[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
PREPARING FOR THE STORM:
REAUTHORIZATION OF THE
NATIONAL FLOOD INSURANCE PROGRAM
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
MARCH 13, 2019
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-8
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Available via the World Wide Web: http://www.govinfo.gov
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California PETER T. KING, New York
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut ANN WAGNER, Missouri
BILL FOSTER, Illinois ANDY BARR, Kentucky
JOYCE BEATTY, Ohio SCOTT TIPTON, Colorado
DENNY HECK, Washington ROGER WILLIAMS, Texas
JUAN VARGAS, California FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York
AL LAWSON, Florida BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan WARREN DAVIDSON, Ohio
KATIE PORTER, California TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
March 13, 2019............................................... 1
Appendix:
March 13, 2019............................................... 67
WITNESSES
Wednesday, March 13, 2019
PANEL ONE:
Duffy, Hon. Sean P., a Representative in Congress from the State
of Wisconsin................................................... 4
Graves, Hon. Garret, a Representative in Congress from the State
of Louisiana................................................... 5
Luetkemeyer, Hon. Blaine, a Representative in Congress from the
State of Missouri.............................................. 9
Pallone, Hon. Frank Jr., a Representative in Congress from the
State of New Jersey............................................ 7
Pascrell, Hon. Bill, Jr., a Representative in Congress from the
State of New Jersey............................................ 10
Scalise, Hon. Steve, a Representative in Congress from the State
of Louisiana................................................... 12
PANEL TWO:
Guzman, Mabel, Broker, @properties, on behalf of the National
Association of REALTORS........................................ 19
Heidrick, Christopher, Heidrick & Company Insurance and Risk
Management Services, LLC, on behalf of the Independent
Insurance Agents and Brokers of America........................ 16
Lamm, Maria Cox, South Carolina NFIP State Coordinator. and
Chair, Association of State Floodplain Managers................ 14
Lehmann, Raymond J., Director of Finance, Insurance and Trade
Policy, R Street Institute..................................... 22
O'Mara, Collin, President and CEO, National Wildlife Federation
(NWF), on behalf of NWF and the SmarterSafer Coalition......... 20
Smith, Velma, Senior Officer, The Pew Charitable Trusts.......... 18
................................................................. 13
APPENDIX
Prepared statements:
Guzman, Mabel,............................................... 68
Heidrick, Christopher,....................................... 74
Lamm, Maria Cox.............................................. 81
Lehmann, Raymond J........................................... 98
O'Mara, Collin,.............................................. 105
Pascrell, Hon. Bill, Jr...................................... 115
Smith, Velma................................................. 118
Additional Material Submitted for the Record
Waters, Hon. Maxine:
Written statement of the American Property Casualty Insurance
Association................................................ 129
Written statement of CoreLogic............................... 134
Written statement of the Credit Union National Association... 187
Written statement of the National Association of Federally-
Insured Credit Unions...................................... 188
Written statement of the National Multifamily Housing Council
and the National Apartment Association..................... 189
Written statement of the National Association of Mutual
Insurance Companies........................................ 193
Written statement of the Reinsurance Association of America.. 196
Written statement of the U.S. Chamber of Commerce............ 203
McHenry, Hon. Patrick:
Written statement of the American Property Casualty Insurance
Association................................................ 205
Written statement of the National Multifamily Housing Council
and the National Apartment Association..................... 210
Written statement of the National Association of Mutual
Insurance Companies........................................ 214
Written statement of the U.S. Chamber of Commerce............ 217
PREPARING FOR THE STORM:
REAUTHORIZATION OF THE
NATIONAL FLOOD INSURANCE PROGRAM
----------
Wednesday, March 13, 2019
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:11 a.m., in
room 2128, Rayburn House Office Building, Hon. Maxine Waters
[chairwoman of the committee] presiding.
Members present: Representatives Waters, Maloney,
Velazquez, Sherman, Meeks, Clay, Scott, Green, Cleaver, Himes,
Foster, Beatty, Heck, Vargas, Gottheimer, Gonzalez of Texas,
Lawson, Tlaib, Porter, Axne, Casten, Pressley, Ocasio-Cortez,
Wexton, Lynch, Adams, Dean, Garcia of Texas, Phillips; McHenry,
Wagner, King, Lucas, Posey, Luetkemeyer, Huizenga, Duffy,
Stivers, Barr, Tipton, Williams, Hill, Zeldin, Loudermilk,
Davidson, Budd, Kustoff, Hollingsworth, Gonzalez of Ohio, Rose,
Steil, Gooden, and Riggleman.
Chairwoman Waters. The Financial Services Committee will
come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
Today's hearing is entitled, ``Preparing for the Storm:
Reauthorization of the National Flood Insurance Program.'' I
now recognize myself for 5 minutes to give an opening
statement.
We are here today to discuss the future of the National
Flood Insurance Program (NFIP), which is critical to ensuring
access to flood insurance coverage across the country, but the
NFIP is much more than just an insurance program. The NFIP
plays an important role in disaster preparedness and resiliency
by providing flood maps, setting standards for flood plain
management, and investing in mitigation for our homes,
businesses, and infrastructure.
According to the Federal Emergency Management Agency
(FEMA), everyone is at risk of flooding. That means that this
is not just a coastal issue, and it means that we all have an
interest in ensuring a strong National Flood Insurance Program.
I have long advocated for a long-term reauthorization of the
NFIP in order to provide certainty in the housing market.
Unfortunately, the NFIP has carried along through 10 short-
term extensions since Fiscal Year 2017 and has even experienced
brief lapses during that time. This haphazard approach to
legislating puts communities at risk and undermines the health
of our housing market. The NFIP's authorization is currently
set to expire May 31, 2019, and I believe that we will break
this cycle. I intend to work in a bipartisan manner with
Ranking Member McHenry to provide a long-term reauthorization
to restore stability and confidence in the market.
Mr. McHenry, I certainly look forward to working together
on this issue that is so important to all of our constituents.
As a starting point, I am prioritizing a number of reforms
to the program, and of course, in our latest conversation, I am
asking you to please come forward with any concerns, with any
advice, with any changes, with any issues that your caucus may
have involved with this reauthorization so that we can move
forward, recognizing each of our concerns.
First, of course, I think we must do more to address
unaffordable premium costs for low-income households, and we
have talked about addressing the debt many of our constitutents
have, which has unfairly burdened policyholders with millions
of dollars in interest and costs and fees on policyholders. One
of the drafts we are discussing today would do just that by
creating a demonstration program to provide targeted financial
assistance, canceling the NFIP's debt, and repealing surcharges
and fees that contribute to affordable challenges. We are very
anxious to hear the views of your members on this issue.
Canceling the debt is a big move, but it has been talked about
now for quite some time. And so I am looking forward to your
input on that.
Second, I think we need to invest more heavily in mapping
and mitigation, which will save taxpayer dollars in the long
run by helping to reduce the damage that occurs when floods
hit. Two of the drafts that I would like to discuss today call
for updated mapping technologies to improve accuracy and,
importantly, provide authorization and funding for mapping,
flood plain management, and mitigation.
Finally, there are a number of issues that arose in the
aftermath of Superstorm Sandy related to claims processing,
including findings of outright fraud. That is why today we also
will discuss a proposal by Ms. Velazquez that seeks to ensure
that we have safeguards in place and mechanisms for greater
accountability and oversight to ensure that claims are handled
fairly and efficiently to provide relief for policyholders.
I am very thankful for all of our witnesses here today, and
for some of our colleagues who have shown up today to be a part
of this bipartisan effort that we are just beginning today. And
now, the Chair recognizes the ranking member of the committee,
the gentleman from North Carolina, Mr. McHenry, for 5 minutes.
Mr. McHenry. I thank Chairwoman Waters for holding today's
hearing on the National Flood Insurance Program. As you know,
in January committee Republicans wrote to you to highlight the
need to conduct oversight of the NFIP, and we are grateful that
is underway, and we are hopeful that we can get it to a
bipartisan piece of legislation that we can take to the House
Floor, but much work is to be done there.
A lot has changed since the program started 51 years ago.
What worked in the Lyndon Johnson era doesn't really work in
2019. It is clear from experts on the program--and in the
second panel, we will hear from of a wide variety of them--that
there is a great need for pragmatic changes. Reforms that
include better data, increased transparency, better technology,
and more innovation. Moreover, the Flood Insurance Program owes
the Treasury more than $20 billion currently, even despite the
fact that last year, and actually, the last Congress, a year
and a half ago, we canceled $16 billion of that debt without
any reforms. That continuous level of indebtedness over the
past 15 years should give everyone cause for concern about the
Flood Insurance Program's long-term fiscal stability.
And I would note that the current legislative proposal
being circulated that we all saw, that Republicans saw for the
first time when it became public, forgives $20 billion of that
debt without any assurance or necessary reforms that give us
some understanding that it wouldn't just pile back up again.
I hope today's hearing will address the fundamental
question of what kind of flood insurance we want for the
American people: an insurance program that is equipped with the
tools it needs to perform its insurance functions; or should
the Flood Insurance Program just require annual appropriations?
Those are the effective choices and everything in between.
So how do we protect those in affected areas? How do we
give them more and better options? How do we enable communities
to get better maps, more effective mitigation? How do we
protect the taxpayer? The time is right for reform and
innovation. Private insurance, better technology, more mapping
data, faster claims processing, and rethinking old underwriting
models are just a few of the tools readily available for
modernizing the Flood Insurance Program.
At the same time, we must also consider how we can use risk
sharing to offload some of the NFIP burdens upon the taxpayer
and the cost savings that come from spreading risk to other
qualified, capable folks in the private sector who are willing
to manage it. That is better for the taxpayer in most years
and, over the long run, would dramatically assist in protecting
the taxpayer from larger losses. Building a more resilient and
cost-effective NFIP are goals that would benefit all consumers.
I look forward to the testimony from our colleagues. We
will hear from folks who are in disproportionately affected
flood areas in the first panel, and we will hear from the
private sector and a variety of folks who have viewed this
program intensely, and we will have bipartisan questions about
the effectiveness and efficiency of this program. But one thing
we are committed to is to having an effective National Flood
Insurance Program, one that can weather the storm to ensure all
impacted Americans and taxpayers are protected.
I yield back.
Chairwoman Waters. Thank you very much. I am so very
pleased.
We have two panels today, but first, we have a number of
our colleagues who have requested time to share their
perspective on the issue of National Flood Insurance and its
reauthorization. To my colleagues, you are all most welcome to
the committee, and each of you will have 5 minutes. We will
first hear from the gentleman from Wisconsin, Mr. Duffy. You
are recognized for 5 minutes, Mr. Duffy.
STATEMENT OF THE HONORABLE SEAN P. DUFFY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF WISCONSIN
Mr. Duffy. Chairwoman Waters, thank you for inviting me
today. It was a very kind invitation.
Republican Leader McHenry, thank you, too.
And to the committee as a whole, it is my first time
sitting from this vantage point. You all look very good. It is
a handsome, good-looking committee, I must say, if I do say so
myself. I have been waiting for other witnesses to make that
comment. They haven't yet, so I thought I would.
So, this program is sick. We have problems in the Flood
Insurance Program, and Mr. McHenry addressed this, but we have
5.1 million policies in the program, in the NFIP, and the
average premium cost is about $700. Last year, in 2018, we had
revenue of $4.76 billion--$4.76 billion--but we had expenses of
$11.4 billion. So we had a shortfall of $6.6 billion in the
last year alone. And when we look at the debt, and I know the
chairwoman wants to forgive the debt, and many of the panelists
here want to forgive the debt, but we are butting up against
our $30 billion borrowing threshold. And we actually as a
Congress forgave $16 billion of debt last year, and the
chairwoman knows that we forgave $16 billion in debt. And when
you look at the program and the reforms that are being
proposed, how do we actually make the program a little more
solvent? I don't know that we are ever going to get to complete
solvency, but how do we make the program work a little bit
better?
And I would agree with the chairwoman when, in her plan,
she puts out ideas that we had worked together on in the last
Congress on consumer choice and on competition, on reducing
risks through mitigation, increasing ICC coverage, mapping
fairness, which Mr. Luetkemeyer has worked pretty aggressively
on, and improving the claims and appeals process. Those are all
really important parts of making the program work better for
people, but I also think we have to address these repetitive
loss properties. They are 2 percent of the properties, but they
account for 24 percent of the costs: 2 percent of the
properties account for 24 percent of the costs. We have to
address that.
I want to talk about one part of this program in the reform
side that I think is important, and I know the Federal bank
regulators came out with a rule, but trying to bring in the
private sector to write flood insurance policies is incredibly
important because we know that, with some properties that are
subsidized, the premiums are subsidized by the Federal
Government, but there is a whole other slew of properties that
are paying rates that are above the actual cost of the
property. And so, if we let the private sector come in, they
are going to cherry pick--and I know that Mr. Graves is going
to talk about this in a second--low-risk properties and not
take high-risk properties. They are not going to cherry pick
that way. What they are going to do is the private insurance
companies are going to come in, and they are going to cherry
pick the nonsubsidized properties. They want a whole portfolio
of risk, low risk, medium risk, and high risk. They make more
money on the high-risk stuff. They are going to take the
nonsubsidized properties, and the subsidized properties, they
are not going to take. They can't compete with the government
subsidy. And so, if we allow the private sector to come in,
what we are actually doing is helping people. We are helping
people get a flood insurance policy at a lower rate.
And why would we say no, no, no? We want to socialize this
program and say: We want some people to pay more than they are
required to pay based on their risk, and we want other people
to pay less.
I think if you could get a lower rate in the private
sector, let's let you get a lower rate. And now, some might
say, well, but the problem with that is we need that money
because it is going to--it helps with our debt burden.
I look at the floods that hit our communities. And listen,
I am sensitive to my colleagues on this panel and the
communities from which they come, and how important this
program is to them, and we have to make the program work for
people. But when I look at, again, the private sector coming in
and often lowering prices, so that when those storms hit, it is
not just on the backs of the taxpayers. We defray that risk,
not just taxpayers but also the private sector, and I think
that is really important as we analyze this program. How do we
bring in better pricing, better maps, better services, and try
to bring us a little closer to a solvent program? Madam
Chairwoman, we worked a lot on this. I look forward to working
with you again. I hope I will be a little more reasonable than
you were with me, and I think we can come up with a 5-year
route. I hope we get a 5-year reauthorization that works for
people and they get certainty.
I yield back.
Chairwoman Waters. Thank you very much, Mr. Duffy.
Mr. Graves, you are recognized for 5 minutes.
STATEMENT OF THE HONORABLE GARRET GRAVES, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF LOUISIANA
Mr. Graves. Thank you, Madam Chairwoman. I appreciate the
opportunity to be here, and I appreciate the opportunity to
work with you and Ranking Member McHenry on this, and I do want
to thank my friend from Wisconsin for the hours and hours that
he and I spent going round and round on this over the past few
years trying to come up with solutions.
Madam Chairwoman, you can look at what we have been doing
with flood insurance. We have been repeatedly kicking the can
down the road, and the reason for that is that we can't come to
a consensus on what the right approach is. We have Democrats on
one side who are saying that what we need to do is we need to
make this program accessible and affordable. We have
Republicans saying that the current $20 billion debt--and, as
my friend just pointed out, we relieved $16 billion, so it is
actually $36 billion worth of debt--is unreasonable. You know
what? You are both right.
You are both right, but we need to change the narrative on
this issue. So let's take a step back for just a minute. Just
for 2017 hurricanes, we appropriated $120 billion. It makes $36
billion look a lot smaller, doesn't it? That was just in 2017.
If you actually take a step further back, dating back to 1980,
we have had 215 disasters that have cost over a billion dollars
each: 215. We have spent $1.5 trillion. All of a sudden, $36
billion looks pretty small again, when we have spent $1.5
trillion on these disasters.
So, on the one hand, my friends who are to the left
geographically, I agree with you on, let's be fiscal
conservatives. Let's make the right approach and not sit here
and spend money hand over fist. To my friends on the right, I
agree with you that we need to make this program accessible and
affordable. But the solution is different than I think we are
pursuing myopically under flood insurance reform.
You can look at study after study. The Congressional Budget
Office says you get $3 in cost savings for every $1 you invest
in proactive mitigation. An updated study says $4. The Army
Corps of Engineers said it is $7.90. Other studies get up to
$11 or $12. My favorite, General Russel Honore who came in
after Hurricane Katrina and really wrestled the Federal
Government's response, came in and said, you know what--he was
giving this great talk I was listening to, and he went through
all these different numbers about the $3 and $4 and the $7,''
and he said, ``And there is another study that said it is
$16,'' but he didn't cite it. And I went up to him afterwards,
and I said, ``Oh, my gosh, $16 in cost savings for every $1 you
invest? That is incredible. General, that is awesome. Where did
you get it? I knew the number was higher.''
And he looked around, and he said, ``I made that shit up.''
But I believe it. And you know what? He is right. If we
make--can I say that? If we make the right proactive
investments, we can get those types of cost savings. So we have
to stop focusing myopically on just flood insurance. We have to
look at the larger resilience. You know there is $100 billion,
$100 billion in authorized projects at the Corps of Engineers,
and we are providing about a billion to a billion and a half
annually for construction? We will finish it approximately
never. That is our resilience projects. It is a broken system.
We have to stop just looking at flood insurance and bringing
that to the table. It is defense. We have to bring an offense
to the table as well, and that is proactive investments and
mitigation. That is where the solution is: integrating our
defense and our offense and stop the strategy of just being
reactive.
Keep in mind: You then save lives. You prevent this
economic disruption that happens whenever we have these massive
storms and disasters.
So, Madam Chairwoman, in wrapping up this morning, I just
typed up about 10 or 11 different things that I think you all
should be considering as you move forward on legislating.
Number one, as I said, we can't look at just the balance or
the debt of the NFIP in a vacuum. There is a larger liability
issue. We are spending $1.5 trillion since 1980 on disasters.
Number two, we have to have better oversight of the costs
and the fees absorbed by nonclaims. I know this is
controversial, and my friend here gets mad at me when I
reference this, but there is a GAO study that is a bit dated
that indicates that, in some cases, up to two-thirds of the
premiums have been retained by the Write Your Owns. Up to two-
thirds. Again, it is not my statistic. It is the GAO's. Well,
if two-thirds are being retained, no wonder the program is
insolvent.
Number three, the uptick rate. Once again, I know there are
controversial figures, but let me throw out some numbers. In
the August 2016 flood in south Louisiana, only about 20 percent
of the people had flood insurance. You know who got help?
Almost all of them. So the people who are paying for flood
insurance are helping to offset, but everyone got help. In
Hurricane Harvey, Madam Chairwoman, in your home State, I
believe it was around 15 percent of the people had flood
insurance. In Hurricane Florence, I think it was 10 percent of
the people had flood insurance. In Hurricane Maria, I think it
was 4 percent of the people had flood insurance. But, once
again, because of the generosity of this Congress--and I want
to be clear; I agree with this--we are providing help to
everyone.
So, Madam Chairwoman, I have some other recommendations,
but I will submit those for the record, and I want to thank you
very much for the opportunity to be here.
Chairwoman Waters. Thank you very much.
I would ask unanimous consent that Mr. Pallone could go
next. Mr. Luetkemeyer has a hearing that he has to conduct
right now, so I would appreciate your cooperation.
Without objection, it is so ordered. Thank you.
Mr. Pallone, you have 5 minutes.
STATEMENT OF THE HONORABLE FRANK PALLONE, JR., A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Pallone. Thank you, Madam Chairwoman, and I also want
to thank our ranking member and our distinguished colleagues
who serve on this committee for holding this hearing.
For more than 50 years, communities and millions of
individuals across the country have depended on the NFIP to
help them recover from their darkest hours. And in 2012,
Superstorm Sandy brought devastation to my district in New
Jersey. We were the hardest hit, if you will, by Sandy of any
district in the tristate area, and the NFIP provided financial
protection for my Jersey Shore constituents.
However, such a large-scale and damaging event also
revealed a number of program flaws that prolonged hardship for
policyholders and cost taxpayers. That pattern has been
repeated in the years since during other major storms,
including Hurricanes Harvey, Irma, and Florence. The NFIP is
nationally significant to ensuring our Nation can manage the
cost of catastrophic flooding, but aspects of the program can
and must be improved, and I think the time is now to advance
viable solutions that will enhance this important program.
Ensuring a strong NFIP helps families quickly get back on
their feet post-disaster and is of great importance. For these
reasons, in the 115th Congress, Congressman Clay Higgins of
Louisiana and I introduced H.R. 3285, the Sustainable,
Affordable, Fair, and Efficient (SAFE) NFIP Reauthorization
Act, and this bipartisan bill seeks to improve program
effectiveness and reduce unnecessary costs. So I am asking you
to bring it to the committee's attention briefly to support the
measures contained within our SAFE NFIP Act as part of any
future action you take on this program.
First, I ask that you support a long-term reauthorization
for at least 6 years. The NFIP has continued through numerous
short-term extensions, and of course, when you kick the can
down the road, a long-term authorization seems less possible.
But if you have a long-term reauthorization, I think it
provides financial certainty and avoids the significant impacts
on our economy that are caused by lapses in the program.
I also ask the committee to support reforms to increase the
affordability of NFIP for households, and this can be done by
expanding coverage and protecting ratepayers from excessive
rate hikes by capping annual premium increases by 10 percent.
We have seen, as you know, much larger increases than that.
The NFIP should also offer means-tested flood mitigation
and affordability assistance. Additionally, the Administrator
and FEMA should conduct a study on offering insurance coverage
for small businesses. These changes would be welcomed by hard-
working families and entrepreneurs within my district and
around the country.
The committee can provide flood preparedness by proactively
reinvesting in mitigation efforts. I really want to stress the
mitigation efforts which would make such a difference in future
storms. According to the U.S. Global Change Research Program,
flood and extreme storm events are increasingly happening and
also are more severe, and there are also rising sea levels
because of climate change. The reality of climate change is
hitting home, and changes to NFIP are necessary to ensure
communities can thrive in the future.
Flood mitigation efforts have a minimum of a 4-to-1 return
on investment with some projects enjoying even a 5-to-1 return
on investments. The average is 4.1. Expansion and improved
effectiveness of the increased cost of compliance and other
mitigation provisions should be part of any legislative action.
And, lastly, Madam Chairwoman, smart changes to the NFIP
would keep more dollars in taxpayers' wallets. Under the
current system, it is too easy for private companies to pad
their profits with money that should flow to disaster-struck
families or stay with taxpayers. During Sandy, my constituents
turned to Write Your Own companies for help with property
damage, only to have these egregious actors that were involved
in that company knowingly undervalue their claims using
falsified engineering reports. And so I urge the committee to
take concrete steps to eliminate the fraud and abuse, and this
can be done by capping the compensation of Write Your Own
companies as well as ensuring that the private market pays its
fair share for the development and use of flood insurance rate
maps and other products. The committee must ensure
policyholders and taxpayers are not taken advantage of, and I
am sure all of you heard all of the reports in the media about
the fraud and abuse in Sandy and otherwise.
So let me just thank you again. I hope you will consider
the path forward that I and others have outlined because I
think these changes will create the certainty and
accountability and efficiency that the program needs. Thank
you, Madam Chairwoman.
Chairwoman Waters. Thank you very much.
And now, we will hear from the gentleman from Missouri, Mr.
Luetkemeyer.
Mr. Luetkemeyer, you will be recognized for 5 minutes.
STATEMENT OF THE HONORABLE BLAINE LUETKEMEYER, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF MISSOURI
Mr. Luetkemeyer. Thank you, Chairwoman Waters and Ranking
Member McHenry.
Representing a district that touches the Mississippi River,
the Missouri River, and the Lake of the Ozarks, flood insurance
is a critical issue for my constituents. And I will point out,
Madam Chairwoman, that the Lake of the Ozarks has 1,150 miles
of shoreline. That is more miles of shoreline than in your
State of California. So my flood insurance problem potentially
is even bigger than your entire State.
Now, as we all know, flood insurance reauthorization is a
difficult issue. The National Flood Insurance Program, NFIP, as
it operates today has numerous problems that Congress and this
committee must work to address. Since the end of Fiscal Year
2017, the program has received a short-term authorization 10
times. We can all agree this committee can and should come
together in a bipartisan manner to support a long-term
reauthorization that will solve some of the systemic issues
facing NFIP.
First and foremost, I believe we must take into account the
impact this program has on the American taxpayer. Despite
Congress forgiving $16 billion of debt in 2017, today the debt
at NFIP is over $20 billion. The future solvency of NFIP needs
to be addressed in any legislation this committee considers.
As a committee with oversight of NFIP, reauthorizing this
program with taxpayers still on the hook is bad policy and
short-sighted. Simply forgiving a debt NFIP holds is equally
irresponsible and does not solve the root causes of the NFIP's
insolvency.
One thing that should help with the program solvency is
reinsurance. In 2017, FEMA purchased a reinsurance policy worth
over $1 billion at a premium of $150 million, saving taxpayers
nearly a billion dollars. In 2018 and 2019, FEMA transferred
nearly $4 billion of risk off their books. It is clear that the
risk-transferring efforts of FEMA are working, which is why I
introduced legislation at the beginning of this Congress to
require the FEMA Administrator to annually cede a portion of
NFIP's risk to the private reinsurance or capital markets in
order to maintain the program's ability to pay claims and limit
exposure to flood loss. The committee should examine similar
visions in their discussion on flood insurance to protect the
taxpayers and ensure the solvency of NFIP for generations to
come.
Another issue the committee should consider is replacement
cost. Currently, FEMA does not consider the replacement cost of
a structure when it determines NFIP premiums. Instead, the NFIP
uses a fixed national average for replacement costs used in its
calculations for premiums. This means lower-income
policyholders are subsidizing wealthier homeowners within NFIP.
In response to this, I have introduced legislation to
require the NFIP to incorporate replacement cost of a structure
in the calculation for premiums. Low-income Americans should
not be required to foot the bill for the flood insurance
premiums of wealthier individuals.
Third, I would like to discuss continuous coverage. In
2012, Congress passed the Biggert-Waters Flood Insurance Reform
Act. It authorized NFIP to include a provision to allow private
flood insurance to fulfill the NFIP requirement. However, if a
policyholder wishes to try to buy a private flood policy, they
must sacrifice their status in the NFIP. Just this week,
Representative Castor from Florida and myself introduced
legislation that would allow policyholders to maintain
continuous coverage in NFIP even if they test out the private
market. This provision will give policyholders the freedom to
choose the best flood policy insurance option for themselves
and protect them if they decide NFIP is their best option.
And lastly, mapping. I have introduced the Community
Mapping bill, which is, unfortunately, necessary because FEMA
is notorious for the lack of timeliness in updating their maps.
What my bill will allow them to do is the local community, the
local subdivision will be able to have their own third-party
mapping under certain standards be done and approved by FEMA
within 30 days to allow local folks to take advantage of any
sort of change in the demography of and topography of whatever
is going on with regards to their area to either minimize--what
they have done to minimize some of the flood damage that is
possible.
In closing, I would like to thank the chairwoman and
ranking member for holding this important hearing. I believe
this committee can and should make some of the commonsense
changes that I have presented here today. These provisions will
improve NFIP in getting taxpayers off the hook and provide for
choices for policyholders. I think it is imperative we do this.
Kicking the can down the road without change is totally
irresponsible. I look forward to having a healthy debate on
this issue in the weeks to come, and I yield back the balance
of my time.
Chairwoman Waters. Thank you, Mr. Luetkemeyer.
Next, we will hear from the gentleman from New Jersey, Mr.
Pascrell.
Mr. Pascrell, you are recognized for 5 minutes.
STATEMENT OF THE HONORABLE BILL PASCRELL, JR., A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Pascrell. Thank you, Chairwoman Maxine Waters, and
Ranking Member Patrick McHenry, for holding today's hearing on
the importance of reauthorizing the National Flood Insurance
Program.
We have not made major changes to the NFIP since Hurricane
Sandy deeply affected many in my district and my State. I
remember touring the devastation like it was yesterday: homes
damaged; businesses destroyed; the mold; the sand; the debris.
More than the physical destruction, I was struck by the storm's
human toll. I spoke with my constituents who saw their entire
lives swept away in an instant. I vowed never to stop fighting
for them.
Now, I have been here with Congressman Pallone and Senator
Menendez for the long run. We introduced bipartisan, bicameral
legislation this last Congress to build on our commitment. The
SAFE NFIP Act, H.R. 3285, proposed changes to the NFIP based on
lessons we learned in Sandy. Our bill helps people prepare
prior to a storm with accurate maps, flood-prevention
investments, updates to claims process so survivors get what
they need to rebuild, and holds bad actors accountable.
Today, I would like to highlight a few sections of the
bill. A constituent of mine, Mabel Richardson, brought my
attention to the fact that my hometown of Paterson, New Jersey,
did not have accurate maps, causing her home to be in a flood
zone. She was forced into the Flood Insurance Program, and
forced to pay thousands each year in premiums. But her home was
not actually in a flood-prone area. So I worked with Mabel and
FEMA to learn that decades-old, hand-drawn maps were used to
design the maps in the first place.
While I worked with FEMA to change the maps, this is wrong.
They should have been accurate from day one. Section 204 of our
bill invests $800 million per year for 6 years in state-of-the-
art technology to map the entire country.
Meanwhile, the claims process was screwed up from the very
start. One example is that people fled their homes for several
days, if not weeks, in Sandy's aftermath. They lived in hotels,
cars, and motels. Family was elsewhere at times, wherever they
could find shelter. During this time, mold grew, because
several feet of water lingered in the homes they left behind.
These individuals filed damage claims, but adjusters told them
they were responsible for failing to maintain the property
after a flood. Figure that out. It is offensive to tell someone
worried about their immediate safety that they should have gone
back to their home to prevent some damage. Section 403 of our
bill clarifies this mold damage issue for survivors in the
aftermath of a storm.
Worse, my constituents were told they could appeal any
decision 90 days after submitting a claim, but the median
response time for FEMA was 88 days. Section 404, Section 405 of
our bill extends the appeal deadline, and creates a deadline
for FEMA to respond.
These are just some of the many claims process reforms we
made in Title IV of the legislation. We know bad actors cause
headaches and waste taxpayers' funds. I heard stories about
survivors being lowballed by insurance companies and paid just
pennies on the dollar. Congress investigated and FEMA reopened
the claims process in 2015. This investigation uncovered vast
systemic fraud and abuse. FEMA was forced to grant Sandy
victims an additional $260 million they were entitled to. If
done right initially, it would have saved taxpayers millions
from defending lawsuits and reopening the programs. Write Your
Own companies that intentionally underpaid policyholder claims
were particularly egregious. Currently, there is a perverse
incentive to underpay claims, which they did, to no one's
surprise. Section 407 of the bill makes these companies
financially responsible for this event, and Section 302 caps
their compensation to hold them accountable.
As the committee considers reforms to NFIP and expanding
the private flood market, please consider the lessons that we
experienced. The financial incentive favors profit, not people.
We cannot let this happen. I understand several of these issues
are addressed in the legislation being considered. I thank you
for the hearing, and I thank both of you for putting us
together today.
Thank you, Madam Chairwoman.
[The prepared statement of Representative Pascrell can be
found on page 115 of the appendix.]
Chairwoman Waters. Thank you very much.
Finally, we will hear from the gentleman from Louisiana,
Mr. Scalise.
The distinguished and honorable Mr. Scalise, you will be
recognized for 5 minutes.
STATEMENT OF THE HONORABLE STEVE SCALISE, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF LOUISIANA
Mr. Scalise. Thank you, Chairwoman Waters, Ranking Member
McHenry, and other members of the committee for the opportunity
to talk about the reauthorization of the National Flood
Insurance Program. With over 5 million policies nationwide,
NFIP is the sole provider of flood insurance for the vast
majority of families and small businesses across our country. I
applaud the committee for moving early in this Congress on
legislation to provide a long-term reauthorization of the
program, and I really hope we can all work together toward a
strong bipartisan bill that gives homeowners certainty instead
of continuing on the path of short-term extensions that the
program has experienced since October of 2017.
As we have seen time and time again, wherever there is the
possibility of rain, there is the possibility of flooding.
While the most catastrophic floods are the ones that get the
most media attention, it is not just coastal areas like mine in
southeast Louisiana that are vulnerable to flooding. Just in
the past 5 years, every one of our 50 States has experienced a
flood event. As a matter of fact, 38 States had a flood event
large enough that they warranted a Federal disaster
declaration. Since 1956, there have been 15 States that
experienced more than 50 federally declared disasters including
Missouri, Kentucky, and Oklahoma, all States that are very far
from the coast.
I have long believed that NFIP is not and should not be a
partisan issue. While there are many parts of NFIP that are in
need of reform, one of the biggest challenges we face is how to
ensure the program remains affordable and stable into the
future while also limiting the financial exposure to taxpayers.
On affordability, it is important to keep in mind that if
NFIP is unaffordable, some people will simply drop their flood
insurance altogether, which further straps the program and
leaves taxpayers more exposed after major storms. We must
protect the grandfathering that currently exists in the program
so that homeowners don't see unfair and massive rate spikes
that destroy housing markets in whole communities.
Also, we have to ensure that everyone who is required to
have flood insurance actually has the ability to get it. I have
always believed that we should incentivize more people to carry
flood insurance, not create a system where people drop their
insurance because they can no longer afford it.
There is a certain irony about the way the Federal
Government handles flood disasters. When you look at past
disasters, whether it is Hurricane Katrina, Superstorm Sandy,
the 2015 South Carolina floods, or Hurricane Harvey, Congress
has passed supplemental appropriations bills totaling billions
of dollars for recovery, and a lot of those recovery dollars go
to rebuilding uninsured properties. In the 2015 South Carolina
floods, for example, the average NFIP coverage rate in counties
with a Federal disaster declaration was 5 percent. For
Hurricane Harvey, the percentage of people who carried flood
insurance was only 10 percent. Of course, we came in, the
Federal Government, and passed supplemental appropriations
bills to make sure that everybody was made whole. So, if only
10 percent of the people had flood insurance, the NFIP paid
those policies, but the taxpayer paid the other 90 percent.
And so, when we talk about the debt of the program, let's
keep in mind: In the major disasters that have been declared
that I talked about, whether it is Harvey or Katrina or
Superstorm Sandy, the Federal taxpayers came in and ultimately
paid for the people who had no flood insurance, and the only
side that is talked about is the side on NFIP, the people who
actually paid into a program.
While some people call for the dismantling of NFIP, from a
taxpayer perspective, what makes more sense is to work on
policies that will encourage the creation of a private
marketplace for families to buy flood insurance. Currently,
there are no other options outside of NFIP, and dismantling
NFIP will only serve to increase the rate of uninsured
properties and, therefore, increase the exposure to taxpayers
in the event of a federally declared flood disaster.
I was very pleased to see the banking regulators earlier
this year clarify that private insurance coverage must be
accepted by financial institutions to meet flood insurance
requirements. In doing this, hopefully we will start to see a
private marketplace develop for flood insurance. This has been
something that many of us have been deeply committed to, and I
hope that the bill that the committee will ultimately pass
strengthens the ability for the private marketplace to start
offering flood insurance across the country while also
protecting policyholders.
Finally, while this point was one of the most contentious
last Congress, I hope the committee considers addressing
extreme repetitive loss properties that experience very regular
flooding events. While any changes to rates and participation
in the NFIP must be fair and transparent for the homeowner, I
would encourage the committee to look at responsible and
realistic changes to how the program deals with those
properties that experience very regular flooding and rack up
multiple claims that far exceed the value of the property,
whether that is through additional mitigation or offers for
buyouts or other changes.
Again, I want to thank the committee for the opportunity to
testify and talk about the importance of a long-term
reauthorization of the Flood Insurance Program, and I look
forward to working with you all as we achieve what I think we
all are setting out to do, and that is a program that is fair
for ratepayers and for taxpayers with long-term certainty.
Thank you, Madam Chairwoman.
Chairwoman Waters. Thank you all for being here. I
appreciate the time that you have spent and your critical
perspective. Thank you very much.
We will now move to set up our second panel. Those
participants on the second panel, if you will come forward as
soon as our Members exit.
I want to welcome today's distinguished panel: Maria Cox
Lamm, South Carolina Department of Natural Resources, on behalf
of the Association of State Floodplain Managers; Mr.
Christopher Heidrick, Heidrick & Company Insurance and Risk
Management Services, LLC, on behalf of the Independent
Insurance Agents and Brokers of America; Velma Smith, senior
officer with Pew Charitable Trusts; Ms. Mabel Guzman, broker,
@properties on behalf of the National Association of REALTORS;
Collin O'Mara, president and CEO, National Wildlife Federation,
on behalf of the SmarterSafer Coalition; and Mr. Raymond J.
Lehmann, director of finance, insurance and trade policy at the
R Street Institute.
Each of you will have 5 minutes to summarize your
testimony. When you have 1 minute remaining, a yellow light
will appear. At that time, I would ask you to wrap up your
testimony, so we can be respectful of both the witnesses' and
the committee members' time.
So Ms. Lamm, you are now recognized for 5 minutes to
present your oral testimony.
STATEMENT OF MARIA COX LAMM, SOUTH CAROLINA NFIP STATE
COORDINATOR, AND CHAIR, ASSOCIATION OF STATE FLOODPLAIN
MANAGERS
Ms. Lamm. Thank you, Chairwoman Waters, Ranking Member
McHenry, and members of the committee for holding this
important hearing, and inviting the Association of State
Floodplain Managers (ASFPM) to testify. I am Maria Cox Lamm,
South Carolina State NFIP coordinator, and Chair of ASFPM.
As we all know, floods are costly natural disasters. In
fact, they are the nation's most costly natural disaster, and
unfortunately, the trends are worsening. The NFIP takes a
comprehensive approach to managing the nation's flood losses by
balancing flood plain management, mapping, mitigation, and
insurance.
At the end of 2018, the NFIP had paid over $69 billion in
claims. Half of that has come in the past 10 years. Also, the
NFIP has 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 have adopted local flood risk-
reduction standards, which have resulted in $1.9 billion of
flood losses reduced every year. However, there is more to be
done to prepare us for the future.
While improvements can always be of benefit to the NFIP, it
is important to ensure the strength of all four of the
programs. Our written testimony offers 20 recommendations for
strengthening the NFIP. For the balance of my testimony, I want
to highlight four of the areas outlined by ASFPM.
First, to reaffirm your commitment to enhance the flood
mapping program. Today, about one-third of the country has
flood risk maps available. The problem is that the priorities
of the mapping program to date have been to map at-risk areas.
As a result, mapping never gets ahead of development. I have
personally seen the impact of this policy. I have heard from
many local flood plain managers, citizens, developers, and
elected officials that they wish they had known the true flood
risk of an area before making decisions and huge investments.
Many residual risk areas are just simply not mapped, and some
mapping information is not publicly available. We must do
better, and we need your help.
Second, to strengthen the community assistance program by
officially authorizing that program. The program provides
funding to States to provide subject-matter experts for NFIP-
participating communities through the State coordinating
office. For the past 4 years, South Carolina has experienced
devastating flooding. My staff and I, through the CAP program,
are helping impacted communities through the long process of
recovery. The level of assistance we have been able to provide
is a direct result of the funding provided by the CAP program.
Third, reducing risk through mitigation. One of FEMA's
built-in mitigation programs is increased cost of compliance.
As I have seen in South Carolina, ICC funding is extremely
valuable to the recovery process. However, the maximum funding
limit of $30,000 does not come close to the average cost to
mitigate a structure from flooding. ICC should be expanded in
application and scope, including raising the maximum ICC amount
to $60,000 and clarifying that it is available in addition to
the maximum claim amount.
Finally, reforms are needed related to private flood
insurance and that they should be focused on ensuring that
other elements of the NFIP are not weakened.
First, all private flood policies sold that meet the
mandatory purchase requirement must include an equivalency fee
which is equal to the Federal policy fee on NFIP policies.
Currently, this fee pays for 100 percent of flood plain
management and roughly 40 percent of mapping. If the NFIP
ultimately loses policies due to private sector competition,
then there will be fewer resources to help communities and
States with flood plain management and mapping efforts.
Second is a requirement that private flood insurance
policies meeting the mandatory purchase requirement only be
sold in NFIP-participating communities. Currently, most
communities in the country participate in NFIP. Because our
members have enrolled nearly all of the 22,000 communities in
the NFIP, we uniquely understand the reason for joining is
accessibility to flood insurance. ASFPM fears that if the
private flood insurance is available with no requirement to
join the NFIP and subsequently adopt local codes, small
communities and those with low policy counts in particular will
begin to drop out of the program.
We are very pleased the committee has developed four
discussion draft bills. ASFPM is supportive of many provisions
in these bills, and we continue to review and analyze them. Our
initial comments are included towards the end of our written
testimony. Thank you for listening to our concerns, and we are
happy to answer any questions.
[The prepared statement of Ms. Lamm can be found on page 81
of the appendix.]
Chairwoman Waters. Thank you very much, Ms. Lamm.
Mr. Heidrick, you are now recognized for 5 minutes to
present your oral testimony.
STATEMENT OF CHRISTOPHER HEIDRICK, HEIDRICK & COMPANY INSURANCE
AND RISK MANAGEMENT SERVICES, LLC, ON BEHALF OF THE INDEPENDENT
INSURANCE AGENTS AND BROKERS OF AMERICA
Mr. Heidrick. Good morning, Chairwoman Waters, Ranking
Member McHenry, and members of the committee. My name is Chris
Heidrick, and I am pleased to be here today on behalf of the
Independent Insurance Agency Brokers of America, or the Big
``I'', to present the association's perspectives on flood
insurance and the NFIP.
We commend the committee for looking at this very important
issue, and we look forward to working--we appreciate the work
you have done so far on the draft bill as early as last week. I
am the owner of an independent insurance agency located in
Sanibel, Florida. I regularly counsel homeowners and small
businesses regarding flood insurance. I also hold the
designation of associate in National Flood Insurance and
currently serve as the chairman of the Big ``I'' Flood
Insurance Task Force, and I am chairman of the Flood Insurance
Producers National Committee, which is an organization that
provides technical assistance and advice on NFIP operations.
The Big ``I'' is the nation's oldest and largest trade
association of independent insurance agents and brokers,
representing more than 25,000 agency locations across the
country. Working with Write Your Own companies, many of these
agents serve as the sales force of the NFIP. It is from this
vantage point that Big ``I'' members understand the
capabilities and challenges of the insurance market when it
comes to ensuring against flood risks.
My written and oral testimony today focuses on three
points: one, the need to reauthorize the NFIP on a long-term
basis before the program expires on May 31st; two, the need to
increase takeup rates for flood insurance, whether through the
NFIP or the private market, to better ensure Americans can get
back on their feet as quickly as possible after a disaster
strikes; and three, the need to modernize and simplify the NFIP
to make the program more transparent and understandable for
consumers.
While there are several other important issues impacting
the NFIP, such as increasing support for mitigation and
ensuring strong flood plain management standards, my colleagues
on this panel hold expertise in this area. As I am the only
witness on the panel from the insurance sector, I will focus my
statements today on insurance-specific issues.
Most recently, on December 21st, Congress acted to extend
the NFIP through May 31st of this year so the program could
continue to operate during the recent partial government
shutdown. In doing so, Congress recognized the critical role
the NFIP plays in the U.S. housing market and the overall
economy. As such, the Big ``I'' urges Congress to yet again
extend the program as soon as possible but before it expires on
May 31st to avoid any unnecessary economic disruption.
While it is important that the NFIP does not lapse, the Big
``I'' also encourages Congress to work together to pass a true
long-term reauthorization of the program as quickly as
possible. The public instability and uncertainty created by
continual short-term extensions causes economic damages and
hinders the ability of the NFIP to help policyholders, while
also undermining consumer confidence in the program.
Flooding is the most common and costly natural disaster,
and yet most property owners do not have flood insurance. As
such, the Big ``I'' encourages Congress to consider policies
that would help Americans to obtain flood insurance coverage,
and this includes not only flooding caused by hurricanes and
coastal events but also inland flooding. A significant portion
of flooding occurs outside of perceived high-risk areas, and
put simply, where it rains, it can flood.
While the NFIP has its faults, it is a vital program and is
the primary source of flood insurance for U.S. property owners.
Historically, flooding has been a difficult risk to underwrite
in the private market. However, advances in modeling and
underwriting technology have contributed to some market growth
in recent years. Yet, to date, the private insurance market
still only covers a small portion of flood risk nationally.
Therefore, it is important that we continue along with the NFIP
and we also have an expanded private market to increase flood
coverage for the country because an insured survivor recovers
more quickly and fully.
Specifically, the Big ``I'' urges Congress to consider
modest policy changes that would help protect consumers and
give them from more choices, such as clarifying that private
flood insurance can satisfy the continuous coverage
requirements. This is an important consumer protection and an
affordability measure to ensure that homeowners are not
unfairly penalized with increased insurance rates. And earlier
this week, Representative Castor and Representative Luetkemeyer
introduced legislation on continuous coverage, and I thank them
for that. The Big ``I'' also offers additional policy
suggestions in our written testimony.
Finally, the Big ``I'' encourages Congress to work
constructively with FEMA on innovative approaches to
modernizing the program, including ongoing efforts to change
how the NFIP underwrites policies.
In conclusion, the Big ``I'' supports the long-term
reauthorization of a modernized and transparent NFIP that would
increase takeup rates for flood insurance, and calls on
Congress to extend the NFIP before it expires. I thank the
committee for holding this hearing and I look forward to any
questions.
[The prepared statement of Mr. Heidrick can be found on
page 74 of the appendix.]
Chairwoman Waters. Thank you very much.
Ms. Smith, you are now recognized for 5 minutes to present
your oral testimony.
STATEMENT OF VELMA SMITH, SENIOR OFFICER, THE PEW CHARITABLE
TRUSTS
Ms. Smith. Good morning, Madam Chairwoman, and members of
the committee. My name is Velma Smith. On behalf of The Pew
Charitable Trusts' flood-prepared communities initiative, I
thank you. A special thanks for getting the ball rolling for an
on-time, full reauthorization of the NFIP, an essential
component of our nation's flood-risk management. We support
your effort to find the right balance for the NFIP's dual
objectives of insurance and flood-plagued management.
First, flood maps are central to the NFIP, helping all
Americans, not just policyholders. We believe Congress must
help the many communities that still lack modern maps.
Investment in new technologies is a worthy goal, but even more
importantly, we need good maps everywhere, not perfect maps
here and there.
Ultimately, flood maps, however, cannot tell us all we need
to know. Thus, we support a national framework for flood-risk
disclosure, a CARFAX for flooding, if you will. Lack of
awareness can have devastating consequences, but upfront
disclosures about flood risk made before financial commitments
can help consumers make smart decisions. We were delighted to
find broad agreement on this issue with the National
Association of REALTORS, and I look forward to working with the
committee on this issue.
On the difficult issues of rates and affordability, to the
extent that Congress offers new relief to policyholders yet
leaves the structure of the program alone, it may
unintentionally increase the current financial shortfall and
eventually threaten the program's ability to pay claims.
Yet we know also that, to the extent that rates are
perceived as too high, lower-risk policyholders may drop
coverage, thereby increasing the pressure to raise rates on
others. Our recommendation, then, is to carefully target any
affordability program. An overly generous program without
changes will simply hasten the date by which Congress will be
asked to forgive additional loans.
Also, any rate relief must compensate for the price signals
that new discounts convey. Congress should be certain to
provide clear risk information. An affordability program should
not feed flood complacency. We recommend beginning the
difficult but important triage of the program's financial
ailments starting, perhaps, by addressing repeatedly-flooded
properties, not just one house at a time, but as broader areas
in need of mitigation assistance.
The subset of properties that flood over and over again has
strained the program's finances, but with the new mitigation
investment in the Chair's bill, we are hopeful that a
repeatedly-flooded area program could be linked to technical
assistance and ample resources for participating communities.
In the long run, an area-wide approach could accomplish much
more than might be done by taking on the nation's flood
problems one house and one flood at a time.
We celebrate the Chair's support of a mitigation State-
revolving fund program, loan fund program, for we believe that
pre-flood preparation has been the missing piece in the NFIP
puzzle. Existing mitigation programs are small and cannot of
themselves make the dramatic change we need in the trajectory
of the program's finances. A revolving loan fund program could
be the game changer. As the experts tell us, pre-flood
mitigation can save, on average, $6 for every dollar spent.
In closing, let me say that our organization looks forward
to working with all the members of the committee to support a
good, on-time reauthorization to keep flood insurance available
to those who need it without asking taxpayers to subsidize
risky development, to help drive new development away from
flood-prone areas, to foster fixes or buyout of problem areas,
to promote careful consideration of future risk, and
ultimately, to make the nation better prepared for tomorrow's
severe storms.
I look forward to the committee's questions. Thank you.
[The prepared statement of Ms. Smith can be found on page
118 of the appendix.]
Chairwoman Waters. Thank you very much, Ms. Smith.
Ms. Guzman, you are now recognized for 5 minutes to present
your oral testimony.
STATEMENT OF MABEL GUZMAN, BROKER, @PROPERTIES, ON BEHALF OF
THE NATIONAL ASSOCIATION OF REALTORS
Ms. Guzman. Thank you.
Good morning, Chairwoman Waters, Ranking Member McHenry,
and members of the committee. On behalf of the 1.3 million
members of the National Association of REALTORS (NAR), thank
you for the invitation to testify regarding draft legislation
to reauthorize and reform the National Flood Insurance Program.
My name is Mabel Guzman. I am a REALTOR for @properties in the
City of Chicago, and I have been a REALTOR for 21 years.
REALTORS thank this committee for its continued leadership
on long-term reauthorization and reform. Many provisions of the
draft legislation will provide critical reforms to flood
mapping and mitigation. NAR urges the committee to work
together and build on these provisions and remove barriers to
private flood insurance and develop bipartisan reauthorization
package.
Floods are getting worse. Recently, the United States has
experienced several record-breaking hurricane seasons in a row
and witnessed the total destruction of places like Mexico Beach
and most of Puerto Rico. I personally have family in Houston,
in Florida, and in Puerto Rico who recently went through those
hurricanes. What they had to experience, we would not wish on
anyone, like my cousin's daughter who lived without water.
Luckily, the neighbor who had collected water in his pool
allowed her to draw from that pool so they could boil water to
drink, to bathe, and to flush toilets.
This is not a coastal issue. We saw this in Houston last
year--and roughly half of the declarations for flood occurred
in landlocked States. In the past year alone, disasters were
declared in Kentucky, Indiana, Michigan, Wisconsin, Minnesota,
and Montana. And in my hometown of Chicago, for instance, we
have struggled with flooding due to heavy rainfall. According
to the Illinois Department of Natural Resources, 90 percent of
the damage claims were for locations outside the mapped 100-
year flood plain, highlighting the degree to which flood plain
maps have become out of date and no longer accurately reflect
the risk communities face.
REALTORS are encouraging people to buy flood insurance even
when it is not required. I recently told clients interested in
purchasing foreclosed properties to purchase flood insurance,
because banks are excluded from disclosure laws that REALTORS
are required to follow. Additionally, we recommend mitigation,
because every dollar spent in mitigation saves $6 and you never
know when it is going to happen.
While REALTORS are not risk experts, we are trying to do
our part to close the insurance gap, so we have signed a
memorandum of agreement with FEMA, and we are working together
to educate consumers about the importance of considering flood
insurance no matter where they live.
The National Flood Insurance Program is central to U.S.
disaster preparedness efforts and essential to completing half
a million homeowner sales per year. As essential as the program
is, this 50-year-old program was cutting edge 50 years ago.
Today, it has borrowed $40 billion and is not working for
policyholders or taxpayers. We need to modernize the program to
work in today's realities.
NAR supports extending the NFIP, and we also must have
meaningful reforms. To reauthorize and do nothing will not help
with inaccurate maps, unfair insurance rates, or the lack of
resources for property owners to reduce the risk. We support
these provisions in the bill: reauthorize NFIP through 2024;
include bipartisan mapping and mitigation; modernize mapping
for better risk assessment; and low-interest mitigation loans.
We also encourage opening doors for private flood insurance, to
ensure consumers are charged fair rates and enhanced
affordability through mitigation. And please, clarify that FHA
is subject to mandatory acceptance of private flood insurance.
Having a competitive environment gives consumers good
options. Yes to reauthorize, and yes to reform. Because to do
nothing, we already can see the consequences. It is not only a
loss of property; it is a loss of life.
Thank you very much for the opportunity to testify today,
and I look forward to answering your questions.
[The prepared statement of Ms. Guzman can be found on page
68 of the appendix.]
Chairwoman Waters. Thank you, Ms. Guzman.
Mr. O'Mara, you are now recognized for 5 minutes to present
your testimony.
STATEMENT OF COLLIN O'MARA, PRESIDENT AND CEO, NATIONAL
WILDLIFE FEDERATION (NWF), ON BEHALF OF NWF AND THE
SMARTERSAFER COALITION
Mr. O'Mara. Chairwoman Waters, Mr. McHenry, thank you for
the opportunity to be with all of you today. My name is Collin
O'Mara. I am the head of the National Wildlife Federation and a
member of the SmarterSafer Coalition.
The National Wildlife Federation is America's largest
wildlife conservation organization with 6 million members,
including in all of your States and districts. But we are also
a member of the SmarterSafer Coalition, which, for more than a
decade, has advocated for reform of the National Flood
Insurance Program to ensure the program is smarter and safer
for those in harm's way, for the environment, as well as for
taxpayers.
I had an old mentor who used to talk about how flooding is
natural, but disasters are manmade. And, you know, he was
mostly right. And we have to be honest about the conversation
we are having today, which is that the perverse incentives
created through this program through the subsidized rates have
put people in harm's way and made some of the disasters you
have seen in the last 2 years more extreme because communities
have kind of encroached in more and more risky areas.
What I think my old mentor didn't anticipate was that the
acceleration of risk would get so much worse. And whether it is
Hurricane Irene, Hurricane Sandy, Hurricane Maria, Hurricane
Harvey, Hurricane Florence, or Hurricane Michael, in just the
past 3 years, we have had $450 billion worth of damage. And you
have all been asked to vote on supplementals for billions of
dollars, which are dramatically more money than we spent on
mitigation over the past 50 years.
Our failure to act is only accelerating and exacerbating
these problems, and it is a double whammy. So we are
encouraging folks to move into harm's way, because we are
subsidizing the true cost. And at the same time, we are
destroying the natural resources, the wetlands, the dunes, and
the forests, in some cases, that act as natural barriers to
protect those communities.
In my State of Delaware, for example, if you develop on a
wetland, you are going to destroy between 300,000 and a million
gallons of storage capacity for water that all of a sudden
there is asphalt. That water is going to go somewhere else,
into the neighbor's yard. And by not having that capacity, as
you saw in Houston and other places, all of a sudden, these
disasters become much worse.
So given this new reality, this conversation that the
chairwoman is leading is incredibly important. And this can't
just be one of those kind of typical reauthorization
conversations like we have, because a vote for short-term
extension is really a vote to exacerbate the tragedies that we
are facing.
So we really want to make sure that we are not--we can't
afford to perpetuate the status quo through just a short-term
extension without meaningful reforms or only modest reforms.
And we need to make sure we are protecting these vulnerable
frontline communities that are facing unacceptable levels of
risk.
So to better protect people and natural systems, I want to
highlight four priority reforms as part of reauthorization.
First, we have to invest in more accurate maps, and this
includes property level data. And we are supportive of a lot of
the measures, and we think we can even go further within the
draft bill. But the property level data is incredibly important
because that is where we are seeing a lot of the debates take
place for whether folks are in or out of requirements.
Second, we must provide people in communities more choice
in insurance options, and we have to make sure the risks are
more transparent. People need to fully understand the risks
they face so they can take steps to actually protect themselves
against potential flooding or hurricane damage. Access to
information and full transparency is absolutely essential. And,
frankly, there is no State that is doing this better in the
country right now than Mr. McHenry's State of North Carolina,
where folks can go online and get a whole range of information
and steps they can take to save actuarial costs and really have
that information to make good decisions for themselves and
their family.
Third, for those who can afford it, we need to ensure that
rates do reflect the full risk over time. And at the same time,
we need to make sure that affordability concerns, particularly
for vulnerable frontline communities, is an absolute priority
and that we target incentives for those communities that
absolutely need the assistance to make sure we are not creating
additional victimization of communities that for too long have
been forgotten.
And then most importantly, we need to invest a much greater
commitment in resilience, especially for disadvantaged
communities. We need to invest in mitigation. As all of the
panelists have said, every dollar we spend is going to save
between $6 and $10 of avoided damage later. We are being
incredibly pennywise and pound foolish in this debate, because
we are seeing the damage that we are paying for with the
supplements you are all asking to vote on.
So let me just close with one quick story. I was the
secretary of natural resources in Delaware during Hurricane
Sandy. And it was absolutely heartbreaking to see communities
that had done the right thing, in some cases. They had their
insurance policy. In some places we were able to invest in
wetlands; in some places, we had been able to build dune
systems. Those places that had those investments fared
incredibly well. Those places that didn't were devastated.
And although much of the talk today is about the economic
consequences of different rate structures, we need to figure
out how to protect these communities. Because at the end of the
day, the work that we do now is going to be the difference
between whether these communities thrive in the future or they
are absolutely wiped out as you have seen in recent storms.
So thank you for having this conversation. Thank you for
focusing on vulnerable communities. Thank you for trying to
have a more responsible program. And we believe we can work
together with all of you to make sure we have reforms that
really modernize this program for the 21st Century.
[The prepared statement of Mr. O'Mara can be found on page
105 of the appendix.]
Chairwoman Waters. Thank you, Mr. O'Mara.
Mr. Lehmann, you are now recognized for 5 minutes to
present your oral testimony.
STATEMENT OF RAYMOND J. LEHMANN, DIRECTOR OF FINANCE, INSURANCE
AND TRADE POLICY, R STREET INSTITUTE
Mr. Lehmann. Chairwoman Waters, Ranking Member McHenry, and
members of the committee, my name is R.J. Lehmann. I am
director of finance, insurance and trade policy at the R Street
Institute. R Street is a think tank whose mission is to
identify pragmatic, market-oriented solutions to public policy
challenges. I appreciate the opportunity to testify and share
our views on reforms of the National Flood Insurance Program.
Like the National Wildlife Federation, R Street is a member
of the SmarterSafer Coalition. This broad and ideologically
diverse group has forged consensus on NFIP reforms that would
make the program more fiscally sustainable, remove incentives
for development in environmentally sensitive regions, to invest
in mitigation and more accurate mapping, and to ensure the
public has clear information about flood risks. The draft bill
the committee will consider makes significant progress to
address several of these priorities. I also hope to highlight a
few areas where further reform would be appropriate.
The most significant new element introduced in the
discussion draft is a proposed demonstration project for means-
tested discounted rates. We have long advocated for
affordability provisions to help low-income policyholders. For
too long, the NFIP subsidies have been regressive. We are
flowing disproportionally to wealthier counties.
Ensuring that lower-income policyholders are not burdened
with unreasonably high rates is crucial to the goal of phasing
out subsidizing grandfather policies. With the addition of an
effective means-tested affordability program, this committee
should move forward with a plan to place the pre-2014
grandfathered policies on a glide path toward actuarial rates,
because these are the only policies currently currently
scheduled to remain at below full risk rates.
The draft would also forgive the entirety of the NFIP's
$20.5 billion debt, coming in addition to the $16 billion of
debt that Congress voted to forgive in 2017. It is not feasible
that the NFIP will ever be able to repay its debt in full. But
if Congress is going to once again forgive the program's debt,
it must retain the borrowing authority cap which forces
Congress to revisit the NFIP's structure should it once again
prove unsustainable. The current cap of more than $30 billion
is so large as to provide no meaningful restriction on
spending. The cap should be lowered, I would suggest to about 1
percent of total insurance in force, which right now would be a
cap of about $13.1 billion.
The discussion draft also raises NFIP coverage limits. The
current limit is more than adequate for most homeowners. And I
am not aware of any availability problems for policyholders in
the excess flood coverage market, which is typically purchased
by businesses and high net worth homeowners to the extent that
there is a concern with residential multifamily policies. That
could be something that could be addressed more targeted.
The NFIP is and will likely remain the primary source of
flood insurance coverage. The recent growth of the private
market should be seen as a complement to the program, one that
could help close the protection gap that currently leaves more
than 85 percent of Americans without any coverage for floods.
One step Congress could take to protect consumers as the
private market continues to grow is to stipulate that those who
move to private flood coverage can return to the NFIP at the
previous rates. This protects consumers if, for example, a
private insurer raises rates, changes its underwriting
approach, or leaves the market.
Finally, I wanted to offer for the committee's
consideration a proposed reform intended to ease the process of
adaptation to increased coastal flooding and tropical storms
that we face as a result of sea level rise and climate change.
In short, the NFIP should cease writing coverage for any new
construction in 100-year flood plains. This approach would be
modeled on the success of the Coastal Barrier Resources System
(CBRS), a 37-year-old program that protects 3.5 million acres
of sensitive coastal ecosystems. The model of promoting
conservation by removing Federal subsidy has been adopted
elsewhere successfully, including by public insurance programs
run by the USDA and the State of Florida.
As with the CBRS, barring new construction in 100-year
flood plains from NFIP eligibility would not foreclose the
possibility that developers could find private coverage. It
also would not relieve the challenges we will likely face in
the years ahead with the stock of existing structures already
in those flood plains. It would, however, apply the ancient
wisdom of the Hippocratic oath: First, do no harm. Where we can
cease encouraging development of flood-prone land without
laying any new burden on any current resident, it is an
opportunity we simply must take.
And with that, I would be happy to answer any questions.
[The prepared statement of Mr. Lehmann can be found on page
98 of the appendix.]
Chairwoman Waters. Thank you very much, Mr. Lehmann.
I now recognize myself for 5 minutes for questions.
Ms. Guzman, I have long advocated for long-term
reauthorization of the National Flood Insurance Program well in
advance of expiration in order to ensure stability in the
housing market. Unfortunately, we have now passed 10 short-term
reauthorizations of the National Flood Insurance Program since
Fiscal Year 2017 and have even seen lapses of the program in
between these extensions.
Can you talk about the impact that short-term
reauthorizations and temporary lapses in the NFIP program have
on the housing market?
Ms. Guzman. Thank you for the question, Chairwoman Waters.
Yes, the impact is--40,000 transactions were impacted in the
last lapse. And it could be as many as 1,300 a day, but we know
that 40,000 were impacted in the last lapse. What happens is
people are not able to close on their transactions. And in many
cases, when they are told to purchase insurance, they are
purchasing it maybe 5 days prior to closing, maybe 3 days prior
to closing, because it is not a very complicated process.
With that, they find out, sorry, there is no flood
insurance, and there is a requirement for you to have flood
insurance to close. That upends the transaction. Now they have
to scurry with their attorneys, and also with the seller, and
explain to them that they cannot close. And luckily, they were
able to get a week extension, some of them. Some of them were
forced to close, and had to borrow money and make that
transaction happen at that time.
Lenders can do it and say, we will continue, because we
know this will be reauthorized. But they are risk-adverse, and
they are not willing to take that risk and let the people close
and continue with the transaction and move into their new home.
Chairwoman Waters. Thank you very much.
Ms. Lamm, many people know that the National Flood
Insurance Program provides flood insurance coverage, but not as
many people understand the role that the program plays in flood
plain management, mapping, and mitigation. I have long
advocated for robust funding for these activities because I
know how important they are in strengthening our resiliency in
the face of future storms.
Can you talk about this important part of the National
Flood Insurance Program and why it is so critical that these
activities are adequately funded?
Ms. Lamm. Yes, ma'am. Great question, and thank you. When
it comes to flood plain management, flood plain mapping, and
mitigation, all three of those tie in together quite nicely.
You can't really run one without the other. So, especially at
the State and local level, these are very important.
I happen to run the Cooperating Technical Partners Program
for South Carolina, so the mapping programs run through the
State. You have to identify mapping, flood areas. Flood plains
change over time. The maps have to be updated. In order to do
sound flood plain management, you have to have great mapping.
In order to know the best places to mitigate, you have to know
where the floods are going to occur.
We do have an issue where a lot of people do not realize
that what we map is a regulated flood plain, but that it is not
everywhere that can possibly flood, so it is really important
that we have sound flood plain management, and that individuals
understand the mapping and what it actually entails. And also,
when it comes to mitigation, making sure we can properly
identify who needs to be mitigated.
Thank you.
Chairwoman Waters. Thank you very much.
And I am going to now call on the ranking member, Mr.
McHenry, for 5 minutes for questions.
Mr. McHenry. I thank the Chair.
So I want to talk about data. Because we have within
counties, we have within parts of our government precise data.
We have climate data that is collected.
Mr. O'Mara, we already have this massive amount of data
used by--with taxpayer dollars collected, right? So what kind
of data would be helpful to make public for us to have really
good governance, but also have a better understanding of the
risks that we are facing? And from your footprint as a former
regulator, if you could speak to that?
Mr. O'Mara. Look, this is one of those areas where I think
just full transparency is important. And I think having as much
property level data as possible, not just the generalizations
across the watershed or subwatershed or, you know, at a higher
topographic level, you want data a couple meters. You want data
really down, and you want equal amounts of financial
information.
And, frankly, your State of North Carolina does this better
than anybody. You go on the website, you look up your parcel,
you see where you are in the flood plain, and you see what the
risks are. You see what the options are for financial coverage.
You see what the options are for--
Mr. McHenry. Sir, our county GIS systems actually
incorporate the flood plain into that county level, property
level data. So, the county level, we actually have where that
physical premise is that will be the cost driver of a flood. Is
that not readily available in other jurisdictions?
Mr. O'Mara. It is completely uneven across the country. And
most of it is coming from local jurisdictions more than from
the Federal level.
Mr. McHenry. So tell me what that should be, then? As a
policymaker, what should I be driving for?
Mr. O'Mara. You should be driving for property level data
that is publicly accessible that lays out a combination of the
geotechnical information about elevation and kind of risk for
the flood plain, but then also financial information, and link
it all together so there is a one-stop shop. You can go to one
location and get all the information you need to make a wise
decision for your family.
Mr. McHenry. Ms. Guzman, as a practicing REALTOR, is that
data helpful to you and your customers?
Ms. Guzman. Absolutely. I would have to say that right now,
there is a lack of due diligence for the buyer. When they want
to make a purchase, they really don't have complete
information. Even though there are State disclosures, those
disclosures are just basically check the box. Is it in a flood
plain? Yes. Has it flooded? Yes or no? But it doesn't say how
many times it has flooded. If they mitigated, what was the cost
of the flood, which based on your graph, it says 1 inch of
water would cost $25,000 in a 25,000 square foot home.
Mr. McHenry. But you are held accountable for these
disclosures as well?
Ms. Guzman. Absolutely. And we make them. The thing is you
check the box, yes, it is in a flood plain. Yes, the home
flooded. It doesn't account for how many times. They don't have
to disclose that. They don't have to disclose the cost if they
mitigated or not.
The thing is that the buyer--
Mr. McHenry. Actually, I just--
Ms. Guzman. And the buyer lacks due diligence because if
the math--
Mr. McHenry. This is helpful.
Ms. Smith, do you want to comment on this on behalf of Pew?
Ms. Smith. Sure. And we were happy to reach accommodation
with the National Association of REALTORS, because we also
believe there has to be transparency, and people have to have
the information they need to make good financial decisions to
know whether a property has flooded, whether it is a repeat
loss property, how often it has flooded, to know that
information before. And not just for home buyers but for
renters also.
Mr. McHenry. So what you are saying is that is currently
not available in one place?
Ms. Guzman. Can I follow up? The information should be
available--
Mr. McHenry. If you would vocalize that for the record, Ms.
Smith.
Ms. Smith. I would say the answer is no. And in many cases,
it is not available in any place.
Mr. McHenry. Okay. But this is data that should be
available. And our technological capacity is far greater than
it was 50 years ago or even 10 years ago, for that matter,
because of where we are with GIS systems.
I want to talk about risk transfer just for a moment.
Mr. Lehmann, we have seen reinsurance having a positive
effect on the National Flood Insurance Program over the last
handful of years. How effective has that been, and how can we
make it more effective?
Mr. Lehmann. Certainly, for the first year, the return was
immediate, because in 2017, we had such significant floods from
Hurricane Harvey, primarily, that you maxed out the coverage.
So that was a major return to taxpayers on what they spent on
premiums.
Mr. McHenry. So reinsurance has actually been beneficial to
the taxpayer since we have done that? Is that correct?
Mr. Lehmann. Yes, that is correct.
Mr. McHenry. Same way, Mr. O'Mara?
Mr. O'Mara. Correct.
Mr. McHenry. Okay. Likewise, given the severity of storms,
given the nature of our climate right now, Mr. O'Mara, this
type of climate data should also be a part of this
conversation, should it not?
Mr. O'Mara. Absolutely. We want to show the true risk rate,
right? So we want to show every potential risk. And we should
be including in the modeling things like sea level rise and
subsidence and other things so people can make informed
decisions about the risk they are facing.
Mr. McHenry. Thank you.
And thank you, Chairwoman Waters.
Chairwoman Waters. Thank you very much.
The gentlewoman from New York, Mrs. Maloney, Chair of our
Subcommittee on Investor Protection, Entrepreneurship, and
Capital Markets, is recognized for 5 minutes.
Mrs. Maloney. Thank you, Madam Chairwoman. And thank you
for your discussion draft. I would like to publicly thank you
for including language that I presented in the last Congress to
take into concern the special mitigation credit needs of New
York City from lessons that we learned in Hurricane Sandy.
I would like to ask Ms. Guzman, as you are well aware, New
York faces very unique issues when it comes to flood insurance.
In particular, the mitigation techniques that the rest of the
country uses such as elevating properties on stilts or
elevating them in some way doesn't work in New York. Most of
our people live vertically, not horizontally, and it is hard to
put on stilts a 50-story building. So this makes it very hard
for families in New York to get their flood insurance premiums
lowered, because they currently don't get mitigation credit for
the types of mitigation that we use in New York, such as moving
a boiler from the basement to the top floor or moving
electrical equipment.
So my question to you is, do you think it is a good idea to
allow mitigation credit for different kinds of mitigation that
are used, for example, in cities like New York, which the
chairwoman's discussion draft includes, and can you expand on
this?
Ms. Guzman. Yes, absolutely. We believe in a mitigation-
centered approach. And that would include flood vents also in
basements as well as moving the utilities. Currently, right
now, that is not included in the current NFIP rates as it
exists. Giving people more options and other ways of mitigating
could reduce costs and risk. Again, every dollar spent saves
$6. That is from the National Institute of Building Science.
Modernization is key here.
I do want to go back to the previous question with regards
to disclosure, which is check the box. The thing is that we
need ``Flood Facts.'' I was talking to a friend of mine, Rita,
over lunch and telling her that I would be here testifying with
regards to flood insurance. I told her that in many cases,
people don't know whether their home flooded because there is
no information. And she said, ``That is so weird. I just bought
a car, spent $30,000, and I found out whether that car flooded
or not, but if I am going to make a purchase of $200,000 or
half a million dollars, there is no way for me to find out if
that property flooded or not?''
So just like a CARFAX, we really need a ``FLOODFAX'' where
the buyer can do all the due diligence necessary to make a
sound decision, because this is going to be the largest
investment most are going to make.
Thank you.
Mrs. Maloney. Thank you, Ms. Guzman.
And can you talk a little bit about the State revolving
loan funds that are included in the chairlady's discussion
draft? How do you think these loans will affect low-income
households? And is the possibility of forgiveness of the
principal on the loan enough relief to make sure that these
loans don't unnecessarily burden low-income families?
Ms. Guzman. I believe that low-interest mitigation loans
are a good idea. Right now, people are coming out of pocket to
make repairs and adjustments to their property. And in many
cases, because the maps--which I will probably say a thousand
times today--do not reflect accurately the risk to these
properties. Additionally, they don't account for heavy
rainfall. I live in a metro market, and that is exactly what
happened.
So the draft bill would give people low-interest loans that
give them an opportunity to do mitigation projects that reduce
the cost to the taxpayer as well as reduces the risk to the
homeowner as well.
Mrs. Maloney. Thank you.
And, Ms. Lamm, as you know, over 20,000 communities across
the country participate in the NFIP, and over 5 million
policyholders rely on it for flood insurance coverage. Can you
explain what would happen when those communities and families
no longer have access to Federal flood insurance during a
lapse? How would it affect them if there was such a lapse?
Ms. Lamm. Thank you. The citizens and families--when there
is a lapse in the ability to have Federal flood insurance,
there are a couple of things that actually happen. One very
specific thing is if it is tied to their mortgage and there is
a lapse, and they are unable to renew or purchase flood
insurance, their note is called in. Most people cannot afford
to pay off their mortgage in 30 days. And that is currently the
way it is done.
The other thing is, they can't protect themselves. And that
is the one thing that is most important is that when someone
does understand their true level of flood risk, that they are
able to protect themselves, and flood insurance is the one way,
as we have all spoken about, that someone can actually be able
to make themselves whole much faster than any disaster
assistance we could ever provide.
Mrs. Maloney. Thank you.
Chairwoman Waters. Mrs. Wagner, the vice ranking member,
the gentlewoman from Missouri, is recognized for 5 minutes.
Mrs. Wagner. I thank the chairwoman for yielding. And I
thank all of our witnesses for appearing today to discuss the
reauthorization of the National Flood Insurance Program, which,
as we all know and has been said multiple times, is set to
expire yet again in May.
I spoke on the House Floor in November expressing my
profound dismay with the eighth--eighth--short-term extension
vote since Fiscal Year 2017. With the NFIP being $20.5 billion
in debt, we must reform the program to keep it solvent to
provide coverage for those who truly need it and to protect the
taxpayers from additional and future bailouts. It is estimated
that only 3.5 to 4.5 percent of current flood insurance
policies are covered by the private sector.
Mr. O'Mara, do you believe that there should be greater
private market participation in those policies that cover
threats from floods?
Mr. O'Mara. Absolutely. And we see the opportunity of the
Federal program focused more on vulnerable communities and the
private market take care of more folks who can afford it.
Mrs. Wagner. The flood insurance market is dominated by
NFIP, Mr. O'Mara. Do consumers benefit from this near monopoly?
Mr. O'Mara. I think more data and more competition is good.
And I think the concerns that have been raised in the past have
been discounted by the real-life experiences of States like
Florida, that have shown that you can actually have competitive
marketplaces--
Mrs. Wagner. And how does it work in Florida? How does it
work in Arkansas and places like that in a private market?
Mr. O'Mara. The places that it is working best are places
where the policies are at a good level. There are good
standards around them. And they are making sure that banks and
others are kind of accepting those as fully viable alternatives
to the Federal program.
Mrs. Wagner. Mr. Lehmann, when the NFIP was created in
1968, the belief was that the private insurance market lacked
the data and ability to assess flood losses.
With our little conversation about data here, which has
been very important, especially relating to mapping, tell me
what has changed in terms of data technology and the market's
ability to assess risk since 1968?
Mr. Lehmann. There are a few things that have changed.
Among other things, the insurance industry used to be much more
local. It is a global industry now. Reinsurers, in particular,
operate internationally, take large risks from different parts
of the world, balance them against each other, and that is how
they are able to cover very large events.
The depth of the global reinsurance markets, the ability of
catastrophe modeling, the emergence of the catastrophe modeling
industry, and just general changes in how insurance is
underwritten has made it possible for a private market to
emerge. It is not prepared to take over for the NFIP. The NFIP
remains the primary source. But it is emerging, and it will
continue to grow.
What we need is both. We have 85 percent of the country
without any flood insurance. And there is a significant need
for the marketing juggernaut of the insurance industry to start
having an incentive to sell this coverage to people who don't
currently have it.
Mrs. Wagner. And in that same vein, which barriers within
NFIP prevent private insurers from entering the market? And how
do some of these legislative drafts today help solve some of
those problems?
Mr. Lehmann. It seems like a good number of the issues with
the banking requirements may be resolved by the rule that is
currently open from the FDIC and the other banking regulators.
I understand that the FHA remains an open question, and I know
some of the other panelists have discussed that.
The biggest disincentive right now to the program is if you
are going to move from the Flood Insurance Program to a private
policy and then want to move back into the Flood Insurance
Program later, you are not currently considered to have
continuous coverage. And so if you had a subsidized or
grandfathered policy, you would be stuck with the full risk
rate. I want policies to generally move towards full risk rate,
but that could be punitive in the short term.
Mrs. Wagner. In the short term. In the long term, though,
we could see real movement, I think, into the private sector.
And some of the tools that we talked about, like reinsurance
and additional data dealing with mapping and other things,
these fact checkers ought to be able to allow underwriters to
move this into the private sector more. Would you agree?
Mr. Lehmann. I agree.
Mrs. Wagner. Mr. O'Mara?
Mr. O'Mara. Yes.
Mrs. Wagner. Ms. Guzman?
Ms. Guzman. Absolutely. And may I add that on that lapse of
40,000 people who were purchasing, a lot of those were FHA
loans. And they were not given an option to go and seek private
flood insurance so that they could close that transaction.
Mrs. Wagner. I appreciate that.
I thank the Chair.
Chairwoman Waters. Thank you.
The gentleman from Georgia, Mr. Scott, is recognized for 5
minutes.
Mr. Scott. Thank you very much, Chairwoman Waters.
Ms. Waters' bill here is so timely, and so necessary. And I
certainly want to commend her for providing leadership and
making sure we get a 5-year plan, because we need to bring some
stability and responsibility to this for our people. Because,
ladies and gentlemen, all of the scientists, all of the
scientific evidence that we can get from the experts, says that
we are moving into a climate pattern now that is going to be
more flooding, more rain. Whatever is causing this, the
scientists are there.
We have had back-to-back hurricanes. Now, this is important
for me, because Georgia and the area I represent is right in
the valley of this. Many of you may remember we had a big flood
down there, and we were able to get the Vice President to get a
plane, Joe Biden, and we flew down. And the press took these
great pictures that showed Six Flags Over Georgia down,
flooded, to the point that we had to refer to it as Six Flags
Underwater in Georgia.
And in that area, we had to bring over $35 million for
hazard flood mitigation to Cobb County, Douglas County, and
Fulton County in Georgia where all of that happened. I bring
that up because it may be possible that we need to do some bold
things here.
And first I want to follow up on the line of discussion on
the private flood insurance industry expansion, Mr. Heidrick--
is that ``Heidrick'' or ``Heidrick?''
Mr. Heidrick. ``Heidrick.''
Mr. Scott. ``Heidrick.''
Mr. Heidrick. Thank you.
Mr. Scott. Wonderful.
As you know, there has been testimony and discussion today
on how the NFIP is not just an insurance program, but also has
other important functions related to flood plain management. Do
you think that if the private flood insurance industry expands,
that it will increase risk because the NFIP will not be able to
support those other functions? Would you expound on that for
us, please?
Mr. Heidrick. Sure. I thank you for the question. No, I
don't believe that that would be a long-term problem. Private
insurance companies need data in order to select and underwrite
and properly price risks, just like the NFIP. And to some
extent, those private companies use the government-created
data. But to a large extent, they don't. They rely on private
vendors. The NFIP is also in the process of going through its
risk rating 2.0 revision, which is going to change the way that
they establish rates and the data that they use.
So if the question is, would a private company pay to
access the data that the government provides, I would say--I
don't know this firsthand, because I am not an insurance
company, but intuitively, I would say if it adds value and it
is effective and provided efficiently, then intuitively, I
would say yes.
Mr. Scott. So how would you describe the current
relationship between your private insurance and the Flood
Insurance Program, which is Federal?
Mr. Heidrick. There are multiple choices, and that is what
customers really appreciate. In my own agency, there have been
hundreds of customers that I have rewritten from the NFIP to
private insurance companies at lower premiums and better
coverage.
Mr. Scott. Now, let me ask you this, because we worked
hard, Ms. Waters, myself, and I must say Mr. Duffy, were able
to work and get an amendment passed for monthly installments,
that people could pay their flood insurance in monthly
installments. And that was a big contribution that we made,
because before that, they had to pay one lump sum, and so
people went without it.
How would that relate with private insurers?
Mr. Heidrick. May I answer, Madam Chairwoman?
Chairwoman Waters. Please go ahead.
Mr. Scott. Thank you.
Mr. Heidrick. The challenge that we have with monthly
installments is, to a large extent, solved by escrowing within
your mortgage payments. If you don't have a mortgage, that is
where the installments come into play. And it is valuable
because it helps take up rate, which is something that we are
all trying to accomplish. But the challenge that we face is
that flood risk is often seasonal. Snow melt happens at a
certain time of year. Hurricanes happen at a certain time of
year. We need to make sure that people can't buy a policy, pay
a couple of installments for the dangerous part of the year,
and then drop it.
Mr. Scott. Thank you. Thank you, Madam Chairwoman.
Chairwoman Waters. Thank you.
The gentleman from Florida, Mr. Posey, is recognized for 5
minutes.
Mr. Posey. Thank you, Madam Chairwoman.
I have hesitated to weigh in on this issue too deeply over
the years for a number of reasons. It is one of those cases
where it seems like everybody in the room knows how to make a
baby stop crying except the person holding it. You know, this
flood insurance issue is not rocket science. It is not a really
difficult proposition to understand.
The national participation rate, as we heard earlier, is 31
percent. You have 31 percent of the people paying for 100
percent of the losses, so do the math. If it is a good
actuarial, you are going to do--be taking to shorts every
single year. And that is what we have been doing with NFIP.
In Florida, the participation rate is 46.2 percent. And
just compare--for example, in my county where I live, the
average premium for private flood insurance is $209. NFIP is
$501. The median is $100 a year. The poorest of the poor who
own a home can afford that. For flood insurance, it is $388.
And there are a number of ways they make that affordable.
And Madam Chairwoman, if we could have a hearing on that
sometime or a discussion, I would like to bring some experts up
here to explain how they do it in Florida, not that you should
do everything like Florida does.
But there are a number of reasons that people don't
participate in the system: they don't know they are not covered
by their homeowners' insurance policy; they don't think that
they have a risk; they don't understand the necessity of it.
There are a lot of good reasons for that.
Mr. Heidrick, your agency is located on a barrier island,
and so you know the importance of your customers understanding
what the risk is. In your experience, how has increasing the
availability of private flood options affected things?
Mr. Heidrick. I would say most significantly and what
stands out in my mind is, immediately after Hurricane Irma, if
you recall, the weather predictions or the storm surge
predictions for southwest Florida were dire: a 15-foot storm
surge as far as 10 miles inland. I had a number of calls, many,
many, calls in the 2 months following Hurricane Irma from
clients who told me that they remember the conversation that we
had about flood insurance, primarily excess flood insurance.
Most of these customers did have a primary flood insurance
policy, and many of them through the NFIP.
But they realized how much exposure they had and how real
that felt, and came to the conclusion that they may have
overestimated their tolerance for risk at the time that we were
initially discussing the coverage and then went on to buy
either an excess policy or a private policy that would offer
them the ability to fully insure the value of their home in a
single coverage.
Mr. Posey. The standard joke around here is that NFIP
reform every time means we cut the sales commission for the
people who brokered the stuff, who have to service it when
times get bad.
How do you think that affects the market?
Mr. Heidrick. A reduction to compensation in any
application is going to reduce availability. And so a reduction
in agent commissions is probably going to drive a number of
agents out of the program.
The NFIP is incredibly complex. It is way more complex.
Mr. Posey. That is good.
Ms. Lamm, you talked about the problem of getting good
maps. Have you ever asked to use the Department of Defense
maps? They have every inch of this country mapped. They know
every nook and cranny, every swale, every everything, the
National Geodetic Survey probably the same, Homeland Security
probably the same.
Ms. Lamm. We have pulled some information from multiple
resources. Those maps have been made available to us. We have
made some requests. But the complexity of a flood insurance
rate map and the modeling is a little different than what some
of the others do.
Mr. Posey. Yes. Most of the people selling private flood
insurance or brokering private flood insurance or insuring
private flood insurance in Florida don't use those bogus maps
anyway. The NFIP arbitrarily puts people in, and puts them out.
They all have the same rate. There is no weighted for risk. I
mean, it is ridiculous. It is not how we are going to solve the
problem.
You know, about the only risk to NFIP that going more to
the private market would give is it would stop NFIP from going
further in the hole and being a burden on the taxpayers. The
coverage would really be more affordable for more people if we
would do that.
And I want to share with you, while the insurance companies
are used for standard homeowners' insurance policies in storms
to use a 100- or 150-year term in their forecast, they have to
use a 400-year catastrophe for flood insurance when they go to
their reserves. So it is not a bait-and-switch.
And, Mr. O'Mara, you indicate we should have all our rates
based on the future effects of climate change and ocean rise.
That is kind of like making me be rated as a driver 20 years
ago from now when I am 90. I mean, that is ridiculous.
Thank you, Madam Chairwoman. I yield back.
Chairwoman Waters. Thank you.
The gentleman from California, Mr. Sherman, is recognized
for 5 minutes.
Mr. Sherman. The Chair and I both represent a city which is
the greatest city in the world built in a desert experiencing a
drought. But even we realize the importance of flood insurance
to this country. I see when it rains, it pours. And my region
of the country has gotten 5 percent more rain. Unfortunately,
Los Angeles, to my knowledge, has not gotten any, so if we can
bring some of that rain from the Northeast, that would be
helpful.
There is, in automobile manufacturing, a concept known as
just-in-time parts delivery, or inventory delivery, where they
bring the parts to the factory just hours before they will be
put on a car. Unfortunately, Congress is copying that with
just-in-time legislating, that if we can extend the Flood
Insurance Program just minutes before it is going to expire,
that somehow we have reduced inventory.
Ms. Guzman, are there examples where people can't sell
their homes, worry about whether their escrow is going to close
because Congress has waited till the last minute or a minute
before the last minute or a minute after the last minute to
reauthorize this program?
Ms. Guzman. Yes, sir. There are 40,000 examples of that
happening each month of an NFIP lapse. And without many of
those folks having the option of seeking private flood
insurance, they end up not closing.
That is the impact of each lapse. So it is irresponsible,
because consumers, our citizens are counting on you to actually
reauthorize. And they are also actually asking for you to
reform it.
Mr. Sherman. So we could be helping home buyers,
homeowners, people who want peace of mind, people who would
like to think that, gee whiz, if our kid doesn't get into that
magnet school, we might want to move. Will we be able to sell?
We can make all those people better off without spending an
additional nickel if we just do our job sooner and not wait to
the last minute.
Mr. Heidrick, do you support a 10-year authorization of the
NFIP?
Mr. Heidrick. Absolutely.
Mr. Sherman. Back to Ms. Guzman, your testimony suggests
that providing more resources for property owners to mitigate
flood risk makes sense. What aspects of the discussion draft do
you think efficiently do that?
Ms. Guzman. Well, it is the low-interest loans for
mitigation. Currently, if someone has to do--I had a client who
actually had to mitigate their property, and they spent close
to $12,000 to retrofit to make it happen. That was out-of-
pocket. By the way, they were selling their home in 3 months.
So it wasn't like we are going to live with this pain, we are
going to take care of it, and we want to give confidence to
that next purchaser who buys our home that they did everything
possible. The sellers not only disclosed the risk, but also
mitigated so that they are not buying a problem.
Low-interest loans give them the opportunity to not go
$12,000 out-of-pocket, and at least finance part of it and then
be able to payment-over-time resolve this issue. But $12,000, I
think for any family upfront, is a lot of money.
Mr. Sherman. Mr. Heidrick, what is the number one complaint
or concern you hear from flood insurance consumers?
Mr. Heidrick. Most of the complaints come from uncertainty
and complexity. The uncertainty with the very short-term
reauthorizations, as you have described, can keep a customer
from knowing whether or not they are going to be able to renew
their policy on time, or if they are going to be able to
purchase a policy. They are about to purchase a home, and will
the NFIP be reauthorized or not by the magic hour that you
discussed? And then the complexity of the program creates an
awful lot of confusion. And both of those things damage
consumer confidence in the program.
So overall, I just hear general dissatisfaction for those
reasons.
Mr. Sherman. I don't want to hit too partisan an issue, but
climate change is real. We are going to have it rain in
different places. We are going to have rivers overflow their
banks. We are going to have to have a system to mitigate loss
before it occurs. We are going to have to have a system to
ensure against loss that does occur. And I commend the Chair
for the discussion draft.
I yield back.
Chairwoman Waters. Thank you very much.
The gentleman from Missouri, Mr. Luetkemeyer, is recognized
for 5 minutes.
Mr. Luetkemeyer. Thank you, Madam Chairwoman.
I want to talk about two things here today. One is
reinsurance and one is private insurance policies, because, to
me, these are the two things that, if we do nothing else, we
are changing the Flood Insurance Program. This will protect my
constituents and the taxpayers. And number two, you shift the
risk also to the private sector with new policies. And I think
when we hold this hearing 5 years from now, we will have a
completely different set of issues we will be talking about,
and we will be tickled pink about how this has all turned out,
if we just do those two things.
So my first question is to Mr. Lehmann. In your testimony,
you mentioned that reinsurance is a fiscally responsible
alternative to taxpayer borrowing. In recent years, FEMA has
purchased over $1 billion a year in reinsurance. Do you think
the FEMA portfolio should look to expand the reinsurance
portfolio?
Mr. Lehmann. Right now, yes. The reinsurance market has
been in what is called a soft market for quite a while, which
means reinsurance is pretty cheap. So you can do pretty well in
leveraging reinsurance.
At any given point in time, that can change. Reinsurance
rates can go up, and it might not be as cost-advantageous. But
right now, it is a great opportunity.
Mr. Luetkemeyer. It is interesting, because I chaired the
Housing and Insurance Subcommittee two sessions ago and spent a
lot of time on this issue. And I did a lot of--I took 20 years'
worth of income expenses from NFIP, and I could prove--and I am
a banker so I can actually can add and subtract, use an adding
machine, a calculator. And so I quickly found out that if NFIP
had been using reinsurance and purchasing over the last 20
years, that, number one, they could afford it, and, number two,
we wouldn't have had to borrow a penny until these last two
hurricanes last year.
It is very frustrating to me to see the incompetence that
has been there with regards to NFIP Directors in the past not
utilizing a tool that every other insurance company in this
country uses.
Can anybody name an insurance company that does not use
reinsurance? I don't think there are any other than, guess
what, NFIP. So why is this not done? I have no idea other than
total incompetence because, number one, they can afford it, and
number two, my constituents, my citizens would no longer have
to be on the hook for these borrowings that continue year after
year when you have a disaster. So thank you for that, Mr.
Lehmann.
Mr. Heidrick, you were talking today with regards to the
insurance agent's perspective. One of the things that we talked
a little bit about today is the ability for an insured to be
able to go back to their NFIP policy. Can you tell me how
important that is?
Mr. Heidrick. It is critical because currently, there are
consumers who are trapped in the NFIP. I can give you an
example. A customer who has had mandatory 25-percent rate
increases over the last 5 years compounded, their policy
premium is now triple what it was in 2014. There are private
market solutions for these people that would offer them an
option at lower premiums and better coverage. But it is
irresponsible for me, in my opinion, to offer that alternative
because I can't quantify the risk that they are taking by
leaving the NFIP and not being able to return under the same
terms that they are leaving.
Mr. Luetkemeyer. Ms. Castor, who is a Democrat, and I, as a
Republican, have offered a bill to do that very thing: allow an
individual who goes to a private sector insurance company to be
able to come back to the NFIP. I believe it is vitally
important to be able to do that.
Mr. Hill, from Arkansas, sits directly in front of me here.
He has two companies in his State that write private flood
insurance. Both of them will take every single risk. You know,
a problem a lot of folks see is cherry picking. They don't
cherry pick because they are smart enough to understand how to
underwrite every single risk, and every single risk is insured,
and they went from 20 to 80 percent, I said 20 to 80 percent,
of what NFIP charges. So why would we not allow our citizens,
my constituents, your insureds to be able to go to the private
sector and find better coverage at a cheaper rate? To me, this
is vitally important. And a key part of this, as you just said,
apparently, is allowing them then to be able to go back in case
these companies raise rates beyond what NFIP is if for some
reason they get canceled or they pull out completely. So I
appreciate your perspectives.
Thank you.
Mr. Heidrick. Thank you.
Mr. Luetkemeyer. Ms. Guzman, in your testimony, you were
talking about private insurance as well. Would you like to give
us an example, perhaps, of somebody that you have talked to or
of somebody who bought a home who was able to get a private
policy and was able to save some money and protect themselves?
Ms. Guzman. Well, the client who did the mitigation for
$12,000 didn't have flood insurance because they were not
considered to be in a flood plain area. Again, inaccurate
mapping. Also, they were out of pocket $12,000. Now, the buyer
who bought it was very happy that they did the mitigation, but
still, when they signed the disclosure, did your home flood,
they checked yes. Is your home in a flood plain, they checked
no.
Mr. Luetkemeyer. Thank you very much. I yield back.
Chairwoman Waters. Thank you.
The gentleman from New York, Mr. Meeks, the Chair of our
Subcommittee on Consumer Protection and Financial Institutions,
is recognized for 5 minutes.
Mr. Meeks. Thank you. Thank you very much, Chairwoman
Waters, for hosting this hearing and for your leadership on
this issue. As most people know, certainty in the flood
insurance market is critical, especially for a district like
mine, which is a coastal district including the entire Rockaway
Peninsula, Broad Channel, and Inwood. For far too long,
Congress has kicked the can down the road, paying down on
NFIP's debt, providing long-term reauthorization, and ensuring
the program's sustainability. We can't continue to kick it down
the road, but I think that we should be able to get something
done in this Congress. Considering the leadership of Chairwoman
Waters and the working relationship with Ranking Member
McHenry, we should be able to do something in a bipartisan way,
and I think that their working together helps us get down the
road.
For me, central to any reform effort is investments in
mitigation. We saw firsthand how mitigation investments can
produce resilient communities that can withstand what are
increasingly severe storms. Take the community of Arverne By
the Sea on the Rockaway Peninsula in my district, as an
example. When Superstorm Sandy devastated most of the Rockaway
Peninsula, Arverne emerged with minimal water and wind damage,
and no fire damage, largely because of resiliency measures. To
be honest, I believe that we need more Arvernes in Queens and
more Arvernes in other coastal communities nationwide. And that
can only be yielded through greater investments in mitigation
coupled with robust policies to address our climate change
crisis because climate change is real.
With all that being said, I do want to understand proposals
to remove en masse properties from special flood hazard areas.
I believe one of the discussion drafts has such language in it.
That caught my eye since the Rockaway Peninsula is entirely in
a special flood hazard area.
So I will start with Mr. O'Mara. You identified potential
concerns with this idea. Could you elaborate on potential
problems here?
Mr. O'Mara. Thank you, Mr. Meeks, and we really liked
working with you after Hurricane Sandy to restore some of the
areas on Jamaica Bay in particular, that had huge resilience
benefits. And I think you are exactly right. The natural
defenses are incredibly important.
Our concern about that provision is it is very unclear in
the draft, and we want to work with the staff in trying to
figure out what exactly was intended. We need to have property
level data. And so, if you start en masse taking out units that
are in harm's way, you are sending a signal that they don't
have to worry about potential flood abatement. And if anything,
we should be looking more at a greater level of stringency so
folks know very clearly if they are in harm's way from a
hurricane or inland flooding. And we are just very concerned
that with the way that it is written right now, you could have
folks taken out of the program and being told they are safe
when you and I both know they are not.
Mr. Meeks. Ms. Guzman, do you have anything to add to that?
Ms. Guzman. No, sir.
Mr. Meeks. Let me move on. You know, again, I get flooded
in my office in Rockaway. A number of my constituents recently
came in to discuss issues with elevation certificates, raising
their homes. Elevation certificates. They have secured the
elevation certificates, yet they see no adjustment in their
premium despite submitting those certificates to the carriers.
Now, this is admittedly largely anecdotal evidence, but the
National Association of Professional Insurance Agents--I don't
think anybody is here on this panel--submitted testimony for
the record noting that the elevation certificate process is
both bureaucratic and lengthy. Has anyone else on this panel
experienced issues with the current elevation certificate
process and have ideas on how we can improve the system? Maybe
I will go to Mr. Heidrick.
Mr. Heidrick. Thank you for the question. Yes. I have
experienced issues with elevation certificates. For one, the
cost of an elevation certificate could range from $200 to
$1,500 depending on where you are in the country. And with the
National Flood Insurance Program, that certificate is required
in order to obtain a quote. So that expense to the applicant is
incurred before they even know what the premium is going to be
for that policy.
We do see error rates on elevation certificates. They are
done by hand. They are done location by location, and not
always are they done by a surveyor that has a lot of experience
with them. So there are times that you get something that
creates an error. When those errors occur, it is not something
that is always transparent to the agent. So now the agent
submits that document to the Write Your Own insurance company,
and they come back with a premium that is significantly higher
that what was originally anticipated.
Mr. Meeks. Thank you. I am out of time. I yield back.
Chairwoman Waters. Thank you. The gentleman from Georgia,
Mr. Loudermilk, is recognized for 5 minutes.
Mr. Loudermilk. Thank you, Madam Chairwoman.
Thank you to the panel for being here. It is a mess. That
seems to be status quo for a lot of things we do here. It has
long been known that NFIP is unsustainable fiscally. I mean, I
have been reading over the draft of the legislation that we are
going to forgive $20 billion in debt, and that is after
Congress has already forgiven $16 billion in debt.
One thing that I hear from people back home is frustration
with the Federal Government, that the government doesn't live
by the same rules that we put on the people. I mean, how many
businesses or how many individuals would we just go and forgive
their debt? Occasionally, creditors will do that, but then the
IRS is going to send you a bill for the tax portion of the debt
you were forgiven. So I think we need to be a little more
fiscally responsible as we move forward. And I am quite
perplexed that we are not going to address any major reforms
regarding the fiscal problems that we have with flood insurance
on this. And unless you make reforms, you will never change
behavior. In a few years, we will be back in this position
again.
But, with that, I do appreciate the focus we have on
mitigation. There seems to be interest in making the program
more fiscally--that portion at least reformed in that area, but
it is unfortunate we are not doing anything to make it more
fiscally stable and sustainable. One of the ways I think we can
make it more sustainable is to bring more capital investment
into the NFIP program, and it is something that has been
unanimously supported on this committee in the past. And I am
pleased that banking agencies have recently decided to move
ahead with clarifying that private sector flood insurance
policies can be used to meet mandatory purchase requirements.
So, Mr. Heidrick, I know the growth of the private flood
insurance market is not going to happen overnight. It is going
to take a while, but are there insurers interested in
underwriting more flood policies?
Mr. Heidrick. Thank you, Congressman. The answer is yes,
and as unnecessary barriers are removed, for example, the
continuous coverage discussion that we had earlier, more and
more private insurers will come into the market responsibly as
long as they have access to the data and know they can
underwrite and know they can create a set of rates that are
predictable and accurately reflect the risk.
Mr. Loudermilk. So, in the previous panel, Mr. Duffy laid
out a scenario of private insurers coming in and taking a
multitude of risk, but it wouldn't be necessarily going for the
subsidized market. Do you agree with his analysis on how the
private insurance insurers would come into the market?
Mr. Heidrick. I think the best way to characterize how
private insurers will work is look at any other aspect of the
industry. If you watch television, you will see several
commercials from auto insurance companies over the course of
your hour or whatever it, is all claiming to save their
customers on average $400, $500, $600 a year. The reason why
that happens is that every private insurance company is going
to have its own methods for selecting and pricing risk,
including the NFIP, and they can all coexist and make a profit
having their own proprietary methods of selecting and pricing
risk.
Mr. Loudermilk. Okay. Thank you. One of the things that we
have addressed before is just how complex the NFIP program is,
and I think we can agree across the board that it needs to be
simplified. In fact, when we had the reform package in the last
Congress, I submitted an amendment that was unanimously
supported by the committee that would require GAO to study the
NFIP program and how it could be simplified in statue,
regulation, and administration for policyholders and private
sector providers. Mr. Heidrick, again, do you agree that it is
quite complicated and difficult for policyholders to
understand?
Mr. Heidrick. It is complicated for agents to understand as
well. I mean, it is a 400-page manual. It is complicated and
complex. Consumers don't understand it, and that simplification
should be to increasing takeup rates just like adding private
insurance companies. And the more options that we give to
consumers that make sense, the more people you would think
would buy flood insurance, and the more Americans we would have
or more households we would have insured for this peril.
Mr. Loudermilk. Thank you. I have several other questions.
I can submit them for the record since I see I am running out
of time.
And, Madam Chairwoman, I will yield back.
Chairwoman Waters. Thank you very much.
The gentleman from Missouri, Mr. Clay, Chair of our
Subcommittee on Housing, Community Development and Insurance,
is recognized for 5 minutes.
Mr. Clay. Thank you, Madam Chairwoman, and thank you, Mr.
McHenry, for calling this hearing.
Let me start with Ms. Smith. Ms. Smith, in your testimony,
you indicate that the problem of rate setting has been
challenging for a number of reasons. Some view the Flood
Insurance Program backed by the government as a subsidy, and it
actually provides an incentive for many to build or rebuild or
develop in areas that have shown a propensity for flooding and
other storm-related damage. Time has shown that, while some of
the assumptions about flood management and prevention are true,
it is not an exact science. Can you touch on some of the Pew's
recommendations in the area of the rate structure of the NFIP?
Ms. Smith. Yes. Thank you for the question. We understand
that, on the one hand, if people see rates as too high, they
won't buy flood insurance, and that is a problem. On the other
hand, if we do affordability and lower rates, we potentially
run into more need to borrow. So what we are saying is that we
would anticipate the solution is very targeted to the very most
needy folks who need that insurance and need some help with
that insurance. At the same time that we try to address some of
those persistent problems that the program has, we would like
to see--we are very pleased to see a big investment in
mitigation. As Mr. Scott said, this is an area where we need to
do something bold, and we need to really help some of those
communities that have the greatest risk.
We also need to learn from the mistakes we have made in the
past. We have created a lot of risk. We put people in harm's
way, and we need to do a better job looking at the future about
where we should be building, where we should be investing,
where a community wants to extend sewer and do new development.
It needs to be away from where they are going to be at flood
risk.
Mr. Clay. How about the area of rebuilding? Should we allow
that, or should we have some strict controls over that?
Ms. Smith. I think we have to look hard ahead of time and
have consideration that if you are going to rebuild in certain
areas, you are either going to have to rebuild higher, you are
going to have to rebuild stronger, and in some places, it is
only sensible to move out of the area. So it is a little of all
of the above.
Mr. Clay. Thank you for those responses.
Mr. Heidrick, do you find that the high costs are always
risk-related, or do you find that low-risk policyholders are
cost-burdened by the numerous fees, surcharges, and assessments
that are paid on top of the premiums?
Mr. Heidrick. The nonrisk portions, the taxes, the fees,
the surcharges affect all policyholders, and as a percentage
basis, some of the least expensive policies would have the
highest percentage of nonrisk premium portions. So, for
example, if you have a $500 premium, and it has a $225
surcharge or a $250 surcharge, on a percentage basis, that
seems extreme, and it does cause people to drop their coverage.
Mr. Clay. So what should we do about those who should have
flood insurance but cannot afford it?
Mr. Heidrick. Affordability is incredibly important to
making sure that as many people as possible are protected
against this peril. What I would urge is that any affordability
solution that we come up with should be outside of the rate
structure of the NFIP because the best indicator of what one's
risk is, is the premium that they are charged to transfer that
risk.
Mr. Clay. Thank you for that.
And, Mr. O'Mara, currently the Federal Government regularly
pays out billions of dollars for disaster relief in the
aftermath of a major flooding event, and research shows that we
can significantly reduce the amount of costs incurred by damage
as a result of flooding by investing in mitigation. Can you
talk about what we could do about mitigation?
Mr. O'Mara. Absolutely. And I thank you, Mr. Clay. The best
investments we can make are in the hot spots where we have seen
repeated flooding and repeated losses. And so, as the other
committees are talking about infrastructure, having this
committee weigh in and say, ``We want to make sure that
resilience is a part of it''--I am very partial to the natural
solutions, rebuilding the wetlands, the dunes, repairing
corridors that can absorb a ton of water so they don't flood
out people--that is a great solution.
Mr. Clay. Thank you, and I yield back.
Chairwoman Waters. Thank you.
The gentleman from Colorado, Mr. Tipton, is recognized for
5 minutes.
Mr. Tipton. Thank you, Madam Chairwoman.
And I appreciate the panel taking the time to be here
today. I am from Colorado, and my home happens to be at 6,200
feet. The nearest river is probably about 10 miles away, and
you guys might call it a creek. But believe it or not, in
Colorado, we do have flood issues to deal with.
One of the greatest challenges that we have really had has
been wildfires that we have been going through: Durango,
Colorado, 45 miles away from my home; Basalt, just outside of
Aspen. We have these burn scars literally burn everything to
the ground, and we do have flooding. Right now, good news. We
have abundant snowfall. It is snowing right now in Colorado.
But that snow will melt, and if it comes out of the hills quick
and fast, we are going to see some real impacts.
And I would like really to have something that there has
been a fair amount of conversation today on. I have taken a
real interest in terms of some of the mapping. That is what we
are hearing back locally, and I would like--maybe we can just
start with you, Ms. Lamm. And how quickly does or does not
FEMA's flood map respond to rapidly changing terrain?
Ms. Lamm. It doesn't.
Mr. Tipton. Mr. Heidrick?
Mr. Heidrick. I don't have experience with mapping.
Mr. Tipton. Okay.
Ms. Smith?
Ms. Smith. Mapping is a slow process, and communities need
to be able to stay on top of changing risks.
Mr. Tipton. So it is slow.
Ms. Guzman?
Ms. Guzman. It is horrible. It is not up-to-date.
Mr. Tipton. Mr. O'Mara?
Mr. O'Mara. It is horrible, and it doesn't use the latest
technology like LIDAR that would actually have pinpoint
precision so folks would know exactly what the risks are in
real time.
Mr. Tipton. Okay. Mr. Lehmann?
Mr. Lehmann. Indeed, LIDAR would also help with having
actual property level mapping as opposed to these really not at
all bespoke maps that we use now.
Mr. Tipton. So I am gathering from Mr. O'Mara and Mr.
Lehmann's comments, and the rest of you could maybe chime in on
this: Are we using the best technology available right now in
the mapping?
Ms. Guzman. No. Absolutely not. I mean, what you are
looking at, it is really interesting, on FEMA's fact sheet for
building on higher flood zones, it states: ``One way flood risk
is communicated is through maps.''
Yet, their maps are completely inaccurate. They do not
reflect building elevations, especially in areas that are
considered flood zones. The home may be already in higher
elevation so it is considered low risk, but that homeowner is
paying a larger rate even though they are not at risk at all
based on the elevations. These maps are 100-year flood plain
maps in a 50-year-old program that is trying to solve today's
realities, so it has to be modernized.
Mr. Tipton. Great. So it would be a sensible assumption
that if we want to be able to protect people from flooding, to
be able to reduce some of the costs, maybe we ought to use good
technology, and actually get the mapping up to date? Is that a
fair statement to make?
Ms. Guzman. Yes, and may I add, it would save some
homeowners $500. They would not have to get a Letter of Map
Amendment (LOMA) to show that they are on higher elevations
because now the mapping is accurate at the property level.
Mr. Tipton. Great. And I appreciate you bringing up that
point in terms of being able to reduce some of the cost that we
have. And just kind of looking over some of the bios here,
maybe this is a good question for Mr. O'Mara and Mr. Lehmann.
Could a more robust private market for flood insurance help
combat the challenges that we have of insuring flood risk?
Mr. O'Mara. Absolutely. We think that having more private
options and more consumer choice and more transparency would
allow two things: We would have more private capital in the
market, which would reduce the risk to taxpayers, and
simultaneously, you could focus the program more on vulnerable
frontline communities that frankly need the help more than some
folks who can afford other alternatives.
Mr. Tipton. Great. So, just to follow up, and then, Mr.
Lehmann, you might want to be able to speak to these as well.
Mr. Lehmann. Right.
Mr. Tipton. Would a more competitive flood insurance market
actually lower the cost, as Ms. Guzman was saying is important
for consumers?
Mr. Lehmann. For many consumers, yes. Not for everyone.
There are some people who are heavily subsidized in the NFIP,
and the private market would be more expensive for them. But
for the vast majority of consumers, they are paying too much.
Mr. Tipton. Great. So, opening up some competition, having
better mapping, maybe we can actually achieve a goal that
everybody agrees needs to be achieved?
Ms. Guzman. Agreed.
Mr. Tipton. Thank you all.
I have no more questions.
Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you.
The gentleman from Texas, Mr. Green, the Chair of our
Subcommittee on Oversight and Investigations, is recognized for
5 minutes.
Mr. Green. Thank you, Madam Chairwoman. And I thank the
witnesses for appearing as well.
Flooding is something that we experience almost routinely
in Houston, Texas. We have had a tax day flood. We have had a
Memorial Day flood. And, of course, we have had what I hope is
a once-in-a-lifetime flood, Harvey. We know what flooding is
all about. I want to assure the chairlady that I support this
legislation. I believe that it is going to be beneficial to the
people that I represent, and I want to make sure that when they
suffer these great tragedies, there will be help for them.
No private market can provide an affordable policy for
flood insurance victims. The private market has not stepped up
to provide an affordable policy--of course, unless you have a
Federal backstop. Well, if the Federal Government is going to
provide the backstop, we ought to have a lot to say about the
amount that will come off of the top. It is not enough for us
to take the lion's share of the liability and allow the assets
to be enjoyed by someone else.
So I support the chairlady's legislation, and I do so
because it would benefit my constituents, many of whom are
still in recovery.
I yield back the balance of my time.
Chairwoman Waters. Thank you.
The gentleman from Texas, Mr. Williams, is recognized for 5
minutes.
Mr. Williams. Thank you, Madam Chairwoman.
Thank you all for being here today. I start off every
hearing with a simple yes-or-no answer from all of the
witnesses, and I will start with you, Ms. Lamm. Yes or no. Are
you a socialist or a capitalist?
Ms. Lamm. I defer to the next one in line.
Mr. Williams. Do what?
Chairwoman Waters. Ms. Lamm, thank you very much. You don't
have to answer that.
Mr. Williams. Are you a socialist--
Ms. Lamm. Am I socialist or a--
Mr. Williams. Capitalist.
Ms. Lamm. Capitalist. I thought it was a yes or no.
Mr. Williams. Yes, ma'am.
Ms. Lamm. Yes.
Mr. Williams. Okay. Thank you.
Sir?
Mr. Heidrick. Capitalist, sir.
Mr. Williams. Thank you.
Socialist or capitalist?
Ms. Smith. Capitalist.
Mr. Williams. Thank you.
Yes, ma'am?
Ms. Guzman. I thought this was a yes-or-no question,
correct? Yes.
Mr. Williams. Are you a socialist or are you a capitalist?
Ms. Guzman. I am just following directions, yes or no, so
yes.
Mr. Williams. Next?
Mr. Lehmann. Yes, sir. I am a capitalist.
Mr. Williams. Thank you. Thank you for that. I, too, am a
capitalist and a small business owner who knows the value that
competition brings to the marketplace. When the Flood Insurance
Program was created in 1968, the government believed that we
did not have sufficient data or technology to accurately assess
risk for this product to exist in the private sector.
Mr. Lehmann, what has changed since 1968 in terms of data,
technology, and the market's ability to assess risk?
Mr. Lehmann. There has been an emergence of a technology
called catastrophe risk modeling which does provide
significantly more clarity to insurance companies on the
landscape of risk that they face. The nature of the insurance
market itself has changed. It is much more global. Insurance
companies and reinsurers are able to spread risk around the
globe. In the old days where you had a County Mutual somewhere
in the Mississippi River Valley, if there was a flood, all the
policyholders would be hit at the same time. That is not the
case today. And so these things have made insurers more able to
write private flood insurance at a time when they were not able
to in the sixties.
It should be clear, though, that we do still need the NFIP,
and when we talk about things like cherry picking, the 5
million people who have NFIP policies right now are not the
entire universe of people who need insurance. There are many
more people who need flood insurance. There was a University of
Bristol study early last year that said something like 41
million Americans are actually at risk of riverine flooding.
The current maps that we have from FEMA only show about 13
million, so we need to about triple the number of people who
have flood insurance.
Mr. Williams. Mr. O'Mara and Mr. Heidrick, I would like to
hear from you on that, also.
Mr. Heidrick. Sure. As insurance companies are creating
their rate structure, they are modeling with technology,
running through thousands and thousands and thousands of
simulations, different possible weather events and what would
the outcomes be. That computing power didn't exist 10 years
ago, let alone 50 years ago, and that is what is allowing the
insurance companies to actually run these models, prepare and
run these models to come up with a set of rates that they feel
they can rely on.
Mr. Williams. Okay. Good. Mr. O'Mara?
Mr. O'Mara. The only thing I would add to that is the
computing power is also in the surveying work, and having LIDAR
technology, we could figure out exact elevations and
understanding the systems and overlay climate data and actually
understand the intersection of what the likely outcomes are for
some of these communities that we didn't have access to. We
were drawing topo maps with lines 50 years ago.
Mr. Williams. Okay. I think that a great way to help solve
the issue would be to have better flood mitigation programs in
place, and I cosponsored a bill with Representative Charlie
Crist of Florida to set up a revolving loan fund in other words
for community homeowners and businesses to take the necessary
steps to prevent serious flooding problems before they occur.
This is just one example of a mitigation program that will
ultimately save taxpayer dollars.
Ms. Smith, can you give us your opinion on using the
revolving loan fund as a mitigation technique?
Ms. Smith. Yes. Thank you for the question. We think that
this has great potential. States have experience using State
revolving loan funds for clean water, for drinking water, in
some places for energy efficiency. We can pay a little to save
a lot. We have been being very much pennywise and pound
foolish, and if we put the money upfront toward helping
communities mitigate now, there will be a payoff in the future.
Mr. Williams. Okay. Thank you.
I yield my time back. Thank you for being here.
Chairwoman Waters. Thank you.
The gentleman from Florida, Mr. Lawson, is recognized for 5
minutes.
Mr. Lawson. Thank you, Madam Chairwoman, and witnesses,
welcome to the committee.
One question I have, Mr. Heidrick, as someone I know who is
in the insurance business, and earlier you heard Congressman
Posey talk about the private insurance industry, and I looked
at some of those results yesterday where the rates was much
cheaper. And what do you think contributed to those rates being
less than what it is with the NFIP program?
Mr. Heidrick. In my experience, the rates in the private
market are not always cheaper. In many cases, they are. The
difference usually comes from either better data in order to
price and select risks. Some of it comes from the fact that the
premiums that private companies are charging are not inflated
for some policyholders to offset subsidies for other
policyholders.
Mr. Lawson. Okay. And how would you explain it like in
Florida where we have a large percentage of people that--I
think maybe 40-some percent who have flood insurance compared
to other areas around the country?
Mr. Heidrick. There is certainly more awareness of the risk
of flooding in the State of Florida than in many other places.
Usually, a community that has experienced a devastating flood
is aware. But what I find is, I have a lot of clients who have
primary homes in other parts of the country, and they come down
to my area of southwest Florida and have vacation homes, and
the risk of flooding is not lost on them. In fact, many of them
are paying cash for their homes and still buying flood
insurance because they understand that risk. When you can stand
on a barrier island and look at the water on one side and then
turn around and look at the water on the other side, it is
pretty clear that you are going to have a risk of flooding.
And throughout the State, we get so much rainfall and we
have had, of course, Hurricane Irma that has come through
recently. I think that there are a lot of things that have
increased the awareness of Floridians, but I would say at the
same time, the State legislature in Florida has done a number
of things to encourage the growth of a private market, and that
has created more choices for consumers.
Mr. Lawson. And as you know, we created Citizen in Florida,
and then, as time went on, we wanted to depopulate Citizens so
it could go to the private market, and we have seen it happen.
And the private market is saying that they still can take a lot
more risk in policies from Citizens that we have in the State
of Florida.
Ms. Lamm, currently the Federal Government regularly pays
out billions of dollars for disaster relief in the aftermath of
major flooding events. Research shows that we can significantly
reduce the amount of costs incurred by the damage as a result
of flooding by investing in more mitigation. In the
Jacksonville and Duval area, a year ago, where we had a lot of
flooding, it cost a lot of businesses and a lot of homeowners
who didn't have insurance, and it took months and months to get
it up and going again. And at one time, I proposed money for
the Army Corps of Engineers to invest in mitigation that could
help solve a lot of the flooding problem. So can you talk about
what we know about cost-benefit of investing in mitigation and
specific example of mitigation projects that have helped
prevent flooding and damage in other areas?
Ms. Lamm. Thank you. Mitigation is a huge benefit when it
comes to flooding. Many would agree that the water is supposed
to be there; the people are not. But they are there. So what
are we going to do about it? We need to mitigate. We need to
find ways to assist them with either elevating their homes,
buying them out, or doing some other form of mitigation.
An example that I have from South Carolina is that in 2016,
Hurricane Matthew devastated the Pee Dee Region of South
Carolina, specifically Marion County, and many homeowners in
Marion County were able to elevate their homes, and they used
the high-water marks as their goal of how high to get their
home to. When Hurricane Florence came through again, some of
those homes were high enough. And while the citizens had to
leave their homes, their homes stayed high and dry, and thus,
making the recovery process easier by mitigation.
Mr. Lawson. I yield back.
Mr. Heck. [presiding]. The gentleman from North Carolina,
Congressman Budd, is recognized for 5 minutes.
Mr. Budd. Thank you, Mr. Chairman, for hosting this
hearing, and thank you to our witnesses on this second panel
for your time today.
Mr. Heidrick, I would like to start with you. In your
testimony, you describe the Write Your Own Program as necessary
and outline that the Big ``I'' would oppose policies that harm
the Write Your Own Program. I certainly believe that we should
always encourage more private-sector participation in the flood
insurance market ideally through private policies. And while
there is a gradual uptick in private-sector offerings, I am
concerned that the number of Write Your Own companies has
dropped from about 117 down to about 60, the last I understand.
So, looking at the past couple of storm seasons and how they
have impacted my home State, North Carolina, I think we can all
agree that more property owners need to purchase flood
insurance. I have heard that this morning.
So, in your opinion, Mr. Heidrick, how much do
policyholders benefit from the Write Your Own Program, and what
do you think the impact would be if the trend of companies
leaving that program without a corresponding increase in
private-sector options continues?
Mr. Heidrick. Thank you for your question, Congressman.
Probably the best way that I can do this is to contrast it with
the direct servicing program that the NFIP operates. Over 80
percent of the NFIP policies are written through the Write Your
Own Program. And that is because the support that the Write
Your Own Program provides to agents is much, much more
effective than the direct servicing agency. It takes much
longer for me to get problems solved and respond to clients,
and those are the things that get clients to buy and retain
their coverage.
The Write Your Own companies do a lot more training, and
they have an incentive to see their book of business grow to
have more customers insured for the peril of flood which is the
reason why we are all here, is to try to ensure that has many
people as possible have insurance and have the ability to
recover after a storm as a result.
Mr. Budd. Understood. So I strongly assume you would agree
with me that the committee should be looking for ways to
strengthen the Write Your Own partnership and to provide
additional consumer choice via private insurance coverage?
Mr. Heidrick. Yes, sir.
Mr. Budd. Thank you. Despite protecting more than 5 million
Americans from the risk of flooding, the NFIP is in horrible
fiscal shape due to mismanagement here in Washington, and the
bottom line is that we know the NFIP has inadequate rates,
which do not reflect the actual cost of living in a high-risk
flood zone, and are the source of many of the program's
problems. Yet, the discussion drafts before us in no way,
shape, or form even address this issue of rate inadequacy that
is fundamentally plaguing the program, which has ultimately
caused policyholders to be strung along from one short-term
extension to the next. While the drafts before us today fail to
do so, Mr. Heidrick, in your testimony, you mention the
Administration's efforts to modernize NFIP underwriting via
risk rating 2.0, and it seems like a good first step. But in
your opinion, will it go far enough? From my perspective, it
seems that until my constituents stop funding subsidies for
folks who live on the coast in high-risk areas, then we are
going to have a program that continues on a fiscally
unsustainable path.
Mr. Lehmann, I would also be curious to get your thoughts
on this as well.
Mr. Lehmann. As I mentioned in my testimony, my proposal is
to cease writing new construction. I mean, if you are not
making the problem any worse by encouraging, actively
encouraging people, making it easier for them to build in
flood-prone areas, then over time, you will see those rewards
in the program becoming more sustainable.
The program itself is still not going to be sustainable.
Part of the problem is the fact that, whenever we have wanted
to assist people, whether it be for affordability reasons or
the other subsidies, we have done it by discounting rates. So
you are not bringing in enough premium to ever be sustainable,
and you will forgive this debt today, but it will come back for
sure. There is no question about that.
Mr. Budd. Thank you all again for your time.
And I yield back to the Chair.
Mr. Heck. The gentleman from New Jersey, Congressman
Gottheimer, is recognized for 5 minutes.
Mr. Gottheimer. Thank you, Mr. Chairman, and thank you all
for coming in today to testify on this critical issue.
Getting a long-term bipartisan reauthorization of the
National Flood Insurance Program is not just vital to the
country, but it is incredibly important to the people of New
Jersey, my State. More than 225,000 homeowners in New Jersey
rely on the National Flood Insurance Program to protect their
families. Towns in the Fifth District, like West Milford and
Lodi, are flood-prone. When their homes have been damaged or
destroyed due to flood damage, they have been able to repair or
rebuild them thanks to the National Flood Insurance Program. I
have seen firsthand how essential this program is to the people
of New Jersey's Fifth Congressional District. They cannot
continue to live in uncertainty when it comes to flood
insurance. They need more commonsense reforms, and we need to
deliver them through a long-term reauthorization that provides
responsible governance and doesn't have policyholders drowning
in premiums. We must utilize innovative technologies to improve
mapping, modernize flood insurance, and save taxpayers' hard-
earned dollars.
I look forward to your answers on how to improve the
National Flood Insurance Program, and I appreciate you taking
the time today so far to tell us how we can work with our
colleagues here on both sides of the aisle to get this
reauthorization done.
If I can ask a specific question about Hurricane Sandy,
because in late October 2012, as many of you probably know,
Superstorm Sandy made landfall in the United States. The storm,
which is the second costliest hurricane in United States
history, resulted in more than $65 billion in damages and
destroyed or damaged 346,000 homes in New Jersey. New Jersey
felt the destructive power like no other State. Economic losses
were estimated to be approximately $30 billion. Businesses were
destroyed. People lost their jobs and homes, and most
regrettably, 37 people lost their lives. Yet in the aftermath
of Sandy, numerous policyholders have claimed that they may
have been underpaid. There have been findings of fraud, altered
engineering reports, and inadequacy of FEMA's oversight and
control. This is beyond unacceptable.
Can you all discuss some of the steps that FEMA has taken
to address these problems and explain what more needs to be
done to prevent this from ever happening again? And I will
defer to any one of you who wants to take this. Mr. Heidrick?
Thank you.
Mr. Heidrick. Sure. I will be happy to answer. Thank you.
Mr. Gottheimer. Thank you.
Mr. Heidrick. What happened in Superstorm Sandy is
unacceptable, and everybody in the industry would agree with
that. However, since then, we have had 4 storms in the last--
actually, 6 storms in the last 2 years. For Harvey and Maria in
particular, the NFIP received 120,000 claims, settled 92
percent of them within the first 90 days, and paid over $10
billion in claims with less than 1 percent of those claims
going to litigation. I think that result shows a lot of
progress that the NFIP has made. It is a different management
team that is there. It is not the same people that are there.
They have better technology that gives them better data that
allows them to provide better oversight of the Write Your Own
Program and provide better solutions to consumers.
Mr. Gottheimer. So you can get ahead of fraud? I mean, some
of the things we found in Sandy, we figured out what was
causing some of those issues?
Mr. Heidrick. Every insurance company has to deal with
fraud in every industry.
Mr. Gottheimer. Right.
Mr. Heidrick. But having better technology provides FEMA
management with better data and more timely data. During Sandy,
I believe they were looking at information that was 6 months
old to try to manage their day-to-day operations.
Mr. Gottheimer. If I can turn to flood mapping in the time
that I have left, I have heard from a number of my constituents
when they believe their property is being improperly mapped by
FEMA. I know we addressed this a bit because typically the only
recourse for these constituents is costly and very time-
consuming, as you know. In the 21st Century, there is no reason
why we can't utilize 2019 technology like GPS mapping to
improve the way FEMA maps property in New Jersey's Fifth
District and across the country. Obviously, in our phones, we
can do incredible mapping. There is no reason why we can't
actually figure this out for the insurance program. Do you
think NFIP's map revision process can be improved, and do you
support the reforms that improve the NFIP's map revision
process? Mr. O'Mara?
Mr. O'Mara. Thank you. So, in my previous life, I was
secretary of natural resources in Delaware. And one of the
things we did is we used LIDAR data to have kind of 2-meter
data for the entire State for a couple million dollars. If you
had property level data across the entire country, you would
lose all those fights over appeals. Folks wouldn't have to
provide their own maps. Folks wouldn't have to spend hundreds
of dollars to get surveyors to do the additional work. If you
had that level of data with transparency, you would transform
the ability of folks to understand the risk they are facing.
Mr. Gottheimer. It is there, right? This data is there.
Mr. O'Mara. Yes. There are some places that you have places
to fill in the gaps.
Mr. Gottheimer. All right. Ms. Guzman, do you want to add
to that?
Ms. Guzman. Absolutely. The buyer could do their due
diligence. People could actually make an informed decision
before they purchase because they could actually see what the
risks are up-front. Without that data right now, they are
actually kind of flying blind.
Mr. Gottheimer. Right. It is a guessing game.
Ms. Guzman. Yes.
Mr. Gottheimer. Right. Ms. Smith?
Ms. Smith. I would add just a caution that I think we now
know that where it rains, it can flood, and I think one of the
problems that we have is that people assume that the maps are a
prediction. And the maps can give you a relative sense of risk,
but they truly can't predict precisely. So we need improved
maps, and I do believe FEMA is moving on using new
technologies. But we need to stay on top of the risk.
Mr. Gottheimer. Thank you. I yield back.
Mr. Heck. Thank you. The gentleman from Ohio, Congressman
Davidson, is recognized for 5 minutes.
Mr. Davidson. I thank the chairman, and I thank our
witnesses for extended testimony, interactive Q&A, and really
good expertise in offering ways to improve the current National
Flood Insurance Program.
I think it is safe to say this is one of many federally
crafted programs that if you looked at it as a clean slate, no
one would design it to work the way that it works today. Maybe
someone, but I don't think very many people. And so, as we look
at how to go forward, it always strikes me as odd that there is
so much resistance to change Federal programs that everyone
acknowledges don't work exactly the way they should. And I have
I listened to a number of you talk about the expected future
impact and a number of my colleagues talk about the expected
future impact of climate change. And as is generally agreed
upon by people who embrace the most extreme impacts of climate
models, flooding becomes an increasing concern. And so I am
particularly interested in how we would want to remain static
with the reauthorization of an admittedly broken program in
light of its admittedly broken current results, its current
debt, and the idea that we will just forgive that; we will keep
operating it, maybe even subsidize things more than we already
have, but we won't accrue the debt because we just are going to
spend the money. Why would the government keep operating a
program in that manner?
And, Mr. Lehmann, I just wonder, if you had to be
actuarially sound, what sort of changes might you make in view
of the most alarmist positions on climate models or in the
result of just actuarial soundness?
Mr. Lehmann. The program as it currently is structured, the
subsidies and grandfathering are not based on need. They are
largely based on the age of the home and how old your map is,
and neither of those provides any good public policy
justification for it. So moving everyone who can afford it to
risk-based rates has to be a priority. There will be people who
need help. There will be people who need assistance, so we
don't oppose creating a targeted means-tested affordability
program to help those people. It should be outside the rate
structure. It should not just be a discount. It should be a
voucher. Ideally, it should be a voucher that you could go and
buy private insurance with as well and not just the NFIP
because lower-income people should have that option of choice
as well.
Mr. Davidson. So, if I take it correctly, you are saying,
let's let the market function where it can, and we will use
actuarially sound underwriting principles?
Mr. Lehmann. Yes.
Mr. Davidson. It is almost like you are advocating for
something akin to the housing market, though that too is
distorted by numerous Federal programs where we might actually
have actuarially sound mortgages for lots of Americans, and
then we do believe in a social safety net, so we have a fairly
large Federal housing program.
Mr. Lehmann. We want people to respond to the price
signals. We want people to build where it is appropriate to
build and not build where it is not appropriate to build. And
we can provide some assistance to people who need that
assistance. But nonetheless, both the market and the climate
models are telling us the same thing. They are telling us that
risk is increasing; flood risk is increasing. We need to be
prepared for that, and some of that preparation is going to be
painful.
Mr. Davidson. And so it is painful when someone would have
to move out of a home, whether it is just for repairs or for
remediation, not just rebuild the house, rebuild it on stilts
or with tiles that drain the area better. We will rebuild it a
second time. Then we will rebuild it a third time. Does anyone
find it unreasonable that we would put a cap on the number of
times we would rebuild a property? And I will just go down the
line.
Ms. Lamm, is that unreasonable?
Ms. Lamm. No.
Mr. Davidson. Mr. Heidrick?
Mr. Heidrick. No. The private insurance company is not
going to continue to insure repetitive loss properties either.
Mr. Davidson. Ms. Smith?
Ms. Smith. No.
Mr. Davidson. Ms. Guzman?
Ms. Guzman. No.
Mr. Davidson. Mr. O'Mara?
Mr. O'Mara. No.
Mr. Davidson. Mr. Lehmann?
Mr. Lehmann. No.
Mr. Davidson. So there's uniform consensus that at some
point, we have to say, you know what, this place is going to
flood, and we should just quit rebuilding it.
Unfortunately, that has been one of the more controversial
provisions to be able to move past this body. So thank you for
your expertise, and I yield back.
Mr. Heck. The gentlewoman from Michigan, Congresswoman
Tlaib, is recognized for 5 minutes.
Ms. Tlaib. Thank you all so much for coming.
This is such a really important issue in my district. Since
1978, more than I think $75 million in damage payouts have been
made to Michigan homeowners. And FEMA has bought out, I think,
226 machine properties in a flood zone including Ecorse Creek
in my district, in the 13th Congressional District.
Many of us have heard from constituents, and I am sure you
as well from your customers, where they believe that their
property is being improperly mapped by FEMA. One of my
constituents in Dearborn Heights got a notice to purchase flood
insurance, even though he lives half a mile from the creek, and
his property has never flooded. So he paid hundreds of dollars
to hire a surveyor, to contest it, and he was very successful,
but that is not going to be the case for a lot of my residents.
Typically, the only recourse is very time-consuming and
costly, as a lot of my colleagues have mentioned. And so, in
regards to how complaints are put forward and how they are
addressed, if you were to pick kind of a process to be able to
contest or to make a complaint in that they don't, you know,
shouldn't hire it or maybe it is around affordability or the
process in itself? And Mr. Heidrick or Ms. Smith, anybody who
is able to answer that, and I apologize if it was asked before.
Mr. Heidrick. Thank you for the question. I think what you
are asking about is letter of map revision, letter of map
amendment processes.
Ms. Tlaib. Yes.
Mr. Heidrick. Okay. Thank you. On Sanibel, it is even more
pronounced because a letter of map amendment is simply filing
an elevation certificate, and you are basically showing FEMA
that, ``You said that I am below the base line elevation, I am
likely to flood, but I have this document from a surveyor that
says I am actually elevated high enough.'' A letter of map
revision is much more complicated and requires engineering work
and costs thousands and thousands of dollars.
But I can tell you that in the community of Sanibel, my
home, in the last 3 years there have been 30 letters of map
revisions that have been created, and every single one has been
approved. The total cost, I don't have the exact number, but
back of the envelope, I could probably say it is between
$500,000 and a million dollars that policyholders and small
businesses and condominium associations have paid to get that
done. It is an expensive appeal.
Ms. Tlaib. Yes. And, you know, Ms. Lamm, you probably saw,
as many of you have, in 2017, the Inspector General reported
they found, like, 58 percent of all FEMA flood maps to be
inaccurate and out of date. What are some of the hindrances?
What are some of the challenges in FEMA fulfilling this
requirement? Have you heard about any? Have they talked about
pilot programs, anything like that to address this issue around
inaccuracy with mapping?
Ms. Lamm. Inaccuracy with mapping comes from multiple
avenues. For example, in my State of South Carolina, we have
LIDAR. We have LIDAR for the entire State. However, it is out
of date now, so it is time to fly it again, and the funding is
limited from multiple resources including FEMA and the State.
The other thing is gauges. Gauges are really important
because gauges increase the precision of your mapping. My State
is very limited in the number of USGS stream gauges or really,
any stream gauge, very limited, so it is very much needed.
Ms. Tlaib. But FEMA knows that?
Ms. Lamm. FEMA knows that.
Ms. Tlaib. Is there anything other than maybe beyond what
the legislation is providing? What can we--as a new Member, I
want to be able to push this forward and almost require it as a
must before they proceed. You know, mapping is key. That is the
basis of--
Ms. Lamm. I think one thing that can be pushed forward as
well that we have seen is pushing for changes in technology. 2D
mapping is something that we personally have seen that--we
produced a 2D model in Horry County, South Carolina, where
Myrtle Beach is, and when Hurricane Florence came through, it
matched almost perfectly. So we have been able to--there are
some new technologies out there. I think as a new Member,
pushing forward new technology and making it easier for FEMA
through statutory requirements and some of the policies
encouraging them to move in that direction.
Ms. Tlaib. I am short on time. Just really quick, it was
troubling, very troubling for many of us as Michigan laws
require these disclosures, but then many folks are not really--
the law does not require the seller to disclose whether the
property is mandated to have flood insurance. Do any of you
believe that we should try to standardize disclosure
requirements to protect consumers and homeowners alike?
Ms. Smith. Yes. Absolutely. We think it would be helpful
across the board so that people would know about past flood
risks, past flood damages, and about whether the property is
going to be a repeat loss property and what the flood rates
would be.
Ms. Tlaib. Thank you. I yield back.
Mr. Heck. The gentleman from Illinois, Congressman Casten,
is recognized for 5 minutes.
Mr. Casten. Thank you, Mr. Chairman, and thank you to the
panel. I am glad we have taken so much time talking about
mitigation today, and I appreciate the inclusion of language
within the legislation that would make property acquisitions an
eligible activity for ICC coverage. I think this could--I
emphasize ``could''--help to jumpstart efforts to help lower-
and middle-income folks relocate away from vulnerable areas.
I think that people asking whether you believe in climate
change is sort of like asking whether you believe in gravity.
We have the reality of the world we live in right now, that
insurance is designed to cover something that is expensive,
rare, and unpredictable, and flooding continues to be
expensive, but it is no longer rare, and it is no longer
unpredictable. And any actuarial product to solve that is going
to be increasingly insolvent. We just have to deal with that. I
am guessing from the nods of the panel that I don't need to ask
anybody to confirm that. If anybody disagrees, please interrupt
me.
I want to direct my first question to Mr. O'Mara.
Specifically on mitigation, it seems like we have a lot of
agreement that we should do this. The SmarterSafer Coalition
has specifically stressed the importance of nature-based
approaches to resiliency. Can you provide a little color on
exactly what that is for us?
Mr. O'Mara. Sure. I will use an example of my home State of
Delaware. We are sinking. We are facing sea level rise. We have
more coastal storms. Places that have healthy wetlands that can
absorb millions of gallons of water are less likely to get--the
communities behind them are less likely to get flooded out than
places that paved over everything with nowhere for the water to
go. And if you use an example from Texas, places that had some
prairie, places that had some level of natural infrastructure
where you could basically absorb and slow down both the volume
and the velocity of water did much better during the storms.
And a lot of us have said this today: Every dollar we spend on
that is $6 of savings, and we would like to see this be a huge
part of any infrastructure conversation across all the
different committees of jurisdiction.
Mr. Casten. Can you speak to how ICC funds could be used
for property acquisitions to facilitate those kinds of
outcomes?
Mr. O'Mara. Yes. There have been examples at the State
level in different places where folks have done buyouts or
different things. Again, compensating folks so they can
relocate and have a different community, but making investments
in those natural solutions, headwaters of watersheds, in some
cases, reforestation, in some cases it might be more dune
systems, but using those dollars to actually invest in those
kinds of solutions. And then all of a sudden, you create a
solution at a regional level, instead of just property by
property, because you have to use stuff in addition to raising
elevation. But if I can make one investment that helps 500
houses, that is a better investment than 500 individual
solutions.
Mr. Casten. All of that, I think, sounds to me like a
fairly permanent solution. Can you talk about what we need to
do to make sure that if we make those changes, we don't end up
with people basically rebuilding on the same land in the next
cycle?
Mr. O'Mara. Yes. I think there are just questions about if
government is going to play that role of intervening, making
sure there are covenants put on those properties to make sure
there isn't construction in the future. In some States, they
are using things like the Land and Water Conservation Fund and
being creative, trying to have different resources and turning
these areas into parks in some cases. There have been ideas
before about not having some of these be eligible for some
government programs if you are rebuilding in these areas. But
we would love to work with you to make sure that we don't do
the same idiotic things over and over again.
Mr. Casten. Okay. With the bit of time I have left, I want
to talk about equity, because obviously once you talk about
relocating people, there is an inherent equity issue that is
there. There was an NPR report recently that said that the
current property acquisition programs are not equitable and
that money is not necessarily doled out to those who need it
the most but to those whose property is worth more.
A question for Ms. Smith, what do we do to better structure
those programs to increase the accessibility to everyone who
needs that preflood mitigation, but it is done in a more
equitable fashion? And maybe just to tie the second part on,
does the ICC coverage for property acquisition facilitate that
expansion in an equitable way, or how might we need to adjust
it to make sure it does?
Ms. Smith. Well, for the folks who are low-income folks, I
think you start behind when we start with the NFIP because, as
the affordability studies that FEMA has produced show, people
who have low incomes tend to not to buy the insurance. So, if
you have mitigation programs that are only addressing the
problems of insured properties, they are going to not help the
low-income people.
There are a variety of things, so that is why we think that
the community level kind of mitigation--the protecting or
restoring of wetlands that will stop the water from flowing
over a large area--the kind of preservation and kind of storm
water drainage improvements that can help a variety of people
are some of the best things that can be done for a larger
community.
Actually, as I think of it, Mr. Scott, I just found out the
Falcons new stadium in Atlanta has a cistern, was built with a
cistern as part of the stadium that will take 80 percent of a
100-year flood, so there can be solutions for everyone.
Mr. Casten. Thank you. I yield back.
Mr. Heck. The gentlewoman from New York, Congresswoman
Ocasio-Cortez, is recognized for 5 minutes.
Ms. Ocasio-Cortez. Thank you, Mr. Chairman. I just have
to--I can't resist commenting on the earlier question which
does, I can confirm, happen at every hearing: socialism or
capitalism. And I am just thrilled at the adaptation today that
the follow-up was yes or no because I do think that the yes is
a great answer because mixed economies are a thing. And I would
also like to note the irony of the fact that we are gathered
here today in bipartisan support of a socialized insurance
program that is designed to help people when the private market
fails to protect homeowners. So I just can't go on without
noting that because I love it. It is just--I love it. Anyway, I
will move on.
The National Flood Insurance Program was solvent for a long
time. It paid for itself. It was able to help people without--
it was able to help people on a not-for-profit basis, and while
in some years, it was under, in other years, it was over. And
overall, it leveled until 2005, which is when Hurricane Katrina
hit in Louisiana, which added a $19 billion cost. And at the
time, many folks thought that Hurricane Katrina was a once-in-
a-generation event. We had never seen this before, and it will
probably never happen again at the same level of catastrophe.
But then came Hurricane Sandy in New York, and we were told
again that this was a once-in-a-generation event. And then came
Hurricane Harvey in Texas, Hurricane Irma in Florida, Hurricane
Maria in Puerto Rico, 3,000 dead and outages for 11 months,
Hurricane Florence in North Carolina, and Hurricane Michael
impacting large swaths of the southeastern United States.
So my question here, and I will start with Ms. Smith, I am
interested in the role of the NFIP in the broader constellation
of preparedness because we know that, in this larger trend of
hurricanes, this is not an accident, and that these are not
once-in-a-generation events. This is not a once-in-a-generation
event. This is what climate change looks like now in the
present day. So are there any other programs designed to work
with the NFIP to prepare for the damages to come ahead of time
and not after a storm?
Ms. Smith. I would say there are, but they aren't big
enough. They have been small. FEMA has administered a small
predisaster program, but it has just not been enough and we
have to get ahead of the game. I think we can also change the
way we have land use regulations in the NFIP to help
communities make smarter future decisions.
Ms. Ocasio-Cortez. And I would like to go down the line. In
each of your professional opinions, is the NFIP currently
structured to foresee and accommodate and prepare for the
damage that will come to people's homes and communities due to
climate change? I will start with Ms. Lamm, and that is an
actual yes-or-no question.
Ms. Lamm. So, yes or no. I would say, not exactly.
Ms. Ocasio-Cortez. It is not.
Ms. Lamm. There are some areas, yes; some areas, no.
Ms. Ocasio-Cortez. Mr. Heidrick?
Mr. Heidrick. I would agree with that.
Ms. Smith. No.
Ms. Guzman. No.
Mr. O'Mara. Yes, not even close.
Mr. Lehmann. No. And if I can just expand a little bit, it
is because all ratemaking is based on the past, right? So we
don't--and this is what insurance companies do as well. They
might do a catastrophe model to see how the world is changing
in the future, but rates are based on the past, and they are an
extrapolation to the future. If the future changes, then the
rates don't reflect that.
Ms. Ocasio-Cortez. Right.
Ms. Guzman. We are also not addressing urban flooding,
which we may say thousand-year storms now are the new normal.
Ms. Ocasio-Cortez. So it seems like there is kind of this
fundamental paradox where this area of insurance cannot operate
the same way as other areas because the future is virtually
guaranteed, with broad scientific consensus, to change.
So, in my brief time left, I have here from New York City a
2018 flood plain map. These are the flood plains predicted from
last year. They also provide a 2050 flood plain map and a 2100
flood plain map. So I can buy a home and see that if I want to
pass it on to my kids, it will be underwater. Ms. Smith, is
this available in all parts of the country?
Ms. Smith. No, it is not. And I think there are some other
places that have started to do similar, but the more we do of
that, the better.
Ms. Ocasio-Cortez. And when people buy a home, do you think
that they should have this information printed out right there
and handed to them?
Ms. Guzman. Are you asking me? Yes. Absolutely. First of
all, it is about due diligence and making a--
Mr. Heck. The gentlewoman's time has expired.
Ms. Ocasio-Cortez. Thank you.
Mr. Heck. The gentlewoman from North Carolina,
Congresswoman Adams, is recognized for 5 minutes.
Ms. Adams. Thank you, Mr. Chairman.
And thank you all for being here today.
I want to ask Ms. Lamm, the NFIP is currently $20.5 billion
in debt. Every year policyholders pay approximately $400
million in interest to service the debt.
Do you believe that Congress must address the NFIP's debt?
And do you think that it makes good sense for policyholders who
may be already suffering from affordability challenges in a
cash-strapped program to pay $4 billion just in interest
payments on a debt that NFIP will never pay?
Ms. Lamm. Thank you. I believe that a forgiveness of the
debt is important. We have to forgive the previous debt because
you are 100 percent correct. We are never going to get ahead.
But getting rid of the current debt and then processes and
policies to move forward to make the program more solvent would
be of great benefit.
Ms. Adams. Okay. Thank you.
Congress has been grappling with the issue of affordability
of flood insurance for a long time. So do you think the
discussion draft that we are considering today, which would
stand up a pilot program to offer means-tested assistance for
low- and moderate-income households to help them afford flood
insurance is a step in the right direction?
Ms. Lamm. Yes, ma'am.
Ms. Adams. Are there other potential solutions that you
think should be under consideration?
Ms. Lamm. I think that we just need to keep in mind that
any time we are doing a better approach that helps low- to
moderate-income people be able to either obtain insurance or
community-based is a good way to keep going. And building the
capacity at a State level, I think is also important.
We mentioned earlier the community assistance program which
funds flood plain management. That is where the rubber meets
the road at a local level because that assistance provided to a
community can help them better prepare their citizens for the
floods that come in the future.
Ms. Adams. Okay. You mentioned local. Last year, Hurricane
Florence came into my district of 850,000 residents there in
Charlotte. One thing we had in our favor is it sits in
Mecklenburg County, which is one of the few places in the
country that has begun emptying out its flood plain, reducing
risk by helping to move people at home from the most vulnerable
neighborhoods. And I would like to commend my good friends on
the city council and our mayor, Mayor Lyles, for their
foresight and thoughtfulness in tackling the issue.
Ms. Smith, could you speak about the importance of local
communities having access to programs like FEMA's buyout
program which can help to reduce burden on the NFIP?
Ms. Smith. Absolutely. There have been many communities
like Charlotte and the Mecklenburg area, who realized a long
while ago that they needed to change where people were living,
change where new development was going. For example, the City
of Birmingham, Alabama, has had buyout programs for over 20
years. They think 20 years of buyouts has avoided $60 million
in losses over that time period.
In Florida, the money that has come from FEMA, the State is
tracking how many losses are avoided. And after Matthew, they
think the projects they had done previously meant that they had
saved probably more than $80 million in losses in that one
storm.
So if communities can leverage a bit of money from the
Federal Government, it will be money well spent.
Ms. Adams. Okay. What about some of the limitations to the
current program?
Ms. Smith. Largely funds, and the difficulty is that,
again, right now, the money flows to people who have the flood
insurance if it is to individuals. But trying to get
communities money ahead of time so that they can think through
and plan for what they will do rather than if you wait until
after the storm when everyone needs to get back in their home,
and you just are in a rush as opposed to making smart decisions
about where and how to build again.
Ms. Adams. Okay. Being proactive, I think, is the best way.
Thank you very much. I appreciate your responses and I
thank all of you for being here.
I yield back, Mr. Chairman.
Mr. Heck. The gentlewoman from Texas, Congresswoman Garcia,
is recognized for 5 minutes.
Ms. Garcia of Texas. Thank you, Mr. Chairman.
And thank you all for sticking it out with us. It looks
like we are coming toward the end.
First, let me just kind of underscore some of the points
that my colleague from Houston, Mr. Green, made earlier.
I think Houston is beginning to feel like a pinata. We have
been beaten up by one flood after another after another. And I
know for me, in my district, we are still recovering, and we
still have some families who have not been able to return to
their homes. And regrettably, many of those are the folks that
we really need to help because the median income in my district
is about $42,000.
When you look at the homes in Harris County that were
flooded, there were 154,170 homes flooded in the county. Many
of those were in my district. Only about 55,570 had insurance.
And I don't know how much was FEMA, through the National Flood
Insurance Program, and how much was private.
But the bottom line is that is only 36 percent, about one
out of three. So that means that the other two out of three
have no coverage and have to go somewhere.
I am not one of those to suggest that, well, they have to
figure it out themselves. They have to eat cake. They have to
do it on their own. I do think we need to do something to make
our insurance more affordable, not only private insurance but,
more importantly, our national program.
And I am sure that many of you all are aware of the
Affordability Framework document that has been prepared. And
when I reviewed it and looked at the options--it looked at
four--it seems to me that the chairwoman is correct, that we
probably do need an income means insurance program so that we
can assist those who are having trouble getting insurance. We
already have so many people trying to decide whether they get
their prescriptions or they pay their electricity or get
groceries.
At a time like this, you have an additional burden of, do I
now make a choice of trying to get some flood insurance so I
can be covered next time? Because many of these decisions are
made after the fact.
So my question starts with that. Do you all agree with this
framework, and which one of the four choices--programs would
you do? Or are you happy with the chairwoman's 5-year
demonstration for a means-funded program? And I will start with
you, Ms. Smith.
Ms. Smith. I would say that the chairwoman's approach is a
good place to start, because she is trying to sort of thread a
needle that we are going to try to help low-income folks. I
think clearly, we need FEMA to run the numbers against what
will happen.
The difficulty is that the program is so deeply underwater
in debt right now that there is not much money to work with. So
I think we want to try to help the low-income people but also
make some changes so that we don't face the shortfall.
Ms. Garcia of Texas. Okay. If I can ask the rest of the
panel, and this time yes or no in the interest of time, because
I have one more question and very little time left.
Ms. Guzman?
Ms. Guzman. Yes. We support the provision. First of all, we
want to make sure that when the rates go up, they go up
gradually. We don't want people getting sticker shock and then
being faced where they are now--
Ms. Garcia of Texas. So, yes, you support the program.
Ms. Guzman. Yes.
Ms. Garcia of Texas. Great.
Mr. O'Mara?
Mr. O'Mara. There wasn't enough focus on mitigation. We
want to see more to reduce risk on the front end.
Ms. Garcia of Texas. Okay. So you are a yes or a no?
Mr. O'Mara. I mean, yes, but--
Ms. Garcia of Texas. Okay. That is fine.
Next?
Mr. Lehmann. In my written testimony, I do have some
comments on the program as it is proposed. I support the idea
but not necessarily the structure.
Ms. Garcia of Texas. Okay. Ms. Lamm?
Ms. Lamm. Yes, with means-tested--
Ms. Garcia of Texas. Mr. Heidrick?
Mr. Heidrick. The Big ``I'' hasn't formulated a specific
support for any one specific proposal but looks forward to
working with the committee to develop one.
Ms. Garcia of Texas. Okay. And then I wanted to follow up
with you, Ms. Guzman. One of my colleagues asked about
disclosure. And I believe you answered about full disclosure,
but, Ms. Guzman, I think you represent the REALTORS?
Ms. Guzman. In review, every State has disclosure but
disclosure is merely check-the-box. What we want are more
accurate mappings. We would like to have access to FEMA's
database where people can actually see if those claims on that
property were made--
Ms. Garcia of Texas. So your organization does favor
disclosure of, yes, the house was damaged, and it was this much
in these areas?
Ms. Guzman. The only way that is going to be available is
through modernization of the mapping program. That is the only
way it is going to be available.
Ms. Garcia of Texas. Okay. Does anybody else want to jump
in on this one?
No?
Well, there it is.
I yield back the rest of my time.
Mr. Heck. The gentleman from Virginia, Congressman
Riggleman, is recognized for 5 minutes.
Mr. Riggleman. Thank you very much. It looks like I am
last, I think, maybe, looking around. Is that possible?
Mr. Heck. Not quite.
Mr. Riggleman. I don't know if this is a fun question but I
have been reading some of these provisions, and I just want to
let you know that I live in a very rural district, the Fifth
District of Virginia. It starts about an hour south of here and
goes all the way to the North Carolina border.
When we talk about rural, you are talking about by-right
structures. For instance, I have a by-right farm structure
zoned A1 in Virginia--and this is a question; if it is not
answerable, it is okay, because it is actually curiosity as I
was reading this section--that holds special items. So I own a
distillery. It has about 400 barrels of bourbon and whiskey in
it.
But there are a lot of structures like that in the Fifth
District that are allowed to be built for special use that it
is really not defined exactly what it is as far as residential
or commercial. So if you have these facilities, which are
neither residential or commercial structures, and they serve a
specific unique function, based on what I see in the Fifth
District, which has a lot of special and unique functions with
special-use buildings that are built by-right--and we can start
left to right. I don't want to take really long, because I know
you are tired. But this is actually a curiosity question. I
think this is in Section 9, agricultural structures and special
flood hazard zones. By the way, I have an intelligence
background in GIS, so this gets really exciting for me. And I
know I just nerded out on that a little bit.
But can you provide some insight, from left to right on
this issue because, in your opinion, does this legislation
properly address all those concerns or any concerns about by-
right structures with special use that are neither residential
or commercial?
I know that is a very specific question in Section 9, but
it is near and dear to my heart in our rural district, in the
Fifth District of Virginia. We can start right to left with Mr.
Lehmann or Ms. Lamm, go right to left, Mr. Lehmann. And I know
we have 3 minutes left, so you don't have to take a whole lot
of time.
But do you see that--does this address those concerns for
by-right structures outside of the residential or commercial
area?
Mr. Lehmann. I will humbly submit that I do not know.
Mr. Riggleman. Thank you, sir. I knew this was specific,
so--
Mr. O'Mara. Yes. I think we will get back to you. But I do
think that if you have good mapping and kind of good data, the
case-by-case mitigation measures to make sure that that
individual study is resilient, it should be rewarded with a
price structure that matches. And if it is not resilient, then
it should be priced accordingly.
Mr. Riggleman. No. That is excellent.
The last flood we had in our area--the reason I am asking
some of this--was in 1969, in that specific area. But with GIS
mapping, it said it actually wasn't a flood plain. So I didn't
build anything there. But there are some other areas that we
did not think would flood. I don't know if you guys know, but
in our district, we have seven or eight counties under FEMA.
Michael put a punch to it on flooding there destroying one
whole town.
So I don't know if they knew that was specifically--some of
those structures were in the flood plain. So that is why I am
asking the question. I know it is specific. And I promise, this
isn't ``stump the dummy,'' which I got when I was an
intelligence officer, I promise. It is actually a real
curiosity question.
If structures outside of those specific definitions would
be covered with some type of change in the GIS posture, and, I
am just sitting here looking at it because there is millions of
dollars of special use buildings in our district.
Ms. Guzman. Well, the way it is right now, you have to have
an NFIP policy on each and every building that you have on your
land, which is ridiculous because there should really be based
on your survey so that you cover comprehensively completely.
Even on residential homes--
Mr. Riggleman. Ma'am, you are in my head. You are exactly
right.
Ms. Guzman. And so, send me bourbon. But anyway--
Mr. Riggleman. Yes, ma'am.
Ms. Guzman. But also, on residential homes, they would have
to have a separate policy for garages as well, so it is not
included.
So, if they could change that and make it one policy for
all buildings on the property, then it would be much more
comprehensive and better coverage.
Mr. Riggleman. Thank you.
Ms. Smith. Thank you for the homework. I am not going to
try to answer right now.
Mr. Riggleman. And, again, it was just something--looking
at a structure, I am like, my goodness, I am not residential or
commercial, and I know about 50 or 60 businesses that are not
either. And even outside of liquor, which I don't know if I can
say in here, I think I can, but outside of liquor, beer, you
are also talking about wine, but you are talking about other
structures that hold other things, nothing illicit, it is the
Fifth District of Virginia, but that is why I am asking those
questions.
Yes, sir?
Mr. Heidrick. My agency is located on the barrier islands
in southwest Florida. So we don't insure a lot of farms or
farm-oriented businesses. And one thing I learned is, don't try
to become an expert in something that you are not, so--
Mr. Riggleman. Yes, sir.
Mr. Heidrick. --I don't have an answer for you, but we can
get one for you.
Mr. Riggleman. Thank you.
Ms. Lamm. Not specifically to that. We will get you an
answer. But we are also in support of the pilot program for
policies for multiple agricultural structures. But we will get
a specific answer to your specific question.
Mr. Riggleman. And what you said, Ms. Guzman and Ms. Lamm,
about the multiple structures used on by-right builds for
specific types of industry, and I am talking tens of millions
of dollars. And based on the flooding that we have had
recently, there is a concern in the district about flood
insurance for that specific idea.
But I have 90 seconds. That was perfect. You guys are
amazing.
Thank you very much, and I yield back.
Mr. Heck. The gentleman from Texas, Congressman Gonzalez,
is recognized for 5 minutes.
Mr. Gonzalez of Texas. Thank you.
My question is for Mr. O'Mara.
On page 7 of your written testimony, Mr. O'Mara, you stated
that, in addition, Congress should consider mapping beyond a
special flood hazard area. Floods and risks do not stop at a
line drawn on a map, which I can't agree more with. And many
properties and communities outside of these areas are at risk
of flooding. In fact, almost a quarter of all flood claims
occur outside the risks of SFHAs.
What additional features should be collected in addition to
elevation data, or, in a sense, what else beyond SFHA should we
be doing?
Mr. O'Mara. We want to see the state-of-art technology
around LIDAR being used as the standard to do a map at the
property level across the entire country. When you have 3
thousand-year storms in 3 years, all of a sudden, the
traditional lines of a hundred-year flood plain don't make
sense anymore.
And so, for us, it is just the best data possible as
transparently provided as possible so then folks can know the
risk and make assessments. And hopefully, there is some ability
to then make much wiser decisions. And right now when you are
looking at topographic maps, in some cases, they are 10 to 15
and 20 years old.
Mr. Gonzalez of Texas. Even older than that, I think.
Thank you for your response.
The next question is for Ms. Guzman.
Ms. Guzman, in your written testimony, on page 5, you state
that NAR supports the following bill provisions: expand mapping
to all areas and risks in the United States, which I can't
believe we haven't done already; and provide for a digital
display and property-specific mapping.
What property-specific mapping are you referring to? And
what attributes beyond elevation should be collected at the
property level?
Ms. Guzman. Well, not only elevations, but also to show the
actual buildings that are on that plain or that location.
Without that information, people can't--first of all, when we
talk about smart and safe construction--there, I said it, I get
a dollar--with this data, they actually can go ahead and see
where to build much more effectively. Now, if they go ahead and
build in an area where they could be potentially high risk,
they know that they had to do mitigation in advance. So that
there is low risk to the people who move in and also less risk
to the taxpayer who may have to cover something in the future.
But policyholders then go in with eyes wide open. They
could actually do their due diligence and see what the impacts
are for them to moving in there and what the true cost of
owning that property is going to be over a period of time.
Mr. Gonzalez of Texas. Thank you.
Now, how far are we from this? If we all agreed today that,
hey, we are going to begin, we are going to get on it, and we
are going to do this nationwide, how long would it take for us
to be able to come up with accurate mapping?
Ms. Guzman. I have no idea.
Mr. O'Mara. It is a resource issue. We could do it fast. A
lot of States have great data. There is data across different
parts of the Federal and the State Governments. They have
pieces of it. A lot of it is not interoperable right now. But
if it was a priority that had a few dollars attached to it, it
would be one of these smartest investments we could possibly
make to make our country more resilient.
Mr. Gonzalez of Texas. I agree.
Ms. Guzman. And I believe also leveraging people who
already have those resources, because some people are already
actually doing it, so why reinvent the wheel insted of working
with those who already have the data?
Mr. Gonzalez of Texas. Thank you.
Anyone else want to address the question?
Mr. Heidrick. The flood zone that is most outside of the
special flood hazard area, the X flood zone, is incredibly
broad. It is defined by the NFIP as having a probability of
flooding in any given year somewhere between 0.2 percent and
0.99 percent.
So you have one flood zone that includes a structure that
is 5 times more likely to flood than another. There is an awful
lot we can do to improve, and the bar is not high to improve
upon.
Mr. Gonzalez of Texas. Mr. O'Mara, just going back to you,
you said that we could do this really fast. How fast? A year?
Mr. O'Mara. A lot of this is done kind of using technology,
kind of flying over places, right? So, in the State of
Delaware, we did the entire State in a handful of days. And
this is where working across jurisdictions to try to think
about the best way to do it, but there are--a lot of States
have the data, but do the quick gap analysis, what needs to be
done, what needs to updated most recently, and you could be
talking within a year.
Mr. Gonzalez of Texas. Very good.
Ms. Lamm. I would disagree that you could do it in a year.
It took--
Mr. Gonzalez of Texas. So how long?
Ms. Lamm. Well, it depends on funding. If you were to dump
enough money--
Mr. Gonzalez of Texas. Assuming the funding was there.
Ms. Lamm. Assuming the funding was there, I would think it
would take about 5 years.
Ms. Smith. I would--
Mr. Gonzalez of Texas. Go ahead?
Ms. Smith. I would also caution that maps are a partnership
with local governments, and local governments have to adapt
then so that the law actually has a built-in process for review
and appeals. And some of those can take several years as well.
So the hydraulics and the hydrology can take a long time, and
then the review of the map can take a long time as well. It is
going to be something--
Mr. Gonzalez of Texas. So how long? 5 years?
Ms. Smith. Potentially, 5 years. But we have to keep going
because risk will change. So we have to keep going.
Mr. Gonzalez of Texas. Right.
I have areas in my district, for example, that are now
flooding that weren't in the flood zone. And we have some that
are in the flood zone but haven't flooded in over 100 years. It
is just really difficult to have to manipulate through that.
Thank you. I yield back.
Mr. Heck. The Chair recognizes himself for 5 minutes.
Ms. Guzman, FEMA issued a report not that long ago which
indicates that incomes within flood zones, flood plains, tend
to be lower than outside flood plains. Do the REALTORS agree
with that assessment?
Ms. Guzman. Yes, this is true, first of all, because it is
about affordability. So they are looking for something that
they can pay for sustainably over a 30-year period.
What is incorrect about this is that it is really not
cheaper for them to live there. Number one, they are not
getting the true cost of what that home is and what it is going
to cost them over the period of a lifetime while they live
there because--
Mr. Heck. Because of the flooding?
Ms. Guzman. Exactly.
So they could be out of pocket, and their flood insurance
rates are going to continue to go up as well.
So to say that we have affordable housing, is it really
affordable when your rates are going to be maybe $10,000 to
30,000 a year? That is not affordable, and that is not
sustainable.
Mr. Heck. So is this not, then, frankly, just more evidence
that we are not producing or creating enough affordable housing
in this country, that our housing stock is too low, especially
in the affordable market?
Ms. Guzman. I think that is a local discussion, and you
would have to go community by community to see what their
efforts are.
Mr. Heck. But is it not true overall if we are seeing a
disproportionate presence of low-income people in ``less
desirable areas,'' namely flood zones?
Ms. Guzman. If we take Louisiana and the Lower Ninth, for
example, many of those people have lived there for over 40
years. And many of them inherited property. So it is not
necessarily that they were low income. They also inherited
property. They were there for a long period of time. So their
risk was that they didn't get flood insurance because they
couldn't afford it, but they already own the home outright.
So we have to look at this from a community standpoint and
go by every municipality or town and measure it that way. I
don't like broadbrush discussion on something like this.
Mr. Heck. Well, I do, and here is mine: We are not creating
enough affordable housing in this country, period.
And, with that, I ask unanimous consent to submit to the
record additional materials as given to the Chair.
Hearing no objection, it is so ordered.
I would like to thank the witnesses on our second panel
very much for your testimony today.
The Chair notes that some Members may have additional
questions for these witnesses, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
I ask our witnesses to please respond as promptly as you
are able.
I thank you again very much for your participation.
With that, the hearing is adjourned.
[Whereupon, at 1:30 p.m., the hearing was adjourned.]
A P P E N D I X
March 13, 2019
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