    [Senate Hearing 117-349]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 117-349

                    REAUTHORIZATION OF THE NATIONAL FLOOD
                        INSURANCE PROGRAM PARTS I AND II

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

                                    HEARING

                                   BEFORE THE

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

                        ONE HUNDRED SEVENTEENTH CONGRESS

                                 FIRST SESSION

                                       ON

              EXAMINING THE REAUTHORIZATION OF THE NATIONAL FLOOD INSURANCE
                                      PROGRAM

                                   __________

                            MAY 18 AND JUNE 17, 2021

                                   __________

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

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                    Available at: https: //www.govinfo.gov /

                                  __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    48-383 PDF                 WASHINGTON : 2022

    -----------------------------------------------------------------------------------

                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                         SHERROD BROWN, Ohio, Chairman

    JACK REED, Rhode Island              PATRICK J. TOOMEY, Pennsylvania
    ROBERT MENENDEZ, New Jersey          RICHARD C. SHELBY, Alabama
    JON TESTER, Montana                  MIKE CRAPO, Idaho
    MARK R. WARNER, Virginia             TIM SCOTT, South Carolina
    ELIZABETH WARREN, Massachusetts      MIKE ROUNDS, South Dakota
    CHRIS VAN HOLLEN, Maryland           THOM TILLIS, North Carolina
    CATHERINE CORTEZ MASTO, Nevada       JOHN KENNEDY, Louisiana
    TINA SMITH, Minnesota                BILL HAGERTY, Tennessee
    KYRSTEN SINEMA, Arizona              CYNTHIA LUMMIS, Wyoming
    JON OSSOFF, Georgia                  JERRY MORAN, Kansas
    RAPHAEL WARNOCK, Georgia             KEVIN CRAMER, North Dakota
                                         STEVE DAINES, Montana

                         Laura Swanson, Staff Director

                     Brad Grantz, Republican Staff Director

                           Elisha Tuku, Chief Counsel

                     Beth Cooper, Professional Staff Member

                    Megan Cheney, Professional Staff Member

                     Dan Sullivan, Republican Chief Counsel

                     John Crews, Republican Policy Director

                          Cameron Ricker, Chief Clerk

                          Shelvin Simmons, IT Director

                        Charles J. Moffat, Hearing Clerk

                                      (ii)

                                C O N T E N T S

                                  ----------

                             TUESDAY, MAY 18, 2021

                                                                       Page

    Opening statement of Chairman Brown..............................     1
            Prepared statement.......................................    35

    Opening statements, comments, or prepared statements of:
        Senator Toomey...............................................     2
            Prepared statement.......................................    36
        Senator Scott................................................
            Prepared statement.......................................    36

                                   WITNESSES

    Chad Berginnis, Executive Director, Association of State
      Floodplain
      Managers.......................................................     5
        Prepared statement...........................................    37
        Responses to written questions of:
            Senator Sinema...........................................    72
    Velma M. Smith, Senior Officer, Government Relations, The Pew
      Charitable Trusts..............................................     6
        Prepared statement...........................................    50
        Responses to written questions of:
            Senator Sinema...........................................    72
            Senator Scott............................................    74
    Rebecca Kagan Sternhell, Director, New York City Office of
      Federal Affairs................................................     8
        Prepared statement...........................................    58
        Responses to written questions of:
            Senator Sinema...........................................    76
    Stephen Ellis, President, Taxpayers for Common Sense.............    10
        Prepared statement...........................................    63
        Responses to written questions of:
            Senator Sinema...........................................    77
            Senator Scott............................................    79
    R.J. Lehmann, Senior Fellow and Editor-in-Chief, International
      Center for Law & Economics.....................................    11
        Prepared statement...........................................    66
        Responses to written questions of:
            Senator Sinema...........................................    80

                  Additional Material Supplied for the Record

    Statement submitted by RAA.......................................    81

                                     (iii)

                            THURSDAY, JUNE 17, 2021

                                                                       Page

    Opening statement of Chairman Brown..............................   103
            Prepared statement.......................................   132

    Opening statements, comments, or prepared statements of:
        Senator Toomey...............................................   104
            Prepared statement.......................................   132

                                    WITNESS

    David I. Maurstad, Deputy Associate Administrator, Federal
      Insurance and Mitigation Administration, Federal Emergency
      Management Agency..............................................   106
        Prepared statement...........................................   134
        Responses to written questions of:
            Senator Menendez.........................................   140
            Senator Warnock..........................................   148
            Senator Kennedy..........................................   149

                  Additional Material Supplied for the Record

    Statement submitted by Jeffrey C. Wiley, President and CEO, Fort
      Bend Economic Development Council, Sugar Land, Texas...........   159

        REAUTHORIZATION OF THE NATIONAL FLOOD INSURANCE PROGRAM--PART I

                                  ----------

                             TUESDAY, MAY 18, 2021

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 2:30 p.m., remotely, via Webex, Hon.
    Sherrod Brown, Chairman of the Committee, presiding.

              OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

        Chairman Brown. Good morning. The Senate Banking, Housing,
    and Urban Affairs Committee will come to order. This hearing is
    in the virtual format. A few reminders as we begin. Once you
    start speaking there will be a slight delay before you are
    displayed on the screen. To minimize background noise, please
    click the Mute button until is your turn to speak or ask
    questions.
        There is a box on your screen labeled ``Clock.'' For
    witnesses, you will have 5 minutes for your opening statements.
    For all Senators, the 5-minute clock still applies for
    questions. With 30 seconds remaining for your statements and
    questions you will hear a bell ring to remind you your time is
    almost expired. It rings again 30 seconds later. If there is a
    tech issue we will move to the next witness or Senator until it
    is resolved.
        To simplify the speaking process, Senator Toomey and I have
    agreed to go by seniority for this hearing.
        This hearing is the beginning of our efforts, bipartisan
    efforts, to enact a long-term reauthorization of the National
    Flood Insurance Program. At a later hearing, we will invite the
    Federal Emergency Management Agency to discuss the status of
    reauthorization of the program.
        Flooding is the most common, most costly natural disaster
    facing families, businesses, and communities across our
    country. It can take families' homes and memories, wreck their
    finances, shutter a small business, destroy infrastructure,
    even entire communities. Disasters often fall hardest on low-
    income families in communities who have fewer resources to
    prepare for and respond to them.
        We can only expect flooding to get worse and become even
    more common as the climate continues to change. People in Ohio
    and in North Dakota, Maryland, Louisiana, all over the country,
    are already seeing more flooding. They are feeling the
    consequences, whether from spring snow melt or increasingly
    powerful storms or sunny-day flooding in coastal communities,
    or extreme rainfall that overwhelms aging infrastructure and
    the land's capacity to absorb water. Just today we are seeing
    flash flooding in Louisiana and Texas.
        No matter where you live, everyone pays for the natural
    fallout as the country spends tax dollars to help families and
    communities recover. We know we must take action to protect
    communities from climate change and seize the opportunities
    that come with that effort. That is going to be a long-term
    effort. While we seek to halt the trajectory of our changing
    climate, we also need to help families and communities become
    more resilient to the flooding we face now in the coming
    decades, and, whenever possible, avoid it altogether.
        The NFIP is critical to that effort. The program, as we
    know, provides $1.3 trillion in coverage to more than 5 million
    homes and businesses, and some 22,000 communities. It is not
    just an insurance program. It is not just to help with
    recovery, but to prevent and minimize the damage in the first
    place.
        The NFIP combats the overall threat of flooding through
    four interrelated components: flood insurance, to help property
    owners and renters recover quickly after a flood and reduce the
    need for Federal emergency spending; floodplain management, to
    minimize damage to people and property, make our communities
    more resilient through the adoption of local ordinances and
    building codes; floodplain mapping, to identify and communicate
    that risk to first responders, homeowners, and communities so
    they can mitigate or avoid hazards altogether; and mitigation,
    to help remove property from harm's way through property-level
    and community investments that reduce our overall level of
    flood risk and will save money.
        Through NFIP reauthorization, we have an opportunity to
    make our families and businesses and communities safer and more
    resilient. Today our witnesses will provide their perspectives
    on what this Committee should consider as we work on that
    effort. I am interested, from all you as witnesses, in your
    recommendations for ways we can strengthen the NFIP so it can
    provide reliable access to insurance for property owners and
    renters, so we can address affordability concerns, so we can
    ensure that more people are aware of their flood risks and
    ensure against losses. We help the Nation predict and reduce
    our overall level of flood risk through investments and
    improvements in mapping, management, floodplain management and
    mitigation.
        In 2017, then-Chairman Crapo and I began working with
    Members of this Committee on a long-term reauthorization. This
    Congress I look forward to continuing this work with Ranking
    Member Toomey and the Members of the Committee to strengthen
    NFIP and the country's comprehensive approach to mitigation
    flood risk through a long-term reauthorization bill. That is
    our goal, and I am hopeful we can do it.
        Ranking Member Toomey.

             OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY

        Senator Toomey. Thank you, Mr. Chairman, and greetings to
    all of our witnesses today. As we know, the last long-term
    reauthorization of the National Flood Insurance Program
    occurred in 2012. That 5-year authorization expired, of course,
    in 2017, and since then we have had 16 short-term NFIP
    reauthorizations. I am hoping that we can find the common
    ground necessary to avoid a 17th short-term reauthorization.
        However, I would remind my colleagues our deadline of
    September 30th is closer than it may seem. I am ready to work
    quickly and cooperatively to find a path forward. But before we
    discuss what ought to be in the NFIP reauthorization, I do want
    to remind everyone of the scope of NFIP's challenges. Put
    simply, NFIP is broken. Since 2005, when Hurricane Katrina
    devastated the Gulf Coast, NFIP has had to borrow nearly $40
    billion from the Treasury in order to pay claims, and that was
    not just Hurricane Katrina.
        In other words, NFIP has lost about $2.25 billion per year,
    on average, over the last 16 years. Now consider that $2.25
    billion per year loss, considered in the context of NFIP's
    total annual revenue last year of about $4.6 billion. For the
    last decade-and-a-half, NFIP has averaged an annual loss
    representing about half its total annual revenue.
        Now in the real world, a private insurer that had this
    magnitude of losses year after year would certainly cease to
    exist. And that brings me to an important point. The NFIP
    really should not be considered an insurance program at all. In
    many ways, it is really a subsidization program. Specifically,
    NFIP subsidizes the cost of living and building in flood-prone
    areas. Usually we subsidize activities because we want to
    encourage them. Reversely, in the case of NFIP, subsidies lead
    to more building and rebuilding in areas at extreme risk of
    flooding. Exacerbating the problem, development itself within
    these flood-prone areas tends to further increase flood risk
    and flood damage, because it covers the absorbent green space
    with impermeable surfaces.
        And to whom do these subsidies mostly accrue? Wealthy
    people. Properties with subsidized NFIP premiums are
    overwhelmingly located in our wealthiest communities. Likewise,
    subsidized NFIP premiums are rare in our lower-income
    communities.
        Lately, this Committee has spent a great deal of time
    discussing climate risk and equity. I cannot think of a better
    opportunity to demonstrate a commitment to addressing both than
    through a proper reauthorization of the NFIP.
        Now part of the good news is that the NFIP is on a slow but
    positive path toward actuarially more sound premiums, and that
    brings me to the key principle of reauthorization, which is
    let's do no harm. Reauthorization must not interrupt this
    important positive progress. Next we should continue to explore
    opportunities to bring more private capital into the flood
    insurance business. NFIP should continue to pursue
    opportunities to lay off risk to the private sector through
    reinsurance and other creative capital market structure.
        In the event that NFIP needs additional authority to do so,
    we should provide that authority. Additionally, we should
    discharge private flood insurance as an alternative to NFIP.
    Increasing the availability of private flood insurance is a
    great way to get more homeowners insured against flood damage.
    That is a worthwhile goal that is good for the homeowner and
    the taxpayer.
        Further, if the private sector can offer better coverage,
    better service, and do it at a better price, why would we want
    to stand in the way of that service for our constituents?
    Additionally, to the extent that subsidies continue to exist
    within NFIP, we should at least explore opportunities to target
    those more to the people who need them the most. But I would
    remind my colleagues that the incentives, the perverse
    incentives involved in flood insurance subsidies, and urge
    great caution.
        Finally, I hope we take this opportunity to find a better
    way to explain flood risk to policyholders, and perhaps more
    importantly, future home buyers. Those who choose to live in
    flood-prone areas should do so with eyes wide open. Flood
    insurance is important, and it provides considerable financial
    security, but flood insurance is not the National Guard or the
    Coast Guard. It cannot rescue people stranded by rising
    floodwaters. And flood insurance is not a time machine. It
    cannot give back the days, weeks, months, and in some cases
    years it takes to rebuild and recover from a major flood.
        So, Mr. Chairman, in conclusion, I think a long-term
    reauthorization must continue to move NFIP in a positive
    direction, and I stand ready to work with you and my other
    colleagues to achieve that goal. Thank you.
        Chairman Brown. Thank you, Senator Toomey.
        I will introduce today's witnesses. Mr. Chad Berginnis is
    the Executive Director of the Association of State Floodplain
    Managers. He previously served in several planning and
    community support roles in my State, including serving as Ohio
    State Hazard and Mitigation Officer. He has previously
    testified before this Committee on the topic of NFIP. He lugs
    around Ohio State while inexplicably having moved to Wisconsin.
        Ms. Velma Smith is the Senior Government Relations Officer
    at Pew Charitable Trusts, where she has worked in reforming
    flood insurance and promoting flood-resilient and
    environmentally sound coastal policy. She previous served as a
    senior advisor with the National Environmental Trust and
    Executive Director of Friends of the Earth.
        Rebecca Kagan Sternhell is Director of the New York City
    Office of Federal Affairs, where she has worked on flood
    insurance issues for almost a decade. She previously served as
    Deputy Assistant Administrator at the U.S. Small Business
    Administration, and as Assistant Corporate Counsel in the
    Division of Legal Counsel in the Mayor's Office of Federal
    Affairs for New York City's Law Department in Washington.
        Mr. Stephen Ellis is the President of Taxpayers for Common
    Sense. He joined Taxpayers for Common Sense in 1999, where his
    roles have included serving as media and legislative
    spokesperson. Mr. Ellis has also previously testified before
    this Committee on flood insurance.
        Mr. R.J. Lehmann is Senior Fellow and Editor-in-Chief at
    the International Center for Law & Economics. He founded the R
    Street Institute where he served as Director of Finance,
    Insurance, and Trade Policy. He also served as Deputy Director
    of the Heartland Institute's Center on Finance, Insurance, and
    Real Estate.
        Mr. Berginnis, if you would begin.

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

        Mr. Berginnis. Thank you. Good morning Chairman Brown,
    Ranking Member Toomey, and Members of the Committee. I am Chad
    Berginnis, Executive Director of the Association of State
    Floodplain Managers and am honored to be testifying on a
    program that our organization and members consider essential to
    the Nation's flood loss reduction efforts, the National Flood
    Insurance Program.
        Our members are involved in implementing most elements of
    the NFIP, and ASFPM has provided input on every NFIP reform
    effort since the 1980s. Our written statement identifies over
    20 reform ideas for your consideration.
        Today the NFIP is on the cusp of a significant
    transformation. The premise is simple: use an accurate, risk-
    based rate to communicate to homeowners, business owners, and
    renters their true flood risk. That is what Risk Rating 2.0
    does. Despite having some implementation questions and
    concerns, especially regarding how the new system will tie into
    floodplain management and mitigation elements of the NFIP, we
    are nonetheless supportive of Risk Rating 2.0.
        If we were to identify one of the most significant
    financial risks to the NFIP, though, we must examine how debt
    is dealt with. We have seen you give FEMA authority to use
    private sector financial risk management tools, such as
    reinsurance and catastrophe bonds. You have put policies on the
    path to full risk rates, and with Risk Rating 2.0, FEMA will be
    using current insurance rating approaches.
        Yet the NFIP's debt seems to be treated by Congress
    differently than programs like crop insurance, where the annual
    taxpayer cost is near $10 billion. It is time to recognize the
    progress that FEMA has made with managing the financial risk of
    the program, recognizing that the NFIP was never designed to
    handle today's catastrophic flood events and recognize the
    broader societal benefits of the NFIP by forgiving the debt and
    establishing a threshold like a sufficiency standard, above
    which debt is treated, like disaster assistance and
    appropriated through disaster supplementals.
        The foundation on which the entire program is built is
    comprehensive and complete flood mapping. Arguably, the most
    significant reform in 2012 was the establishment of the
    National Flood Mapping Program. It mandated an ambitious
    national flood mapping effort that comprehensively identified
    the types of different flood risks facing our citizens.
        Sadly, we have to report that since that time, beyond
    ensuring that the maps were largely updated, we barely made
    progress on expanding the mapping to ensure we have identified
    flood hazard areas before development, not afterwards.
        In candidly refreshing testimony in early 2020 before the
    House Science Committee, FEMA not only recognized this
    shortfall but also indicated that appropriations are not nearly
    where they need to be. ASFPM is calling for an increased
    authorization for flood mapping and also asking you to consider
    a $7.5 billion flood mapping surge as part of any
    infrastructure bill that the Senate might consider.
        Floodplain management's role in the NFIP is only successful
    if we enable communities and States to have the capacity to do
    it. It focuses on adopting and enforcing codes and standards
    that govern land use and construction in flood hazard areas.
    Because State and local capability is key to effective
    floodplain management, ASFPM is calling for the authorization
    of the Community Assistance Program, doubling its budget from
    $10 million to $20 million annually.
        The flood mitigation element of the NFIP is realized
    primarily through increased cost of compliance coverage as part
    of every NFIP policy, and the Flood Mitigation Assistance
    Program, which focuses on mitigating existing at-risk
    buildings. ASFPM is calling for a much stronger investment,
    both ICC and FMA, including tripling the amount of ICC funds
    available through a flood insurance policy. ASFPM also
    recognizes and supports adding new mitigation tools to the
    toolbox, including loan programs and more focused flood
    mitigation planning.
        Finally, we have already commented on Risk Rating 2.0, and
    we also note that the flood insurance element of maintaining
    availability of NFIP policies is critical, even with the
    growing private sector market, as private policies will
    inevitably be dropped after claims in an area due to geographic
    concentration of risk. ASFPM continues to believe that there
    are some reforms necessary to ensure that the NFIP is on a fair
    playing field with private flood before mechanisms like
    continuous coverage are considered.
        In closing, we would also like to comment on how the NFIP
    can address equity and social justice. One of the strong
    arguments for Risk Rating 2.0 is that preliminary data from
    FEMA suggested it will make rates more equitable and just. We
    also recognize that the NFIP will need a targeted, means-tested
    affordability program. Mitigation efforts through FMA could be
    made more just by evaluating how other policies like relocation
    assistance and benefit-cost analysis can be changed to
    recognize equity and social dimensions of flooding.
        By building the NFIP of tomorrow, we should ensure that all
    of our communities and property owners have the opportunity to
    make the families, their homes, and businesses more resilient
    to the Nation's most significant natural hazard, flooding.
    Thank you.
        Chairman Brown. Thank you, Mr. Berginnis. Ms. Smith is
    recognized.

        STATEMENT OF VELMA M. SMITH, SENIOR OFFICER, GOVERNMENT
                  RELATIONS, THE PEW CHARITABLE TRUSTS

        Ms. Smith. Thank you. Good morning, Chairman Brown, Ranking
    Member Toomey, Members of the Committee. On behalf of the Pew
    Charitable Trusts I thank you for the opportunity to testify.
        Let me start with this. The NFIP is essential to the
    Nation's management of flood risk. While the program needs to
    be adjusted and reformed, we know that you must carefully
    consider the impacts of any changes to a program that serves so
    many flood-weary communities.
        In our written testimony we cover a range of topics, from
    the pressing need for more mapping, particularly in rural
    areas, to the shortfalls in mitigation. Let me run through a
    few of the suggestions.
        We urge you craft a requirement for flood disclosure, and
    we are grateful to Committee Members who have endorsed such
    proposals. Up-front disclosures about flood risk, made before
    financial commitments and mortgages or leases, can help
    consumers make flood-smart decisions.
        We wholeheartedly endorse the proposal by Senators Reed,
    Kennedy, and Menendez to establish a flood-specific revolving
    loan fund. Floods rank, as you have noted, as the most
    frequently and costly natural disaster, so we believe it makes
    good sense to create and generously seed a program to help
    States, territories, and tribes with flood mitigation. A
    revolving loan fund would address the feast-and-famine problem
    that can attach to grant awards and allow States to buildup
    their own staffing and preparedness capability.
        We also thank Senator Scott and Schatz for focusing on the
    longstanding but still growing problem of repetitive loss
    properties. These are the properties that in some years account
    for as little as 1 percent of policies but tap the fund for as
    much 30 percent of claims. Pew believes we must make the
    neighborhoods that contain these properties top priorities for
    mitigation.
        And, of course, we know you must look at rates and
    affordability. We support efforts to make premiums more
    affordable for those least able to maintain coverage. We
    believe you must do so with a carefully targeted program, one
    that is truly equitable and will not threaten the program's
    ability to pay claims. We caution against across-the-board-rate
    cuts, which will only perpetuate some of the program's current
    inequities.
        We understand the apprehension around Risk Rating 2.0, but
    urge you not to stand in the way of this important and
    carefully considered update. We also believe that rate
    assistance must be accompanied by mitigation assistance. For
    those who live in high-risk areas, particularly areas where
    high risk overlaps with high social vulnerability, a simple
    rate subsidy does not solve the real problem. As storms grow
    fiercer and rainfall increases, threats to life and property
    will grow despite the lower cost of insurance. The Nation's
    resilience gap must be met with substantial new mitigation
    investment and safer building practices.
        Finally, we ask you to examine how the NFIP might be
    changed to foster better, more informed decisions about future
    flood risk, perhaps prompting changes to the program's
    floodplain management regulations and mapping efforts. For 50
    years, this program has been based on the notion that flooding
    can be managed by looking backwards and on the assumption that
    tomorrow's flood will mirror those of the past. Surely the last
    decade, or even the last half decade has shown us that that is
    wrong.
        In closing, let me say that Pew looks forward to working
    with the Committee to support an NFIP that will keep flood
    insurance available to those who need it, without asking
    taxpayers to subsidize risky development, that will foster
    fixes or buyouts of problem properties, and provide assistance
    to vulnerable communities, that will promote careful
    consideration of future risk and conservation of the natural
    resources that can help in flood management, and ultimately
    make the Nation better prepared for tomorrow's severe storms.
        I look forward to working with the Committee and I look
    forward to your questions. Thank you.
        Chairman Brown. Thank you. Ms. Kagan Sternhell is
    recognized for 5 minutes.

     STATEMENT OF REBECCA KAGAN STERNHELL, DIRECTOR, NEW YORK CITY
                       OFFICE OF FEDERAL AFFAIRS

        Ms. Sternhell. Good morning, Senator Brown, Ranking Member
    Toomey, and other Members of the Committee. On behalf of the
    mayor and the 8.6 million New York City residents, I thank you
    for having me here today to discuss the National Flood
    Insurance Program and its role in our communities.
        The advent of sea level rise and rapid climate change is
    forcing us to reckon with our relationship to the water and the
    cities and communities we have developed next to it. Like so
    many other States and communities throughout this country, New
    York City's riverbanks and coasts hold a dangerous beauty we
    must begin to grapple with. Hurricane Sandy laid this fact bare
    in New York City and communities up and down the Eastern
    Seaboard, as did Hurricane Irma along the Gulf Coast, and the
    2019 Missouri River floods in the Dakotas, Missouri, Iowa,
    Illinois, Nebraska, and many more. The NFIP is a lifeline for
    property owners after a flooding event that can mean the
    difference between recovery and the loss of a critical core
    asset.
        In my written statement I cover a range of reauthorization
    issues and concerns from the perspective of local governments.
    Today I want to focus on how we can solve two critical
    questions. First, how do we make sure flood insurance is
    affordable to all Americans who need it, and second, what steps
    should take to mitigate against catastrophic harm stemming from
    floods?
        Flood insurance affordability is already a problem for
    households across the country, as premiums continue to increase
    year over year. The challenge of affordability will only
    continue to grow as climate change increases the intensity and
    frequency of flooding.
        The COVID-19 pandemic has added an additional layer of
    complexity to the affordability issue, as millions of Americans
    have lost jobs, saw their incomes reduced, and struggled to pay
    mortgages and rents. Though we are at the long-awaited moment
    of this pandemic seemingly coming under control and the country
    opening back up, millions of Americans will now face staggering
    rent and mortgage arrears on top of existing mandatory expenses
    like insurance.
        Further complicating matters is the policy FEMA has
    recently undertaken to reform how rates are calculated,
    ostensibly to better reflect risk based on a series of public
    and proprietary tools. Risk Rating 2.0, as it is designed, is
    expected to cause flood insurance costs to increase in many
    areas of the country, including New York City's coastal
    neighborhoods. Many of these neighborhoods are among our last
    bastions of affordable home ownerships, especially for
    communities that continue to experience the damaging legacies
    of racist redlining policies.
        Rapidly rising premiums will force thousands to make the
    impossible choice between abandoning insurance policies or
    cutting back on household expenses and necessities like food,
    utility payments, and school supplies, or even abandoning their
    homes altogether. This could lead to and trigger a Government-
    made foreclosure crisis in communities that are already
    struggling to make ends meet, especially after the COVID-19
    pandemic.
        Because of all this, the city urges Congress to carefully
    consider what the future rate structure for the NFIP should be
    upon reauthorization and what it means for affordability going
    forward. Congress needs to ensure flood insurance remains
    affordable for the most vulnerable by establishing a means-
    tested financial assistance for households that need it most.
        Congress can look at metrics, like the RAND-developed PITI
    ratio, that looks at the cost of owning a home relative to
    income to help model the program. Rather than blunter metrics
    like AMI or home value alone, the city believes this type of
    metric offers an opportunity to set national policy that is
    sufficiently sensitive to local and individualized conditions,
    much in the way Risk Rating 2.0 is attempting to be more
    individualized.
        Of course, we cannot solve the affordability problem
    without also addressing mitigation measures, which serve to buy
    down risk for the property owner and the program. Currently,
    the NFIP provides few incentives for property owners to protect
    their buildings from flood damage and reduce their premiums
    other than by elevating their buildings. Past efforts at
    pushing FEMA to identify mitigation alternatives to elevation
    have yielded limited results.
        The city believes more needs to be done and supports
    provisions on alternative mitigation strategies, especially for
    dense urban areas, and community-level mitigation is also a
    critical part of lowering program costs and achieving greater
    affordability at scale. Federal mitigation programs like BRIC
    should be maximally funded, whether through a large
    infrastructure plan or simply through annual appropriations, to
    increase the resiliency of American communities against the
    impacts of climate change.
        Funding should be allocated for coastal and riverine
    flooding prevention infrastructure and for interior drainage
    system upgrades. And Federal support of resilient design must
    go hand-in-hand with these investments. Federal-local policies
    that anticipate future risks in new construction and
    infrastructure should become the national norm. For example, in
    New York City, we have climate resiliency design guidelines
    that provide an even higher standard of flood protection for
    city capital projects. We use sea level rise predictions and
    maps of future flood risks to calculate building-specific
    resilient design criteria, in addition to abiding by building
    codes.
        The city urges you to act decisively to safeguard our
    economy and our communities by ensuring that Americans can
    affordably protect their homes and businesses from the risks of
    disastrous floods, now and in the future.
        I thank you again for having me here today, and I look
    forward to your questions.
        Chairman Brown. Thank you. Mr. Ellis, you are recognized
    for 5 minutes.

      STATEMENT OF STEPHEN ELLIS, PRESIDENT, TAXPAYERS FOR COMMON
                                 SENSE

        Mr. Ellis. Thank you. Good morning, Chairman Brown, Ranking
    Member Toomey, Members of the Banking Committee. I am Steve
    Ellis, President of Taxpayers for Common Sense, a national,
    nonpartisan budget watchdog. Thank you for inviting me to
    testify at this hearing on reauthorizing the National Flood
    Insurance Program. TCS has worked on flood- and disaster-
    related issues on behalf of taxpayers for our entire 26 years
    of existence, and I have been involved in flood issues dating
    back to my days as a young Coast Guard officer dealing with the
    aftermath of the Great Midwest Flood of 1993. These are
    critical issues for taxpayers, and the country needs smart
    public policy that protects people and property.
        It is worth noting that the first named storm of the 2020
    Atlantic hurricane season appeared on May 16th and continued
    with 30 named storms, a record. This was on the heels of
    increasing billion-dollar disasters annually. The Congressional
    Budget Office estimates that hurricane winds and storm-related
    damages cost the U.S. economy $54 billion annual, including $34
    billion in annual economic losses to the residential sector.
    The expected annual cost to taxpayers is estimated to be $17
    billion.
        For 50 years, the Flood Insurance Program has helped fuel a
    development boom in medium- and high-risk areas simply by
    making it more affordable to take on flood risk. And housing
    does not occur in a vacuum. As areas develop, infrastructure
    follows, with roads, bridges, water, electric, and sewer. These
    all intensify along with residential development. The NFIP has
    exacerbated exposure to climate change. At the same time, it is
    negatively impacted by it. As storms increase in frequency, as
    sea levels rise, this increases the costs to the program. It
    also increases the demand for disaster spending.
        Before Hurricane Katrina in 2005, the Federal Flood
    Insurance Program never borrowed more than $1.5 billion from
    the U.S. Treasury. Since the 2005 storms, the program has
    borrowed nearly $40 billion.
        NFIP has subsidized rates in the program virtually since
    its inception, regardless of need. FEMA estimates that more
    than 25 percent of the properties in the program pay subsidized
    or grandfathered rates, where the flood zone designation has
    changed. Even with the properties that are paying supposedly
    risk-based premiums, the fact that the program can borrow from
    the Treasury is a built-in subsidy.
        The Government Accountability Office has documented large
    cross-subsidies, many of which benefit high-income homeowners.
    They found that over 78 percent of subsidized properties in the
    NFIP are located in counties with the highest home values,
    while only 5 percent of subsidized properties are in the
    counties with the lowest home values. This represents a real
    challenge to the program's sustainability. To help address
    this, grandfathering should not be allowed for any new
    construction in the floodplain.
        The best way to reduce the rate, for property owners and
    taxpayers, is to reduce the risk, not with artificial rate caps
    that hide the real risk to people but about finding ways to
    fund mitigation, either at the property or community level.
    While it varies by situation and peril, we know that every
    dollar spent on mitigation can save as much as six dollars or
    more in post-disaster response.
        Disasters also have a disproportionate impact on poor and
    minority populations. In many cases, these individuals do not
    have the savings to rely on while they rebuild, they may have
    lost their transportation to work, and their place of business
    may be destroyed as well. Because of historically
    discriminatory policies or a need for lower housing costs,
    these individuals are often situated in less desire, more
    vulnerable, higher-risk areas. They may not be able to repay
    loans made available after disasters or provide sufficient
    funds of their own to tap Federal programs.
        We have long called for means-tested premium assistance to
    help more homeowners obtain flood insurance while shifting the
    program away from property-based subsidies. There are a little
    more than 5 million NFIP policies, but there are well over 100
    million housing units in this country. To put the need for
    flood insurance in perspective, according to FEMA, after 2016's
    extraordinary heavy rainfall event in Baton Rouge, Louisiana,
    the average homeowner with flood insurance got $86,500 to
    rebuild their home. The average person without flood insurance
    got only $9,100 in individual disaster assistance. This sadly
    demonstrates that many people who are not required to buy flood
    insurance should. And even with protection from levees,
    floodwalls, or dams, there is a residual risk of flooding.
        FEMA has launched Risk Rating 2.0 to better price actual
    risk for properties. It is supposed to start with new
    properties and policies in October and existing policies next
    year. FEMA worked with a variety of organizations to
    incorporate more data and flood variables to determine actual
    risk to properties, and it will be updated annually. In theory,
    this will reduce some of the cross-subsidies that have plagued
    the program.
        This move to Risk Rating 2.0 coincides with long overdue
    mapping efforts. It goes without saying there have been
    enormous technological advancements in mapping and modeling
    since the program's inception 50 years ago. More advanced
    technologies such as LiDAR, 3D mapping, and computing power
    enable much more accurate and predictive maps than we have seen
    today.
        In conclusion, I want to thank you for inviting me to
    testify today. NFIP and related disasters are critical issues,
    not just for their budget and taxpayer impacts but for society
    as a whole. The goal must be to develop risk management and
    mitigation strategies that enable communities, infrastructure,
    and industries to become more resilient, face less risk, and
    can better adapt and mitigate future costs and damages of
    climate change.
        Thank you very much.
        Chairman Brown. Thank you. Mr. Lehmann is recognized for 5
    minutes.

     STATEMENT OF R.J. LEHMANN, SENIOR FELLOW AND EDITOR-IN-CHIEF,
                INTERNATIONAL CENTER FOR LAW & ECONOMICS

        Mr. Lehmann. Thank you, Chairman Brown, Ranking Member
    Toomey, and Members of the Committee. I am R.J. Lehmann, and I
    am a Senior Fellow and Editor-in-Chief of the International
    Center for Law & Economics.
        I am speaking to you from St. Petersburg, Florida, and
    Florida is a strong case study in how the NFIP has transformed
    America. At the beginning of World War II, Florida was the
    least-populated State in the South. It is now the third most
    populated State in the Nation. That is not solely because of
    the NFIP--air conditioning also played a part--but the NFIP has
    been the catalyst in the mass movement of population. It has
    allowed us to convert wetlands and barrier islands, the natural
    defenses against things like tropical storms and flooding, into
    millions of acres of flood-prone housing. In the 40 years after
    the NFIP was created there was a 45 percent increase in the
    number of Americans living in coastal counties.
        The problem, of course, is that thanks to climate change we
    are projected to see three to six feet of sea level rise by the
    end of this century. Given current population trends, a sea
    level rise of three to six feet means that between 4 and 13
    million properties will be inundated, not just periodic
    flooding or chronic flooding, permanently underwater. That is
    on top of the other flood-related impacts of climate change,
    like more frequent and more severe tropical storms, more
    frequent and more severe precipitation events, and it is on top
    of what human development itself contributes to the problem.
    When you pave over permeable land, it cannot drain. The more
    properties that are hooked up to antiquated sewage and drainage
    systems, the greater the odds of catastrophic failure.
        Models show that what are now considered 100-year storms in
    the Southeast and the Gulf Coast will, by the end of this
    century, occur ever 1 to 30 years. What are considered 100-year
    storms in the Northeast and Mid-Atlantic will be expected every
    year. So when we talk about the NFIP and its debt and the
    problems with its structure, we need to keep in mind this
    context that all of this is going to get so much worse.
        Yet we are not treating it like a crisis. We continue to
    build more in flood-prone areas than outside of them. According
    to FEMA and census data from 2000 to 2016, the population of
    the 100-year floodplain grew by 14 percent, faster than the
    rest of the country combined. A 2019 report looked at
    construction since 2010 in areas that, by the end of the
    century, will be 10-year floodplains. That is an order of
    magnitude greater than the 100-year floodplain. In eight
    coastal States there was more development in that 10-year
    floodplain than outside of it, and in four of them it is twice
    as fast. In Connecticut, it was three times as fast.
        So how do we address this? Obviously, the NFIP is only part
    of the problem and can only be part of the solution. I think it
    is inevitable, in at least some locations, that we would to
    consider pulling back from the coast and moving Americans to
    higher ground. FEMA's buyout program, some of them within the
    scope of the NFIP, are one tool to accomplish that, but it will
    be very difficult for them to match the scale of the problem.
        I propose two policies, a carrot and a stick that I think
    could help nudge us in the right direction. The first is to
    stop making the problem worse. New construction in 100-year
    floodplains should not be eligible for NFIP coverage. The
    guaranteed issue of new policies is where the program most
    clearly incentivizes building where it is risky. So that is the
    stick. We have precedent for this sort of approach with the
    Coastal Barrier Resources System, USDA's sodsaver and
    swampbuster programs, and in my State of Florida, the State-run
    Citizens Insurance no longer insures new construction on the
    coast.
        But importantly, making this shift does not affect existing
    NFIP policyholders, which I think is a big plus. But it is not
    enough just to tell people where they cannot build. You also
    have to provide somewhere where they can. People need to live
    somewhere. If we are going to see 13 million flood refugees by
    the end of this century, then we have to make sure that build
    environment is able to absorb them. We struggle today, in large
    part because of stringent land use policies, even to keep up
    with the current housing demand. So this can't wait.
        So my second proposal, the carrot, is provide incentives
    for States to make it easier to build in areas of low risk.
    What I have in mind is a version of what is called the
    ``disaster deductible'' under the Stafford Act. After a
    disaster, the Federal Government picks up 75 percent of the
    cost of recovery, States pick up the other 25 percent. I
    propose a sliding scale so that if a State decides that
    property owners in less risky areas can build accessory
    dwelling units, and if they abolish single-family zoning in the
    500-year floodplain, the least risky, then instead of having
    the State pick up a 25 percent Stafford Act cost-share, maybe
    they have a 20 percent cost-share or a 15 percent cost-share.
        What I am proposing, obviously, does not solve climate
    change, and I know it is partly outside this Committee's
    jurisdiction, but I think the two policies pair well together.
    For half a century, the Flood Insurance Program has helped to
    draw people to risky areas. This would be a nudge to begin to
    reverse that process, to remove the incentives to build where
    it is risky and provide incentives to build where it is safe.
        With that I am available for your questions.
        Chairman Brown. Thank you, and all five of you, thanks for
    your thoughtful approach you all have laid out from different
    perspectives, with the problem, I think, in a really acute way
    that Senator Toomey and I know we have work to do to figure out
    how we can move forward on this.
        Ms. Smith, let me start with you. Too often after disasters
    we hear news stories of families saying they did not know their
    homes had been flooded before they bought them or signed a
    lease. You have called for flood risk disclosure to prospective
    homeowners or renters, similar to the lead paint disclosures
    that took a while, that finally Government has done in most
    places.
        So talk to me about what are the consequences if we do not
    do that? What will this information, what kind of impact will
    it have on families and on properties?
        Ms. Smith. Mr. Chairman, I lost audio for a minute. I
    presume you are asking me that question?
        Chairman Brown. Yeah. What happens with this information?
    You have called for this information. What impact it would
    have?
        Ms. Smith. Yes. I think there are so many instances that we
    have heard story after story of folks who moved into a place
    and really had no notion that they were buying into an area
    that had previously flooded. The neighbors in that community
    often knew, but those people did not realize what was
    happening. And they turn around and find out that their
    finances are strained, they cannot recover. It is renters.
    There are many instances of apartment buildings where people
    rent an apartment and then have to be rescued and lose all
    their belongings.
        So we think that if we can add more information, people can
    make smarter decisions. It is not just about whether they are
    in a flood zone but whether the building they are going into
    has ever flooded before.
        Chairman Brown. And a follow-up question to you and Mr.
    Berginnis about mapping and risk identification. Knowing where
    it might flood is key to being able to mitigate these risks or
    avoid them altogether. What are your recommendations for
    improving FEMA's mapping efforts? Every time we do another
    reauthorization, as Senator Toomey talked about, we talk about
    mapping, how important mapping is. We never fund. We authorize
    it and we never fund mapping as well as we should.
        How important is it that FEMA provide projections of future
    flood conditions? Mr. Berginnis, you go first and then Ms.
    Smith, if you would.
        Mr. Berginnis. Well, I suppose on a positive note, you
    know, back when we were testifying in 2004, we were talking
    about the quality of existing maps, and one of the things that
    FEMA has done quite successfully is improve the quality of the
    existing inventory.
        But here is the reality. We have 3.5 million miles of
    streams, rivers, and coastlines in the country. We have mapped
    about 1.2 million miles of those. The new development that a
    lot of the panels talked about typically occurs in an area that
    does not have existing development, and the problem is if we
    are developing along these creeks and rivers and areas that we
    do not know the flood risk, we are already behind. And then the
    map gets put on and people get all mad because FEMA has put the
    floodplain on them, and we are doing this backwards.
        The most impactful thing is to get the job done mapping the
    Nation, and also include what future flood risk is going to be,
    because then local codes and standards can be adopted to make
    sure that that house is resilient to flooding 100 years down
    the road, based on its useful life, as opposed to building to
    today's flood risk standard.
        Ms. Smith. I absolutely agree with Mr. Berginnis that we
    have to finish the job in the communities that do not have
    flood maps or have very old flood maps. Those people have to be
    given a better idea of what their risk really looks like and
    where it is headed. If they understand existing flood risk,
    understand what is driving the risk in their area, whether it
    is development, whether it is sea level rise, whether it is
    filling of wetlands, then they can work to manage that risk.
    But if they do not have a notion, then they will just be coming
    back for disaster assistance and insurance subsidies in the
    future.
        Chairman Brown. ----floodplains are wealthy people, which
    is true, but it is also a place where--I mean, I remember
    growing up, the places that were flooded in Mansfield, Ohio,
    were mostly African American, mostly poor people in the White
    Appalachian section of town too.
        So what do we do to make sure under-resourced--and Kagan
    Sternhell, you can weigh in on this too--tell me, what do we do
    to make sure under-resourced communities and communities of
    color can access grants that will keep their communities safe?
        Mr. Berginnis, be brief if you would, and then Ms. Kagan
    Sternhell.
        Mr. Berginnis. I think two characteristics we know in
    communities that are problematic with grants. One is to find
    cost-share, and the second is just have the technical expertise
    to actually prepare the grants.
        So two things that I think need to be changed is working
    with the cost-share formula to recognize, I believe, kind of
    equity and even environmental justice kind of factors. And
    then, second, we have got to provide better capacity, either
    building it with the community or providing assistance to
    actually get grant applications built.
        Chairman Brown. Thank you. Ms. Kagan Sternhell, please.
        Ms. Sternhell. So, briefly, I wholeheartedly agree.
    Especially one of the things we also need to look at is the
    cost-benefit issue, because often we have low-income
    neighborhoods, property values are low. Sometimes projects do
    not cost out, and therefore they are not eligible for a FEMA
    program like BRIC. So including those social factors are very,
    very important.
        I would say also working to make sure, beyond just getting
    applications or technical expertise, working at the individual
    homeowner level, and as I testified to a bit earlier,
    alternative mitigation measures, because sometimes what works
    like going up does not really work in a lot of neighborhoods,
    certainly where it is densely packed, older cities, maybe
    construction was not as strong as it was previously, you need
    something other than lifting a home.
        Chairman Brown. Thank you. Senator Toomey is recognized for
    5 minutes.
        Senator Toomey. Thank you, Mr. Chairman. My first question
    is about moral hazard. You know, this is an intrinsic problem
    with many kinds of insurance products, and flood insurance is
    no exception. When homeowners and communities are protected
    from the financial loss of flooding, all else being equal they
    have less of an incentive to manage and mitigate that risk.
    Consider repetitive loss and severe repetitive loss properties,
    which are properties which have repeatedly flooded and
    repeatedly been rebuilt by NFIP money over the years. These
    properties have had approximately $17 billion in NFIP claims
    over the years. So when I look at these numbers I worry that
    NFIP, in its current form, is not appropriately managing moral
    hazard.
        So Mr. Ellis and Mr. Lehmann, would you just briefly
    address, do you think that historically the NFIP has the right
    incentive structure to manage moral hazard, or should we do
    something differently?
        Mr. Ellis. Thank you, Senator Toomey. Certainly I think it
    is pretty clear that it has not had the right incentive
    structure to deal with moral hazard. In my testimony I
    documented how the subsidies disproportionately go to more
    wealthy communities and do not go to less-wealthy counties.
    When you look at the numbers, when I talked about that only 5
    percent of the subsidies go to the lower-wealthy counties, it
    was the bottom 5 deciles. So it was not just like the bottom
    decile. It was actually really disproportionately balanced
    toward that side.
        So we have disincentivized homeowners from mitigating the
    risks, and many times hidden their risk from them because they
    do not actually know what their rate would be, absent the
    subsidies. And so we are actually hiding the ball.
        And I certainly support what Velma was talking about, what
    Ms. Smith was talking about, in that making sure people know
    their risk in these areas, and I think that is important risk
    communication. But certainly the rate structure as well has
    done a disservice to homeowners and it has done a disservice to
    taxpayers.
        Mr. Lehmann. Yeah, and I would add not only do the
    subsidies flow from lower- to higher-risk policyholders, but
    they flow from inland to the coast. So riverine flooding is a
    serious problem in many communities, but if you eliminated the
    coastal counties, the NFIP would actually be profitable. CBO
    has shown that. So that is specifically how it breaks down.
    Lower-risk policyholders, many of them pay some flood risk
    because of riverine flooding, are subsidizing coastal
    policyholders, and that is a big part of why it the income
    works the way it does. And I say this as someone who lives in a
    coastal county. But it is something that is relevant.
        Senator Toomey. So just to follow up on that, so are you
    saying that across the Nation, as a whole, on average, the
    inland plans actually are actuarially sound?
        Mr. Lehmann. More than actuarially sound. They are being
    overcharged, because they need to subsidize the far below risk
    cost personal properties, which, you know, if we, as a country,
    want to make the decision that we want to help people who live
    in coastal communities, that is a perfectly find decision for
    Congress to make. But I would think the taxpayers are the
    people who should support that and not lower-risk policyholders
    within the NFIP. That only discourages them from buying the
    protection that they need [inaudible] charge.
        Senator Toomey. And maybe it should be an explicit
    understanding or arrangement rather than implicit and kind of
    hidden in the premium structure.
        Let me ask a little bit about Risk Rating 2.0. So FEMA has
    been working to update its flood risk rating system. That is
    what Risk Rating 2.0 is meant to do, as I understand it. And it
    is going to rely on more granular data, setting flood insurance
    premiums presumably more accurately, using geography and
    flooding frequency and flooding types and building
    characteristics, and other sources of information that
    presumably get us a more accurate risk rating.
        So, again, for Mr. Ellis and Mr. Lehmann, is it your view
    that Risk Rating 2.0 is a positive, constructive development
    for NFIP and its stakeholders?
        Mr. Ellis. Absolutely, Senator Toomey. I think that it is
    more information, it is more data. It is taking away a mapping
    system--well, not taking away a mapping system but updating a
    mapping system that is 50 years old, that is essentially going
    to target it at a property level rather than a broad swath of a
    neighborhood or a zone.
        Mr. Lehmann. And it helps move the discussion to data and
    science and away from what are local politics, in many cases.
    It is contentious to adopt community flood maps--I am sure Mr.
    Berginnis can speak to that--where everyone does not want to be
    put in the mandatory purchase zone, which is unfortunate
    because we should want everyone to have flood insurance. If you
    are low risk you get charged less, but everyone should have
    this protection.
        Senator Toomey. Great. Thank you. Thank you, Mr. Chairman.
        Chairman Brown. Thank you, Senator Toomey. Senator Reed
    from Rhode Island is recognized for 5 minutes.
        Senator Reed. Mr. Chairman? Mr. Chairman?
        Chairman Brown. We can see you and hear you, Jack.
        Senator Reed. OK. Then let me begin my questioning. There
    is a little bit of disruption through the technology.
        First, Ms. Smith, thank you very much for your testimony,
    and with respect to the State Flood Mitigation Revolving Loan
    Fund Act, which I have been pursuing for several years. I think
    providing low- and moderate-income individuals with funds to
    mitigate flood risk would be a positive.
        Could you just elaborate on the benefits of [inaudible]?
        Mr. Chairman, I am sorry. I cannot hear anything.
    Technology just----
        Ms. Smith. Senator Reed----
        Chairman Brown. If Ms. Smith knows the question she can do
    the answer. She seems a bit eager here. So why don't you go
    ahead, Ms. Smith, and then Jack, you can go back then.
        Ms. Smith. Senator Reed, I apologize. My audio was going in
    and out. But we are very supportive of the notion of setting up
    a revolving loan fund to bring some stability to the funding
    levels. We have heard over and over again from communities that
    they cannot sustain keeping mitigation experts on staff and
    planning ahead for the mitigation projects that they need,
    because the funding goes up and down. It is feast and famine.
        So your proposal would stabilize funding, would allow
    States to put money on the table and help leverage this, and
    would really be transformational, I think, in terms of
    promoting new mitigation projects.
        Senator Reed. Thank you very much. I have another question,
    Mr. Chairman, although my machine is not cooperating. But Mr.
    Berginnis, can you comment on FEMA's efforts doing flood
    mapping across the country, and also, should these map products
    [inaudible]?
        Mr. Berginnis. OK. I caught the----
        Chairman Brown. Mr. Berginnis, did you get enough of that
    question?
        Mr. Berginnis. Well, the detail I did not get.
        Senator Reed. Mr. Chairman, I think the order of the
    community, I should get off and let other people who have
    better connections ask questions. I am not usually this
    inarticulate.
        Chairman Brown. Well, now you are fine. Go ahead and ask
    the question for Mr. Berginnis.
        Senator Reed. Chaos. It is chaos. But I will defer to my
    colleagues, and excuse me for the technical difficulties.
        Chairman Brown. OK.
        Senator Reed. I will defer.
        Chairman Brown. All right that is fine. Thank you, Senator
    Reed. Senator Rounds from South Dakota is recognized.
        Senator Rounds. Thank you, Mr. Chairman. Even though I am
    in Washington, DC, right now, I think our bandwidth in South
    Dakota is better than what Senator Reed had here in DC for the
    last few minutes.
        Let me just begin by saying that I really do believe that
    we have to have a good, solid National Flood Insurance Program
    in place, and I believe that because the real estate market is
    critical. Long-term, if we want stability in that market there
    has to be an alternative. And just as I see private insurance
    being available, and I think that is going to be a real
    challenge to get, I think that we do have to have a strong NFIP
    program. But I like the idea of the write-your-own product.
        And I would like to begin by talking a little bit about
    what happened with regard to Hurricane Sandy and what that has
    done in terms of driving the discussion today. And I would like
    to ask Rebecca, just in terms of what happened that caused the
    problems on Sandy, with regard to the consumers that were
    there, the folks that had purchased policies and so forth. What
    were the challenges on Sandy that really drives a lot of the
    agitation, the irritation, and the disappointment with the NFIP
    product that was available at that time?
        Ms. Sternhell. Well, I think, first and foremost, the city
    had not new, and still does not have new final firm flood
    insurance rate maps since 1983. So when we finally get our
    final maps, coming in 2024, anticipated from FEMA, it will be
    41 years. So, you know, floodwater does not abide by what the
    flood map says to begin with, but then during Sandy there was
    far greater inland flooding than had been anticipated, and
    anyone was aware of.
        So there were many people who should have had coverage that
    did not. There were many people who did have coverage and then
    were died claims, based on statements that it was earth
    movement or what have you. But within the write-your-own
    program, specifically, there were a number of instances where
    adjusters came out, filed reports. Those reports were
    subsequently doctored before they were submitted to FEMA, or
    adjuster reports were submitted without ever a site visit to
    the property.
        So there was a good amount of fraud and a good amount of
    homeowners being unaware of what was being claimed on their
    behalf, or even getting an accurate reporting of the damage
    that was sustained, in addition to claims also being denied.
        So that was sort of the genesis behind the reform push
    certainly in the claims sector, and then with the write-your-
    owns as well, trying to ensure that there is a higher standard
    and a higher level of responsibility in the claims process,
    especially when someone is so vulnerable after sustaining a
    loss.
        Senator Rounds. And I appreciate that, because I think this
    goes to the heart of some of the challenges we have here, and
    yet I do not understand why this would occur, because as I
    understand it, the write-your-owns do not handle the
    underwriting losses themselves. That goes directly back into
    the programs.
        So why would someone try to manipulate or to change a
    claim, or as you have indicated, doctor a report? What was the
    basis for that happening?
        Ms. Sternhell. I think we have seen, starting with Katrina
    and then with Sandy as sort of the next big hurricane claims,
    just with national attention, is sort of a swing one direction,
    where the claims during Katrina, people were paid out large
    claims, large sums of money. And upon review, and after, in
    fact, reconciling all that, it turns out people should not have
    been maybe reimbursed quite so much. And then the insurers and
    others were required to recoup those overpayments.
        And so with Sandy you saw this pendulum swing the other
    way, where they were trying to avoid having to deal with that
    recoupment issue. And so it is now a question about how we can
    better calibrate to get to a point where people are not being
    overpaid or overcompensated for their losses, but being
    compensated appropriately, and at the same time not being
    shortchanged what they are due under the various Federal
    programs and policies available to them.
        Senator Rounds. You know, in my prior life I sold
    insurance, and one of the challenges--smoke losses is one
    thing, water losses is another thing that is really difficult
    and challenging to appropriately handle or to do the adjustment
    on. And I think that any time you bring the third parties in to
    actually write their policies, put their company's name on
    them, they really want to do it correctly. And I think it is an
    excellent program in terms of keeping it simple and easy to do,
    and to bring more people into the process.
        But I would like to ask Mr. Ellis, Mr. Ellis, do you see
    the write-your-own as a feasible long-term alternative, or at
    least a part of the National Flood Program in the future?
        Mr. Ellis. Certainly, Senator Rounds. Thank you for the
    question. I do see that it will be a part of it. It is an
    element to expand it. But I also think the alternative of
    private insurance is something that should be promoted and
    developed, and certainly because one of the issues that you
    bring up is that if you have a problem with a write-your-own
    coverage you have got to go to FEMA to argue about this. If you
    have a private insurer, you go to your State insurance
    commissioner, which is a lot closer to the consumer and has a
    lot more skin in the game as far as regulating that exact
    insurer, and that insurer wants to behave for this insurance
    commissioner.
        Senator Rounds. Thank you. And, Mr. Chairman, thank you for
    the time. I know I am over a little bit. I would just make the
    comment, I think part of the long-term plan on this should be
    to allow that State insurance commissioner--because I agree
    totally with Mr. Ellis. I think that State insurance
    commissioners, if they had some oversight over the National
    Flood Insurance plan, I think we might find a lot of these
    problems being handled.
        But thank you, Mr. Chairman. I am over my time.
        Chairman Brown. Thank you, Senator Rounds. Senator Menendez
    from New Jersey is recognized for 5 minutes.
        Senator Menendez. Well, thank you, Mr. Chairman. I think
    everyone on the Committee can agree that we need to put an end
    to the short-term reauthorization extensions, I should say, of
    the NFIP, and finally pass a long-term reauthorization of the
    program. In my mind, any NFIP authorization bill needs to keep
    premiums affordable and invest in robust mitigation and fix the
    claims process that left so many New Jerseyians, for example,
    out of their homes for years after Hurricane Sandy.
        And I also think we need to deal with the NFIP debt so that
    we can put the program on sound financial footing and reinvest
    those savings into building resiliently so that communities are
    prepared for their climate challenges of the 21st century.
        Last Congress I introduced a bipartisan NFIP re-auth that
    answers these challenges. I certainly appreciate Senators
    Cassidy, Schumer, Kennedy, and other cosponsors on the
    Committee who came together to advance bold and necessary
    reforms, and I am hopeful that we can come together. I know
    Senator Rounds has expressed interest on working on this. I
    look forward to working with him and others to get a long-term
    reauthorization done.
        But unfortunately, what I have heard from some of the
    witnesses today concerns me and runs counterintuitive to the
    whole purpose of the NFIP. The great solution, as some say, to
    the problems is to raise premiums. Now that makes the most
    vulnerable to flooding pay extremely high premiums for their
    coverage. The reality is, the more you put onto the back of the
    policyholder, the most people leave the program altogether.
    Ultimately, this idea is worse off for taxpayers, forcing
    Congress to spend more on expensive disaster relief that goes
    to unprotected homes.
        So I think we know that there are two sides to a budget.
    You either increase revenues or you cut costs. So why would we
    penalize policyholders when there are runaway expenses of the
    NFIP? I mean, 30 cents every premium dollar written goes
    straight to the pockets of insurance companies. The Federal
    Government pays itself $400 million every year in interest
    payments. FEMA even covers insurance companies' high-priced
    lawyers that rack up endless legal bills to challenge, I think
    very often from my experience in Sandy, unfairly,
    policyholders.
        So, Ms. Sternhell, wouldn't you agree that we should get
    the costs of the program under control, like cutting WYO
    compensation instead of jacking up premiums that push people
    out?
        Ms. Sternhell. That is a good question, Senator, and as I
    laid out in some of my testimony, yes. Write-your-own
    compensation is something we are concerned about, given the
    financial situation of the NFIP. Obviously, we want people to
    be paid fairly for work done, and so one of the things that we
    have put forward, as perhaps the year one that you issue a
    policy, a WYO can receive 30 percent of the premium cost.
        But when you are basically forwarding a Docusign for a
    renewal, that is not the same degree of work. At that point
    there is an opportunity for the NFIP to recoup more of that
    premium back to them.
        Senator Menendez. Well, I think one of the long-term
    reauthorization goals has to be keeping premiums affordable.
        Now FEMA has been working for the last few years on a new
    ratings system called Risk Rating 2.0. However, to date there
    is still very little known about the new rating system, how
    much premiums will increase, where the impacts will be
    concentrated, how they went about their rating. And it is not
    just a New Jersey problem. This rating system will impacted
    colleagues in the Gulf Coast and southeastern coastal States,
    among others.
        Under the existing rate cap, homeowners can see their
    premiums double in just 4 short years. This is why I have
    called for a 9 percent rate cap to protect policyholders from a
    sudden increase.
        Let me ask you again, Ms. Sternhell. Can you talk about why
    it is important for flood insurance premiums to remain
    affordable?
        Ms. Sternhell. At the end of the day we want people to be
    covered, and we want them to be able to rebound after an event.
    And so ensuring affordability means people will take up
    coverage. It means that homeowners who maybe are not required
    to have that insurance coverage will adopt policies, will
    subscribe. It broadens the pool of risk. It lowers rates for
    everyone. It lowers the risks to the program overall.
        That is some of our concern about Risk Rating 2.0, that it
    has been done a bit in a black box, and we do not know what the
    impacts will be, whether they are localized, whether they are
    widespread in specific communities. And so ensuring
    affordability I think is the number one challenge facing you
    all right now as you reauthorize this program.
        Senator Menendez. OK. And finally for every dollar spent on
    mitigation, the Federal Government saves $6 on the back end.
    Mr. Berginnis, can you talk about why mitigation is a critical
    part to reforming NFIP?
        Mr. Berginnis. Absolutely. Usually the buildings that are
    being mitigated tend to be our older buildings. They tend to
    also be lower-cost buildings, and housing folks that are of
    more modest means, and those that are most vulnerable. So
    mitigation becomes very important because then whether you
    elevate, whether you relocate, whether you buy out, and do
    those kinds of things, you truly can make those families and
    those businesses much more resilient to flooding in the future,
    and have the benefit of a lower flood insurance rate.
        Senator Menendez. As well as stopping the likelihood of
    repetitive loss.
        Mr. Berginnis. Exactly.
        Senator Menendez. Thank you, Mr. Chairman. I appreciate
    your hearing on this.
        Chairman Brown. Thank you. Senator Tillis from North
    Carolina is recognized for 5 minutes.
        Senator Tillis. Thank you, Mr. Chairman. Just following up
    on Senator Menendez's comment. I think that we have seen far
    too many instances down in North Carolina when a homeowner is
    willing to accept a buyout having no choice but to rebuild,
    only to be in the same position a year or two down the road. So
    I think quick resolution is something that we should focus on.
        Mr. Ellis and Mr. Lehmann, if you look at a map of the East
    Coast of the United States you know that North Carolina juts
    out there and is prone to hurricanes that can hit the Outer
    Banks or go down south to Emerald Isle. And we know too many
    hurricanes, even in my tenure as Senator.
        The one question that I have, and I want to get to Risk
    Rating 2.0, and maybe you can just answer it, do you think the
    Risk Rating 2.0, that they are comprehensive in nature? One of
    the things I am particularly concerned with, in North Carolina
    we all see the storm surge, and a lot of people may think it is
    over. But anybody that lives in North Carolina knows that about
    two or 3 days later that is when we are going to get some of
    the worst flooding as the river basins drain out to the coast.
        So is the Risk Rating 2.0 considerations comprehensive? Do
    they take that into account, or do we need to do more on that,
    moving forward? That is for Mr. Ellis and Mr. Lehmann.
        Mr. Ellis. Thank you, Senator Tillis. And also in North
    Carolina a lot of the concentration is looking at the coast,
    but you have huge instances of riverine flooding and where
    storms have just parked themselves over there and repetitive
    losses in places like Lumberton or Princeville. So this is
    certainly a big issue.
        And yes, I do believe that Risk Rating 2.0, and it is
    something that is iterative and we are learning more about it.
    I will point out that FEMA points out that almost 25 percent of
    the properties are going to see less premium under Risk Rating
    2.0. But it is intended to be more forward looking, to be more
    extensive than what we currently have.
        And certainly your State, the State of North Carolina, has
    been a leader in mapping and putting this information about
    there, and making it publicly available for either
    futurecasting or even looking at real-time with storms. And so
    I really salute the State of North Carolina in their efforts.
        Mr. Lehmann. And I agree. North Carolina was an innovator
    in using LiDAR, which provides accurate three-dimensional
    picture of waterflow drainage, et cetera. That is the direction
    that Risk Rating 2.0 takes. Risk is much more granular than the
    old-school paper maps ever showed, and moving in a direction
    that looks at property level risk, which also if you take into
    account mitigation at the property level is really important.
        Senator Tillis. Yeah, I am glad to hear you say that. I was
    going to brag on North Carolina, but it was something that I
    worked on as Speaker of the House to make sure that we could
    see that the lack of information was causing what I thought
    were unreasonable outcomes and risk assessments, so I am glad
    that you all recognize that that investment that we made has
    paid off.
        Can you go back and briefly--I think it is very important,
    because I think a lot of people think that this is an across-
    the-board increase in flood insurance. Could either one or both
    of you maybe add to what the other one says? Mr. Lehmann, we
    will go with you first. Can you briefly summarize how these
    rates are going to be spread out across the insurer base? It is
    my understanding that about 4 or 5 percent may experience a
    significant increase. Some will have a decrease and some in the
    middle will have a moderate increase. Can you give me a little
    bit more flesh on the bones?
        Mr. Lehmann. Sure, and I believe that Steve has those
    specific figures in his testimony so I might defer to him.
        Senator Tillis. OK. Mr. Ellis.
        Mr. Ellis. Yes. Thank you, Senator Tillis. So yes, you are
    absolutely right. According to FEMA, that 4 percent will see an
    increase of more than 20 percent a month, but those are for
    high-value homes in high-risk areas. But 23 percent will see an
    average decrease of $86 a month, and 66 percent will see an
    increase of less than $10 a month, and another 7 percent an
    increase of less than $20 a month.
        And I would also add that we are still talking about
    affordability issues as well. So it is not just, you know, we
    still should have means-tested assistance outside the rate
    structure. If people cannot afford those premiums, it changes.
    Well, then we should certainly do it. Even if their premiums
    decrease they may not be able to afford their premiums and we
    should have means-tested assistance in the appropriate areas.
        Mr. Lehmann. Absolutely.
        Senator Tillis. Thank you all very much. Thank you, Mr.
    Chair.
        Chairman Brown. Thank you, Senator Tillis. The next two
    Senators--and I may have to step out to do Finance Committee
    real quickly--is Senator Warren and then, I believe, Senator
    Kennedy. And perhaps after the two of them is Senator Van
    Hollen, but I do not know for sure. But Senator Warren, you are
    recognized for 5 minutes, from Massachusetts.
        Senator Warren. OK. Thank you, Mr. Chairman. So floods are
    our country's most costly natural disasters. Climate change is
    worsening this crisis, sea levels are rising, severe storms are
    becoming more frequent, and as a result our floodplains are
    spreading and putting more people at risk every year.
        By 2050, 1 in every 10 properties in Massachusetts is
    projected to face a substantial risk of flooding. In Boston, it
    is even higher, at 30 percent, and in communities like Hull,
    Massachusetts, more than two-thirds of properties will be at
    risk.
        Now the National Flood Insurance Program, NFIP, is designed
    to help homeowners in at-risk areas rebuild after a flood, but
    that is really only part of the picture. It is also a tool to
    prevent and mitigate the damage to our communities before the
    flood hits, including making sure that we have the right
    infrastructure to protect property from rising water levels.
        Ms. Smith, study after study tell us that it pays to
    prepare. For every dollar the Government invests in disaster
    mitigation, we get about $6 in return on that investment. So
    let me just ask you, are we spending enough on efforts to lower
    the long-term risk of loss from floods?
        Ms. Smith. Senator, thank you for that important question,
    and the answer is no, not by a long shot. We have been stingy
    in predisaster planning and investment, and that ends up
    costing us in damages, not just to property but lives and
    livelihoods. And NIBS, the folks who give you the 6-to-1
    number, they have recently said that our Nation's disaster
    investment gap now exceeds $520 billion.
        Senator Warren. Wow.
        Ms. Smith. Now that is all disasters, but flood is a big
    chunk of that.
        So we need better building and we need more investment. You
    know, communities in your State are trying to help people
    elevate. We need projects like, for example, the Charles River
    project that the Army Corps did years and years ago. Preserving
    thousands of acres of wetlands has paid benefits in reduced
    damages.
        Senator Warren. That is very helpful. Thank you.
        You know, a recent study found that only about 1 percent of
    properties insured by the NFIP suffered repeated losses, and
    yet these properties account for more than 30 percent of claim
    payments. So we have to find ways to make these properties and
    the floodplains and coastlines where these homes are located
    more resilient, or the NFIP will never be sustainable.
        So beyond restoring and protecting our natural
    infrastructure, we can also protect against flood losses by
    investing in our physical infrastructure, like strengthening
    building codes, elevating buildings, as you mentioned, moving
    costly HVAC units to higher floors.
        Mr. Berginnis, do you agree that if the NFIP is ever going
    to be self-sustaining, the Federal Government is going to have
    to dramatically increase funding for physical infrastructure,
    such as water resource projects and robust funding of the Army
    Corps of Engineers, that helps build this infrastructure?
        Mr. Berginnis. Yes, Senator Warren, absolutely. And when
    you look at our national flood mitigation approach and the
    investments in infrastructure, I think multiple agencies have
    pieces of this, right. The Corps of Engineers tends to do the
    larger flood control projects, and they definitely have a role.
    As the panel, as many folks have said, the situation,
    especially on the coast, is only going to get worse.
        But then FEMA has a role too, in terms of investing, in
    particular more building-by-building and smaller mitigation
    projects. And even agencies like the Department of Agriculture,
    through conservation programs and things, they have a role too.
        So I think when we do all of those together, we need to
    triple down on our investment, in terms of infrastructure and
    resiliency.
        Senator Warren. That is very helpful. Thank you.
        Climate change is the biggest threat to NFIP programs and
    to the families that rely on this program to insure their
    homes. So we have to remember that NFIP is just one of the
    tools the Government has to protect communities from the
    immediate and catastrophic impact of climate change.
        A big piece of this is addressing climate change head-on,
    and that means ending our dependency on fossil fuels and
    investing in renewable energy and coastal restoration in
    natural resiliency. And until we get serious about canceling
    climate, that tackling climate change, we are going to be
    treating NFIP as a bottomless bucket that we can never refill
    fast enough. Now is the time to act.
        So thank you all very much for being here. Thank you, Mr.
    Chairman.
        In the absence of the Chairman, I think Senator Kennedy is
    up next.
        Senator Kennedy. Thank you, Senator. Can you hear me OK?
    Can you hear me OK?
        Senator Warren. Yes.
        Senator Kennedy. I want to thank the Chairman and the
    Ranking Member for calling this hearing. I am curious why FEMA
    is not here, particularly Mr. Maurstad, who is in charge of
    Risk Rating 2.0. But I am sure my friends at FEMA are
    listening, so let me direct this next comment to them.
        Have you lost your frigging minds? This is the most--
    ``this'' meaning Risk Rating 2.0--is the most massive change to
    the NFIP since we created it in 1968. Why are you trying to ram
    it down everyone's throat, including, but not limited to, the
    people who are going to be affected by this change? We have
    five million policyholders, and 3.8 million are going to see
    their rates go up, at least. They have no idea why.
        Now I get that there is a spreadsheet, an arithmetic side
    to this problem, but there is also a human side. A lot of the
    people, most of the people that your Risk Rating 2.0 is going
    to impact are not wealthy homeowners with a second or third
    home on the beach. That is certainly not the case in Louisiana.
    Most of the people, FEMA, that you are going to impact get up
    every day, go to work, obey the law, pay their taxes, try to do
    the right thing by their kids, and try to save for retirement.
    And their biggest financial asset is their home. And in 5
    months' time, without even a public notice and comment
    opportunity, you are going to ram through changes that
    potentially could make their home unaffordable, and affect its
    value and make it impossible to sell.
        Have you lost your frigging minds?
        I am very disappointed with the way this whole process has
    been handled. People do not understand Risk Rating 2.0, and
    FEMA has done virtually nothing to help them understand.
        Ms. Sternhell, what has been your experience? Do you
    understand Risk Rating 2.0?
        Ms. Sternhell. Senator, you put it immaculately. I could
    not agree more. The city is greatly concerned because we have
    no idea where this is going to land, what communities it is
    going to target. They have not made public the algorithm by
    which they are going to calculate many of these rates. Appendix
    E is not available online yet, according to their report. They
    have put out that it is only monthly increases of $10 or $20.
    Well, you know, most people pay at once, and if most people
    cannot afford a $400 emergency, how are they going to afford
    another, you know, $250 in insurance premiums a year?
        We do not know where this is going to land. There has been
    no consultation with local government. There has been no
    consultation with us, who are dealing directly with
    constituents, and yes, we are very, very concerned.
        Senator Kennedy. Well, I am too, Ms. Sternhell. I am very
    concerned. And given the lack of transparency, which is
    breathtaking, and the speed with which the new FEMA is trying
    to move this, and ram it down everybody's throats, you can
    pretty this up all you want to, but it just looks to me like a
    massive rating increase that they do not want to explain to the
    policyholders.
        I mean, what is the point of the flood insurance program?
    The whole point is to strike a balance between solvency and
    affordability. But what good is it to have a program if nobody
    can afford it, for God's sakes? In your opinion, Ms. Sternhell,
    you may not know the answer to this, but we have got 2,000
    levees in my State, many of which have been paid for not by the
    Federal Government but by Louisianians through their taxes.
    Have the folks at FEMA taken into consideration the levees?
        Ms. Sternhell. I think that is a factor, though again, we
    have not seen it explained in plain English. We have not been
    consulted. We have not had it walked through. You know, I got
    the very helpful infographic on the New York State Profile that
    said 93 percent of rate-payers or subscribers in New York will
    see their rates either go up or down.
        Senator Kennedy. I am out of time, but to my friends at
    FEMA, hello. Hello. I realize that today we cannot find you
    with Google, but you need to come before the U.S. Congress and
    express what you are doing here, and you need to come before
    the policyholders and explain what you are doing here. And you
    need to come before all of us and explain that you actually
    understand what you are doing here, because I do not think you
    do.
        Thank you, whoever is chairing this thing.
        [Pause.]
        Senator Van Hollen. Well, Senator Kennedy, this is Chris
    Van Hollen. I think I am going to ask my questions now. I do
    not know who I am supposed to hand it over to, but let me thank
    all of our witnesses for being here today. Thank you for your
    testimony. I think we are seeing, in this debate, the increased
    costs that families are experiencing every day, from climate
    change, from rising sea levels, from other impacts of climate
    change, and we have got to have a strategy as a country.
        That strategy has to include two parts. One part is
    addressing climate change head-on, and President Biden has put
    forward a plan as part of the American Jobs Plan to address
    those issues, to dramatically reduce our reliance on fossil
    fuels and move toward a clean energy future. And if we do not
    do that, the costs will go up and up, to taxpayers, to rate-
    payers, and to everybody else. The other thing is to work
    through adaptation and mitigation, and obviously the flood
    insurance programs is part of trying to support families, in
    homes that are particularly hard hit during these times.
        I would like to just step back, broaden the lens a little
    bit, and talk about Federal Government investments, whether
    they are in roads, bridges, transit, buildings, shipyards,
    other sort of things, and recognize that in order to save
    taxpayers money in the future, we have to build now and going
    forward in a way that incorporates resilience. Otherwise, we
    are going to invest money in, you know, say a highway in a
    floodplain right now, and if it is not built in way that can
    withstand the impact of climate change, it is going to be a
    real loss to taxpayers. And so better investment up front in
    hardening these things, rather than paying more in the end.
        Obviously, with Colonial Pipeline, we are already seeing
    the negative impacts of not hardening our cyber infrastructure
    against attacks. We need to be doing the same thing with our
    other physical infrastructure in the area of transportation and
    other things.
        And so in that regard, the Obama administration put forward
    a Federal Flood Risk Management Standard. The GAO, an
    independent entity, looked at it and concluded that that
    standard could help with mitigating the harmful impacts on
    future Federal infrastructure investments. Unfortunately, the
    last Administration, the Trump administration, eliminated that
    standard. So Senator Brian Schatz and Senator Booker and I are
    reintroducing our legislation to establish in law what that
    Biden-era standard did through regulation. I have also
    questioned the Biden administration about it, and I hope that
    they will move forward in reinstating that important standard
    to adapt and to save taxpayer money dollars.
        I do want to ask Ms. Smith just to comment on this.
    Shouldn't we, as a Government, be making investments with
    taxpayer dollars in a way that foresees these risks and costs
    if we do not build in a resilient manner?
        Ms. Smith. Yes. Thank you for the question, Senator, and
    thank you for being an advocate on this important issue. It is
    just common sense. You know, anyone who is building, making a
    big investment, needs to look at how long that is going to last
    and how long you want it to last, the design life. If you look
    only at the flood map that tells you what the flood was
    yesterday, and try to build to protect against yesterday's
    flood, over and over again, you potentially can be hit by
    damage and disaster. We waste Federal tax money. As someone
    else pointed out on the panel, you put infrastructure in risky
    areas, houses follow.
        So we definitely need that Federal risk standard back in
    place.
        Senator Van Hollen. Well, I appreciate that. I mean, I
    realize the previous Administration was essentially climate
    change deniers, including the President of the United States,
    but all of us have an interest in protecting American taxpayer
    investments. And for the life of me I am not sure why they
    eliminated a provision which GAO has indicated would help
    prepare and would save taxpayer dollars.
        So we need to press forward with this. Thank you for your
    input on this. And now I am going to be turning this over to
    Senator Cramer, for questions.
        Senator Cramer. Thanks a lot, and thanks to all of the
    witnesses. You know, I just really have one questions, and I do
    not care what order we go in. Maybe start with Ms. Kagan. But
    one of the most common concerns that I hear from homeowners and
    other stakeholders on this issue of NFIP reauthorization is
    really the need to ensure that there is not a penalty for
    homeowner transferring between the Government programs, NFIP
    programs, and private flood insurance. And I am just wondering
    if you could, first of all, just give a basic opinion, but a
    rationale for that.
        Ms. Sternhell. The city's view is that everybody should
    have coverage, whether it is coming from NFIP or the private
    sector. So we would certainly encourage everyone to maintain
    coverage, whether you are switching to the public program or
    you are going to private insurance, because at the end of the
    day we want people protected.
        Senator Cramer. Sure. And go ahead. I am sorry. Go ahead.
        Mr. Lehmann. Senator, so a lot of the implementation of
    bigger waters, allowing private flood to satisfy the mandatory
    purchase requirement has been accomplished in the last few
    years by lending regulators, but this is one area that Congress
    could still provide clarity, that if you leave the NFIP, go to
    a private insurer, and then want to return to the NFIP later--
    maybe the private insurer you went to leaves the market, maybe
    they raise rates significantly--that you could still get the
    rate you would have gotten as if you had not left in the first
    place. And I think that is a valuable thing that Congress could
    provide is clarity.
        I also would help the private market. It would help both
    the private market and the NFIP, because the private market
    needs to attract people, and that is a concern people would
    have about buying private flood is, is it a one-way street and
    I can't go back?
        Senator Cramer. Mm-hmm. Sure. Mr. Ellis.
        Mr. Ellis. Yes. Thank you very much, Senator Cramer. I
    absolutely, not surprisingly, agree with Mr. Lehmann, but that,
    yes, you want to have that portability. I mean, the only reason
    why somebody would leave the NFIP is if they have a better
    product or a better price, or both. But you want to make sure
    that then there is confidence that, OK, I am sticking my toe
    into the water. I want to make sure that if I do want to go
    back to the NFIP it is available. And so I think that will
    actually foster more people getting coverage, which is really
    what the whole goal should be, is that more Americans get flood
    insurance coverage.
        As I pointed out in my testimony, only 5 million policies--
    we have well over 100 million housing units. We have heard
    repeatedly about flooding that occurs outside of the mandatory
    purchase areas, and so this is an area where we want to see
    more people getting coverage, and the way you are going to do
    that is if people are starting to buy their insurance from
    gecko at GEICO, or they are buying from Mayhem, and/or they are
    buying it from Flo.
        Senator Cramer. Sure.
        Mr. Berginnis. Yes. Senator, if I could add to that.
        Senator Cramer. Please.
        Mr. Berginnis. The continuous coverage provision is one we
    know that there is a desire to do. But one of the things, I
    think, that we elaborate on in our testimony is based on the
    principle of fairness between the NFIP and private insurers. In
    the changes in 2012 and 2014, there are a couple of additional
    changes that are needed to make sure the NFIP is actually on a
    level playing field with private. For example, we have long
    proposed this concept of an equivalency fee that is equal to
    national policy fee to help pay for floodplain management and
    mapping. The mapping, even for private policies, delineates
    where you have to buy flood insurance. It inherently is helpful
    to private industry.
        Also, we need to make sure that communities are not
    dropping out of the program because they know private flood is
    available. And then finally, we need to address the
    discretionary acceptance loophole, I guess is what I will call
    it, a rule that the regulators passed in 2019, that, quite
    honestly, runs totally contradictory to what Congress directed
    in terms of private policies. Thank you.
        Senator Cramer. Yep. Well said. Thank you. That is good
    with me, Mr. Chairman.
        Chairman Brown. Thank you, Senator Cramer. I believe
    Senator Smith is asking a question of the Committee right now,
    so we will go to Senator Warnock for 5 minutes, the Senator
    from Georgia.
        Senator Warnock. Thank you so very much, Mr. Chairman. As a
    native of Savannah, Georgia, the city by the sea, this issue of
    flooding is deeply personal for me and for folks I know,
    including, you know, my own family, my own hometown. An
    analysis from the Union of Concerned Scientists noted that the
    Savannah area experiences some level of flood approximately ten
    times a year. Just 40 years ago, that was five times a year. By
    2030, they are predicting 30 coastal flooding events per year
    and 100 flooding events by 2045.
        I am extremely concerned about the impact of these flooding
    events, particularly on low-income communities and their
    vulnerability to climate change. This issue is particularly
    timely for Georgia's coastal communities. We all kind of shake
    in our boots this time of year, the closer we get to the
    hurricane season.
        Mr. Berginnis, how will increased flooding events driven by
    climate change affect coastal communities like Savannah?
    Particularly, how will a greater frequency of these events
    affect low-income communities near the coast?
        Mr. Berginnis. Well, Senator, thank you for the question,
    and of course, when we think of low-income communities we
    immediately understand that that is the segment of the
    population that is the least resilient to flooding.
        And so, you know, where we may have had a big flood that
    would affect folks occasionally, by having more repetitive
    flooding, for folks of low income, it will significantly
    degrade, I think, their quality of life, especially if we do
    not help support, through mitigation and also through things
    like affordability programs for flood insurance, mean-tested
    affordability.
        So we need to bring to bear all the resources--the
    mitigation resources, affordability assistance--and also build
    capacity so that they can mitigate and enjoy the same benefits
    of the NFIP that others do.
        Senator Warnock. Right. So around this issue of both
    vulnerability and affordability, as you know, a 2018 FEMA
    report found that the majority of homeowners who live in high-
    risk flood zones without flood insurance not surprisingly were
    low income and may be deterred from buying coverage due to
    expensive flood insurance prices. I understand the many
    considerations that led to FEMA's decision to enact a new
    pricing risk model for flood insurance, but I am concerned that
    this new pricing model will affect low-income communities in
    flood zones, those that have the least amount of resources.
        Ms. Sternhell and Ms. Smith, Congress has been grappling
    with flood insurance affordability for many years, and this new
    pricing structure is intended to contain the Federal costs of
    flood insurance. But do we risk unintentionally exacerbating
    the racial and socioeconomic disparities that already exist?
        Ms. Sternhell. Yes, Senator, I think we do. And part of the
    difficult with this, as you heard from Senator Kennedy
    previously, is we do not know exactly where this new risk
    rating program will land and whether it will be concentrated
    predominantly in communities that are low income or majority
    minority or those that have been most disadvantaged. And that
    is one of the things that is most concerning.
        Even part from this revised rate structure, the
    affordability challenge would be the same. The rates are going
    to continue to go up, but for the statutory limits on annual
    rate increases, people would see their rates going up even
    further. And we know with climate change and with new maps
    coming in, that affordability issue is going to be exacerbated.
        And so we need to find a good model that looks at how we
    can do affordability directly for that homeowner, and at the
    same time bring to bear the resources of the Federal Government
    and local government to mitigate more broadly, because we
    cannot just do it home by home. We need to do it at the
    community level, and we need to pull together as a Nation and
    communities to actually ensure that we can protect these
    residents, keep them in their home, and/or get them somewhere
    safer and ensure they maintain their assets.
        Senator Warnock. Yes, Ms. Sternhell.
        Ms. Smith. Yes, Senator, this is Ms. Smith, and I would say
    that we can do both of these things, and that actually, Risk
    Rating 2.0 in some respects helps those people who are least
    able, who have policies now, and have been paying too much in
    order to cross-subsidize the higher priced homes.
        But I think we can then do an affordability program on top
    of that that addresses both rate and assistance for mitigation,
    and I think if we allow FEMA to look at social vulnerability as
    one of the factors in giving grants, this will help solve the
    problem.
        Senator Warnock. So, you know, inasmuch as most folks have
    a majority of their wealth in their home, this obviously has
    implications for the racial wealth gap and underscores the need
    for public policy that ensure that everybody who needs or wants
    flood insurance can get it. And it seems to me that we have an
    obligation in Congress to make sure that is the case.
        Thank you so much.
        Chairman Brown. Thank you, Senator Warnock. Senator Daines
    from Montana is recognized for 5 minutes, then Senator Smith.
        Senator Daines. Thank you, Chairman Brown, and thanks to
    our witnesses for being here today.
        When we talk about floods, a fact of life in Montana, it is
    what makes flood insurance a big deal in our State. We have
    leading companies that provide hundreds of jobs and thousands
    of national flood insurance programs, policy folders. That is
    the reason I am encouraged by the upcoming rollout of FEMA's
    Risk Rating 2.0 pricing methodology.
        As I chat with Montanans who work in and around flood
    insurance industry, and to those who hold policies, it seems
    like the Risk Rating 2.0 enjoys broad support and will increase
    fairness in the NFIP.
        However, I have heard from some of the companies back in
    Montana they want to make sure they have enough time in between
    the finalization of Risk Rating 2.0 to understand how it works
    and the impacts before it actually goes live.
        Mr. Ellis, do you think FEMA should consider allowing a bit
    of time for private industry to understand the impacts of Risk
    Rating 2.0 before it is ruled out? To be clear, I would like to
    see this implemented swiftly, but the Government unfortunately
    does not have the best record when it comes to the rollout of
    new programs. Mr. Ellis, your thoughts.
        Mr. Ellis. Well, Senator Daines, that might be an
    understatement about FEMA not doing very well with the rollout
    of programs. Certainly we have seen that time and again. I can
    understand some of Senator Kennedy's frustration that he
    brought up earlier about not knowing all the details. I do know
    that FEMA is going to be coming and presenting before Congress.
        But I definitely think that, yes, there needs to be a pause
    to make sure that there is greater comfort, and I think it
    makes sense. The reality, though, I will say, is somebody will
    have an axe to grind. I mean, we know that. Ms. Sternhell
    talked about the delay in maps and stuff like that. Some of
    that is because communities have--I cannot speak directly for
    New York City, but some of those communities have opposed the
    maps and stalled them for decades, and so that is part of the
    reason. I can certainly see that happening with Risk Rating
    2.0, and so it is just going to be a balancing act. But
    certainly there needs to be less of a black box and more
    confidence in what the information is, Senator Daines.
        Senator Daines. Mr. Lehmann, do you have anything to add to
    that?
        Mr. Lehmann. Yeah. You are not doing anyone a favor by
    hiding from them what their real risk is. I support Ms. Smith's
    proposal for a flood history in every real estate transaction,
    but you should also have, on your policy, whether you are a
    grandfathered policy or a subsidized policy or if you create a
    new affordability metric, you should know what the full risk
    base cost of your insurance is. If you are getting a discount,
    you should know how much that discount is.
        This is not just about saving money for the Government. We
    want people to understand their flood risk so that we have
    fewer helicopter pulling people off of roofs.
        Senator Daines. Thank you. According to FEMA's analysis,
    about 37 percent of policyholders will immediately see their
    premiums decrease under Risk Rating 2.0. About 58 percent of
    Montana policyholders will see an increase of somewhere between
    0 to $10. However, even that second group of policyholders is
    likely to be better off than they are now, as the current
    structure of the NFIP raises the premiums every year of all
    policyholders.
        Mr. Ellis, do you think the current structure of the NFIP
    is fair, and beyond Risk Rating 2.0, what can we do to help
    improve the NFIP?
        Mr. Ellis. Sure, Senator Daines. So right now, as
    documented in this hearing, there are enormous cross-subsidies,
    particularly from rural counties to coastal counties, and from
    less affluent to more affluent, and certainly the more affluent
    get the bulk of the subsidies. And so certainly there are
    issues there.
        Also, the way the rate structure is, it is supposed to try
    to pay for itself every year, and so it counts in catastrophic
    loss years and it counts in every historical loss year to try
    to calculate these premiums. And so it does end up penalizing
    some groups. And also it does the insurance in broad swaths, in
    zones, when, in reality, a homeowner may have a different risk
    profile than their neighbor, and certainly than the next
    subdivision, yet they are all kind of washed together in these
    very broad categories that do not target the rates.
        Senator Daines. Thank you, Mr. Ellis. Mr. Lehmann, do you
    believe the NFIP could help protect taxpayers through using
    additional reinsurance to help transfer more risk to the
    private sector?
        Mr. Lehmann. To date, the reinsurance program that the NFIP
    has enacted has worked out pretty well. In 2017, in particular,
    they recovered in full.
        Like anything else, the NFIP should approach reinsurance as
    a consumer. There will be changing in pricing in reinsurance.
    Sometimes it will be more affordable and a better bet for you,
    and sometimes less. But that, as a risk management tool, is a
    great thing to have in the quiver, going forward.
        Senator Daines. Thanks, Mr. Lehmann. Chairman Brown, thank
    you.
        Chairman Brown. Thank you, Senator Daines. Senator Smith of
    Minnesota is recognized for 5 minutes.
        Senator Smith. Thank you, Chair Brown and Ranking Member
    Toomey, and thanks to all of our panelists. I have a question,
    and I will ask for your forbearance because I have been in
    between committee hearings today, if I ask you to answer it
    again, but it is really important in Minnesota. This is a
    question about how we can encourage more communities to sign up
    for NFIP, and it is really important in Minnesota because, as
    it turns out, Minnesota has one of the lowest participation
    rates in flood insurance. Only about 0.4 percent of eligible
    properties receive coverage under NFIP, and only 7.6 percent of
    Minnesota structures in high-risk floodplains carry flood
    insurance. And this is occurring even though Minnesota is a
    relatively high flood risk State, and, of course, due to
    climate change and more extreme weather events, that number is
    only getting worse, not better.
        So my question is this. As we face these big challenges
    with large rain events, these sort of so-called pluvial
    flooding that is going to be included, as I understand it, in
    the new Risk Rating 2.0 system, how do we balance this out? We
    need to dramatically expand the number of households covered by
    NFIP. We also need to make sure--we know the premiums are not
    sufficient to cover the increasing cost of coverage, and we
    have got this rising debt challenge.
        So my question to all the panelists, and maybe I will start
    with Ms. Smith and Mr. Berginnis, how do we balance out these
    values, encourage participation, and also address this
    affordability challenge?
        Ms. Smith. Senator, it is an important question. I mean, it
    is the fundamental question before the Committee. It is how do
    you weave all of these pieces together. So I think we have to
    really up the game on mitigation assistance. I think the other
    thing to do is, as Mr. Berginnis mentioned, help communities
    that are under-resourced. In my own State of Virginia, there
    are many, many communities that do not have certified
    floodplain managers.
        So if we can help those small, under-resourced communities
    find technical assistance from FEMA, work as partners with
    FEMA, get funding from FEMA, and allow them to work with
    neighboring communities, with the Silver Jackets Army Corps
    program and other programs, to help them buildup their capacity
    in this area, then we can have more participation in the NFIP.
        Senator Smith. Thank you. Mr. Berginnis, would you like to
    respond too? Anybody else?
        Mr. Berginnis. Sure. You know, one of the issues in
    Minnesota, having known for most of my career the State
    floodplain manager there, is in a way you are a victim of your
    own success. Minnesota has been effectively managing flood risk
    for decades, and I almost think that from the standpoint of
    when it floods and not a lot of people are affected that has
    psychological impact of saying, well, geez, we don't have do
    something about it.
        Nonetheless, as Ms. Smith said, this is an age-old problem
    of the NFIP, penetration rate. How do we increase that? FEMA
    has a role to play in that, but honestly, so do States and
    communities. And so I like Ms. Smith's idea of building State
    and local capacity to help communicate the risk and help
    encourage folks. And again, one of the ideas we have is
    significantly expanding the Community Assistance Program.
        Senator Smith. Thank you. Would anybody else like to
    respond?
        Ms. Sternhell. If I may. I mean, one of the things we
    confront within New York City is that there are a number of
    properties outside the Special Flood Hazard Area, or Zone X,
    where you can get a preferred risk policy. Now what happens
    with this with regard to Risk Rating 2.0, setting that aside
    for the moment? If people are buying those policies, we want
    them to, right, because they are lower flood risk and they get
    a preferred rate. But there are still no mitigation options
    available to them to lower that rate further.
        And so encouraging that mitigation and pushing FEMA to find
    alternatives so we can say, hey, here is a really low-cost
    policy. You can do this mitigation and it will go down even
    more. We can bring more people into the program so that they
    are covered in the outside event there is a flooding event for
    them.
        Senator Smith. Thank you.
        Mr. Ellis. Senator Smith, if I may, just really briefly--I
    know you do not have much time--but there is sort of the
    tyranny of the 100-year floodplain, and that is people think
    they are either in the floodplain or they are out of the
    floodplain, when, in reality, we are all in some sort of
    floodplain. And so there is the issue of where people think if
    they do not have to buy it then they do not buy it.
        And so some of it is risk communication that we talked
    about. Some of it is getting the private sector involved. More
    people selling flood insurance, more familiar people selling
    flood insurance, so that people can bundle their policies with
    their and their homeowner insurance. There is a whole variety
    of tools and tactics that I think can be done in that way.
        And the other thing is, and this was brought up when I
    testified in House Financial Services, we need to have like a
    crosscut of the Federal budget of all the disaster spending and
    mitigation programs so we can really better target that, and
    then it also will hopefully promote better flood resilience but
    also better take-up of the flood insurance program.
        Senator Smith. Thank you very much. I think my time is up.
    Thank you, Mr. Chair.
        Chairman Brown. Thank you, Senator Smith. Thank you all. I
    just thought the idea of sweeping across this panel where no
    real partisanship, not even much ideology, just how are we
    going to solve this. So I just thought all five of you were
    really, really helpful. It has demonstrated the importance and
    the complexity of NFIP, its interrelated activities of ensuring
    and preventing flood damage as these various questions affect
    the things people care about most--their homes, their
    businesses, their communities, their future.
        Congress has struggled, as Senator Toomey said, to settle
    these complex questions through reauthorization. I am
    encouraged we have heard a lot of agreement across the panel,
    particularly around the areas of investments in mapping and
    mitigation--we need to get serious about that--and concern for
    people who struggle to afford the protection they need.
        So I will continue working with Senator Toomey and others
    on this Committee. The questions from Committee Members I felt
    were really good too and provided a lot of insight. So thanks
    to the witnesses.
        For Senators who wish to submit questions for the record,
    these questions are due 1 week from today, on Tuesday, May 25.
    To the witnesses, you have 45 days, if you would, to respond to
    any of those questions.
        So thank you again. With that the hearing is adjourned.
    Thank you so much.
        [Whereupon, at 11:49 a.m., the hearing was adjourned.]
        [Prepared statements, responses to written questions, and
    additional material supplied for the record follow:]
                  PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
        This hearing is the beginning of our effort to enact a long-term
    reauthorization of the National Flood Insurance Program this Congress.
    At a later hearing, we will invite the Federal Emergency Management
    Agency to discuss the status and reauthorization of the program.
        Flooding is the most common and most costly natural disaster facing
    families, businesses, and communities across the country. It can take
    families' homes and memories, wreck their finances, shutter a small
    business, and destroy infrastructure and entire communities. And
    disasters often fall hardest on low-income families and communities who
    have fewer resources to prepare for and respond to them.
        We can only expect flooding to get worse, and become even more
    common, as the climate continues to change.
        People in Ohio and those in North Dakota, Maryland, Louisiana, and
    all over the country are already see more flooding, and they're feeling
    the consequences--whether from spring snowmelt, increasingly powerful
    storms, ``sunny day'' flooding in coastal communities, or extreme
    rainfall that overwhelms aging infrastructure and the land's capacity
    to absorb water. Just today, we are seeing flash flooding in Louisiana
    and Texas.
        And no matter where you live, everyone pays for the financial
    fallout from floods, as the country spends tax dollars to help families
    and communities recover.
        We know we must take action to protect communities from climate
    change, and seize all of the opportunities that come with that effort.
        That's going to be a long-term effort. While we seek to halt the
    trajectory of our changing climate, we also need to help our families
    and communities become more resilient to the flooding we face now and
    in the coming decades, and whenever possible, avoid it altogether.
        The NFIP is critical to that effort. The program provides over $1.3
    trillion in coverage to more than 5 million homes and businesses in
    over 22,000 communities.
        The NFIP is not just an insurance program--its job isn't just to
    help with recovery, but to prevent and minimize the damage in the first
    place.
        The NFIP combats the overall threat of flooding through four
    interrelated components:

        Flood insurance--to help property owners and renters
            recover quickly after a flood and reduce the need for Federal
            emergency spending;

        Floodplain management--to minimize damage to people and
            property, and make our communities more resilient through the
            adoption of local ordinances and building codes;

        Floodplain mapping--to identify and communicate that risk
            to first responders, homeowners, and communities so they can
            mitigate or avoid hazards all together; and

        Mitigation--to help remove property from harm's way through
            property-level and community investments that reduce our
            overall level of flood risk and save money.

        Through NFIP reauthorization, we have an opportunity to make our
    families, businesses, and communities safer and more resilient.
        Today, our witnesses will provide their perspectives on what this
    Committee should consider as we work on that effort. I am interested in
    their recommendations for ways we can help strengthen the NFIP so that
    it can:

        Provide reliable access to insurance for property owners
            and renters,

        Address affordability concerns,

        Ensure that more people are aware of their flood risk and
            insured against losses, and

        Help the Nation predict and reduce our overall level of
            flood risk through investments and improvements in mapping,
            floodplain management, and mitigation.

        In 2017, then-Chairman Crapo and I began working with Members of
    this Committee on a long-term reauthorization.
        This Congress, I look forward to continuing this work with Ranking
    Member Toomey and the Members of the Committee to strengthen the NFIP
    and the country's comprehensive approach to mitigating flood risk
    through a long-term reauthorization bill.
                                     ______

                PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
        Thank you, Mr. Chairman. The last long-term reauthorization of the
    National Flood Insurance Program (NFIP) occurred in 2012. That 5 year
    reauthorization expired in 2017. Since then, we have had 16 short-term
    NFIP reauthorizations.
        I am hopeful we can find the common ground necessary to avoid a
    17th short-term reauthorization. However, our deadline, September 30,
    is closer than it may seem. I am ready to work quickly and
    cooperatively to find a path forward.
        Before discussing what ought to be in an NFIP reauthorization, I
    would like to remind everyone of the scope of NFIP's challenges. Put
    simply, NFIP is broken.
        Since 2005, the year Hurricane Katrina devastated the Gulf Coast,
    NFIP has had to borrow nearly $40 billion from the Treasury in order to
    pay claims. In other words, NFIP has lost about $2.25 billion per year
    over the last 16 years. Consider that $2.25 billion per year loss in
    the context of NFIP's total annual revenue last year of approximately
    $4.6 billion.
        For the last decade-and-a-half, NFIP has averaged an annual loss
    representing about half its total annual revenue. In the real world, a
    private insurer that had this magnitude of losses year after year would
    cease to exist.
        This brings me to an important point: the NFIP really should not be
    considered an insurance program at all. Rather, it is a subsidization
    program. Specifically, NFIP subsidizes the cost of living and building
    in flood prone areas. Usually, we subsidize activities because we want
    to encourage them. Perversely, in the case of NFIP, subsidies lead to
    more building and rebuilding in areas at extreme risk of flooding.
        Exacerbating the problem, development itself within these flood-
    prone areas further increases flood risk and flood damage by covering
    absorbent green space with impermeable surfaces. And to whom do these
    subsides accrue? The rich of course.
        Properties with subsidized NFIP premiums are overwhelmingly located
    in our wealthiest communities. Likewise, subsidized NFIP premiums are
    rare in our lower-income communities.
        Lately, this Committee has spent a great deal of time discussing
    climate risk and equity. I cannot think of a better opportunity to
    demonstrate a commitment to addressing both than in the reauthorization
    of NFIP.
        The good news, if there is any, is that NFIP is on a slow but
    positive path towards actuarially sound premiums. This brings me to the
    key principle of reauthorization: do no harm. Reauthorization must not
    interrupt this important positive progress.
        Next, we should continue to explore opportunities to bring more
    private capital into the flood insurance business. NFIP should continue
    to pursue opportunities to layoff risk to the private sector through
    reinsurance and other creative capital market structures. To the extent
    NFIP needs additional authority to do so, we should give it to them.
        Additionally, we should continue to encourage private flood
    insurance as an alternative to NFIP. Increasing the availability of
    private flood insurance is a great way to get more homeowners insured
    against flood damage--a worthwhile goal that is good for the homeowner
    and the taxpayer. Further, if the private sector can offer better
    coverage, better service, and a better price, who are we to stand in
    the way of that for our constituents?
        Additionally, to the extent subsidies continue to exist within
    NFIP, we should explore opportunities to target them towards those most
    in need. However, I would remind my colleagues of the perverse
    incentives involved in flood insurance subsidies and urge great
    caution.
        Finally, I hope we take this opportunity to find a way to better
    explain flood risk to policyholders and, perhaps more importantly,
    future homebuyers. Those who choose to live in flood prone areas should
    do so with eyes wide open.
        Flood insurance provides some financial security, but flood
    insurance is not the National Guard or Coast Guard. It cannot rescue
    those stranded by rising floodwaters.
        Flood insurance is not a time machine. It cannot give back the
    days, weeks, months, and--in some cases--years it takes to rebuild and
    recover from a major flood.
        In conclusion, a long-term reauthorization must continue to move
    NFIP in a positive direction. I stand ready to work with my colleagues
    to achieve that goal.
                                     ______

                    PREPARED STATEMENT OF SENATOR TIM SCOTT
        In reaction to this hearing's discussion around the compensation
    level for Write Your Own (WYO) carriers participating in the National
    Flood Insurance Program (NFIP), I will take a facts-based approach
    based on elementary economic principles I learned as a small
    businessman and insurance agency owner myself.
        The story of the WYO carrier participation rate tells us everything
    we need to know. In 2004, there were 107 companies participating in the
    WYO program. By 2016, that number had fallen to 75. Today, that number
    is at 56 companies.
        If claims of sky-high compensation rates for insurers getting fat
    off taxpayers were true, why has the number of participating WYO
    carriers dropped so dramatically? We would expect to see the exact
    opposite, if such claims were true.
        I have heard directly from one large participating WYO carrier that
    writes policies in South Carolina that it will undoubtedly leave the
    program if compensation levels are cut. Smaller carriers will be forced
    to do the same.
        WYOs currently write 87 percent of all NFIP policies. They are a
    critical distribution mechanism for a product that allows millions of
    our fellow citizens to protect themselves from the risk of flooding. I
    agree that Congress desperately needs to make reforms to the NFIP that
    will ensure it is around for future generations and save taxpayers
    billions of dollars on an annual basis. That said, cutting WYO
    compensation would be a terrible mistake and one that would quash the
    moderate amount of private sector participation we have in the NFIP.
        The Senate Banking Committee and this Congress should do everything
    in its power to encourage WYO participation in the NFIP, not hamper it.
                                     ______

                      PREPARED STATEMENT OF CHAD BERGINNIS
          Executive Director, Association of State Floodplain Managers
                                  May 18, 2021
        The Association of State Floodplain Managers is pleased to
    participate in this hearing about the National Flood Insurance Program.
    We appreciate the opportunity to discuss our views and recommendations
    for the future of the program. We thank you, Chairman Brown, Ranking
    Member Toomey, and Members of the Committee for your interest in this
    important subject.
        The ASFPM and its 38 chapters represent more than 20,000 local and
    State officials as well as private sector and other professionals
    engaged in all aspects of floodplain management and flood hazard
    mitigation, including management of local floodplain ordinances, flood
    risk mapping, engineering, planning, community development, hydrology,
    forecasting, emergency response, water resources development, and flood
    insurance. All ASFPM members are concerned with reducing our Nation's
    flood-related losses. For more information on the association, our
    website is: www.floods.org.
        Floods are this Nation's most frequent and costly natural disasters
    and the trends are worsening. The National Flood Insurance Program or
    NFIP is the Nation's most widely used tool to reduce flood risk through
    an innovative and unique mix of incentives, requirements, codes, hazard
    mitigation, mapping, and insurance. It is a partnership between
    communities, States, and the Federal Government. The NFIP is the one
    tool in the toolbox that serves policyholders, taxpayers, and the
    public well. Our testimony is intended to provide a better description
    of these interdependencies as well as 20 recommendations for Congress
    to consider to reform the NFIP.
    The NFIP Is a National Comprehensive Flood Risk Reduction Program
        The NFIP was created by statute in 1968 to accomplish several
    objectives. Among other things, the NFIP was created to:

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

        Provide communities the opportunity to voluntarily
            participate in the National Flood Insurance Program in order
            for their citizens to buy flood insurance and, as a condition
            of future Federal financial assistance, to adopt adequate
            floodplain ordinances consistent with Federal flood loss
            reduction standards,

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

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

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

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

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

        Beyond merely providing flood insurance, the NFIP is unique as it
    integrates multiple approaches for identification of flood risk,
    communication of risk, and techniques to reduce flood losses. It is a
    unique collaborative partnership enlisting participation at the State
    and local level. It is a multifaceted, multiple objective program--a
    four-legged stool as it is often called. The four legs of the stool are
    (1) floodplain mapping, (2) flood standards, (3) flood hazard
    mitigation and (4) flood insurance. Altering one leg without careful
    consideration of impacts on the other three legs can have serious
    repercussions on reducing flood losses. The NFIP on the whole provides
    substantial public benefits as our testimony will further detail.
        We must remember that 90 percent of natural disasters in the United
    States involved flooding, and all 50 States and 98 percent of counties
    have the potential to be impacted by a flood event. The NFIP, which is
    now over 50 years old, had paid over $69 billion in claims (and half of
    that has come in the past 15 years). But beyond paying insurance
    claims, the NFIP has also mapped 1.2 million miles of streams, rivers,
    and coastlines--flood hazard data that is freely and widely available.
    It has invested more than $1.3 billion in flood hazard mitigation for
    older, at-risk structures and into local flood mitigation planning.
    Because of the program, over 22,000 communities have adopted local
    flood risk reduction standards--far more communities than have building
    or zoning codes, which have resulted in $2.45 billion of flood losses
    avoided every single year. The NFIP has provided innumerable public
    benefits, direct monetary benefits to taxpayers, and significant
    benefits to policy holders.
    A Pivotal Time for the NFIP--and a Window of Opportunity
        Today, the NFIP is preparing to embark on one of its most
    transformational actions in the past several decades--the
    implementation of Risk Rating 2.0. At its core, Risk Rating 2.0 is
    consistent with a reform that ASFPM and many other organizations have
    been calling for which is to ensure that through accurate insurance
    rating we can communicate the relative level of flood risk to property
    owners and renters. Of course this is a simplified view and
    implementing transformation like Risk Rating 2.0 is much more
    complicated, but we should keep the fundamental reason we are doing
    this in mind as additional reforms are considered. The timing of both
    Risk Rating 2.0 and your consideration of NFIP reform and
    reauthorization can be very complimentary. For example, a seemingly
    widely supported reform from the last Congress was the need for a
    targeted, means-tested way to assist lower income property owners with
    NFIP premiums. Now, Congressional reform ideas can be tested against
    the NFIP's more accurate rating approach in Risk Rating 2.0 to fine
    tune the approach. Over the past few months, ASFPM has been pleasantly
    surprised to learn that Risk Rating 2.0 will have the effect of
    generally reducing flood insurance premiums for those lower-cost, more
    modest homes than the rating approach in place now, resulting in more a
    more equitable program overall.
        Today's NFIP must ensure that the Nation is ready to address
    tomorrow's flood risk. Floodplain managers know development often
    results in increased flood heights, and we observe changing weather
    patterns that result in shifting snowmelt/rainfall in the West, and
    nationally, more intense short duration storms are causing more flash
    floods. Additionally, unrelenting sea level rise (SLR) is beginning to
    affect communities from Florida and the Gulf of Mexico to Virginia and
    the Mid-Atlantic, and to Alaska. A 2017 NOAA report added a new upper
    boundary for SLR this century up to 2.5m (8 feet) by 2100 due to new
    data on the melting of the Greenland and Antarctic ice sheets.
    According to a 2018 report by the Union of Concern Scientists,
    accelerating sea level rise in the lower 48 States, primarily driven by
    climate change, is projected to worsen tidal flooding putting as many
    as 311,000 coastal homes with a collective market value of about $117.5
    billion today at risk of chronic flooding within the next 30 years--the
    lifespan of a typical mortgage. America's trillion-dollar coastal
    property market and public infrastructure are threatened by the ongoing
    increase in the frequency, depth, and extent of tidal flooding due to
    SLR, with cascading impacts to the larger economy. Higher storm surges
    due to SLR and the increased probability of heavy precipitation events
    exacerbate this risk. Inland, the situation is only slightly better,
    but is still problematic. A 2014 Climate Change Vulnerability Analysis
    by the Milwaukee Metropolitan Sewerage District shows that in the
    future to expect a pattern of increasing precipitation intensity in a
    few larger events but a decrease in the size and frequency of many
    smaller events, which is also consistent with the National Climate
    Assessment. The mapping, mitigation, and floodplain management elements
    of the NFIP all have a role to play in addressing future flood risk.
        More recently, issues of equity and social vulnerability have been
    recognized as needing to be addressed. FEMA's National Advisory
    Council's (NAC) 2020 report made the focus on equity a centerpiece of
    the vision of the future of emergency management. It noted that ``For
    disaster preparedness, mitigation, response, and recovery to
    drastically improve in 2045, emergency management must understand
    equity and become equitable in every approach and in all outcomes. The
    exacerbated impacts of disasters on underserved and historically
    marginalized communities across the United States showcases existing
    inequity.'' We must examine the NFIP and proposed reforms through the
    lens of equity and social vulnerability to ensure that policies do not
    intentionally or unintentionally make these inequities worse and seek
    opportunities to reduce them. ASFPM is pleased to learn that Risk
    Rating 2.0 will lead to a more equitable program recognizing that lower
    value homes that have traditionally paid more for flood insurance will
    pay less (as compared to higher value homes). NFIP reauthorization and
    reform and modernizing our Nation's infrastructure should support
    States and localities' ability to reduce flood risk by increasing
    resilience, particularly for vulnerable communities. Legislation could
    facilitate identification of these communities through a data-driven
    approach and direct public and private sector resources, including
    grants, bonds, and tax incentives, to improve the resilience of these
    communities that, otherwise, could not make these investments on their
    own.
        So what will the NFIP of tomorrow look like? ASFPM believes the
    Nation will continue to need a robust, fiscally strong NFIP to
    comprehensively reduce today's and tomorrow's flood risk. The program
    should strive to enhance equity and reduce social vulnerability. ASFPM
    is always vigilant that when it comes to NFIP reforms. We have seen far
    too many ideas over the past several years, that would change one
    element without consideration of how that change would impact the other
    elements of the NFIP (for example, changes in insurance shouldn't
    weaken the role of either mitigation or floodplain management. We must
    ensure that reforms carefully contemplate the potential impacts to the
    overall comprehensive approach to flood risk management that the NFIP
    provides so that we strengthen the Nation's overall resilience to
    flooding.
    A Long-Term Sustainable Financial Framework Is Needed; Debt Is an Issue
        The NFIP had generally been self-supporting until 2005. In the
    1980s the program went into debt a few times and ultimately Congress
    forgave approximately $2 billion. But from the mid-1980s to 2005, the
    NFIP was entirely self-sustaining and, when borrowing from the U.S.
    Treasury, the debt was repaid with interest. However, due to
    catastrophic floods in 2004, 2005, and 2012, 2016-2019 the program
    currently owes $20.5 billion to the U.S. Treasury and since Hurricane
    Katrina, has paid $5.06 billion in interest to the Treasury.
        The NFIP was never designed to pay for catastrophic events. In
    fact, from 1968 to 1978 the concept was one of risk sharing with the
    private sector, with the program actually paying a subsidy to private
    insurers for pre-FIRM structures (structures built prior to
    availability of flood insurance rate maps). As recently as the late
    1980s, internal communications show that the Administration reaffirmed
    the Federal treasury was essentially the reinsurer of last resort.
        Congress and FEMA have made some progress toward putting the
    program on a sound financial footing as part of the past two NFIP
    reforms in 2012 and 2014, which ASFPM supported. Under BW-12, reforms
    (later modified by HFIAA-14) included changes that led to moving
    subsidized policies toward actuarial premium rates, allowing the NFIP
    to purchase reinsurance, and to establish a reserve fund. These changes
    help reduce the financial risk to the program (and ultimately to the
    American taxpayer) and better prepare for the ever increasing number of
    catastrophic flood events. However, those reforms did have a
    consequence of exacerbating the issue of flood insurance affordability.
    We also note Congress' very significant action to forgive $16 billion
    of the NFIP's debt in 2017, and point out that the aforementioned
    reforms put in place in 2012 and 2014 to put the program in a better
    fiscal position continue today.
        So what is next? ASFPM believes that Congress should consider
    reforms that don't endlessly put the NFIP at financial risk and at the
    same time, will also assure that the program remains consistent with a
    primary reason for having a Federal flood insurance program in the
    first place--to reduce the need for disaster declarations and
    subsequent emergency spending bills. As a point of comparison, the
    Federal crop insurance program now costs taxpayers approximately $9
    billion annually. Yet the program is not required to pay that debt
    back--with interest--while filling almost exactly the same public
    policy goal; to reduce much larger costs to the taxpayers for
    agriculture disasters. Even those wishing to reform the crop insurance
    program aren't advocating to eliminate all subsidies nor considering
    the program a failure because the program results in taxpayer debt
    every single year; rather, reforms are targeted to certain subsidies,
    subsidy caps, and income limits.

        ASFPM recommends forgiving the remainder of the current
            debt and adopting some form of a ``sufficiency standard'' as an
            automatic, long-term mechanism within the NFIP that ensures,
            after a certain threshold of flooding, the debt will be paid by
            the U.S. Treasury, much like other disaster assistance. \1\
            Among other things, the sufficiency standard would consider the
            reserve fund balance, utilization of reinsurance, and ability
            of the policy base at that time to repay.
    ---------------------------------------------------------------------------
         \1\ Most insurance systems have some trigger for socializing risk
    of extreme events, such as a sufficiency standard based on a pre-
    identified event (i.e., a 1-in-25-year or 1-in-100-year event) beyond
    which mechanisms like guaranty funds pay losses. Adopting an explicit
    standard of this type for the NFIP would provide clarity as to what its
    funding sources should be and give Congress and taxpayers an
    understanding of when NFIP debt should be forgiven. Such an approach
    has been suggested by the American Academy of Actuaries for Congress to
    consider as part of a broader set of NFIP reform considerations their
    updated 2019 report The National Flood Insurance Program: Challenges
    and Solutions.

        At a minimum, the requirement for the NFIP to pay interest
            on the debt should be discontinued, or the interest and debt
            payments should be directed as reinvestments back into the
            program for needs such as flood mapping or mitigating flood-
    ---------------------------------------------------------------------------
            prone buildings, especially repeatedly flooded buildings.

        ASFPM is worried that as we head into a likely more inflationary
    environment over the long term which could have the effect of
    increasing interest rates, servicing the debt will quickly become the
    largest financial risk to the NFIP. The fact is, today's NFIP has taken
    advantage of the numerous tools Congress has provided to make it more
    fiscally sound and is more of a public-private partnership than ever
    before, leveraging private sector financial risk management tools like
    reinsurance and catastrophe bonds, as well as enabling the market for
    private flood insurance. Much progress has been made over the past 8
    years and Congress should take the final steps by recognizing these
    steps and permanently put the program on a sound financial footing by
    addressing today's and tomorrow's debt.
    Floodplain Mapping
        Floodplain mapping is the foundation of all flood risk reduction
    efforts, including design and location of transportation and other
    infrastructure essential to support businesses and the Nation's
    economy. The flood maps are also used for emergency warning and
    evacuation, community planning, and locating critical facilities like
    hospitals and emergency shelters. Today FEMA has in place the right
    policies and procedures (i.e., requiring high-resolution topography
    (LiDAR) for all flood map updates), and is using the best available
    technology to produce very good flood studies. For example, FEMA is
    doing some pilot studies in Minnesota and South Dakota using very
    precise topographic mapping and automated flood study methods to
    develop base level engineering that can be used as an input into future
    flood studies. This gives communities access to data immediately to use
    for planning and development rather than waiting years for the data. In
    coastal studies, FEMA now uses the state-of-the-art ADvanced
    CIRCulation (ADCIRC) model for storm surge analysis.
        Today, flood risk maps only exist for about \1/3\ of the Nation--
    only 1.2 million of 3.5 million miles of streams, rivers, and
    coastlines have been mapped. Also, even some of today's maps are many
    decades old, or were updated before the current standards to redraw
    boundaries based on more accurate study data and topography. ASFPM has
    repeatedly expressed concern that there is still a large inventory of
    pure ``paper'' maps that have never been digitized and modernized with
    newer flood study procedures. Many other areas have never been mapped,
    so there is no identification of areas at risk and communities have no
    maps or data to guide development to be safe from flooding. This is a
    significant problem and the example below illustrates why.
        Cameron Chase is an 87-acre residential subdivision developed in
    the early 2000s in Licking County, Ohio. As a crow flies, it is 17
    miles from downtown Columbus, Ohio (metro area population 2+ million).
    An unnamed stream flows through the subdivision:

        On the FEMA maps that were effective at the time and even on
    today's maps, the unnamed stream is not mapped. Why? The old guideline
    for mapping these small streams was that you needed about 10 square
    miles of land draining into the stream for it to reach a threshold for
    FEMA mapping in rural areas. In the case of this tributary, it only had
    about 760 acres or just over one square mile of drainage. Also, the
    land previously had been a cornfield, and as a result never had enough
    property at risk for FEMA to map prior to development:

        Luckily, Licking County has strong local floodplain management
    regulations that exceed Federal minimum standards and the regulations
    required the developer to map the floodplain on any stream where one
    wasn't identified. Prior to development a flood study (similar to one
    that FEMA would prepare) was completed and the result? A 1 percent
    chance floodplain identified that ranged from 150 feet wide to 300 feet
    wide and more importantly a map to guide the proposed development. But
    most communities do not have such standards and what happens then? The
    development occurs with no flood standards. Well, this is what is
    happening in thousands of subdivisions across the country: areas that
    used to be cornfields and cow pastures are developing into subdivisions
    with tens of thousands of housing units. Later, after there is
    significant development already built at risk and often after a flood
    or two, FEMA comes in and maps it. Then the dynamic changes and
    everything becomes adversarial. People think FEMA put a floodplain on
    them, when it was there all along. The property owner is mad because
    they have to buy flood insurance at high premiums because flood
    elevations were unknown. Realtors are upset because it is a surprise
    and may have an impact on the future salability of homes. And local
    elected officials fight to minimize the size of the mapped floodplain,
    spending thousands of dollars on competing flood studies. The entire
    dynamic can change if maps showing risk are available before
    development starts. You can see from the FEMA flood map above that
    there are many existing farm fields that will be developed in the next
    few decades (and there are small streams running through them too). We
    must map today's corn fields and cow pastures to assure that quality
    flood mapping precedes development.
        For most of the history of the NFIP, flood mapping was done to
    primarily support two functions of the NFIP: flood insurance rating and
    floodplain management standards. As a result, two pieces of data were
    typically produced: the 100-year and the 500-year flood. However, as
    the NFIP grew and as flood risk management became more important, the
    Nation's citizens looked to the FEMA flood maps as the primary source
    of any kind of flood risk information for a given area. In 2012,
    Congress, for the first time, authorized a National Flood Mapping
    Program (NFMP) as part of the NFIP reform legislation which took this
    more expansive view of flood mapping. It required, among other things,
    several new, mandatory types of flood risks to be shown on the Nation's
    Flood Insurance Rate Maps (FIRMs) beyond the 100-year and 500-year
    flood including:

      1.  All populated areas and areas of possible population growth
            located within the 100-year and 500-year floodplains;

      2.  Areas of residual risk, including areas that are protected by
            levees, dams, and other flood control structures and the level
            of protection provided by those structures;

      3.  Ensuring that current, accurate ground elevation data is used;

      4.  Inclusion of future conditions risk assessment and modeling
            incorporating the best available climate science; and

      5.  Including any other relevant data from NOAA, USACE, USGS, and
            other agencies on coastal inundation, storm surge, land
            subsidence, coastal erosion hazards, changing lake levels, and
            other related flood hazards.

        Unfortunately, ASFPM is not aware of any single flood map in the
    entire country that exists today where all of these data sets exist on
    either a FIRM panel or in the accompanying data FEMA provides. Therein
    lies the problem. We have had a National Flood Mapping Program
    authorized since 2012, but many key elements have not been implemented.
    In fairness to FEMA since 2012, progress has been made on improving the
    quality of the existing flood maps, in use of high resolution
    topography, and in the area of communicating information to communities
    and the public (either through the mapping process itself or through
    technologies and tools). Nevertheless, we believe these additional
    elements Congress required are essential for an effective national
    flood mapping program.
        What is the gap then? ASFPM believes that the gap lies in getting
    the job of initially mapping the Nation done.
        Consider:

        Based on the National Hydrography Dataset (NHD) and NOAA
            shoreline data, there are approximately 3.5 million miles of
            streams and rivers, and 95,471 miles of coastlines in the
            Nation. Currently, only 1.14 million stream miles and 45,128
            shoreline miles have flood maps. By this metric, only about \1/
            3\ of the Nation has been mapped.

        Over 3,300, or roughly 15 percent, of NFIP communities have
            maps over 15 years old, with many of these over 30 years old
            and still having ``un-modernized'' paper maps.

        Many of the added mapping requirements from 2012 haven't
            even been started beyond preliminary studies and research. This
            includes residual risk mapping around flood control structures
            and future conditions mapping. A 2016 TMAC report reviewing the
            National Flood Mapping Program stated: ``To create technically
            credible flood hazard data, FEMA needs to address residual risk
            areas in the near term. Residual risk areas associated with
            levees and dams are of great concern.''

        In 2020, in a House Science Committee hearing examining
            FEMA's flood mapping program, FEMA recognized these mapping
            needs and testified that appropriations simply have not been
            enough to make meaningful progress on the additional mapping
            responsibilities identified under the National Flood Mapping
            Program.

        ASFPM believes this gap in data is contributing significantly to
    the increasing flood losses in the Nation. A 2018 study shows that the
    total U.S. population exposed to serious flooding is 2.6-3.1 times
    higher than previous estimates, and that nearly 41 million Americans
    live within the 100-year floodplain (compared to only 13 million when
    calculated using FEMA flood maps). This translates into 15.4 million
    housing units. The same study indicates that over 60 million people
    live in the 500-year floodplain.
        In 2020, ASFPM completed the update to its 2013 report Flood
    Mapping for the Nation, which modeled the costs to fully implement the
    National Flood Mapping Program under the 2012 Biggert-Waters Reform Act
    and complete the initial flood mapping of the Nation. We conclude that
    it will cost between $3.2 and $11.8 billion to complete the mapping in
    the Nation and then cost between $107 and $480 million to maintain
    these maps as accurate and up-to-date.
        To improve flood mapping in the Nation:

        ASFPM recommends the reauthorization, funding, and
            enhancement of the National Flood Mapping Program (NFMP).

        ASPFM supports an increased authorization for the National
            Flood Mapping Program to between $600 million to $1.8 billion
            annually in order to accelerate the completion of the job of
            initially mapping the Nation in 5 years and getting to a
            steady-state maintenance phase.

        FEMA must complete the initial flood mapping of the entire
            Nation to get ahead of development and must prioritize the
            elimination of the un-modernized paper map inventory in the
            Nation.

        ASFPM urges consideration of a one-time flood map funding
            investment of $7.5 billion as part of any emerging
            infrastructure bill to finish the initial job of completing
            flood mapping for the Nation.

        ASFPM notes that in 2016, a letter initiated by then Chairwoman
    Ranking Member Maxine Waters and signed by 43 House members, not only
    recognized the benefits of flood mapping, but urged Congress to get the
    job done by funding FEMA's mapping program at a level of $1.5 billion/
    year for 5 years. A stepped up commitment to mapping flood risk is
    should really go hand-in-hand with any major infrastructure investment;
    otherwise, we risk making costly and important infrastructure
    vulnerable to both today's and tomorrow's flood risk.
    Floodplain Management (Floodplain Regulations, Training, Public
            Education)
        To participate in the NFIP, States and communities must abide by
    minimum development standards and designate a NFIP coordinator. At the
    State level, this means that there is a NFIP coordination office that
    provides technical assistance and training to communities and the
    public, serves as a repository for the State's flood maps, ensures the
    State has sufficient enabling authority for communities to participate
    in the NFIP and is the lead agency to ensure that State development is
    consistent with NFIP minimum standards. At the local level this means
    that more than 22,500 communities participate in the NFIP and have
    adopted minimum development and construction standards to reduce flood
    losses. As floodplain areas are identified and mapped throughout the
    Nation, NFIP participating communities must adopt and enforce local
    floodplain management standards that apply to all development in such
    areas.
        NFIP standards are the most widely adopted development/construction
    standards in the Nation as compared to building codes, subdivision
    standards, or zoning. FEMA has estimated that for approximately 6,000
    of the NFIP participating communities, the only local codes they have
    adopted are their floodplain management standards. Today it is
    estimated $2.4 billion of flood losses are avoided annually because of
    the adoption and implementation of minimum floodplain management
    standards. Often communities decide to adopt standards that exceed the
    Federal minimums. For example, over 60 percent of the population in the
    United States lives in a community that has adopted an elevation
    freeboard--which requires the first floor of the building be at an
    elevation that is at least a foot higher than the base flood (or 100-
    year flood). A freeboard not only has the benefit of making the
    construction safer, but it can have a tremendous impact on lowering
    flood insurance rates. A freeboard of 3 feet can reduce premiums by
    more than 70 percent.
        Why do communities participate in the NFIP and adopt local
    standards? State floodplain managers around the Nation who have
    enrolled nearly all of the communities in the past 40 years know a
    major reason is to make flood insurance available to their citizens. If
    a community hasn't joined (there are still about 2,000 communities not
    in the NFIP), it is usually compelled to do so when a resident gets a
    federally backed mortgage and needs to have flood insurance. While
    there are some nonparticipation disincentives in terms of restrictions
    on some forms of disaster assistance, such disincentives are weak and
    very limited. For most communities, they are not much of a disincentive
    at all, but getting flood insurance is a strong incentive. We must
    ensure changes to the insurance element of the NFIP do not undermine
    this incentive.
        To enable the NFIP to provide better technical assistance to over
    22,000 communities in the NFIP, the Community Assistance Program (CAP-
    SSSE) was developed in the 1980s. This program invests in building
    capability to do floodplain management at the State level in order to
    assist the communities in the State with their NFIP participation
    responsibilities because it would be impossible for FEMA to either
    directly assist that many communities or for the program to provide
    funding assistance to all communities in the program. It is important
    to recognize communities must meet the NFIP standards, they do so
    within the laws and framework that differs in each State, making it
    important States provide that assistance. For a modest investment of
    around $10 million annually, CAP-SSSE leverages State investment to
    create and maintain the capability to do effective floodplain
    management at the State and local level. The entire floodplain
    management budget (100 percent), which includes staffing, community and
    State technical assistance, and the Community Assistance Program (CAP-
    SSSE), is funded out of the Federal Policy Fee. However, the CAP-SSSE
    program is not explicitly authorized.

        ASFPM recommends that a community assistance program which
            would provide resources to States be explicitly authorized and
            its funding doubled to maintain and expand community technical
            assistance through effective State floodplain management
            programs.

        Although millions of American's homes are at risk of flooding, 21
    States have no real estate disclosure laws. This makes it difficult for
    a home buyer to learn of a property's flood history. These States do
    not require sellers to tell prospective home buyers or renters whether
    a property has been damaged by a flood and limiting access to such
    information prevents people from making smart decisions about where to
    live. Unfortunately, many homeowners learn of their propensity to flood
    only after suffering through multiple disasters. The other 29 States
    have varying degrees of disclosure requirements. This hodgepodge of
    State and local policies hinders buyers from making fully informed
    decisions.

        ASFPM supports a national real estate disclosure
            requirement for a property's flood history. Such a requirement
            could be tied to a State's participation in the NFIP.

        In 2018, the Natural Resources Defense Council researched this
    topic extensively and developed an interactive website where each
    State's flood disclosure law can be reviewed.
    Flood Hazard Mitigation
        NFIP has two built-in flood mitigation programs: Increased Cost of
    Compliance (ICC) and Flood Mitigation Assistance (FMA). These NFIP
    funded mitigation programs have resulted in more than $1.3 billion in
    funds to reduce risk to thousands of at-risk, existing structures. The
    National Institute of Building Science's Multi-Hazard Mitigation
    Council, in its research of FEMA flood hazard mitigation projects,
    determined that such projects resulted in $5 in benefits for each $1
    spent. ICC and FMA have mitigated, on average, 1,850 buildings annually
    between 2010 and 2014. ASFPM strongly supports both programs.
        ICC is the fastest way to get flood mitigation done and is paid for
    100 percent through a separate policy surcharge. Since it is simply
    part of the flood policy it isn't run like a typical grant, funds are
    available to the owner much quicker. It is a transaction between the
    insured and insurance company. Sixty percent of ICC claims are used to
    elevate a building and 31 percent of the time ICC is used to demolish a
    building. Other techniques used are floodproofing or relocation of the
    building out of the floodplain altogether. From 1997 to 2014, ICC has
    been used to mitigate over 30,000 properties.
        ASFPM has been frustrated for several years over the pace of FEMA's
    implementation of its own authority to make ICC much more useful. In
    2004 ASPFM worked with Congress to add triggers to ICC, so now there
    are four of them in the law:

        A building being substantial damaged,

        A building classified as a repetitive loss,

        A building where another offer of mitigation is being made,

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

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

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

        ASFPM recommends the ``base'' ICC claim limit be raised to
            at least $60,000 to $90,000 with the ability to purchase an
            optional additional amount of at least $30,000 in ICC coverage.

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

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

        FMA operates like a typical grant program where a community applies
    through the State through a grant application. Further, FMA also funds
    other types of mitigation that can address issues on the neighborhood-
    or community-scale such as stormwater management systems to reduce
    flood risk and flood mitigation plans. In recent years, the priority
    for the FMA program has been repetitive loss and severe repetitive loss
    properties. While this is an important objective, ASFPM worries that an
    exclusive focus on such projects is increasingly resulting in a gap
    where no assistance is available for properties that desperately need
    assistance, such as older pre-FIRM, nonrepetitive loss structures for
    which insurance rates may be increasing significantly. ASFPM recommends
    that accommodations be made for these types of properties as well, when
    FEMA formulates its new policy guidance.
        Repetitive loss claims unnecessarily drain the National Flood
    Insurance Fund, and today, there are at least 160,000 repetitive loss
    properties. Because increased flooding keeps adding more repetitive
    loss buildings, hazard mitigation efforts have been insufficient to
    reduce flood damage to older structures and ultimately reduce the
    overall number repetitive loss properties. Current mitigation programs
    within the NFIP are underfunded and not reducing the overall number of
    repetitive losses in the country. One idea for Congress to consider is
    a mitigation surge where Congress would supplement FMA funds with a
    large one-time or multiyear appropriation to either address the growing
    number of repetitive loss properties, or specifically address pre-FIRM
    properties where affordability of flood insurance has become untenable.

        ASFPM urges consideration of a one-time mitigation funding
            investment of $5 billion as part of any emerging infrastructure
            bill to reduce the amount of repetitive loss properties and
            improve the financial stability of the NFIP.

        Another idea for expanding mitigation that has merit is flood
    mitigation loan programs. After Superstorm Sandy, ASFPM worked with HUD
    to clarify that their Federal Housing Administration 203K loan program
    was available for flood mitigation purposes. Certainly loans have their
    place as a flood mitigation approach. ASFPM supports the State Flood
    Mitigation Revolving Loan Fund Act as a way to expand mitigation
    investment and its approach to emphasize flood preparedness as well as
    allowing States to develop their capacity in mitigation. We also
    support the ability of the program to offer grants instead of loans,
    especially in States where less funding might be available, and where
    State capacity and/or interest to administer such a revolving loan
    program may be lower.
        ASFPM supports improvements to FEMA mitigation grant programs, like
    FMA to better address equity and social vulnerability. Increasingly, it
    is recognized that traditional benefit-cost analysis (BCA) which
    focuses primarily on damages and losses avoided favor high value homes
    and communities: it does little to recognize issues of social
    vulnerability. Further, FEMA's longstanding, restrictive interpretation
    and treatment of Uniform? Relocation Act assistance can result in
    inequities for those vulnerable especially who ultimately cannot
    participate in a mitigation project due to the inability to secure
    comparable safe, sanitary, and affordable housing. We've offered ideas
    in the past such as excluding costs of complying with other Federal
    laws like URA and environmental compliance laws from BCA calculations
    which would result in mitigation grants being more equitable as well as
    making progress on environmental justice issues.

        ASFPM supports Recommendation 2020-01 and 2020-22 of the
            NAC report which recommends the FEMA Administrator create an
            Equity Standard and that would encourage FEMA to assess the
            current process of distributing mitigation funds to determine
            which policies, regulations and legislation need to be revised
            so the outcomes are more equitable.
    Flood Insurance
        Flood insurance is the easiest way for a property owner to manage
    their flood risk. It was also viewed by the original authors of the
    program as a way to more equitably share risks and costs of development
    decisions. Yet too few property owners and renters carry flood
    insurance. Today it is estimated 10 percent of the population lives in
    an identified floodplain and that number is projected to grow to 15
    percent by the year 2100 based on natural population growth and future
    conditions (land use, development, and climate change). While the NFIP
    provides some standards to reduce flood losses to new development, it
    has not helped communities avoid development in high flood risk areas.
    It is also estimated the number of policies increasing by 100 percent
    and the average loss per policy increasing by 90 percent in 2100. \2\
    The point is that these trends show growth in the human occupation of
    flood hazard areas and the potential damage that may result. As we have
    pointed out earlier, there are many more miles of rivers, streams and
    coastlines that aren't even yet mapped (which is why it is unsurprising
    that 25 percent of NFIP claims and \1/3\ of Federal disaster assistance
    come from outside of mapped floodplains). \3\
    ---------------------------------------------------------------------------
         \2\ ``The Impact of Climate Change and Population Growth on the
    National Flood Insurance Program through 2100''. 2013.
         \3\ ``FloodSmart Flood Facts''. Webpage accessed 3/14/17.
    ---------------------------------------------------------------------------
    Flood Insurance Affordability
        The aforementioned 2020 NAC report describes how the NFIP
    ``inadvertently assists the wealthier segment of the population by
    serving only those who can afford flood insurance.'' Although reforms
    in 2012 and 2014 did put all properties on the path to full risk
    rating, it also affected flood insurance affordability. Unfortunately,
    a long-term solution to affordability was not included in either BW-12
    or HFIAA. However, through Risk Rating 2.0, we argue that in addition
    to making the program more equitable, it also will result in making
    flood insurance more affordable to those who are likely most sensitive
    to higher flood insurance rates, fixing the legacy rating approach
    which resulted in low-value homes paying too much and high-value homes
    paying too little. Additionally, ASFPM has identified three reforms
    that may have an impact on flood insurance affordability.
        Over the past several years, another idea gaining traction is a
    program providing means-based premium subsidies to address flood
    insurance affordability. ASFPM is supportive of the concept based as
    long as it includes two provisions--that the subsidy is shown separate
    from the premium so that the policyholder better understands the
    underlying flood risk, and that the subsidy is paid for outside of the
    NFIP and therefore by taxpayers versus NFIP policy holders as the
    benefits accrue to society at large versus other NFIP policy holders.
    It seems appropriate that such a program would be inclusive of an
    equity standard that has been proposed by FEMA's National Advisory
    Council.

        ASFPM supports a needs based, equitable flood insurance
            premium assistance program. However, the subsidy should remain
            separate from the premium in order to properly communicate
            flood risk and it should be paid for outside of the NFIP as the
            benefits of the program are to society at large.

        In 2014, to meet House PAYGO rules, there was a large surcharge
    imposed on nonprimary residences, small businesses and other
    nonresidential structures. The surcharge is neither risk-based nor
    need-based. Premium increases and surcharges have led to a notable
    reduction in policies in force, declining from a high of 5.5 million to
    about 5.1 million today.

        ASFPM recommends the elimination of the PAYGO surcharge
            established in 2014 to improve flood insurance affordability
            and equity with private flood policies. This will take an
            additional cost burden off of small businesses.

        A third reform that is presently being debated is the cap on flood
    insurance premium increases. ASFPM does not have a specific
    recommendation on a suggested rate cap; rather, we would remind the
    Committee that generally rate caps that are too aggressive (too high)
    reduce the glide path to actuarial risk rating and therefore could
    exacerbate the problem of flood insurance affordability, while rate
    caps that are lower could help with flood insurance affordability and
    give owners time to consider and implement rate reducing flood
    mitigation options.
    The Private Flood Insurance Market
        Since 2012, previous NFIP reforms have led to a robust private
    market for flood insurance. Reforms to stimulate more private market
    participation have worked as intended. ASFPM very much believes a
    strong NFIP can coexist with the private market offering flood
    insurance as long as both are on equal playing fields. In other words,
    neither the NFIP nor the private market should be at a competitive
    disadvantage. The result can be coverages that complement each other.
    For example, private insurers depend on NFIP maps and agree local
    floodplain regulations help all insurance by reducing risk, yet private
    policies do not have to include the Federal Policy Fee to help pay a
    share of the flood mapping and floodplain management costs. The wholly
    unfair PAYGO surcharge has allowed private policies to be written using
    FEMA rate tables and the private sector is profiting on the difference
    between the loaded NFIP policy (with surcharges and fees) and private
    sector policy that does not have to charge such fees. ASFPM further
    believes that with the increase in the number of private flood
    insurance policies, it is even more important that the NFIP continue to
    be widely available when the private sector no longer writes policies
    in an area due to the concentration of risk or claims.
        In 2019, the mortgage regulators issued a final rule which directly
    conflicts with statute when it comes to what type of flood insurance
    policy qualifies to meet the mandatory purchase requirement. While
    rulemaking had gone on for some years, the ``discretionary acceptance''
    approach appeared in the latest, final version with no opportunity to
    comment. The primary issue is that Congress mandated that private flood
    insurance policies that were sold to for properties to meet the
    mandatory purchase requirement had to have coverages and deductibles
    ``at least as broad as'' a NFIP policy. This means that such private
    sector policies must have a coverage similar to ICC, to provide
    resources to come into compliance with flood codes and have deductibles
    that aren't too excessive--a cheap flood insurance policy does a
    property owner no good if the deductible exceeds their ability to pay.
    Yet the ``discretionary acceptance'' alternative would allow policies
    without these provisions. Such a loophole hurts property owners and
    will lead to greater dependence on Federal disaster assistance--
    contrary to the foundational goals of the NFIP. Additionally, the
    private flood insurance market that has grown rapidly the past 7 years
    has done so without the loophole being in effect.

        ASFPM recommends Congress eliminate the Lender regulators
            2019 ``discretionary acceptance'' rule that allows lenders to
            decide whether to accept private policies not meeting the
            specific requirements set by Congress for private flood
            policies.

        The private insurance industry uses FEMA flood maps in various
    ways: sometimes to calibrate their risk assessment models, and
    sometimes to determine basic eligibility of their private flood
    insurance product. Certainly the most impactful part of flood mapping
    for private industry is the identification of where the mandatory
    purchase requirement is in effect. Industry officials that ASFPM talks
    with all support the floodplain management efforts in a community that
    provides a meaningful program of risk reduction. Given that 100 percent
    of the Federal Policy Fee goes to mapping and floodplain management, it
    is only equitable that private policies help pay for these functions
    and that they are not just borne by NFIP policyholders.

        ASFPM recommends an equivalency fee, equal to the Federal
            Policy Fee, be assessed on all private flood insurance policies
            sold to meet the mandatory purchase requirement.

        As private flood insurance becomes more widely and easily
    available, provisions must be made to ensure such policies can only be
    made available to meet the mandatory purchase requirement if the
    community participates in the NFIP. Why? For thousands of communities
    in the NFIP, the primary reason for joining the program is the
    availability of flood insurance to meet the mandatory purchase
    requirement. As a requirement of joining, communities agree to adopt
    and enforce local floodplain management standards. As a result,
    floodplain management standards are the most widely adopted in the
    United States--exceeding the coverage of building codes, subdivision
    regulations and zoning. The adoption and enforcement of these codes, in
    turn, reduces future flood risk to the individual, businesses,
    communities, and taxpayers. ASFPM members understand that once you
    remove the incentive for joining (flood insurance availability)
    thousands of communities may rescind their codes, drop out of the NFIP,
    and rely on the private policies to meet needs of property owners
    without the administrative burden of adopting and enforcing local codes
    and the likely future result of more development in flood risk areas.
    Particularly susceptible to this are small communities with low policy
    counts and where more development will occur. As stated earlier in this
    testimony, most communities in the Nation already participate in the
    NFIP. And while the private industry is still emerging, let's be
    partners in persuading communities to comprehensively reduce flood
    losses. Finally, this fee has no cost to the private insurance
    industry.

        ASFPM recommends that when private flood insurance policies
            are sold to meet the mandatory purchase requirement, they can
            only be sold for that purpose within NFIP participating
            communities.

        Finally, ASFPM is concerned about the availability of private
    claims and policy data for the purposes of floodplain management and
    flood mitigation planning and programs. For decades FEMA has provided
    these data to local and State officials to assist with substantial
    damage determinations, flood recover, flood mitigation grants,
    Community Rating System participation, and flood mitigation planning.
    There should be a requirement that private flood insurance providers
    share comparable policy data to State and local floodplain managers.
    Other Flood Insurance Issues
        Community floodplain managers often hear complaints about the NFIP
    centered around what is covered and what is not; and the inability to
    get additional coverages like living expenses as part of a NFIP policy.
    ASFPM has been impressed with FEMA's customer experience initiative
    after Superstorm Sandy with FEMA committing to improving the insurance
    product it sells. Yet FEMA is constrained by a cumbersome rulemaking
    process that can take years to complete.

        ASFPM recommends Congress give FEMA the flexibility to
            offer additional flood insurance policy options and make
            changes to existing options without the need for extensive
            rulemaking.

        Consistent with ASFPM's overall philosophy laid out in this
    testimony, the roll-out of Risk Rating 2.0 should strive to do no harm
    to the floodplain management and flood mitigation elements of the NFIP.
    As the initial roll-out of the program has begun, and while recognizing
    the many benefits of Risk Rating 2.0, many of our members have
    expressed concerns about how this will impact floodplain management and
    flood mitigation. ASFPM has been engaging with FEMA to answer questions
    on how these changes will affect how floodplain managers assist
    property owners, how it will impact mitigation grant programs, and to
    ensure that tools and information is developed to address these issues.
    We urge the Committee's continued oversight to ensure that the roll-out
    of Risk Rating 2.0 recognizes and addresses the needs of all of the
    NFIP's partners and stakeholders.
        Finally, for nearly 2 years, ASFPM has been engaging FEMA to
    address access to certain policy and other data that might be
    classified as personally identifiable information (PII). Previously,
    State and local floodplain and mitigation managers had had access to
    information such as claims data provided it was used for official
    purposes such as implementing local floodplain management codes or for
    mitigation planning. However, two events conflated to inordinately
    restrict these data--Inspector's General reports where some
    inappropriate uses of data were discovered (and uses that ASFPM would
    never support), and the implementation of FEMA's new PIVOT system and
    accompanying reporting tool which did not contemplate needing to
    provide these data to those involved in flood mitigation or floodplain
    management. Today, FEMA has implemented a cumbersome system where some
    States and communities cannot even agree to FEMA's legal agreement
    under which some of these data are provided. Further, it is the DHS
    Privacy Office--that has dictated this burdensome overall approach.
    Unfortunately, we are not optimistic that FEMA can solve this
    administratively on its own.
    In Conclusion
        Floods are this Nation's most frequent and costly natural disasters
    and the trends are worsening. The NFIP is the Nation's most widely used
    tool to reduce flood risk through an innovative and unique mix of
    incentives, requirements, codes, hazard mitigation, mapping, and
    insurance. At the same time, we understand the four main pillars of the
    NFIP are interconnected; and making significant changes to one pillar
    without thoughtful consideration of the impact on the other three can
    erode the program overall. The NFIP is a key tool in the toolbox that
    serves policyholders, taxpayers, and the public well.
                                     ______

                      PREPARED STATEMENT OF VELMA M. SMITH
        Senior Officer, Government Relations, The Pew Charitable Trusts
                                  May 18, 2021
        Chairman Brown, Ranking Member Toomey, and Members of the
    Committee, thank you for your invitation to share The Pew Charitable
    Trusts' (Pew) perspective on the reauthorization of the National Flood
    Insurance Program (NFIP). My name is Velma Smith. I have a Masters in
    Urban and Regional Planning, and I am a senior officer in Government
    relations with Pew's flood-prepared communities initiative.
        Pew's flood-prepared communities initiative--like this Committee--
    has taken on one of these complex and truly difficult problems: the
    costly and common problem of floods and flooding damage. Our aim is to
    reduce the impact of flood-related disasters on the U.S. economy,
    communities, and environment. Pew applies a rigorous, analytical
    approach to improving public policy that prioritizes investments in
    flood-ready infrastructure, mitigates the impact of disasters,
    modernizes flood insurance, and promotes nature-based solutions to
    flooding.
        The NFIP, now 50 years of age, has long been an essential component
    of our Nation's management of flood risk. While the program must be
    adjusted and reformed, we understand that Congress must consider fully
    the consequences of changes to a program that serves so many flood-
    weary communities across the country. That is why Pew thanks the
    Committee for starting this important discussion now in anticipation of
    a timely reauthorization prior to the program's expiration on September
    30th.
        Pew supports changes to the NFIP that will:

        keep flood insurance available to those who need it without
            asking taxpayers to subsidize risky development;

        help drive new development away from flood-prone areas,
            including areas that will be at high risk for flooding or even
            permanent inundation in the future;

        foster fixes or buyouts of problem properties, make
            significant new investments in mitigation action, and provide
            additional assistance to the most vulnerable communities;

        promote the conservation and restoration of natural
            resources that can help in flood management;

        accelerate the collection, dissemination, and use of
            information on flood risk; and

        ultimately, make the Nation better prepared for tomorrow's
            severe storms.

        As the Committee considers changes to the NFIP, we believe it is
    critical to balance the multiple aspects of the program and remain
    focused on the fact that the program is much more than a vehicle to
    sell insurance. The NFIP was established, not just to provide insurance
    and to lower Federal disaster relief expenses, but also to communicate
    risk, improve disaster response, and enable local governments to make
    sound decisions about land use and development. The fixes the Committee
    considers, therefore, should recognize and address these multiple
    goals.
    Flood Maps
        First, let me touch briefly on a central component of the flood
    program: Flood Insurance Rate Maps (FIRMs) that determine who is
    covered by the program's mandatory purchase requirements and provide
    critical information for local communities, mitigation planners, and
    emergency responders. \1\ Though the slow pace of map production and
    the information--or misinformation--conveyed through the mapping
    program may appear far less pressing than issues of rates and
    affordability, we would urge the Committee to consider how to support
    and improve this foundational aspect of the NFIP.
    ---------------------------------------------------------------------------
         \1\ Association of State Floodplain Managers, ``Flood Mapping for
    the Nation: A Cost Analysis for Completing and Maintaining the Nation's
    Flood Map Inventory'', January 2020, https://
    www.floodsciencecenter.org/products/flood-mapping-for-the-nation/.
    ---------------------------------------------------------------------------
        Flood maps and the studies that underlie the maps can help State
    and local decision makers steer public investment into areas least
    likely to flood during the lifetime of newly constructed
    infrastructure. Informed by maps, communities can construct critical
    facilities, such as hospitals, utilities, and emergency shelters
    outside of the most hazardous zones, thereby lowering future response
    and recovery costs. Maps can show areas of ``residual risk'' behind
    levees or dams that could be affected by overtopping or structural
    failure, identify areas that might be preserved as parks and natural
    areas to absorb floodwaters, help coastal communities plan sensibly for
    sea level rise, and pinpoint priorities for storm drainage
    improvements. But none of this is possible for communities that still
    lack updated maps or, even more commonly, rely on maps that give no
    clues to what the future of flood risk may be.
        Flood map production is, in part, a matter of money, and Pew has
    for many years advocated for significant increases in the level of
    general appropriations for flood mapping. But map production can also
    be affected by process, including multiple levels of appeals and delays
    in map adoption and by the chosen metrics of success. \2\ Right now,
    FEMA measures success in the program largely by the percentage of the
    Nation's population living in areas with completed maps. Those numbers
    are indeed impressive, but it is also true that many of the more rural
    areas lack even the most basic information about risks. This data gap
    can mean that as those locales begin to experience development
    pressures, builders and investors will not be guided by risk
    information. The result, in too many instances, will be new
    construction of homes and businesses that become tomorrow's NFIP
    problems.
    ---------------------------------------------------------------------------
         \2\ Federal Emergency Management Agency, ``Adoption of Flood
    Insurance Rate Maps by Participating Communities'', January 2019,
    https://www.fema.gov/sites/default/files/2020-07/fema-adoption-flood-
    insurance-rate-maps-participating-communities-bulletin.pdf.
    ---------------------------------------------------------------------------
        Pew, therefore, urges the Committee to consider options for
    accelerating map production in underserved areas and to resist any
    changes that would add time and complexity to what is already a very
    lengthy map review and appeals process. We also support direction to
    the Agency to include additional data on future risks in new maps
    products as quickly as possible. This future risk information will be
    helpful not only to local developers and homebuilders but also to
    decision makers targeting new monies for infrastructure investments and
    upgrades.
    Rates and Affordability
        As Members on this Committee know, flood insurance rates have
    proven to be a key sticking point. There are those who see rates as too
    low, enticing people to build or live in risky areas. Others believe
    the opposite or expect to recoup every dollar spent on insurance in
    eventual claims payments. Given the chasm between these points of view,
    it may be useful to consider a bit of history and to proceed with
    caution on any initiatives to further lower rates across the board.
        When the NFIP was started, its proponents were wary of flood
    insurance providing an indirect subsidy for development in risky areas.
    \3\ Nonetheless, they were driven by what, at the time, seemed like
    large Federal disaster expenditures, and they were compelled to find a
    way to assure that those already living in flood-prone areas could make
    some sort of down payment on future Federal assistance. The program's
    drafters were cognizant of the fact that land use decisions and
    building practices affect flood risk and that those decisions are made,
    not at the Federal level, but by individual communities. They saw
    Federal flood insurance as a means of leveraging improved floodplain
    management by local governments to reduce overall risk. \4\
    ---------------------------------------------------------------------------
         \3\ See, for example, U.S. Task Force on Federal Flood Control
    Policy, ``A Unified National Program for Managing Flood Losses'', House
    Document No. 465, 89th Congress, second session, August 10, 1966,
    https://www.loc.gov/law/find/hearings/floods/floods89-465.pdf.
         \4\ See, for example, Federal Emergency Management Agency, ``A
    Chronology of Major Events Affecting the National Flood Insurance
    Program'', October 2002, prepared by The American Institutes for
    Research, The Pacific Institute for Research and Evaluation, and
    Deloitte & Touche LLP, https://www.dhs.gov/xlibrary/assets/privacy-pia-
    mip-apnd-h.pdf; and Michel-Kerjan, Erwann O., 2010, ``Catastrophe
    Economics: The National Flood Insurance Program'', Journal of Economic
    Perspectives, 2010, 24(4): 165-86, https://www.aeaweb.org/articles/pdf/
    doi/10.1257/jep.24.4.165.
    ---------------------------------------------------------------------------
        They assumed that a very limited number of communities would be at
    risk for flooding and that flood maps could be produced rather quickly
    and prove useful for long periods of time. They aimed for covering
    risks for the average ``normal'' year and allowed for borrowing from
    the Treasury for ``extreme'' events. At the same time, they seemed
    certain that there would be enough years with few storms to allow quick
    repayment of borrowed funds.
        When Congress pressed ahead with rate reductions to attract more
    policyholders, it also assumed that the need for subsidies would
    diminish over time as local floodplain management improved and as older
    structures were leveled by storms or rebuilt entirely.
        Some of these assumptions were on point. Others, with the benefit
    of hindsight, appear naive.
        Today, we are beginning to understand that where it rains, it can
    flood and that even in communities that sit above a river or far from
    the coast, heavy rainstorms can overcome storm drainage infrastructure.
    We are also beginning to understand that flood risk is dynamic and that
    assessing risk must be an ongoing process. Now we see, all too clearly,
    that large events can follow on the heels of other large events,
    diminishing opportunities for building up financial reserves. We can
    also see that many at-risk homes and businesses have remained at risk
    for multiple decades, and that discounted rates that were once seen as
    temporary have endured.
        Now, it seems, the space between the rock and the hard place that
    the program occupies has become tighter. Although $16 billion of
    program debt to the Treasury was forgiven in recent years, experts see
    no realistic chance that the program will be able to repay, with
    interest, the currently owed $20 billion plus. \5\
    ---------------------------------------------------------------------------
         \5\ U.S. Government Accountability Office, ``High Risk List:
    National Flood Insurance Program'', 2019, https://www.gao.gov/highrisk/
    national-flood-insurance/why-did-study#t=0; FEMA, Federal Insurance and
    Mitigation Administration, ``Watermark, Fiscal Year 2021'', First
    Quarter Volume 13, https://www.fema.gov/sites/default/files/documents/
    fema-watermark-report-12-2020.pdf.
    ---------------------------------------------------------------------------
        Therefore, to the extent that Congress makes no changes to the
    structure of the program but offers new risk rate relief to
    policyholders, you may run the risk of increasing the NFIP program's
    current financial shortfall and threaten its ability to pay claims. On
    the other hand, to the extent to which rates are perceived as too high,
    lower-risk policyholders may drop coverage, thereby increasing the
    pressure to raise rates on the remaining properties. In addition, as
    some policyholders pay off loans and, thereby, fall out of the group
    that is required to carry flood insurance, they may drop coverage as
    well. If those individuals suffer uninsured losses in the future,
    Congress will be pressed to offer other types of disaster relief.
        Clearly, this is a tough problem to solve, and we recognize that
    adjusting the NFIP's rate structure is a delicate business, because of
    the way it impacts people's ability to live and work in places they
    love. As the Committee approaches this difficult issue, Pew offers the
    following considerations:
        First, we suggest to the Committee that FEMA has taken step one on
    affordability--in the form of the recently announced Risk Rating 2.0
    pricing methodology. We understand that there is considerable
    apprehension about the impact of these changes, but we see these
    updates as ones that remedy a basic unfairness built into the program.
    As Carolyn Kousky of the University of Pennsylvania's Wharton Risk
    Management and Decision Process Center states: ``Right now, low-valued
    homes pay too much for flood insurance and high-value homes too
    little.'' \6\ With adjustments to the program's previous differential
    between base rates and additional coverage rates and a modernized
    approach to considering costs of repairs, Risk Rating 2.0 would address
    this unfairness. From FEMA's preliminary nationwide data, we estimate
    that Risk Rating 2.0 would actually lower insurance rates for more than
    1.1 million policyholders nationwide. We urge the Committee to let this
    important initiative proceed.
    ---------------------------------------------------------------------------
         \6\ Kousky, Carolyn, ``Stopping Price Reform Won't Eliminate Flood
    Risk'', The Hill, April 2, 2021, https://thehill.com/changing-america/
    opinion/546158-stopping-price-reform-wont-eliminate-flood-risk.
    ---------------------------------------------------------------------------
        Second, we know there is a desire to go beyond Risk Rating 2.0's
    changes to address affordability. On that point, we recommend that the
    Committee use the information provided in FEMA's affordability
    framework study to craft an affordability program that is carefully
    targeted to those policyholders that need it most.
        Again, we caution that an overly generous program--especially one
    that is not tied to other program reforms--will continue to undermine
    the program's claims-paying abilities and simply hasten the date by
    which Congress will again be debating loan forgiveness or changes to
    the borrowing cap.
        Pew believes the Committee should work to avoid an affordability
    approach that is administratively complex and costly. While we
    understand the desire to help those who are severely housing burdened,
    we would remind the Committee that the task of determining each
    policyholder's current income and assets as well as outlays for
    mortgage and other insurance payments would require extensive and
    potentially costly data collection. In addition, an affordability
    program focused solely on mortgage-holders may also overlook the needs
    of many low-income homeowners who do not currently carry mortgages.
        To ensure that artificially low insurance rates do not encourage
    more risky development in flood-prone areas, Pew also recommends that
    the Committee consider clearly restricting any additional rate
    subsidies for new construction.
        Third, we urge the Committee to ensure that any new affordability
    program compensates clearly for the price signals that new discounts
    convey. Too many individuals assume that a low insurance rate equals
    low risk; many will see a lowering of rates as confirmation of minimal
    risk. Where this is not the case, people should be fully informed and
    educated about their true risks. An affordability program should not
    feed flood complacency.
        Finally, Pew recommends beginning a triage of the program's
    financial ailments by moving more vigorously to improve the floodplain
    management aspects of the program, including by accounting for future
    risk with respect to land use regulations. The program should also
    address the costly repeat loss properties and, at the same time,
    provide more robust mitigation funding and resources in order to lower
    risk, not just premiums. Additionally, we believe that a reformed
    program must provide the public with information that can help families
    and individuals make sensible and affordable decisions about where to
    live.
    Flood Risk Disclosure
        As many flood experts have noted, an understanding of flood risk is
    fundamental to preparedness and protection, but individuals frequently
    underestimate their own risk of flooding, the extent of the damage that
    flooding can cause, or both. Some may not realize that the standard
    homeowner's insurance policy does not cover flooding. Others assume
    that their chances of significant loss to a flood are remote or believe
    that Federal disaster assistance will allow for full recovery and
    restoration. Many do not realize that for those living in the 1-
    percent-annual-chance or 100-year floodplain, the chances of a flood
    occurring during the lifetime of a 30-year mortgage are roughly one in
    four, far greater than the risk for fire. \7\ Others mistakenly believe
    that if they reside outside of a flood hazard area, their chances of
    experiencing a flood fall to zero.
    ---------------------------------------------------------------------------
         \7\ See, for example, National Association of Insurance
    Commissioners, ``Flood Insurance Basics'', undated, https://
    www.naic.org/documents/cmte-c-trans-read-wg-related-flood-insurance-
    basics-v4.pdf?modal; and U.S. Geological Survey, ``100-Year Flood--It's
    All About Chance'', April 2010, https://pubs.er.usgs.gov/publication/
    gip106.
    ---------------------------------------------------------------------------
        This lack of awareness or understanding can have devastating
    consequences for families and their property. Flooding can wreak havoc
    on what may have seemed like a sensibly balanced family budget. Flood
    victims, who may have lost their belongings, means of livelihood, cars,
    pets, or even loved ones to floodwaters can become trapped financially,
    unable to sell or to break a lease; they may be making rent or mortgage
    payments while flood damages force them to live elsewhere. They may
    have foregone flood insurance, simply because they had no means of
    recognizing their own flood risk.
        Upfront disclosures about flood risk-available before financial
    commitments are made--could change those results. Informed about a
    structure's loss history, for example, homebuyers could consider
    alternative neighborhoods, purchase flood insurance, or investigate
    mitigation options, such as landscaping improvements, building
    elevation, or special placement of costly mechanical equipment. An
    informed buyer who has not yet finalized financing may be able to roll
    the costs of flood-resiliency improvements into a long-term loan that
    will protect the structure and lower insurance rates. For most, this
    would be much easier than facing a costly repair bill on top of a
    mortgage payment post-storm.
        For renters, flood knowledge can allow for the same sort of
    informed decision-making. The individual with mobility issues may
    choose a safer location, for example. A renter with expensive computer
    equipment might opt for the second floor rather than the basement
    apartment. And, again, more individuals may decide that an insurance
    policy to cover loss of their belongings is a sensible safeguard.
        Pew believes that buyers and renters need to have all the
    information necessary to make informed decisions on what is often their
    largest and most important purchase. Sellers and lessors should be
    compelled to share the information they know about past flood damages
    and claims, obligations to carry insurance based on previous access to
    Federal disaster assistance, and designation of a home as repetitive
    loss property, which can have serious implications for flood insurance
    rates. They should also be compelled to share the results of any
    elevation survey completed on the property. Such information can round
    out the broader picture of flood risk for a given property, giving
    consumers the equivalent of the repair and accident history that has
    become standard for automobiles.
        We were delighted to find broad agreement on this issue with groups
    such as the National Association of Realtors and the Natural Resources
    Defense Council. Further, such a proposal enjoys bipartisan support by
    the public. A Pew poll released in 2019 shows that three quarters of
    respondents support a single, national standard to ensure that
    potential homebuyers are aware if a property has flooded repeatedly and
    if that property is required to carry flood insurance.
        Pew urges the Committee to direct FEMA to move quickly to develop
    national standards for disclosure of past flood losses by sellers and
    lessors and to ensure that those standards become a basic part of the
    NFIP program. We also support directing FEMA to make flood claims data,
    aggregated at block or census level, readily available to the public on
    its website.
    Repeatedly Flooded Properties
        Where should Congress begin the financial and mitigation triage?
    Pew believes that Congress must start with the long-standing but still
    growing problem of repetitive loss properties.
        This subset of insured properties that flood over and over again
    has strained the program's finances for decades. In some years,
    repetitive loss properties account for as little as 1 percent of the
    program's policyholders but cover 25 to 30 percent of its claims. \8\
    Since the 1990s, Congress, FEMA, the Government Accountability Office
    (GAO), and others have probed this imbalance problem, documenting
    multiple cases of properties repaired and rebuilt numerous times at the
    NFIP's expense.
    ---------------------------------------------------------------------------
         \8\ Federal Emergency Management Agency, ``Severe Repetitive Loss
    Property Locations in FEMA Region IV and VI'', 2009, https://kymn.net/
    wp-content/uploads/2018/08/FEMA.RepetitiveLoss.Southeast.pdf.
    ---------------------------------------------------------------------------
        In 2009, the Department of Homeland Security's Inspector General
    (IG) said that about one in ten repeatedly flooded homes had cumulative
    claims exceeding the value of the house. \9\ The IG also said the
    increase in new repeat loss properties was outpacing mitigation efforts
    by a factor of ten to one. At that time, the universe of these
    properties was estimated to be growing at roughly 5,000 per year. A
    2016 report by Resources for the Future and the Wharton Risk Center
    notes that claims filed by repetitive loss properties run 5 to 20
    percent higher than the average of claims overall. \10\ And as recently
    as 2020, the GAO again noted the growing number of nonmitigated
    repetitive loss properties--despite significant Federal expenditures on
    property acquisitions and other flood mitigation action. \11\
    ---------------------------------------------------------------------------
         \9\ Department of Homeland Security, Office of the Inspector
    General, ``FEMA's Implementation of the Flood Insurance Reform Act of
    2004'', March 2009, https://www.oig.dhs.gov/assets/Mgmt/OIG-09-45-
    Mar09.pdf.
         \10\ Kousky, Carolyn, and Erwann Michel-Kerjan, ``A Look at 35
    Years of Flood Insurance Claims'', undated, https://www.rff.org/files/
    document/file/RFF-Resources-191-FloodInsuranceClaims-0.pdf.
         \11\ Government Accountability Office, ``National Flood Insurance
    Program: Fiscal Exposure Persists Despite Property Acquisitions'', GAO-
    20-508, June 25, 2020, https://www.gao.gov/products/gao-20-508.
    ---------------------------------------------------------------------------
        The NFIP program currently allows for a more rapid escalation of
    rates for repetitive loss and severe repetitive loss properties
    compared with other premium-discounted properties. It also directs FEMA
    to prioritize mitigation assistance to such properties through Flood
    Mitigation Assistance grants and requires even more rapid rate
    escalation if an offer of mitigation assistance is refused. However,
    these are simply starting points to reducing the growth of properties
    that flood over and over.
        In the 115th Congress, a House-passed bill included a mandatory
    deductible that would have required owners to shoulder more of the
    repair costs, and it also included a measure that Pew supports aimed at
    addressing the root causes of repeated flooding. The Senate version of
    this bill has been championed by Senator Tim Scott, working along with
    Senator Brian Schatz.
        Inspiration for what was called the Repeatedly Flooded Communities
    Preparation Act came from work already being done. A few jurisdictions
    participating in FEMA's Community Rating System (CRS) were already
    conducting what have been called repetitive loss area analyses, using
    FEMA data to map and evaluate concentrations of repeated claims. Some
    appeared to be having real success reducing the number of unmitigated
    repetitive loss properties.
        While such efforts could be sophisticated, they might also be as
    simple as using a paper map and a marker to look for patterns in the
    data, following up, as necessary, with field visits, and looking at
    options for identified flooding hotspots. The bill uses a specific
    number to identify the very small set of communities that would be
    required to participate, but it does not dictate specific outcomes. It
    directs FEMA to set up rules and calls on communities to make progress
    mitigating these hotspots. The legislation also reflects the fact that
    progress for one community might look very different from progress in
    another.
        Let me be frank. This modest proposal to press communities to deal
    with repeatedly flooded areas has drawn some criticism. On the one
    hand, some believe it too unambitious. A more straightforward approach
    would simply remove some of the worst properties from the NFIP
    program--perhaps after a certain threshold of claims has been paid.
    Others see it as too tough on localities. Local governments don't want
    to be singled out as a problem for the NFIP; they have other high
    priorities to consider.
        We believe that the legislation, however, is a true attempt to hit
    the sweet spot--a spot that tries to focus attention on a nagging and
    growing problem, a directive that acknowledges the difficulty of the
    problem and offers a good dose of flexibility for finding solutions
    even as it creates a new level of accountability.
        We know that among the repeatedly flooded properties, there are
    older homes built long ago on filled wetlands, on the edges of stream,
    or in a narrow valley below a rapidly growing area whose parking lots
    and new construction are sending water flowing downstream. Among these
    may be neighborhoods plagued by frequent low-level flooding tied to
    undersized drainage ditches cleaned out far too infrequently. The
    solutions to flooding, in some cases, may not be in the hands of the
    impacted homeowners. The bill would compel communities to get serious
    about addressing such problems.
        At the same time, the list of repeatedly flooded properties might
    also include apartment buildings, beach houses, or businesses where
    flood claim payments have never been and will likely never be directed
    into improvements to protect those structures from the next storm--even
    though such improvements might be possible.
        Pew supports The Repeatedly Flooded Communities Preparation Act,
    and we are hopeful that the Committee will include it in its
    reauthorization legislation. In our view, this proposal recognizes the
    size and seriousness of the repeat loss problem but also recognizes the
    need for locality-by-locality solutions. It does not penalize the
    homeowner, who may or may not have any means of controlling the flood
    threat. It allows for multiple solutions. Overall, such legislation
    would foster thoughtful floodplain management and careful priority-
    setting by local governments--very much in keeping with the original
    intent of the NFIP program.
    Investment in Mitigation
        Pre-flood preparation, mitigation, and adaptation: To date, these
    have been the missing pieces of the NFIP puzzle--despite the fact that
    multiple studies have shown that mitigation pays for itself in the
    long-term.
        The most widely quoted of these studies comes from the National
    Institute of Building Sciences (NIBS) Multi-Hazard Mitigation Council,
    a panel of experts in fields related to the building sciences. This
    group has completed numerous reviews of mitigation projects of various
    types, concluding over and over that investments in mitigation save
    money and in some cases lives. \12\ These studies also show that the
    sooner mitigation actions are taken, the more the associated benefits
    will multiply. The amount of savings varies by type and by project, but
    overall, the numbers run in ranges from $2 in savings per mitigation
    dollar invested to as high as $11 saved per dollar invested.
    ---------------------------------------------------------------------------
         \12\ National Institute of Building Sciences Multihazard
    Mitigation Council, ``Natural Hazard Mitigation Saves: 2019 Report'',
    December 2019, https://www.nibs.org/page/mitigationsaves; and National
    Institute of Building Sciences Multihazard Mitigation Council,
    ``Natural Hazard Mitigation Saves: Utilities and Transportation
    Infrastructure'', October 2018, https://www.nibs.org/resource/resmgr/
    docs/NHMS-UtilitiesFactSheet.pdf.
    ---------------------------------------------------------------------------
        As you know, there are existing mitigation programs attached to the
    NFIP. The Flood Mitigation Assistance (FMA) program and the Increased
    Cost of Compliance (ICC) insurance riders have been helpful, and my
    colleagues at the Association of State Floodplain Managers have
    proposed an important expansion of the ICC program. Even if the ICC
    program is altered to become more generous to policyholders and even if
    the amounts appropriated for the FMA program increase to meet the full
    demand for yearly project applications, the Nation's huge mitigation
    gap would remain, however.
        That is why Pew sees the State Flood Mitigation Revolving Fund Act,
    a proposal from Senators Reed, Kennedy, and Menendez as a solid
    approach for expanding flood mitigation investment. It is a concept
    that is supported by over 120 national and local organizations from
    Florida to Minnesota to Texas to California. \13\
    ---------------------------------------------------------------------------
         \13\ The Pew Charitable Trusts, ``Pew Joins Organizations in
    Supporting Bill To Boost Flood Preparedness'', October 18, 2018,
    https://www.pewtrusts.org/en/research-and-analysis/speeches-and-
    testimony/2018/10/08/pew-joins-organizations-in-supporting-bill-to-
    boost-flood-preparedness.
    ---------------------------------------------------------------------------
        Modeled on the success of similar programs for wastewater treatment
    and drinking water, this approach would put a real emphasis on flood
    preparedness, allow the States to develop their own in-house
    institutional capacity in the field of mitigation, and help break the
    flood-damage-and-repair cycle that cripples so many communities.
        Under the proposal, the States, which already have good experience
    in managing revolving loan funds, will be able to evaluate needs across
    communities and set priorities. Some communities would be given loans--
    to be repaid over time--rather than being faced with enormous ``repair
    bills'' that come due all at once following a storm. Other communities
    might need more assistance. Where incomes and economic circumstances
    dictate, States could offer grants rather than loans, and, as loan
    payments return or ``revolve'' back to the fund, more communities will
    be helped over time.
        Overall, we see this proposal as one that will save lives,
    livelihoods, and money, and we hope it will become a central feature of
    the NFIP reauthorization this Committee moves forward.
    Equity and Social Vulnerability
        Related to the issues of premium affordability, but in many
    respects larger than that is the issue of equity and social
    vulnerability.
        As FEMA's Federal Advisory Council reminds us in their 2020 report
    to the Agency: ``[D]isasters disproportionately affect those who are
    already socio-economically marginalized in a community, subjecting them
    to even greater depths of poverty.'' \14\ Numerous studies provide
    evidence that disasters take a heavy toll on the well-being of those
    who are economically or otherwise disadvantaged--among them the
    elderly, the disabled, and those struggling to support their families.
    Without ready access to temporary housing or savings to repair homes
    and cars, many of these individuals will struggle for many months or
    years to recover from floods. Some will be permanently impacted. Many
    of you don't need to read the studies, for you've met those
    constituents as they sheltered in temporary housing, waited desperate
    for word of modest disaster assistance, or returned to homes with mold-
    covered wallboard.
    ---------------------------------------------------------------------------
         \14\ Federal Emergency Management Agency, ``National Advisory
    Council Report to the FEMA Administrator'', November 2019, https://
    www.fema.gov/sites/default/files/documents/fema-nac-report-11-2020.pdf.
    ---------------------------------------------------------------------------
        We know these most vulnerable families may be on your mind as
    consider how to reform the NFIP, and we believe there are opportunities
    to better serve these individuals and families through the insurance
    program.
        First and foremost, we would remind the Committee that the current
    insurance law does not appear to directly authorize FEMA to consider
    poverty levels or other social vulnerabilities in the administration of
    its programs. Creating a program for rate affordability based on income
    would alter that, but there may be other actions that Congress should
    consider as well--policies that could draw on the data being made
    available through the Centers for Disease Control and Prevention's
    Social Vulnerability Index, \15\ FEMA's own National Risk Index, \16\
    or the Environmental Protection Agency's Environmental Justice
    Screening and Mapping Tool. \17\ Congress might consider authorizing,
    either permanently or on a pilot project basis, the use of these
    vulnerability factors in scoring or awarding of grants and technical
    assistance. We understand that the Reinsurance Association of America
    has also begun looking at overlays of disaster risk data and social
    vulnerability and is formulating ideas for promoting private
    investments into those areas most in need. Their proposals go beyond
    the issue of flooding but may be of interest as well.
    ---------------------------------------------------------------------------
         \15\ Agency for Toxic Substances and Disease Registry, ``CDC/ATSDR
    Social Vulnerability Index'', https://www.atsdr.cdc.gov/placeandhealth/
    svi/index.html.
         \16\ Federal Emergency Management Agency, ``National Risk Index
    for Natural Hazards (NRI)'', https://www.fema.gov/flood-maps/products-
    tools/national-risk-index.
         \17\ Environmental Protection Agency, ``EJSCREEN: Environmental
    Justice Screening and Mapping Tool'', https://www.epa.gov/ejscreen.
    ---------------------------------------------------------------------------
        The Committee might also delve into the extent to which current
    approaches to benefit-cost-analysis (BCA) may bias mitigation
    investment decisions against neighborhoods or homes of lower values; a
    reform bill may be able to shift considerations from property value to
    people, including equity and social vulnerability factors, for such
    evaluations.
        On this point, we would note that when it comes to property
    buyouts, it may not be the FEMA cost analyses that create a barrier for
    low-income residents. FEMA adjusted its procedures several years ago to
    allow for BCA waivers for cases in which a property is within the
    designated flood hazard zone and the appraised value of the home is
    below a certain level. \18\ The waiver policy was based on an analysis
    of 11,000 structures acquired or elevated, which found that the average
    benefits for each project type are $276,000 and $175,000 respectively.
    This change makes it easier for projects seeking to buy lower-value
    homes to be deemed cost-effective.
    ---------------------------------------------------------------------------
         \18\ FEMA, ``Memorandum to Regional Mitigation Division Directors
    Hazard Mitigation Assistance Branch Chiefs from David L. Miller,
    Associate Administrator, Federal Insurance and Mitigation
    Directorate'', undated, https://www.fema.gov/sites/default/files/2020-
    04/fema-bca-pre-calculated-special-flood-hazard-area.pdf.
    ---------------------------------------------------------------------------
        The larger problem, however, occurs when a family is unable to
    accept a buyout offer because the appraised value of their home is not
    enough to enable them to find alternative, safe housing. To address
    this barrier, Congress might look to the buyout program run by the City
    of Austin, Texas or the State program used in North Carolina. In the
    case of Austin, the city works to help the flood-trapped lower-income
    families with procedures based on the Uniform Relocation Assistance and
    Real Property Acquisition Act (URA). \19\ URA provides for payments
    beyond appraised value in cases of mandatory buyouts. North Carolina
    has done something similar by providing localities with financing to
    help add funds to standard buyout offers in certain cases. \20\
    ---------------------------------------------------------------------------
         \19\ City of Austin, Office of the City Auditor, ``Audit Report:
    Flood Buyout Program'', February 2017, http://www.austintexas.gov/
    edims/document.cfm?id=271149.
         \20\ North Carolina Department of Public Safety, ``State Awards
    Supplements to Local Governments for Buyout of Properties Flooded by
    Hurricane Matthew'', October 15, 2019, https://www.ncdps.gov/news/
    press-releases/2019/10/15/state-awards-supplements-local-governments-
    buyout-properties%C2%A0flooded.
    ---------------------------------------------------------------------------
    Looking Forward
        Touching again on issues of mapping, I will finish by asking you to
    look to the future, pressing the Agency to change the program not only
    to supplement our current depictions of flood risk but also to promote
    floodplain management solutions that will result in lasting protection.
        Though it can flood just about anywhere, the Federal Government
    long ago opted to use the line associated with a certain statistical
    construct of a flood--the imaginary 1-percent-annual-chance or 100-year
    flood--as the arbitrary marker of where flood insurance is required and
    where it is not.
        As a statistical calculation, this line is drawn from data observed
    in past events, so it has been criticized as unduly optimistic and
    worthless in the face of possible climate change impacts. Indeed, it
    has been widely misinterpreted as the indicator of safe and not safe,
    though it is not. But, if an arbitrary line is needed to look at a
    single year's flood insurance policies, this line can, perhaps, serve
    that purpose.
        The trouble we have been creating for ourselves, however, is that
    we use the very same line to make decisions with consequences that run
    much longer than a single year. The NFIP asks local communities to
    evaluate the potential flood impacts only for those activities that
    fall within that arbitrary 100-year line--a line that will undoubtedly
    move in the future. Though many structures will likely stand for
    decades if not centuries, we still make siting and building decisions
    based on this line that offers no real glimpse of the future.
        We would ask the Members of this Committee to examine how the NFIP
    program might be changed to make better, more forward-looking
    decisions, how FEMA can be directed to provide communities with data
    and tools that tell a more nuanced story of evolving flood risk, and of
    how the program's basic land use regulations might be changed to
    consider and account for future risks. On this point, we would note
    that the Association of State Floodplain Managers and the Natural
    Resources Defense Council have a petition before FEMA that argues for
    changes to the long-standing and grossly outdated NFIP regulations on
    floodplain management. We applaud our colleagues for pressing this
    point, and we are hopeful that the Agency will engage in a
    comprehensive review of possible improvements.
        In closing, I again thank the Committee for the opportunity to
    testify and for allowing The Pew Charitable Trusts to be a part of this
    important discussion. We look forward to working with all the Members
    of the Committee to improve and sustain the Nation Flood Insurance
    Program.
                                     ______

                 PREPARED STATEMENT OF REBECCA KAGAN STERNHELL
               Director, New York City Office of Federal Affairs
                                  May 18, 2021
        Chair Brown, Ranking Member Toomey, and other Members of the
    Committee, on behalf of the Mayor and the 8.6 million NYC residents, I
    thank you for having me here today to discuss the National Flood
    Insurance Program (NFIP) and its role in communities like New York City
    (NYC).
        My goal today is to present a community perspective, one based on
    experience as a local government official and direct feedback from
    constituents. NYC has more than 520 miles of coastlines and riverbanks.
    Like so many other States and communities throughout this country, our
    riverbanks and coasts hold a dangerous beauty we must grapple with. The
    advent of sea level rise and rapid climate change is forcing us to
    reckon with our relationship to the water and the cities and
    communities we have developed next to it.
        The Federal Government has a range of tools at its disposal to help
    manage flood, from macro solutions like large-scale resiliency projects
    to the more micro like the NFIP. The NFIP is a lifeline for property
    owners after a flooding event that can mean the difference between
    recovery and the loss of a critical asset.
        Given the stakes the program has for so many, I want to focus your
    attention on four key areas as the reauthorization of NFIP is
    contemplated: affordability, mitigation, mapping, and other program
    alternatives.
    Affordability
        Flood Insurance affordability is already a large problem for
    households across the country as premiums continue to increase year
    over year. The challenge of affordability will only grow as climate
    change increases the intensity and frequency of flooding. For example,
    NYC's commissioned 2017 RAND \1\ Study on flood insurance affordability
    found that flood insurance is a financial burden for 25 percent of
    owner-occupied households in the City, and for nearly two-thirds of
    extremely low-income households.
    ---------------------------------------------------------------------------
         \1\ https://www.rand.org/pubs/research_reports/RR1776.html, p. 27
    ---------------------------------------------------------------------------
        The COVID-19 pandemic has added an additional layer of complexity
    to the issue as millions of Americans lost their jobs, saw incomes
    reduced, and struggled to pay mortgages and rents. Though we are at the
    long awaited moment of the pandemic seemingly coming under control and
    the country opening back up, millions of Americans will now face
    staggering rent and mortgage arrears on top of existing mandatory
    expenses like insurance.
        Further complicating matter is a program FEMA has recently
    undertaken to reform how rates are calculated ostensibly to better
    reflect risk based on a series of public and proprietary tools--``Risk
    Rating 2.0.'' This policy has recently been rebranded as ``Equity in
    Action'' but is anything but equitable. As it is currently designed, it
    will overhaul how premiums are calculated, causing flood insurance
    costs to skyrocket in many areas around the country, including in New
    York City's coastal neighborhoods. Many of these neighborhoods are
    among our last bastions of affordable home ownership, especially for
    communities that continue to experience the damaging legacies of racist
    redlining policies.
        These rapidly rising premiums will force thousands to make the
    impossible choice between abandoning their insurance policies or
    cutting back on household necessities like food, utility payments, and
    school supplies, or even abandoning their homes altogether. That could
    trigger a Government-made foreclosure crisis in communities where many
    are already struggling to make ends meet especially after the COVID-19
    pandemic.
        The City urges Congress to ensure flood insurance remains
    affordable for the most vulnerable, by establishing means-tested
    financial assistance for the households that need it most; and
    providing grants for low- and middle-income households to allow them to
    retrofit their homes to decrease their vulnerability to flood risk.
        The RAND report offers an instructive look at how an affordability
    program could be modeled. To start, RAND looked at what
    ``affordability'' meant, noting that, ``[f]lood insurance adds to the
    cost of owning a home, and we frame the discussion of flood insurance
    affordability in terms of the ratio of home ownership costs to
    household income.'' \2\ From this, the report utilized a metric called
    a PITI ratio (a ratio of mortgage principal and interest, property
    taxes, and property insurance (PITI) payments to income), that looked
    at the cost of owning a given home, not merely property value or income
    alone. This tool enabled researchers to see what small changes could
    affect the ability of a person to stay in their home, whether it was a
    mandatory rate increase or even just additional fees.
    ---------------------------------------------------------------------------
         \2\ Ibid. at 23.
    ---------------------------------------------------------------------------
        The City believes this type of metric offers an opportunity to set
    national policy that is sufficiently sensitive to local and
    individualized conditions. Other options that utilize a percentage of
    AMI alone are too limiting. Though AMI is set to regional conditions,
    it is not honed enough; take for instance Manhattan and Brownsville in
    the same NYC AMI, or Center City and Fairhill in the same Philadelphia
    AMI. Moreover, using a metric of gross income ignores the reality of
    people's lives and unavoidable expenses like--taxes, mortgages,
    commuting expenses, homeowner's insurance, dependents and children--
    children are expensive.
        The PITI ratio doesn't utilize all of these but it does provide a
    more nuanced look at ``ability to pay'' for the purposes of premium
    reduction affordability programs and grants for mitigation.
        The City strongly supports rate reductions and grants to help
    address affordability over loans. While loans are often discussed to
    help homeowners cover the cost of mitigation investments, they remain a
    relatively unviable option for low- to middle-income households.
    Setting aside the ability to qualify for a loan, many low- to middle-
    income households will find even at 0 percent interest, loan repayments
    are out of reach and savings from mitigation activity will not be
    realized until after the loan is repaid.
        The chart below illustrates some of the challenges with loans using
    a high NFIP premium--$3,000, the national average for FY18--$900, and
    the average for New York State for FY18--$1,150. We assume a modest
    $20,000 10-year 0 percent interest loan \3\ for home elevation which
    would yield meaningful (50 percent+) NFIP premium savings. We also
    assume 8 percent annual NFIP premium increases. Even though there is no
    interest on the loan and the homeowner successfully lowered their flood
    insurance premium through the work, the homeowner is still responsible
    for paying back the same amount or more than what was already deemed to
    be unaffordable to them.
    ---------------------------------------------------------------------------
         \3\ According to various home improvement sites, the cost of
    elevating a home ranges from $20,000-$100,000.

    Mitigation
        The availability of a range of mitigation options is key to
    affordability puzzle. It also, by definition, buys down risk for the
    property owner and to the NFIP.
        Currently, the NFIP provides few incentives for property owners to
    protect their buildings from flood damage and reduce their premiums,
    other than by elevating their buildings. While that option may be
    possible for some structures--it simply is not feasible in many areas
    of New York City and other dense urban environments. According to the
    RAND Study, 39 percent of buildings in the City's high-risk flood zones
    face impediments to elevation because they are on narrow lots or are
    attached buildings. Past efforts at pushing FEMA to identify mitigation
    alternatives to elevation have yielded limited results. The City
    believes that more needs to be done and supports provisions on urban
    mitigation alternatives in the current House reauthorization bill by
    Chair Waters.
        To best evaluate these alternatives, FEMA and the public need to
    see where the drivers of loss are. Congress should mandate that FEMA
    collect data on the extent to which major items (i.e., boilers, HVAC
    systems) are driving losses to better target mitigation approaches for
    property owners. The current small premium reduction for elevating
    mechanical items above the Base Flood Elevation may undervalue its
    mitigation effect. In addition, other factors such as the type of
    construction (e.g., brick compared to wood, attached compared to
    detached, etc.) can play a significant role in whether a structure will
    suffer catastrophic or lesser damage, but the extent to which these
    factors may influence premiums under the new rating system remain is
    unknown despite their importance.
        Furthermore, there are currently no options for homeowners with an
    X-zone policy who are ineligible for a Preferred Risk Policy (PRP) to
    reduce their premiums through mitigation. Since flood risk is growing
    in these areas due to climate change, FEMA should provide rating
    options for homeowners in these areas who invest in mitigation to help
    encourage expanded flood insurance uptake in the X-zone.
    Community Level
        Community level mitigation is also a critical part of lowering
    program costs and achieving greater affordability at scale. Two core
    elements of this are funding for infrastructure measures and changes to
    floodplain management practices.
        NFIP and FEMA programs like BRIC, should fund projects that will
    increase the resiliency of American communities to the impacts of
    climate change. Funding should be allocated for coastal and riverine
    flood prevention infrastructure, and interior drainage system upgrades.
    In particular, investments in both large- and small-scale coastal
    protection projects (i.e., floodwalls, levees, gates, berms, road
    raisings, tide gates) and associated interior drainage system upgrades
    are needed. Additionally, coastal areas would benefit from resiliently
    reconstructed waterfront infrastructure such as bulkheads, esplanades
    and wharfs as well as new coastal resiliency projects that use nature-
    based features, such as dunes, wetlands, and living breakwaters.
        Federal support of ``Resilient Design'' that anticipates future
    risks in new construction and substantial rehabilitations of buildings
    and infrastructure can go a long way in avoiding catastrophic loss. New
    York City is doing its part at the local level by reforming our zoning
    code to facilitate floodproof construction and by embedding a climate
    risk screen into all city capital projects with Climate Resiliency
    Design Guidelines.
        Since Hurricane Sandy in 2012, NYC has repeatedly increased
    required flood protection levels in Appendix G of the building code.
    These strategic changes help ensure that new buildings and major
    renovations are better prepared to withstand extreme flood events.
    Simultaneously, NYC has developed Climate Resiliency Design Guidelines
    which provide an even higher standard of flood protection for City
    capital projects. These Guidelines go beyond building codes by using
    sea level rise predictions, the useful life of the structure, and maps
    of future flood risk to calculate building-specific resilient design
    criteria. The Guidelines were recently made mandatory through local
    legislation for all public buildings and infrastructure, and this law
    will help ensure that NYC's investments in public services are designed
    to withstand flooding and sea level rise for decades to come.
        Just this past week the City passed new zoning rules tied to flood
    risk mitigation. The goal of the Zoning for Coastal Flood Resiliency
    (ZCFR) is to help buildings better withstand and recover from major
    disasters and sea level rise, which could lead to lower insurance
    costs.
        Briefly, the ZCFR updates, improves, and makes permanent the
    emergency rules established in the wake of Superstorm Sandy. New and
    substantially rehabbed buildings in areas of the City that, by 2050,
    are expected to have a 1 percent chance of a flood event in any given
    year, are now permitted to meet or exceed flood-resistant construction
    standards set by the FEMA or NYC's Building Code.
        ZCFR lets buildings elevate or relocate important mechanical,
    electrical and plumbing equipment, or backup systems like generators,
    above the expected height of floodwaters. This can be done either
    within the building, atop of the structure, or on a separate platform.
    For example, a NYCHA complex in Lower Manhattan can construct an
    elevated mechanical building in its yard to address the needs of the
    campus while keeping equipment out of the path of damaging floodwaters.
        In addition to ZCFR, the City has undertaken specific ``Resilient
    Neighborhood'' actions to further limit flood risk in three
    neighborhoods, including:

        In Gerritsen Beach, the establishment of a new Special
            Coastal Risk District, limiting future density and capping
            building heights at 25 feet above the potential height of
            floodwaters to more closely match the area's built character.

        In Old Howard Beach, zoning changes limit the construction
            of attached homes, which are harder to retrofit and elevate
            than detached homes because of their shared walls.
    Mapping
    Rate Maps
        FEMA's flood maps are a snapshot in time. Development of the maps
    is currently a long process; and given the impacts of sea level from
    climate change, many maps are often outdated by the time they are
    finalized and adopted. Prior to the Preliminary FIRMs for NYC issued in
    December 2013, the City's flood maps had not been updated since they
    were first created in 1983. These outdated maps left many New Yorkers
    in the dark about their flood risk. At the time of Hurricane Sandy many
    NYC residents outside of the SFHA were unaware of the true flood risk
    to their property and therefore did not have an NFIP policy to help
    recover.
        NYC ultimately appealed and won an appeal to Preliminary flood maps
    that FEMA released after Sandy due to modeling errors. Technical and
    process improvements are required to better map and reflect flood risk,
    including more regular map updates; and the use of more sophisticated
    modeling that better represents and communicates flood risk. As a
    result of the appeal, FEMA is updating the maps with more precise data
    and information. New preliminary flood maps, however, are not
    anticipated to be completed until 2024--41 years after our first maps.
        As you think through the program going forward, we ask you to
    consider the role of maps and zones, especially if Risk Rating 2.0 is
    to become to be the metric by which rates are set.
        Up until now zones have been critical for setting rates--but Risk
    Rating 2.0 rates are NOT based on zones, although the NFIP purchase
    requirements ARE based on zones. In effect there is a general metric
    telling a property owner they must carry a policy, however the rate
    they pay on that policy is not tied to that metric. This approach risks
    causing considerable confusion for residents about what the flood risk
    to their home actually is. The role of zones in the NFIP must be
    carefully thought out to ensure clear communication and limit confusion
    about a home's flood risk.
    Future Flood Risk maps
        Apart from the flood zone (potentially rate) maps, NYC, in
    partnership with FEMA, is soon to begin modeling future flood risk
    citywide for the 2050s, 2080s, and 2100. This effort will produce flood
    maps and the forward-looking time scales that planners and designers
    need, so that zoning and construction today are informed by our best
    understanding of future conditions that our built environment needs to
    be ready to withstand; this innovative project will not only provide
    New Yorkers with a new, necessary tool for resilient design, but will
    also provide a model that can be replicated elsewhere around the
    country.
    Program Alternatives
        Disclosures Congress should develop policy that encourages States
    to develop clear and transparent disclosure requirements in real estate
    around flood risk. Currently many property owners lack meaningful
    information about their flood insurance requirements and flood risk.
    Households considering their next purchase or rental should be aware of
    risk and cost implications they may face from flooding before closing
    on a property. Status within the NFIP is tied to the property, not an
    owner. Thus, it is also important to know a property's claim history
    when purchasing a home regardless of its location in a SFHA or not. To
    better facilitate information flow, Congress should require the NFIP to
    share a property's ``file'' that includes coverage dates and claim
    dates and amounts, stripped of any PII, to purchasers with accepted
    bona fide offers to purchase a property. This will allow potential
    property owners to access full information about a property, including
    potential additional cost related to insurance or mitigation.
    Increased Cost of Compliance
        Increased Cost of Compliance (ICC) coverage, currently included in
    standard NFIP policies, allows for up to $30,000 to bring a building
    into compliance with floodplain management codes. $30,000 is not enough
    in most cases to come fully up to code or to a more resilient standard
    than the minimum requirements. Though supply chains are expected to
    eventually normalize, the current hitches in supply chains for
    construction materials have driven up costs dramatically. We recommend
    incrementally increasing ICC from $30,000 to $100,000, with an option
    for the policy holder to purchase more coverage.
        In addition to increasing the amount of ICC, Congress should also
    expand eligibility for ICC or ensure FEMA uses extant authorities.
    Specifically, ICC is the only mitigation assistance available directly
    to homeowners, but it is only made available after a flood loss for
    substantially damaged or repetitive loss properties. The City proposes
    allowing ICC to `intervene' before the property is designated a
    repetitive/severe repetitive loss property. In doing the program
    transforms a liability into an asset, by converting the property to low
    risk immediately. Congress should expand mitigation approaches other
    than elevation and expand ICC eligibility into properties moving into
    Severe Repetitive Loss status (i.e., filing their 4th claim of
    >$5,000).
    Definitions
        The designation of a property as Severe Repetitive Loss has
    significant implications for property owners and communities. The
    current definition of a severe repetitive loss property (SRP) is one
    based on the number (4+) and value ($5,000+) of claims for a property.
    The notable variable missing from this definition is time. There is no
    time horizon over which these 4 claims need to occur, meaning a
    property can be deemed high risk despite not actually costing the NFIP
    much in claims. It is not hard to conceive of a property that had 2
    modest $5,000 claims in the 1970s, one in the early 2000s, and another
    in 2021. Despite the fact that this property isn't perpetually
    flooding, NFIP characterizes this home as severe repetitive loss and
    imposes higher rates, which given the nature of these designations is
    handed down from property owner to property owner
        Time needs to be added to the SRP equation. The current SRP
    definition is too narrow and too easily triggered, especially with the
    limited options for all properties to reduce risk and premiums. The
    definition should be reserved for the most at risk properties that are
    truly experiencing repeated catastrophic loses.
    FEMA Grant Funding
        Reforms are needed for FEMA's Hazard Mitigation Assistance (HMA)
    grant program so these grants have more flexible and predictable
    requirements and spending caps to allow local governments to work with
    property owners in identify flood mitigation strategies, such as
    buyouts that meet the needs of the owner and community.
        Spending caps for both elevation and acquisition are typically well
    below the cost it takes to elevate a home or purchase a property in
    NYC. Additionally, the grants do not currently allow for funding to
    spent on a household's relocation expenses. We recommend that the FMA
    grant for acquisition of a residential property for purposes of flood
    mitigation be expanded to support ``reasonable out-of-pocket expenses''
    for household relocation and rehousing. Consistent with the Uniform
    Relocation Act (24 CFR 578.83), reasonable relocation costs include
    but are not limited to: moving cost expenses, temporary rental or home
    ownership assistance based on the market value of a ``comparable
    replacement dwelling,'' closing cost reimbursement and transfer taxes,
    and legal and housing counseling services necessary to support
    relocation, particularly for low- and moderate-income households.
        The grant process must also be made more flexible. Currently
    communities are required to submit a list of properties at the time of
    application. This requires each community to maintain a preexisting
    list of interested property owners, posing several challenges: (1) FEMA
    grant funding is not guaranteed so it could be years before the
    mitigation is funded and the ownership of the property may have
    changed; (2) difficult to garner property owner interest when it's
    unclear when there will be funding and what will be funded.
    WYOs Claims and Compensation
        Recognizing FEMA has begun to address concerns about claim payments
    and claims reviews by adjusters with the NFIP Transformation Task
    Force, the City still sees room for a more consumer-oriented approach
    to claims review. Including restricting the use of outside technical
    reports by WYO companies in the claims process and ensuring that final
    reports are prepared in accordance with local, State, and Federal laws.
    The City supports Nydia Velazquez's (NY-7) reauthorization legislation
    that ensures there is a focus on the flood survivor, by requiring
    protections for policyholders, such as a clear appeal process with the
    requirement that FEMA provide appeal determination in writing to the
    policyholder and limit final claim determinations to a set timeframe.
        Relatedly, as the City is concerned about flood insurance
    affordability and the solvency of the NFIP, the City strongly urges
    FEMA to pursue the most accurate payment model for WYOs. WYO's are a
    key player in increasing NFIP coverage, but they also benefit from not
    underwriting any of the actual risk. Accordingly, the City feels the
    WYO compensation should be right-sized to actual expenses. Where it
    might be understandable for an agent to receive a 30 percent commission
    for the year they issue the policy, subsequent year renewals do not
    require the same customer acquisition costs or property evaluations.
    Because of the financial condition of the NFIP, we encourage Congress
    to look at the current compensation structure to ensure it aligns with
    actual work on policy issuance.
        Thank you again for having me here today and I look forward to
    answering your questions.
                                     ______

                      PREPARED STATEMENT OF STEPHEN ELLIS
                     President, Taxpayers for Common Sense
                                  May 18, 2021
        Good morning, Chairman Brown, Ranking Member Toomey, Members of the
    Banking Committee. I am Steve Ellis, President of Taxpayers for Common
    Sense (TCS), a national nonpartisan budget watchdog. Thank you for
    inviting me to testify at this hearing on reauthorizing the National
    Flood Insurance Program (NFIP). TCS has worked on flood and disaster
    related issues on behalf of taxpayers for our entire 26 years of
    existence and I've been involved in flood issues dating back to my days
    as a young Coast Guard officer dealing with the aftermath of the Great
    Midwest Flood of 1993. These are critical issues for taxpayers and the
    country needs smart public policy that protects people and property.
        The timing of this hearing is notable considering the first named
    storm of the extremely active 2020 Atlantic hurricane season appeared
    on May 16th. The year included a total of 30 named storms, a record.
    This was on the heels of years of increasing billion-dollar disasters.
    The Congressional Budget Office estimates that hurricane winds and
    storm-related funding cost the U.S. economy $54 billion annually
    including $34 billion in expected annual economic losses to the
    residential sector. The expected annual cost to Federal taxpayers is
    estimated to be $17 billion. \1\
    ---------------------------------------------------------------------------
         \1\ Congressional Budget Office. ``Expected Costs of Damage From
    Hurricane Winds and Storm-Related Flooding'', April 2019. https://
    www.cbo.gov/system/files/2019-04/55019-ExpectedCostsFromWindStorm.pdf
    ---------------------------------------------------------------------------
        Taxpayers for Common Sense is allied with SmarterSafer, a coalition
    in favor of promoting public safety through fiscally sound,
    environmentally responsible approaches to natural catastrophe policy.
    The groups involved represent a broad set of interests, from free
    market and taxpayer groups, to consumer and housing advocates, to
    environmental and insurance industry groups.
        For more than a decade the coalition has advocated reforms to
    Federal disaster policy and in the National Flood Insurance Program
    that ensure the program is smarter and safer for those in harm's way,
    the environment, and for Federal taxpayers.
        Federal floodplain policy and management has enabled unwise
    development that ironically contributes to catastrophic events. For
    instance, the flood insurance program subsidizes construction in risk-
    and disaster-prone areas, making it economically ``safe'' to build in
    medium- and high-risk areas by removing the costs of such decision-
    making. Before Hurricane Katrina in 2005, the Federal flood insurance
    program never borrowed more than $1.5 billion from the U.S. Treasury
    and loans were repaid with interest. Since the 2005 storms, the program
    has borrowed more than $35 billion.
        One other truism of disasters is that they have a disproportionate
    impact on poor and minority populations. In many cases these
    individuals don't have savings to rely on while they rebuild, they may
    have lost their transportation to work, and their place of business may
    have been destroyed as well. Because of historically discriminatory
    policies or a need for lower housing costs, these individuals are often
    situated in less desirable, more vulnerable, higher risk areas. They
    may not be able to repay loans made available after disasters or
    provide sufficient funds of their own to tap Federal programs.
        On a cost-adjusted basis, billion-dollar disasters in the U.S. have
    increased from 2.9 per year at an average cost of $17.8 billion in the
    1980s to 16.2 disasters per year at an average annual cost of $121.4
    billion from 2016-2020. \2\ The Congressional Budget Office puts it
    rather succinctly, ``Climate change increases Federal budget
    deficits.'' And that, ``Investment by the Government or others in
    various types of mitigation or adaptation efforts could reduce the
    costs of climate change.'' \3\
    ---------------------------------------------------------------------------
         \2\ National Oceanic and Atmospheric Administration National
    Centers for Environmental Information. ``U.S. Billion-Dollar Weather
    and Climate Disasters (2021)'', https://www.ncdc.noaa.gov/billions/.
         \3\ Congressional Budget Office. ``Budgetary Effects of Climate
    Change and of Potential Legislative Responses to It'', April 27, 2021.
    https://www.cbo.gov/publication/57019.
    ---------------------------------------------------------------------------
        While it varies by situation and peril, we know that every dollar
    spent on mitigation can save as much as $6 or more in post-disaster
    response. \4\
    ---------------------------------------------------------------------------
         \4\ National Institute for Building Sciences. ``Mitigation Saves:
    Mitigation Saves Up to $13 for Every $1 Invested'', 2021. nibs.org/
    files/pdfs/ms-v4-overview.pdf
    ---------------------------------------------------------------------------
    NFIP
        It is important to understand the context of how the Nation got
    into the flood insurance business. After years of ad hoc disaster aid
    being meted out by Congress, the NFIP was established in 1968 to create
    ``a reasonable method of sharing the risk of flood losses through a
    program of flood insurance which can complement and encourage
    preventative and protective measures.'' \5\ The program was to make up
    for a perceived lack of available flood insurance. But even at that
    time Congress was warned that it was playing with fire. The
    Presidential Task Force on Federal Flood Control Policy wrote in 1966:
    ---------------------------------------------------------------------------
         \5\ P.L. 90-448
    ---------------------------------------------------------------------------
        A flood insurance program is a tool that should be used expertly or
    not at all. Correctly applied it could promote wise use of flood
    plains. Incorrectly applied, it could exacerbate the whole problem of
    flood losses. For the Federal Government to subsidize low premium
    disaster insurance or provide insurance in which premiums are not
    proportionate to risk would be to invite economic waste of great
    magnitude. \6\
    ---------------------------------------------------------------------------
         \6\ U.S. Task Force on Federal Flood Control Policy. ``A Unified
    National Program for Managing Flood Losses'', August 1966. P 17. http:/
    /www.loc.gov/law/find/hearings/floods/floods89-465.pdf
    ---------------------------------------------------------------------------
        For 50 years, the flood insurance program has helped fuel a
    development boom in high-risk areas simply by making it more affordable
    to take on flood risk. And housing doesn't occur in a vacuum. As areas
    develop infrastructure follows with roads, bridges, water, electric,
    and sewer; these all intensify along with residential development. The
    NFIP has exacerbated exposure to climate change. At the same time, it
    is negatively impacted by it. As storms increase in frequency, as sea
    levels rise, this increases the costs to the program. It also increases
    demand for disaster spending.
        In a little over 15 years, NFIP has been forced to borrow nearly
    $40 billion from taxpayers to pay off claims, so I think it's pretty
    clear that this ``tool'' was not used expertly and that the waste issue
    has come to fruition.
        NFIP has subsidized rates in the program virtually since its
    inception, regardless of need. FEMA estimates more than 25 percent of
    properties in the program pay subsidized or ``grandfathered'' rates,
    where the flood zone designation has changed. \7\ Even with the
    properties that are paying supposedly risk-based premiums, the fact
    that the program can borrow from the Treasury is a built-in subsidy.
    The Government Accountability Office (GAO) has documented large cross-
    subsidies, many of which benefit high-income homeowners. \8\ They found
    that over 78 percent of subsidized properties in NFIP are located in
    counties with the highest home values (the top three deciles), while
    only 5 percent of subsidized properties are in counties with the lowest
    home values (the bottom five deciles). \9\ This represents a real
    challenge to the program's sustainability. To help address this,
    grandfathering should not be allowed for any new construction in the
    floodplain.
    ---------------------------------------------------------------------------
         \7\ Congressional Research Service. ``National Flood Insurance
    Program: The Current Rating Structure and Risk Rating 2.0'', January
    25, 2021. https://fas.org/sgp/crs/homesec/R45999.pdf
         \8\ Government Accountability Office. ``Flood Insurance: More
    Information Needed on Subsidized Policies'', July 2013.
         \9\ U.S. Government Accountability Office. July 2013. ``Flood
    Insurance: More Information Needed on Subsidized Properties''.
    (Publication No. GAO-13-607). Retrieved from: http://www.gao.gov/
    assets/660/655734.pdf.
    ---------------------------------------------------------------------------
        The best way to reduce the rate--for property owners and
    taxpayers--is to reduce the risk. It's not about artificial rate caps
    that hide the real risk to people, but about finding ways to fund
    mitigation either at the property level or at the community level. If a
    property owner is unable to afford the premium, means-tested assistance
    outside the rate structure should be provided.
        We have long called for means-tested premium assistance to help
    more homeowners obtain flood insurance while shifting away from
    property-based subsidies. There are a little more than 5 million NFIP
    policies, but there are well over 100 million housing units. To put the
    need for flood insurance into perspective, according to FEMA, after
    2016's extraordinary heavy rainfall event in Baton Rouge, the average
    homeowner with flood insurance coverage got $86,500 to rebuild their
    home, the average person without flood insurance got only $9,100 in
    individual disaster assistance. \10\
    ---------------------------------------------------------------------------
         \10\ Taxpayers for Common Sense. ``Weekly Wastebasket: Another
    Hurricane Season Begins'', June 1, 2018. https://www.taxpayer.net/
    infrastructure/another-hurricane-season-begins/
    ---------------------------------------------------------------------------
        This sadly demonstrates that many people who aren't required to buy
    flood insurance should. Even with protection from levees, floodwalls,
    or dams, there is a residual level of risk of flooding.
        We strongly urge the Banking Committee to enact a 5-year
    reauthorization of the NFIP in order to get past the annual or even
    monthly fights.
        However, there are several things not to do in reauthorization--
    such as a number of provisions that have been contemplated in a
    partisan discussion draft in the other chamber. These include a
    proposed repeal of the surcharge imposed by Grimm-Waters--a surcharge
    that was implemented to pay for the repeal of elements of Biggert-
    Waters. Without offsets for this repeal, more NFIP costs will be borne
    by taxpayers. This legislation also envisions halving of the cap on
    premium increases intended to bring some policyholders rates closer in
    line to their risk, which is also a step backward. It would go from 18
    percent to 9 percent. Further the legislation redefines average
    historical loss year to exclude catastrophic loss years and
    misrepresent the true costs of the program. The average historical loss
    year is used to set premiums in an effort to try to ensure they help
    offset costs to taxpayers. Excluding catastrophic loss years does not
    eliminate past floods or their costs on communities and taxpayers. The
    House draft also waves the magic debt-cancelation wand without even
    reducing the $30 billion borrowing limit--a ridiculously high amount.
        As the Committee knows, FEMA has launched a new effort to better
    price actual risk for properties. The new program, Risk Rating 2.0, is
    supposed to start for new properties and policies in October and for
    existing policyholders next year. According to FEMA, they worked with
    public, private, and nonprofit organizations to incorporate more data
    and flood variables to determine actual risk to properties, and it will
    be updated annually. In theory, this will reduce some of the cross-
    subsidies that have plagued the program. In addition, FEMA predicts
    that 23 percent of policyholders will see an average decrease of $86 a
    month and 66 percent will see an increase of less than ten dollars and
    another 7 percent an increase of less than $20 per month. Four percent
    will see an increase of more than $20 per month, but those are for high
    value homes in high-risk areas. This adheres to the existing rate caps.
    \11\
    ---------------------------------------------------------------------------
         \11\ Federal Emergency Management Agency. ``Risk Rating 2.0 is
    Equity in Action'', https://www.fema.gov/sites/default/files/documents/
    fema-rr-2.0-equity-action-0.pdf.
    ---------------------------------------------------------------------------
        This move to Risk Rating 2.0 coincides with long overdue updates to
    mapping efforts. It goes without saying that there have been enormous
    technological advancements in mapping and modeling since the program's
    inception 50 years ago. More advanced technology such LiDAR, 3D
    mapping, and computing power enable much more accurate and predictive
    maps than what have been in use to date.
        Speaking of additional data, FEMA's National Risk Index coupled
    with other data can be used to target mitigation funds to communities
    and property most at risk and most in need of assistance. By targeting
    this way, Federal funds and assistance from a range of agencies and
    programs can be used with an even greater return on investment and risk
    reduction than otherwise.
    Conclusion
        I want to thank you for inviting me to testify today. NFIP and
    related disasters are critical issues not just for their budget and
    taxpayer impacts, but for society as a whole. Federal policies must
    better promote realistic and responsible solutions to climate change
    including targeted investments that lift innovative solutions and
    reflect the needs and experiences of low-income and minority
    communities. The goal must be to develop risk management and mitigation
    strategies that enable communities, infrastructure, and industries to
    become more resilient, face less risk, and can better adapt to and
    mitigate future costs and damages of climate change.
        To that end, I urge the Senate Banking Committee to pursue
    solutions to these issues in a bipartisan manner as has been done in
    the recent past. In countless areas across Government, this has proved
    to be the only method to achieve durable and lasting solutions to our
    challenges. Thank you again, and I'm happy to answer any questions you
    might have.
                                     ______

                       PREPARED STATEMENT OF R.J. LEHMANN
       Senior Fellow and Editor-in-Chief, International Center for Law &
                                   Economics
                                  May 18, 2021
        Chairman Brown, Ranking Member Toomey, and Members of the
    Committee, my name is R.J. Lehmann, and I am a Senior Fellow with and
    Editor-in-Chief of the International Center for Law & Economics. ICLE
    is a nonprofit, nonpartisan research center that promotes the use of
    law and economics methodologies to inform public policy debates.
    Working with a roster of more than 50 academic affiliates and research
    centers from around the globe, we develop and disseminate academic
    output to build the intellectual foundation for rigorous, economically
    grounded policy.
        I have been an active observer of the challenges facing the
    National Flood Insurance Program (NFIP) for 18 years. In my former life
    as a business journalist, I was from 2003 to 2011 the Washington bureau
    chief of two major trade publications covering the business of
    insurance. That stint included covering the 2004 and 2008 NFIP
    reauthorization debates and, of course, the devastating impact of
    Hurricane Katrina in 2005. In 2012, I cofounded the R Street Institute,
    where I remained until joining ICLE 6 months ago. Among my duties at R
    Street was running the Institute's insurance policy research program,
    and I made NFIP reform a major part of my research focus.
        I thank the Committee for conducting this hearing, its first in 4
    years on the topic of NFIP reauthorization. It has been nearly a decade
    since Congress last approved a long-term reauthorization of the NFIP.
    The program remains in need of structural reform, and the series of
    short-term extensions on which it has relied for the past 4 years
    leaves many parties--homeowners, business owners, builders, lenders,
    realtors, insurers, and insurance agents--without the clarity they need
    to make forward-looking decisions. One hopes Congress will be able to
    reach agreement this session on legislation that provides that clarity,
    while also making the adjustments needed to address the long-term
    challenges this program faces.
        The past year has given us all an up-close view of how Americans
    respond when faced with the realization of remote and nominally
    ``unforeseen'' catastrophic risks. But, of course, the COVID-19
    pandemic was not unforeseen at all. Public health officials and
    catastrophe modelers have long known that a viral contagion of this
    sort was not only possible, but inevitable. The 1918 influenza pandemic
    was within the lifetime of some Americans. Much more recently, another
    H1N1 influenza spread as a pandemic in 2009; we were merely fortunate
    that it did not prove to be terribly deadly. And we have in recent
    years seen other coronaviruses like SARS and MERS reach epidemic levels
    abroad.
        Similarly, there is nothing unforeseen about the challenges facing
    the National Flood Insurance Program. It was established more than 50
    years ago to provide coverage that private insurers would not; to
    reduce the Nation's reliance on post-hoc disaster assistance; to
    provide incentives for communities to invest in mitigation; and to be
    self-sustaining.
        What is now clear is that the NFIP has not been--and, as currently
    structured, cannot be self-sustaining. Since Hurricane Katrina, the
    program has been forced to borrow nearly $40 billion from the U.S.
    Treasury. Reforms passed as part of the Biggert-Waters Flood Insurance
    Reform Act of 2012 were intended to place the program on a path toward
    long-term fiscal sustainability by phasing out explicit premium
    subsidies and shifting more risk to the private insurance, reinsurance,
    and capital markets. But some of those reforms were scaled back or
    repealed almost immediately in the Grimm-Waters Act, passed in 2014.
    And even with $16 billion of the program's debt erased by Congress in
    2017, the NFIP remains $20.5 billion in debt to U.S. taxpayers as of
    the first quarter of Fiscal Year 2021, \1\ with no feasible plan ever
    to repay that debt in full.
    ---------------------------------------------------------------------------
         \1\ ''The Watermark Fiscal Year 2021, First Quarter, Volume 13'',
    Federal Emergency Management Agency, p. 2. https://www.fema.gov/sites/
    default/files/documents/fema-watermark-report-12-2020.pdf.
    ---------------------------------------------------------------------------
        Post-hoc disaster spending also continues to grow, with more than
    90 percent of all federally declared disasters involving floods. And
    while the program has provided incentives for mitigation, by making
    cheap flood insurance available, it also has played a role encouraging
    development in flood-prone and environmentally sensitive regions.
    Moreover, due to the looming threat of climate change--which we know
    will drive both rising sea levels and more frequent and more severe
    precipitation events--it is more crucial than ever that Congress
    address the NFIP's structural issues and the ways to correct its
    perverse incentives for where and how Americans live.
    Structural Problems of the NFIP
        At its inception in 1968, the NFIP was not designed as a risk-based
    program. Property owners in participating communities were charged flat
    rates, irrespective of the level of flood risk their properties faced.
    That design was intentional, as the overarching goal was to encourage
    take-up, particularly by residents of the riskiest communities.
        Shortly thereafter, in 1973, the program was redesigned to account
    for risk with the introduction of Flood Insurance Rate Maps (FIRM) that
    assign properties to various risk-rated zones and assess premium rates
    commensurate with the flood risk faced by that zone. Federally related
    mortgages on homes in high-risk zones that face a greater than 1
    percent annual chance of flooding--also known as Special Flood Hazard
    Areas or 100-year flood zones--are required to purchase flood
    insurance.
        But exceptions to risk-based ratings were built into the FIRM
    process from early on. Properties that joined the program prior to the
    introduction of rate maps could continue to pay non-risk-based rates
    through what are known as ``subsidized'' policies, which historically
    were assessed rates that were only 45 percent of their true actuarial
    liability. \2\
    ---------------------------------------------------------------------------
         \2\ Bill Jones, ``Biggert-Waters Flood Insurance Reform Act of
    2012 Summary'', Nebraska Dept. of Natural Resources, February 2013.
    https://agriculture.ks.gov/docs/default-source/dwr-floodplains/summary-
    of-the-biggert-waters-act.pdf?sfvrsn=ce3ffec1-0.
    ---------------------------------------------------------------------------
        Moreover, while the Federal Emergency Management Agency (FEMA) is
    required by statute to revise and update all its maps at least once
    every 5 years, mapping changes do not force rate changes for existing
    structures. These are treated as ``grandfathered'' properties, which
    continue to pay the rates assigned when their community joined the
    program or when its prior rate designation was finalized.
        As a result, the NFIP has always taken in less in policyholder
    premiums than actuarial assessments would recommend. In the years just
    prior to Biggert-Waters, from 2002 to 2013, the Government
    Accountability Office (GAO) estimates the program collected $11 billion
    to $17 billion less in premiums than was actuarially prudent. \3\
    ---------------------------------------------------------------------------
         \3\ ''Forgone Premiums Cannot Be Measured and FEMA Should Validate
    and Monitor Data System Changes'', Government Accountability Office,
    GAO-15-111, Dec. 11, 2014. https://www.gao.gov/products/GAO-15-111.
    ---------------------------------------------------------------------------
        Biggert-Waters and the subsequent Homeowner and Flood Insurance
    Affordability Act of 2014 (HFIAA) placed business properties and second
    homes on a glidepath toward actuarial rates, with annual premium
    increases that are capped at 25 percent, while rate increases on
    subsidized primary homes are capped at 15 percent. Biggert-Waters would
    have placed grandfathered properties on a glidepath to actuarial
    soundness with a rate cap of 20 percent, but HFIAA amended that
    provision such that it only takes effect if a grandfathered property's
    map changes again in the future. If it does, the grandfathered property
    would see rate increases that likewise would be capped at 15 percent.
        Were the NFIP actuarially sound, it would have the resources to
    sustainably administer the program--including marketing and claims-
    adjustment expenses--and pay all expected claims that fall within the
    ordinary distribution of potential outcomes. But the NFIP would still
    experience--and in recent years, has experienced--outsized claims
    events like Hurricane Katrina, Superstorm Sandy, and Hurricane Harvey
    that fall in the tail end of the probability distribution. Indeed,
    those three events alone account for the overwhelming majority of the
    $40 billion the program has had to borrow since 2005.
        Since Hurricane Katrina, the NFIP has made $5.06 billion in
    interest payments to service its debt to the Treasury but has managed
    to repay just $2.8 billion of principle. It is, by all accounts,
    completely infeasible that it will ever repay its debt in full. Indeed,
    in 2017, the Congressional Budget Office (CBO) estimated that, under
    its existing structure, the NFIP is expected to post an average annual
    loss of $1.4 billion. \4\
    ---------------------------------------------------------------------------
         \4\ ''The National Flood Insurance Program: Financial Soundness
    and Affordability'', Congressional Budget Office, Sept. 1, 2017, p. 1.
    https://www.cbo.gov/publication/53028.
    ---------------------------------------------------------------------------
        That the program has proven structurally unsustainable was foreseen
    by its creators. In 1966, Lyndon Johnson's Presidential Task Force on
    Federal Flood Control Policy warned Congress that creating a Federal
    flood insurance program ``in which premiums are not proportionate to
    risk would be to invite economic waste of great magnitude.'' \5\
    ---------------------------------------------------------------------------
         \5\ Gary William Boulware, ``Public Policy Evaluation of the
    National Flood Insurance Program (NFIP)'', doctoral dissertation,
    University of Florida, December 2009, p. 14. https://ufdc.ufl.edu/
    UFE0041081/00001.
    ---------------------------------------------------------------------------
        Congress could assess that the benefits to homeowners and business
    owners in flood-prone regions merit the cost of subsidies. Even if that
    were the determination, however, the program's existing structure
    largely functions not through express taxpayer subsidies, but by
    enabling cross-subsidies from inland NFIP policyholders to those in
    coastal regions. The CBO has found that 85 percent of NFIP properties
    exposed to coastal storm surge (properties classified as ``Zone V'')
    pay below full risk-based rates. Altogether, 69 percent of Zone V
    properties are grandfathered, 29 percent are subsidized, and 13 percent
    are both grandfathered and subsidized. \6\
    ---------------------------------------------------------------------------
         \6\ ''The National Flood Insurance Program: Financial Soundness
    and Affordability'', Congressional Budget Office, Sept. 1, 2017, p. 1.
    https://www.cbo.gov/publication/53028.
    ---------------------------------------------------------------------------
        In addition to subsidies flowing from inland policyholders to
    coastal policyholders, NFIP subsidies broadly flow from higher-income
    areas to lower-income areas. In 2013, the GAO reported that 29 percent
    of subsidized policies were in counties in the top decile of median
    household income and 65 percent were in counties among the top three
    deciles, while just 4 percent were in the bottom decile and 10 percent
    in the bottom three deciles. \7\
    ---------------------------------------------------------------------------
         \7\ ''Flood Insurance: More Information Needed on Subsidized
    Policies'', Government Accountability Office, July 2013. https://
    www.gao.gov/assets/gao-13-607.pdf.
    ---------------------------------------------------------------------------
        Should Congress determine that it does expressly want to subsidize
    property owners in flood-prone regions, those subsidies should properly
    flow directly from the taxpayers. Laying the burden on inland and
    lower-risk NFIP policyholders discourages take-up of flood insurance,
    at the margin, when the goal should be much broader take-up to close
    the protection gap. Moreover, to the extent that subsidies are
    necessary to protect at-risk populations from displacement, it would be
    proper to transition to an income-based voucher system, rather than the
    existing system of subsidies and grandfathering tied to when the
    property joined the NFIP.
    Rising Waters, Rising Risks
        Over the past 50 years, the NFIP has helped to shape the landscape,
    with significant impact on the country's built environment. In the
    first four decades after its passage, from 1970 through 2010, the
    number of Americans living in coastal counties grew by 45 percent and
    now comprises more than half the U.S. population. \8\ Nowhere is this
    shift more apparent than in my State of Florida. At the beginning of
    World War II, Florida was the least-populated State in the Southeast.
    As the recent 2020 U.S. Census figures confirmed, it is now the third
    most populated State in the Nation. The NFIP was not the sole driver of
    that growth, of course. Air conditioning also played a part. But by
    providing guaranteed and affordable coverage for the most common
    catastrophe risk facing property owners in a place like Florida, the
    NFIP has been a key enabler of the mass conversion of wetlands and
    barrier islands--nature's built-in defenses against tropical storms and
    flooding--into acres and acres of manicured lawns and suburban tract
    housing.
    ---------------------------------------------------------------------------
         \8\ Ross Toro, ``Half of U.S. Population Lives in Coastal Areas
    (Infographic)'', LiveScience, March 12, 2012. https://
    www.livescience.com/18997-population-coastal-areas-infographic.html.
    ---------------------------------------------------------------------------
        But even as Americans spent much of the past half-century moving to
    areas at greater risk of catastrophic flooding, we have begun to see
    how anthropogenic climate change will make that problem much worse.
    Global sea levels rose by 2.6 inches from 1993 through 2014 and are
    projected to continue to rise by an average of one-eighth of an inch
    per year for the foreseeable future. \9\ Projections for the 21st
    century anticipate sea level rise of between 20 inches, should we
    manage to make sharp and immediate cuts to global carbon emissions,
    \10\ and six-and-a-half feet, should the Antarctic ice sheet break up.
    \11\
    ---------------------------------------------------------------------------
         \9\ ''Is Sea Level Rising?'', U.S. National Oceanic and
    Atmospheric Administration, Feb. 26, 2021. https://
    oceanservice.noaa.gov/facts/sealevel.html.
         \10\ Carling C. Hay, et al., ``Probabilistic Reanalysis of
    Twentieth-Century Sea-Level Rise'', Nature 517 (Jan. 14, 2015), pp.
    481-84. https://www.nature.com/articles/nature14093.
         \11\ Robert E. Kopp, et al., ``Evolving Understanding of Antarctic
    Ice-Sheet Physics and Ambiguity in Probabilistic Sea-Level
    Projections'', Earth's Future 5 (Dec. 13, 2017), pp. 1217-33. https://
    agupubs.onlinelibrary.wiley.com/doi/full/10.1002/2017EF000663.
    ---------------------------------------------------------------------------
        And yet, even facing these challenges, there has been no slowdown
    in Americans preferring to build and live in flood-prone areas. A 2018
    analysis of FEMA records conducted by Governing magazine found that 15
    million Americans lived in 100-year floodplains, where current rules
    for federally related mortgages require the purchase of flood
    insurance. That was a 14 percent increase from the turn of the 21st
    century, compared with 13 percent population growth in all other zones.
    \12\ Even more strikingly, a 2019 report by ClimateCentral looked at
    areas projected to have a 10-percent risk of coastal flooding by 2050.
    They found that, in eight coastal States, there were more homes built
    within this project 10-year flood zone than in all other areas. \13\
    Development was twice as fast in the 10-year flood zone than outside of
    it in Delaware, Mississippi, New Jersey, and Rhode Island, while in
    Connecticut, it was three times as fast.
    ---------------------------------------------------------------------------
         \12\ Mike Maciag, ``Analysis: Areas of the U.S. With Most
    Floodplain Population Growth'', Governing, August 2018. https://
    www.governing.com/gov-data/census/flood-plains-zone-local-population-
    growth-data.html.
         \13\ ''Ocean at the Door: New Homes and the Rising Sea'',
    ClimateCentral, July 31, 2019. https://ccentralassets.s3.amazonaws.com/
    pdfs/2019Zillow-report.pdf.
    ---------------------------------------------------------------------------
        Losing land to the sea is not an entirely new phenomenon, of
    course. Sen. Kennedy's home State of Louisiana has lost more than 2,000
    square miles of land since the 1930s. But the scale of land loss we may
    now face, combined with the surge in development in flood-prone areas,
    is new. In 2016, a piece in the journal Nature Climate Change overlaid
    anticipated population growth with projected sea-level rise of roughly
    3 feet to 6 feet, finding that between 4.2 and 13.1 million Americans
    would be displaced by inundation.
        The changing nature of flood risk makes it even more crucial that
    FEMA, as the NFIP's administrator, regularly update its Flood Insurance
    Rate Maps to keep up with changes on the ground. The evidence, however,
    is that the agency is failing to do that. A 2017 Department of Homeland
    Security Inspector General's report found that FEMA was up to date on
    just 42 percent of the NFIP's flood hazard miles, far short of a goal
    of 80 percent set in 2009, and that the agency had not properly ensured
    that ``mapping partner quality reviews are completed in accordance with
    applicable guidance.'' \14\ In 2017, the CBO found that, of the 166
    counties that produce more than $2 million in average annual flood
    claims, half were using maps that were more than 5 years old. \15\
    ---------------------------------------------------------------------------
         \14\ ''FEMA Needs To Improve Management of Its Flood Mapping
    Programs'', U.S. Department of Homeland Security Office of the
    Inspector General, Sept. 27, 2017, p. 3. https://www.oig.dhs.gov/sites/
    default/files/assets/2017/OIG-17-110-Sep17.pdf.
         \15\ ''Age of Flood Maps in Selected Counties That Account for
    Most of the Expected Claims in the National Flood Insurance Program:
    Supplemental Material for The National Flood Insurance Program:
    Financial Soundness and Affordability'', Congressional Budget Office,
    November 2017, p. 3. https://www.cbo.gov/system/files?file=115th-
    congress-2017-2018/reports/53028-supplementalmaterial.pdf.
    ---------------------------------------------------------------------------
        Sea-level rise and other impacts from climate change threaten to
    radically transform how we must deal with the risk of flooding. A 2019
    study in Nature Communications had a grim projection about the
    frequency and severity of flooding and coastal storm surge: By the end
    of this century, today's 100-year flood events in the Southeast and
    Gulf Coast will be expected every 1 to 30 years. Today's 100-year
    events in New England and the mid-Atlantic can be expected every single
    year. \16\
    ---------------------------------------------------------------------------
         \16\ Reza Marsooli, et al., ``Climate Change Exacerbates Hurricane
    Flood Hazards Along U.S. Atlantic and Gulf Coasts in Spatially Varying
    Patterns.'', Nature Communications 10:3785 (Aug. 22, 2019). https://
    www.nature.com/articles/s41467-019-11755-z.
    ---------------------------------------------------------------------------
        It is inevitable that, in at least some locations, we will have to
    consider pulling back from the coasts and moving Americans to higher
    ground. But an important first step is to stop making the problem
    worse.
    Baby Steps Toward Managed Retreat
        ''Managed retreat'' is a controversial phrase, both because it
    connotes surrender in the battle against climate change and because it
    is taken to mean a radical realignment in the way we live. And yet, in
    some respects, managed retreat is longstanding policy. It is seen most
    clearly in FEMA's Hazard Mitigation Grant Program (HMGP), the Flood
    Mitigation Assistance (FMA) Grant Program, and Pre-Disaster Mitigation
    (PDM) Program, all of which execute buyouts of flood-prone properties,
    which are then demolished, and the vacated land dedicated in perpetuity
    to open space.
        While buyouts are likely to continue to be part of the solution to
    rising flood risk, there are serious questions about whether they could
    ever scale anywhere close to meet the scope of the problem. A 2019
    report from the Natural Resources Defense Council found that, at the
    pace FEMA executed buyouts in the 30 years between 1989 and 2019, it
    would only be able to buy out another 115,000 properties by the end of
    the 21st century. \17\ For comparison, current projections are that as
    many as 13 million properties will be completely inundated by the year
    2200.
    ---------------------------------------------------------------------------
         \17\ Anna Weber and Rob Moore, ``Going Under: Long Wait Times for
    Post-Flood Buyouts Leave Homeowners Underwater'', Natural Resources
    Defense Council, Sept. 12, 2019. https://www.nrdc.org/resources/going-
    under-long-wait-times-post-floodbuyouts-leave-homeowners-underwater.
    ---------------------------------------------------------------------------
        Rather than tearing down the flood-prone properties that already
    exist, a more immediate approach would be to remove the incentives to
    build new ones. I authored a report last year that proposed doing so
    directly--by barring any new construction in 100-year floodplains from
    NFIP eligibility. Based on my review of NFIP claims data, had this
    policy been in place starting in 1980, the program's payouts between
    1990 and 2019 would have been roughly 13 percent smaller, representing
    $16.5 billion in savings. \18\
    ---------------------------------------------------------------------------
         \18\ R.J. Lehmann, ``Do No Harm: Managing Retreat By Ending New
    Subsidies'', R Street Institute, February 2020. https://
    www.rstreet.org/wp-content/uploads/2020/02/195.pdf.
    ---------------------------------------------------------------------------
        What I could not quantify in my research, but which is likely even
    more crucial to the pressing challenge of climate adaptation, is how
    many of those severely flood-prone properties would not have been built
    in the first place, but for guaranteed NFIP coverage. In some cases,
    property owners in such areas might turn to the emerging private market
    for flood insurance, but they would be assessed risk-based premiums
    that, in many cases, likely would be prohibitive.
        Of course, an additional benefit of this approach is that, unlike
    phasing out subsidies, it does not lay any new burden on existing
    policyholders. Similar approaches can be found in the Coastal Barrier
    Resources System (CBRS), a 37-year-old program that bars Federal
    subsidies to development across a 3.5-million-acre zone of beaches,
    wetlands, barrier islands, and estuaries along the Atlantic Ocean, Gulf
    of Mexico, and the Great Lakes. Likewise, in Florida, the Legislature
    adopted a similar rule in 2015 that bars the State-sponsored Citizens
    Property Insurance Corp. from writing coverage for new construction
    located seaward of the State's Coastal Construction Control Line. \19\
    ---------------------------------------------------------------------------
         \19\ Jane Smith and Michelle Quigley, ``Along the Coast. A Line in
    the Sand'', The Coastal Star, Aug. 30, 2017. https://
    thecoastalstar.com/profiles/blogs/along-the-coast-a-linein-the-sand.
    ---------------------------------------------------------------------------
        But it is not enough simply to tell people where they cannot build;
    we must also tell people where they can. Many areas remain gripped by a
    serious housing affordability crisis caused by stringent land-use
    controls that make it excessively difficult to build new housing in
    places where people wish to live.
        Therefore, in addition to the ``stick'' of removing the NFIP's
    incentives to build in flood-prone areas, I propose an additional
    ``carrot'' of Federal incentives for States that liberalize their land-
    use policies in areas of lowest flood risk.
        Specifically, the Stafford Act currently requires that, when the
    Federal Government provides post-disaster relief to repair, restore, or
    replace damaged facilities, State, and local governments are
    responsible to pick up 25 percent of the cost. I propose that providing
    for dense housing in the lowest-risk flood zones--those classified as
    1-in-500-year zones, or Zone X and Zone C in the current mapping
    system--would enable States to ``buy down'' the local cost share. For
    example, if a State were to abolish single-family zoning in the lowest-
    risk flood zones--e.g., allowing construction of accessory dwelling
    units and up to four-family homes, by right--the Federal Government's
    cost-share for post-disaster recovery would rise to 80 percent or even
    85 percent. This would begin the process of ensuring that, as rising
    seas force more Americans to move to higher ground, there will be
    sufficient housing stock to absorb them.
    Other Considerations
        I mentioned earlier that it would be proper to transition
            the current subsidies to an income-based voucher system. An
            important element of such a system is that policyholders should
            be made aware of the full risk-based cost of flood insurance.
            The same applies to current subsidized and grandfathered
            policyholders. Any NFIP policy with rates that are less than
            the full risk-based cost should disclose to policyholders what
            that cost would be. Similarly, a complete flood history should
            be made available to buyers as part of all real estate
            closings.

        Many of the implementation questions that surrounded
            Biggert-Waters' provisions permitting private flood insurance
            to satisfy mandatory purchase requirements have, in recent
            years, been resolved by State authorities and the Federal
            lending regulators. One additional point of clarification this
            Committee could provide is to determine whether consumers who
            move from the NFIP to private flood insurance and then maintain
            continuous coverage can later return to the NFIP at the same
            rate as if they had remained with the program all along. This
            would protect consumers if, for example, after switching to a
            private policy, the private insurer raised rates or exited the
            market.

        Some have proposed forgiving the NFIP's current $20.5
            billion debt to the Treasury. Should Congress opt to do so, the
            program's existing $30.425 billion borrowing authority would be
            far too large to offer any meaningful check. Congress should
            instead simply set the borrowing authority cap 1 percent of the
            NFIP's total insurance in force. Based on its current total of
            $1.3 trillion, this would mean the NFIP could borrow up to $13
            billion without needing further authorization.

        With that, I would be glad to answer any of the Committee's
    questions.
            RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                          FROM CHAD BERGINNIS

    Q.1. Last year, the University of Arizona led and published a
    study in the Journal of Environmental Economics and Management
    about the National Flood Insurance Program. The study found
    that Black and Hispanic homeowners are more likely to live in
    high-risk flood zones and could be disproportionately affected
    by reforms to the program. What do you make of this study, and
    how should it inform ongoing efforts to reform and improve
    NFIP?

    A.1. Response not received in time for publication.

    Q.2. Avoiding a lapse in the National Flood Insurance Program
    is an important policy goal, but we must strive for a long-term
    reauthorization of the program. What are the negative
    consequences for policyholders associated with short-term
    reauthorizations?

    A.2. Response not received in time for publication.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                          FROM VELMA M. SMITH

    Q.1. Last year, the University of Arizona led and published a
    study in the Journal of Environmental Economics and Management
    about the National Flood Insurance Program. The study found
    that Black and Hispanic homeowners are more likely to live in
    high-risk flood zones and could be disproportionately affected
    by reforms to the program. What do you make of this study, and
    how should it inform ongoing efforts to reform and improve
    NFIP?

    A.1. Academic research and other studies that help us better
    understand how demographics overlay with risk can make an
    important contribution to debates regarding policy changes to
    the National Flood Insurance Program. The University of Arizona
    study is an important addition to the literature on this topic.
        That study examined one region in south Florida and looked
    at home purchases dating over a 5-year period, examining a
    range of factors and concluding that ``low income and minority
    residents are more likely to move into high risk flood zones.''
    The study also attempted to estimate the likely NFIP premium
    levels associated with different properties and project the
    price differences that would be experienced by homeowners under
    certain changed pricing scenarios, including loss of assumed
    pre-FIRM subsidies, loss of Community Rating System (CRS)
    discounts, and loss of assumed grandfathering subsidies.
        In thinking about the conclusions drawn in this report, it
    is important to recognize that the analysis was completed prior
    to announcements regarding Risk Rating 2.0 and that none of the
    reform scenarios studied are currently under consideration. To
    the contrary, the proposed Risk Rating 2.0 methods, in many
    instances, will lower rather than raise the rates now being
    paid by certain pre-FIRM property owners.
        Rather than focus solely on this one study, then, we would
    urge the Committee to consider the important issues of equity
    in flood protection by using information in FEMA's own
    Affordability Report. That report, prepared in collaboration
    with the Census Bureau and with direct access to NFIP pricing
    and policy take-up information, offers what may be the clearest
    picture to date of the demographics of NFIP policyholders.
        FEMA's analysis shows that, with some notable exceptions,
    residents of flood zones in most States tend to have incomes
    lower than those of residents who live outside of designated
    flood zones. The study also finds that within flood zones, a
    greater percentage of lower income households go without flood
    insurance, compared with higher income families. This finding
    may not be surprising given the overall statistics on flood
    insurance penetration rates and the fact that the law's
    mandatory purchase requirement drops off once a mortgage is
    paid down to $5,000. According to FEMA, it `` . . . suggests
    that policymakers should pay particular attention to the
    affordability of flood insurance for households that currently
    do not have flood insurance but face flood risk.''
        While the study itself does not offer a specific
    prescription for making flood insurance more affordable to
    lower-income families, it offers Congress a basis for comparing
    the advantages and disadvantages and the likely range of costs
    for various approaches, including approaches
        based on means-testing, percentage of insurance coverage,
    or measures of housing burden. This report, as well as the 2016
    Government Accountability Office report on the same topic, may
    be helpful to the Committee as it considers options for helping
    families without the financial means to insure and protect
    themselves.
        As I noted in our testimony, Pew is hopeful that Congress
    will choose an affordability approach that is carefully
    targeted to those most in need and structured to avoid costly
    and complicated data collection requirements. We also urge the
    Committee to assure that any discounted rates are accompanied
    by clear information about actual risks and that insurance
    assistance is complemented by mitigation assistance to allow
    property owners and communities to reduce their flood
    vulnerabilities.
        On this point, we applaud the recent announcement by FEMA
    that it will begin making Individual Assistance (IA) available
    to disaster victims for specific mitigation efforts, such as
    elevation of utilities. We were also pleased to see that the
    President's proposed budget includes possible new funding for
    an affordability program. A general appropriations approach to
    funding this program would eliminate the potential for new
    cross-subsidies within the program. We anxiously await the
    details of the Administration's announced legislative proposal
    on this issue, and we hope to engage with the Committee when
    the proposal is released.

    Q.2. Avoiding a lapse in the National Flood Insurance Program
    is an important policy goal, but we must strive for a long-term
    reauthorization of the program. What are the negative
    consequences for policyholders associated with short-term
    reauthorizations?

    A.2. An actual lapse in the authorities for the National Flood
    Insurance Program could directly affect real estate
    transactions and the payment of claims for existing NFIP
    policies. A useful discussion of the possible impacts is found
    in a Congressional Research Service report updated last
    October. ``What Happens If the National Flood Insurance Program
    (NFIP) Lapses?'' notes that flood insurance contracts entered
    into before the expiration date would remain in effect to the
    end of their terms, but no new flood insurance policies could
    be written. In turn, this could affect the functioning of real
    estate markets, because lenders would still be obligated to
    assure coverage on mortgages for homes located in a designated
    flood zone. In addition, because a lapse would also lower the
    program's borrowing authority, there could be a lapse or delay
    in claims payments if a major flood event occurred during a
    time when FEMA was not collecting additional premiums.
        For the most part, Congress has in the past avoided actual
    lapses in the program but frequently resorts to multiple short-
    term program extensions, with many coming only a matter of days
    or hours before the program authorities would expire. Each of
    these potential lapse occasions can cause disruptions to the
    program, as lenders, real estate professionals, FEMA, and the
    Write-Your-Own insurance agents must evaluate and prepare for
    the implications of a lapse. Policyholders may not be directly
    aware of such situations but may experience some level of delay
    or confusion with insurance purchase or servicing or with real
    estate transactions and mortgage closings.
        Pew urges Congress to resist the temptation to continue a
    series of short-term extensions of NFIP.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
                          FROM VELMA M. SMITH

    Q.1. This is a deeply important topic to my home State of South
    Carolina, where I spent over 15 years in the insurance business
    helping to write flood insurance policies, responding to flood
    insurance claims, going to homes that had been flooded and
    watching the families try to piece their lives back together.
        One issue that continues to frustrate me is that we have
    not yet--as a Committee or a country--come up with a way to
    address repeatedly flooded properties; homes and businesses
    that time and again see flood waters rise, putting people in
    harm's way.
        Within the NFIP these properties represent about 1 percent
    of the policies, yet make up approximately 30 percent of the
    claims.
        In the last two Congresses, I have authored a bipartisan
    proposal, the Repeatedly Flooded Communities Preparation Act,
    which would offer a community response to lowering flood risk
    in these problem areas.
        This is not a one-size-fits-all approach but a community by
    community approach. Some communities need voluntary buyouts,
    others need drainage improvements, while others may simply need
    to clean out storm drains regularly.
        Can you comment on the problem of repeat loss, the
    community approach to addressing it, and what policymakers can
    learn from work already being done around the country?

    A.1. The repetitive loss issue has some very big numbers
    attached to it, numbers that have plagued the financial
    stability of the program for decades. The numbers, of course,
    change from year to year, but, as you note, in some years,
    estimates have shown as little as 1 percent of the properties
    insured accounting for as much as a third of claims. According
    to the Government Accountability Office, the NFIP has paid out
    more than $22 billion in cumulative claims for repeatedly
    flooded properties--more than the current debt of the program.
    The Agency itself has cited the repetitive loss problem as
    ``the single most important factor that affects the stability
    of the National Flood Insurance Fund.''
        But the good news is that there are success stories--
    stories in which communities have looked carefully at those
    neighborhoods hit hard by major disasters or vexed by chronic,
    recurrent flooding and worked to diagnose and solve those
    problems. In some communities, fixes have been put in place in
    relatively short order. More frequently, as in the Onion Creek
    area of Austin, Texas, mitigation has been a slow but steady
    journey.
        Sometimes, as the question indicates, buyouts are the
    answer, as in Austin; Augusta, Georgia; Nashville, Tennessee;
    Tulsa, Oklahoma; Sayreville, New Jersey; Charlotte-Mecklenburg,
    North Carolina; and a host of other towns and cities. In
    numerous instances, such buyouts not only eliminate the threat
    to life and property but also provide local open space
    amenities. In a small southeastern community in Minnesota, for
    example, where there had been more than 40 years of flooding
    with loss of life that community protected its citizens by
    buying out 14 homes and one business to create a local park.
        In some communities, solutions will be harder to find and
    implement than in others; decisions may be painful, and the
    costs for correcting mistakes of the past and confronting the
    challenges of climate change can be high. Many communities have
    addressed their problems with Federal dollars from programs
    ranging from FEMA's Hazard Mitigation Grant Program or Pre-
    Disaster Mitigation funding to the Department of Agriculture's
    Natural Resources Conservation Service Emergency Watershed
    Protection--Floodplain Easement program or the Department of
    Housing and Urban Development's Community Development Block
    Grant program. A good number of States and communities also use
    their own financial resources to better protect those areas
    that are prone to repeat flooding.
        As you know from South Carolina's own experience, the
    answers are turning out to be all of the above: buyouts, storm
    drainage improvements, home elevations, living shorelines,
    improved land use regulations, and sea walls. That is why we
    think it is sensible that your legislation doesn't dictate
    answers. It requires action and effort. Paired with new funding
    through a revolving loan program as well as other grant
    resources, this initiative could begin to reverse the troubling
    trends on repeat loss.
        Pew strongly supports the legislation that you and Senator
    Brian Schatz, formerly a Member of this Committee, have
    championed. We believe it recognizes the seriousness and the
    complexity of the problem. It also builds on the experience and
    successes of communities that have begun to address what might
    be considered their flooding hotspots. By compelling more
    communities to focus attention and resources on the problem,
    your legislation will save taxpayer monies and help flood
    victims break free from troubling and dangerous cycles of flood
    loss.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                      FROM REBECCA KAGAN STERNHELL

    Q.1. Last year, the University of Arizona led and published a
    study in the Journal of Environmental Economics and Management
    about the National Flood Insurance Program. The study found
    that Black and Hispanic homeowners are more likely to live in
    high-risk flood zones and could be disproportionately affected
    by reforms to the program. What do you make of this study, and
    how should it inform ongoing efforts to reform and improve
    NFIP?

    A.1. I am not familiar with this exact study, although your
    framing of it comports with what we see in neighborhoods in New
    York and many other places across the county. ``Where We Live
    NYC5'', New York City's fair housing plan, states ``Emerging
    research suggests that the proportion of Black and Hispanic
    homeowners within New York City's neighborhoods exposed to
    reoccurring flooding risks is increasing, suggesting that the
    impacts of flooding could be borne disproportionately by people
    of color in the future'' (p.136). Decades of racist redlining
    policies and exclusionary zoning have shifted minority and
    lower income families (often times one in the same) into less
    desirable areas, including those that are more vulnerable to
    flooding and with lower levels of infrastructure investment.
    \1\ As a result, these property owners face not only repeat
    flooding events but the resultant increased flood insurance
    rates as well.
    ---------------------------------------------------------------------------
         \1\ New York City's Floodplain by the Numbers indicates that more
    than half of the population living in NYC's floodplain identifies as
    Black, Hispanic, or Asian.
    ---------------------------------------------------------------------------
        Given this understanding, it is critical that the NFIP rate
    structure be affordable and sensitive to economic realities.
    Congress needs to enact affordability programs to ensure
    everyone can afford a policy, as well as mitigation grants to
    help households retrofit to protect the structures against
    flooding. As outlined in my written and oral testimony, the
    City believes an affordability program utilizing a metric like
    the PITI ratio offers an opportunity to set national policy
    that is sufficiently sensitive to local and individualized
    conditions. Other options that utilize a percentage of AMI
    alone are too limiting and loans quickly become unrealistic for
    the individuals they are intended to help.

    Q.2. Avoiding a lapse in the National Flood Insurance Program
    is an important policy goal, but we must strive for a long-term
    reauthorization of the program. What are the negative
    consequences for policyholders associated with short-term
    reauthorizations?

    A.2. There are consequences for both policyholders and for the
    NFIP itself. For the NFIP, the off-again/on-again nature of
    reauthorization means it is forever selling an unstable product
    to policyholders. One year a household might have flood, the
    next year they might have no coverage for a period of time as
    Congress lets it lapse while they work out reauthorization. Who
    would want to buy such a product when a more stable one is
    available in the private market? Congress does the NFIP no
    favors in issuing short-term reauthorizations. While the idea
    of regular reauthorizations certainly affords Congress a chance
    to look at and review the program, it has become essentially
    meaningless and toothless in terms of motivating Congress to
    act. The market failure that created the NFIP remains decades
    later, artificial reauthorization deadlines do not yield
    meaningful policy/programs reforms in the current political
    dynamic, and the instability creates needless chaos for the
    NFIP, its staff, and--most importantly--policyholders. Congress
    should make the program permanent or reauthorize for 10-20
    years, requiring that the program be revisited for reforms
    every 5 years.
        Specifically for policyholders, the churn of short-term
    reauthorizations create problems in implementing ideas like
    mitigation credits, loans, and affordability programs. As
    discussed in the previous question, the unavailability or over-
    complexity of these can lead to NFIP being increasingly
    unaffordable especially for LMI households. In households with
    busy working parents, who has the time to sort through flood
    insurance turning on and off, affordability programs coming on
    and off, recertifying information, trying to seek advice only
    to find program staff aren't available? Stability in the
    program begets stability for policyholders. Pairing stability
    with affordability tools will help ensure policyholders remain
    in the program and NFIP is viewed as something worth
    purchasing. The longer the program goes without an
    affordability program, the greater the burden placed on
    policyholders as their rates rise, potentially resulting in
    NFIP policies that are too expensive for the policyholder.
    Without changes, these policyholders (especially those in areas
    without mandatory purchase requirements) may choose to drop
    their policies and go uncovered, which, as we know, is a
    substantial risk.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                           FROM STEPHEN ELLIS

    Q.1. Last year, the University of Arizona led and published a
    study in the Journal of Environmental Economics and Management
    about the National Flood Insurance Program. The study found
    that Black and Hispanic homeowners are more likely to live in
    high-risk flood zones and could be disproportionately affected
    by reforms to the program. What do you make of this study, and
    how should it inform ongoing efforts to reform and improve
    NFIP?

    A.1. The study should absolutely be part of the data informing
    the Committee on reauthorization and reform of the NFIP. Along
    with studies from the GAO, the Wharton Risk Management and
    Decision Processes Center, First Street Foundation, and others.
    As I mentioned in my testimony the GAO has found that inherent
    subsidies in the NFIP (Pre-FIRM and grandfathering)
    predominantly benefit the well off at the expense of the less
    affluent. That is why one of the reforms that TCS advocates for
    is a shift from property-based subsidies to means-tested
    assistance. This shift would better target Federal assistance
    while getting more people insured because not enough Americans
    are insured.
        Turning specifically to this University of Arizona study,
    it is necessary that the debate around reauthorizing NFIP
    incorporates the connections between race, pricing, and the
    enrollment rate into the program. Decades of policies have set
    many Black, Hispanic, and other people of color back in terms
    of economic and social mobility. Today, policymakers need to
    take an active role in drafting policy that incorporates equity
    into the system. We are very fortunate to have the research
    that can identify potential complications in price reforms as
    well as provide policymakers with emperical data to guide them
    in the decision making process.
        There are many factors, such as affordability and proximity
    to employment, that influence where people choose to live. The
    authors illustrate how people are generally risk-adverse and
    want to avoid flood risk. It also discovers that that changes
    in premium pricing may be a costly solution to remove people
    out of high-risk flood areas because it would leave the most
    vulnerable Americans, those who cannot afford to leave their
    homes, in these at-risk communities paying a higher premium.
    This obstacle needs to be addressed. Flooding can eradicate a
    lifetime's worth of hard work and savings; people lose their
    homes, their jobs, and become displaced. This fact is more
    pronounced in low-income communities that lack savings and
    resources to recover from flooding. If the data points to Black
    and Hispanic homeowners being disproportionately affected by
    premiums priced on the actual risk of flooding, then programs
    should be put in place to ensure that they have the ability to
    move to lower risk areas and get the protection they need at a
    price they can afford. The authors point to the benefits and
    success of the NFIP grandfather clause and the series of other
    price discount programs, but these alone are not a solution.
    They do not remove the risk of flooding, they simply shift the
    financial cost. At the same time subsidized homeowners will
    continue to bear the risk of physical, emotional, and much of
    the financial trauma associated with flooding. The best way to
    reduce rates is to reduce risk, which is why TCS supports
    robust investments in mitigation for both communities and
    individual homeowners.
        Congress must decide what they want the mission of NFIP to
    be, and how they want to carry it out. NFIP is a dominant
    source of flood information for homebuyers. Yet, at the time
    the paper was written, 66 percent of flood maps had not been
    updated. Without consistent funding, all participants in the
    housing market are denied the tools they need to make informed
    decisions. A true multifaced approach for NFIP with premium
    prices that accurately reflect flood risk and influence people
    to move away from these high-risk areas, should also include
    channels to provide individuals with the means and resources to
    move. These could include more access to affordable housing in
    safe areas that will keep them connected to their current job,
    or training for jobs so they can continue to fit into the new
    economy.

    Q.2. Avoiding a lapse in the National Flood Insurance Program
    is an important policy goal, but we must strive for a long-term
    reauthorization of the program. What are the negative
    consequences for policyholders associated with short-term
    reauthorizations?

    A.2. Short-term reauthorization may seem like an easy fix to
    NFIP, but unfortunately, it has caused more harm than good and
    will cause all positive developments to unravel. Short-term
    reauthorizations are the antithesis to long-term planning, and
    as a result, long-term solutions. Exercises that merely kick
    the can down the road prevent communities from effectively
    creating and acting on emergency disaster budgets and prevent
    the program from addressing operational shortfalls. This lack
    of planning pushes the program into a debt cycle that
    disproportionately falls on the shoulders of taxpayers. As
    Congress analyzes long-term reauthorization, it must keep
    sustainability and longevity in mind. Floods are one of the
    most expensive natural disasters, and while FEMA has taken
    measures to provide more funding for these communities,
    Congress must take action to be facilitators, and not
    inhibitors, of FEMA's advancements.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
                           FROM STEPHEN ELLIS

    Q.1. This is a deeply important topic to my home State of South
    Carolina, where I spent over 15 years in the insurance business
    helping to write flood insurance policies, responding to flood
    insurance claims, going to homes that had been flooded and
    watching the families try to piece their lives back together.
        One issue that continues to frustrate me is that we have
    not yet--as a Committee or a country--come up with a way to
    address repeatedly flooded properties; homes and businesses
    that time and again see flood waters rise, putting people in
    harm's way.
        Within the NFIP these properties represent about 1 percent
    of the policies, yet make up approximately 30 percent of the
    claims.
        In the last two Congresses, I have authored a bipartisan
    proposal, the Repeatedly Flooded Communities Preparation Act,
    which would offer a community response to lowering flood risk
    in these problem areas.
        This is not a one-size-fits-all approach but a community by
    community approach. Some communities need voluntary buyouts,
    others need drainage improvements, while others may simply need
    to clean out storm drains regularly.
        Can you comment on the problem of repeat loss, the
    community approach to addressing it, and what policymakers can
    learn from work already being done around the country?

    A.1. FEMA has been somewhat proactive in addressing repetitive
    loss. The agency previously established the Severe Repetitive
    Loss (SRL) grant program to provide funding for high risk
    communities to access capital to implement mitigation
    strategies, as well as other similar programs such as the Post-
    Disaster Hazard Mitigation Grant Program and the Flood
    Mitigation Assistance Program. Congress has also been vocal on
    this issue. The Repeatedly Flooded Communities Preparation Act
    was the needed legislative pressure to get FEMA and others to
    continue conversations on how to best turn ideas into action,
    and how to advance mitigation discussions into tangible
    solutions with results. The arrival of FEMA's Risk Rating 2.0
    will provide a more accurate and granular look at flood risk
    and enable adjusted pricing as a result. The more accurate
    pricing mechanism would mean that those living in areas at
    greater risk of flooding pay more while residents in
    communities with lower risk would pay less. At the same time,
    TCS believes the best way to protect homeowners and taxpayers
    is to reduce risk, which is why we support robust investments
    in mitigation for communities.
        The reality is that taxpayers cannot continue to shoulder
    the costs of and the NFIP cannot financially support repetitive
    loss properties. NFIP is the only Federal program that
    incentivizes people to put themselves in harm's way.
    Policymakers at all levels of Government must do more to
    discourage building and rebuilding in flood-prone areas and
    provide options, including but not limited to voluntary buyouts
    of property owners.
        Further, and as Congress continues to debate infrastructure
    funding, lawmakers should seriously consider imposing standards
    to ensure that investments made with Federal funds are able to
    withstand flooding and other natural disasters in an effort to
    better protect communities nationwide. TCS has no problem
    attaching strings to this Federal funding to protect taxpayers.
    If an individual or community refuses to take the necessary
    steps to protect the Federal taxpayer's investment, they don't
    have to take the cash.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                           FROM R.J. LEHMANN

    Q.1. Last year, the University of Arizona led and published a
    study in the Journal of Environmental Economics and Management
    about the National Flood Insurance Program. The study found
    that Black and Hispanic homeowners are more likely to live in
    high-risk flood zones and could be disproportionately affected
    by reforms to the program. What do you make of this study, and
    how should it inform ongoing efforts to reform and improve
    NFIP?

    A.1. Response not received in time for publication.

    Q.2. Avoiding a lapse in the National Flood Insurance Program
    is an important policy goal, but we must strive for a long-term
    reauthorization of the program. What are the negative
    consequences for policyholders associated with short-term
    reauthorizations?

    A.2. Response not received in time for publication.
                  Additional Material Supplied for the Record
                           STATEMENT SUBMITTED BY RAA
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        REAUTHORIZATION OF THE NATIONAL FLOOD INSURANCE PROGRAM--PART II

                                  ----------

                            THURSDAY, JUNE 17, 2021

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 10 a.m., in room 538, Dirksen Senate
    Office Building, Hon. Sherrod Brown, Chairman of the Committee,
    presiding.

              OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

        Chairman Brown. The Senate Banking, Housing, and Urban
    Affairs Committee will come to order. Today, as Ranking Member
    Toomey and I were talking, is our first hearing in person in
    months and months, and over a year. Welcome back to Room 538.
    It is exciting to see you here, Senators, staff people, and
    people at FEMA. Thank you for joining us.
        Now that we are in person, Members who are present before
    the gavel will be called on in order of seniority. Those after
    the gavel will be added to the queue in the order that you
    arrived.
        Today's hearing is the second in our effort to enact a
    long-term reauthorization of the National Flood Insurance
    Program this Congress. In May, we heard from a panel of experts
    who emphasized we needed to do more to improve flood mapping
    and mitigation in the face of climate change. Flooding is the
    most common and most costly natural disaster facing families,
    businesses, and communities across the country. We hear from
    constituents how it takes families' homes and memories, it
    wrecks their finances, it shutters small businesses, it
    destroys communities' infrastructure.
        Disasters often fall hardest on low-income and families of
    color in communities that have fewer resources to prepare for
    and respond to them. No matter where you live, everyone in our
    country pays for the financial fallout from floods, as we spend
    tax dollars to help families and communities recover.
        As the climate continues to change, we can only expect
    flooding to get worse and become even more common. Spring snow
    melts, increasingly powerful storms, sunny-day flooding in
    coastal communities, extreme rainfall could overwhelm our
    Nation's infrastructure and the land's capacity to absorb
    water.
        Reversing the trajectory of climate change is going to be a
    long-term effort. While we work on that, we need to help our
    families and communities become more resilient to the flooding
    we face now and in the coming decades, and, of course, whenever
    possible, we need to prevent that flooding altogether.
        NFIP is critical to that effort. The program provides $1.3
    trillion in coverage to more than 5 million homes and
    businesses, and some 22,000 communities. It is not just an
    insurance program. NFIP's job is not just to help communities
    after floods but to prevent and minimize the damage in the
    first place. Through NFIP reauthorization, we have an
    opportunity to improve NFIP to make our families, businesses,
    and communities safer and more resilient, and to meet the
    challenges posed by a changing climate.
        Today our witness, Mr. David Maurstad, the Deputy Associate
    Administrator of FEMA, will provide the agency's perspective on
    what this Committee should consider as we work on that effort.
    I am interested in the Administration's recommendation for ways
    we can strengthen NFIP so that it can provide reliable access
    to insurance for property owners and renters so that it can
    address affordability concerns and that it can ensure that more
    people are aware of flood risk and insured against losses, and
    so it can help the Nation predict and reduce our overall level
    of flood risk through investments and improvements in mapping,
    floodplain management, and mitigation.
        And last, I look forward to discussing NFIP's Risk Rating
    2.0 effort, which would change rate-setting in NFIP. We want to
    hear more about how FEMA communicates with stakeholders about
    these changes, better understand how these rates will affect
    low- and moderate-income communities, many of whom lack the
    resources to renovate or move out of harm's way.
        I look forward to continuing this work with Members of the
    Committee to strengthen NFIP and take a comprehensive approach
    to mitigating flood risk through a long-term reauthorization
    bill.
        Ranking Member Toomey.

             OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY

        Senator Toomey. Thank you, Mr. Chairman, and thank you,
    Administrator Maurstad for joining us today for our second NFIP
    reauthorization hearing. As I mentioned at our last hearing,
    finding a consensus on reauthorization will be challenging, and
    time is tight, but it is important that we try to do this. I am
    ready to work, and I hope we can reach an agreement on the
    long-term reauthorization that improves the program.
        But first let me take a moment to remind everyone of the
    scope of the NFIP's challenges. In the last 16 years, the NFIP
    has had to borrow nearly $40 billion to pay claims. In other
    words, the NFIP has lost an average of about $2.25 billion per
    year over the last 16 years, and these are multiple different
    events, not just a single event. These loses are particularly
    shocking in the context of the NFIP's annual premiums
    collected, which is $4.6 billion.
        So clearly the NFIP systematically underprices flood
    insurance, and frustratingly, it is the policies of Congress
    that are the root cause of this, not FEMA.
        During our last hearing I discussed several of my
    priorities in reauthorization, and first I would say is let's
    do no harm. Right now, under existing law, NFIP is moving
    toward an actuarially sound premium program. We should not
    interrupt that progress. Second, we should encourage more
    private capital in the form of private policies and private
    reinsurance. Third, to the extent that subsidies persist, they
    really should be better targeted. And fourth, I think we should
    improve communication with homeowners and home buyers so that
    they understand fully the flood risk of properties that they
    own or are contemplating buying.
        Let me elaborate a little bit. First, on do no harm. As our
    understanding of flood risks change, we need to allow NFIP to
    keep up with those changes. For instance, I have long heard
    complaints about mapping, and I agree we need better flood
    maps, and I support taking steps to improve maps. But in some
    ways, better mapping is really a means to an end. It is not an
    end unto itself. Mapping, in fact, is the easy part, in a way.
    The hard part is using those improved maps to better plan
    development, mitigate risk, and price flood insurance premiums
    appropriately.
        Fortunately, FEMA is moving in the right direction with its
    development of Risk Rating 2.0. FEMA has worked for years to
    build a better risk rating model, and it incorporates far more
    granular data in setting premiums, including geography and
    flooding frequency and flood types, you know, river versus
    ocean, and building characteristics. And when Risk Rating 2.0
    is implemented, we will not only have a more fair NFIP, but
    also a more fiscally sound NFIP. So reauthorization really
    should not interrupt the implementation of Risk Rating 2.0.
        Of course, that implementation will be a challenge. After
    all, NFIP has been using more or less the same old system for
    the last half century. Administrator Maurstad, I urge you,
    encourage you to continue to work hand in glove with the Write-
    Your-Own insurers who sell and service NFIP policies. I
    certainly hope that there will not be a turbulent rollout,
    because that could be used by some as an opportunity to kill
    some really important reforms and improvements in the program.
        And while successful implementation of Risk Rating 2.0 will
    make NFIP a better program, it will not be a perfect program,
    and that is one of the reasons why I think we should continue
    to facilitate expansion of the private flood insurance market.
    My home State of Pennsylvania has been a leader on this front.
    As of January of this year, there were nearly 13,000 private
    flood insurance policies in Pennsylvania. That is almost 20
    percent of all Pennsylvania flood insurance policies.
        And private uptake should come as no surprise. NFIP data on
    Risk Rating 2.0 implementation reveals that millions of
    American policyholders are currently overpaying for flood
    insurance. Over 200,000 NFIP policyholders are overpaying by at
    least $100 a month. That is $1,200 per year. And besides
    competing on price, private flood may bring better products,
    maybe all-peril coverage, which would mean no more debate about
    whether a claim results from water or wind damage.
        And further, private flood insurance brings more capacity
    to the market. That means more uptake, by more homeowners,
    which I think is a good thing. It also means more resources to
    process claims after a major flooding event like Superstorm
    Sandy, an event that, as my colleagues know all too well,
    overwhelmed FEMA.
        Finally, I just want to briefly touch on subsidies within
    NFIP. As a general principle, I do not think we should be
    encouraging people to live in flood-prone areas by providing
    flood insurance subsidies, but I acknowledge that over the past
    50 years, NFIP has acclimated homeowners to a world in which
    these subsidies do exist. And so it would be unfair to suddenly
    and completely remove them, but in the interest of fairness and
    program solvency, I think these property-based subsidies should
    be phased out over time.
        Today, properties with subsidized NFIP premiums are
    overwhelmingly located in our wealthiest communities, and
    subsidized NFIP premiums are rare in lower-income communities.
    How does that make sense? I am open to finding ways to help
    current, low-income owners afford flood insurance, but such
    help should not interrupt a long-term trend toward true, risk-
    based NFIP premiums.
        In conclusion, Mr. Chairman, I think the current system of
    NFIP is not working properly, it is problematic for taxpayers
    who have to bail it out, year in and year out, it is bad for
    homeowners and future homeowners from whom NFIP obscures the
    true nature of the flood risk. I recognize we cannot fix it all
    overnight, but I think the 2.0 reforms are a step in the right
    direction, and we can use reauthorization as an opportunity to
    move further in a better direction. Thank you.
        Chairman Brown. Thank you, Senator Toomey. I will introduce
    today's witness. David Maurstad serves as Deputy Associate
    Administrator for Federal Insurance and Mitigation at FEMA. He
    was appointed to the position in 2018, after serving as
    Assistant Administrator since 2016. In this role, he serves as
    the senior executive of the NFIP. He is a former mayor, and he
    saw the Blue River flood, I think regularly or at least often,
    and he is a former lieutenant Governor of Nebraska also, and
    brings a wealth of private sector expertise to his job also.
        Mr. Maurstad, you are recognized for 5 minutes, or whatever
    you need. Thank you.

    STATEMENT OF DAVID I. MAURSTAD, DEPUTY ASSOCIATE ADMINISTRATOR,
       FEDERAL INSURANCE AND MITIGATION ADMINISTRATION, FEDERAL
                      EMERGENCY MANAGEMENT AGENCY

        Mr. Maurstad. Thank you. Good morning, Chairman Brown,
    Ranking Member Toomey, and Members of the Committee. My name is
    David Maurstad and I am the Deputy Associate Administrator for
    Insurance and Mitigation, responsible for directing Federal
    Emergency Management Agency's risk management, mitigation, and
    insurance programs. Thank you for the opportunity to testify
    today about the National Flood Insurance Program.
        As mentioned, for over 50 years, the NFIP has provided more
    than 5 million policyholders with $1.3 trillion in flood
    insurance in more than 22,500 participating communities in all
    50 States, the District of Columbia, and 6 territories. The
    NFIP has grown to be the largest single-peril insurance
    operation in the world.
        Yet, in the advent of every hurricane or rainy season, I
    worry, knowing that despite all our best efforts we will most
    likely see more disaster suffering resulting from flooding, the
    number one natural disaster in the United States, because too
    many policyholders will not have the financial support that a
    flood insurance policy provides to begin their recovery
    journey.
        A look at the Nation's flood loss experience over the past
    17 years tells us that we can and must do better. It is
    imperative that we bolster investments in resilience, and break
    the cycle of life-altering disaster impacts on individuals and
    communities with limited capabilities to build back.
        Nature is not waiting for us to act. The frequency and
    intensity of storms is rising across the country. Flooding and
    coastal storms account for roughly 70 percent of all
    Presidential disaster declarations over the past decade. In
    2020, the Nation saw 47 major disaster declarations, involving
    every kind of natural hazard, and 22 events with losses that
    exceeded $1 billion each. For comparison, the previous high was
    16, in 2011 and 2017.
        Inaction will exacerbate risky development in floodplains--
    low take-up of flood insurance coverage, mounting NFIP debt to
    the U.S. Treasury, and ballooning supplemental appropriations,
    and the cycle of needless disaster-related suffering will
    continue.
        Like many of you, I have walked through leveled
    neighborhoods after major disaster events. Each time I come
    away asking, how much more can we bear? Over the past few
    years, under our own authorities, FEMA has undertaken several
    internal operational improvements to transform the NFIP, to
    reduce complexity, and increase transparency and fairness.
        Most recently, on April 1, 2021, FEMA formally released
    Risk Rating 2.0, Equity in Action, a new pricing methodology
    with equitable pricing, and an individual's property's unique
    risk. The NFIP's rating methodology has not been updated in
    more than 40 years. Over the years, we have heard the calls for
    change from many corridors, to include key stakeholders,
    industry, Government partners, the media, and Members of
    Congress. While we understand the change is difficult, now is
    the time.
        The current system is severely flawed, if not broken. Rates
    are going up under the current pricing methodology for all
    policyholders, and will continue to do so year after year if no
    action is taken. Risk Rating 2.0 lets us evaluate risk for each
    individual property, and unlike the current system, rate
    increases stop once a property reaches its true risk rate. Risk
    Rating 2.0 fixes the inequity of policyholders with low-value
    homes, subsidizing policyholders with higher-value homes.
        Risk Rating 2.0 fixes inequities identified by GAO-12,
    which states that policyholders are not paying a premium
    reflective of their true risk. GAO analysis across the
    continental U.S. identified that the practice of aggregating
    risk across zones results in pricing that does not accurate
    reflect flood risk. And Risk Rating 2.0 lets us adapt and
    readjust rates based on a changing and unpredictable climate.
        Now this is just one solution to a multipronged approach to
    reforming the NFIP. There is more work to be done so that we
    have a sustainable program, built to withstand an unpredictable
    weather system, one which is easy to understand, accountable to
    taxpayers, and is accessible for everyone, especially with
    financial barriers to purchasing a policy.
        Right now we simply are not seeing the outcomes that we
    need, to close the insurance gap across the country, protect
    the natural and beneficial functions of the floodway, and
    promote judicious development, all to make our communities
    safer and more resilient. Our ability to exercise continuous
    improvement of the NFIP begins with the certainty associated
    with a multiyear reauthorization of the NFIP with meaningful
    reforms by September 30 of 2021.
        For your consideration, FEMA has developed four guiding
    principles that we believe will lead to meaningful
    transformation.
        First, increased flood insurance coverage by ensuring more
    Americans are covered, by establishing a means-tested
    assistance program for one- to four-family primary residences.
        Next, build climate resilience by transforming the
    communication of risk and providing tools to Americans to
    manage their flood risk.
        Third, reduce risk losses and disaster suffering by
    strengthening local floodplain management minimum standards and
    addressing extreme repetitive loss properties.
        And fourth, institute a sound and transparent financial
    framework that allows the NFIP to balance affordability and
    fiscal soundness.
        Chairman Brown, I respectfully ask that this Committee
    consider these principles in your ongoing reauthorization
    discussions on how best to reform the NFIP, to ensure its
    financial sustainability, and reduce disaster suffering,
    especially for vulnerable citizens and communities. FEMA stands
    ready to assist in any way that we can.
        In closing, FEMA is honored to be a part of finding the
    solution to combat insidious peril of flooding. It is more than
    just my job, sir. My passion and determination are vested in
    providing a safe future for every American, including my nine
    grandchildren. I look forward to answering your questions.
        Chairman Brown. Thank you, Mr. Maurstad, for your insight
    and for the four points I think are especially important. This
    is an issue, that you can see, sitting around this table and
    watching the history when you have been part of this for
    several years, this is an issue that is especially a partisan
    issue at all. It is regional, but it is much more than that
    too. Thank you for that.
        Since Katrina, the NFIP has paid the U.S. Treasury about
    $400 million per year in interest on NFIP's debt, over $5
    billion interest so far. Your predecessor, some three, 4 years
    ago, told this Committee that FEMA would have no practical way
    to repay that debt. In your opinion, what effect does this debt
    have on the program? What effect does FEMA paying interest on
    the debt have overall in this program?
        Mr. Maurstad. Well, quite frankly and candidly, the debt
    and the interest associated with it is an anchor around the
    neck of the NFIP. The over $5 billion in interest that the
    program has paid to the Treasury, over the last 15, 16 years,
    have had little benefit to the program and to policyholders. In
    fact, it seems to me to be morally suspect to be using premium
    dollars that are paid today, using a portion of those premium
    dollars, to pay for interest on a debt that was accumulated by
    paying valid claim payments to policyholders in past year.
        So the $450 million of interest that is paid every year can
    certainly be put to better use in the program, in other aspects
    of the program, whether that be flood mitigation, whether that
    be increasing commitment to reinsurance, or other aspects of
    the program, whether it be floodplain management or the risk
    identification and mapping part of the program.
        Chairman Brown. Thank you. It is critical that FEMA map the
    Nation and provide projections of future flood conditions,
    because when communities make decisions about where and how to
    build, they need these maps. I thought Senator Toomey's
    comments about mapping were particularly incisive, that it is
    essential but it is only a step. It is not the end reason we do
    it.
        At the current rate of funding, how long will it take FEMA
    to finish the job of mapping the country and give families and
    communities better understanding of their current and future
    risks? Would additional investments in mapping help you
    complete that job?
        Mr. Maurstad. Well currently we have about 81 percent of
    the Nation has new, validated engineering maps. By statute, we
    are required, every 5 years, to determine whether a community's
    map needs to be updated. Many maps do not need to be updated
    because the conditions in those communities have not changed. A
    lot of the area that is not mapped is in lower-populated,
    sparsely populated areas.
        And so certainly we are going to continue to look at
    getting to 100 percent, but we also want to look at what
    changes that we can make to better communicate flood risk. And
    so we have inaugurated a new initiative, the Future of Flood
    Risk Data, that will allow us to better depict the flood risk
    in the 22,500 communities, in a graduated fashion.
        Instead of fixating on the 1 percent annual chance flood,
    the line on the map that says, you know, if you are on this
    side of the line you are at a high risk to our minimum Federal
    standards, and if you are on the other side of the line you low
    to moderate risk. If you are on the high side, you are
    required, if you have a federally backed mortgage, mandated, to
    buy a flood insurance policy, so you need it. If you are on the
    other side and it is not required by the Federal Government,
    unfortunately many people do not believe they are at flood risk
    and they do not need it.
        And so we need to move away from that fixation of the line
    on the map, 1 percent annual chance, and give a broader
    depiction of flood risk in the communities, including looking
    at what future conditions need to be considered in a particular
    community, because of the change of climate.
        Chairman Brown. Thank you. My last question follows up on
    what you said for how important it is to better communicate
    flood risk. Talk briefly what we should do about that. Should
    Congress consider requiring flood risk disclosure to
    prospective home buyers or renters? Too often after disasters
    we hear news stories of families saying they had no idea they
    were building their home or buying a home in a floodplain, or
    starting their business there. What can we do to make that
    better, to communicate that risk?
        Mr. Maurstad. Yeah, well, you are absolutely correct. I
    mean, there are a couple of things you are always going to hear
    after a major flooding event. Number one is, ``I didn't realize
    I was at flood risk and I wish I would have had a flood
    insurance policy.'' I will go into a neighborhood and we maybe
    have three homes there with flood insurance coverage, and as I
    walk the rest of the neighborhood the other six or seven homes
    on that block do not have the coverage. And so closing that
    insurance gap is critical, and all the steps that we take need
    to be focused on what can we do to make sure we have more
    insured survivors after flood events.
        And then another consistent is what you have outlined, and
    that is, ``I didn't realize that my property had flooded before
    until it flooded this time, and I wish I would have known that
    at the time that I was considering buying this property.''
        And so I do believe that the Committee should consider
    disclosure of flood risk, and look for ways that it is
    appropriate for the Federal Government to look at making sure
    that home buyers, business owners/buyers, property buyers
    understand and know what the flood risk of that property is,
    including previous flood damage.
        Chairman Brown. Thank you, Mr. Maurstad. Senator Toomey.
        Senator Toomey. Thank you, Mr. Chairman. Mr. Maurstad,
    thanks again for joining us. As you know, moral hazard is an
    intrinsic problem with any insurance product, and flood
    insurance is no exception. When homeowners and communities are
    protected from the financial risk of an event they have less of
    an incentive to manage that risk. I am not saying it is true of
    all insurance, but it seems to me this phenomenon is
    significantly aggravated if the insurance is subsidized, as it
    is for NFIP.
        I think about the repetitive loss and severe repetitive
    loss properties in particular. These are properties that have
    repeatedly flooded over the years, and then repeatedly been
    rebuilt with taxpayer money. And these properties, I believe,
    have had about $17 billion in NFIP claims over the years. That
    is repetitive loss and severe repetitive loss properties.
        So when I look at these numbers I worry that the NFIP
    program, in its current form, does not really appropriately
    manage this moral hazard. And so my question for you is, do you
    agree with the idea that the NFIP's historically generous
    subsidies make it harder to manage what I am calling this moral
    hazard, and especially this tendency to build and rebuilt in
    flood-prone areas?
        Mr. Maurstad. So I think I would particularly like to
    address the issue associated with what excessive loss
    properties, repetitive loss properties, severe repetitive loss
    properties--quite frankly, we have too many definitions of the
    same issue, and it would be good if we could focus in on one
    definition. And certainly the excessive loss property situation
    and issue has been around for decades. Congress attempted to
    address this issue in the 2004 reauthorization of the program.
    Unfortunately, it came up with a manner in which to do it that
    was too complicated and cumbersome for communities to enact.
        So we do want to work with the Committee and look at ways
    that we can address the situation of properties. I think it is
    common sense that at some point in time if you have had a
    certain number of losses and you have taken no mitigation
    action to do it, that maybe the Federal insurance program
    should not be available for you.
        Senator Toomey. So just to be clear, I think you said this
    in your opening statement, but is it your view that
    implementing Risk Rating 2.0 is a step in the right direction,
    a step in improving the fairness and the effectiveness of the
    NFIP?
        Mr. Maurstad. I mean, there is no question. It is a
    transformational leap forward. Quite frankly, the way that we
    have been doing it, while it is built on actuarial principles,
    is actuarially sound, was developed on those principles that
    were back in the 1970s--you know, I have a friend that has got
    a 1978 Olds Cutlass that looks good, it sounds good, it runs
    well, but it is not a 2021 electric vehicle that can do things
    far better.
        Senator Toomey. And contrary to what some people may think,
    I just want to underscore this point. From what I have seen
    Risk Rating 2.0 is not a universal increase in premiums. It
    seems to me it is more like a universal increase in fairness.
    And I say that because FEMA estimates that nearly 400,000
    policyholders currently pay at least $500 a year too much for
    their NFIP flood insurance. In my home State of Pennsylvania,
    there are 4,689 policyholders who are paying at least $1,200
    per year too much for flood insurance. And my understanding is
    that Risk Rating 2.0 is likely to reduce premiums for people
    who are overpaying, and therefore, that is part of the step in
    the direction of greater fairness. Is that a fair
    characterization, in your mind?
        Mr. Maurstad. I mean, certainly when we first introduced
    Risk Rating 2.0 back in 2016, we indicated the reasons why we
    were doing that, and that is that some people were paying too
    much, some people were not paying enough, and some people were
    paying the right amount. And we needed to develop a system that
    would be able, on a risk basis--because your insurance should
    be correlated to what your risk is. And so that is what we set
    out to do, and I believe that is what we have accomplished, in
    making sure that a homeowner can know what they are paying is
    what they should be paying, based on the characteristics of
    their property and their risk, and that they are not paying--go
    ahead.
        Senator Toomey. Thank you. And my last point, Mr. Chairman,
    consistent with this idea, there is a way to have a sort of
    independent verification of whether or not the risk pricing is
    as fair as it can be at that point in time, and that is to see
    how it compares to the private market, which is not subsidized
    and which is offering these services.
        As I said, in Pennsylvania, 20 percent of flood insurance
    policies are private market. Are you supportive of a
    marketplace that includes competitive, private insurance?
        Mr. Maurstad. Yeah. We have said, for at least 4 years now,
    when we set a goal within FEMA to double the number of
    properties covered by flood insurance, that that was not just
    with the NFIP, that there should be, and we hope, a continuing
    increase in flood insurance coverage in the residential market,
    private market, to help close the insurance gap. And so clearly
    there is plenty of room for both. I mean, when you look at the
    high-risk area, and only two out of six properties in the high-
    risk area are covered by either an NFIP or a private-sector
    policy, there is plenty of market out there for the private
    sector to play a larger role in covering the flood risk of
    America.
        Senator Toomey. Thank you very much. Thanks, Mr. Chairman.
        Chairman Brown. Thank you, Mr. Toomey. Senator Menendez of
    New Jersey.
        Senator Menendez. Thank you, Mr. Chairman. Look, FEMA's
    Risk Rating 2.0, the agency itself says that 80 percent of
    property owners nationwide will see rate increases, and some of
    those will be compounded annually over the course of several
    years. Now I hear a lot from FEMA, and special interest groups,
    that we should keep raising rates on policyholders, that
    premiums are too low, they need to go higher, but this
    completely ignores the cost side of the ledger and fails to
    look within the program for savings and efficiencies that
    benefit the policyholders.
        One of the biggest costs to the program is not paying out
    claims. The real drain on the program, in my view, comes from
    padding the pockets of insurance companies that bear none of
    the financial risk.
        So, Mr. Maurstad, for every dollar of a written premium,
    how much goes to private insurance companies?
        Mr. Maurstad. We have 65 of the leading property insurance
    companies that administer the program on behalf of the Federal
    Government, and currently 30 percent of the premium dollars are
    provided to them to administer the program.
        Senator Menendez. Thank you. Now let me ask you this. For
    FEMA to currently run that program in house, how much of the
    written premium does that cost?
        Mr. Maurstad. So the direct side, which writes about 15
    percent of the flood policies, compared to 85 percent of the
    policies that are written by the WYO--rough numbers, and we can
    get you the exact numbers--it is about $30 million.
        Senator Menendez. Well, looking at it, I saw, as you said,
    30 percent goes to the insurance company, 20 percent FEMA has
    to use to operate it, so that is 50 percent less than what the
    insurance companies receive. Why are we paying insurance
    companies 50 percent more than it would cost to do it in-house?
        Mr. Maurstad. Well, the reason why is because that is what
    the statute and our regulations allow for. And as you are well
    aware, the 2012 reauthorization indicated that the agency
    should look at, and study, and come up with what is the proper
    amount to pay the WYO companies, based on what they are actual
    expenses are. And while it is taking too long, we are
    continuing to work on that regulatory process, and we will
    eventually look at what the appropriate amount should be to pay
    the WYO companies.
        Senator Menendez. Mr. Chairman, this is an area that we
    need to look at, because if we are paying 50 percent more than
    it would cost to operate in-house, my bipartisan (NFIP-RE) Act
    takes the commonsense approach, and it would require FEMA to
    compensate the insurance companies the same amount it costs
    FEMA, to serve as the program itself. I think it is fair to
    compensate our hard-working agents at a minimum of 15 percent,
    but this 50 percent is a huge cost. We are talking about
    hundreds of millions of dollars.
        I am glad to hear the Chairman raise the question of NFIP
    debt and your response. Four hundred million dollars a year in
    interest--that is in interest--that is 10 percent of the
    written premiums the NFIP takes in. No program could be solvent
    with 10 percent debt service. And sour bill also tackles this
    issue by freezing interest payments and putting those savings
    into mitigation. And it is fair to say that mitigation has a
    multiple effect. For every dollar we spend on mitigation, there
    is how many dollars that we save?
        Mr. Maurstad. Six to one.
        Senator Menendez. Six to one. I like anything the Federal
    Government could do that six to one at the end of the day.
        Legal expenses. Policyholders' premiums are also footing
    the bill for the insurance industry's high-priced defense
    lawyers. Systemic abuses were uncovered after Superstorm Sandy,
    where the Nielsen firm capriciously ran up legal defense fees.
    This led to the NFIP to cover $60 million worth of fees, and
    could have reached $100 million if FEMA had not stepped in.
        One judge called Nielsen's actions ``reprehensible.'' Mr.
    Maurstad, why don't we have Government attorneys handle these
    cases, like they do in virtually every other Government
    program?
        Mr. Maurstad. Sure. So since Sandy was put in place we have
    done some things to improve the claim handling process. One was
    we set up an appeal branch that is separate from the claims
    branch, so that if a policyholder has issue with the way their
    claim was handled there is a firewall between the claims
    handling part, and they can make an appeal to the agency. We
    can go through that process.
        We have also put in place a new litigation program, where
    we oversee and manage the litigation of not only those that are
    written in the direct but with the WYO. And we can provide you
    with the specificity associated with the litigation reforms
    that we have put in place to address the issues that you have
    raised.
        Senator Menendez. Well, I think the Government should be
    doing this.
        Mr. Chairman, since this is such a critical issue to New
    Jersey, I think what I find even more frustrating is that we
    call Risk Rating 2.0 equity in action, when I think this new
    rating system is anything but equitable.
        Keansburg, New Jersey, home to just over 10,000 people,
    nearly 2,000 NFIP policyholders. It is town made of hard-
    working families, blue collar, median household income of
    $52,000. This is a town that lost everything after Superstorm
    Sandy. Under Risk Rating 2.0, 90 percent of policyholders in
    Keansburg would be seeing premium increases in the first year,
    and the increases continue to compound in years to come.
        Now the one thing about insurance, as you know, Mr.
    Chairman, is that it is about spreading the risk over the
    widest pool. And more expensive this insurance becomes, the
    less the pool that will exist, and the premiums will continue
    to go up as there are less people in the pool, not to mention
    the ratable losses for communities across the Nation who, if
    you cannot sell the property at the end of the day because you
    cannot afford flood insurance, the dramatic effect on a ratable
    basis.
        So I appreciate the Chairman having this hearing, and we
    look forward to working with you to try to meet some of these
    challenges. Thank you.
        Chairman Brown. Thank you, Senator Menendez, for your
    thoughtfulness on this issue, for years. Senator Kennedy----
        Mr. Maurstad. Mr. Chairman----
        Chairman Brown. Yes, Mr. Maurstad.
        Mr. Maurstad. May I respond?
        Chairman Brown. Of course. I am sorry.
        Mr. Maurstad. So the Senator is right. Eighty percent of
    policyholders will see their premiums go up. Right now, if we
    did nothing, 100 percent of them would. There are 217,000
    policyholders in New Jersey that are going to see a decrease in
    their flood insurance rates, at an average of $85 a month, with
    Risk Rating 2.0. Then there are another 137, or 65 percent,
    that are going to see an increase on the same level of an
    increase that they would see if we did nothing.
        And so he is absolutely correct. We just are looking at the
    numbers slightly differently. And for that reason we believe,
    when it is based on risk and the individual property
    characteristics, that we do have a methodology that is more
    equitable and fair.
        Senator Toomey. I would be happy, at some time, Mr.
    Chairman, to go over the numbers. I will not delay my
    colleagues here today, but there is a real impact for a very
    large number of people, and it not only the impact, it is the
    size of the impact. Thank you.
        Chairman Brown. Thank you, Senator Toomey. Senator Kennedy
    from Louisiana is recognized for 5 minutes.
        Senator Kennedy. Thank you, Mr. Chairman. Thank you, Mr.
    Maurstad, for being here today.
        You are not clairvoyant, and I am certainly not
    clairvoyant, so I can just share with you what I have observed
    so far. I think with respect to Risk Rating 2.0, I think you
    are presiding over tire fire. I think the rollout of Risk
    Rating 2.0 looks like a ferret fire drill.
        I mean, here is what I hear FEMA saying. We created this
    program in 1968. FEMA has the authority to assign premiums. We,
    FEMA--I hear you saying--all these years have been doing it
    wrong. We have assessing risk wrong. And now we, FEMA, have had
    an epiphany, and we have figured out how to look at every
    individual property, out of all the properties in the United
    States of America, and assign the risk for that particular
    property. But we are not going to tell you how we are going to
    do it. In fact, we are going to require the insurance companies
    who are implementing Risk Rating 2.0 to sign a gag order. We
    are not going to promulgate a rule. We are not going to allow
    for public comment. We are just going to do it, because we are
    smarter than the people who pay the premiums, and we are
    smarter than the U.S. Congress.
        Now I need you to explain to the policyholders of American
    right now, not in gauzy platitudes--no disrespect, Mr.
    Administrator, but I feel strongly about this. Because you are
    not waiting. You are going to pull the trigger in August. I
    need you to explain to them this epiphany that FEMA has had,
    and how, if you look at a particular property, you are able now
    to assign, with specificity and accuracy, flood risk, when all
    these years you did it wrong. Tell me what you did wrong and
    tell me how why it is going to be accurate.
        Mr. Maurstad. So fundamentally the methodology is
    different. Previously, we looked at rating policies based on a
    zone----
        Senator Kennedy. I get that part. I am sorry to interrupt
    you but I only have 5 minutes. I get the part. You are saying I
    can look at Senator Brown's property, now that we have had this
    epiphany, and we have talked to consultants, and know
    specifically, on his property, what the risk is. How? What new
    factors are you considering? How are you going to do it?
        Mr. Maurstad. So we do not have much time, and I would just
    point you to the document that we put on the website, that, in
    essence, is the same as an insurance rate filing that a private
    insurance company would provide to a State insurance
    commissioner that would be able to validate the methodology
    associated with the rates that they were going to charge. So I
    would----
        Senator Kennedy. How are you going to do it?
        Mr. Maurstad. So that document shows how, and explains how
    we do it. We, in essence--the simplified form would be we are
    using three different commercially available cat models. We
    have developed two----
        Senator Kennedy. Who developed the models?
        Mr. Maurstad. One of them is AIR, one of them is CoreLogic,
    and the other is CATRisk. We combined that with two----
        Senator Kennedy. Has the public--I am sorry. Go ahead.
    Excuse me.
        Mr. Maurstad. We combined that with two Government-
    developed, FEMA-developed cat models, and then we added
    replacement cost information, that we get from CoreLogic, that
    all the regular insurance companies use.
        Senator Kennedy. Let me stop you because I have got 30
    seconds, and I am sorry, Mr. Maurstad. I really apologize. I am
    going to ask the Chairman to hold another hearing on this.
        OK. You have got some consultants and they have developed
    models. I get that part. They have not been tested. You have
    done no rule. You have done no public comment. Nobody has been
    allowed to weigh in. Policyholders have no idea what you are
    talking about. You know what I have discovered about
    consultants from predicting the future? For every consultant
    there is an equal and opposite consultant, and oftentimes they
    are both wrong, and a lot of them, their accuracy is about as
    good as those late-night psychic hotlines on TV. And you have
    done this in secret, and it is not right.
        Mr. Maurstad. Well, sir----
        Senator Kennedy. And we do not know whether you have
    considered other alternatives, as Senator Menendez--I am almost
    done, Mr. Chairman--as Senator Menendez talked about. Are we
    paying the insurance companies too much? Is 30 percent off the
    top too much. Why aren't we doing a better job of requiring
    people who are supposed to have insurance to have the
    insurance? What about some of these consultants that I have
    talked to FEMA about, that you could persist in hiring? They
    are thieves?
        Mr. Maurstad. Yes, sir. So all----
        Senator Kennedy. None of this has been addressed.
        Mr. Maurstad. ----all good points. I look forward to having
    further discussion with you on all of it. I know how important
    the National Flood Insurance Program is to your State. Over the
    past 16 years there have been 260,000----
        Senator Kennedy. But I want you to understand, Mr.
    Maurstad, because I am going to get cutoff----
        Mr. Maurstad. ----policyholders----
        Senator Kennedy. In my State we are not talking a bunch of
    wealthy homeowners who have a second and third beach house.
    These are working people. They get up every day, they go to
    work, they obey the law, they try to do the right thing by
    their kids, they try to save a little money for retirement.
    Their biggest investment is in their home, and now you are
    doing this to them without explaining it to them?
        Mr. Maurstad. This will----
        Senator Kennedy. And we wonder why Congress and the Federal
    Government ranks in polls right up there with skimmed milk?
        Mr. Maurstad. Risk Rating 2.0 will assist exactly the
    people that you are talking about. Two-thirds of the homeowners
    that have subsidized homes are going to see a reduction in
    their premium. Currently, low-value homes----
        Senator Kennedy. Eighty percent of my people----
        Mr. Maurstad. Currently low-value homeowners are
    subsidizing high-value homes. This program addresses the
    concerns that you have----
        Senator Kennedy. But you have got to explain why, Mr.
    Maurstad.
        Mr. Maurstad. Back to the----
        Senator Kennedy. There is a lot of distrust of Washington.
    You have got to explain why. You cannot hide your consultants.
    In front of God and country and policyholders, you have got to
    say this is the methodology. Now let's test it through debate.
        Mr. Maurstad. So let's clear the consultant issue, first of
    all. FEMA has been working on this for 5 years, thousands of
    hours. It is probably not a well-known fact, but FEMA has some
    of the best flood, catastrophic actuaries in the country.
        Senator Kennedy. Then we ought to test them in public.
        Mr. Maurstad. They are top notch.
        Senator Kennedy. Then they ought to be tested in public.
        Mr. Maurstad. ----data----
        Senator Kennedy. They ought to be cross-examined.
        Mr. Maurstad. In addition to we did use three cat models,
    the same cat models the reinsurance industry uses, to price
    their product.
        Senator Kennedy. Then why is FEMA trying to hide----
        Chairman Brown. Please wrap up, Senator Kennedy.
        Mr. Maurstad. We are not hiding anything.
        Senator Kennedy. I told you he was going to cut me off.
    Then FEMA should not hide. They should not hide your work. Show
    your work.
        Mr. Maurstad. We post more information on the website than
    what has ever been posted before. I point you to our website--
    --
        Senator Kennedy. Right.
        Mr. Maurstad. ----where State profiles----
        Senator Kennedy. That is the answer. That is the answer, a
    website.
        Mr. Maurstad. Well, sir, and we have done 450 stakeholder
    engagements since March 1.
        Senator Kennedy. Why did you make the----
        Chairman Brown. Senator Kennedy, your time has expired. You
    have gone over 8 minutes. Senator, we can do a second round if
    you want to stick around.
        Senator Kennedy. Thank you, Mr. Chairman.
        Chairman Brown. Senator Warren is recognized for 5 minutes,
    from Massachusetts.
        Senator Warren. So thank you, Mr. Chairman, and thank you
    for holding this hearing today.
        There is no dispute about the basic facts. Sea levels are
    rising and storms are becoming more intense and more frequent.
    In Massachusetts, we recently learned that Boston Harbor
    Islands are at risk of being lost to rising tides, and 1 day
    soon the same could be true of many of our coastal cities and
    towns.
        Our communities rely on FEMA's flood maps to help gauge the
    risk. It is easy for residents to presume that if they live
    outside the invisible line on the map that designates the flood
    zone then they do not have to worry. And if their home is
    inside that line then they are at higher risk.
        The problem is we are beginning to learn that is a very
    dangerous assumption. Some of these maps have not been updated
    in decades, but even for maps that are up-to-date, they may not
    be providing an accurate assessment of the risk.
        So here is what I want to ask about, Mr. Maurstad. We know
    that flood risk areas are rapidly expanding because of climate
    change, but FEMA's maps do not incorporate projections of
    future conditions, such as rapidly rising sea levels. So let me
    ask you what FEMA is doing to try to make sure that all
    communities have good information, not just about past risk but
    about future risk.
        Mr. Maurstad. Right. So you are absolutely correct in all
    of the statements that you made, and right now FEMA only has
    the statutory authority to map the 1 percent annual-chance
    event. It is a minimum Federal standard that was set back in
    1968, when the Flood Insurance Act was put in place, and at
    that time there were statements, and the intent was to evaluate
    that standard on a regular basis.
        We still have that minimum Federal standard. I believe that
    ought to be looked at. It also ought to be looked at as to
    whether or not FEMA should have additional authority to map
    future conditions as a result of the things that you are
    talking about. But in the meantime we have put in place a
    Future of Flood Risk Data, where we are working with the
    Technical Mapping Advisory Commission and using their
    recommendations on how we, within our current authorities,
    develop nonregulatory products that will help communities
    better understand their complete flood risk, and not just their
    flood risk from the 1 percent annual chance.
        Senator Warren. That is very helpful, and I appreciate it,
    and I appreciate your point that we need to make some changes
    around here in your authorizations.
        Our communities need maps that tell them more than just a
    story about the history of floods, and we need the NFIP to
    change the perception of flood risk as either you have risk or
    you do not have risk, and if you are outside the zone you don't
    need to worry about it.
        So I am very glad to see that you are moving toward a
    graduated assessment in terms of risk, instead of using a
    binary approach here. I think that is going to help families
    better understand the risks that they face. But we just need to
    make sure that we turn this plan into action and that families
    that live just outside flood zones actually are participating
    and understanding what is going on here.
        So let me ask you this part. Mr. Maurstad, do you believe
    that mortgage lenders should bear a greater responsibility for
    informing homeowners of their graduated flood risk, and if so,
    would you commit to working with lenders to make sure they are
    living up to this responsibility?
        Mr. Maurstad. So I absolutely commit to working with them.
    We already with them. They, of course, are responsible for
    enforcing the mandatory purchase requirements, and I appreciate
    your remarks because we have been trying for years now to get
    people to not be fixated on in or out, line on the map,
    required or not required, but to really look at their flood
    risk. Risk Rating 2.0 will actually help that, because it is
    going to give a better indication of what the risk is in a
    community, in a graduated basis. So price is one of the best
    signals for what your risk is. Risk Rating 2.0 will help in the
    situation that you are talking about.
        And so yes, if we can work with ways where the lending
    community can embrace the graduated risk, we will do everything
    we can to help.
        Senator Warren. And I take it from your answer you are
    saying yes that you think mortgage lenders should bear some
    responsibility in this?
        Mr. Maurstad. I think they do. Can they take more? Yes.
        Senator Warren. Good. That is what I wanted to hear. You
    know, climate change is making flood risk worse with each year,
    and our homeowners need NFIP coverage to protect their
    families. We just have a real responsibility to inform them
    accurately about what those risks are.
        We also have a duty to mitigate flood risks by tackling
    climate change head on. Today our coasts and islands are in
    grave danger, and tomorrow our cities and towns will be in
    grave danger. We need to act before then. Thank you.
        Mr. Maurstad. There is no question that flood risk in
    America is underappreciated, and we need to do a better job of
    making sure that we develop a culture of preparedness so that
    we can build resiliency with individuals and communities and
    reduce disaster suffering.
        Chairman Brown. Thank you, Senator Warren. Senator Rounds
    from South Dakota is recognized for 5 minutes.
        Senator Rounds. Thank you, Mr. Chairman. Well, flood occurs
    in South Dakota just like it does in other parts along the
    coast. It is a different kind. It is primarily because of, in
    some cases, the Missouri River, which has the mainstem dams of
    the Missouri--or the mainstem dams are there and yet while we
    do our best to provide for flood control, sometimes Mother
    Nature takes the upper hand. And so to us, in the central part
    of the country, it is important as well.
        I would like to ask you a question about coverage limits,
    to begin with, sir. In my prior life I was also a property and
    casualty agent, and our agency would market Write-Your-Own
    policies from different companies, who did a very good job for
    us. But there were many cases in which we looked at the way
    that flood insurance was written and marketed versus the way
    other traditional types of insurance were, and we do some
    things in the national flood program that no normal insurance
    company would ever do, such as limiting the total amount of
    coverage but not insuring to value, necessarily, or perhaps not
    looking at coinsurance clauses, and so forth, while, at the
    same time, not developing the premium necessary to actually
    cover the expenses involved.
        One of the areas that I was curious about exploring, with
    any new flood insurance product or renewal would be whether or
    not we could actually come out ahead in the game if we allowed
    for higher limits of insurance with appropriate additional
    purchases of premium, in the least dangerous flood-identifiable
    areas, so that we could actually increase the total premium
    dollars being brought in versus not significantly increasing
    the risks involved for the program.
        Would you comment on that for me please, sir?
        Mr. Maurstad. Sir, and thank you, Senator. It is good to
    see you again. Our paths first crossed when I was the Regional
    Administrator out in Region 8, and you were Governor. I am also
    a former agent, and so we share that in common. And certainly
    the issues that you raise are valid ones. We are working on
    those.
        You know, another little difference in NFIP policy and your
    private sector policy or your homeowner policy is you have to
    buy a flood policy on your dwelling and you have to buy a
    separate policy on your contents. We are working on developing
    new policy forms to combine those, make it more like the
    homeowner policy, easier for agents to sell, understand, be
    less complex, better understood by policyholders.
        And yes, the limits have not been changed since the early
    1990s, and so I believe that during the reauthorization process
    we should look at what is the appropriate limit for NFIP flood
    insurance in the next go-around. It certainly is one where we
    have seen the number of our policies that are at the max,
    $250,000 limit for a residence, has increased steadily, and I
    will get you the exact number but I think it is well over 50
    percent, or at the maximum limit, which indicates there is a
    need there.
        Senator Rounds. Well, just as an example, and the reason
    why I think some people say, well gee, all they are trying to
    do is increase the total amount of losses paid out, with the
    flood insurance you pay first dollar out. And so if your risk
    is based upon a valued property may very well be a half-a-
    million dollars in value, if you are always going to take the
    first $250,000, no matter what happens--and most flood
    insurance losses are not total losses--you have first dollar
    exposure and yet your premium is developed only on a $250,000
    risk, where the risk really is significantly higher in terms of
    total value of the loss. And it simply is not something that
    any of the rest of the insurance industry has ever found a
    successful way of underwriting in the past.
        Mr. Maurstad. Yeah. Part of the change that we are making
    in Risk Rating 2.0 is using replacement cost as one of the
    measures of how you determine the premium. That is part of what
    balances out the inequity in low-value homes and high-value
    homes. And so you are correct, and I think we are on the right
    path to address some of your issues.
        Senator Rounds. Thank you, and I would note for the record
    that I actually have a flood insurance policy on my home, and
    it was amazing to me that the value on my home would be greater
    than the $250,000, my premium is based on a $250,000, but most
    certainly, in any other type of insurance product they would
    never allow me to have $250,000 in coverage on that home if I
    was not insuring it to value. And I think that is something
    that would increase my premiums, but it most certainly would be
    a lot more stable product within the market if we appropriately
    priced it.
        Mr. Maurstad. Yeah, correct.
        Senator Rounds. Thank you. My time has expired. Thank you,
    Mr. Chairman.
        Chairman Brown. Thank you, Senator Rounds. Senator Smith of
    Minnesota is recognized.
        Senator Smith. Thank you, Chair Brown, and thank you so
    much for this hearing today. I appreciate it. And thank you,
    Mr. Maurstad.
        So in Minnesota you do not need to convince folks about the
    reality of climate change. We see it in more and more extreme
    weather events and wildfires and in dramatically fluctuating
    water levels on our lakes. In fact, climate change impacts are
    more extreme in Minnesota than in a lot of other places.
        One of the things that we are seeing more and more of are
    pluvial flooding, which is what happens when you have a massive
    amount of water dumped from a big storm all at once, and there
    is just no place for that water to go. We are seeing an
    increase in this kind of flooding also in Minnesota, and bigger
    storms and more of them. So it is good to see that this kind of
    flooding would be included in the Risk Rating 2.0 strategy.
    This is going to make a lot more Minnesotans eligible for
    coverage, and it is also good to see that Risk Rating 2.0 will
    be tying premiums to that specific property's flood risk rather
    than just sort of assigning a broad zone.
        I also just want to say, you know, there is going to be an
    increased demand for better, stronger surface water management
    and mitigation strategies on top of everything else.
        But Mr. Maurstad, could you just talk a little bit more
    about how NFIP will be evaluating these future pluvial flood
    risks as these events become more and more frequent with
    climate change?
        Mr. Maurstad. Sure. I mean, how is Risk Rating 2.0 better?
    It is better because it incorporates new variables into
    calculating what the premium is. So instead of just the 1
    percent annual chance one event and your elevation and the type
    of structure, it is now flood frequency, multiple flood types,
    as you have mentioned, whether it be river overflow, storm
    surge, coastal erosion, heavy rainfall, which has not been a
    part of factor in the past, distance to a water source, of
    course elevation and cost to rebuild.
        So it far more encompasses the entire realm of flood risk,
    which is part of the reason why it is more equitable for the
    program.
        Senator Smith. Right. And you are trying to balance
    premiums that do a better job of covering the overall cost, and
    also trying to balance encouraging more people to participate,
    right?
        Mr. Maurstad. Yes. I believe that because of the new change
    in pricing methodology we will see more policyholders, because
    they will now better understand they are at risk, and in
    addition to that, I think that the method by which the agents
    are going to sell the policies is going to be easier and
    simpler. Instead of going to a manual as big as this deck and
    trying to pencil out what your premiums are going to be, we
    have developed a rating engine that everybody will be able to
    tap into, be able to tell you what your premium is. It will be
    uniform across the country, far easier for the agents. I think
    we will see more agents involved in the program because of its
    simplicity, and because of that we will see more homeowners,
    small business owners buy the necessary flood insurance they
    need, and will reduce disaster suffering.
        Senator Smith. And that expands the overall pool, which is
    a good thing.
        Mr. Maurstad. Correct.
        Senator Smith. So this is a big issue in Minnesota, where
    we pride ourselves at often being at the top of most metrics,
    but unfortunately we are not at the top when it comes to flood
    insurance participation. Only 0.4 percent of eligible
    properties in Minnesota receive coverage under the flood
    insurance program, and only 7.6 percent of Minnesota structures
    in high-risk floodplains are carrying flood insurance. So we
    want more of those folks to be participation.
        Now I think adding pluvial flood risk will help, but we
    need to do something dramatically different. And I think that
    the changes that we are going to be seeing in Risk Rating 2.0
    will be very helpful to Minnesotans. But could you talk a
    little bit about what education efforts you think that we need
    to ensure that homeowners, small businesses, homeowners
    especially living newly declared flood zones, are aware of the
    changes and now what is going on?
        Mr. Maurstad. Well, I mean, of course with 22,500
    communities we work with associations, the Association of State
    Floodplain Managers, for example, in making sure that
    floodplain managers understand. We are doing training for them.
    We are doing training for agents. We have already trained about
    2,400 agents. We are doing training every week from now through
    the summer, where more agents will be trained.
        We rely on realtors, lenders, but realtors have been very
    involved and are certainly supportive of the direction that we
    are moving. And so realtors help. It is a whole community
    approach on how we can do a better job of getting people to
    understand their flood risk so that after that flood event that
    is going to happen--98 percent of the counties in the U.S. have
    had a flood event--more people have the coverage they need to
    be on the road to recovery.
        Senator Smith. Thank you. Thank you so much, Mr. Chair. You
    know, I am encouraged that this Risk Rating 2.0 strategy I
    think is going to result in a more fair allocation of costs and
    a better correlation with risk, and that this is going to
    benefit Minnesota, even as the overall risks are spread out
    over a larger pool. So thank you very much.
        Chairman Brown. Thank you, Senator Smith. Senator Tillis of
    North Carolina is recognized for 5 minutes.
        Senator Tillis. Thank you, Mr. Chairman. Mr. Maurstad,
    thank you for being here. I think Risk Rating 2.0 is a great
    development. It is a shame that it is the first update since
    the Beatles were topping the charts, but at least it is here.
        You know, in North Carolina, when I was Speaker of the
    House, we invested in mapping so that we had the best available
    data. I think we rank up there as some that probably have the
    best situational awareness. The question I have on the Risk
    Rating 2.0 has to do with the flood events that we normally
    experience a couple of days after a storm or a major weather
    event, that is not on the coast. We get the brunt of the impact
    of a hurricane on the coast, and then we get the brunt of
    flooding to our river basins in the eastern part of the State.
        Do you think Risk Rating 2.0 is designed to leverage the
    best mapping information and to make available the program to
    the inland, at-risk areas?
        Mr. Maurstad. Yeah. I think that absolutely that is the
    case. As I mentioned the different types but also there are
    many ingredients that go into Risk Rating 2.0. It is not just
    one factor that dictates how a property is going to be rated.
    And so we incorporate, as I mentioned before, the cat models.
    We incorporated the FEMA NFIP flood mapping that is so
    important, and the flood loss history, and the replacement
    cost, and the elevation. So there is a lot that goes into this
    new program.
        As I indicated, it is all laid out in the over 200-page
    document that explains the methodology associated with Risk
    Rating 2.0. You have got to be an actuary or a Ph.D. to
    understand it, quite frankly, but it is there. And everyone is
    there to assess and evaluate it, which we hope people do. We
    did not do this in a vacuum. We utilized the private sector
    company that does this for major insurance companies across the
    country.
        So, you know, there is no question in my mind that it will
    address the issue that you raised, but it will provide a more
    comprehensive approach across all of our 22,500 communities.
        Senator Tillis. With respect to moving forward with the
    NFIP reauthorization, what other kind of things should we think
    about to maybe incent other States? Again, I believe that North
    Carolina has done a pretty good job through our own State
    resources, but what else should we consider to make sure that
    you have the best information available? That is one.
        And also, I am a part of a bipartisan workgroup that is
    focused on infrastructure, and one of the infrastructure
    components there is several billion dollars for resiliency. It
    would seem to me that with our better situational awareness
    over where the risks are that that should be a part of
    prioritizing the resources that we have, to make more resilient
    areas less likely, maybe even get them to a point to where they
    have a lower risk rating. So I think that is something to think
    about if we are successful with the infrastructure bill.
        But what more should we be thinking about as we move
    forward with the reauthorization of the program, tools, and
    priorities?
        Mr. Maurstad. Well, I mean, certainly the incentives
    associated with a community rating system, that provides
    discounts to those communities that adopt higher standards and
    do other endeavors that either provide better information or
    mitigation or reduce the risk within their community. So we are
    going to continue to evaluate the community rating system
    program, make sure it does what it should do.
        But we should also look at what are the other ways that
    communities can be incentivized to provide additional
    information when the mapping occurs, which we are, quite
    frankly, going to move away from as we look at how we generate
    flood risk data, and how we can have communities now, any
    information they bring we certain incorporate. But what can we
    do to incentivize them to provide more information, put more
    skin in the game, so to speak, to make their maps--because they
    are not our maps. They are the community maps. The communities
    adopt the maps--as relevant as possible.
        Senator Tillis. Thank you for that. Mr. Chairman, I think
    Senator Cortez Masto is wondering why I am sitting in her seat.
    I got confused too.
        Chairman Brown. Someone needs to inform Cortez Masto the
    Democrats are in the majority now. I think she knows that.
        [Laughter.]
        Chairman Brown. So we flipped sides. Sorry to walk in
    front.
        Thank you. Do you want to start a second round with Senator
    Kennedy, or are you ready, Senator Cortez Masto?
        Senator Cortez Masto. I am ready.
        Chairman Brown. OK. Then Senator Cortez Masto is recognized
    for 5 minutes.
        Senator Cortez Masto. Thank you. I so appreciate the
    opportunity, and please, excuse the delay. I was in another
    hearing this morning, as you can see.
        So let me ask a couple of questions here. In certain areas
    of Nevada, such as Washoe County, which has experienced heavy
    flooding in previous years, some community maps are seriously
    out of data, and letters of map revision by the community are
    the only way these maps are being updated. My office has
    received some feedback that this revision process is cumbersome
    on the community level and very expensive on the individual
    level.
        So can I ask, what are the consequences to taxpayers and to
    policyholders when we have outdated maps, number one, but also
    too, what progress has FEMA made in implementing reforms that
    would make it easier and less costly to appeal a map?
        Mr. Maurstad. So when it comes to outdated maps, as I
    indicated we are required, every 5 years, to address whether or
    not a community's maps need to be updated. Our regional offices
    work with communities to determine that and go through that
    process. And if there is change then we start a new map
    evaluation on those.
        So I think that the maps are not as outdated as what some
    folks might think. There certainly are some that are. And we
    want to work with communities, and we will work with community
    that want to have their maps updated. Generally speaking,
    communities do not want us to have their maps updated. But we
    certainly will work with communities that want to have their
    maps updated to make sure that they can be as useful a tool as
    possible in managing the floodplain in their community, and
    managing development in the high-risk areas. So that is the
    updated issue.
        What can we do more to simplify the process, we are looking
    at ways that that can be done. It is a public process that is
    laid out, quite frankly, so that the community and members of
    the community can participate in that change process. But we
    are----
        Senator Cortez Masto. How long is that process going to
    take?
        Mr. Maurstad. How long does it take? It varies. Let's say
    in those circumstances where there is a hard time coming to
    agreement on the map, it can take 5 to 7 years. So we need to
    look at ways where, in those circumstances, it can be simpler,
    and we are open to those ideas.
        Senator Cortez Masto. Thank you. The other thing I come
    across is a 2012 study by the GAO that noted that FEMA has not
    placed a high priority on mapping rural areas, including many
    Tribal areas, for flood risk, and most Tribal lands remain
    unmapped. Now that was a 2012 study. Is that still accurate
    today?
        Mr. Maurstad. Most of the maps that do not meet the new
    validated engineering standard are in less-populated areas, and
    that is a resource issue in which we work with each of the
    regions in identifying the areas that need to be mapped in
    their region that would have the greatest impact to the
    National Flood Insurance Fund. And so those areas have lagged
    behind. We continue to want to work to address those, and I
    appreciate the continued support of the mapping appropriation
    for the program, and we are committed to making progress in
    those areas.
        Senator Cortez Masto. So let me ask you this, because it
    sounds like it is still accurate, the 2012 study. And what I am
    also hearing is that the Tribes may lack the resources and
    administrative capacity that they need to administer the
    National Flood Insurance Program requirements, and NFIP
    premiums are often too high for low-income Tribal members.
        So are you looking to address and work with the Tribes
    specifically, and if you are, how are you doing so?
        Mr. Maurstad. Yeah. So let me take that back and we will
    get you a more robust answer than I can provide right now. But
    certainly we are committed to assisting those vulnerable
    communities to be able to fully participate in the program, and
    again, would be open to ways that we can achieve that.
    Certainly the means-tested assistance program to help those
    that earn 85 percent or less of the average mean income that is
    being proposed by the Administration would help with the
    affordability issue that you have mentioned, on Tribal lands.
    And so I think that will also be of help in getting more low-
    income individuals that are at flood risk to have the necessary
    coverage they need.
        Senator Cortez Masto. Thank you.
        Chairman Brown. Thank you, Senator Cortez Masto.
        We will begin a second round. We have votes at 11:30, so,
    Senator Kennedy, if you would make sure you keep it to 5
    minutes. We may have a couple of other Senators coming back
    too. But proceed, Senator Kennedy, for 5 minutes, if you would.
        Senator Kennedy. Thank you, Mr. Chairman, and thank you
    again, Mr. Administrator, for being here.
        You referenced, in answering Senator Tillis' question a
    private company that had quarterbacked this for you that is
    also a consultant to other insurance companies. What private
    company is that?
        Mr. Maurstad. Milliman.
        Senator Kennedy. Milliman.
        Mr. Maurstad. Yeah. And they did not spearhead this. They
    worked for FEMA, in helping us make sure that we are in line
    with the way that a private sector company would go about
    achieving a modern, risk-based, actuarially sound rating
    system.
        Senator Kennedy. Right. And how much did Milliman charge
    FEMA?
        Mr. Maurstad. I will have to get back to you on that.
        Senator Kennedy. Was it $10 million?
        Mr. Maurstad. I will have to get back to you.
        Senator Kennedy. You do not know?
        Mr. Maurstad. I will get back to you.
        Senator Kennedy. Was it more than $10 million?
        Mr. Maurstad. I am not going to guess, sir.
        Senator Kennedy. OK. Why didn't FEMA allow for public
    comment? You have had this epiphany and you have decided that
    after all these years you have been doing it wrong, and
    Milliman has now shown you how to do it correctly, why would
    you not subject that to public comment?
        Mr. Maurstad. So not to be argumentative with you, sir, I
    mean, we were not doing it wrong for all those years. It was
    just a different time, and a different way in which to
    fundamentally price insurance. It was determined that we had
    inadvertently, over the years----
        Senator Kennedy. Yes, but not to interrupt you, why haven't
    you allowed for public comment?
        Mr. Maurstad. As I said before, we have made all the
    information available. We are charged with the responsibility--
    --
        Senator Kennedy. Yes, sir.
        Mr. Maurstad. ----charged with the responsibility of
    developing a risk-based, actuarially sound, site-specific
    pricing methodology. That is what you have told us to do, and
    that is what we have done.
        Senator Kennedy. But by your own admission, this 200-page
    report that you put on your website--I wrote down what you said
    here. You said you have to be an actuary to evaluate it. Did I
    misunderstand you?
        Mr. Maurstad. No, sir. I mean, you would not have a plumber
    do an appendectomy either. I mean, it is done on the basis of
    the way in which a rating filing----
        Senator Kennedy. But don't you want people to understand
    the change?
        Mr. Maurstad. So there are other tools that we have also
    put on the website also. We have put a Fundaments of Risk
    Rating 2.0, we have put a video on there. So we have provided
    that information also, in addition to all the stakeholders that
    assist us in communicating our program----
        Senator Kennedy. Is Milliman going to put in a toll-free
    number, where people can call and say, ``OK, here is my house
    at 26 Main Street, Bucksnort, America. You increased my
    premiums,'' because premiums are going to go up by 80 percent.
    They are. I mean, you might as well be honest with people.
        Mr. Maurstad. No. Premiums go up right now an average of
    about 10 percent a year, not 80 percent.
        Senator Kennedy. And as I understand what you are saying is
    Milliman, in its wisdom, has decided they can look at a
    property and decide the risk, in an absolute sense, and you
    cannot increase premiums immediately to achieve a premium
    commensurate with that risk because Congress has stepped in and
    said, look, you have got to consider your customers, for God's
    sake. That is who this is for.
        So you are going to have to do it gradually. But will I be
    able to call Milliman and say, ``Milliman, you have now been
    able to assess the risk, and you can look 20, 30, 40, 50 years
    in the future and see it. Can you tell me what my risk is and
    how long I am going to have these premiums? And, by the way,
    could I get your advice about the stock market?'' Are they that
    good?
        Mr. Maurstad. So I maybe have not been clear. Milliman did
    not do what you just articulated.
        Senator Kennedy. That is not what I hear.
        Mr. Maurstad. Well, then----
        Senator Kennedy. I hear Milliman fathered this child.
        Mr. Maurstad. No. No. They did not. And we used multiple
    sources, and it was led by the FEMA chief actuary. And so FEMA
    drove this process. Milliman supported us in this endeavor.
        Senator Kennedy. Last question. A lot of people buy
    insurance because they have to. I am glad they do. They should
    buy it. The mortgage lender says, yep, it is in place, so let's
    close on the loan, and they drop the insurance.
        To follow up on Senator Warren's question, why don't we do
    a better job of requiring our mortgage lenders to do their job
    to make sure that people keep their insurance?
        Mr. Maurstad. Sure. And, of course, the mortgage lenders
    are responsible for that, and their regulators, and we do want
    people to have the coverage and keep the coverage. And as I
    indicated you before, I want to continue to have discussions
    with you, because I know how important the NFIP is to
    Louisiana. There have been 260,000 claims paid to Louisiana
    policyholders to the tune of $17.7 billion, to help those
    policyholders on the road to recovery over the course of the
    last 15 years. So I want this program, and it will work for
    Louisiana in the future, as it has in the past.
        Senator Kennedy. Thank you, Mr. Chairman.
        Chairman Brown. Thank you, Senator Kennedy. Senator Van
    Hollen of Maryland is recognized for 5 minutes.
        Senator Van Hollen. Thank you, Mr. Chairman, and Mr.
    Maurstad, thank you for your testimony. Let me start with a
    question related to the Building Resilient Infrastructure
    Communities program, which was announced recently by the Biden
    administration, and directs $1 billion in additional funds into
    that account.
        I can tell you, many communities in my State of Maryland
    are excited about the possibilities from this program, but a
    lot of our smaller communities who need funding for resiliency
    projects do not have the resources or the technical expertise
    that is needed to complete very complex applications. And many
    of them have applied for prior FEMA grants, different varieties
    of FEMA grants, been rejected without any explanation as to why
    their prior applications were rejected.
        So I just have two questions for you. What are you doing at
    FEMA to extend technical assistance to those smaller
    communities, to help them be able to fill out these
    applications, number one, and number two, could you also start
    explaining to communities that have been denied FEMA grant
    applications why they were denied, so that when they apply in
    the future they can make any necessary adjustments?
        Mr. Maurstad. Sure. You know, of course, as you know the
    Building Resilient Infrastructure Communities is under the
    Disaster Recovery Relief Act, so it is slightly off of the
    focus of this hearing, although mitigation is certainly a part
    of the flood program. And it is within my portfolio, so I will
    answer the question at a high level, and then we can get back
    to you with some more specific information.
        So one of the things that we did this year, in the first
    go-around of BRIC, is we selected ten smaller communities to
    work with them to get a better idea and understanding of what
    their needs are and the manner in which we could best help
    small communities. So we are going to learn, and continue to
    learn, how we can address the issue that we raised, because it
    is an important one. And we want to--in fact, Administrator
    Criswell has challenged us to do a better job in providing
    technical assistance to smaller communities, and we are going
    to meet that challenge.
        As far as the second issue, we have instituted a more
    robust catalog of projects, what projects are successful, why
    they were successful, that we hope will help communities that
    are not successful there yet. We encourage them to work with
    their State Hazard Mitigation Officer to make sure they put
    forward good applications, along with our FEMA regions. So we
    are certainly cognizant of that concern.
        It is a national competitive program, and so part of the
    challenge is how far can you go in making sure that you keep a
    level playing field. But we are going to work that nuance and
    do what we can to address the two concerns that you raise. We
    are well aware of them.
        Senator Van Hollen. No, I appreciate that, because smaller
    communities do not have any lesser risks, but they often have a
    lot less resources.
        Mr. Maurstad. I was a mayor of a community of 12,500 people
    that wrestled with the issues that you are talking about.
        Senator Van Hollen. All right. Well, I appreciate that, and
    again, if you do not get any feedback, zero feedback, it is
    hard to know if it was something wrong with your application or
    the money ran out. So really, I think individual feedback, at
    least, ``It was fine but we just didn't have the money,'' or
    there were technical problems, that would be very helpful.
        Mr. Maurstad. And we will get back to you with a more
    robust answer to your questions.
        Senator Van Hollen. Thank you. I appreciate that.
        So as you have noted and been discussed in this hearing,
    you know, currently FEMA maps to the 100-year floodplain
    standard, 1 percent chance of annual flooding. In Maryland,
    that standard has not been sufficient to cover the risks that
    are due to changes in rainfall and climate change, especially
    in Baltimore City, I am told that the current standards do not
    adequately meet their risks of flooding in an urban area.
        Can you talk a little bit about how your Future of Flood
    risk Data initiative might be helpful to places like Baltimore
    City?
        Mr. Maurstad. Sure. And so a couple of points to start with
    is, of course, the standard, the 1 percent annual chance
    standard that communities adopt in their local ordinance that
    they will regulate to that standard, enforce building in the
    high-risk area to the 1 percent annual chance, is a minimum
    Federal standard, and we encourage communities to go beyond
    that minimum standard and have higher standards, and many
    communities do that.
        Future of Flood Risk Data is going to help in situations
    like that in that it will look to partner with local
    communities on how we can depict the risk in their community in
    a graduated fashion. As we have talked earlier, what are the
    different causes of flooding in the community? What may happen,
    based on changes in development in the community? You know, if
    you put in a lot of pavement you are going to get runoff and
    cause new issues associated with that.
        So again, I think that where we are moving is currently
    within our ability to do it, but our regulatory authority is
    the 1 percent annual chance. So we want to work with the
        Committee on what we can do to better depict flood risk and
    communicate flood risk in the future through our Flood Risk
    Initiative.
        Senator Van Hollen. Thank you. I appreciate it.
        Chairman Brown. Thank you, Senator Van Hollen. Senator
    Tester of Montana is recognized for 5 minutes.
        Senator Tester. Thank you, Mr. Chairman. Thank you for
    being here, Mr. Maurstad. You have been with FEMA for quite a
    while, right, off and on?
        Mr. Maurstad. I was with FEMA from 2001 to 2008, and I
    returned in 2016.
        Senator Tester. OK. Were you in the flood insurance in the
    first gig, 2001 to 2008?
        Mr. Maurstad. Yes, 2004 to 2008.
        Senator Tester. So I am going to throw you a curve ball
    here. I want you to give me some insight on how much money FEMA
    has put out for disaster for flood. Has it been a pretty static
    figure over the years, or has it gone up, compared to the early
    parts of this century, compared to '01-'02, compared to 1920?
        Mr. Maurstad. From 1985 to 2003, we really did not have any
    major disasters like we have had since the start of 2004, the
    four Florida hurricanes in 2004, then Katrina, then, of course,
    Sandy and Harvey and others. And so certainly the last 20 years
    there has been a far greater frequency and severity of flood
    events.
        Senator Tester. And would you say that that has increased
    FEMA's outlay of cash by 10 percent, 20 percent, 50 percent,
    100 percent?
        Mr. Maurstad. I will get you the specific numbers, but just
    to give you----
        Senator Tester. A ballpark?
        Mr. Maurstad. In 2004, four Florida hurricanes was the
    first year that there was $2 billion of claims paid in a single
    year. That was a record. Of course, that got blown out of the
    water in 2005, when we approximately $18 billion in claims that
    year. And so certainly over the course of the last 15, 16
    years, far more has been paid out. I think the total paid in
    claims the entire 50 years of the program is like $77, $78
    billion.
        Senator Tester. OK. Why do you think that we are putting
    out more money in the last 20 years than we did in the previous
    20?
        Mr. Maurstad. Again, strictly because of the severity and
    the increased number of flood events.
        Senator Tester. Yeah. So it is not like people are getting
    more coverage. It's the fact that we have more events, they are
    more severe, they tend to last longer, in the case of fires.
        Mr. Maurstad. Yeah, unfortunately, and that is why we are
    working so hard to transform the program by developing new
    policy forms, new products. We believe we are improving our
    product. We believe we are improving our pricing methodology so
    that we can change the dynamic associated with the number of
    homeowners, renters, and small business owners that have flood
    insurance.
        Senator Tester. Good. So when are talking about, just from
    your view, from a FEMA point of view--and I know you are not in
    the climate industry and you are not probably a scientist,
    although maybe you might be--but from a pure fiscal standpoint,
    is not doing anything on climate change, you are doing the bare
    minimum, or just scratching the surface, going to help with the
    amount of money we put out each and every year, not only by
    FEMA but a lot of other agencies dealing with disasters?
        Mr. Maurstad. Certainly, again, as the severity and the
    frequency of the events increase we have to look at what are
    the future conditions, what are the changing conditions, what
    impact the changing climate, what is the impact of increased
    weather events, what does that have on the resiliency of the
    Nation, and we need to make investment in that. And clearly we
    are not making enough of an investment.
        Senator Tester. OK. Yeah, I would agree with you 100
    percent, maybe even more.
        There are communities on our rivers, and Montana has a few
    of them, that are facing significant challenges when homeowners
    have to pay higher flood insurance rates because of flood
    hazard zones, and the Army Corps of Engineers, which kind of
    compounds this problem, has refused to carry our certifications
    of the levees, for a number of reasons. Some of them are valid.
        You being an expert in this area, how would you address
    these challenges so that folks, Montanans, but folks overall--
    like I said, I think it deals with every one of our drainages--
    are unfairly penalized?
        Mr. Maurstad. I am not sure I understand your question.
        Senator Tester. Well, the question is we have got levees
    that cannot be certified. It puts folks into a situation where
    their rates go up significantly for flood insurance, and the
    reason they will not be certified is because the Army Corps is
    not doing it. They do not have the time anymore.
        Mr. Maurstad. Right. So I am not an expert in that area,
    but I would say--again, back to one of the topics that we have
    today--Risk Rating 2.0 looks at levees in a different way than
    what they were looked at before. Before, a levee had to be
    certified or accredited for the area that was protected by that
    levee to receive the benefit associated with the levee. And so
    it was, again, a light switch, off or on.
        Under the graduated way that we are doing it now, if the
    levee is just slightly under being certified or accredited, it
    will get credit for the amount----
        Senator Tester. Protection.
        Mr. Maurstad. ----if it is 90, 95 percent, it will credit
    for that protection.
        Also, on the other end, those levees, and certainly Senator
    Kennedy has some in his State, that are beyond the minimum
    Federal standard, they only got a certain amount of credit for
    that. Going forward, if they have a levee that is twice as good
    as the minimum Federal standard, they will get credit for that
    being a better levee in the future.
        Senator Tester. Yeah, but they have to be rebuilt in order
    to do that. Correct?
        Mr. Maurstad. I mean, there has already been a significant
    investment made in New Orleans, for example, in improving their
    levees.
        Senator Tester. Right. I got you. But that is what I meant.
    They have to be rebuilt in order to----
        Mr. Maurstad. It is a resource issue.
        Senator Tester. Right. Exactly right. It might be good to
    have an infrastructure package, Senator Kennedy.
        So with that I will yield to Mr. Chairman.
        Chairman Brown. Thank you, Senator Tester. I hear you are
    working on one. At least that is what I read.
        Senator Tester. I am hearing there is a lot of action. If
    there is action, I guarantee you Kennedy is a part of that
    action.
        [Laughter.]
        Chairman Brown. He keeps his name out of the papers,
    though, doesn't he?
        Thank you. Senator Kennedy, the second round, I think
    Senator Cortez, but nobody else has. I have a couple more
    questions and then we will wrap up. There are votes called now
    at 11:45.
        And then partly in follow-up to Senator Tester's comments,
    he noted that NFIP was not structured to pay for catastrophic
    events and that borrowing to cover such events is a more recent
    practice in the program. How should Congress approach covering
    these events in the future?
        Mr. Maurstad. Well, I would suggest that we have to start
    with the premise that there would be some kind of an
    understanding that the five million policyholders themselves
    cannot pay for the entire portfolio of what the National Flood
    Insurance Program does. And so if there is an understanding
    that that is the case, that there needs to be, or there is
    going to be taxpayer support, in what form should that taxpayer
    support come? I would suggest having the program borrow more
    and more money is not the answer.
        And so, yes, part of what we are looking at is to develop a
    sound financial framework to address the issue of how best for
    that taxpayer support to come to the program. And we look
    forward to having additional conversations with you on those
    solutions.
        Chairman Brown. Thank you. And last question, and a bit of
    a take-off on Senator Kennedy's comments and Senator Menendez
    and Senator Tester. Risk Rating 2.0 will lower the cost of
    premiums for some policyholders, and according to FEMA, as you
    know, it will also increase the cost of flood insurance for
    some policyholders, up to 18 percent per year for many years.
    That is our understanding. A lot of people we know cannot
    afford that. We know that low-income communities and
    communities that were the victims of redlining from Jim Crow to
    redlining, we know what that meant in many communities of color
    in this country. Too often they are in some of the most
    hazardous flood areas, not necessarily by choice, and certainly
    not knowing they were flood areas.
        So how do we assist homeowners facing escalating costs,
    particularly those with low incomes?
        Mr. Maurstad. Yeah. I mean, there is a legislative proposal
    that we have been working with the Administration on that we
    certainly support, that would establish a means-tested
    assistance program for one- to four-family residences. It will
    be a sliding scale type of assistance, starting at 125 percent
    of the average mean income in the area where the policyholder
    lives, down to 85 percent of the average mean income.
        So affordability has been a problem for a number of years,
    and without a program as being proposed it will continue to be
    an issue going forward. Where many of those people that are in
    the areas that you described that do not have--and it is a
    burden for them to have flood insurance because of the cost of
    the premium, regardless of what that premium is, more of those
    individuals need to have access to the program, and that is a
    way to provide it to them.
        Chairman Brown. Thank you. Mr. Maurstad, thank you for
    joining us. We will have many more conversations about this. I
    am hopeful, with Senator Kennedy's interest and Senator
    Menendez and all people in between, in both parties, that we
    can come up with some real solutions here.
        For Senators who wish to submit questions for the record,
    those questions are due 1 week from today, Thursday, June 24th.
    And to Mr. Maurstad, you have 45 days to respond to any
    questions after you receive them. Thank you, again.
        With that, the hearing is adjourned.
        [Whereupon, at 11:49 a.m., the hearing was adjourned.]
        [Prepared statements and additional material supplied for
    the record follow:]
                  PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
        Today's hearing is the second in our effort to enact a long-term
    reauthorization of the National Flood Insurance Program this Congress.
        In May, we heard from a panel of experts who emphasized that we
    need to do more to improve flood mapping and mitigation in the face of
    climate change.
        Flooding is the most common and most costly natural disaster facing
    families, businesses, and communities across the country.
        We hear from our constituents how it takes families' homes and
    memories, it wrecks their finances, it shutters small businesses, and
    it destroys communities' infrastructure. Disasters also often fall
    hardest on low-income and families of color, and communities that have
    fewer resources to prepare for and respond to them.
        And no matter where you live, everyone pays for the financial
    fallout from floods, as the country spends tax dollars to help families
    and communities recover.
        As the climate continues to change, we can only expect flooding to
    get worse, and become even more common.
        Spring snow melt, increasingly powerful storms, ``sunny day''
    flooding in coastal communities, and extreme rainfall can overwhelm our
    Nation's aging infrastructure and the land's capacity to absorb water.
        Reversing the trajectory of climate change is going to be a long-
    term effort. While we work on that, we also need to help our families
    and communities become more resilient to the flooding we face now and
    in the coming decades. And whenever possible, we need to prevent that
    flooding altogether.
        The NFIP is critical to that effort. The program provides over $1.3
    trillion in coverage to more than 5 million homes and businesses in
    more than 22,000 communities.
        It's not just an insurance program--NFIP's job isn't just to help
    communities after the floods, but to prevent and minimize the damage in
    the first place.
        Through NFIP reauthorization, we have an opportunity to improve the
    NFIP, to make our families, businesses, and communities safer and more
    resilient, and to meet the challenge posed by a changing climate.
        Today, our witness, Mr. David Maurstad, the Deputy Associate
    Administrator at FEMA, will provide the agency's perspective on what
    this Committee should consider as we work on that effort. I am
    interested in the Administration's recommendations for ways we can help
    strengthen the NFIP so that it:

        Can provide reliable access to insurance for property
            owners and renters,

        Can address affordability concerns,

        Can ensure that more people are aware of their flood risk
            and insured against losses, and

        So it can help the Nation predict and reduce our overall
            level of flood risk, through investments and improvements in
            mapping, floodplain management, and mitigation.

        I also look forward to discussing the NFIP's Risk Rating 2.0
    effort, which would change rate setting in the NFIP. We also want to
    hear more about how FEMA is communicating with stakeholders about these
    changes, and to better understand how these rates will affect low and
    moderate income communities, many of whom lack the resources to
    renovate or move out of harm's way.
        I look forward to continuing this work with the Members of the
    Committee to strengthen the NFIP and take a comprehensive approach to
    mitigating flood risk through a long-term reauthorization bill.
                                     ______

                PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
        Thank you, Mr. Chairman. Thank you, Administrator Maurstad. Today
    we hold our second NFIP reauthorization hearing. As I mentioned at our
    last hearing, finding a consensus on reauthorization will be
    challenging, and time is tight. Nevertheless, I am ready to work and
    hope we can reach agreement on a long-term reauthorization that
    improves the program.
        First, let me take a moment to remind everyone of the scope of
    NFIP's challenges. In the last 16 years, NFIP has had to borrow nearly
    $40 billion to pay claims. In other words, NFIP has lost an average of
    about $2.25 billion per year over the last 16 years. Those losses are
    particularly shocking in the context of NFIP's annual premiums
    collected: $4.6 billion. Clearly, NFIP systemically underprices flood
    insurance. Frustratingly, the policies of Congress--not FEMA--are the
    root causes of NFIP challenges.
        During our last hearing, I discussed several of my priorities in
    reauthorization. First, do no harm. Right now under existing law, NFIP
    is moving toward actuarially sound premiums. We should not interrupt
    that progress. Second, we should encourage more private capital in the
    form of private policies and private reinsurance. Third, if subsidies
    persist, they must be better targeted. Fourth, we should improve
    communication with homeowners and homebuyers so that they understand
    the flood risk of properties. I'd like to take few moments to discuss
    some of these priorities in more detail.
        First, ``do no harm.'' As our understanding of flood risks change,
    we must allow NFIP to keep up. For instance, I have long heard
    complaints about mapping. I agree. We need better flood maps, and I
    support taking steps to improve maps. But better mapping is a means to
    an end--not an end unto itself.
        Mapping is the easy part. The hard part is using those improved
    maps to better plan development, mitigate risk, and price flood
    insurance premiums appropriately. Fortunately, FEMA is moving in the
    right direction with its development of Risk Rating 2.0.
        FEMA has worked for years to build a better risk rating model. It
    incorporates far more granular data in setting premiums, including
    geography, flooding frequency, flooding types--that is, rivers versus
    oceans--and building characteristics.
        When Risk Rating 2.0 is implemented, we'll have not only a fairer
    NFIP but also a more fiscally sound NFIP. Reauthorization must not
    interrupt the implementation of Risk Rating 2.0. Of course,
    implementation of Risk Rating 2.0 will be a challenge. After all, NFIP
    has been using more-or-less the same old system for the last half-
    century.
        Administrator Maurstad, I urge you to work hand-in-glove with the
    Write Your Own insurers who sell and service NFIP policies. I fear that
    a turbulent roll-out will be used as an excuse to kill this important
    improvement by defenders of the status quo.
        While successful implementation of Risk Rating 2.0 will make NFIP a
    better program, NFIP still will not be perfect. That is why we must
    continue to facilitate expansion of the private flood insurance market.
    My home State of Pennsylvania has been a leader on this front. As of
    January 2021, there were nearly 13,000 private flood policies in
    Pennsylvania. That means almost 20 percent of Pennsylvania flood
    policies are now private.
        Private uptake should come as no surprise. NFIP data on Risk Rating
    2.0 implementation reveals that millions of policyholders are
    overpaying for flood insurance. Over 200,000 NFIP policyholders are
    overpaying by at least $100 per month. That's $1,200 per year.
        Besides competing on price, private flood may bring better
    products, such as All Peril Coverage, which would mean no more debating
    whether a claim resulted from water on wind damage. Further, private
    flood insurance brings more capacity to the market. That means more
    uptake by more homeowners, which is undoubtedly a good thing. It also
    means more resources to process claims after a major flooding like
    Super Storm Sandy, an event that--as my colleagues know all too well--
    overwhelmed FEMA.
        Finally, I'd like to briefly touch on subsidies within NFIP. As a
    general principle, I do not think we should be encouraging people to
    live in flood prone areas by providing flood insurance subsidies. I
    acknowledge that over the past 50 years, NFIP has acclimated homeowners
    to a world in which these subsidies exist. And therefore, it would be
    unfair to suddenly and completely remove them. However, in the interest
    of fairness and program solvency, property based subsidies must be
    phased out over time.
        Today, properties with subsidized NFIP premiums are overwhelmingly
    located in our wealthiest communities, and subsidized NFIP premiums are
    rare in lower-income communities. I am open to finding ways to help
    current, low-income homeowners afford flood insurance. But such help
    should not interrupt a long-term trend towards true, risk-based NFIP
    premiums.
        In conclusion, NFIP is broken. It's bad for the taxpayers who must
    bail it out year after year, and it's bad for homeowners and future
    homebuyers from whom NFIP obscures true flood risk. I recognize that we
    cannot fix NFIP overnight, but I hope that we use reauthorization as an
    opportunity to move it in the right direction.
                                     ______

                    PREPARED STATEMENT OF DAVID I. MAURSTAD
       Deputy Associate Administrator, Federal Insurance and Mitigation
              Administration, Federal Emergency Management Agency
                                 June 17, 2021
        Good morning Chairman Brown, Ranking Member Toomey, and Members of
    the Committee. My name is David Maurstad and I am the Deputy Associate
    Administrator for Insurance and Mitigation--responsible for directing
    the Federal Emergency Management Agency's (FEMA) risk management,
    mitigation, and flood insurance programs. Thank you for the opportunity
    to testify today about the National Flood Insurance Program (NFIP, or
    the Program). Thanks to the NFIP, communities and individuals have
    bolstered their resilience to flood events. The Nation's flood loss
    experience over the past 17 years, however, tells us that we can and
    need to do better. It is time to rethink the NFIP's fundamental
    approach to reducing losses from floods and increasing investment in
    mitigation. The NFIP is committed to meeting the challenges to our
    Nation posed by climate change and changing conditions, and we have
    identified a number of initiatives to improve our ability to address
    heightened flooding risks, affordability of our product, and equity.
    Our ability to improve the NFIP begins with the certainty associated
    with reauthorization, and I urge Congress to approve a multiyear
    reauthorization of the NFIP with meaningful reforms by September 30,
    2021.
    NFIP Structure
        The NFIP is administered by FEMA's Federal Insurance and Mitigation
    Administration (FIMA). Flooding is the most common and costly type of
    disaster in the United States because where it can rain, it can flood.
    The NFIP is designed to decrease the impact of future floods, reduce
    the costs and adverse consequences of flooding, reduce the need for and
    cost of disaster assistance after floods, and preserve and restore the
    natural and beneficial values of floodplains. FEMA addresses the
    challenges of flooding by identifying areas where the flood hazard is
    greatest; by implementing minimum standards for communities to minimize
    risk; by making flood insurance available in participating communities;
    and by providing access to flood mitigation grants.
    NFIP Milestones and Challenges
        The NFIP is a voluntary program that enables property owners in
    participating communities to purchase insurance protection against
    losses resulting from physical damage to or loss of building property
    and personal property from flooding. To participate in the NFIP, a
    community must adopt and enforce sound land use ordinances in the
    floodplain that meet or exceed minimum NFIP floodplain management
    standards. FEMA has worked closely with local communities to identify
    and communicate flood hazards through scientific and engineering
    methods to inform action to reduce the risk of life and property from
    flooding.
        The NFIP holds an impressive 52-year history that includes
    servicing more than 5 million policyholders currently and $1.3 trillion
    in flood insurance coverage in more than 22,500 participating
    communities in all 50 States, the District of Columbia, and six
    territories. The NFIP has grown to be the largest single-peril
    insurance operation in the world. Since 1978, the program has paid over
    $72 billion in claims, helping approximately 2 million policyholders
    recover from disaster. The NFIP enables insured survivors to recover
    quicker and more fully from a flood event than their uninsured
    neighbors. The NFIP's minimum floodplain management standards alone
    save almost $2.4 billion in avoided losses annually. Furthermore, the
    Flood Mitigation Assistance, Repetitive Flood Claims, and Severe
    Repetitive Loss grant programs have distributed nearly $1.5 billion in
    flood grant assistance to communities to mitigate their most vulnerable
    insured structures.
        The Nation's flood loss experience over the past 17 years, however,
    highlights the failures of our current flood policy. As a Nation we
    need to break the cycle of limited investment in resilience,
    ``unprecedented'' flooding, and repeated disaster suffering by the same
    impacted communities and populations. Inaction will result in continued
    risky development in floodplains, low take-up of flood insurance
    coverage, mounting NFIP debt to the U.S. Treasury, and ballooning
    supplemental appropriations.
        The frequency and impact of disasters is rising nationwide and
    disaster suffering continues. Flooding and coastal storms account for
    roughly 70 percent of all Presidential Disaster Declarations over the
    past decade. \1\ In 2020, the Nation saw 47 major disaster declarations
    across all natural hazards and 22 separate weather and disaster events
    with losses that exceeded $1 billion each--the previous high was 16
    (2011 and 2017). The historic 2020 hurricane season started earlier
    than ever, saw the most storms in the shortest amount of time in
    history, and finished with a record-breaking 30 named storms. Every
    mile from Texas to Maine was under a storm surge, Tropical Storm or
    Hurricane Watch or Warning. Hurricane Laura became one of 10 hurricanes
    on record to make landfall in the U.S. with winds of 150 mph or higher
    and only the third of this strength to strike Louisiana since records
    began in 1851. \2\
    ---------------------------------------------------------------------------
         \1\ FEMA, ``Open FEMA Data Sets, Disaster Declaration Summaries'',
    https://www.fema.gov/about/openfema/data-sets.
         \2\ https://www.tallahassee.com/story/news/2020/08/29/hurricane-
    laura-shatters-records-more-storms-tap-weathertiger-forecast/
    5634246002/
    ---------------------------------------------------------------------------
        The NFIP needs to transform to adapt to the changing climate and to
    meaningfully increase flood mitigation investment. FEMA is making
    transformational improvements so that in the aftermath of a flood,
    whether a Presidentially Declared Disaster or a smaller localized
    flooding event, there is less disaster suffering.
        Disasters have a disparate impact on socially vulnerable or
    marginalized communities--making their road to recovery longer and more
    difficult, exacerbating existing issues, exposing resource constraints,
    and revealing inequities in land use and development patterns. FEMA
    must also integrate concepts of equity and climate change
    considerations as it seeks to increase our Nation's resilience.
    Recent NFIP Improvements
        Over the past few years, FEMA has undertaken a number of internal
    operational improvements to transform the NFIP to reduce complexity and
    increase transparency and fairness. Let me share a few of the many
    steps taken in recent years under current authorities to make the
    program more efficient and effective:
    Risk Rating 2.0
        On April 1, 2021, FEMA formally released Risk Rating 2.0: Equity in
    Action, a new pricing methodology with equitable pricing for each
    property's unique flood risk. The NFIP's rating methodology has not
    been updated in more than 40 years. Risk Rating 2.0 delivers a more
    equitable and risk informed NFIP.
        Risk Rating 2.0 builds on years of investment in flood hazard
    information by incorporating private sector data sets, catastrophe
    models, and evolving actuarial science. FEMA adopted a multimodel
    approach to determine flood risk using a suite of models, in much the
    same way as the National Oceanic and Atmospheric Administration (NOAA)
    uses models to determine potential hurricane tracks and magnitudes. The
    improved rating methodology incorporates existing FEMA mapping data and
    NFIP policy and claims data. Blending catastrophic models sourced from
    both the Government and commercial entities will ensure the most
    accurate flood risk rating that the NFIP has ever produced. This allows
    FEMA to set actuarially sound rates and communicate flood risk more
    comprehensively than ever before, enabling us to fulfill our obligation
    to clearly communicate flood risk and allowing policyholders to make
    more informed decisions about mitigation actions.
        By incorporating technological and mapping advances, we can
    identify individual policyholder risk. We now know that within current
    rating classes, policyholders with lower-value homes are paying more
    than they should based on their actual risk profile, and policyholders
    with higher-value homes are paying less than they should. Risk Rating
    2.0 will address this inequity. Under the new methodology, rate
    increases will not continue indefinitely as it does now. Once a policy
    reaches its full-risk rate, the increases stop.
        Risk Rating 2.0 will change the landscape of flood insurance,
    enhance risk communication, and enable better floodplain management--
    ultimately resulting in greater resilience. Risk Rating 2.0 will help
    put the NFIP on a financially sound path; and will help disaster
    survivors recover more quickly after floods.
    Customer Experience
        NFIP Claims
        FEMA has redesigned its insurance claim process to be less
    complicated, more comprehensive, and easier for customers to understand
    with the goal of providing policyholders clear information in a timely
    manner.

        In recent years, FEMA streamlined and expedited the process
            for total loss claims. FEMA offers advance claim payments of up
            to $20,000, which can be made before an adjuster inspects the
            property.

        FEMA has bolstered our field presence following a disaster.
            From the onset, FEMA representatives from the NFIP are on-site
            with State insurance officials and in a FEMA disaster field
            office for more immediate support for daily flood-related
            activities.

        FEMA designed and implemented a new claims appeals process
            to improve customer service and transparency to policyholders.
            This included separating the claims and appeals functions into
            two distinct branches in order to provide for a nonadversarial
            review of claim denials, avoid the perception of a conflict of
            interest, and maintain organizational integrity.

        The NFIP developed and provided guidance to stakeholders on
            the use of services provided by subject-matter experts, to
            ensure transparent and consistent claims handling for all
            policyholders.

        In 2018, FEMA released a user-friendly NFIP Claims Manual.
            The NFIP Claims Manual improves the clarity of claims guidance
            given to NFIP WYO companies, flood vendors, flood adjusters,
            and examiners, so policyholders experience consistent and
            reliable service. The NFIP Claims Manual has seen two
            subsequent revisions, in 2019 and 2020, with the next planned
            release in October 2021.

        Starting in the COVID-19 pandemic, the NFIP encouraged
            adjusters to remotely adjust claims for the first time in
            program history, adapting to the environment and giving
            customers the option to have their claim adjusted without
            coming into contact with adjusters.
        NFIP Forms Redesign
        The NFIP must provide a range of insurance products that customers
    value and agents can easily sell. To comply with the National Flood
    Insurance Act of 1968, FEMA adopts the Standard Flood Insurance Policy
    in regulation. The NFIP is continuing its Policy Forms Redesign
    initiative to modernize its insurance offerings to ensure they are
    customer-centric and responsive to flood events. Modern consumers
    expect to have choices and want services tailored to meet their needs,
    which our current forms do not provide. Further, by requiring the
    customer to make choices about their coverage, we can better
    communicate their flood risk and inform the customer about the extent
    of our policy coverage. We are continuing our research and development
    efforts and expect to develop a suite of flood insurance products that
    can serve not only our existing policyholder base but also reach those
    homeowners and businessowners who may currently be at risk of financial
    ruin after a flood.
        Litigation
        FEMA established an oversight team in the Office of Chief Counsel
    to ensure that Federal law and policy are advanced through claims
    litigation under the NFIP. The oversight team seeks to ensure that the
    legal strategies that are employed by insurers under the NFIP follow an
    approach that is nationally coherent and consistent with the NFIP. The
    team also seeks to ensure that claims litigation under the NFIP
    achieves maximum value for the American public. In this respect, the
    oversight team seeks to support settlement of litigation for amounts
    that are fair both to policyholders and to insurers. The team also
    seeks to ensure that the private companies that participate in the NFIP
    are reimbursed by the U.S. Treasury for the companies' litigation
    expenses only when those expenses are reasonable considering the goals
    of the NFIP. Finally, the team is considering means to avoid litigation
    where less costly means of dispute resolution are available and where
    those alternative means would be as or more effective in achieving
    Congressional objectives.
        Open FEMA
        FEMA is committed to increasing the transparency and accessibility
    of the agency's data. In 2012, the agency began the OpenFEMA
    initiative, which provides approved mission-relevant data which
    stakeholders can use in value-added ways--such as research, analysis,
    and application development. The NFIP uses this platform to publish
    over 60 million records, consisting of 40 years of claims history and
    10 years of policy history at the point level. Since the release of
    this information, FEMA has seen this data used by major media outlets,
    top universities, policy makers, and even individual communities to
    better understand flood risk and influence flood policy. Likewise, this
    data is being used across all markets to include realty, lending,
    education, and reinsurance to not only build flood insurance industry
    confidence but consumer confidence. With almost 40,000 downloads of
    this data in just the last week alone, we are inspiring broader program
    participation and more insightful engagement, including from those
    outside of the typical flood channels. Even in the midst of the
    pandemic, emergency managers are using our data to help drive
    conversations around preparedness, resiliency and disaster response.
        Office of the Flood Insurance Advocate
        Since the Office of the Flood Insurance Advocate was established in
    2014 to advocate for the fair treatment of policyholders and property
    owners, over 2,800 citizens have reached out for assistance with all
    aspects of the NFIP, including floodplain mapping, floodplain
    management, rate verification, claims handling, and Hazard Mitigation
    Assistance.
    Financial and Individual Resilience
        Reinsurance
        In 2017, for the first time, FEMA exercised a Congressional
    provision allowing the program to secure reinsurance from the private
    markets to help reduce the amount of the NFIP's financial losses. The
    program recovered $1.042 billion from this coverage following the
    losses from hurricane Harvey. FEMA remains committed to further
    reinsurance purchases to manage the program's risk. Effective Jan. 1,
    2021, FEMA secured $1.153 billion in traditional reinsurance to cover
    any qualifying flood losses occurring in calendar year 2021. FEMA
    currently has $1.2 billion in reinsurance coverage through three 3-year
    reinsurance agreements with the capital markets, $500 million of which
    will expire in August 2021.
        Mapping
        The National Flood Mapping Program is modernizing flood hazard
    identification from one focused on probabilistic floods--like the 1-
    percent-annual-chance-event--to a conversation about structure-specific
    risk based on a more comprehensive risk profile and that accounts for
    other types of flood hazards. FEMA identifies flood hazards related to
    rivers, coasts, lakes, and rainfall using the best available scientific
    data, the latest technology, and proven engineering methods. As
    directed by the Biggert-Waters Act of 2012, FEMA is looking to expand
    the flood hazard mapping inventory (identifying the 100-year and 500-
    year floodplain in all areas necessary), address climate change/future
    conditions, analyze areas of residual risk and inundation due to
    overtopping and/or failure of levees and dams, and modernize its IT
    infrastructure to make comprehensive flood information more readily
    available. The Future of Flood Risk Data initiative will provide a more
    complete risk profile. This initiative is exploring how to provide more
    comprehensive flood risk data that reflects a range of potential
    flooding scenarios instead of just the 1-percent-annual chance flood.
    By moving to a graduated risk analysis, one that depicts multiple
    sources of flooding--like heavy rainfall, or levee risk beyond the 1
    percent annual chance event--we hope to change the misconception that
    areas outside of the 100-year flood zone have little to no flood risk.
        Acquisitions of Flood-Prone Properties
        FEMA continues to work with local officials throughout the country
    to reduce flood risk by acquiring flood-prone properties. From 1989 to
    2020, FEMA mitigation grants funded the purchase of more than 49,000
    homes, effectively protecting lives and property from future flooding.
    The cost to acquire the properties was $3.4 billion and is estimated to
    have saved more than $6.49 billion in losses.
        Additional FEMA Improvements Impacting Flooding
        The National Mitigation Investment Strategy provides a
            single strategy for the Nation to more effectively and
            efficiently advance mitigation investment.

        The Disaster Recovery Reform Act of 2018 (DRRA), enacted in
            October 2018, reduces the complexity of FEMA and builds the
            Nation's capacity for the next catastrophic event. DRRA
            authorized the Building Resilient Infrastructure and
            Communities (BRIC) program, which shifts mitigation forward to
            occur before a flood disaster and establishes a reliable stream
            of funding for a nationwide grant program. Recently, resilience
            received a big boost for FEMA's Building Resilient
            infrastructure and Communities Program's (BRIC) second year.
            President Biden has announced $1 billion will be made available
            for Fiscal Year 2021 funding to State, local, tribal, and
            territorial governments to assist with undertaking hazard
            mitigation projects and planning to reduce the risk they face
            before the next disaster strikes. The BRIC Program provides a
            critical opportunity for Governments to invest in a more
            resilient Nation, reduce disaster suffering and avoid future
            disaster costs. Additional information will be available once
            the Fiscal Year Notice of Funding Opportunity is released in a
            few weeks.

        FEMA launched the National Risk Index (Index) in November
            2020 to encourage mitigation actions and investment by
            providing reliable and understandable risk information tools.
            The Index identifies communities nationwide most at risk to 18
            natural hazards and makes it easier for communities to have
            conversations about how to reduce the impacts of natural
            disasters. This combination of information on hazards and
            social vulnerability marks the first time the Federal
            Government has taken such a sweeping view of community risk and
            susceptibility to disasters.

        FEMA's landmark study, ``Building Codes Save: A Nationwide
            Study'', \3\ shows that modern building codes would avoid at
            least $32 billion in losses from natural disasters over a 20-
            year period when compared to jurisdictions without modern
            building codes.
    ---------------------------------------------------------------------------
         \3\ FEMA, ``Building Codes Save: A Nationwide Study of Loss
    Prevention''. November 2020.
    ---------------------------------------------------------------------------
    NFIP Reauthorization
    Affordability
        Affordability--Closing the Insurance Gap and Means-Tested
    Assistance
        Flood insurance affordability is complex, touching on the intricate
    challenges of equity and risk management. FEMA defines affordability as
    policyholders' and potential policyholders' ability to (1) pay for
    flood insurance, or (2) manage the cost burden posed by flood
    insurance. FEMA measures this ability to pay or cost burden in terms of
    the policyholder's household income compared to Area Median Income, or
    the median income for the county in which they live.
        Under current FEMA authorities, the NFIP cannot offer means-tested
    discounts or consider policyholders' ability to pay in its rate-setting
    process. Instead, the NFIP makes rates ``reasonable'' by offering
    discounts and cross-subsidies, primarily based on a building's age or
    map changes at a building's location, or by considering mitigation
    activities undertaken by the property owner or community. FEMA does not
    currently consider a policyholder's ability to pay for coverage when
    setting discounts on premium rates. This structure does not target
    households who struggle to maintain coverage or address households who
    cannot afford a policy in the first place. It leaves vulnerable
    households underinsured and exposed to extreme hardship from flooding
    events. Such discounts and cross-subsidies make it harder for the NFIP
    to communicate risk through the price of flood insurance. They also
    inhibit the NFIP's transition to full-risk rates to achieve a sound
    financial framework for the program.
        In the Homeowner Flood Insurance Affordability Act, Congress
    directed FEMA to develop a framework to help policymakers consider
    creation of a flood insurance affordability program. FEMA's April 2018
    Affordability Framework for the NFIP provides a data-driven analysis of
    the cost burden that flood insurance poses for policyholders and
    nonpolicyholders. The most acute flood insurance affordability
    challenge lies with low income, homeowners (or renters) in the SFHA who
    are heavily burdened by the cost of insurance and either forced to
    purchase the product as a condition of a loan or choose to go bare and
    suffer the consequences in a flood disaster. FEMA identified that 26
    percent of current NFIP residential policyholders and 51 percent of
    prospective residential policyholders in the highest risk areas meet
    Department of Housing and Urban Development (HUD) low income
    definitions, meaning their income is less than 80 percent of Area
    Median Income. These policyholders and potential policyholders need
    assistance to purchase flood insurance for their homes to be
    financially protected.
        A forthcoming legislative proposal will address the need to provide
    affordability assistance to some homeowners as FEMA moves forward with
    putting the NFIP on more sustainable financial footing. This would be
    accomplished through a targeted means-tested affordability program to
    offer premium assistance based on income or ability to pay, rather than
    location or date of construction.
        This legislative proposal would establish a targeted means-tested
    affordability program for 1-4 family primary residences where the
    household income is such that Federal flood insurance under the
    National Flood Insurance Program is unattainable or difficult to
    maintain. The HUD defines households earning 80 percent or less than
    area median income as ``low income'' and households earning 120 percent
    or less than area median income as ``moderate income.'' This targeted
    affordability program would serve to offer low- and moderate-income
    households a graduated risk premium discount benefit. The discount
    received would vary by household income. As household income increases,
    the discount benefit received decreases. FEMA would implement the
    program such that eligible policyholders see both the full-risk price
    and the affordability assistance they receive so they understand their
    true flood risk. In addition, the proposal will use a portion of the
    appropriation to provide mitigation assistance to eligible
    policyholder's properties. This effort will limit eligible
    policyholders' exposure to future disasters and potentially reduce
    premiums.
    Sound Financial Framework
        The sustainability of the NFIP is often called into question,
    noting the Program's $20.5 billion debt to the U.S. Treasury after
    catastrophic flood events in the last 17 years and the limited private
    sector involvement. According to the Government Accountability Office
    (GAO), the Federal Government must address the long-term financial
    exposure of disaster assistance programs and ``fully implement measures
    that promote resilience.'' \4\
    ---------------------------------------------------------------------------
         \4\ GAO, ``High-Risk Series: Dedicated Leadership Needed To
    Address Limited Progress in Most High-Risk Areas'', GAO-21-119SP, March
    2, 2021.
    ---------------------------------------------------------------------------
        To the critics of the NFIP's debt, it is important to understand
    the historical context. The lack of severe storms between 1986 and 2003
    allowed the NFIP to rely on premium payments to pay claims without
    substantial borrowing. After flood losses began escalating in 2004,
    Congress authorized the NFIP to borrow billions of dollars from the
    U.S. Treasury when needed, but that model was intended to be a short-
    term solution and is not sustainable.
        Congress did not design the NFIP to pay for catastrophic flood
    events without additional financial assistance. Even if the NFIP
    collects revenue sufficient to meet long-term expected losses, the
    magnitude, volatility, and geographic concentration of flood risk pose
    unique challenges. Raising premiums to make up the deficit from extreme
    events would put an unreasonable burden on current policyholders to pay
    for past claims. Fundamental challenges to the NFIP's financial
    solvency remain, including discounted insurance premiums, interest
    costs associated with borrowing from the Treasury, and reliance on
    policyholders to fund wider public benefits.
        After the 2017 hurricanes, Congress canceled $16 billion of the
    NFIP's debt, provided as an emergency supplemental. Although an
    important step in aiding the Nation's disaster response and recovery,
    debt cancelation was intended to accompany program reform and further
    emphasized the critical need for reform. To service the $20.5 billion
    debt, FEMA continues to pay the U.S. Treasury over $400 million in
    interest expenses annually. This is the third largest NFIP activity by
    cost. The NFIP is simply not fiscally sustainable in its present form.
        Long term and sustainable fiscal soundness will require additional
    program advances to sustain the NFIP's capabilities to manage a large
    flooding event FEMA's Risk Rating 2.0--Equity in Action, Reserve Fund,
    and reinsurance are key factors, and the Administration is currently
    assessing whether additional authorities may be required.
    Conclusion
        Congress established the NFIP to address escalating Federal
    expenditures following frequent and severe flooding events around the
    country. FEMA remains committed to continuous improvement of the NFIP
    to better serve our customers and account for both current and future
    conditions. Reauthorization of the NFIP must encompass innovations that
    improve the customer experience by reducing complexity and increasing
    transparency, transforming the communication of risk and improving the
    accessibility of flood insurance, strengthening local floodplain
    management minimum standards and addressing repetitive loss properties,
    and put the NFIP on a sustainable fiscal path.
                   RESPONSES TO WRITTEN QUESTIONS OF
                SENATOR MENENDEZ FROM DAVID I. MAURSTAD

    Q.1. Risk Rating 2.0 is one of the largest changes to the
    National Flood Insurance Program since its inception. According
    to FEMA, nearly 80 percent of policyholders nationwide will see
    increases in the first year of implementation. FEMA has also
    released data showing the size of the increases. However, this
    information has the statutory rate caps applied, giving no
    insight into how much a policyholder's actuarial rate will
    increase.
        If not for the statutory rate caps, what percent of all
    NFIP policies under Risk Rating 2.0 would see premium increases
    higher than 18 percent of their premium in their first year?

    A.1. The NFIP actuaries created a policy-by-policy capping
    projection to estimate when policies will reach their full
    rates. This projection uses growth caps specific to categories
    such as Newly Mapped policyholders, Pre-Flood Insurance Rate
    Map (Pre-FIRM) homes that are primary residences and Pre-FIRM
    homes that are secondary residences. Some of these categories
    are capped at growth rates lower than 18 percent and some at
    higher rates; the vast majority are capped at 18 percent. This
    question and the following question are answered using these
    actuarial projections.
        Approximately 71.9 percent of policies would see increases
    greater than 18 percent in the first year in the absence of
    rate caps.
        The increase for most policyholders (66 percent) will be
    $10/month or less. Additionally, 23 percent of policyholders
    will see decreases. This is because Risk Rating 2.0 is right
    sizing insurance rates with the actual risk of flooding. There
    are many policyholders paying far too much in insurance today;
    they will see decreases. There are also many policyholders
    already paying what it costs to insure their risk. Typically,
    the policies that have been underpriced the most are high value
    homes in high risk areas. Their artificially low premium prices
    are due to the inequities of the current rating system.
        If Risk Rating 2.0 is not implemented, rates will still
    increase, but they will not increase in a way that is
    commensurate with the risk or the replacement cost value of the
    structure. Attached is a spreadsheet that compares rate changes
    under the current methodology and RR2.0 in year one.
    Additionally, we created the same comparison for Louisiana, for
    both levee-only and all of Louisiana. As mentioned in the
    response to Question 4 [from Sen. Kennedy], under the current
    rating plan rate increases are currently focused on lower value
    homes, as can be seen by the comparing the average replacement
    cost value for increases between $50 and $100 per month to the
    average for all policyholders. These rate increases stop under
    Risk Rating 2.0. Furthermore, Risk Rating 2.0 greatly reduces
    the number of policyholders with increases greater than $100
    per month, from 45,012 policyholders under the current rating
    plan to only 3,199 under Equity in Action.
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Q.2. For the policies seeing increases under Risk Rating 2.0,
    what percent of policies would be at their full actuarial risk
    rate in year one? What percent of policies would reach their
    full actuarial rate by year five? In addition, what percent of
    policies would reach their full actuarial rate by year ten?

    A.2. Approximately, 28.1 percent of policyholders are at their
    full risk rate at year one. After 5 years, that percentage
    moves to 55.3 percent, and after 10 years to approximately 87
    percent.
        In the first year, FEMA will collect slightly less than
    current collections. By the third year, collections are back at
    current levels. By approximately the 15th year, FEMA will
    collect roughly 1.5 times the current premium level. Premium
    collections would have gone up to the same level under the
    current methodology. So overall premium collection is the same
    under both methodologies, but Risk Rating 2.0 delivers the
    premium increases in an equitable manner.

    Q.3. Could you please provide a detailed analysis of how
    premiums of grandfathered properties nationally will be
    impacted under Risk Rating 2.0? Could you provide the same
    analysis for grandfathered properties in New Jersey?

    A.3. See attached Excel spreadsheet which details the year one
    changes for grandfathered policies nationwide, in New York, and
    in New Jersey.
        Note that nationwide, grandfathered policies have a similar
    distribution of changes to the nationwide total. The percent of
    decreases in year one is actually greater than the percent for
    all nationwide policies (28.5 percent of grandfathered policies
    decreasing vs. 23.3 percent of all policies; 22.0 percent of
    grandfathered single family home policies vs. 18.6 percent of
    all single family home policies). At the same time, slightly
    more grandfathered policies will see increases greater than $20
    (4.9 percent of grandfathered policies increasing more than $20
    vs. 3.9 percent of all policies; 9.5 percent of grandfathered
    single family home policies vs. 2.9 percent of all single
    family home policies). But it should be noted that fewer than 5
    percent of single-family home policies are grandfathered,
    meaning that the single family home grandfathered policies
    increasing more than $20 represent approximately 0.3 percent of
    all policyholders.
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

           RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
                         FROM DAVID I. MAURSTAD

    Q.1. Over the years, FEMA has allowed midterm cancelations of
    NFIP policies with pro rata refunds when non-NFIP replacement
    coverage was confirmed. However, NFIP policyholders today who
    are struggling with affordability challenges have no such
    optionality or recourse. Beginning in 2012, NFIP established
    Cancellation Reason Code 16 that allowed policyholders to
    cancel mid-term and receive prorated refunds if they found
    alternative non-NFIP coverage. Three years later, in 2015, NFIP
    rescinded this option for policyholders. In 2017, in response
    to a written question regarding this change to NFIP's
    cancelation policies, then Deputy Associate Administrator for
    Insurance and Mitigation, Roy Wright, testified that FEMA's
    regulations restrict its ability to issue refunds for canceled
    policies. He went on to say that ``FEMA is seeking regulatory
    changes to allow FEMA to cancel the NFIP policy with premium
    refund when the insured has obtained a replacement flood
    insurance policy through the private company.''
        As forecast by Mr. Wright, in the spring of 2018 FEMA
    announced that it would, in effect, reimplement the terms of
    Code 16 as Cancellation Reason Code 26. However, when Code 26
    was published in 2018, it bore little resemblance to Code 16
    even though under Code 16 no detrimental outcomes were ever
    reported. In March of 2019, Code 26 was minimally revised but
    continues to be a major impediment to consumer choice in flood
    insurance.
        Can you provide an update on FEMA's current review of this
    issue?

    A.1. The current 44 CFR 61.5(c) limits mid-term premium
    refunds. It provides that only a policy holder canceling
    because their ownership in the property has ended will be
    entitled to pro-rata premium refunds. In other words, a policy
    holder who purchases a private non-NFIP policy mid-term and
    then cancels their NFIP policy cannot receive a refund. In
    outlining this prohibition, 44 CFR 61.5(c) specifically
    mentions the seasonal nature of flooding. Although premium is
    paid on a yearly basis, the highest risk of flooding is limited
    to certain months (i.e., the ``seasonal nature''). Accordingly,
    there is an actuarial concern with mid-term cancelations.
        Effective October 1, 2021, guidance on nullifications,
    cancelations and refunds will be consolidated at 44 CFR 62.5.
    This consolidation provides for refunds in certain scenarios
    but will not allow for a refund when a non-NFIP private policy
    is purchased.
        FEMA supports legislative action to allow refunds for
    policy holders who cancel mid-term after purchasing a private
    non-NFIP policy. Additionally, FEMA will continue to explore
    the possibility of rulemaking to allow for such refunds through
    regulation.

    Q.2. How does FEMA's current position square with the federal
    requirement that lenders accept compliant non-NFIP flood
    insurance whenever tendered?

    A.2. FEMA supports purchase of any flood insurance, but its
    current regulations do not provide the authority to allow for
    refunds when a policy holder purchases a non-NFIP flood policy.

    Q.3. At a time when affordability of flood insurance is a top
    concern, what precisely led FEMA to twice reverse this policy?

    A.3. FEMA supports purchase of any flood insurance, but its
    current regulations do not provide the authority to allow for
    refunds when a policy holder purchases a non-NFIP flood policy.

    Q.4. Will FEMA give priority to revisiting this change to allow
    policyholders that find a more affordable flood insurance
    policy to receive the savings immediately as previously allowed
    under Code 16?

    A.4. FEMA supports legislative action to allow cancelations of
    NFIP policies midterm due to purchase of a private policy and
    would like the opportunity to provide technical drafting
    assistance for any legislative action that supports mid-term
    cancelations due to private policy purchase.
                                    ------

           RESPONSES TO WRITTEN QUESTIONS OF SENATOR KENNEDY
                         FROM DAVID I. MAURSTAD

    Q.1. Public involvement and policy holder interests do not seem
    to be a consideration in the formulation of Risk Rating 2.0.
    Risk Rating 2.0 proponents speak about fairer rates, but there
    has been no meaningful public involvement during the 5 years it
    has taken FEMA to establish this proposal. Prior to this once-
    in-a-generation overhaul of the National Flood Insurance
    Program (NFIP), how has the general public been notified or
    consulted about these major changes?
        As FEMA began developing Risk Rating 2.0 did FEMA ever
    consider doing a rulemaking process with public notice and
    comment before this once-in-a-generation NFIP overhaul takes
    effect beginning in October of this year?
        The Administrative Procedure Act ensures that the public is
    guaranteed a voice and proper insight into proposed Government
    agencies' rules/regulations. Pursuant to the Administrative
    Procedure Act, why haven't the underlying assumptions, models,
    and data used to formulate Risk Rating 2.0 been released for
    public comment and input?
        Why must policy holders wait until August to learn more
    about their rates?
        Will FEMA make rate available to the public at this time?

    A.1. Since 1968, the National Flood Insurance Act has required
    the Federal Emergency Management Agency (FEMA) to periodically
    review, and if necessary, revise the way we set nondiscounted
    premium rates. The requirement to estimate and charge actuarial
    rates, also referred to as, nondiscounted premium rates is
    outlined at 42 U.S.C 4014(a)(1); 4015(c).

            The Administrator is authorized to undertake and carry
            out such studies . . . as may be necessary to estimate,
            and from time to time estimate on an area subdivision
            or other appropriate basis (1) the risk premium rates
            for flood insurance which--(A) based on consideration
            of--(the risk involved and accepted actuarial
            principles . . . [that] would be required in order to
            make such insurance available on an actuarial basis . .
            . [42 U.S.C. 4014(A)(1)].

        The Act identifies properties for which FEMA shall charge
    actuarial rates as Post-FIRM properties: properties built after
    FEMA has mapped the base flood for an area. 42 U.S.C. 4015(c).
    While the Act does outline certain rulemaking requirements,
    notably 42 U.S.C. 4014(f)(3), it makes no such requirement for
    estimation of actuarial rates. As such, there is no statutory
    mandate for rulemaking.
        Even if the rulemaking requirements outlined in the
    Administrative Procedures Act (APA) at 5 U.S.C. 553 were
    directly applicable, the APA offers exceptions to rulemaking
    for matters relating to ``benefits and contracts'' 5 U.S.C.
    553(a)(2), and for rules of ``procedure and practice'' 5
    U.S.C. 553(b)(3)(A)--thus offering a considerable amount of
    discretion as to when rulemaking is undertaken.
        After two earlier delays in implementation, the new
    Administration decided to take a phased approach to the
    implementation of Risk Rating 2.0: Equity in Action (Risk
    Rating 2.0) to ensure existing policyholders have ample time to
    make informed decisions. The approach was announced in April
    2021 and allows existing policyholders, beginning in October,
    to choose to transition to Risk Rating 2.0 if it is financially
    advantageous. All policyholders, beginning in April 2022, will
    be transitioned, giving existing policyholders at least one
    year to understand the transition to Risk Rating 2.0.
    Additionally, in the current rating paradigm, all policyholders
    have been and would continue to experience rate increases,
    whereas with Risk Rating 2.0, 23 percent of existing
    policyholders would see rate decrease upon the transition to
    the new rating methodology and all other policyholders would
    see the gradual statutory increases mandated by Congress.

        In Phase I: New policies beginning Oct. 1, 2021,
            will be subject to the new rating methodology. Also
            beginning Oct. 1, 2021, existing policyholders eligible
            for renewal will be able to take advantage of immediate
            decreases in their premiums at the next policy renewal.

        In Phase II: All remaining policies renewing on or
            after April 1, 2022, will be subject to the new pricing
            methodology, with renewing policyholders either
            immediately decreasing or increasing from their current
            premium to their full risk premium over time.

        This phased approach allows more time for both industry and
    policyholders to prepare. The agency has spent significant time
    over the last 3 years on outreach and engagement with a variety
    of industry and nonindustry stakeholders, including
    professional and trade associations, State insurance
    regulators, State insurance commissioners, various Government
    agencies, and the media. To date, FEMA has conducted more than
    500 outreach and engagement activities around Risk Rating 2.0.
        Major National Flood Insurance Program changes are
    announced to the public twice a year, in April and October.
    Annual rate changes are announced every October, effective the
    following April. These changes are announced via bulletin to
    our industry partners and posted to floodsmart.gov. In concert
    with the NFIP's general practice of announcing major program
    changes semi-annually, on April 1, 2021, FEMA issued W-21003
    bulletin. The bulletin provided notification of the change to
    the new pricing methodology, the overall timeline for
    implementation, and FEMA's expectations of NFIP insurers (i.e.,
    WYO companies and NFIP Direct).
        Additionally, FEMA has released several sets of data and
    information, listed below, for the public to understand the
    changes that will be made once Risk Rating 2.0 is fully
    implemented. FEMA released:

        ``Risk Rating 2.0 Methodology and Data Sources'',
            released in April of this year provides a consolidated
            description of the methodology and data sources used to
            develop Risk Rating 2.0 and information describing how
            the work complies with relevant actuarial standards . .
            . The report also provides the Risk Rating 2.0
            algorithm, rates, and rating factors, as well as
            examples that illustrate how premiums are calculated
            under the new rating plan.

        ``Risk Rating 2.0 State Profiles''. These State
            profiles provide a detailed report of the Risk Rating
            2.0 transformation on the insurance policies within
            that State, as well as county level and zip-code level
            premium change analysis.

        ``Risk Rating 2.0 Methodology and Data Sources'',
            this document provides a complete overview of the
            technical methodology and data used to build Risk
            Rating 2.0.

        ``Premium Calculation Worksheets''. A workbook that
            shows how the rating calculation produces a premium.

        ``Appendix D Rating Factor Tables''. A workbook
            that encompasses all the rating factors for the
            variables.

        FEMA will continue to release additional information
    regarding Risk Rating 2.0. At this time, NFIP policyholders can
    contact their insurance company or insurance agent to learn
    more about what Risk Rating 2.0-Equity in Action means to them.
    FEMA has also provided the Write Your Own companies and NFIP
    Direct the guidance necessary to implement Risk Rating with
    their agent workforce. Final guidance was released on September
    1, 2021, though industry partners have seen this material in
    draft form since April. As our efforts move forward, FEMA will
    continue to partner with the Write Your Own companies and NFIP
    Direct to ensure their staff, agents, business processes, and
    technology are implementing the Risk Rating 2.0 changes for
    both new business and current policyholders.

    Q.2. According to FEMA's website, FEMA is developing flood
    hazard models using private sector data sets, catastrophe
    models, and evolving actuarial science. For the public, it is
    not enough to just describe and cite a model. How does FEMA
    plan to communicate to policy holders that their premiums are
    derived from their flood risks in plain English?
        Are policy holders aware of their flood risk's influence
    over the cost of premiums? And are they aware of the
    correlation between the two?

    A.2. FEMA will deliver flood insurance rates under Risk Rating
    2.0 that are easier to understand and better reflect a
    property's unique flood risk. Risk Rating 2.0 uses a series of
    rating variables to describe the flooding risk at the structure
    level, such as the structure's distance from a flooding source,
    elevation, and the cost to rebuild a property. Therefore, the
    connection between a policyholder's flood risk and insurance
    premium should be clearer than in the past.
        For the last 3+ years, FEMA has spent significant time on
    outreach and engagement with a variety of industry and
    nonindustry partners as well as the media. This has ensured
    these groups can effectively assist the public in understanding
    both Risk Rating 2.0 and the factors that drive the price of
    flood insurance. In addition, insurance agents are essential
    partners in communicating the value of flood insurance to the
    public. FEMA has worked to ensure the agent community is well-
    versed in Risk Rating 2.0 and are ready to communicate to their
    customers in plain language how flood insurance works. FEMA
    continues to work with multiple stakeholders on refining
    implementation and fully operationalizing RR 2.0. As part of
    this process, we're reviewing various ways to utilize the new
    information and insights available to us to best communicate
    flood risk to individuals, communities, other Government
    agencies, and external third parties.
        As of September 3, 2021, FEMA has trained over 15,258
    agents on the fundamentals of Risk Rating 2.0., so they can
    begin to work with current and prospective policyholders.
    Beginning August 2021, current National Flood Insurance Program
    policyholders have had the ability to contact their insurance
    company or insurance agent to learn more about what Risk Rating
    2.0-Equity in Action means to them.

    Q.3. Insurance companies have been required by FEMA to sign
    Non-Disclosure Agreements (NDA) before seeing the details on
    Risk Rating 2.0.
        Please provide a detailed explanation regarding why FEMA
    decided to require insurance companies to sign an NDA.
    Additionally, please provide my office with a copy of the NDA.

    A.3. Write Your Own (WYO) industry partners are critical in
    delivery of the NFIP, and FEMA worked closely with them
    throughout the development of Risk Rating 2.0.
        Given that the development of Risk Rating 2.0 was a fluid
    process and FEMA wanted to include industry expertise from the
    WYOs, it was necessary to put a Non-Disclosure Agreement (NDA)
    in place prior to the official release of any implementing
    guidance. FEMA wanted to ensure that when the design of Risk
    Rating 2.0 was complete, FEMA and industry partners could
    implement it in a consistent fashion. The NDA was designed to
    keep deliberative information confidential as well as ensure
    that information regarding the methodology and the
    implementation timeline was consistent and disseminated only
    once decisions were finalized. FEMA lifted the NDA requirement
    in April of this year. At that time, FEMA had provided public
    notification of the change to the new pricing methodology, the
    overall timeline for implementation, and FEMA's expectations of
    NFIP insurers. A copy of the NDA is attached.

    Q.4. I am deeply concerned with the affordability of flood
    insurance under the Risk Rating 2.0 proposal. This proposal
    will significantly raise premiums for policy holders in
    Louisiana. In some cases, homeowners will see over a 70 percent
    increase.
        As you were creating RR 2.0, was flood insurance
    affordability a consideration in the pricing structure? As was
    intended with the creation of the NFIP, is FEMA planning to
    continue to balance the need for affordable rates with
    capturing risk?

    A.4. FEMA recognizes and shares concerns about flood insurance
    affordability. Pursuant to 42 U.S.C. 4014(a)(1); 4015(c), FEMA
    is required to estimate and charge actuarial rates, also known
    as nondiscounted premium rates. Accordingly, rates must be risk
    based. FEMA will continue to ensure that the transition to new
    rates under Risk Rating 2.0 is reasonable, equitable, and
    complies with the gradual 18 percent statutory rate increase
    limits put in place by Congress. In April 2018, FEMA delivered
    an Affordability Framework to Congress to assist policymakers
    in considering how to provide targeted assistance to
    policyholders and potential policyholders.
        The President's Budget in Fiscal Years 2019, 2020, and 2021
    included a proposal that was intended to be a first step in
    developing a comprehensive affordability program. In 2021, FEMA
    developed its NFIP Means-Tested Assistance Program proposal
    that would offer a graduated discount benefit to current and
    potential policyholders whole households make at or below 120
    percent of area median income. This proposal was included in
    the President's FY22 Budget. FEMA urges Congress to ensure that
    more individuals are covered by flood insurance by making
    insurance more affordable to low-and-moderate income
    policyholders residing in 1-4 family dwellings used as primary
    residences.
        Rates will increase at the same overall levels under either
    the current rating plan or Risk Rating 2.0, but under the
    current rating plan they will increase inequitably. Under Risk
    Rating 2.0 they will increase fairly.
        Under the current rating plan, lower value homes pay more
    than they should for flood insurance, subsidizing higher value
    homes. And these same low value homes are currently bearing
    larger increases in premium than higher value homes. Without
    implementing Risk Rating 2.0 the inequity of the current rating
    plan will continue to grow, making flood insurance for lower
    value homes less affordable.
        As shown in the attached summary, both at a national level
    and in Louisiana, under the current rating plan thousands of
    policyholders are currently seeing increases between $50 and
    $100 per month. And the average replacement cost value for
    these homes is around $250,000, well below the average
    replacement value of approximately $400,000 in Louisiana and
    $450,000 nationally. Under Risk Rating 2.0, fewer structures
    will see increases above $50, the few that do have replacement
    cost values well in excess of the national and State average.
        Furthermore, without Risk Rating 2.0, thousands of
    policyholders who are currently overpaying for flood insurance
    will not see reduced premiums. The attachment also shows that
    the average replacement cost value for those with the largest
    decreases is likewise below the nationwide and State average.
    Under the current rating plan rates will continue to increase,
    with large, inequitable increases that are particularly focused
    on older, lower value homes. Risk Rating 2.0 was designed to
    address these inequities, not only halting these increases for
    many of the lower value homes, but actually decreasing their
    premiums.
        Under the current methodology, premiums for all
    policyholders would continue to increase by an average of 10
    percent per year indefinitely, with no upper bound that limits
    costs on the highest end of the spectrum. Without a transition
    to Risk Rating 2.0, inequitable rates will remain in place, and
    many policyholders will continue to pay more than they should.
        FEMA champions the Biden administration's budget proposal
    for Fiscal Year (FY) 2022 aimed at helping address flood
    insurance affordability for low-to-moderate income households.
    FEMA developed its NFIP Means-Tested Assistance Program
    proposal, based on years of research, to provide flood
    insurance premium discounts to current and prospective
    policyholders whose household incomes are less than 120 percent
    of area median income. The program was designed to pay a
    percentage of a low- to moderate-income policyholder's flood
    insurance premium, with the discount percentage falling as
    household income rises.

    Q.5. To help keep insurance rates affordable, isn't it
    essential that we examine not just program revenues but also
    program costs? Do you believe, in order to maintain
    affordability, both the program's expenses and revenue should
    be taken into consideration?

    A.5. FEMA is undertaking three efforts to manage the expenses
    of the program:

      1.  Expense Analysis Working Group--This working group will
            perform annual analysis of WYO companies' income and
            expenses to derive implied profit or loss.

      2.  Future of Insurance Study--DHS S&T awarded a contract in
            the last quarter of FY2021 to study the effects of
            technological advancements on the future of insurance,
            including: (a) Product offerings; (b) Pricing
            paradigms; (c) Delivery mechanisms; (d) New
            technologies; and (e) Future of agent and adjuster
            commission. The study will commence in the first
            quarter of FY2022 and is expected to take 1 year to
            complete.

      3.  WYO Compensation Study--FEMA has established a working
            group and placed a contract with RAND to examine WYO
            compensation. The study will lead to new rulemaking
            regarding WYO Compensation. FEMA awarded the contract
            in the last quarter of FY2021 and the study commenced
            at the end of FY2021. The study is projected to take 1
            year to complete.

    Q.6. Why is it that the only solution to address the solvency
    of the program is to raise rates on existing policy holders
    without trimming the costs run up by agencies and their
    contractors?
        Why will policy holders experience a rise in the cost of
    their premiums, but contractors and the agencies will see
    minimal to no change?

    A.6. FEMA is continuously undertaking efforts to manage
    expenses of the program. For example, the recently completed
    modernization of our IT system saves the NFIP over $22 million
    per year in operations and maintenance expenses. Risk Rating
    2.0 is essential to reducing costs as it is expected to create
    efficiencies through simplification of delivery.

    Q.7. Over the past decade, the NFIP's debt has shot up
    exponentially. To reduce or eliminate the NFIP debt, do you
    feel that we also need to reform payments to write-your-own
    insurers, NFIP operating expenses, and interest on NFIP debt
    payments to the U.S. Treasury?

    A.7. As discussed above, FEMA is undertaking efforts to manage
    programmatic expenses to WYO insurers, and this includes
    examination of the most appropriate way to compensate WYO
    companies. Though important, WYO compensation and
    administrative costs are not what is driving the NFIP's debt,
    it is the payment of claims on large, catastrophic events.
    Addressing the debt requires a comprehensive approach, which
    addresses structural flaws in the way the NFIP is designed. We
    look forward to working with Congress on a sound financial
    framework that addresses interest payments to the U.S. Treasury
    that cost current NFIP policyholders $287 million annually.
        The NFIP's structural flaws have been apparent since the
    historic 2005 hurricane season. Since that time, a series of
    catastrophic floods have highlighted the failures of current
    flood policy, including the fact that the NFIP is not fiscally
    sustainable in its present form. The NFIP manages most of its
    financial risk through authority to borrow from the U.S.
    Treasury, the repayment of which is beyond the NFIP's current
    capabilities. Congress did not design the program to handle
    catastrophic losses from events such as Hurricane Katrina
    (2005), Hurricane Sandy (2012), and Hurricane Harvey (2017).
    When disasters have exceeded the NFIP's capacity to pay,
    Congress has repeatedly raised the NFIP's borrowing authority
    (from its 2005 level of $1.5 billion to the current level of
    $30.425 billion) rather than address this structural flaw of
    the program.
        Historically, the NFIP's borrowing authority limit has only
    been raised when significant disaster events occur causing
    large levels of loss. Reliance on increasing borrowing
    authority to pay for valid claims is not sustainable. Large
    debt accrues large accrued interest payments, hampering the
    NFIP's balance sheet. Since 2005, the NFIP has paid $5.26
    billion in interest payments alone. In the current NFIP
    financial situation, even with Risk Rating 2.0 premiums, there
    is only a 4 percent chance of ending a 10-year window with a
    positive net balance.
        Establishing a sound and transparent financial framework
    for the NFIP would require statutory changes that would require
    the Administrator to strive to manage the NFIP to the 1-in-20
    occurrence exceedance loss level (approximately $10.5B)
    utilizing the following: the National Flood Insurance Fund,
    Reserve Fund, annual Congressional Equalization Payments,
    reinsurance, and any other funds made available to the
    Administrator through appropriations or otherwise for carrying
    out the flood insurance program. If the Administrator finds
    that a flooding event will exceed the flood insurance program's
    1-in-20 occurrence exceedance loss level, emergency
    supplemental appropriation should be instituted. If the NFIP
    were to institute necessary reforms for a sound financial
    framework, there is a 75 percent chance of ending a 10-year
    window with a positive net balance. Looking 18-years out, there
    is only a 5 percent chance of having a negative net balance,
    with a $16B positive average balance.

    Q.8. How much has FEMA paid Milliman for their work in
    developing Risk Rating 2.0?

    A.8. FEMA paid Milliman $10,988,650 from June 2017 to October
    2020. Milliman is the leading actuarial consulting firm for
    natural catastrophic insurance perils. In addition of providing
    valuable insight into industry best practices, they provided
    top actuarial and geospatial talent to assist the FEMA
    actuaries in developing a nationwide flood rating plan, which
    is a very complex natural catastrophe peril.

    Q.9. FEMA has acknowledged significant gaps in reliable levee
    risk data. It is my understanding that only one of the five or
    six Risk Rating 2.0 models could be adapted for use on levees.
        Please provide a detailed explanation about why FEMA's
    evaluation will be able to accurately determine risk and risk-
    rated premiums behind levees.

    A.9. Prior to undertaking Risk Rating 2.0, there were
    significant gaps in consistent levee data across the nation
    that could be used to assess flood risk for the purposes of
    rate setting. For Risk Rating 2.0, FEMA partnered with the
    United States Army Corps of Engineers (USACE) to close those
    gaps by identifying and using credible and consistently
    available data and methods to account for the level of risk
    reduction provided by levees. Through the partnership with
    USACE, FEMA was able to provide the first comprehensive
    modeling of flood risk reduction provided by levees, leading to
    a more reliable quantification of the remaining risk behind the
    nation's levees. The rates for Risk Rating 2.0 were set using
    this information.

        Five key data points were used to assess the risk
            reduction provided by a levee: levee centerline, levee
            crest profile, leveed area, overtopping frequency, and
            levee performance.

        FEMA used readily available data from the USACE-
            maintained National Levee Database (NLD) and the Levee
            Screening Tool (LST). All levees identified in the NLD
            (Spring 2020) were considered for Risk Rating 2.0. The
            NLD is a dynamic database that is continually updated.

        The quantity and quality of levee information in
            the NLD and LST varies, and FEMA used the most detailed
            and highest quality data available from these sources.
            Levees that USACE routinely inspects generally have
            more high quality and detailed information available,
            and that data was used for Risk Rating 2.0. For other
            levees lacking that detailed information, available
            data from the NLD was used and enhanced using
            consistent methods.

        For each levee, the overtopping frequency and levee
            performance were directly incorporated into the
            catastrophe models to determine average annualized
            losses. Leveed areas have a separate rating algorithm
            than nonleveed areas.

        USACE and FEMA jointly developed an approach that
            increased the ability to evaluate risk behind 42
            percent of levees in the country, which account for 90
            percent of buildings behind levees.

        FEMA will continue working with USACE to improve
            levee data and to refine risk assessment methodologies
            in support of annual rate updates and a risk-informed
            NFIP.

    Q.10. How can FEMA ensure that Risk Rating 2.0 will offer
    accurate pricing for policyholders and their premiums?

    A.10. As described in FEMA's detailed documentation of the
    analytical basis for the rating plan found here: Risk Rating
    2.0 Methodology and Data Sources Final Report (fema.gov). By
    using flood risk models and data from commercial catastrophe
    models as well as data from FEMA, USACE, the National Oceanic
    and Atmospheric Administration, and the United States
    Geological Survey, FEMA can ensure that rates reflect the best
    available data. Furthermore, the rating plan has been tested
    using historical data to ensure the flood risk aligns with
    NFIP's best and complete analysis.

    Q.11. Technology exists today that can provide highly accurate
    and timely observational flood data that provides insight into
    what's happening on the ground during and immediately after a
    flood. This includes building-level flood depth and extent of
    the floodwaters within 24 hours of the water's peak. Leveraging
    this technology could be used to cut costs associated with
    boots-on-the-ground claims adjusting, but most importantly, it
    can be used to provide much faster payouts to Louisianans
    impacted by devastating flooding.
        What is FEMA doing to leverage technology for remote
    claims? Are you experiencing any obstacles that Congress can
    assist FEMA in deploying this technology or move forward with
    remote claims and faster payouts?

    A.11. FEMA's recently modernized System of Record--Pivot--
    allows for instantaneous validation of information, including
    eligibility for coverage, acceptance of claim information,
    documentation of advance payments, and business process
    confirmation. We can track payments to policyholders in a near
    real time manner and can target insurers to remove impediments,
    clarify guidance, and ensure policyholders are taken care of
    quickly.
        FEMA responded to the challenges posed by the pandemic by
    coordinating with our privacy and cybersecurity experts, to
    establish guidance that would enable the NFIP Direct and our
    WYO partners to adjust claims remotely, and ensure adherence to
    the Centers for Disease Control and Prevention guidelines for
    the safety of both the policyholder and the adjuster when in
    person inspection was necessary.
        FEMA published Bulletin W-20004 on April 2, 2020; it set
    minimum standards for remote adjusting and made such adjusting
    available for use by the NFIP Direct and WYOs regardless of
    technology formats in use. FEMA also ensured that policyholders
    chose remote adjusting only if it was right for them.
        FEMA found that remote adjusting complimented its
    previously implemented process improvements. Remote adjusting
    helped policyholders recover sooner by expediting advance
    payments. When a physical inspection was necessary, remote
    adjusting allowed insurers to issue larger advance payments
    prior to the onsite visit. Additionally, FEMA found that many
    program partners were eager to take on the challenge of remote
    adjusting as they do in their other lines of business.
        FEMA has an interest in ensuring that Program partners and
    the adjusting community adopt processes that are consistent
    with FEMA claims guidance and ensuring that policyholders
    receive an equitable claim settlement to deliver on our promise
    to provide exceptional customer service, whether the claims
    were adjusted remotely or not. FEMA met with companies in
    advance to view the types of software to be used in remote
    adjusting claims. We were impressed with the type and quality
    of the available products including the relative ease of use.
        WYOs provided product demonstrations of the third-party
    technology solutions they leveraged in adjusting flood and
    other claims, and this sector of the industry is providing high
    quality, easy to use products. The proprietary software
    utilized existing smart technology including smart phones and
    tablets. Adjusters interacted directly with policyholders,
    walking them through the process to gather the information
    necessary to complete the timely adjustment of claims. Using
    the camera on the policyholder's smart device, the policyholder
    would open a link that allowed the adjuster to see what the
    policyholder sees. Adjusters can capture photographs of water
    heights, damage, and confirm the type and quality of finishes.
    Most of the software we viewed allowed the adjuster to remotely
    capture room measurement and anything that could not be
    captured would be manually measured and provided by the
    policyholders. The adjuster would take the information and
    create an estimate to repair the documented and covered flood
    damage. The policyholder always has the option to request a
    physical inspection. FEMA does not endorse or recommend
    specific software but understands that this is a mature and
    widely used technology that will see continuous increased use
    and growth.
        We are not experiencing any obstacles but appreciate the
    offer to assist.
                  Additional Material Supplied for the Record
     STATEMENT SUBMITTED BY JEFFREY C. WILEY, PRESIDENT AND CEO, FORT BEND
                ECONOMIC DEVELOPMENT COUNCIL, SUGAR LAND, TEXAS
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                                 [all]