes and businesses. At 
the community level, particularly those communities participating in 
the National Flood Insurance Program (NFIP), Governments adopt and 
enforce floodplain management standards and building codes. County and 
parish governments that adopt stronger standards and participate in the 
Community Rating System (CRS) achieve a greater level of flood 
protection for the community that is reflected in reduced flood 
insurance premiums.
    Property owners have a key responsibility to reduce flood damage 
and secure resources to comply with floodplain management and building 
code requirements. Property owners may fulfill this responsibility to 
protect property by purchasing flood insurance and Increased Cost of 
Compliance (ICC) coverage. Appropriate flood insurance and ICC coverage 
ensures flood damage is repaired and that damaged structures are 
restored to a higher level of flood protection if required by current 
floodplain management standards and building codes. Property owners 
further have the obligation to work through local, State, and Federal 
programs to mitigate high-risk structures having sustained repetitive 
flood loss events.
    Despite this coordinated, multilayered approach to flood 
mitigation, substantial sums of taxpayer funds are appropriated each 
year in response to disaster damage caused by flooding. This raises 
important questions about the efficacy of the national flood loss 
mitigation strategy and the efficiency of deploying substantial 
taxpayer funds for disaster response while making limited investments 
in disaster mitigation by comparison. Aggressively addressing flood 
risks at the regional and community levels, while providing homeowners 
options and resources to lower flood risks will save lives and 
property, reducing flood damage, flood insurance claims, and flood 
insurance premiums.
    Federal policymakers must work with State and local governments and 
individual property owners to reduce the frequency and expense of flood 
losses. This necessarily requires allocating resources for disaster 
prevention and flood loss mitigation. Reducing the exposure of our 
communities, homes, and businesses to flood losses is a more efficient 
and effective use of taxpayer resources and will reduce future disaster 
costs and preserve flood insurance affordability.
    Policies that would increase mitigation include:

    Redirecting Premium Surcharges Included in HFIAA--The 
        Cassidy-Gillibrand legislation would require FEMA to reallocate 
        the existing surcharges established in HFIAA to better finance 
        the Pre-Disaster Mitigation and the Flood Mitigation Assistance 
        Programs. This proposal to redirect existing fees would yield 
        approximately $400 million annually for flood mitigation 
        activities

    Modernize Increased Cost of Compliance (ICC) Coverage--
        Currently, ICC claims payments must be used to fund up to 
        $30,000 in compliance costs associated with State or local 
        floodplain management laws or ordinances, which typically 
        require structure elevation. The limit of $30,000 is inadequate 
        to elevate most structures. Under the Cassidy-Gillibrand 
        legislation, FEMA will be required to increase ICC coverage to 
        $75,000 with $30,000 of ICC payments allowed to occur outside 
        policy limits

    Provide a Premium Credits to Offset the Cost of Obtaining 
        an Elevation Certificate--This proposal would offer 
        policyholders without an elevation certificate a one-time rate 
        credit of $500 for the cost of obtaining elevation data. 
        Knowledge of flood risk and accuracy of a structure's base 
        flood elevation information will be enhanced by removing or 
        reducing the financial barrier associated with the acquisition 
        of elevation certificates. This policy proposal is included in 
        the Cassidy-Gillibrand legislation

    Facilitate Mitigation Credits that Reduce Premium Rates--
        The Cassidy-Gillibrand legislation would require FEMA to 
        develop meaningful cost reductions, in excess of 10 percent of 
        the current risk premium rate for a property, for flood 
        mitigation activities undertaken on properties in all zones, 
        including moderate risk zones

    Partner with participating communities and State 
        Governments to obtain elevation data--NFIP should offer 
        Community Rating System (CRS) credit for participating 
        jurisdictions that require an elevation certificate to be 
        prepared at a subsequent transfer of title for structures in a 
        flood zone where elevation data are not available

    Provide Effective Oversight of the U.S. Army Corps of 
        Engineers--While this is not germane to reauthorizing the NFIP, 
        I want to urge Congress to conduct effective oversight of U.S. 
        Army Corps of Engineers (USACE) procedures and project approval 
        timelines to ensure authorized flood control projects do not 
        languish, needlessly putting communities, homes, and businesses 
        at risk of flood damage
Mapping
    Accurate mapping is fundamental to assessing and communicating 
risk, and to pricing it appropriately. The current mapping process 
often results in communities having to fight inaccurate maps that do 
not take into account locally built flood protection features and 
communities building off of outdated mapping, which results in 
artificially inflated risk. We must question whether we can truly 
determine actuarial rates if they are based on flawed mapping. Further, 
many areas of the country are not mapped or mapped accurately, which 
results in communities who are at risk of flooding unaware of the risk.
    For example, in the August 2016 floods in Baton Rouge, Louisiana, 
over 80 percent of flood survivors did not have flood insurance. I know 
it is easy for those of you not from Louisiana to question why these 
people did not have flood insurance given what has occurred in 
Louisiana over the last 12 years. Here's the answer: many of those 
communities were not mapped into a flood zone or were only in optional 
purchase areas. Updated and accurate mapping and better communication 
about risk when purchasing property could have limited the number of 
uninsured properties significantly. This in turn could have resulted in 
these affected communities needing less post-disaster funding, thus 
saving the taxpayer. Technology around assessing and communicating risk 
is also rapidly evolving, and FEMA should embrace this technology to 
provide more accurate maps for America.
    Proposals that could improve the way we assess and communicate risk 
include:

    Increasing the authorization for the National Flood Mapping 
        Program to $500M--The Government funding bill currently being 
        debated provides $177M for the National Flood Mapping Program, 
        which is a good start. For the next funding cycle, I urge 
        Congress to increase the authorization of the National Flood 
        Mapping Program to $500M, which would allow FEMA to accelerate 
        the completion of mapping of the entire country, would help 
        communities better understand and plan for risk

    Allowing Counties to Adopt Portions of Maps at a Time--
        Congress should require FEMA to allow communities to adopt 
        portions of a flood map that they agree with at one time while 
        still allowing for map appeals in other areas of the community. 
        The current policy puts the entire county's new map on hold 
        during the appeals process, which results in the entire 
        community planning land use policies around outdated maps and 
        some residents paying higher than necessary rates

    The Cassidy-Gillibrand legislation also includes several policy 
suggestions that would enhance the mapping process and should be 
included in reauthorization, including:

    Provide Mapping Standards and Guidelines for 
        Nongovernmental Entities--This proposal would authorize the 
        Technical Mapping Advisory Council (TMAC) to develop map 
        standards for FEMA and nongovernment entities, thereby giving 
        communities additional avenues to streamline the FEMA mapping 
        process and develop maps that use updated community data & 
        technology

    Encourage the Use of High-Resolution Mapping Technology--
        This proposal would instruct FEMA to facilitate, partner, and 
        leverage current high-resolution topographic data (e.g., Light 
        Detection and Ranging [LIDAR] data, or other new and emerging 
        technologies) in the development of flood insurance rate maps

    Improve the Flood Mapping of Levee-Protected Areas--This 
        proposal would require FEMA to replace its ``Zone D'' 
        designation (defined as an area of undetermined/undefined risk) 
        in levee-protected areas with risk zones that are more 
        appropriate for the level of protection that the flood 
        mitigation features afford
Affordability
    Following the Biggert-Waters Act, when homeowners across the Nation 
faced skyrocketing premiums, legislators reasserted the long-held view 
that premium affordability is a fundamental tenet of national flood 
insurance. In HFIAA, policymakers addressed premium affordability 
concerns by restoring the practice of rate ``grandfathering'', 
reversing the elimination of pre-FIRM subsidized (PFS) policies, 
eliminating the property sales trigger, and increasing damage and 
improvement thresholds. Those policies must be maintained in 
reauthorization.
    In HFIAA, Congress revised key policies driving substantial 
increases in flood insurance premiums yet retained the Biggert-Waters 
Act imperative to reduce or eliminate certain premium subsidies. In 
general, HFIAA limits year-over-year premium increases to 18 percent 
for individual properties and 15 percent for the average of all premium 
increases within a risk classification. Premiums for most subsidized 
policies must, by law, increase at least 5 percent on an annual basis, 
subject to the overall limitation that NFIP not charge rates greater 
than a classification's determined risk. Further, certain property 
classifications will see premium increases designed to rapidly 
eliminate subsidies.
    Policies to maintain affordability include:

    Formalizing 1 percent cost to value ratio--This proposal 
        means that no premium could be more than 1 percent of the 
        policy value. So, for example, a policy worth $250,000 could 
        never cost more than $2,500. Language was included in the 
        Homeowner Flood Insurance Affordability Act that FEMA should 
        strive to accomplish this policy, and the Cassidy-Gillibrand 
        legislation strengthens that language. Congress should consider 
        this policy as a way to easily address affordability

    Maintaining Current Rate Structure--Proposals to increase 
        the floor of rate increases from 5 percent to 10 percent or up 
        should be avoided. According to FEMA, beginning April 1, 2017, 
        premiums are increasing an average of 6.3 percent. Increasing 
        the floor rate of increases to 10 percent or higher would 
        represent a substantial premium increase on homeowners

    Preserving grandfathering--Preserving grandfathering is of 
        critical importance. Meaning, if you built your house to 
        according to FEMA's base flood elevation at the time of 
        construction, you will not be penalized when new maps are 
        introduced. The confluence of removing grandfathering and the 
        introduction of new maps are what drove skyrocketing rates post 
        Biggert-Waters, which was unfair to homeowners who built as 
        they should. Congress must maintain grandfathering permanently. 
        The Cassidy-Gillibrand legislation maintains this provision

    Addressing the NFIP's debt--Congress should consider 
        forgiving the NFIP's debt, which currently stands at $24.6 
        billion, at least the portion related to the Federal levee 
        failures following Hurricane Katrina. At a minimum, Congress 
        should stop the requirement of FEMA to pay interest on this 
        debt, which next year will cost $400M.That $400M could be used 
        to build reserves or provide greater funding for mitigation. To 
        require the NFIP to pay this debt back to the U.S. Treasury is 
        robbing Peter to pay Paul

    The Cassidy-Gillibrand legislation also includes some additional 
affordability proposals, including vouchers for low to moderate income 
Americans that are worthy of consideration.
Program Participation
    Sustainability and affordability of flood insurance coverage is a 
growing concern as NFIP is experiencing a year-over-year decline in 
several key metrics. According to FEMA data, NFIP policies-in-force 
peaked in 2009 at 5,700,235. As of June 30, 2016, the number of 
policies-in-force was 5,083,071, a decline of almost 11 percent from 
2009. Total coverage-in-force is also in decline after peaking at 
approximately $1.3 trillion in 2013 and as of June 30, 2016, is 
approximately $1.25 trillion. For only the second time since 1978, 
total premium earned has fallen from the previous year, with $3.54 
billion of premium earned in 2014 compared to $3.44 billion in 2015.
    This is not sufficient evidence to validate a long-term forecast of 
year-over-year decline for NFIP, but policymakers must be mindful of 
data showing declines in core program variables over the short-term. It 
must also be noted that key coverage-in-force and premium earned 
declines have largely occurred post-Biggert-Waters Act.
    For policymakers to more fully achieve the core purposes of 
national flood insurance--floodplain management, limiting Government 
disaster costs, and facilitating property owner purchase of insurance--
the NFIP must be designed with the interests of end users as 
preeminent. Increases in both policies written and coverage in force 
will bring greater stability to communities and provide greater 
protection for the Federal treasury. Simply put, with both the severity 
and frequency of floods increasing, we need more people buying flood 
insurance.
    Policies to increase program participation include:

    Offering a default ``opt-out'' flood policy as standard 
        part of homeowners insurance package--NFIP should be directed 
        to engage in product testing that offers consumers a 
        ``default'' insurance option where consumers are required to 
        actively decline (opt-out) flood insurance coverage. Based on 
        the outcome of consumer testing, NFIP and NAIC should move to 
        expand ``default'' options that include NFIP coverage as 
        appropriate

    Expanding the definition of the Special Flood Hazard Area--
        Congress should authorize a study to assess the effectiveness 
        of the mandatory purchase requirement; assess the benefit of 
        mandatory purchase to taxpayers, communities, and households; 
        and identify areas outside designated SFHAs or adjacent thereto 
        where mandatory purchase would have a demonstrable, positive 
        cost-benefit impact for taxpayers and property owners

    Mandatory purchase of flood insurance for properties that 
        have experienced a loss and Federal disaster assistance was 
        accepted to repair or replace the structure--Congress should 
        consider requiring mandatory purchase of flood insurance for at 
        least ten years for properties that have experienced a flood 
        loss event and Federal disaster assistance was accepted to 
        repair or replace the damaged structure and contents. The 
        mandatory purchase requirement should attach to the structure 
        and the requirement should be noted in local land records in a 
        manner that is readily apparent to title researchers, lenders, 
        appraisers, borrowers, and other parties interested in the 
        transfer of property
The Role of the Private Market
    Another concept being widely discussed as we move towards 
reauthorization is the role of the private market. While a fuller entry 
of the private market would bring needed competition and discipline to 
the flood insurance market, I urge Congress to be mindful of the risk 
of cherry-picking. A scenario where the private market comes in and 
takes all of the low risk properties while leaving the NFIP with 
nothing but high risk properties will not serve the policy holder well 
and leaves the NFIP open to needing further loans from the U.S. 
Treasury. An increase in private market coverage should occur parallel 
to a healthy and sustainable NFIP.
    The Cassidy-Gillibrand legislation includes policy solutions to 
ease private market reentry in a responsible way, and those proposals 
should be included in reauthorization. One policy related to the 
private market that must be included in reauthorization is:

    Including continuous coverage language in reauthorization--
        Language should be included in reauthorization that allows 
        policyholders to maintain continuous coverage, which would 
        allow them to leave the NFIP for the private market and 
        subsequently return to the NFIP while proving continuous 
        coverage, and thus maintain a grandfathered rate. This policy 
        is key to providing consumers with the assurance needed that 
        the NFIP will be available should they be priced out of the 
        private market or should private flood insurance become 
        unavailable. Under current law, policy holders who may have 
        access to more affordable, comprehensive private market 
        coverage are not incentivized to leave the NFIP.
Multiyear Reauthorization
    It is critically important that we reauthorize the NFIP for a 
multiyear period. Short-term extensions, and especially lapses in 
authorization, have real world implications. Lapses in authorization 
stall or kill home closings. Particularly with a September 30 
expiration--in the middle of hurricane season--American home and 
business owners need to be able to rest assured that the flood 
insurance they have purchased and relied on will be available should a 
flood happen. A multiyear reauthorization is needed to bring certainty 
to consumers and real estate markets.
    Again, thank you for the opportunity to speak to you today about 
the reauthorizing and reforming the National Flood Insurance Program, 
and for your service. CSFI stands ready and willing to assist the 
Committee as we work to reauthorize the NFIP by September 30.
                                 ______
                                 
                   PREPARED STATEMENT OF LARRY LARSON
   Director Emeritus, Association of State Floodplain Managers, Inc.
                              May 4, 2017
Introduction
    The Association of State Floodplain Managers is pleased to 
participate in this hearing about the reauthorization of the National 
Flood Insurance Program (NFIP). We appreciate the opportunity to 
discuss our views and recommendations for the future of the program. We 
thank you, Chairman Crapo, Ranking Member Brown, and Members of the 
Committee for your interest in this important subject.
    The ASFPM and its 36 chapters represent more than 17,000 local and 
State officials as well as other professionals engaged in all aspects 
of floodplain management and flood hazard mitigation including 
management of local floodplain ordinances, flood risk mapping, 
engineering, planning, community development, hydrology, forecasting, 
emergency response, water resources development, and flood insurance. 
All ASFPM members are concerned with reducing our Nation's flood-
related losses. For more information on the association, its 14 policy 
committees and 36 State chapters, our website is: www.floods.org.
    Floods are this Nation's most frequent and costly natural disasters 
and the trends are worsening. The NFIP is the Nation's most widely used 
tool to reduce flood risk through an innovative and unique mix of 
incentives, requirements, codes, hazard mitigation, mapping, and 
insurance. At the same time, we understand the four main pillars of the 
NFIP are interconnected; and making significant changes to one pillar 
without thoughtful consideration of the other three can erode the 
program overall. While we are under no illusion that the NFIP is the 
only tool in the toolbox, it is one that serves 22,000 communities, 
policyholders, taxpayers, and the public well. ASFPM's testimony is 
intended to provide a better description of these interdependencies as 
well as 24 recommendations for Congress to consider to reform the NFIP.
The NFIP Is a National Comprehensive Flood Risk Reduction Program
    The NFIP was created by statute in 1968 to accomplish several 
objectives. Among other things, the NFIP was created to:

    Provide for the expeditious identification of and 
        dissemination of information concerning flood-prone areas

    Require States and communities, as a condition of future 
        Federal financial assistance, to participate in the NFIP and to 
        adopt adequate floodplain ordinances consistent with Federal 
        flood loss reduction standards

    Require the purchase of flood insurance by property owners 
        who are being assisted by Federal programs or by federally 
        supervised, regulated, or insured agencies in special flood 
        hazard areas

    Encourage State and local governments to make appropriate 
        land use adjustments to constrict the development of land 
        exposed to flood damage so homes and businesses are safer and 
        to minimize damage caused by flood losses

    Guide the development of proposed future construction, 
        where practicable, away from high risk locations threatened by 
        flood hazards

    Authorize nationwide flood insurance program through the 
        cooperative efforts of the Federal Government and private 
        insurance industry

    Provide flexibility in the program so flood insurance may 
        be based on workable methods of distributing burdens equitably 
        among those protected by flood insurance and the general public 
        who benefit from lower disaster costs

    Beyond merely providing flood insurance, the NFIP is unique as it 
integrates multiple approaches to identify flood risk, communication of 
the risk, and reduction of flood losses. It is a unique collaborative 
partnership enlisting participation at the State and local level. It is 
a multifaceted, multiple objective program--a four legged stool as it 
is often called. The four legs of the stool are (1) floodplain mapping, 
(2) flood standards, (3) flood hazard mitigation, and (4) flood 
insurance. Altering one leg without careful consideration of impacts on 
the other three legs can have serious repercussions on reducing flood 
losses. NFIP on the whole provides substantial public benefits as our 
testimony will further detail.
A Pivotal Time for the NFIP--Current Status
    At the end of 2016 the NFIP, which is 50 years old, had paid $56.4 
billion in claims. But beyond paying insurance claims, the NFIP has 
also mapped 1.2 million miles of streams, rivers and coastlines. It has 
invested more than $1.3 billion in flood hazard mitigation for older, 
at-risk structures. Because of the program, over 22,000 communities 
adopted local flood risk reduction standards, which results in nearly 
$2 billion of flood losses reduced annually. The NFIP has provided 
innumerable public benefits as well as direct monetary ones to 
taxpayers.
    At the same time, based on historical flooding and dealing with 
ongoing development, future conditions are and will continue to change, 
perhaps quite significantly. While floodplain managers know upstream 
development often results in increased flood heights, we also observe 
changing weather patterns that result in shifting snowmelt/rainfall in 
the West. Nationally, more intense short duration storms are causing 
more flash floods, and unrelenting sea level rise (SLR) is beginning to 
affect communities from Florida to Virginia to Alaska. A recent NOAA 
report added a new upper boundary for SLR this century up to 2.5m (8 
feet) by 2100 due to new data on the melting of the Greenland and 
Antarctic ice sheets. This new data is getting the attention of our 
State and community members. For example, a recent article shows Rhode 
Island State officials discussing how to deal with these new scenarios. 
Luckily the NFIP, as it exists today, can help States and communities 
address these problems with its innovative mix of incentives, 
requirements, data, and tools.
    Still, improvements can be made. NFIP reform legislation in 1994 
and 2004, in addition to other measures, outlined reforms focused on 
reducing repetitive loss properties. Today those remain problematic. 
Reform legislation in 2012 focused on flood mapping. Today the National 
Flood Mapping Program provides important authorities for FEMA and 
cooperating technical partners to map all flood hazard areas across the 
country. Reform legislation in 2004, 2012, and 2014 addressed 
deficiencies in the insurance element of the NFIP. There is still more 
work to be done. It is important to note that the 2012 and 2014 reform 
legislation resulted in 80 new sections of law that are not yet fully 
implemented. ASFPM hopes Congress will be thoughtful about reforms that 
might be considered in 2017 as we do not yet fully know the program 
outcomes that will result from the previous two reform bills.
    So what will the NFIP of tomorrow look like? ASFPM believes the 
Nation will continue to need a robust, fiscally strong NFIP to 
comprehensively reduce flood risk. We also believe a strong NFIP can 
co-exist with a developing private market. But at the end of the day we 
must acknowledge that at least today's NFIP is far more than an 
insurance program. It is the Nation's primary tool to identify and map 
flood hazard areas used by a multitude of agencies. The program is also 
a tool to assess flood risk, used to work with communities and States 
to implement strong land use and building standards to prevent future 
disaster losses, and works with property owners and communities to 
undertake mitigation to reduce damage to older at-risk buildings, in 
addition to providing flood insurance. While we have witnessed several 
narrowly focused reform proposals since the convening of the 115th 
Congress, we are particularly encouraged by the recent release of the 
bipartisan Cassidy-Gillibrand discussion draft which is a comprehensive 
reform bill with several good ideas. We look forward to working with 
the committee on comprehensive NFIP reform bill that serves 
policyholders, communities, and taxpayers.
A Long-Term Sound Financial Framework Is Needed
    The NFIP had generally been self-supporting until 2005. In the 
1980s the program went into debt a few times and ultimately Congress 
forgave approximately $2 billion. But from the mid-1980s to 2005, the 
NFIP was largely self-sustaining and when borrowing from the U.S. 
Treasury, the debt was repaid with interest. However, due to 
catastrophic floods in 2004, 2005, and 2012, and now due to a high 
claims year in 2016, the program does currently owe $24.6 billion to 
the treasury. Unfortunately, we heard this past March in testimony to 
the House from FEMA, that this past January, the program had to even 
borrow to pay the interest on the debt (and today's debt is financed at 
historically low rates). This was done only one other time back in 2008 
after Hurricane Ike. When interest rates eventually cycle back to more 
historic levels, the interest on the debt payments will destabilize the 
program.
    The NFIP was never designed to pay for catastrophic events. In 
fact, from 1968 to 1978 the concept was one of risk sharing with the 
private sector with the program actually paying a subsidy to private 
insurers for pre-FIRM structures. As recently as the late 1980s, 
internal communications show that the Administration reaffirmed the 
Federal treasury was essentially the reinsurer of last resort. \1\ It 
seems this history has been forgotten. Further, the NFIP is being held 
to a much different standard than another disaster loss management 
program that Congress annually subsidizes, the Federal crop insurance 
program. How can it be that a program like crop insurance, with a 
primary purpose is to encourage insurance as an alternative to ad hoc 
disaster spending, be annually subsidized at $6.5 billion annually, \2\ 
with strong Congressional support?
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     \1\ Dr. Len Shabman with Resources for the Future has been 
researching this topic in-depth and will be soon developing a paper 
detailing the history and specifically the financial arrangement of the 
NFIP from 1968-1978 as well as the strengths and weaknesses of the 
public-private loss sharing model that actually still exists today.
     \2\ According to the Congressional Budget Office, the Federal 
outlays for crop insurance is expected to average $8.8 billion per year 
from FY2015-FY2024 based on the 2014 farm bill changes. It is also 
interesting to note that the Federal Government subsidizes 
approximately 62 percent of the crop insurance premium; that the 
subsidy was expressly increased to stimulate participation in the crop 
insurance program in order to avoid disaster assistance; and that 
premium subsidies, administration and operating expenses, and 
underwriting losses/gains are considered mandatory spending in the 
Federal budget. (Congressional Research Service: Proposals to Reduce 
Premium Subsidies for Federal Crop Insurance, 2015.)
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    Important progress toward putting the program on a more sound 
financial footing was made as part of the past two NFIP reforms in 2012 
and 2014, which ASFPM supported. Under BW-12, reforms (later modified 
by HFIAA-14) were made to the rate structure to move subsidized 
policies to actuarial premium rates, to allow the NFIP to purchase 
reinsurance and to establish a reserve fund. All of these help reduce 
the financial risk to the program and ultimately to the American 
taxpayer.
    But what has been very frustrating to ASFPM is Congress' 
unwillingness to address the program debt and any long term framework 
of stability should a truly catastrophic event happen again (such as 
another Katrina). After reviewing FEMA's interest and principle 
payments after 2005 and based on FEMA's analysis of cash flow, if 
Congress had promptly dealt with the debt amassed from the 2004-2005 
hurricane seasons, then the NFIP wouldn't have had to borrow from the 
treasury to pay Hurricane Sandy claims and would have likely not had to 
borrow for claims in 2016. Those pointing to today's debt in the NFIP 
as evidence that the NFIP is irreparably broken do not understand that 
if the 2004-2005 debt had been resolved in a timely manner by Congress 
(as had been done in the 1980s and consistent with the program's 
design), the NFIP would be functioning well with little or no debt 
today.

    ASFPM recommends Congress forgive the current NFIP debt

    Congress should also develop a threshold above which the 
        Federal Government will backstop claims resulting from 
        catastrophic events for the NFIP based on an evaluation of the 
        program's current financial capacity and level of risk transfer 
        to the private sector given the financial risk management tools 
        Congress has asked FEMA to implement
Floodplain Mapping
    Floodplain mapping is the foundation of all flood risk reduction 
efforts, including design and location of transportation and other 
infrastructure essential to support businesses and the Nation's 
economy. Today FEMA has in place right policies and procedures (i.e., 
requiring high-resolution topography (LIDAR) for all flood map 
updates), and is using the best available technology to produce very 
good flood studies. For example, FEMA is doing some pilot studies in 
Minnesota and South Dakota using very precise topographic mapping and 
automated flood study methods to develop base level engineering that 
can be used as an input into future flood studies. This gives 
communities data immediately to use for planning and development rather 
than waiting years for the data. In coastal studies, FEMA now uses the 
state-of-the-art ADvanced CIRCulation (ADCIRC) model for storm surge 
analysis. Unfortunately, due to the length of time it takes from 
initiation of a flood study to final production, some maps coming out 
today may have been started a decade ago and are not being produced to 
today's specifications. It is important to distinguish between these 
legacy mapping projects and those meeting today's guidance and 
specifications. ASFPM is also pleased that FEMA has prioritized 
eliminating remaining pure ``paper'' maps that have never been 
modernized with newer flood study procedures.
    Recently there has been confusion around whether or not 
sophisticated risk assessment modeling developed by the private sector 
can be a suitable replacement for FEMA flood maps and data. However, 
this is comparing apples to oranges. First, FEMA flood maps and data 
are already produced by the private sector (under contract to FEMA). 
Second, the private sector risk assessment methods largely developed to 
assist the reinsurance industry are not publicly available. Those 
models do not produce a ``map'' the community can use for multiple 
purposes and cannot inform the other needs of the program including 
hazard mitigation and floodplain management. Such methods can 
complement FEMA maps for the purposes of rating flood insurance, but do 
not replace FEMA maps. Further, those developing such models have 
indicated they depend on FEMA maps to calibrate their models.
    Today, flood risk maps only exist for about \1/3\ of the Nation--
only 1.2 million of 3.5 million miles of streams, rivers and coastlines 
have been mapped. Even today some of the maps are many decades old, or 
were updated before the current standards to redraw boundaries based on 
more accurate study data and topography. Many areas have never been 
mapped, so there is no identification of areas at risk. The development 
occurs with no flood standards. This is what is happening in thousands 
of subdivisions across the country: areas are developing into tens of 
thousands of housing units that use to be cornfields and cow pastures. 
Later, after there is significant development at risk and often after a 
flood or two, FEMA comes in and maps it. Then the dynamic changes and 
everything becomes adversarial. People think FEMA put a floodplain on 
them when it was there all along. The property owner is mad because 
they have to buy flood insurance at high premiums because flood 
elevations were unknown. Realtors are upset because it is a surprise 
and may have an impact on the future salability of homes. And local 
elected officials fight to minimize the size of the mapped floodplain, 
spending thousands of dollars on competing flood studies that are often 
minimal changes.
    The point is it doesn't have to be like this, but we have to start 
changing our mapping priorities. The entire dynamic can change if maps 
showing risk are available before development starts. We must map 
today's corn fields and cow pastures to get mapping ahead of 
development.
    The National Flood Mapping Program (NFMP) authorized by Congress in 
2012 Reform Act was one of the most important elements of the 
legislation and is the right approach. While FEMA has not made much 
progress on mapping residual risk areas, failure inundation areas or 
areas of future development, FEMA is making progress, paying attention 
to recommendations made by the Technical Mapping Advisory Council. Now 
we need 2.3 million miles of unidentified flood hazard areas, and 
maintain the existing inventory of 1.2 million miles of flood studies. 
ASFPM supports Section 501 of the Cassidy-Gillibrand bill to increase 
the authorization for flood mapping to $500 million annually.
    Another key issue is mapping areas below dams and behind levees to 
show the residual risk areas that will be flooded when the dam or levee 
overtops, fails or a spillway is used. This was an issue with the 
recent flooding below Oroville Dam in California. While local emergency 
management officials had access to these maps, two hundred thousand 
evacuated property owners did not. People need to know they are living 
or buying in a residual risk area so they can take preparedness and 
mitigation measures such as buying a low cost flood insurance policy. 
In just the last 2 years, South Carolina alone has had 80 dam failures 
due to increasingly intense flooding events. Unfortunately, DHS policy 
has continued unchanged since 9/11 which is that inundation maps for 
Federal dams and levees are classified as For Official Use Only and not 
publicly available. This means citizens living there do not know they 
are at risk until law enforcement knocks on their door in the middle of 
the night and orders them to evacuate.
    In recent years, a Federal Policy Fee associated with NFIP policies 
($50 for high-risk policies; $25 for lower-risk policies) has paid 
between 30-60 percent of the flood mapping program and appropriations 
paid for the remainder. The highest level of appropriations in the past 
5 years has fallen far short of the $400 million per year authorized in 
BW-12. So funding from the Federal Policy Fee is an important part of 
the funding for map updates and corrections. Fewer NFIP policies means 
less funding for updated maps.

    ASFPM recommends the reauthorization of the National Flood 
        Mapping Program (NFMP)

    ASPFM supports an increased authorization for the National 
        Flood Mapping Program to accelerate the completion of the job 
        of initially mapping the Nation in 5 years and getting to a 
        steady-state maintenance phase

    ASFPM recommends that Congress require Federal dam and 
        levee inundation maps be publicly available and cease their 
        classification as For Official Use Only

    Finally, ASFPM would like to comment on the Cooperating Technical 
Partners (CTP) program. The CTP program. The CTP program is an 
innovative approach to creating partnerships between the Federal 
Emergency Management Agency (FEMA) and participating NFIP communities, 
regional agencies, State agencies, tribes and universities that have 
the interest in becoming more active participants in the FEMA flood 
hazard mapping program. Just this past Monday, at the ASFPM annual 
conference, FEMA presented its first annual CTP award to the San 
Antonio River Authority (SARA). SARA, a CTP since 2003, manages its own 
floodplain mapping projects for watersheds in the San Antonio River 
Basin, and also processes its letter of may revisions. By incorporating 
its local knowledge and data into the flood mapping process, FEMA 
maximizes its leveraging of local knowledge and data, and the community 
produces more acceptable mapping products for its citizens. In short, 
it is huge benefit for both FEMA and SARA. ASFPM strongly supports the 
continuation and expansion of the CTP program. ASFPM is concerned that 
the CTP program is focusing on communities that are already capable 
versus helping those communities which need assistance building mapping 
capabilities.
Floodplain Regulations, Standards, and Codes
    More than 22,200 communities participate in the NFIP, which 
basically means they have adopted minimum development and construction 
standards to reduce flood losses. As floodplain areas are identified 
and mapped throughout the Nation, NFIP participating communities must 
adopt and enforce local floodplain management standards that apply to 
all development in such areas. In urban and rural areas alike, these 
standards have for decades set a minimum level of protection for 
development occurring in identified floodplains.
    States are required to apply similar standards for State funded, 
financed and undertaken developments. In fact, NFIP standards are the 
most widely adopted development/construction standards in the Nation as 
compared to building codes, subdivision standards or zoning. FEMA has 
estimated that for approximately 6,000 of the NFIP participating 
communities, the only local codes they have adopted are their 
floodplain management standards. Today it is estimated nearly $2 
billion of flood losses are avoided annually because of the adoption 
and implementation of minimum floodplain management standards. Often 
communities decide to adopt standards that exceed the Federal minimums. 
For example, over 60 percent of the population in the United States 
lives in a community that has adopted a freeboard--which is an 
elevation that is higher than the base flood (or 100-year flood) where 
buildings must be elevated. A freeboard not only has the benefit of 
making the construction safer, but it can have a tremendous impact on 
flood-insurance rates. A freeboard of 3 feet can reduce premiums by 
more than 70 percent.
    In 2016, ASFPM participated in an agricultural floodplain ordinance 
task force which was formed to identify and develop refinements of the 
NFIP in agricultural and leveed agricultural areas. ASFPM's Chair Ceil 
Strauss, the State floodplain manager for Minnesota participated in 
this group, and was supported by floodplain managers from several 
States where agriculture is a significant element of the economy. While 
ASFPM supported several recommendations of that task force, including 
FEMA's update of Technical Bulletin 7-93, ASFPM urged caution to 
broader considerations to change NFIP standards to exempt certain 
classes of activities from needing floodplain development permits or 
needing to elevate certain agriculturally related structures. One only 
needs to remember the carnage of Hurricane Floyd in North Carolina in 
1999 where over $2 billion in agricultural losses occurred including 
the loss of 30,000 hogs, 700,000 turkeys and 2.4 million chickens. If 
anything, NFIP minimum standards need strengthened to address modern 
agricultural methods including large concentrated animal feeding 
operations (CAFOs).
    Why do communities participate in the NFIP and adopt local 
standards? State floodplain managers around the Nation who have 
enrolled nearly all of the communities in the past 40 years know a 
major reason is to make flood insurance available to their citizens. If 
a community hasn't joined (there are still about 2,000 communities not 
in the NFIP), it is usually compelled to do so when a resident gets a 
federally backed mortgage and needs to have flood insurance. While 
there are some nonparticipation disincentives in terms of restrictions 
on some forms of disaster assistance, such disincentives are weak and 
very limited. For most communities, they are not much of a disincentive 
at all, but getting flood insurance is.
    The entire floodplain management budget (100 percent), which 
includes staffing, community and State technical assistance, and the 
Community Assistance Program (CAP-SSSE), comes out of the Federal 
Policy Fee.

    ASFPM recommends almost all forms of disaster assistance 
        (especially public assistance) be tied to a community's 
        participation on the NFIP
Flood Hazard Mitigation
    NFIP has two built in flood mitigation programs: Increased Cost of 
Compliance (ICC) and Flood Mitigation Assistance (FMA). These NFIP 
funded mitigation programs have resulted in more than $1.3 billion in 
funds to reduce risk to thousands of at-risk, existing structures. The 
Multi-Hazard Mitigation Council in its research of FEMA flood hazard 
mitigation projects determined that such projects resulted in $5 in 
benefits for each $1 spent. ICC and FMA have mitigated, on average, 
1,850 buildings annually between 2010 and 2014. ASFPM strongly supports 
both programs.
    ICC is the fastest way to get flood mitigation done and is paid for 
100 percent through a separate policy surcharge. Since it isn't run 
like a typical grant, funds are available much quicker. It is a 
transaction between the insured and insurance company. Sixty percent of 
ICC claims are used to elevate a building and 31 percent of the time 
it's used to demolish a building. Other techniques used are 
floodproofing or relocation of the building out of the floodplain 
altogether. From 1997 to 2014, ICC has been used to mitigate over 
30,000 properties.
    ASFPM has been frustrated for several years over the pace of FEMA's 
implementation of its existing authority to make ICC much more useful. 
In 2004 ASPFM worked with Congress to add triggers to ICC, so now there 
are four of them:

    A building being substantial damaged,

    A building classified as a repetitive loss,

    A building where an offer of mitigation is being made, and

    The administrator's discretion to offer ICC when it is in 
        the best interest of the flood insurance fund.

    Of these four, only one trigger is being utilized--when a structure 
has been determined to be substantially damaged. While FEMA will claim 
it also applies ICC to repetitive loss properties it, is only that 
subset of them that have also been substantially damaged. The point is 
that there are three triggers--in existing law--that could be used in a 
pre-disaster sense. ASFPM would note that this past fall, FEMA has 
finally convened an internal working group to look at ICC and evaluate 
how to make it more effective. ASFPM urges the committee to monitor the 
progress of this group to ensure that the congressional intent has been 
carried out.
    Another frustration with how ICC is currently being implemented is 
the determination of how the surcharge is set by FEMA's actuaries. 
Currently funding for ICC is through a congressionally mandated 
surcharge capped at $75 per policy. The latest data ASFPM has is for 
calendar year 2014 where ICC brought in approximately $74 million for 
mitigation. On average this equals about $15 per NFIP policy--which is 
far below the statutory cap. However, as ASFPM has been discussing 
changes to ICC including increasing the ICC claim limit beyond $30,000, 
a response we often get is that the FEMA would have a tough time making 
the changes because it is collecting as much as it can under the 
existing cap and that the surcharge rate is set using actuarial 
principles.
    However, in its 2010 rate review, FEMA discussed how it was 
collecting more in ICC than it was spending and therefore adjusted the 
amount it would collect per policy down in 2011. The result? In 2010 
the surcharge collected $84.5 million and in 2011 the surcharge 
collected $78.2 million. The point of this is that the rate setting 
becomes a self-fulfilling prophesy--FEMA's inability to implement ICC's 
other triggers result in the program not being fully used. And its low 
utilization in turn led to FEMA determining that the rates should be 
lowered. So it gives the appearance there is room under the existing 
cap. ASFPM believes there is room under the existing cap and suggests 
Congress look at setting a tiered amount that would be consistent with 
the existing cap limit and reflective of risk. For example, ASFPM 
calculates that under such an approach an ICC surcharge set at $25 for 
BCX-Zone properties, $50 for actuarially rated A- and V-Zone properties 
and $75 for subsidized A- and V-Zone properties, would generate 
approximately $227 million in revenue that could be used by 
policyholders to mitigate their flood risk.
    ASFPM believes ICC needs two other adjustments by Congress to be 
more effective. First, while ICC is collected on every policy, FEMA 
believes the statute requires the ICC claim be counted toward the total 
claim limit. This means a home that gets a $250,000 damage claim, the 
amount available for ICC is $0. Second, the ICC claim limit is too low. 
Estimates to elevate a home range from $30,000 to $150,000 with an 
average closer to $60,000. While $30,000 is very helpful, it often does 
not come close enough to cover enough of the mitigation cost. ASFPM is 
very supportive of Section 203 in the Cassidy-Gillibrand bill that 
increases the coverage limits of ICC to $75,000.

    ASFPM recommends the ICC claim limit be in addition to the 
        maximum claim limit under a standard flood insurance policy

    ASFPM recommends the ICC claim limit be raised to $60,000 
        or higher

    ASFPM recommends Congress specifically allow FEMA to 
        utilize the available ICC amount for both demolition and 
        acquisition costs as a means of compliance, when the claim is 
        assigned to the community and deed restricted as open space

    ASFPM recommends FEMA clarify to Congress whether or not 
        expanding ICC to utilize pre-disaster triggers, raising the 
        claim limit and allowing demolition and acquisition costs would 
        necessitate increasing the cap and based on that information 
        either raise the cap or set a tiered surcharge within the 
        existing cap

    ASFPM recommends Congress waive any rulemaking requirements 
        that may be an impediment to quickly implementing the pre-
        disaster triggers for ICC and allowing demolition and 
        acquisition costs

    FMA operates like a typical grant program where a community applies 
through the State through a grant application. Further, FMA also funds 
other types of mitigation that can address issues on the neighborhood- 
or community-scale such as stormwater management systems to reduce 
flood risk and flood mitigation plans. In recent years, the priority 
for the FMA program has been repetitive loss and severe repetitive loss 
properties. While this is an important objective, ASFPM worries that an 
exclusive focus on such projects is increasingly resulting in a gap 
where no assistance is available for properties that desperately need 
assistance, such as older pre-FIRM nonrepetitive loss structures for 
which insurance rates may be increasing significantly. ASFPM recommends 
that accommodations be made for these types of properties as well when 
FEMA formulates its new policy guidance. As our testimony will go into 
more detail below, one approach to flood insurance affordability is to 
subsidize flood hazard mitigation or at least give property owners a 
chance to mitigate. Another idea for Congress to consider is a 
mitigation surge where Congress would supplement FMA funds with a large 
one-time or multiyear appropriation to either address the growing 
number of repetitive loss properties, or specifically address pre-FIRM 
properties where affordability of flood insurance has become untenable.
    Repetitive loss claims continue to drain the National Flood 
Insurance Fund and today, there are at least 160,000 repetitive loss 
properties. Hazard mitigation efforts have been insufficient to reduce 
flood damage to older structures and ultimately reduce the overall 
number repetitive loss properties. Current mitigation programs within 
the NFIP are underfunded and not reducing the overall number of 
repetitive losses in the country.
Flood Insurance
    Flood insurance is the easiest way for a property owner to manage 
their flood risk. It was also viewed by the original authors of the 
program as a way to more equitably share risks and costs of development 
decisions. Yet too few property owners and renters carry flood 
insurance. Today it is estimated 10 percent of the population lives in 
an identified floodplain and that number is projected to grow to 15 
percent by the year 2100 based on natural population growth and future 
conditions (land use, development, and climate change). It is also 
estimated the number of policies increasing by 100 percent and the 
average loss per policy increasing by 90 percent in 2100. \3\ The point 
is that these trends show growth in the human occupation of flood 
hazard areas and the potential damage that may result. As we have 
pointed out earlier, there are many more miles of rivers, streams and 
coastlines that aren't even yet mapped (which is why it is unsurprising 
that 20 percent of NFIP claims and \1/3\ of Federal disaster assistance 
come from outside of mapped floodplains). \4\
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     \3\ ``The Impact of Climate Change and Population Growth on the 
National Flood Insurance Program through 2100''. 2013.
     \4\ ``FloodSmart Flood Facts''. Webpage accessed 3/14/17.
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The Push for Expansion of a Private Flood Insurance Market
    In 2012 and today, there appears to be much interest in expanding 
the private flood insurance market. Many believe the private sector is 
a cure-all and can get the taxpayer off the hook for flood losses. And 
there seems to be a belief that if not for Congressional intervention 
in 2017, a robust private market would develop. ASFPM believes that the 
private sector can be a partner to the NFIP in growing the policy base 
nationally, but any reforms to the law to do so should be done with 
care. For example, ASFPM rejects the notion that the NFIP should be a 
program of ``last resort'' only insuring the worst risks, and strongly 
urges Congress to consider reforms that do not lead to cherry-picking 
of the risks that maximize the private industry's profits--to the 
detriment of the NFIP. ASFPM has the following observations related to 
expanding the private flood insurance market. First, private flood 
insurance has always been part and will continue to be allowed under 
the NFIP. Currently, robust private markets exist for policies in 
excess of NFIP limits. The private market has almost all of the 
commercial and industrial flood risk in the country. And robust private 
markets exist for forced place properties. Too often in 2012 and again 
this year, conversations in Congress about private flood insurance 
imply private companies are not currently writing policies. Not true! 
Both industry leaders and even testimony by the CEO of the Nation's 
largest private flood insurance agency to the House in March indicated 
very strong growth, especially over the past 2 years.
    Second, the reforms to stimulate more private market participation 
in 2012 have worked as intended. ASFPM strongly disagrees with those 
who believe that somehow the 2012 reforms were badly written or somehow 
missed its intent. ASFPM has spoken with numerous industry sources, as 
well as had extensive conversations with private sector companies 
interested in offering private flood insurance and former State 
insurance commissioners. This industry is growing and in the past 2 
years has expanded significantly. For example, private flood policies 
today are required to contain a flood mitigation coverage that is 
similar to ICC because the 2012 reforms required that private policies 
have coverage ``at least as broad as'' NFIP policies. This ensures that 
property owners have funds to elevate flood prone homes and that 
communities are not faced with owners who just walk away from the 
property because it is too expensive to elevate. The 2012 reforms are 
ensuring that the private market is growing in an orderly way with 
appropriate safeguards that ensure protections for policyholders, 
lenders, taxpayers, and communities.
    Current law requires private policies to include six key 
provisions: coverage that is at least as broad as coverage under a 
standard flood insurance policy under the NFIP including deductibles, 
exclusions, and conditions; a notice of cancellation requirement; 
information about availability of flood insurance coverage under the 
NFIP; a mortgage interest clause similar to that found in a NFIP 
policy; a time limitation for filing a lawsuit after a denial of a 
claim; and cancellation provisions as restrictive as those under a NFIP 
policy. ASFPM has significant concerns from both a policyholder and 
community perspective about recent legislative proposals to eliminate 
these provisions, especially the two that pertain coverage/exclusion 
requirements and the mortgage interest clause requirements. To offer a 
policy for half the NFIP price might sound good but if the coverage is 
only 25 percent of the NFIP policy or if the deductible is beyond the 
ability of the property owner to pay it is a very bad deal (as the 
consumer will find out when a flood hits). Taxpayer costs of disaster 
relief will also explode if weak coverage is allowed in the private 
market. ASFPM urges that these six provisions be retained in any 
comprehensive NFIP reform legislation.

    As a result of the successful 2012 reforms to stimulate the 
        private flood insurance market, ASFPM does not believe any 
        further stimulation of the private market is needed at this 
        time \5\
---------------------------------------------------------------------------
     \5\ Last year ASFPM testified before the Senate Committee on Small 
Business and Entrepreneurship on flood insurance rate increases which 
also included detailed thoughts on H.R. 2901, which can be found here 
or on ASFPM's website at www.floods.org.

    If Congress does consider additional changes to stimulate 
        the private market, ASFPM urges that the six requirements for 
        private flood policies be retained. If these provisions are 
        retained to ensure that a private policy is at least equivalent 
        to that of an NFIP policy, ASFPM supports legislative proposals 
        to ensure seamless continuous coverage between private policies 
---------------------------------------------------------------------------
        and NFIP

    Third, ASFPM strongly believes a strong NFIP can coexist with the 
private market offering flood insurance as long as both are on equal 
playing fields. In other words, neither the NFIP nor the private market 
should be at a competitive disadvantage. As explained earlier in this 
testimony, private insurers depend on NFIP maps and agrees local 
floodplain regulations help all insurance, yet private policies do not 
have to include the Federal Policy Fee to help pay a share of these 
costs. The wholly unfair PAYGO surcharge has allowed private policies 
to be written using FEMA rate tables and the private sector is 
profiting on the difference between the loaded NFIP policy (with 
surcharges and fees) and private sector policy that does not have to 
charge such fees.
    Fourth, ASFPM believes that to preserve the many public benefits of 
the NFIP, to ensure fairness and to prevent erosion the NFIP, two 
changes must be made to the existing law to ensure private flood 
policies are paying their fair share of floodplain management and 
mapping costs, and to ensure that communities continue to participate 
in the NFIP.
    The private insurance industry uses FEMA flood maps in various 
ways: sometimes to calibrate their risk assessment models, and 
sometimes to determine basic eligibility of their private flood 
insurance product. Industry officials ASFPM talks with all support the 
floodplain management efforts in a community that provide a meaningful 
program of risk reduction. Given that 100 percent of the Federal Policy 
Fee goes to mapping and floodplain management, it is only equitable 
that private policies help pay for these functions and that they are 
not just borne by policyholders. ASFPM strongly supports Section 404 of 
the Cassidy-Gillibrand bill that would assess a surcharge or user fee 
on private flood policies to pay for mapping and floodplain management 
and for ICC, especially if provisions of current law that require 
private policies to have comparable coverages are eliminated.

    ASFPM recommends an equivalency fee, equal to the Federal 
        Policy Fee, be assessed on private flood insurance policies and 
        remitted to the NFIP, and that fee be specifically dedicated 
        for flood mapping and floodplain management

    The equivalency fee is not unlike TSA security fee which helps fund 
TSA's airport security measures. For the traveling public, this fee 
supports critical security measures and ensures the safety of the 
commercial airline industry. And while from a purely philosophical 
standpoint one could argue that the Federal Government should pay this 
through appropriations, it does not. And as members of the flying 
public, we certainly do not object to paying such a fee to keep us 
safe. Similarly, some might argue that that floodplain management and 
floodplain mapping should be wholly supported by Federal appropriations 
as flood maps and floodplain management are public benefits. But for 
decades this has not been the case and that burden has been shared 
between the taxpayer at large and those with NFIP policies. And the 
simple fact is that private flood policies and those companies selling 
private flood policies, for a variety of reasons, need accurate flood 
maps and depend on having local flood codes adopted and enforced. It is 
entirely unfair that taxpayers and NFIP policy holders today are 
subsidizing private policies which is what is happening now in absence 
of such a fee. \6\
---------------------------------------------------------------------------
     \6\ It should be noted that in testimony before the House, Evan 
Hecht, CEO of the Nation's largest provider of private flood policies 
thought that such an equivalency fee was fair and was supportive of it.
---------------------------------------------------------------------------
    As private flood insurance becomes more widely and easily 
available, provisions must be made to ensure such policies can only be 
made available to meet the mandatory purchase requirement if the 
community participates in the NFIP. Why? For thousands of communities 
in the NFIP, the primary reason for joining the program is the 
availability of flood insurance to meet the mandatory purchase 
requirement. As a requirement of joining, communities agree to adopt 
and enforce local floodplain management standards. As a result, 
floodplain management standards are the most widely adopted in the 
United States--exceeding the coverage of building codes, subdivision 
regulations and zoning. The adoption and enforcement of these codes, in 
turn, reduces future flood risk to the individual, businesses, 
communities and taxpayers. ASFPM members understand that once you 
remove the incentive for joining (flood insurance availability) 
thousands of communities may rescind their codes, drop out of the NFIP, 
and rely on the private policies to meet needs of property owners 
without the administrative burden of adopting and enforcing local 
codes. Particularly susceptible to this are small communities with low 
policy counts. As stated earlier in this testimony, most communities in 
the Nation already participate in the NFIP. And while the private 
industry is still emerging, let's be partners in persuading communities 
to comprehensively reduce flood losses. Finally, this fee has no cost 
to the private insurance industry.

    ASFPM recommends that private flood insurance policies 
        meeting the mandatory purchase requirement and can only be sold 
        in NFIP participating communities

    As stated earlier, ASFPM is concerned about private industry 
cherry-picking the best risks from the NFIP leaving the portfolio of 
the program more adversely selected. Because of this concern and the 
growth that is occurring in the private flood market which could lead 
to such a state for NFIP, ASFPM can only support, at most, a five-year 
reauthorization of the NFIP to ensure that Congress will exercise its 
oversight in a reasonable period of time.
Flood Insurance Affordability
    Despite the longer glide path for premium increases set in HFIAA, 
rates may again reach high levels in another three or four years and a 
long-term solution to affordability was not included in either BW-12 or 
HFIAA. Also, to meet House PAYGO rules, there was a large surcharge 
imposed on nonprimary residences, small businesses and other 
nonresidential structures. The surcharge is neither risk-based nor 
need-based. Premium increases and surcharges have led to a notable 
reduction in policies in force, declining from a high of 5.5 million to 
about 5.1 million today.
    On one hand ASFPM supports pricing flood insurance premiums to 
accurately reflect risk. Premiums reflecting risk inform individuals as 
to the level of hazard in flood prone areas and encourage investment in 
flood mitigation measures. On the other hand, many low and middle 
income homeowners living in older homes in flood prone areas may not be 
able to afford flood insurance if premiums are priced to reflect risk. 
ASFPM believes that it is imperative that issues of affordability be 
addressed, but not necessarily by only subsidizing premiums. The 
University of Pennsylvania Wharton Risk Management and Decision Process 
Center has developed a conceptual approach that would pair a needs 
based voucher program with implementation of a low interest mitigation 
loan program. ASFPM supports approaches like this that emphasize 
mitigation as part of the solution. We recognize and commend the 
Cassidy-Gillibrand bill for presenting a concrete proposal to address 
affordability and would strongly urge the approach taken to incorporate 
mitigation where it is cost effective to do so.
    ASFPM notes that congressionally mandated studies on flood 
insurance affordability have been completed and now look forward to 
FEMA's completion of the affordability framework. However, we are also 
concerned about timing of the FEMA framework relative to the 
reauthorization deadline and whether any meaningful reforms will be 
developed and considered.

    ASFPM recommends considering a shorter multiyear 
        reauthorization of 2-3 years so FEMA can more fully develop 
        affordability recommendations for Congress to consider

    ASFPM recommends the elimination of the PAYGO surcharge 
        established in 2014 from the standpoint of flood insurance 
        affordability and equity with private flood policies

    ASFPM recommends that subsidies be focused on mitigation, 
        rather than subsidizing insurance and that any subsidy be paid 
        for outside of the NFIP (do not create a new cross-subsidy 
        rather fund through appropriations)
Mandatory Purchase Requirement and Compliance
    When first enacted in 1968, the NFIP did not have a mandatory 
purchase requirement. By 1973, only 200,000 property owners had flood 
insurance policies. Following a series of catastrophic floods, Congress 
enacted the Flood Disaster Protection Act of 1973, instituting the 
mandatory purchase requirement, obligating property-owners seeking a 
loan from a federally regulated lending institution to obtain flood 
insurance if their assets were within a special flood hazard area. As a 
result, these reforms led to a dramatic increase in insurance 
penetration and by 1977, more than 1.4 million properties had flood 
insurance. In short, mandatory purchase works! Even as you pass the 
2017 omnibus spending bill which contains over a billion dollars in 
supplemental funding for storm and flood disaster recovery, consider 
that if there wasn't an NFIP and there wasn't a mandatory purchase 
requirement, the supplemental appropriations you provide would be much 
larger and the burden on the Federal taxpayer greater.
    That is why ASFPM is concerned about some proposals circulating 
that would exempt some classes of properties (such as commercial 
properties) from the mandatory purchase requirement. This makes no 
sense and would end up costing taxpayers more through disaster 
assistance. In fact, ASFPM supports changing the mandatory purchase 
requirement to include more classes of properties.

    Expand the mandatory purchase requirement to include all 
        flood risk areas including: Erosion zones, areas behind levees 
        and other flood control structures, dam inundation zones, and 
        moderate risk areas (Zone B/shaded X)

    Require flood insurance equal to the replacement cost on 
        any structure outside the SFHA for which two or more damage 
        claims or Federal disaster assistance have been paid due to 
        flooding unless it is mitigated

    Evaluate expanding the mandatory purchase requirement for 
        all buildings in coastal storm surge zones

    ASFPM continues to be concerned about the enforcement of the 
mandatory purchase requirement. In 2014 our members became quite 
concerned when FEMA decided that because mandatory purchase was not the 
agency's responsibility, it rescinded the Mandatory Purchase of Flood 
Insurance Guidelines (ironically our members report the document is 
alive and well in circulation as a bootlegged resource and while dated, 
it is still very helpful).
    What is the compliance rate? Attempts to quantify this in 2005 as 
part of the evaluation of the NFIP concluded that while overall the 
market penetration rate of the NFIP nationwide was estimated to be 
around 50 percent, the mandatory purchase requirement compliance rate 
could not be precisely determined. That same study did come to the 
conclusion that mandatory purchase compliance at the time of loan 
origination did not seem to be an issue. \7\ While the number hasn't 
been precisely determined, another study as part of the evaluation of 
the NFIP contained a very good policy discussion of the mandatory 
purchase issue and contained 72 recommendations, including one that 
ASFPM strongly concurs with: ``FEMA should explore opportunities to 
exercise a leadership role in promoting compliance and in assisting 
Federal entities for lending regulation to meet their obligations 
related to flood insurance.'' \8\
---------------------------------------------------------------------------
     \7\ The authors did try to make an estimate of 75-80 percent; 
however, stakeholders largely thought this number was high. Data 
source: ``NFIP's Market Penetration Rate: Estimates and Policy 
Implications''. RAND Corporation. 2006.
     \8\ ``NFIP's Mandatory Purchase Requirement: Policies, Processes 
and Stakeholders''. Tobin and Calfee. 2005.
---------------------------------------------------------------------------
    Aside from the compliance rate, it may be useful to divide 
mandatory purchase compliance into three areas: mandatory purchase 
associated with loans from federally regulated lenders, mandatory 
purchase associated with loans by Federal agencies that do direct 
lending (i.e., Dept. of Agriculture, Veterans Administration, SBA) and 
mandatory purchase associated with the receipt of some forms of 
disaster assistance. It is important to note that while FEMA has the 
authority to administer the NFIP, other Federal agencies typically have 
the authority to administer the NFIP's mandatory purchase requirement. 
Although ASFPM would note that compliance with mandatory purchase 
associated with disaster assistance falls on FEMA. This means there are 
likely very different processes and procedures in place.
    While Congress continually raises questions about mandatory 
purchase, FEMA continually points out that it does not have explicit 
authority to enforce the requirement. ASFPM agrees with earlier Office 
of Inspector General recommendations that FEMA could have a useful role 
in the implementation of the mandatory purchase requirement including 
assisting other Federal entities in addressing the compliance issue. 
FEMA's Office of Inspector General in 2000 provided several examples of 
how FEMA could promote compliance without assuming a regulatory or 
enforcement role. One example is re-instituting a process FEMA used in 
the 1980s and early 1990s that collected information about mortgages 
and location in the SFHA from applicants seeking flood-related disaster 
assistance. FEMA then matched the information with data on which 
property owners carried flood insurance to determine the level of 
compliance with the mandatory purchase requirement.

    ASFPM recommends Congress clarify FEMA's role in mandatory 
        purchase to provide leadership and give FEMA explicit authority 
        to provide technical assistance to Federal entities to meet 
        their obligations to related to mandatory purchase compliance

    ASFPM recommends the committee hold a hearing dedicated to 
        compliance with the mandatory purchase requirement (including 
        when flood insurance purchase is required as a condition of 
        disaster assistance) to further explore this issue
Improving the NFIP Policy Offerings
    Community floodplain managers often hear complaints about the NFIP 
centered around what is covered and what is not; and the inability to 
get additional coverages like living expenses as part of a NFIP policy. 
ASFPM has been impressed with FEMA's customer experience initiative 
after Sandy with FEMA committing to improving the insurance product it 
sells. Yet FEMA is constrained by a cumbersome rulemaking process that 
can take years to complete.

    ASFPM recommends Congress give FEMA the flexibility to 
        offer additional flood insurance policy options and make 
        changes to existing options without the need for extensive 
        rulemaking
In Conclusion
    Floods are this Nation's most frequent and costly natural disasters 
and the trends are worsening. The NFIP is the Nation's most widely used 
tool to reduce flood risk through an innovative and unique mix of 
incentives, requirements, codes, hazard mitigation, mapping, and 
insurance. At the same time, we understand the four main pillars of the 
NFIP are interconnected; and making significant changes to one pillar 
without thoughtful consideration of the other three can erode the 
program overall. While we are under no illusion that the NFIP is the 
only tool in the toolbox, it is one that serves policyholders, 
taxpayers, and the public well.
    The Association of State Floodplain Managers appreciates this 
opportunity to share our observations and recommendations with the 
Committee.
        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
                       FROM LARRY LARSON

Q.1. In South Carolina, we have zoning laws that have allowed 
for the development of properties that drain directly into 
other properties.
    As a result, some South Carolinians have their homes or 
businesses flooded over and over and over again, with the NFIP 
picking up the tab every time.
    Without heavy-handed mandates, how can we incentivize local 
governments (municipal and county) to be proactive and rectify 
these repeat problem areas to the benefit of homeowners and 
taxpayers?

A.1. This is an issue that exists when local communities do not 
provide adequate development standards that protect the 
property rights of those adversely impacted by development as 
well as those of the developers. Property rights of both are 
important. No property owner has the right to do something on 
their property that will adversely impact someone else's 
property. Many communities require those developing to 
demonstrate how any increased runoff from the development will 
be retained on-site, or will otherwise be mitigated to not 
adversely impact others. ASFPM has how-to guides and tool kits 
on our website showing how communities can do accomplish this: 
www.floods.org/index.asp?menuID=460&
firstlevelmenuID=187&siteID=1.
    The NFIP currently provides community credits in ``Activity 
450'' of the Community Rating System for community adoption of 
Low Impact Development (LID) stormwater management practices. 
These are generally modest levels of credit (of up to 25 
points). Considerably higher levels of community credits are 
available when communities adopt requirements for new 
developments to control and provide for infiltration of water 
runoff for increasingly higher volume storms. Such approaches 
can make a substantial difference in reducing conflicts and 
controlling worsening future flooding conditions through 
thoughtfully managing the community's stormwater.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR HEITKAMP
                       FROM LARRY LARSON

Q.1. Affordability: As we examine reauthorizing the NFIP, we 
cannot repeat the mistakes of Biggert-Waters and increase costs 
that drive homeownership out of reach for working people.
    Many of the fixes we passed in HFIAA--such as capping the 
rate of insurance increases for most primary residences and 
preserving grandfathering--were crucial to making sure 
homeowners in my State, especially in areas like Minot, Fargo, 
and Drayton, could afford to stay in their homes. In Minot in 
particular, the city is facing a looming remapping deadline in 
the fall of 2018 that will significantly alter the 
affordability for nearly three thousand properties in the area. 
Many properties are slated to be moved from an X (low risk) 
zone to an AE (high risk) zone, which will mean a huge premium 
increase for many of these homeowners. I've heard from some in 
my State that the jump could be from roughly $400 per month to 
$2K-$6K per month, if they don't secure flood insurance prior 
to the remapping.
    Minot is a great example of why grandfathering is so 
critical for keeping families in their home. Do any of the 
witnesses believe that the grandfathering and affordability 
caps placed in HFIAA should be altered?

A.1. ASFPM warned in its testimony as Biggert-Waters was being 
debated that movement towards actuarial rates too fast would 
cause the problems that eventually occurred resulting in the 
changes under HFIAA. ASFPM supported the adjustments in HFIAA, 
which really resulted in the lengthening of time for policies 
to move to full risk rates. The important element that was 
preserved is a point of certainty that actuarial rates will 
truly happen. These rates had been grandfathered for 44 years 
until BW-12 started the move to actuarial. Three important 
things must happen to make this process successful:

  1.  Continual movement to actuarial,

  2.  FEMA should show policyholders what full risk rates will 
        ultimately be on NFIP policies, and then show discounts 
        being provided, and

  3.  Assistance should be provided to mitigate the building so 
        the property owner can afford the premium--this 
        mitigation assistance can be through ICC or mitigation 
        programs like PDM or FMA, and, when available, HMGP or 
        CDBG-DR or other assistance grants.

    An additional idea to consider is establishment of a State-
related ``mitigation'' revolving loan program working to assist 
communities and homeowners with voluntary property buyouts and 
relocations, or other building mitigation measures (such as 
loans for elevation of building utilities) to help lower 
homeowners' insurance costs through lowering flood risk to 
structures.

Q.2. In order for residents to obtain the benefit of affordable 
rates, they need to secure flood insurance prior to the 
remapping. How can we better educate homeowners about the 
critical importance of these mapping changes and the impact it 
will have on affordability?

A.2. It is clear from research and analysis that citizens most 
trust information from people they know; usually the local 
officials. It is important to enlist local officials to help 
educate the property owners on their risk and urge them to get 
insurance now. Any resources to assist local officials in doing 
this would be useful.

Q.3. As we see more and more extreme flooding across the 
country, FEMA will always be there for homeowners on the back 
end with at least some Federal money through hazard mitigation 
assistance.
    Given that severe flooding occurs more often, and the 
Federal Government many times foots a lot of the bill 
irrespective of flood insurance, does it make sense to expand 
some level of mandatory flood coverage to all federally insured 
mortgages?

A.3. Yes, it makes sense to expand mandatory purchase and ASFPM 
has testified previously that many options exist, such as 
requiring insurance on all loans in 500-year floodplain and in 
residual risk areas behind or below structures that may fail or 
overtop,; or all the way up to consider requiring that all 
homeowner policies must cover all natural hazards, including 
floods just like they cover wind and fire now.

Q.4. What would the costs be for homeowners in low risk areas?

A.4. Similar to Preferred Risk Policy (PRP) now. However, under 
the current pricing scheme and surcharge mandated by Congress, 
the surcharge essentially equals the premium, so the surcharge, 
which is not risk based but artificial, needs to be 
appropriately reduced or eliminated.

Q.5. How would this help sure (shore?) up the NFIP program and 
what risks would it present?

A.5. By coming into closer harmony with a basic tenet of 
insurance--spreading the risk by increasing the risk pool (both 
by class of structure and geographically). Even now, the NFIP 
has an adversely selected portfolio--very high-risk areas have 
concentrations of policies whereas low risk areas are 
chronically underinsured. The more policies in the program, the 
lower the rates, in general. More people would have to buy, but 
if rates in low risk areas are really low, and paid monthly 
that would help homeowners manage costs.

Q.6. Private Flood Insurance and Sustainability of the NFIP: If 
private flood insurance is structured the right way it could 
play a helpful role within our Federal flood insurance system; 
however I have real concerns about cherry-picking and the 
impact that could have on the long-term risks for the NFIP.
    Mr. Larson, in your testimony you express similar concerns 
about cherry-picking. How can we design a minimum coverage 
standard, or other sensible protections, that would allow for 
more private flood insurance without draining the best risk 
from the NFIP?

A.6. Level the field so private competes fairly--and this cuts 
both ways. The NFIP cannot be at a competitive disadvantage to 
private flood and vice versa. This means a couple of things:
    First, private pays an equivalent policy fee to pay for 
mapping, mitigation and floodplain management, and the private 
policy must truly meet the minimums of the NFIP policy 
mentioned in next question.
    Second, in order for the communities to have access to 
private insurance, as with NFIP, communities must continue in 
good standing to participate in the NFIP, meeting at least the 
program's minimum floodplain management standards.
    Third, private policies must have at least some of the 
required elements of 42 U.S.C. 4012a(b) that are in existing 
law now--specifically the provision of flood insurance coverage 
which is at least as broad as the coverage provided under a 
standard flood insurance policy under the national flood 
insurance program, including when considering deductibles, 
exclusions, and conditions offered by the insurer and the 
additional loss payee provision to ensure that claims go back 
into repairing the damaged building.
    The private flood proposals being considered by Congress 
eliminate this consistency requirement, which puts the NFIP on 
the hook for very high-risk properties that private insurers 
will not insure through a continuous coverage provision. If the 
NFIP is to accept a private policy from a continuous coverage 
standpoint, shouldn't it be an ``apples to apples'' situation? 
ASFPM is strongly opposed to eliminating the requirements of 
4012a(b) as we are witnessing a private flood market that is 
now already growing, WITH these requirements in place.

Q.7. If we decide to make the standard for private policies 
that they must be ``at least as broad as coverage under a 
standard flood insurance policy'' who should be making the 
determination of whether an individual private policy meets 
that standard? Are there challenges with allowing state 
Insurance Commissioners the option to make this determination, 
and if so, what are they?

A.7. First, the agencies overseeing lenders should complete 
their job of defining ``at least as broad''. This levels the 
field. Second, FEMA can be helpful in this regard and should be 
directed to assist (we have elaborated on this point in our 
written testimony). ASFPM is concerned there will be challenges 
with 50 State insurance commissioners having 50 different 
definitions for a program that applies nationally. Those 50 
States can address other aspects of the insurance company, but 
the equivalent policy issue must be nationally consistent.

Q.8. One interesting way to better align incentives and risks 
between the private sector and Federal Government would be by 
having the Federal Government and private sector split losses 
and benefits on every policy. For example, you could have a 
design where for each dollar of loss or dollar of premium, 
there's a predetermined percentage of risk sharing between the 
Government and private sector. Could an approach like this be 
effective within the NFIP?

A.8. This sounds simple, but would likely be complex to 
administer. Private insurance is already expanding in the 
Nation, and if the NFIP rates continue toward actuarial, should 
increase. As long as the playing field is level, they should be 
able to coexist. ASFPM is aware of a proposal in the Cassidy-
Gillibrand discussion draft, which establishes a pilot program 
for risk sharing with the private sector. We are supportive of 
trying this concept out on a purely pilot basis.

Q.9. Mitigation: In North Dakota we spend a lot of our 
resources on finding ways to mitigate flood damage. Many of our 
local homebuilders have built homes above and beyond local 
building codes in order to make sure homes are less susceptible 
to flooding. However, under the current system, many of these 
costs go unrecognized for purposes of lower flood insurance 
premiums.
    Where can we make improvement to recognize mitigation 
efforts, not just at the community level, but at the 
homebuilder level?

A.9. There seems to be a misperception here. In fact, the 
current system recognizes many building standards that truly 
reduce the flood risk. The simplest way is to adopt a 
freeboard--or a building first floor elevation level above the 
base (100-year) flood. For example, if the first floor of a 
building is above the BFE (regulatory flood level--usually the 
100-year flood level) reductions in premium rates look like 
this:

 
------------------------------------------------------------------------
   Feet above BFE for first floor              Premium reduction
------------------------------------------------------------------------
1 foot..............................               A zone 50% V zone 18%
2 foot..............................               A zone 68% V zone 38%
3 foot..............................               A zone 74% V zone 55%
------------------------------------------------------------------------

    These are data that Chad Berginnis (ASFPM) updated using 
April 2017 premium rates. Communities should also be encouraged 
to work with lenders, homebuilders, and realtors to inform 
homeowners of the long-term benefits of investment in prudent 
higher building elevations to reduce flood risks and insurance 
costs, currently and into the future. During new construction, 
one foot of elevation adds only about 1 percent to costs.



              Additional Material Supplied for the Record
              
              
              
 SMARTSAFER NATIONAL FLOOD INSURANCE PROGRAM REFORM PROPOSAL, FEBRUARY 
                                  2017



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  AN ILLUSTRATION OF THE BENEFITS OF PRIVATE MARKET DEPOPULATION AND 
                       REINSURANCE RISK TRANSFER
                       
                       
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          STATEMENT OF THE REINSURANCE ASSOCIATION OF AMERICA



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        LETTER SUBMITTED BY THE CONSUMER FEDERATION OF AMERICA



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