[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
REAUTHORIZATION AND REFORM OF THE
NATIONAL FLOOD INSURANCE PROGRAM
=======================================================================
HYBRID HEARING
BEFORE THE
SUBCOMMITTEE ON HOUSING,
COMMUNITY DEVELOPMENT,
AND INSURANCE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
MAY 25, 2022
__________
Printed for the use of the Committee on Financial Services
Serial No. 117-87
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
47-882PDF WASHINGTON : 2022
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 FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri ANN WAGNER, Missouri
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut ROGER WILLIAMS, Texas
BILL FOSTER, Illinois FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
RITCHIE TORRES, New York JOHN ROSE, Tennessee
STEPHEN F. LYNCH, Massachusetts BRYAN STEIL, Wisconsin
ALMA ADAMS, North Carolina LANCE GOODEN, Texas
RASHIDA TLAIB, Michigan WILLIAM TIMMONS, South Carolina
MADELEINE DEAN, Pennsylvania VAN TAYLOR, Texas
ALEXANDRIA OCASIO-CORTEZ, New York PETE SESSIONS, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts
Charla Ouertatani, Staff Director
Subcommittee on Housing, Community
Development, and Insurance
EMANUEL CLEAVER, Missouri, Chairman
NYDIA M. VELAZQUEZ, New York FRENCH HILL, Arkansas, Ranking
BRAD SHERMAN, California Member
JOYCE BEATTY, Ohio BILL POSEY, Florida
AL GREEN, Texas BILL HUIZENGA, Michigan
VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York
CAROLYN B. MALONEY, New York TREY HOLLINGSWORTH, Indiana
JUAN VARGAS, California JOHN ROSE, Tennessee
AL LAWSON, Florida BRYAN STEIL, Wisconsin, Vice
CINDY AXNE, Iowa, Vice Chair Ranking Member
RITCHIE TORRES, New York LANCE GOODEN, Texas
VAN TAYLOR, Texas
C O N T E N T S
----------
Page
Hearing held on:
May 25, 2022................................................. 1
Appendix:
May 25, 2022................................................. 27
WITNESSES
Wednesday, May 25, 2022
Kousky, Carolyn, Executive Director, Wharton Risk Center,
University of Pennsylvania..................................... 5
McHugh, Karen, Missouri State NFIP Coordinator, and Region 7
Director, Association of State Floodplain Managers (ASFPM)..... 7
Nutter, Franklin W., President, Reinsurance Association of
America (RAA).................................................. 11
Rivera-Miranda, Ariel, Founder and Agency Principal, Deer
Insurance Agency, on behalf of the National Association of
Professional Insurance Agents (PIA)............................ 8
Wright, Roy E., President and CEO, Insurance Institute for
Business & Home Safety (IBHS).................................. 10
APPENDIX
Prepared statements:
Kousky, Carolyn.............................................. 28
McHugh, Karen................................................ 38
Nutter, Franklin W........................................... 57
Rivera-Miranda, Ariel........................................ 74
Wright, Roy E................................................ 84
Additional Material Submitted for the Record
Cleaver, Hon. Emanuel:
Written statement of the American Academy of Actuaries....... 91
Written statement of the American Bankers Association........ 94
Written statement of the Anthropocene Alliance............... 95
Written statement of the Credit Union National Association... 98
Written statement of the National Association of Federally-
Insured Credit Unions...................................... 101
Written statement of the National Association of Mutual
Insurance Companies........................................ 102
Written statement of the National Association of REALTORS.... 107
Written statement of Robert G. Rash, CEO and Chief Engineer,
St. Francis Levee District of Arkansas..................... 109
Hill, Hon. French:
Written statement of the American Property Casualty Insurance
Association................................................ 127
Written statement of the National Multifamily Housing Council
and the National Apartment Association..................... 131
Written statement of the SmarterSafer Coalition.............. 136
Sherman, Hon. Brad:
Written statement of the Independent Insurance Agents &
Brokers of America......................................... 140
Waters, Hon. Maxine:
Written responses to questions for the record from Carolyn
Kousky..................................................... 145
Written responses to questions for the record from Karen
McHugh..................................................... 147
Written responses to questions for the record from Ariel
Rivera-Miranda............................................. 151
Written responses to questions for the record from Roy Wright 155
REAUTHORIZATION AND REFORM
OF THE NATIONAL FLOOD
INSURANCE PROGRAM
----------
Wednesday, May 25, 2022
U.S. House of Representatives,
Subcommittee on Housing,
Community Development,
and Insurance,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 12:01 p.m., in
room 2128, Rayburn House Office Building, Hon. Emanuel Cleaver
[chairman of the subcommittee] presiding.
Members present: Representatives Cleaver, Velazquez,
Sherman, Beatty, Axne; Hill, Posey, Huizenga, Zeldin, Rose, and
Steil.
Ex officio present: Representative Waters.
Also present: Representative Casten.
Chairman Cleaver. We are here today in the shadows of the
murder of 19 kids, most of them under 10 years of age, and I
don't think it would be appropriate for us to begin this
hearing without at least acknowledging what happened. And I am
sure everybody here, like me, is concerned about their children
or grandchildren, and that concern has to actually be turned
into some kind of way in which we can stop this carnage that we
are experiencing around the country.
And it is hard to go any further, but I now call the
Subcommittee on Housing, Community Development, and Insurance
to order.
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time. Also, without
objection, members of the full Financial Services Committee who
are not members of this subcommittee are authorized to
participate in today's hearing.
Today's hearing is entitled, ``Reauthorization and Reform
of the National Flood Insurance Program.''
I now recognize myself for 4 minutes to give an opening
statement.
This hearing is a continuation of efforts to get a
bipartisan, I want to say again, a bipartisan agreement on a
long-term reauthorization of the National Flood Insurance
Program (NFIP). Flooding is the most frequent severe weather
threat and costliest natural disaster facing the nation. Ninety
percent of all natural disasters in the United States involve
flooding, and high-risk flood areas are not the only ones at
risk; about 25 percent of flood insurance claims come from
moderate- to low-risk areas.
Several factors contribute to the cost of flood disasters,
including increased exposure of assets and the number of assets
at risk, vulnerability of assets and the location of those
assets, and frankly, the impact of climate change. In
particular, some data indicates that climate change is
supercharging the frequency and intensity of certain types of
extreme weather events. Most notably, the potential for
extremely heavy rainfall is becoming more and more common and
exacerbating hurricanes and flooding areas.
As highlighted by the United States Environmental
Protection Agency's report, ``Climate Change and Social
Vulnerability,'' the impacts of climate change fell broadly to
differing degrees, but racial and ethnic minority communities
are particularly vulnerable to the greatest impacts of climate
change. It is often the case that people least able to prepare
and cope with flooding events are disproportionately exposed. I
am in my office here in Kansas City, Missouri, and only maybe
50 yards from Brush Creek, which came over its bank a few years
ago and drowned 25 people, and then a year-and-a-half later,
another 10 individuals. So, flood insurance is critical to
safeguarding the financial stability of American investments
and ensuring that American families, businesses, and
communities can recover from these unfortunate events.
In times of significant loss, insurance companies are set
up as financial first responders in helping customers recover
from significant loss and achieve greater financial stability,
so they must be affordable and accessible for those who need
it. The NFIP is the principal provider of primary flood
insurance in the United States, covering nearly 5 million
households and businesses across the country, for a total of
over $1.3 trillion in flood insurance coverage. Today,
communities participate in them, and they cover an estimated 93
percent of the United States population.
And we all are aware that the last long-term
reauthorization of the NFIP occurred when Congress passed the
Biggert-Waters Flood Insurance Reform Act of 2012. I was here
at the time and looked at that and marveled over the fact that
Representative Biggert, a Republican, and Representative
Waters, a Democrat, were able to get together to create this
reform, which was subsequently amended by the Homeowner Flood
Insurance Affordability Act of 2014.
Since the end of Fiscal Year 2017, the NFIP has had 19--
19--short-term reauthorizations and has even experienced brief
lapses in the program, leaving American families unprotected.
When NFIP is then unable to enter into new flood insurance
contracts, the housing marks phases without widespread market
instability due to the stalling of mortgage processing for
homes that are statutorily required to have flood insurance.
According to estimates from the National Association of
REALTORS, around 40,000 home sales are lost or interrupted
every month that the NFIP's authority lapses. The NFIP
authorization is currently set to expire on September 30, 2022.
However, the NFIP is not just an insurance program. The program
does provide a list of primary flood insurance, but also seeks
to mitigate and reduce the nation's comprehensive flood route.
The NFIP accomplishes this through floodplain management,
floodplain mapping, and flood mitigation. Given compounding
flood risks, there is an increased need to focus on where we
build, how we build, and how we invest in infrastructure that
is designed for the 21st Century climate.
On November 15, 2021, President Joe Biden signed the
Infrastructure Investment and Jobs Act, which included $3.5
million for flood mitigation and $500 million in grants to
States for revolving loans, for hazard mitigation through a new
risk program called Safeguarding Tomorrow through Ongoing Risk
Mitigation. Under the bold leadership of our Full Committee
Chair, Chairwoman Maxine Waters, on November 19, 2022, the
House passed the Build Back Better Act.
I am going to stop, because I am going over my time.
I now recognize the ranking member of the subcommittee, Mr.
Hill, for 5 minutes.
Mr. Hill. I thank my friend, the chairman, and if I need a
minute-and-a-half later today, I hope you will yield it to me.
Chairman Cleaver. Yes, sir.
Mr. Hill. Let me share in the heartfelt concern you
expressed about this horrible tragedy in Uvalde, a wonderful
community, a place I have visited many times. All of our most
prized assets are kids, and it is heartbreaking. So, I hope we
can continue to find ways to support our schools, and support
our families, so thank you for mentioning that, Mr. Chairman.
I appreciate you holding this hearing on a topic that we
know is important, but we never seem in this Congress to ever
want to discuss, and that is, how do we fix the National Flood
Insurance Program?
Since I first came to Congress back in 2015, under Chairman
Hensarling's leadership, we worked in a bipartisan way on
strengthening the flood mitigation programs and how to
strengthen and make more realistic and appropriate our national
flood programs. In fact, under Chairman Hensarling, the
committee held flood-related hearings in June 2015, November
2015, twice in January of 2016, twice in March of 2017, and
then again in 2017.
And that makes sense, because it is a well-known fact that
floods are the most common, as you noted, Mr. Chairman, and
most expensive natural disaster that communities face here in
our country. What is less well-known is that floods are also
the deadliest natural disaster in the U.S., responsible for 57
deaths in 2020, and an average of 94 deaths each year over the
past decade. And that is unacceptable for our country and a
real challenge to our families in our communities.
And that is why I am pleased that the Majority started
things off on the right foot under Chairwoman Waters with the
first flood reform hearing that we held back in March of 2019.
Sadly, since that time, that, unfortunately, was the last flood
reform hearing we had until today, more than 3 years and 2
months later. Quite frankly, that is just not going to cut it
if we are really serious about bipartisan legislative reform.
The other reason why we don't talk about flood is that this
committee is not even really in control of NFIP's
reauthorization process anymore.
Instead of doing the hard work here on a bipartisan basis,
and reforming and reauthorizing the National Flood Insurance
Program to ensure its long-term, financially-sustainable
position, the Majority has left the program on autopilot
through a series of short-term extensions in appropriations
bills. This is to the detriment not only of NFIP policyholders,
but American taxpayers and members of this committee from both
sides of the aisle. Since the last full NFIP reauthorization
expired back in September of 2017, the program has been
extended on a short-term basis a shocking 21 times, every time
without a single reform attached. That includes an incredible
11 times under Chairwoman Waters, who has yet to take an NFIP
reform bill to the House Floor under her tenure.
More importantly, the appropriators have carried out
authorizations so often on their legislative vehicles, that I
am surprised they are not charging us a freight charge. All of
this, of course, is a shame because there was a time when it
looked like we were on the verge of a breakthrough, when this
committee unanimously reported a 5-year reform and
authorization bill in June of 2019, let me remind our
listeners, a unanimous vote in committee. But Chairwoman Waters
never got that bill to the House Floor, and then abandoned the
good faith efforts and bipartisan work product by including now
partisan flood reforms with zero Republican input that were in
the Build Back Better bill, and we know how that ended.
So, fixing the NFIP is not easy, but it is important, and
that includes supporting FEMA's Risk Rating 2.0 methodology by
providing greater private flood insurance options for
policyholders. The best way to deliver lower flood insurance
rates is to lower flood risk, and Risk Rating 2.0 is the only
reform that lowers annual premiums by matching rates to the
actual risks faced by individual policyholders. Policyholders
who disagree with those changes deserve to have options other
than NFIP, which is why I have been a large supporter of making
sure that we have better rates, and better terms from non-
governmental flood insurance providers.
There are many areas in which Democrats and Republicans can
agree, like supporting enhanced pre-flood mitigation, ending
discounts for properties each and every year, eliminating fraud
in the claims process, and considering a targeted means-tested
affordability program that helps out low-income policyholders.
There is a lot of room for bipartisan work, and I look forward
to working with my friend, Mr. Cleaver, and I yield back.
Chairman Cleaver. Thank you, Ranking Member Hill.
The Chair now recognizes the Chair of the Full Committee,
the gentlewoman from California, Chairwoman Waters. Is the
Chair available at this time?
[No response.]
Chairman Cleaver. We may have to come back at a later
moment.
Today, we welcome the testimony of our distinguished
witnesses: Carolyn Kousky, who is the executive director of the
Wharton Risk Center; Karen McHugh, who is the NFIP coordinator
for the State of Missouri; Ariel Rivera-Miranda, who is the
founder and agency principal of Deer Insurance; and Roy Wright,
who is the president and CEO of the Insurance Institute for
Business and Home Safety.
Witnesses are reminded that their oral testimony will be
limited to 5 minutes. You should be able to see a timer that
will indicate how much time you have left. I would ask that you
be mindful of the timer so that we can be respectful of both
the witnesses' and the committee members' time.
And without objection, your written statements will be made
a part of the record.
Dr. Kousky, you are now recognized for 5 minutes to give an
oral presentation of your testimony.
STATEMENT OF CAROLYN KOUSKY, EXECUTIVE DIRECTOR, WHARTON RISK
CENTER, UNIVERSITY OF PENNSYLVANIA
Ms. Kousky. Chairman Cleaver, Ranking Member Hill, and
esteemed members of the committee, thank you for the invitation
to speak to you today. I am the executive director of the
Wharton Risk Center at the University of Pennsylvania. The
National Flood Insurance Program has long been a focus of work
at the center and my own research, and it is this work and that
of my colleagues which informs my testimony today.
Prior research has found that lower-income groups suffer
disproportionately from disasters like floods and recover less
quickly. A key driver of these inequitable recoveries is the
lack of access to necessary financial resources for repairs and
rebuilding. Severe floods take a huge financial toll on
households. As they work to repair and rebuild, most Americans
struggle with the needed funds, they don't have sufficient
savings, credit can be burdensome or impossible to access, and
Federal assistance is typically insufficient and too delayed.
That leaves insurance, yet many at-risk households are
uninsured against flooding. This is problematic because prior
research has found that if individuals have insurance, they
recover better and faster. When households have the needed
funds for repairs and rebuilding, they can more quickly resume
normal economic activities and have less need for public sector
assistance programs. Yet, the people who need insurance the
most are the least able to afford it.
Last month, FEMA completed the rollout of Risk Rating 2.0.
This new pricing methodology harnesses modern data and modeling
tools to better price flood risk at a given property. While
there are certainly still some adjustments that are no doubt
warranted, this modernization of rate setting is long overdue.
It will undo many cross-subsidies across flood zones. It will
also take a small step in improving affordability by undoing a
regressive cross-subsidy from lower-valued to higher-valued
homes because previously, the program did not adjust pricing
for the value of the home or the share that was insured. While
this is an important change, it is not a means-tested
assistance program for flood insurance, and the need for such a
program has been recognized for a decade and studied by many
groups and it is time to enact it.
I will raise just a couple of design points. First, I would
urge the committee to consider a tiered program that would
provide assistance on a sliding scale and prevent there being
an abrupt cut off to benefits.
Second, draft legislation has suggested limiting access to
existing policyholders only. But as suggested in FEMA's
Affordability Framework report, there are many households right
now at risk of flooding who are not current policyholders
precisely because they cannot afford to purchase a policy.
These are the very households we should wish to help. As such,
I believe the assistance program should offer help to any
qualifying household regardless of current policy status. That
will allow households that have been locked out of the program
because of affordability concerns to access the financial
benefits of insurance.
One possible objective is perverse incentives to build more
safely or move into high-risk areas. And I do think that if we
were considering rate suppression across all policyholders,
that would be an important concern. There is not much evidence
though, that when we limit our look at low-income populations,
that premium support would have this perverse impact. Many of
these households are trapped in risky locations and in unsafe
housing because they can't afford the necessary retrofits or to
move to safer ground. I think we need to couple risk-based
pricing to send those signals to the market with explicit means
testing for assistance. We also need to do more to promote the
needed investments and risk reduction, and pricing alone won't
achieve that.
One problem is a lack of risk awareness. Some NFIP rules
are currently hindering full information on flood risk from
reaching markets. Only current policyholders can request
information on prior claims. There is nowhere to quickly look
up premiums, and potential homebuyers are never told if a home
they are purchasing is about to become a repetitive loss
property. A simple online tool should provide all that
information and more. It is financially material, and I don't
think it should be kept hidden. Of course, for current
homeowners in risky areas, we also need to make it easier for
them to get help reducing their risk, to maintain property
values, and lower insurance costs.
While the NFIP has many laudable initiatives to reduce
flood losses, there is still more to do, and buyouts is one of
those areas. The timing of buyouts take too long to get to
homeowners. Households, especially those of limited means,
can't wait the years it takes. Many will have to begin
rebuilding to make their home safe for habitation using partial
or full flood insurance payouts, only to have the home
demolished months or years later in a buyout, and that is just
wasted funds. So, a critical reform would be making Federal
dollars available immediately after a flood for buyouts or to
reimburse local governments that do this. And this could be
tied to incentives for local communities to engage in pre-
disaster planning to speed the buyout process on their end.
I will end by noting that risk reduction is a complement to
insurance. As we lower disaster risk, we make it easier and
cheaper to insure against them.
Thank you so much for the opportunity to speak with you
today, and I look forward to your questions.
[The prepared statement of Dr. Kousky can be found on page
28 of the appendix.]
Chairman Cleaver. Thank you very much, Ms. Kousky.
Ms. McHugh, you are now recognized for 5 minutes to give an
oral presentation of your testimony.
STATEMENT OF KAREN McHUGH, MISSOURI STATE NFIP COORDINATOR, AND
REGION 7 DIRECTOR, ASSOCIATION OF STATE FLOODPLAIN MANAGERS
(ASFPM)
Ms. McHugh. Good afternoon, Chairwoman Waters, Chairman
Cleaver, Ranking Member Hill, and members of the committee. I
am Karen McHugh, a regional director of the Association of
State Floodplain Managers (ASFPM) and the NFIP coordinator for
the State of Missouri. I am honored to be testifying today
about a program that our organization and our members consider
essential to our nation's flood loss reduction efforts: the
National Flood Insurance Program. Our written statement
identifies over 20 reform ideas for your consideration.
I have worked nearly 30 years in the world of floodplain
management regulation, and it has given me a personal
perspective on several of ASFPM's reauthorization and reform
priorities. It is of paramount importance that NFIP-
participating States have authorizing legislation to provide
full flood risk disclosure for all property transactions prior
to closing on sales or signing rental contracts.
This is of particular significance to me. Too many times, I
have listened to homebuyers sobbing on the phone, who were
surprised to learn at the closing table that their new house is
in a high-risk floodplain and they don't know how they will pay
for the required flood insurance. Even more distressing, some
property owners have shared with me that they do not learn
about their flooding risk until their home has already been
flooded.
In 1993, I was working as a floodplain administrator when
Increased Cost of Compliance (ICC) coverage was first included
in the National Flood Insurance Reform Act of 1994. ICC gives
added coverage to structures located in FEMA-mapped special
flood hazard areas to anyone who has an active flood insurance
policy. I saw firsthand how the added coverage helps homeowners
and communities recover after a flooding event.
Since the program became effective, I have witnessed
buildings relocated to higher, safer ground. I have seen homes
elevated safely above the water surface so that during the next
flooding event, there was no damage to the building whatsoever.
In our small towns, dry floodproofing historic structures is
the only way that these beautiful buildings can be saved, since
the integrity of historic buildings is harmed by repeated
flooding. The limit of liability coverage was raised 20 years
ago to $30,000 from the previous limit of $20,000. The average
cost to lift the house and replace the foundation is now
pushing $100,000. Increasing the ICC limit to at least $90,000
is long overdue. To allow adequate funding for structures to be
brought out of harm's way by elevating or being removed from
the high-risk flood area has been proven to save lives and
property and taxpayer costs from the devastating effects of
flooding.
It is my great pleasure to work with socially or
economically disadvantaged communities to deliver NFIP
education, training, and outreach so that crucial NFIP
principles can be conveyed with maximum efficiency to assure
equitable program delivery. My staff and I provide compliance
solutions to our underserved communities in Missouri by
performing community assistance context visits, offering
technical assistance, offering one-on-one help with substantial
damage terminations before and after flooding events, and we
will continue bringing NFIP workshop training to economically-
disadvantaged populations. The Federal Government's
authorization of the Community Assistance Program, including
providing annual funding at a minimum of $20 million, will
ensure a support mechanism for building State capacity to
efficiently and effectively assist communities in managing and
mitigating their flood risks.
In closing, I would like to state that NFIP reauthorization
is an opportunity for Congress to take bold steps to reduce the
program's complexity and strengthen the NFIP's financial
framework so the NFIP can continue protecting individuals and
property from the devastating and unfortunately growing impacts
of flooding.
Thank you very much for giving me the opportunity to speak.
[The prepared statement of Ms. McHugh can be found on page
38 of the appendix.]
Chairman Cleaver. Thank you, Ms. McHugh, for your
testimony.
Mr. Rivera-Miranda, you are now recognized for 5 minutes to
give an oral presentation of your testimony.
STATEMENT OF ARIEL RIVERA-MIRANDA, FOUNDER AND AGENCY
PRINCIPAL, DEER INSURANCE AGENCY, ON BEHALF OF THE NATIONAL
ASSOCIATION OF PROFESSIONAL INSURANCE AGENTS (PIA)
Mr. Rivera-Miranda. Good afternoon, Chairman Cleaver,
Ranking Member Hill, Chairwoman Waters, Ranking Member McHenry,
and members of the subcommittee. Thank you very much for
holding this hearing and for inviting me to be a part of it. My
name is Ariel Rivera-Miranda, and I am the founder and agency
principal of Deer Insurance Agency, which is an independent
insurance agency located in Jacksonville, Florida. And I am
currently the secretary of the National Association of
Professional Insurance Agents, also known as PIA.
I was born and raised in San Juan, Puerto Rico, and have
over 18 years of experience in the insurance industry. I have
been an independent insurance agent since I was 22, which is
when I started my first agency. In my time as an independent
agent, I have founded and operated insurance agencies in Puerto
Rico and in Florida. In my current capacity, I sell flood
insurance products through both the National Flood Insurance
Program and the private market. I am here on behalf of PIA, but
my remarks today represent my personal views and not
necessarily those of PIA as an organization.
I would like to begin by talking about the vital role of
the independent insurance agent in the marketing, sale, and
service of NFIP policies. Independent agents are the face of
the program. We are the, ``first responders,'' to both clients
and carriers who adequately serve our customers. We must remain
up-to-date on ever-changing laws and regulations governing
flood insurance requirements, and, historically, we have also
had to keep pace with constant changes to the program involving
maps, flood zones, and relevant community participation.
Agents explain this complicated program to consumers and
interpret changes to the program as needed for the
policyholders and prospects. They also assist with home
closings and ensure, to the best of their ability, that policy
renewals are completed on time. Agents stake their reputation
on customer service, and the NFIP has always been a challenging
program. When consumers are confused about how the program
works, they call the agents. When they become frustrated over a
lapse or prospective lapse, when a policy or requirement
changes, or when mapping issues arise, consumers call their
agents. And most importantly, when consumers face a loss, they
call their agents.
We are also on the front lines of Risk Rating 2.0. We
strongly support Risk Rating 2.0 because it will help the NFIP
move towards solvency while also providing policyholders with
more accurate information about their property's flood risk.
With better information, we hope property owners will learn
more about their risk of flood, engage in mitigation efforts
when needed, and ultimately purchase and retain flood insurance
that matches the risk. As independent agents have gained
experience with explaining Risk Rating 2.0 to policyholders, it
has become clear that we need more information about how the
new rating factors combine to produce a Risk Rating 2.0 rate.
Risk Rating 2.0 is fully underway. Every policy reading and
renewal from now on will be rated using it. What we need now is
greater public understanding, which will be bolstered by
increased transparency in the system. Greater transparency will
also make it easier for agents to explain to our customers why
their rates are changing. While FEMA continues to release
helpful explanatory material, it remains difficult to explain
some rate increases, even though it has been nearly 8 months
since the new rating system began.
Last, but certainly not least, the reauthorization of the
NFIP is critically important. The NFIP has now been extended
about 20 times since 2017, and will expire again on September
30, 2022. In the past 5 years, the program has been extended
for days or even weeks at a time. I cannot overstate the
detrimental effects of short-term extensions on the program
overall. Every short-term extension is another chance for a
lapse. The theoretical lapse leaves everyone involved in the
program in a terrible position. Homebuyers and sellers look to
their insurance agent and all those involved in their
transaction to solve a problem over which they have no control.
During a lapse, consumers are unable to renew existing policies
or even purchase new ones, and lapses may disrupt real estate
transactions, especially if they involve properties in
mandatory purchase areas. Prior lapses are estimated to have
disrupted over 1,000 homes a day, and the longer the lapse, the
greater the impact.
Additionally, needed updates to the program are long
overdue with support reforms, like a continuous coverage
provision, the continuation of progress towards full risk rates
to keep the program solvent, and, at the same time, the
creation of an affordability framework to minimize potential
attrition from the program, the creation of an agent's specific
advisory council or with council within FEMA, and increased
transparency for policyholders. I urge Congress and the
subcommittee to build on the progress made in 2019 when the
Full Committee unanimously passed a long-term bipartisan
reauthorization and reform package. We support many of the
provisions of the bills listed today.
Thank you for having me, and I would be happy to answer any
questions.
[The prepared statement of Mr. Rivera-Miranda can be found
on page 74 of the appendix.]
Chairman Cleaver. Thank you, Mr. Rivera-Miranda.
Mr. Wright, you are now recognized for 5 minutes to give an
oral presentation of your testimony.
STATEMENT OF ROY E. WRIGHT, PRESIDENT AND CEO, INSURANCE
INSTITUTE FOR BUSINESS & HOME SAFETY (IBHS)
Mr. Wright. Thank you, Chairman Cleaver, Chairwoman Waters,
Ranking Member Hill, and members of the subcommittee. I
appreciate the opportunity to rejoin the reauthorization
dialogue. In the spring of 2017, when I led FEMA's National
Flood Insurance Program, I testified before the Full Committee.
I have enjoyed the relationship with both sides of the aisle,
so I appreciate this opportunity to rejoin the conversation.
Congress was wrapping up 6 years of reauthorization, but you
delivered those 6 years in 21 small chunks. Congress must pass
long-term reauthorization that provides the program with
stability.
There are four key thoughts I want to highlight today.
First, breaking the cycle of loss. FEMA's repetitive loss, home
acquisition programs of these buyouts, they take years. In that
time, the NFIP could have paid to rebuild a house at least
twice and then paid to demolish it. I don't have time to retell
it here, but my written testimony speaks about a policyholder
named Edith, who called me during Hurricane Harvey seeking help
with an immediate buyout. She didn't want a third claim paid.
She wanted to start over. The recently-introduced Casten-
Blumenauer bill offers a clear way forward, offer the buyout at
the point of the catastrophic claim. At the very time Edith
called me seeking help, you can plow the indemnified claim
value into the acquisition project. That will reduce the
overall cost, and it expedites the recovery time line for the
impacted family.
Second, inflation. We must address the real impacts
inflation has on the NFIP. There are two sets of homeowners: A,
those who cannot afford the premiums due to the increases in
costs of other goods and services; and B, those who cannot
afford to rebuild within the limited insurance claim, the
$250,000 set in existing law, and I want to speak to that
second group.
The average sale price for homes in this country has
increased by more than 300 percent since 1944, but NFIP policy
limits remain at $250,000. Here is the impact of Congress'
inaction. When hurricanes make landfall in the United States
this year, Americans who did the right thing and bought flood
insurance will learn the consequences of being underinsured.
When the cost of rebuilding their home comes in at $370,000 and
they only have $250,000 available in coverage, they will be
underwater for the second time. Many will blame inflation, but
while not unrelated, the principal fault for the protection gap
in their coverage will reside with Congress, because Congress
continues to limit the amount of insurance homeowners are
permitted to buy.
Inflation will also negatively impact the fiscal
underpinning of the program. The debt held by the NFIP is about
to get walloped by rising interest rates. While I do
acknowledge there is not a bipartisan legislative path today to
resolve the outstanding debt, I must warn you, this will come
back to haunt you, FEMA, and those who depend on the NFIP. Last
year, FEMA paid $350 million to service its debt, almost 10
percent of its premium revenue. When FEMA is paying $700
million, $800 million, or even $1 billion a year in interest on
the NFIP's residual debt, those funds will come and take away
from the ability to pay valid claims, all because of Hurricane
Katrina's impacts some 17 years ago.
Two important things as I close, Risk Rating 2.0, simply,
it is delivering on its objectives, a fair approach to setting
insurance premiums that resembles underwriting practices used
for other perils. Ironically, the criticisms I have heard of
Risk Rating 2.0 have little to do with the actual risk
measurements themselves, the data methods and accuracy.
Instead, the criticisms focus on the difficulty of living with
the knowledge of the risk, the cost of their flood risk.
On the other side of the coin, nearly two-thirds of
policyholders are seeing those incremental increases that
resemble their past trajectory, and then nearly a quarter of
all NFIP policyholders are seeing price decreases, sometimes
$200 or even $1,000 per year about that. In a time of high
inflation, the cost of material and labor is soaring, these
policyholders are experiencing a cheaper price.
Finally, affordability. I do encourage this Congress and
FEMA to identify ways to assist low- and moderate-income
households to lessen the financial burden of flood insurance.
Yes, I think Congress has to decide how much money it wants to
invest into an affordability program each year. The NFIP cannot
pay for such a program inside of its premium revenue. That
would be inequitable and really undermine the financial
stability of the program.
With that, I look forward to your questions.
[The prepared statement of Mr. Wright can be found on page
84 of the appendix.]
Chairman Cleaver. Thank you, Mr. Wright, for your
testimony.
I now recognize Mr. Franklin W. Nutter, president of the
Reinsurance Association of America, for 5 minutes to make an
oral presentation of his testimony.
STATEMENT OF FRANKLIN W. NUTTER, PRESIDENT, REINSURANCE
ASSOCIATION OF AMERICA (RAA)
Mr. Nutter. Chairman Cleaver, Ranking Member Hill,
Chairwoman Waters, and distinguished members of the committee,
thank you for this opportunity to testify. The Reinsurance
Association supports a long-term reauthorization of the
National Flood Insurance Program, encourages certain reforms,
and appreciates the committee starting this formal conversation
about both.
Today, the NFIP remains on GAO's high-risk list, is $20.5
billion in debt, and continues to have policies that distort
risk assessment by builders, local officials, property buyers,
and the NFIP policyholders themselves. Subsidized rates and
statutory caps on rates may be popular with some beneficiaries,
but they increase the cross-subsidy from low- or no-risk
persons and taxpayers to those living in high-risk flood areas.
Starting in 2011, Congress took steps to address the
fundamental flaws in the NFIP and toward removing inequitable
and unjustifiable rate subsidies. The NFIP today is on a path
toward a stronger financial framework and resiliency to pay
claims.
The RAA encourages Congress to avoid retreating from this
progress and to enact reforms that will improve the program to
the benefit of those facing flood risk and taxpayers alike. To
that end, I encourage flood reform legislation to strengthen
NFIP's financial framework and resiliency by preserving the
National Flood Insurance Program's successful reinsurance
program as well as Risk Rating 2.0.
In 2017, the Reinsurance Program's first year, FEMA
collected over a billion dollars from the private sector to
help pay Hurricane Harvey-related claims. The program
successfully renewed the following year and has over $2.5
billion available to collect from the private sector after a
qualifying 2022 loss event. Risk Rating 2.0, FEMA's new pricing
methodology, more precisely reflects property-specific flood
risks with more advanced actuarial tools and catastrophe
models. Based on FEMA's data, the RAA developed a Risk Rating
2.0 analytical tool, which shows that 89 percent of policy
premiums will decrease or remain stable, and premiums will
decrease for almost half-a-million NFIP single family
residential policies. I have noticed that zero percent of the
premiums would have decreased under FEMA's previous pricing
methodology, and under Risk Rating 2.0, higher premium
increases are no longer attaching to lower-value properties.
To address the problem of the significant underinsured and
uninsured but at-risk population, reauthorization legislation
should facilitate the development of a private flood insurance
market by preserving Risk Rating 2.0, removing impediments to
consumer choice by enacting Representatives Castor and
Luetkemeyer's continuous coverage bill so consumers can leave
the NFIP, secure a private flood policy, and later reassume an
NFIP policy without penalty. And increase insurance options for
consumers by enacting Representative Luetkemeyer's amendment
that would provide FEMA additional tools to strengthen the
public-private insurance partnership with private insurers and
explore risk-sharing opportunities.
Flood reform legislation should aim to close the flood
insurance gap by requiring the development of a comprehensive
strategy and address the natural disaster insurance protection
gap in the U.S. and the risk it poses to property insurers,
taxpayers, and businesses by aligning Federal housing agencies'
private flood regulations with those issued by Federal lending
institutions.
And lastly, flood reform legislation should create
resilient and insurable communities. Several suggestions, such
as those by the SmarterSafer Coalition and the BuildStrong
Coalition, of which the RAA is a member, are included in my
written testimony. The RAA has also developed a proposal called
the Community Disaster Resilience Zone, or CDRZ, which would
improve resilience in communities that are most in need and
most at risk of natural disasters including flooding. Initial
bipartisan, bicameral legislation, the CDRZ Act of 2022 is
supported by a diverse coalition of 30 national organizations.
We look forward to working with the committee to further
develop the CDRZ proposal. The RAA's members welcome the
opportunity to work with you on the long-term reauthorization
and reform legislation, and thank you, again, for this
opportunity to testify.
[The prepared statement of Mr. Nutter can be found on page
57 of the appendix.]
Chairman Cleaver. Thank you very much, Mr. Nutter.
The Chair now recognizes the Chair of the full Financial
Services Committee, Chairwoman Waters, for a statement, and to
begin our questioning. Chairwoman Maxine Waters, you are now
recognized.
Chairwoman Waters. Thank you so very much, Mr. Cleaver, for
holding this most important and timely hearing.
The National Flood Insurance Program is a key part of the
Federal Government's strategy to be better prepared in the
phase of climate change which is causing natural disasters in
increasing frequency and magnitude. I have worked for decades
to strengthen the NFIP and to stress the importance of mapping
and mitigation to avoid the damage that flooding causes in the
first place, rather than waiting until it is too late and
paying for this after-relief effort.
The last time that Congress passed a long-term
reauthorization of the NFIP, as has been said several times,
was in 2012, when I worked across the aisle with Representative
Judy Biggert to get it done. A decade after we passed the
Biggert-Waters Flood Insurance Reform Act, Congress must
institute reforms that improve the long-term stability of the
program.
Mr. Wright, FEMA has made significant progress in analyzing
the affordability challenges of its policyholders and has
submitted an affordability framework to Congress. FEMA prepared
this framework specifically in response to legislation that
Congress passed in 2014, which was meant to address higher
premium costs that policyholders had paid.
Now, my draft bill to reauthorize the NFIP would stand up a
pilot program to offer means-tested assistance for low- and
moderate-income households to help them afford flood insurance.
Is this enough? Would this be an effective first step in
tackling the affordability challenges that FEMA has laid out,
or should we be thinking bigger instead of a pilot program?
Could you help me out with your thoughts about that?
Mr. Wright. Thank you, Chairwoman Waters. As you know, I
was at FEMA when that study was done and sent forward. The
Agency has done more work since I departed, and so I can't
speak definitively for where those pieces are at, but something
needs to move. Ultimately, we need to find the right balance so
that it really helps those in need. There has to be caps on
where it is available. I think a pilot program may be too small
at this point, but I do think that we have to start
incrementally, knowing that we will learn things, because the
Agency has never done something like this before. And so, some
kind of way that allows that to aim at the need and continues
to scale and improve as it is implemented.
Chairwoman Waters. Thank you very much, because I, too, am
worried that a pilot program may be too small, a little bit too
late maybe, and we need to be thinking bigger. And I would hope
that you, with your background, and your experience, would feel
free to help us out in any way that you could with any
suggestion that you may have.
I want to now turn to Risk Rating 2.0, which went into
effect on April 1st of this year. Ms. Kousky, FEMA's new test
rating methodology is intended to modernize the way that NFIP
prices its policies so that they better reflect the risk
associated with the properties they cover. Many Members of
Congress were concerned that Risk Rating 2.0 would result in
sharp increases in premiums for their constituents. However,
that array kept in current statutes that prevent premiums from
going up over a certain percentage each year. And FEMA also has
discretion to manage those increases and rarely maxes out those
rate caps. Moreover, many policyholders are seeing decreases,
not increases, in their premium.
Dr. Kousky, in the 2 months that Risk Rating 2.0 has been
in effect, what can you tell us about the kinds of increases in
premiums that policyholders are seeing? Do you think current
statutory rate caps and discretion to set rates have been
sufficient to prevent sharp increases in premiums from year-to-
year?
Ms. Kousky. Yes. Thank you for the question. I think the
caps on rates are important to have a glide path for
policyholders into full risk rates, so I think that is
important to maintain. I think that what we are seeing so far,
though, is that the places of very high risk are the places
where there are going to be high rates, and those are
concentrated in certain communities and amongst certain
households even within communities. And those are really
important areas to be targeting mitigation along with this as
the antidote to increasing rates.
Chairwoman Waters. Thank you very much. Mr. Chairman, I
can't see the time clock here. Do I have any more time left?
Chairman Cleaver. Yes, you do. I want to apologize to the
ranking member; earlier, I was not able to see the clock. But,
Chairwoman Waters, why don't you proceed? We have to try to get
backups so that we can all see a clock.
Chairwoman Waters. How much time do I have left? I don't
have a timer here.
Chairman Cleaver. There is a magical minute left.
Chairwoman Waters. That is okay. I am going to yield back
my time so everybody will get an opportunity to get their
questions in, and I hope someone is going to talk about debt
forgiveness. Thank you so much, Mr. Chairman, and I yield back.
Chairman Cleaver. Thank you, Madam Chairwoman.
The Chair now recognizes the ranking member of the
subcommittee, the gentleman from Arkansas, Mr. Hill, for 5
minutes.
Mr. Hill. Thank you, Mr. Chairman, and I thank Chairwoman
Waters for her comments as well on this topic. This is a topic
that she has been keenly engaged in for many years, and so, as
I said to you, Mr. Cleaver, I am glad that we are finally, in
this Congress, getting into a detailed conversation about this.
Thank you.
I will say that Mr. Nutter, in his testimony on page 3
says, ``As it currently operates, the NFIP is not an insurance
program,'' and I found that an interesting and provocative
statement. It always concerns me about government programs that
are set up for one reason, but they are, just as they are like
insurance, in name only instead of really functioning right,
and that is why I support Risk Rating 2.0 as a small step in
the right direction for the program. But the Majority has
noticed a couple of bills that I think go backwards on that,
and one of them was referenced. It would actually cut the
annual NFIP premium rate hike cap from 18 percent to 9 percent.
And while I could not agree more, it is more important that we
keep flood insurance affordable for low-income policyholders
than for those who are facing high premiums. It is absolutely
the wrong approach to impose an across-the-board rate cap like
that bill would do. And there is another bill noticed by the
Majority that would essentially exclude adverse information as
to the underwriting.
Mr. Nutter, let me turn to you. If we do rate caps or we
exclude underwriting information, aren't we weakening the,
``insurance program?''
Mr. Nutter. Thanks for the question, Representative Hill.
Yes, I agree with that. The rate cap, I think Ms. Kousky
references correctly, that allows a glide path, but to reduce
the rate cap from 18 percent to 9 percent as proposed
effectively is a blunt instrument, and one of the side effects
of that is it would go across-the-board for single-family
homes. It could be residences. It could be single-family
residences. It could be in areas most in need and most at risk,
if you will, socially or economically vulnerable. It would also
affect the Risk Rating 2.0 as it relates to second homes,
vacation properties. It seems like a blunt instrument that is
actually counter to what is being done to put this program on a
fiscally-sound basis.
Mr. Hill. Thanks, and I appreciate that. Director Kousky,
you have made a very interesting comment in your testimony that
homeowners, potential homebuyers, are not notified if their
house is about to kick into a repetitive loss situation or of
higher risk there. Is that something that State law should deal
with? How would a homeowner be notified about that, if there
was a missing comment?
Ms. Kousky. Thank you. Yes. I think there is important
flood risk information that is currently not making its way to
homeowners, and I think it is a two-fold policy solution and
that we need to be working with States for improved flood
disclosures. But there are also some changes that are needed so
that the NFIP can release important data on flood risk to
prospective homebuyers and not just the current owner.
Mr. Hill. Yes. I think that was a key point in Sean Duffy's
proposals earlier about increasing transparency on this, making
community maps more transparent. Thank you for that. Now, we
have the NFIP to really protect mortgage holders on single-
family homes, let's say. But in my experience in building
houses after Katrina, we have a huge problem where people don't
have a mortgage lien, and, therefore, they don't have any
protection against flooding, and we had a lot of misallocation
of mitigation money. Director Kousky, how should Congress look
at insisting on true accountability that mitigation money
actually be sent to raise a home, for example?
Ms. Kousky. I think we need to be doing more to target
mitigation dollars where they are most needed and most
effective. If the question is one of sort of misappropriation
of funds and fraud, that is not something that I know much
about or can speak to. I can speak to the fact that we do need
to do more to be better spending our mitigation dollars in
those areas, at most.
Mr. Hill. Thank you. I am going to ask Mr. Wright the same
question. Mr. Wright, how do we achieve better accountability
so that mitigation dollars are not squandered?
Mr. Wright. I think that, again, the fraud pieces, which
there are great ways to go after. I look at the point that
goes, how do you make sure the mitigation dollars go to where
they are going to be most impactful, and reduce future losses.
And I do think that at that point, we need to target the places
of repetitive loss and then focus on communities where wide
swaths of homes can all be mitigated so the community is going
to be able to rebound. It is not just going to be a few folks
who survive and the others who are left filled with water.
Mr. Hill. Thank you, Mr. Wright. And, Chairman Cleaver,
thank you, and I yield back.
Chairman Cleaver. Thank you, Mr. Hill. I now recognize
myself for 5 minutes.
I want to focus on what the Chair of the Full Committee,
Chairwoman Waters, started discussing. Dr. Kousky, and Ms.
McHugh, the NFIP is currently $20.5 billion in debt, and every
year, policy providers pay approximately $400 million in
interest to service that debt. Do you both believe, or let me
know what you believe, as it relates to the debt, should
Congress do something or should it be ignored? What should we
do as it relates to the debt?
Ms. McHugh. Thank you for the question. I believe the
current NFIP debt should be forgiven, and some form of
sufficiency standard must be adopted as an automatic long-term
mechanism within the NFIP. This should ensure that in certain
thresholds of catastrophic events, the debt will be paid by the
U.S. Treasury. Thank you for the question.
Ms. Kousky. I agree that needs to be repaid.
Chairman Cleaver. Ms. Kousky, I'm sorry, I didn't get your
response.
Ms. Kousky. Sorry. I agree that needs to be forgiven. I
don't think that the program is going to be able to repay it on
its own.
Chairman Cleaver. I know there is criticism about the Build
Back Better Act, but the chairwoman and others on our committee
did, in fact, make that a part of Build Back Better, which
would put us on a level where we don't enter into a situation
where all we are doing is increasing the amount of money we are
paying on the interest and leaving a huge indebtedness. But do
you think it makes good sense for policyholders, who may
already be suffering from affordability challenges in a cash-
strapped program, to pay $4 billion just in interest payments
on debt? The NFIP will never ever, ever repay. I would like to
ask Mr. Nutter for your response to my question.
Mr. Nutter. Chairman Cleaver, the RAA has not taken a
position with regard to payment or repayment of debt. That is
obviously a matter for the committee and the Congress to
decide. Representative Hill made reference earlier to my
comment that the National Flood Insurance Program is not an
insurance program, but it could be. But certainly, its overall
financial structure needs to be put on this glide path that
Risk Rating 2.0 provides, as well as its successful use of the
private sector reinsurance to support the financial integrity
of the program.
Chairman Cleaver. I know you are just speaking for
yourself. And so, since we realize that you are not speaking
for the RAA, you are just speaking as an observer, as a
knowledgeable person about the NFIP, do you support the
cancellation of NFIP debt?
Mr. Nutter. I appreciate the follow-up question,
Representative Cleaver. I do speak today on behalf of the RAA,
and we really have taken no position on it. It is important
that the program be fiscally sound. We do feel that more
reliance on the private reinsurance sector would help support
that and reduce the exposure that the taxpayers have to the
debt of the program.
Chairman Cleaver. Okay. Editorially, I just think it makes
no sense whatsoever for us to walk around with a $20.5 billion
indebtedness. And with that, I will yield back.
Mr. Posey, you are now recognized for 5 minutes.
Mr. Posey. Thank you very much, Chairman Cleaver. Mr.
Nutter, again, if we are moving the National Flood Insurance
Program to actuarial premiums and fiscal soundness, should we
also consider taking action to transition a program of flood
insurance in the private sector?
Mr. Nutter. We certainly support the complement or
supplement, if you will, that the private sector can bring to
the program. The National Flood Insurance Program policy
account is largely plateaued at around 5 million policies. One
percent of the properties that are outside the program account
for a significant amount of the flooding risk that we have in
this country. The reinsurance sector stands ready to support
private sector flood insurance, and we have offered several
proposals in our testimony about how the committee could act to
encourage that.
Mr. Posey. Thank you. Why do you think FEMA isn't fully
disclosing to the public the data and computations that they
are choosing to compute estimated flood insurance premiums?
Mr. Nutter. If you are directing that to me, Representative
Posey, I can't speak for FEMA's motivation. What I can say is
that we have done a lot of data analytics regarding the release
by FEMA, like 40 years, 45 years of claim and premium data. We
have also used the public release of the Risk Rating 2.0 data
to look at communities and the impact on communities and
individuals that this is having. It would be valuable for FEMA
to release more granular data, largely because what has been
released is so involved that you can distinguish single-family
homes that are principal residences from second homes, vacation
properties, and investment properties. And it is difficult to
distinguish the commercial side of this as well. So, more
granular data would allow the program and other government
programs to target mitigation as well as to understand better
who is paying what and in what communities, particularly those
that are most socially and economically vulnerable.
Mr. Posey. Thank you. I couldn't agree more. Shouldn't the
National Flood Insurance Program establish premiums and methods
for premiums with rulemaking and comments consistent with the
Administrative Procedure Act?
Mr. Nutter. Again, Representative Posey, if you are
directing that to me, perhaps Mr. Wright would have more
insights about the use of the Act. FEMA has been relatively
good about releasing large swathes of data related to the
program and made them publicly available. We have used that
data, but it is very difficult, particularly for consumers and
individuals, to do that, whether or not they should be using
the Administrative Procedure Act. I just am not knowledgeable
about that.
Mr. Posey. Mr. Wright, what do you think?
Mr. Wright. I think it is well-known that FEMA is very,
very slow to do things through the rulemaking process. I do
know as rates are being set and established each year, under
the current laws and regulations, those are individual policy
decisions that are made and published each year. They are
published and follow the spirit of the Administrative Procedure
Act. That is helpful for the rulemaking process.
Mr. Posey. Now, the implementation of Risk Rating 2.0 has
severed the premium-setting process for flood insurance rate
maps and kept policyholders from an appeals process for
premiums. Shouldn't FEMA take action to make it possible for
policyholders to actually appeal their premiums, to get access
to the information they need to do that? Back to Mr. Nutter,
again.
Mr. Wright. Sir, I don't believe so. There has never been
an ability to--
Mr. Posey. Mr. Nutter, do you think they should?
Mr. Nutter. Mr. Posey, I am not familiar with the appeal
process in a way that might be helpful.
Mr. Posey. Don't you think people who are paying the
premium should at least have the advantage of knowing how the
premiums are set?
Mr. Nutter. Actually, Mr. Rivera-Miranda made the point in
his comments about the people relying upon the insurance
agents, such as themselves, for insights about the premium-
setting process. There is no question that transparency
benefits everyone, both the consumer as well as people looking
to understand the consequences of the rating process and the
impact that it has.
Mr. Posey. Yes, and, of course, the agents don't have the
information either. NFIP is not transparent enough to give the
agent the information they need to really inform the customer.
Lack of transparency, I think, harms everyone. And I see my
time has expired. Mr. Chairman, so I yield back. Thank you.
Chairman Cleaver. Mr. Sherman, you are now recognized for 5
minutes.
Mr. Sherman. Thank you. I would like to take a moment to
submit for the record a letter from the Independent Insurance
Agents & Brokers of America, which states that they support the
passage of a long-term NFIP, and it notes that those who are
insured recover from a disaster much more quickly. And it says
that FEMA needs to do more to make the rating process
transparent.
Chairman Cleaver. Without objection, it is so ordered.
Mr. Sherman. Now, Mr. Wright, in the State of California,
we have strong real estate disclosure requirements, including
prior property damage due to flooding. But I understand that
when you are buying a home, constituents can't gain access to
the property's National Flood Insurance Program claims history
unless the seller formally requests and obtains the report, all
within a 30- to 45-day window. I understand that the reason
FEMA won't provide this information directly to buyers or
lessees is because of the Federal Privacy Act. If there have
been repeated NFIP flood claims on a home for some reason, and
the seller doesn't disclose it, the buyer doesn't find out.
Should buyers and lessees have access to this information
directly from the Flood Insurance Program?
Mr. Wright. Mr. Sherman, there must be a way for us to
provide that information. As you know, real estate disclosures
are almost entirely driven by State law, and so, some States,
like California, make more of that available. Many States do
not have that requirement. Ultimately, I think we have to find
a path, likely through the NFIP, to put the right kind of
nudging requirement in,that if a State is going to participate
in the NFIP, this kind of transparency needs to be included in
their State's disclosures.
Mr. Sherman. That would be helpful. And certainly, if a
seller opens escrow to sell a property, the buyer named in that
escrow wants to have access to the information before the
transaction closes.
Mr. Wright. Great.
Mr. Sherman. I will point out that both the Chair of the
Full Committee and I represent the greatest city in America,
which happens to have been built in a desert, and we are
experiencing a drought. But flood insurance is important to
this entire country, and that is why I am glad we are having
this hearing.
Mr. Wright, you point out in your testimony that for the
past 6 years, Congress has passed 21 stopgaps. We have heard
about this. By some estimates, approximately 1,330 home
closings are delayed or canceled for every day the program
lapses. What I think is not captured by that statistic is the
harm done even if it is about to lapse. As people get
concerned, can they sell their homes? Should they be looking
for another home? Can they take a job in another city? Can they
buy a larger home and sell theirs? And this lapse doesn't save
the Federal Government a penny. It is just a loss to our
society. Chairwoman Waters now has put forward a bill to
reauthorize the program for 5 years. We should commend her for
that. Could you speak to the benefits to homebuyers, to home
sellers in the market in general, to be provided by a long-term
reauthorization of the program?
Mr. Wright. Yes, absolutely. I think that the marketplace
in the real estate world needs certainty that there are so many
other economic factors going on in flood insurance, and whether
or not it will be available on the day of closing should not be
part of their concern. Now, whether or not they are at flood
risk, should be, but the availability of that insurance--these
increments are highly disruptive. They create a tremendous
amount of work to turn, particularly when you get to lapses
that play out to turn the program on and to turn it back off
again.
And I do think that the House deserves to be complimented.
You have collectively put through bipartisan pieces that work.
So much about flood insurance is geographic, and we have to
find a pathway. And it may be a narrower set of reforms that
gets us not just a bipartisan, but that otherwise addresses
those geographic concerns that often, at least in my
estimation, have been what have kept us from getting the
reauthorization.
Mr. Sherman. Thank you. I yield back.
Chairman Cleaver. Thank you. The gentleman yields back.
The gentleman from Michigan, Mr. Huizenga, is now
recognized for 5 minutes.
Mr. Huizenga. Thank you, Mr. Chairman. I appreciate the
opportunity, and I am going to go into this with Mr. Wright. I
am going to have a question for you, but I am going to bring
back some of my colleagues. Going back a couple of years,
former Committee Chair Jeb Hensarling used to highlight and
talk about repetitive loss properties, and the story he told
was this. There was a property outside of Baton Rouge,
Louisiana, and don't get me wrong, I love our friends from
Louisiana, but it was a modest home that was worth about
$60,000, which had flooded over 40--4-0--times, and taxpayers
had paid over half-a-million dollars for that property to be
rehabbed. In other words, taxpayers in areas that are not prone
to flooding, obviously subsidized homes that are at risk.
And I come from Michigan. Near the coast, we have a place
called the Grand River. It is grand. It is a big river, and it
floods. And we recently, in the last couple of years, had
finally had a county effort to buy out some properties along
the banks of the Grand River. There are others along here. And
we have to ask ourselves, when are we going to make sure that
these things are addressed?
And so, Mr. Wright, kind of to you, is this scenario of our
former colleague, what he discussed, is that still taking place
under the current NFIP, or is it even still possible?
Mr. Wright. It is still possible today. When I was in the
program, we actually did analysis to find out how many of the
properties of the nearly 5 million policies, and it was less
than 500 of them that were in that most egregious group. But we
put proposals in a number of years ago, and I believe FEMA
continues to do this, to create something called extreme
repetitive loss. And once you hit a certain threshold, your
only option is to be mitigated, or you will have to buy your
insurance on the private market. You should not be able to stay
inside the NFIP and continue that cycle.
Mr. Huizenga. And is it a number of incidents, or is it a
dollar amount?
Mr. Wright. Because there is such variance in terms of the
value of properties that are there, I think some of the best
thinking on it was looking at either the third or fourth claim
by which the value of those claims had exceeded more than
$200,000. And again, you don't want to push someone out who
really could rebuild, but you have to put a line in there and
stop that cycle.
Mr. Huizenga. I know we had talked about 3 strikes and you
are out on this committee various times, but do we know how
much the program has spent to rebuild those properties?
Mr. Wright. I don't have those numbers. I will tell you
when I did that analysis, a number of years it goes about 500.
And so the overall value was not anywhere near the scale of
some of the other financial problems in the program, but it
sends the wrong message. And particularly with inflation, I
think more homes are going to get into that group.
Mr. Huizenga. Yes. We can talk about inflation, but it does
seem to me that we are perpetuating keeping people in harm's
way of flooding.
Mr. Nutter, in your testimony, you said, ``FEMA
successfully administered its NFIP reinsurance program that
transfers risk from the NFIP to the capital markets.'' Do you
think it makes sense to concentrate so much of the entire
country's flood risk on the NFIP's balance sheet alone? And how
do programs like NFIP's reinsurance program help deflect those
risks and mitigate it?
Mr. Nutter. Thank you for the question, Representative
Huizenga. The National Flood Insurance Program's Risk Transfer
Program is fairly common among government insurance programs to
transfer risk into the private sector, and the reinsurance
sector has been very supportive of the program. It is a way to
diversify that risk and not as concentrated as it is in the
National Flood Insurance Program. It is a common insurance
company practice. I would say that, as I mentioned earlier,
that the development of a private flood insurance market that
allows consumers to access that and come back into the program
if they choose not to stay in it, would supplement the
relatively plateaued number of National Flood Insurance Program
policies, which is about 5 million.
Mr. Huizenga. Because you need numbers to spread that out,
it is just actuarial tables?
Mr. Nutter. Yes, that is correct. And, of course, what the
program has is the most, what we call, adverse selection.
Largely, the highest-risk properties are likely to be those in
the National Flood Insurance Program.
Mr. Huizenga. I will let you touch on this briefly, Mr.
Wright, maybe the rest of my time, on inflation. My family is
in construction. I know what has been happening with the
availability of materials and then the cost of those materials.
What is that doing to the program as it is having to go in and
rebuild properties?
Chairman Cleaver. Just one second. The gentleman's time has
expired, but at the beginning of the hearing, I did go over
quite a bit. With the agreement of the ranking member, Mr.
Huizenga, you will be recognized to complete your questioning.
Mr. Huizenga. Okay. Thank you, Mr. Chairman. Sorry. I
wasn't keeping track of the time.
Mr. Wright. Thank you, and I will be very, very quick,
Congressman. Risk Rating 2.0 is actually addressing a big piece
of inflation because of the actual cost of repairs, the actual
cost of reconstruction, and so I think that piece is in place.
But the flip side of it is that because there is only $250,000
worth of coverage allowed under law, as home prices have gone
up, most homeowners don't go buy a secondary policy. So, as we
have seen that escalation, I am absolutely convinced there will
be people who are submitting flood claims this year, who
realize that they have $370,000 worth of damage and they are
only getting a $250,000 check. And I think that piece plays. I
think there is a related element related to the debt because it
is going to drive up interest rates, but I know that is not the
centerpiece of what the consumer is going to experience.
Mr. Huizenga. I appreciate it. Thank you for the additional
time, Mr. Chairman. I yield back.
Chairman Cleaver. Thank you. The gentleman yields back.
The gentleman from Tennessee, Mr. Rose, is now recognized
for 5 minutes.
Mr. Casten. Mr. Cleaver, am I next?
Chairman Cleaver. You are next.
Mr. Casten. Sorry to interrupt. This is Sean Casten. I
thought we are doing a [inaudible], but I was just--
Mr. Hill. Mr. Chairman, this is Congressman Hill briefly
for just a parliamentary inquiry. As I have to step out of the
hearing, I have asked Mr. Rose of Tennessee to represent the
Minority, and I thank the chairman.
Chairman Cleaver. Thank you, Mr. Hill. Mr. Rose, we are
here on--
Mr. Rose. Thank you. But I do believe Mr. Casten should be
up next.
Mr. Casten. Thank you, Mr. Rose. Mr. Chairman, with your
discretion, I will jump in here. Thank you all for this
hearing. I want to follow up on some of the comments Mr.
Huizenga was making, and I think we are thinking along the same
lines around this issue of repetitive loss properties. And, Mr.
Wright, I want to thank you for giving a shout out to the bill
I have with Mr. Blumenauer to try to address these issues.
I wonder, Mr. Wright, if you could start? You explained
this briefly in your testimony, but I wonder if you could
expand on it. We have all seen this FEMA data which says that
for folks and repetitive loss properties, you are kind of
waiting up to 5 years to get a buyout. And of course, as
climate change keeps accelerating, in those 5 years, you are
increasingly likely to be flooded again and get stuck there.
Can you explain, sort of as simply as you can, what it is about
the current process that makes it so hard for people to get a
claim on and through the program, and the degree to which this
shifting to a buyout in lieu of claims methodology might
address that problem?
Mr. Wright. Yes. Thank you. And I appreciate the work you
are doing on this bill. What happens today if someone is on
multiple claims? If I want to do a buyout, they have to raise
their hands, submit to a local community, who then submits to
the State, who then submits to FEMA, whenever the next window
is there, at which point they can be selected and then it is a
peer back and forth. And there may be other people who have
been waiting longer, and so you may not get in your first year
based on the amount of money.
I spoke about in my testimony--it was after Hurricane
Harvey that a lady named Edith called me, and she had a loss in
2015 of more than a $100,000 claim paid, and a loss in 2016 of
more than $100,000 paid. And in the summer of 2017, she said,
``Mr. Wright, instead of paying my claim, can you just make my
buyout happen now?'' And the answer was, no, I couldn't. We
tried to get some authorities in the emergency supplemental in
the fall of 2017. And I think that what you are proposing in
this place will help solve this because it saves money, because
in the case of Edith, her third claim, you would subrogate
another $100,000 worth of claims damage towards the Buy Act.
Otherwise, you are going to give them that money, they are
going to rebuild, and then 3 years later, they are going to
come in and you are going to demolish.
I will go one step further. For the family who was
devastated by that event, they just want to start over, and
they don't want to live in the mental health morass of figuring
out how to live in a decrepit place in hopes that they will
someday get to move on. It saves the program money, and it is
much better for the survivor in the insurance.
Mr. Casten. Yes. I think all of us, even in the Midwest, we
all have these flood zones, and we hear those same stories and
you do feel powerless. I want to ask the fiscal question, and I
know Mr. Huizenga asked this. I want to ask this in a slightly
different way, but if you don't have an answer, that is okay.
The idea we are trying to do is say not only is it a buyout,
but we move you out of the flood zone, so now you are in a
different area. Do you have some sense, when you look at the
claim history of NFIP when you were there, if we could get rid
of those claims and these repetitive loss areas in the flood
zone? Do you have even just a ballpark sense of what that does
to the solvency of the program? What portion of the claims
would we be essentially taking out of the future liabilities of
the program if we did this?
Mr. Wright. GAO has done a couple of studies on this, and I
don't have the numbers right off the top of my head. But I
spoke with Mr. Huizenga about kind of these crazy cases that
are out there, they are 14 times over, but these places were 2
or 3 claims. At one point, that was something like more than 40
percent of the payouts had been just in those places that had
come back for multiple bites at the apple, which is why FEMA
has long held that these acquisitions on repetitive loss are to
the benefit of the National Flood Insurance funds. They are
better off over the long haul for making those acquisitions.
Mr. Nutter. Mr. Casten, this is Frank Nutter. I do have the
GAO number in front of me. Their report was that the repetitive
loss properties from 1978 to 2019 accounted for $22.2 billion
of the $69.7 billion in claims, so nearly one-third.
Mr. Casten. One-third. As my old head of engineering in my
last life was fond of saying, it is bigger than a breadbasket.
Mr. Nutter. Yes.
Mr. Casten. I thank you for your time. We could go into a
lot more detail. Mr. Huizenga, if you are still on--you may
have dropped off--we would love to work with you and try to
finalize this legislation, or any others on the committee, and
I'm really grateful for your expertise. I yield back.
Chairman Cleaver. The gentleman yields back.
Mr. Rose of Tennessee, you are now recognized for 5
minutes.
Mr. Rose. Thank you, Chairman Cleaver, and I want to thank
Ranking Member Hill, who had to drop off, for holding this
important hearing. I also want to thank our witnesses for your
time today and for being a part of our first hearing on flood
insurance in this Congress. As my time is limited, I am going
to go ahead and dive right in.
Mr. Nutter, in your testimony, you mentioned reforms to
create resilient and insurable communities. Can you please
discuss those, including the Community Disaster Resilience
Zones proposal?
Mr. Nutter. Representative Rose, thank you for the
question. We call it CDRZ, if you will, as a typical Washington
acronym. What it would do is it would take FEMA's National Risk
Index and put it in a statutory state, essentially expecting
and requiring that Federal programs, like FEMA's programs and
HUD programs, would direct the mitigation dollars toward
communities that have been identified as these community
disaster resilience zones and prioritize those communities that
are both at risk of natural disasters, but also socially and
economically vulnerable.
The proposal in its fullest context will also provide
Federal assistance to local communities to issue bonds focused
on resilience efforts in those communities, as well as private
sector bonds that would get the benefit of the tax exemption.
The proposal largely is designed to enhance the ability of
communities to identify what they see as being appropriate
resilience measures but with the assistance and support of the
Federal Government.
Mr. Rose. Thank you. And, Mr. Nutter, in February 2019,
regulators issued a final rule clarifying how lending
institutions may accept private flood insurance policies. Since
that time, has private flood insurance increased its market
share?
Mr. Nutter. Representative Rose, it really has not. The
private flood insurance market, unfortunately, competes if you
will, with the National Flood Insurance Program, with the
subsidized rates and the assistance that goes there. We have
been working with State insurance commissioners to facilitate a
process at the State level to get companies to encourage
companies to be part of that. But we do feel that some things
need to be done at the Federal level, and one of those is
Representative Luetkemeyer's proposal for continuous coverage
that would allow policyholders in the National Flood Insurance
Program to access the private market. And if they choose not to
take that option, they can come back into the program without
losing their status. So, there are things that can be done, but
the private flood insurance market is still very nascent.
Mr. Rose. Aside from just the competitive disadvantage that
the private market may be at--you may have referred to one of
those--what are the other governmental barriers that prevent
the private flood market from expanding and offering better
options to consumers?
Mr. Nutter. One has been dealt with: Risk Rating 2.0. That
is, that Risk Rating 2.0 is now focused on individual
properties, as well as Mr. Wright has mentioned the replacement
cost. It is more akin to the way insurance companies look at
risk and evaluate risk. So, I would expect Risk Rating 2.0 to
have the residual value, if you will, encouraging private
companies to see where the rating is, those ratings are, and
then to see whether they can compete either on service or price
with all that.
Mr. Rose. And then, shifting again, Mr. Nutter, what are
some of the ramifications of being suspended from the NFIP for
not following proper floodplain management guidelines?
Mr. Nutter. I am not sure that I am the best one to address
that. Maybe Mr. Wright can address that. But obviously, it is
an important feature of the program to deal with both
floodplain management, if you will, and mitigation as well as
the insurance component of it. It is a partnership between
those two features. I would encourage Mr. Wright to address
that if he would like to.
Mr. Wright. Sure.
Mr. Rose. Mr. Wright, if you don't mind?
Mr. Wright. Very simply, it is a quid pro quo when you join
the National Flood Insurance Program. You have to put those
pieces in place. Ms. McHugh actually leads that program in
Missouri, where it is her job to make sure that people follow
through, and that is how insurance is made available. If
anything seems very, very patient, it takes a long, long path
before you ever get to the fully suspended line.
Mr. Rose. And what impact, if any, does this have on
private insurance, the private insurance market for flood in
the areas where--
Mr. Wright. If anything, once you have been suspended, the
private market is the only place you can get insurance.
Mr. Rose. Okay. Chairman Cleaver, I see my time has
expired. I yield back.
Chairman Cleaver. The gentleman yields back.
The Chair now recognizes Mr. Steil. Is still with us?
[No response.]
Chairman Cleaver. Then, Mr. Timmons, you have 5 minutes.
[No response.]
Chairman Cleaver. I don't think Mr. Timmons is with us
either, in which case I would like to thank all of the
witnesses for their 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 have a submission for the record, a letter from the
National Association of Mutual Insurance Companies urging
Congress to provide a long-term reauthorization of the NFIP
that contains reforms designed to create more certainty for
policyholders by putting the program on a path towards
solvency.
This hearing is now adjourned. Thank you all.
[Whereupon, at 1:26 p.m., the hearing was adjourned.]
A P P E N D I X
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May 25, 2022