[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
HOW DO WE ENCOURAGE GREATER FLOOD
INSURANCE COVERAGE IN AMERICA?
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON HOUSING
AND INSURANCE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
MARCH 10, 2023
__________
Printed for the use of the Committee on Financial Services
Serial No. 118-10
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
52-366 PDF WASHINGTON : 2023
HOUSE COMMITTEE ON FINANCIAL SERVICES
PATRICK McHENRY, North Carolina, Chairman
FRANK D. LUCAS, Oklahoma MAXINE WATERS, California, Ranking
PETE SESSIONS, Texas Member
BILL POSEY, Florida NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri BRAD SHERMAN, California
BILL HUIZENGA, Michigan GREGORY W. MEEKS, New York
ANN WAGNER, Missouri DAVID SCOTT, Georgia
ANDY BARR, Kentucky STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas AL GREEN, Texas
FRENCH HILL, Arkansas EMANUEL CLEAVER, Missouri
TOM EMMER, Minnesota JIM A. HIMES, Connecticut
BARRY LOUDERMILK, Georgia BILL FOSTER, Illinois
ALEXANDER X. MOONEY, West Virginia JOYCE BEATTY, Ohio
WARREN DAVIDSON, Ohio JUAN VARGAS, California
JOHN ROSE, Tennessee JOSH GOTTHEIMER, New Jersey
BRYAN STEIL, Wisconsin VICENTE GONZALEZ, Texas
WILLIAM TIMMONS, South Carolina SEAN CASTEN, Illinois
RALPH NORMAN, South Carolina AYANNA PRESSLEY, Massachusetts
DAN MEUSER, Pennsylvania STEVEN HORSFORD, Nevada
SCOTT FITZGERALD, Wisconsin RASHIDA TLAIB, Michigan
ANDREW GARBARINO, New York RITCHIE TORRES, New York
YOUNG KIM, California SYLVIA GARCIA, Texas
BYRON DONALDS, Florida NIKEMA WILLIAMS, Georgia
MIKE FLOOD, Nebraska WILEY NICKEL, North Carolina
MIKE LAWLER, New York BRITTANY PETTERSEN, Colorado
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee
Matt Hoffmann, Staff Director
Subcommittee on Housing and Insurance
WARREN DAVIDSON, Ohio, Chairman
BILL POSEY, Florida EMANUEL CLEAVER, Missouri, Ranking
BLAINE LUETKEMEYER, Missouri Member
RALPH NORMAN, South Carolina NYDIA M. VELAZQUEZ, New York
SCOTT FITZGERALD, Wisconsin RASHIDA TLAIB, Michigan
ANDREW GARBARINO, New York RITCHIE TORRES, New York
MIKE FLOOD, Nebraska AYANNA PRESSLEY, Massachusetts
MIKE LAWLER, New York SYLVIA GARCIA, Texas
MONICA DE LA CRUZ, Texas NIKEMA WILLIAMS, Georgia
ERIN HOUCHIN, Indiana STEVEN HORSFORD, Nevada
BRITTANY PETTERSEN, Colorado
C O N T E N T S
----------
Page
Hearing held on:
March 10, 2023............................................... 1
Appendix:
March 10, 2023............................................... 41
WITNESSES
Friday, March 10, 2023
Enoizi, Julian, Head of Public Sector, Guy Carpenter, on behalf
of Marsh McLennan.............................................. 5
Heidrick, Christopher W., Owner and Principal, Heidrick & Company
Insurance and Risk Management Services LLC, on behalf of the
Independent Insurance Agents & Brokers of America (The Big
``I'')......................................................... 6
Martin, Carlos E., David M. Rubenstein Fellow, Brookings
Institution; and Project Director, Remodeling Futures Program,
Harvard University's Joint Center for Housing Studies.......... 10
Small, Patrick, President, DUAL Specialty Flood, on behalf of the
Wholesale & Specialty Insurance Association (WSIA)............. 8
APPENDIX
Prepared statements:
Enoizi, Julian............................................... 42
Heidrick, Christopher W...................................... 56
Martin, Carlos E............................................. 60
Small, Patrick............................................... 74
Additional Material Submitted for the Record
Davidson, Hon. Warren:
Written statement of the American Bankers Association........ 167
Written statement of the American Property Casualty Insurance
Association................................................ 173
Written statement of the National Association of REALTORS.... 178
Written statement of the National Flood Association.......... 180
Written statement of the National Multifamily Housing Council
and the National Apartment Association..................... 181
Written statement of the Natural Resources Defense Council... 186
Written statement of Professional Insurance Agents........... 192
Written statement of the SmarterSafer Coalition.............. 200
Garcia, Hon. Sylvia:
Houston Chronicle article entitled, ``Houston-area property
owners drop FEMA flood insurance after pricing change''.... 204
Waters, Hon. Maxine:
Written statement of the National Association of REALTORS.... 178
Written statement of the Natural Resources Defense Council... 186
Letter from Hannah Perls, Staff Attorney, Environmental &
Energy Law Program (EELP), Harvard Law School.............. 212
Written statement of Texas Appleseed......................... 217
Written responses to questions for the record submitted to
Julian Enoizi.............................................. 224
HOW DO WE ENCOURAGE GREATER FLOOD
INSURANCE COVERAGE IN AMERICA?
----------
Friday, March 10, 2023
U.S. House of Representatives,
Subcommittee on Housing
and Insurance,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 9 a.m., in
room 2128, Rayburn House Office Building, Hon. Warren Davidson
[chairman of the subcommittee] presiding.
Members present: Representatives Davidson, Posey,
Luetkemeyer, Norman, Fitzgerald, Garbarino, Flood, Lawler, De
La Cruz, Houchin; Velazquez, Tlaib, Pressley, Garcia, Williams
of Georgia, Horsford, and Pettersen.
Ex officio present: Representative Waters.
Chairman Davidson. The Subcommittee on Housing and
Insurance will come to order.
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time.
Today's hearing is entitled, ``How Do We Encourage Greater
Flood Insurance Coverage in America?''
I now recognize myself for 5 minutes to give an opening
statement.
Welcome to the first hearing of the Housing and Insurance
Subcommittee for the 118th Congress. I am confident that this
will be a productive subcommittee, and I look forward to
working with the ranking member and my colleagues to tackle
issues that are affecting Americans across the country.
Before we begin, I would like to note that the ranking
member of the subcommittee, Representative Cleaver, could not
be with us today, as he is currently recovering from a recent
surgery. I wish him a safe and speedy recovery, and I look
forward to his return. And thank you to Congresswoman Garcia
for filling in for him today.
Again, today's hearing is entitled, ``How Do We Encourage
Greater Flood Insurance Coverage in America?'', and will
highlight one of the most widespread and devastating issues
affecting our country: flooding. Flooding has been and will
continue to be one of the most-dangerous vulnerabilities facing
millions of Americans in their homes.
The National Flood Insurance Program (NFIP) currently
covers 4.7 million policyholders, and is worth over $1.3
trillion. Despite this, the program does not capture the
entirety of flood risks facing Americans who live outside
Special Flood Hazard Areas (SFHAs), as designated by the
Federal Emergency Management Agency (FEMA), which is what
brings us here today.
Statistics show that 20 percent of all flood claims take
place in areas deemed low- to moderate-risk, so it is important
that we explore ways to entice greater coverage in flood-prone
areas outside of the government-created flood maps,
particularly by expanding the private market, where the
industry has the ability to underwrite and insure against flood
risk.
Despite recent growth in the private flood insurance
market, which now covers 7 percent of the entire flood
insurance market, regulatory hurdles are one factor impairing
the private sector's ability to reach its full capacity.
Today's hearing will look to examine where those regulatory
hurdles may exist, at least at the Federal level.
Additionally, we will also explore barriers that currently
exist where consumers fail to appreciate their susceptibility
to flood risk with information that they are given. A critical
step in strengthening our overall preparedness against
devastating floods is raising the public's awareness.
If we explore ways to address both of these issues--first,
barriers to growing the private market and; second, consumer
accessibility to accurate information and improving their
awareness, along with the ability to correct the record--we
will make great strides to alleviate pressure on the Federal
Government and taxpayer dollars in the event flooding does
occur.
Our witnesses today will provide valuable, holistic insight
for us, as policymakers, to improve on the current system and
allow for enhanced protection against floods.
Their testimony, collectively taken with the future
testimony regarding the National Flood Insurance Program--
likely our next hearing--will hopefully provide us with a basis
to pursue legislation that leaves us better off than the status
quo when it comes to protecting against flood disasters.
I thank our witnesses for their testimony today, and I look
forward to the conversation.
With that, I yield back.
The Chair now recognizes the acting ranking member of the
subcommittee, the gentlelady from Texas, Representative Garcia,
for 4 minutes for an opening statement.
Ms. Garcia. Thank you, Mr. Chairman.
And many thanks to Ranking Member Cleaver for asking me to
sit in for him today during this very important hearing.
This issue is literally close to home for me, as I
represent the Houston area, which is particularly prone to
flood disasters. I am glad we are here today to discuss flood
insurance. I see it as an urgent issue and an opportunity for
bipartisanship.
The solution here is clear: Congress must pass a
bipartisan, long-term reauthorization of the National Flood
Insurance Program (NFIP).
Since 2017, the NFIP has been reauthorized on a short-term
basis 25 times. It is our responsibility to extend this
important program on a long-term basis to guarantee
comprehensive and affordable flood insurance for all Americans
who need it.
Since 2000, there has been at least one flood event in the
United States on at least 300 days of the year. And in 2021,
all 50 States and the District of Columbia were affected by
flooding.
And while States along the coastline, like my home State of
Texas, are most at risk, data shows that flooding happens
almost as often in inland States as in coastal States. In fact,
99 percent of the U.S. counties are impacted by flooding
yearly. This means that no one is safe from a flood event
impacting their homes, their businesses, and their lives.
Flooding cost more than $85 billion in damage and economic
losses in 2021 alone and is responsible for two-thirds of the
cost of all natural disasters combined.
I would like to point out that natural disasters,
particularly flood events, disproportionately impact low-income
Americans and Americans of color. Chairman McHenry has directed
each subcommittee to consider diversity and inclusion issues
during all of our hearings and to weave them in, as our
Subcommittee on Diversity and Inclusion was eliminated. As
former Vice Chair of that subcommittee, I would like to very
much make it clear that flood insurance is not just a financial
or industry-related issue; it is an issue of equity, diversity,
and inclusion.
This context lays out why it is so essential that we work
together across the aisle to reauthorize the NFIP on a long-
term and comprehensive way. Currently, the NFIP is authorized
until September of this year. Unless we authorize the program,
its authority to provide new flood insurance contracts will end
and its ability to borrow funds from Treasury will be all but
erased.
Clearly, we cannot let this happen. The impacts would be
devastating. And it is far past time that we prioritize the
long-term reauthorization rather than kicking the can down the
road once again.
In addition, we must also work on greater private industry
participation in flood insurance to ensure a variety of options
and plans for Americans seeking coverage. The name of the game
here is affordability, widespread access, and inclusion for all
groups in the flood insurance space, particularly as we are
only seeing flood events worsen as a result of climate change.
I would like to thank our witnesses for being here today,
and I look forward to a very productive discussion this
morning.
Thank you, Mr. Chairman, and I yield back.
Chairman Davidson. Thank you.
The gentlelady yields back, and I now recognize the
gentleman from Missouri, Mr. Luetkemeyer, for 1 minute.
Mr. Luetkemeyer. Thank you, Mr. Chairman. Just a point of
personal privilege for a moment.
Today is the last day for my financial services expert,
Lucas West, to be with us. Lucas is leaving to go to the
private sector. He has been with us for over 9\1/2\ years, and
over 5 years as my financial services advisor, expert,
confidant, all those sorts of things.
So, I wanted to introduce Lucas as the brains of the
operation. I am just the face. He is the guy who probably knows
more about it than I do. And so, as a result, I have always
leaned on him for his expertise and advice.
As we all know, our long-time staff members become almost a
part of the family. We spend as much time or more with them
than we do with our own family sometimes. So, it is a
bittersweet day for us from the standpoint of losing a family
member. But, by the same token, we are excited for this moment
because Lucas gets to begin the next step of his career.
And with that, we are very happy for him, we look forward
to continuing to work with him down the road, and we would
appreciate you extending our support for him in his next move.
Thank you, Mr. Chairman. I will yield back.
Chairman Davidson. Thank you.
The gentleman yields back.
Today, we welcome the testimony of a great panel of
witnesses who hopefully will help us do what the gentlelady
from Texas said, extend this flood insurance program so that we
have some clarity in the market, but also do it in a way that
addresses the concerns that you will share today.
First, Mr. Julian Enoizi. Mr. Enoizi is the global head of
the Public Sector Practice for Marsh McLennan's Guy Carpenter
reinsurance brokerage. Prior to his tenure at Marsh, he was the
CEO of Pool Re, the United Kingdom's government-backed
terrorism reinsurance mutual, for almost a decade, and he has
worked at several leading insurance companies throughout
Europe.
Second, Mr. Christopher Heidrick. Mr. Heidrick is the owner
and principal of Heidrick & Company Insurance and Risk
Management Services LLC, and is testifying on behalf of The Big
``I.'' He has a long and successful career in the insurance
industry at companies like Prudential and Marsh. His current
role at his Florida-based company has him advising clients,
colleagues, and local and State organizations about all aspects
of the National Flood Insurance Program and private flood
insurance.
Third, Mr. Patrick Small. Mr. Small is the president of
DUAL Specialty Flood and executive vice president at DUAL North
America, and is testifying on behalf of the Wholesale &
Specialty Insurance Association. He has 30 years of experience
in the insurance industry and is both resident and nonresident
licensed in all States for property and casualty, life and
health, and surplus lines. He is a member of the Association of
Lloyd's Brokers and is the current chairperson of the board.
Fourth, Dr. Carlos Martin. Dr. Martin is both the David M.
Rubenstein Fellow at the Brookings Institution, and the
director of the Remodeling Futures Program at Harvard
University's Joint Center for Housing Studies. He earned his
Ph.D. in civil and environmental engineering from Stanford
University.
We thank each of you for taking the time to be here.
Each of you will be recognized for 5 minutes to give an
oral presentation of your testimony. And without objection,
each of your written statements will be made a part of the
record.
Mr. Enoizi, you are now recognized for 5 minutes to give
your oral remarks.
STATEMENT OF JULIAN ENOIZI, HEAD OF PUBLIC SECTOR, GUY
CARPENTER, ON BEHALF OF MARSH MCLENNAN
Mr. Enoizi. Subcommittee Chairman Davidson and Ranking
Member Cleaver, my name is Julian Enoizi, and I am part of
Marsh McLennan, the world's leading professional services firm
in the areas of risk, strategy, and people.
We are a U.S. company with more than 85,000 colleagues
worldwide, advising public- and private-sector clients in 130
countries. With more than 150 years of experience, we advise
individuals, businesses, governments, and communities in
analyzing their exposures, implementing solutions, and
addressing and mitigating the financial impact of natural
disasters through insurance and other disaster risk management
tools.
Despite being a prevalent natural hazard, flood risk is
underestimated, contributing to an underinvestment in
resilience, policy decisions that exacerbate the situation, and
insurance solutions that are consequently inadequate.
Global economic losses from floods have increased a
staggering amount, nearly 70 percent in the 15-year period
ending in 2021. We must, therefore, act collectively,
government and industry, to counter this increasing incidence
of flooding through enhanced access to flood risk data, which
will foster greater investment in flood protection and smarter
land-use planning decisions. Moreover, it is a matter of fact
that individuals and communities with flood insurance recover
better and faster than those without.
We believe that there are five ways to mitigate the impacts
of flood. First, strengthening the NFIP. Risk Rating 2.0 will
help align premiums with risk but must not negate or hinder
efforts to maintain the pooling principle upon which insurance
is founded. Moreover, with more than $20 billion of debt and
hundreds of millions of dollars in annual interest payments,
the NFIP needs both reform and long-term reauthorization to
become the sustainable, world-leading flood insurance program
it has the potential to be.
Second, protecting U.S. taxpayers with reinsurance.
Reinsurance provides both assurance that the NFIP claims will
be paid, as well as private capital to protect the program, and
ultimately, U.S. taxpayers. Thus, when Hurricane Harvey struck
in 2017, it triggered a full reinsurance payout, saving
taxpayers over $850 million.
Third, growing the private flood insurance market. The
Administration has proposed reforms that supplement and support
the NFIP while also recognizing that private flood insurance
has a role to play. The private market should, therefore, be
encouraged and enabled to innovate alongside the NFIP to find
ways to further close the flood insurance protection gap.
Fourth, embracing innovations and new solutions. Parametric
solutions are a form of risk transfer that can contribute to
improving climate resilience. Unlike traditional indemnity-
based property insurance, pricing is simply calculated on the
probability that water rises above a certain level. This
ensures a welcome and expedited payout to those who have
suffered loss.
For example, community-based catastrophe insurance (CBCI)
is one such parametric product, pioneered by Marsh McLennan,
providing disaster insurance to a local government entity
wishing to cover a group of properties. It enhances financial
resilience by simultaneously providing affordable coverage and
creating incentives for risk reduction. And recently, New York
City, with our help, has harnessed CBCI's twin approach to
increase the resilience of low- and medium-income households.
And fifth, risk reduction. The insurance sector has a proud
history of incentivizing individual risk reduction actions, but
systemic risks require systemic solutions, and today's growing
flood exposures must be addressed at the community, regional,
and national levels. Congress has taken strong steps to
facilitate community-level risk reduction through increased
funding and prioritization frameworks such as the Community
Disaster Resilience Zones Act, and should continue to equip
communities with the capabilities needed to take meaningful
action.
An example of a program that already reflects these five
approaches is the U.K.'s flood reinsurance program, Flood Re, a
mutual reinsurance company that operates as a not-for-profit
public-private partnership. The program makes affordable flood
insurance available to more than half-a-million U.K. homeowners
in high-risk areas. And it creates a vehicle able to
efficiently share U.K. flood risk with the private reinsurance
market and promotes better post-flood reconstruction behaviors
as a result.
Given the scale and complexity of flood risk, it is my
humble submission that the only solution to this problem
involves an all-of-society approach to fostering resilience. In
this regard, insurance risk transfer has an important role to
play in incentivizing hazard mitigation through behavioral
change, better building codes, and community resilience
planning.
I urge the government, therefore, to consider initiatives
such as pairing FEMA's Building Resilient Infrastructure and
Communities (BRIC), with risk transfer solutions such as CBCI,
to demonstrate the combined value of risk reduction measures
when partnered with risk transfer. Indeed, I close by
encouraging FEMA to do more in this field and offering our help
as it seeks to do so.
Thank you for your time today and for the opportunity to
present my remarks. I look forward to your questions.
Thank you.
[The prepared statement of Mr. Enoizi can be found on page
42 of the appendix.]
Chairman Davidson. Thank you.
Mr. Heidrick, you are now recognized for 5 minutes to give
your oral remarks.
STATEMENT OF CHRISTOPHER W. HEIDRICK, OWNER AND PRINCIPAL,
HEIDRICK & COMPANY INSURANCE AND RISK MANAGEMENT SERVICES, LLC,
ON BEHALF OF THE INDEPENDENT INSURANCE AGENTS & BROKERS OF
AMERICA (THE BIG ``I'')
Mr. Heidrick. Good morning, Chairman Davidson, Ranking
Member Cleaver, and members of the committee. My name is Chris
Heidrick, and I am pleased to be here today on behalf of the
Independent Insurance Agents and Brokers of America, or The Big
``I.''
The Big ``I'' is the nation's oldest and largest trade
association of independent insurance agents, representing more
than 25,000 agencies across the country. Many of these agents
work with write-your-own companies and private flood carriers.
It is from this vantage point that Big ``I'' members understand
the capabilities and challenges of the market when it comes to
insuring against flood risks.
I am the owner of an independent insurance agency located
in Sanibel, Florida. I regularly counsel homeowners and small
businesses regarding flood insurance. I also hold the
designation of associate in national flood insurance. I
previously served as chairman of The Big ``I'' Flood Insurance
Task Force, and chairman of the Flood Insurance Producers
National Committee, an organization that provides technical
assistance and advice on FEMA operations.
Sanibel Island was ground zero for Hurricane Ian 5 months
ago. The island was completely inundated by 4 to 12 feet of
water and was inaccessible by car for 3 weeks after the
hurricane. I would like to thank the NFIP leadership that
visited Sanibel in the aftermath of the storm. In general,
flood insurers, both NFIP and private, provided our clients
with a quick response and provided my agency with great support
following Ian.
When considering flood insurance, people often want to know
when the last local flood occurred. I often tell them that,
more and more often, those events are things that have never
occurred before, and may even be difficult to imagine. Even on
a barrier island in the Gulf of Mexico, some homeowners
underestimated their risk of flooding. The last time Sanibel
was inundated by a storm surge was 1926, almost 100 years ago.
I also grew up along the Jersey Shore. A week before
Hurricane Sandy, no one would have thought that a storm surge
would wash away homes that had been there for 100 years. And a
week before Hurricane Harvey, no one in Houston would have
thought it possible to get 5 feet of rain from one storm.
On Sanibel, some people felt safe from flooding because
they were in the center of a barrier island that was only
between 1 and 2 miles wide. If those people are underestimating
their risk of flooding, what should we expect in less-risky
areas?
As you would guess, agents like myself who serve coastal,
high-risk flooding areas sell the most flood insurance and are
the most familiar with the NFIP. However, to make progress with
respect to the number of U.S. households insured for the peril
of flood, we need to focus on less-risky areas.
In all areas, it is important to recognize that property
owners have limited time and attention to dedicate to the
purchase of flood insurance. When someone is buying a home,
they are also often changing jobs, selling another home,
coordinating a move, applying for a mortgage, enrolling
children in a new school, and much more.
In perceived low-risk areas, homeowners have often been
told by family, friends, and others that flood insurance is not
needed before they even come to meet with their insurance
agent. There simply isn't enough time for an agent to convince
them otherwise. So, we need to change the narrative so that all
of those trusted advisors are advising home buyers that flood
risk is real and that consumers should protect themselves.
Purchasing flood insurance can be a daunting and complex
process, and in this digital age, there is often a rush to cut
corners under the erroneous notion that an automated process
can replace human interaction and expertise. In the case of
flood insurance, this could not be further from the truth. Any
kind of proposal that undercuts the value and trusted role that
insurance agents and brokers play in this process could have a
negative impact on the goal of increasing flood insurance
participation rates.
Additionally, agents play a critical role in retaining
flood policies and preventing a decrease in participation
rates. When a policyholder pays off a mortgage, or is no longer
required to carry flood insurance due to a map change, agents
are the people who speak with those homeowners and recommend
that they retain their coverage. To achieve the goal of
increasing the number of households insured for the peril of
flood, policy retention is just as important as writing new
policies.
And what can Congress do in the short term to move the
needle? You can make modest policy changes that could help grow
the market and protect consumers.
For example, The Big ``I'' supports H.R. 900, which was
recently introduced by Representatives Luetkemeyer and Castor.
The bill would amend the National Flood Insurance Act of 1968
to clarify that private flood insurance can satisfy NFIP's
continuous coverage requirements.
The Big ``I'' also supports allowing refunds for unearned
premiums for the midterm cancellation of NFIP policies if a
consumer elects to purchase a policy from the private flood
insurance market.
Thank you again for your time, and I look forward to any
questions that you may have.
[The prepared statement of Mr. Heidrick can be found on
page 56 of the appendix.]
Chairman Davidson. Thank you.
Mr. Small, you are now recognized for 5 minutes for your
oral remarks.
STATEMENT OF PATRICK SMALL, PRESIDENT, DUAL SPECIALTY FLOOD, ON
BEHALF OF THE WHOLESALE & SPECIALTY INSURANCE ASSOCIATION
(WSIA)
Mr. Small. Good morning, Chairman Davidson, Ranking Member
Cleaver, and members of the subcommittee. My name is Patrick
Small, and I am the president of DUAL Specialty Flood.
My firm is a member of the Wholesale & Specialty Insurance
Association, and we thank you for inviting me here today to
testify about my perspective and experience as a professional
in the private flood insurance market.
DUAL operates as a managing general underwriter and is a
leading program administrator in the U.S., offering specialized
financial lines, property, and casualty insurance products. We
place coverage in all 50 States on a surplus lines basis,
working directly with retail agents and brokers, wholesale
brokers, and insurance carriers.
In 2022, DUAL placed $1.5 billion in gross written premium
amongst all of our product lines, with over 30 carrier partners
and 30-plus underwriting programs across 7 operating
subsidiaries.
DUAL's Specialty Flood Division focuses both on private
primary and nexus flood for both commercial and residential
consumers, and places $65 million in annual premium or about 5
percent of DUAL's annual premium production.
I joined DUAL in 2014. That was around the same time that
the private flood market began to develop as a result of the
2012 reforms supporting the direct engagement of the private
market.
Since then, we have steadily grown our product lines as
well as market partnerships. And, generally speaking, consumers
whose risks exceed or do not fit within the terms and limits of
the NFIP or whose risks are declined by the standard market
will have agents and brokers look to our markets for solutions.
The partnerships between the consumer's agent and the
wholesale partner is critical. And I am pleased to be
testifying with two firms that I regularly work with in this
capacity.
My written testimony includes additional facts and figures
about the size of the surplus lines flood insurance market and
its growth since 2011. To touch on this briefly, I will
reference numbers available from California, Florida, Texas,
and New York, as they have been collecting and reporting this
data since at least 2011. While not a full picture, these four
States collectively account for nearly 50 percent of the U.S.
surplus lines insurance market. In these four States, surplus
lines flood insurance premium has grown from $119 million in
2011 to $437 million in 2022, or an average of 14 percent per
year.
And the number of policies written in these States during
this time has actually increased even faster. In 2011, there
were only 11,650 surplus lines flood policies written in these
4 States, but in 2022, we had over 204,000 policies written,
with an average increase of 33 percent per year.
There is no definitive source of information about the size
of the private flood insurance market, but our limited sources
clearly show that the private market is still very much in its
infancy, dwarfed by the 4.7 million flood insurance policies
written by the NFIP.
The private market will continue to expand with the general
push towards rate adequacy and sustainability, in which the
NFIP is clearly helping to lead the way. We have seen this
steadily increase as a result of the clarifications made by
Federal banking agencies, as well as State actions to modernize
the regulatory environment, especially in our surplus lines
market.
I see steps in the right direction with the impact of Risk
Rating 2.0. The emphasis that the NFIP is now putting on inland
modeling as well as the proper valuation of a property are key
components to underwriting accuracy and rate development for
any type of property program.
As to what the Federal Government can do to help continue
this trend, we did note a few legislative proposals that we
support in our testimony. Two of those measures are: one, the
continuous coverage provision, to allow a consumer to move
freely between the NFIP and the private market; and two,
allowing the NFIP to return unearned premium for mid-term
cancellations.
Throughout this whole process, we must also provide a
continuum of education to our consumer base. which includes
both agents and their clients. And really, it is the emphasis
to highlight or alert the insured to real versus perceived
exposures to flooding. The insurance buyer must understand
their risk and have a general idea for the potential for
protective coverage to lead to better take-up.
Again, thank you for having me. We look forward to working
with you and your staff to increase flood coverage across the
nation.
Thank you very much.
[The prepared statement of Mr. Small can be found on page
74 of the appendix.]
Chairman Davidson. Thank you, Mr. Small.
Dr. Martin, you are now recognized for 5 minutes to give
your oral remarks.
STATEMENT OF CARLOS E. MARTIN, DAVID M. RUBENSTEIN FELLOW,
BROOKINGS INSTITUTION, AND PROJECT DIRECTOR, REMODELING FUTURES
PROGRAM, HARVARD UNIVERSITY'S JOINT CENTER FOR HOUSING STUDIES
Mr. Martin. Thank you.
Good morning, Chairman Davidson, Representative Garcia, and
members of the subcommittee. Thank you for the opportunity to
present research on the challenges that households face with
increasing and increasingly-costly floods.
NFIP has faced numerous hurdles since its creation in 1968,
not the least of which was the increasingly-poor mismatch
between its policy rates and actuarial risk. The passage of
congressional reform a decade ago, along with FEMA's consequent
Risk Rating 2.0 efforts, have improved the program's ability to
reflect flood risk more accurately, but they have also
foregrounded the affordability and access concerns that we are
discussing today.
I identify six themes from the literature relevant to the
widespread adoption of flood insurance.
The unaffordability of flood insurance is the first and
most-salient barrier to broader take-up. The creation of a
well-designed, means-tested assistance program for low-income
property owners with high-risk properties could more
efficiently help households burdened by NFIP rate increases and
effectively expand the marketplace for any provider at the same
time.
Second, most consumers have limited awareness of their
actual flood risk and may not see the need to purchase flood
insurance if it is not required. Highly-vulnerable groups, such
as renters, have little to no information or support for their
housing decisions. Better property disclosures and user-
friendly information channels would help households make those
informed decisions.
Third, Federal institutions that require flood insurance
may not have clear, consistent, and enforced requirements,
especially for the future flood risks that are material to
homeowners' exposures but not integrated into the terms of a
30-year mortgage today. Updates to reporting and fiduciary
regulations of consumer financial products for which flood risk
is relevant could lead to immediate flood insurance take-up and
a better integration of consumers' financial tools.
Fourth, consumers are often in the dark about their own
individual coverage. Understandable and uniform coverage,
premium, and treatment information, including clear language
about all policies for a property, as part of a national
insured's bill of rights could increase homeowners' awareness
of coverage gaps and lead them to purchase more and better
flood policies.
Fifth, we could simply reduce the risk that makes flood
insurance so expensive. We have massively underfunded
mitigation at both the property and infrastructure levels,
including thoughtful buyouts for repetitive lost property. More
resources to Federal mitigation programs, particularly for
vulnerable communities, would make offering flood insurance a
sounder proposition for all carriers.
And finally, the lack of transparent data on properties,
property owners, and their respective insurance policies
prohibits a sound assessment that can inform critical policy
questions such as the one posed in this hearing's title. Open
data are necessary to measure disparities between policyholders
by price, coverage, and treatment, which is evidence needed to
ensure that Federal decisions lead to fair, efficient, and
effective outcomes. Centralized national reporting requirements
akin to mortgage disclosure data would support monitoring,
evaluation, and corollary research.
Along with these broad categories of opportunities to grow
flood insurance markets lies the expansion of the marketplace
of providers. Fortunately, the six categories I have mentioned
benefit any type of flood insurance carrier. However, we know
too little about how the principles of fairness, efficiency,
and effectiveness would play out under that scenario.
Historically, poor reporting of private insurance data,
highly variable across the overseen State Governments, prevents
evidence-gathering with respect to one provider's ability to
expand the consumer pool for flood insurance over another, such
as the currently-dominant NFIP option.
We know that one benefit of NFIP has been a closer
alignment to mitigation efforts and the broader Federal
disaster risk management framework.
Efforts to increase private flood insurance should not only
consider its effectiveness in reducing the cost of Federal
operations, but also the cost that the Federal Government
incurs of post-flood relief and recovery when insurance claims
payouts are insufficient, and of pre-flood mitigation
infrastructure that incentivizes private insurers to provide
policies in the first place.
Of course, Congress should view the fair distribution of
costs and benefits across all policyholders as being the
primary criterion for moving forward.
We are living in a moment when the unwritten contract
between insurers and government is being extensively rewritten.
Over 100 years ago, private insurers stopped issuing fire
policies because of the great urban fires. In the 1920s,
private insurers stopped issuing flood policies after the great
Mississippi floods. This led to the eventual creation of the
NFIP.
Expanding flood insurance to more households whose
properties and communities are vulnerable is a laudable and
necessary goal, but we should tread carefully, lest we find
ourselves in a position similar to 1968.
Thank you very much.
[The prepared statement of Dr. Martin can be found on page
60 of the appendix.]
Chairman Davidson. Thank you, Dr. Martin.
And we will now turn to Member questions. The Chair now
recognizes himself for 5 minutes for questions.
Because it is a government entity, the National Flood
Insurance Program needs legal authorization from Congress in
order to sell its insurance. Unfortunately, that authority has
been caught up in our broken appropriations process since the
last long-term NFIP bill expired in 2017.
Given the very real possibility that we might face a
government shutdown come October and, with it, a lapse of the
National Flood Insurance Program, I have introduced H.R. 1392,
the National Flood Insurance Program Extension Act of 2023,
which would reauthorize the program through December of 2024,
giving this committee the time and deadline freedom it needs to
do a deep dive on flood insurance reforms.
Does anyone on the panel think that giving the NFIP nearly
2 years of stability would be a bad thing? Do each of you
support H.R. 1392 over this endless cycle of short-term
reauthorizations, punting the ball down the road, and
brinkmanship on looming deadlines? Is this a bad thing, to
extend it and provide 2 years of certainty?
Mr. Enoizi. Mr. Chairman, I would say, absolutely not. I
would say we would support anything relating to stability and
long-term extension.
In my previous role, I ran an entity similar to the NFIP,
albeit in terrorism, and we had 5-year reviews, which gave a
period of stability and an ability to look at modernization of
the program in order that it could keep pace with changes in
all sorts of environments. And I found that very valuable.
Chairman Davidson. Yes. Thank you for the clarity on that.
And I hope we can find consensus.
Anyone else?
Mr. Heidrick. Mr. Chairman, The Big ``I'' agrees that job
one is to not allow the National Flood Insurance Program to
lapse.
Beyond that, The Big ``I'' does support a long-term
reauthorization of the National Flood Insurance Program, and we
would be happy to work with you and your staff on working out
the details.
Chairman Davidson. Yes.
I think we will just go down the line, if you--
Mr. Small. Yes, I think we would concur. The Wholesale &
Specialty Insurance Association would also support that. Even
being in the private market, one sustains the other. The NFIP
sustains the private markets and vice versa. I think there is a
great opportunity. So, extension would be in our favor.
Chairman Davidson. Thank you.
Mr. Martin?
Mr. Martin. Yes, program stability is absolutely critical.
I would encourage the subcommittee to consider reauthorization
for even longer, as much as is possible.
Chairman Davidson. Thank you.
As everyone knows, the National Flood Insurance Program is
by far the largest provider of flood insurance, roughly 93
percent of all residential flood insurance coverage, while
private insurance makes up the rest.
There is also nothing like the public-private partnerships
for risk-sharing that we have seen in markets like mortgage
insurance, where in 2021 the government FHA/VA share is around
55 percent of the private mortgage insurance market and PMI is
about 45 percent. That market tends to work well in delivering
both ample consumer choices and a government baseline option.
Mr. Small, is there any reason why we could not aim to
replicate that sort of model for flood insurance going forward,
where NFIP plays a big but not dominant role while the private
capital takes on more risk and supplies new options?
What steps would we need take in order to move us closer in
that direction so that we could have a more stable mortgage
insurance market model than the all-or-nothing model we
basically have?
Mr. Small. Yes. No, I like that--thank you for the
question, and I like that observation. I think the PMI model,
where you entertain the initiation of purchasing a flip policy
at point of loan origination, is excellent. We have done a lot
of work with lenders looking at loan origination and through
the lifecycle of servicing a loan, in terms of placing flood
and maintaining flood insurance, both with the NFIP and the
private market.
And I think the unique opportunity with the NFIP is, if you
have a nationally-promulgated product, and you have write-your-
own carriers, and plenty of them, and/or going direct to the
NFIP, there is a real opportunity to tighten our relationship
with lenders throughout the nation. Whether the vehicle is PMI
and/or just introducing flood insurance at point of loan
origination, it is highly critical and very important.
Chairman Davidson. Yes. Thank you.
And, Mr. Heidrick, briefly--I apologize for cutting you a
little short on my time--maybe a quick suggestion that would
help agents?
Mr. Heidrick. Thank you, Mr. Chairman.
Education is the most-important priority, not just for
consumers but for their trusted advisors as well. We as a
society need to recognize the risk of flooding in lower-risk
areas just as well as in higher-risk areas.
In addition to consumer education, affordability is a
critical factor, because people cannot buy a product that they
can't afford to have, even if they do recognize the risk.
Chairman Davidson. Thank you.
The gentlewoman from Texas, Ms. Garcia, is now recognized
for 5 minutes.
Ms. Garcia. Thank you, Mr. Chairman.
And thank you to the witnesses for being here this morning.
As I mentioned in my opening statement, I represent the
Houston area, which is particularly prone to flooding. We all
witnessed the disaster of Hurricane Harvey in 2017 that left
much of my district under water. And while, luckily, we have
not had a flood event since then, the flooding has not stopped,
and the potential for disaster is always, always looming. In
fact, any rain event makes us go for cover and get ready.
And to make matters worse, fewer households in Houston have
flood insurance now than when Harvey hit, largely due to the
lack of affordability.
Mr. Martin, you wrote in your testimony about take-up,
highlighting that Congress must ensure that more Americans are
opting to have flood insurance coverage. How can we do that?
What provisions should be in the reauthorization that would
make sure more individuals and families take advantage of the
program? And what role might private insurance play in this?
Mr. Martin. Certainly, private insurance is playing a much
larger role, and will likely continue to play a larger role as
the legislative reforms from a decade ago as well as Risk
Rating 2.0 implementation continues.
I would certainly recommend the subcommittee look at a wide
range of options, many of which we, all of the panelists, agree
to, with regard to information provision, data sharing, et
cetera, so we can monitor these effects. But, ultimately, a
means-tested assistance program for low-income households in
high-risk areas that will need to be able to have additional
resources to be able to afford their insurance policies is
critical.
Ms. Garcia. Thank you.
I would like to turn now to the the NFIP's Risk Rating 2.0
system--I think one of the witnesses allude to it--designed to
distribute coverage rates more equitably and accurately. This
effort, while important, does mean that some individuals would
face increased rates.
Mr. Martin, as we consider policy related to the NFIP, how
can we balance affordability with accurate risk assessment,
especially as risk for flood events continues to rise?
Mr. Martin. This is the challenge that not only this
committee has faced but that has been the subject of
conversation since the legislative reforms from a decade ago.
The ability for NFIP to match its rates with actual actuarial
risk is allowing many more private insurers and carriers to be
able to provide services in this area.
That doesn't mean that low-income households who can't
afford it will suddenly be able to afford it. There is a
likelihood that more competition will be helpful and could
provide reduced premium rates based on the levels of analytical
data tools that private insurers could bring to the table, but
this will continuously be a challenge and one that we need to
monitor.
I would just recommend that we still consider the use of
data and the availability of data, to be able to understand who
is excluded and who is included.
Ms. Garcia. Okay. Thank you.
As you likely know, about 25 percent of damage to homes
from flooding happens outside of high-risk flood zones. And
households are only required to have flood insurance if they
are located within the high-risk zones.
Mr. Martin, how can we address this problem? Do high-risk
zones need to be updated? And if so, how often?
I know that is a big issue in our area, the establishment
of the floodplain maps, the flood zones.
Mr. Martin. That is exactly right. The dynamic nature of
hydrological and climatological conditions, particularly due to
better information about climate change's effects on sea-level
rise and more extreme flooding events--a lot of these
conditions requires a constant monitoring and constant
updating.
One could argue that the more frequently that information
is updated for NFIP, the better. So, certainly, more resources
to making sure that we have the best scientific information to
be able to make those changes is helpful.
Ms. Garcia. Okay.
I know one of the other witnesses mentioned it, but how
does it--where is the play between fully addressing this and
establishing the zones, but then the educational process
involved and making sure homeowners know what the potential
risks are and what the liability is?
I know in my area, language also becomes a barrier. A lot
of these plans, a lot of the outreach is only in English. It is
not in Spanish; it is not in the Vietnamese pockets that I
have. And, of course, the Houston area also has a lot of
Chinese Americans.
What can we do more in terms of educational outreach for
people to know the potential risks?
Well, he had 2 seconds.
Sir?
Chairman Davidson. Yes, please.
Ms. Garcia. Mr. Martin?
Mr. Martin. I didn't know if you wanted another witness to
respond.
We can certainly do things that warn people making
decisions about properties and about housing, like property
disclosures. And that should be included for renters as well.
Unfortunately, we have very variable property disclosure
information across the States, which is a State-dictated
policy. But we do have national policy regarding certain things
like lead-based paint, which includes renters.
So, there are opportunities to think about disclosure
opportunities, when people are making those housing decisions,
to think about their flood risk as well.
Ms. Garcia. Okay. Thank you.
And thank you, Mr. Chairman.
Chairman Davidson. Thank you.
The gentleman from Florida, Mr. Posey, is now recognized
for 5 minutes.
Mr. Posey. Thank you, Mr. Chairman.
Mr. Heidrick, some people have suggested flood insurance
premiums should be further adjusted to account for projected
climate change. Why should flood insurance premiums be based on
anything other than the flood risk for the current insurable
year?
Mr. Heidrick. I'm sorry, Congressman. I didn't hear the
beginning part of that question. What I heard is, why should
premiums be based on something other than risk? Is there
something more to that?
Mr. Posey. Yes. Some are proposing that flood insurance
premiums should be further adjusted to take climate change into
consideration. And the question is, why should anything more
than the risk for the current year be the subject of it?
Mr. Heidrick. Got it. Thank you for that question.
That question is probably better answered by an insurance
company that actually prices risk, as opposed to an insurance
agent. I am not certain exactly how those rates are calculated.
Mr. Posey. Okay.
Mr. Small, we are going to commit to actuarial flood
insurance premiums and premium subsidies for low- to moderate-
income homeowners, and we know which homes are subject to
mandatory insurance.
What are the reasons to have the Federal Government selling
flood insurance instead of merely turning its business over to
the private sector and State insurance regulators? Could the
private sector handle this need?
Mr. Small. I think when we look at risk selection,
regardless of moderate or Special Flood Hazard Areas, we kind
of look at it the same. We look at the risk. We develop rates
for sustainability and accuracy, in terms of being actuarially
sound. So, there is a component there to getting the insurance
component correct in order to have a sustainable business and
to be able to fund claims when they come in.
We don't really differentiate between a B, C, or X, or a
moderate-risk zone, over an A or V zone. We look at the risk,
we look at the geography and the components that go into that,
develop a rate, and then determine if that is a business that
we can sustain and be in.
I am not sure that addresses your question, but that is
kind of how rate development works when we look at the flood
business.
Mr. Posey. Yes. That is good insight into it.
We know that there are many properties that have had
numerous claims in the past. We have heard reports of multiple
total-loss payments for property. Do you think it is wise or in
the public interest to continue covering risks that are almost
certain to occur?
Congressman Luetkemeyer said one time, if a guy has a crash
every single year, sooner or later the insurance companies
won't cover him. Do you think it is wise that we continue to
cover these total-loss properties year after year? Anybody?
Mr. Small. That is kind of a difficult question.
I think in the private market, yes, that would be a real
challenge for us to make sure that we have sustainability in
that particular insured.
In many insurances, when you have claims or repetitive
claims, there becomes an issue, and you have to look for other
markets and/or mitigate in your reconstruction of your loss in
order to become insurable.
Obviously, NFIP has a social element of responsibility to
help Americans maintain their homes in situations of
catastrophe.
It is a delicate balance, for sure. But, you have hit on
something that, yes, will be a challenge for the private
market, and probably a challenge for NFIP as well, as we think
about the long-term sustainability.
Mr. Posey. Thank you.
Mr. Enoizi, in September, after hurricanes in Florida,
Fortune Business News reported that the FEMA Director said that
the Agency's flood maps are useless. ``The maps don't
accurately tell the people they were in the floodplain in
Kentucky or Florida.'' The Washington Post had a similar story
in early December last year. The alleged culprit is, of course,
climate change.
Can we expect to get more people signed up for flood
insurance or can we even have a reliable insurance program or
accurate premiums if the maps are inadequate, as FEMA is
claiming? Will insurance ever be able to meet the needs of
people in harm's way if FEMA can't produce accurate maps?
Mr. Enoizi. Thank you, Congressman.
I think in terms of flood mapping, technology is evolving
all the time. And, certainly, satellite technology enables us
to do much more in terms of flood mapping. In my remarks, I
talked about encouraging and enabling FEMA to do more in terms
of its flood mapping. I think that is something that should
absolutely be encouraged.
Mr. Posey. Okay.
I see my time has expired, Mr. Chairman, so I yield back.
Chairman Davidson. The gentleman yields back.
The gentlewoman from California, Ms. Waters, who is also
the ranking member of the Full Committee, is now recognized for
5 minutes.
Ms. Waters. Thank you very much.
I am going to direct my question to Dr. Martin.
Dr. Martin, historically, private insurers have receded
from communities after they were hit hard by catastrophic
flooding. For example, we have heard from homeowners in Houston
whose coverage following Hurricane Harvey was dropped by their
private insurers. We even heard about people who reapplied for
the private coverage but were shocked to receive notification
that they were denied coverage.
Can you discuss how this affects equitable access to flood
insurance? What does this say about the role of the NFIP?
Mr. Martin. Thank you for that question, Representative
Waters.
And we certainly hear stories in the general press as well
as researcher anecdotes about, for example, a Houston family
whose policies are lost either immediately after an event, or
even, many times, before. And I can't speculate about the
specific reasons for that single family, their policy being
dropped or denied, but we certainly look to see what the--we
would like to see more of what these patterns are in different
cases.
There are studies which suggest that many of the
discriminatory practices that relate to price and coverage have
been eliminated significantly and diminished. But insurers
still base rates on credit score, credit-based insurance
scores. And as I understand it, about 85 percent of home
insurers use credit-based insurance scores in States where it
is allowed. So, there is a concern whether there are
differences and disparities in who gets dropped and under what
conditions.
Certainly, if it has to do with the actuarial risk, then
one would argue that NFIP plays a valuable role, because: one,
it is a guaranteed policy; two, it conforms to national
consumer protection rules; and three, there will always be a
need for a program like NFIP that can distribute risks more
evenly to include more policyholders.
Ms. Waters. Dr. Martin, a 2022 study found that worsening
climate change has more than tripled the risk of a trillion-
dollar megaflood in my own State of California compared to a
century ago.
Indeed, earlier this year, we experienced some of the worst
flooding in the State's history, totaling between $5 billion
and $7 billion in damages in parts of Los Angeles County. We
have not only seen life-threatening flooding that took down
trees and inundated cars, but we also have seen significant
snowfall that has led to destructive floods.
These damages can be especially devastating in a State
where 98 percent of the Californians lack flood risk coverage.
And for those who do have flood insurance, NFIP accounts for 84
percent of all policies currently enforced in the State,
offering a critical lifeline to thousands of families.
With the threat of more-frequent and severe flooding, this
could mean that NFIP may take on additional debt in the future,
but the program is already saddled with legacy debt from
Hurricanes Katrina and Sandy.
Interestingly, Republicans were very supportive of
forgiving part of the NFIP debt when they were in charge. And I
see no reason that new policyholders should have to pay for the
legacy debt from floods from nearly 20 years ago.
Do you agree that Congress should finally and fully forgive
this legacy debt? How would forgiving the debt support the
affordability of the NFIP?
Mr. Martin. Yes, I would agree with that. There is no
reason for that debt to be held over the head of the program.
It doesn't benefit future policyholders, it doesn't benefit
current policyholders, and it certainly doesn't benefit the
long-term fiduciary stability of the program.
With the reforms that have occurred in the last 10 years,
both by the program and legislated through Congress, I believe
that many of the concerns of longer-term fiduciary standing
have been resolved, so there is a lot more stability in the
program.
Ms. Waters. I agree. And I have legislation that would
forgive the legacy debt.
Thank you very much.
And I yield back the balance of my time.
Chairman Davidson. The gentlelady yields back.
The gentleman from Missouri, Mr. Luetkemeyer, who is also
the Chair of our Subcommittee on National Security, Illicit
Finance, and International Financial Institutions, is now
recognized for 5 minutes.
Mr. Luetkemeyer. Thank you, Mr. Chairman. And
congratulations on your new role. I look forward to your
leadership here in the 118th Congress.
And thank you for holding this hearing today. I think it is
vitally important that we get some information to our
colleagues on flood insurance. There are a lot of us on the
committee--actually, there are only two or three of us who have
some background on this. Everybody else is new to the committee
since we last discussed this thoroughly several years ago. So,
it is a great topic to be start off the Congress.
Mr. Heidrick, you indicated you supported my bill that
would allow people to sort of dip their toe in the private
insurance market and then be able to go back to NFIP. Why do
you think that bill is important?
Mr. Heidrick. Thank you for your question, Congressman. And
thank you for your work on that bill, as it is very important.
Obviously, The Big ``I'' supports it.
The bill clarifies for the consumer--or, the consumer can
leave the NFIP and come back to the NFIP.
And to be specific in an answer, I have a real example. I
have a client who is paying $800 a year for their flood
insurance premium. The house was sold to the next buyer, who
was able to keep up that premium, right? They take advantage of
something called a, ``glide path,'' which exists currently in
Risk Rating 2.0 that moves people from the less-expensive
premium that they had under the old rating system to their full
risk rate.
But the full risk rate on this particular property is
$8,000. The statute limits the amount that premium can increase
each year. It protects the value of the home. It is an asset
for the next buyer in case that person has to sell their
property and, of course, keeps the cost of flood insurance
affordable.
But as that premium increases over time, there may be
private flood insurance options that are actually more
attractive to that consumer, whether because it is less
expensive or it may be better coverage.
But under the threat that that person may have to return to
the NFIP at some future time and immediately be subject to that
full risk rate, that consumer--as an agent, I can't recommend
to that consumer that they leave for this less-expensive
solution, because they are giving up the ability to take
advantage of that glide path over time. Unforeseen
circumstances could lead that person back to the NFIP at a much
higher premium.
Mr. Luetkemeyer. Thank you very much for that.
Flood insurance is a big issue for me, both on a personal
basis and from the standpoint of my district. Over two-thirds
of the Missouri River goes across our State, I have a number of
miles of the Mississippi, and then I have 1,150 miles of
shoreline around the Lake of the Ozarks, which is the number-
one recreational lake in the country, and actually has more
miles of shoreline than the State of California, to give you an
idea of how big my flood insurance problem is. Even though I am
an inland State, it is a really big deal.
So from that standpoint, Mr. Enoizi, does the private
insurance market have the ability to take on more flood risk?
Mr. Enoizi. Yes, I believe it does. But it requires--if you
look at premium as calculated on two factors, frequency and
severity, both of those have been increasing in previous years,
and so many of the questions that have already been asked in
terms of better flood mapping--but also combining this, that if
you actually look at the numbers that we are talking about,
there is never going to be enough premium dollars in the
insurance system to pay for all of the losses that you are
talking about. So, we have to find ways to marry risk financing
with risk mitigation.
And buying on a community basis can achieve that, because
otherwise you are going to always be trying to sell onesies and
twosies as opposed to selling to vulnerable communities.
Mr. Luetkemeyer. One of the things that we talked about in
some of the early statements that were made is the fact that
the--that some of all of you made--is the fact that the program
is not sustainable from the standpoint of the revenue it
generates. We continue to have losses. We wrote off $16 billion
in 2017, and we are currently $20 billion in debt. So,
technically, it is a subsidy program for people who want to
live along water to be able to take advantage of the view or
whatever.
My view is that this program needs to be revenue-neutral. I
don't see why we have to continue to subsidize it. I am a big
believer in the secondary market.
I know, Mr. Enoizi, your company does a lot of secondary
market work. I would assume that you would support that.
Years ago, when I was chairman of this subcommittee, we had
a lot of discussions with the secondary market individuals, who
said there was plenty of capacity in the secondary market to
take up this additional risk, which would hopefully drive the
premiums down.
Do you think this would help drive premiums down, if we
could pass off some of this other risk to the secondary market?
Mr. Enoizi. Yes, absolutely. Pricing needs to be more risk-
reflective, and that is why I applauded 2.0 in my remarks. That
is how you will bring the private market back, is via risk-
reflective pricing but also innovative solutions.
I mentioned parametric, which, rather than indemnity-based,
is more about just simply a trigger where a water level rises.
It is these kinds of innovations that are going to allow the
private market to take the burden off the taxpayer.
Mr. Luetkemeyer. I know we did a quick sort of back-of-the-
envelope analysis of the losses over the 20 years previous back
in 2016, 2017. And if we would have had a secondary market
available to us and participated in it, with about a billion-
dollar deductible on it, we would never have had a single loss.
It will work if we just participate in it.
Thank you very much for your testimony.
Mr. Chairman, I yield back.
Chairman Davidson. The gentleman yields back.
Members are advised that one vote has been called on the
House Floor, and the Chair will continue the hearing. While I
may step out, someone will always stay in the chair. And
Members will filter out, make their vote, and come back in. We
will work the queue as we would otherwise.
The gentlewoman from New York, Ms. Velazquez, is now
recognized for 5 minutes.
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Heidrick, following Superstorm Sandy, policyholders
across New York and New Jersey voiced complaints about the
coverage they thought they had versus the coverage they
actually had.
In response, my bill, the NFIP Administrative Reform Act,
which passed this committee in the 115th and the 116th
Congresses with unanimous bipartisan support, creates a
disclosure and an acknowledgement to accompany the purchase of
a standard flood insurance policy.
In your experience, how would these documents provide
policyholders with a better understanding of what is and what
is not covered under their flood policy?
Mr. Heidrick. Thank you for your question, Congresswoman.
It is our job as agents every day to provide clients with as
much information as possible to help them to make an informed
decision that is best for their personal circumstances.
Any tool, whether it is a document or anything else, would
be something that would probably help to achieve that
objective.
Ms. Velazquez. Thank you.
And, Mr. Martin, New York City is comprised of a diverse
housing stock, especially for renters. While many multifamily
buildings are owned by corporate firms, many owners are small
mom-and-pops that operate on a very thin margin, especially
when they are providing affordable housing.
These properties are often the most-vulnerable to flooding
events that lead to displacement after a storm. What more can
Congress and FEMA do to improve pre-disaster mitigation for
rental and affordable housing properties and their renters?
Mr. Martin. Certainly, in particular, looking at the kinds
of information that some of those property owners, in
particular the small property owners, have access to is
absolutely critical, and that includes some of the
conversations we are having here, with very clear disclosures
about what is in and what is outside of your policy and how it
covers across all of your policies.
And one could think about other alternatives for NFIP with
regard to the coverage limits for certain kinds of properties,
particularly those that may be owned by small, low-income
households and occupied by low-income households. So, I would
encourage you all to explore many of these kinds of options,
yes.
Ms. Velazquez. Thank you.
Mr. Heidrick, despite the frequency and severity of
flooding in the U.S., households' purchases of flood insurance
have not kept pace.
Additionally, many households also incorrectly believe that
flood insurance is covered under their homeowners policy or
that their home is not at risk. These statistics are even
higher for households of color or where English is not the
primary language.
What recommendations do you have, and how is The Big ``I''
working to increase flood insurance coverage among ESL and
households of color?
Mr. Heidrick. Thank you again for your question,
Congresswoman. The National Flood Insurance Program partnership
with independent insurance agencies is critical to increasing
the coverage amongst ESL households and businesses of color.
The Big ``I'' insurance agents are across the country in
virtually every community, in every State. Our members make up
a cross-section of the communities that they represent. The Big
``I'' also has a diversity council that has worked to improve
diversity throughout the ranks of the entire independent
insurance agency system, and we promote minority-owned
insurance agencies.
In terms of a recommendation, I would go back to the
statement that I made before on education, that it is not just
education of the consumer; it is education of all of those
trusted advisers around the consumer so that we, as a society,
ubiquitously recognize the risk of flooding.
Ms. Velazquez. Thank you.
Mr. Enoizi, to attempt to make flood insurance coverage
more widely available and affordable for homeowners, I have
previously introduced the Flood Insurance Tax Credit Act, which
will create a new tax credit for flood insurance expenses based
on a taxpayers' use of NFIP's WYO or direct program.
Do you think a tax credit program like this could help ease
premium payments for consumers and help incentivize them to get
coverage?
Mr. Enoizi. Congresswoman, thank you for the question. In
answer to your question, I would say anything that encourages
the takeup of flood insurance would be welcomed by my company.
Ms. Velazquez. Mr. Martin, what is your view?
Mr. Martin. I would certainly agree. Any opportunity to
help expand the group--the pool of policyholders' purchases.
Ms. Velazquez. Thank you. I yield back.
Chairman Davidson. The gentlelady yields back.
The gentleman from Wisconsin, Mr. Fitzgerald, is now
recognized for 5 minutes.
Mr. Fitzpatrick. Thank you, Mr. Chairman. In late July
2022, FEMA released a concerning draft proposal called Direct
to Customer. In its release, FEMA noted that it is imperative
that FEMA enable the digital sale and services of flood
insurance to increase the number of people covered. FEMA noted
that this is a long-term project and stressed that they are in
the early stages of looking at the concept and just beginning
to ask questions about it.
Despite the need for more flood insurance awareness,
insurance agents and brokers, whether selling to NFIP or via
private insurer, play an important role in informing the
consumers' purchase decisions.
In this digital age, there is often a rush to cut corners
under the erroneous notion that an automated process can
replace human interaction and expertise. Any kind of proposal
that undercuts the valuable and trusted role that independent
insurance agents and brokers play in this process could have a
negative impact on increasing flood insurance participation
rates.
We saw this actually play out in the Economic Injury
Disaster Loans (EIDLs) offered directly by the Small Business
Administration (SBA) during the pandemic.
I was a member of the House Small Business Committee in the
117th Congress, and we had a much-higher incidence of fraud
related to the Paycheck Protection Program (PPP) loans issued
through the SBA than we did through the financial institutions
that did the underwriting on them,.
So, to Mr. Heidrick, do you think the direct-to-customer
approach to distributing flood insurance would reach consumers
that the NFIP or agents are not currently reaching?
Mr. Heidrick. Thank you for your question, Congressman,
and, no, I do not. Since I entered the insurance industry over
30 years ago, direct-to-consumer approaches have been tried
over and over again, and most have failed. In fact, over that
time, the market share of independent insurance agents has
remained stable, or it has grown.
We talked about education earlier, and if we agree that
education is essential to increasing the number of U.S.
households insured for the peril of flood, then it is even more
important that independent agents who live in and have local
knowledge in local communities remain in the process so they
can refer to the local creek, the local lake, the pond, the
levee nearby, the hill, et cetera, that are specific to flood
risks in a particular area.
And agents also play a critical role in servicing these
policies after they are written. When mortgages are paid off,
retaining those policies is just as important as writing new
ones. We don't believe that a call center representative or a
website would be effective in conveying this information.
And one other point that I would add is that some of the
communities that we talked about earlier that are disadvantaged
may not have the same access to computers and the internet that
other communities have, so, there again, the role of the
independent agent--a face-to-face relationship would be more
important in increasing the takeup rate on flood insurance.
Mr. Fitzpatrick. It seems, from the conversations that have
been happening, that the biggest obstacle to more private flood
insurance and to subsidies in the NFIP is that the subsidies
have contributed to over $20 billion in debt to the NFIP as
well. And, unfortunately, I think that is what is putting a lot
of these properties in harm's way.
Mr. Small, many of these plans are currently being phased
out by FEMA, but how can Congress address the subsidies and
bring more private plans into the market to protect taxpayers?
Mr. Small. I certainly think there is room for improvement,
for a new private market to come into the market. Obviously, it
is a delicate balance, trying to, again, get the insurance
component right and then figuring out the subsidy to maybe pay
the premium. But you have to get the premium correct if you
want a sustainable program.
We have been on a 50-year journey with the NFIP, and in the
last couple of years, some really great tools have been
introduced. And I think we are still in the infancy, in the
private market, to figure out what that is going to look like
over time, but it looks very promising to me to have that. So,
I think we need to take this forward, certainly make sure we
have our extensions in place, and continue the good work that
Risk Rating 2.0 has provided and build upon that.
So, I think we are still early. I wouldn't say it is a
reset. It has just taken us a while to get here, and here we
are. But definitely, 4.7 million policyholders is not even the
tip of the iceberg.
Mr. Fitzpatrick. Last month, reports indicated that NFIP's
traditional reinsurance placement faced a 36-percent decline in
participants from the previous year.
Mr. Enoizi, what can Congress do to encourage more
participation and to further protect the taxpayers? And I know
you have had this question multiple times today.
Mr. Enoizi. Congressman, thank you. I think the reduction
that you refer to is simply a function of the market. All areas
of insurance suffered that kind of entrenchment.
In terms of encouraging greater takeup, I think we have
touched on a lot of those things. One thing that perhaps hasn't
been mentioned is the idea that--
Ms. De La Cruz. [presiding]. The gentleman's time has
expired. The gentlewoman from Michigan, Ms. Tlaib, is now
recognized for 5 minutes.
Ms. Tlaib. Thank you, Madam Chairwoman. And thank you all
so much for being here. I am from the City of Detroit, and you
may not think that this issue applies to us. You always think
about the coastal community, but in the Great Lakes, we have
seen, especially in Michigan, in the last, probably, 5 to 6
years, really--well, since 2014, just drastic damage from
flooding in our communities.
I always like to bring my district up in committee
hearings. I can tell you, there is a woman in her 70s in
Inkster who had her whole basement flooded . She couldn't go
down there, didn't go down there. It ended up freezing over,
and then she ended up having mold and so much more because she
couldn't afford insurance.
Not only that, she couldn't access FEMA dollars because of
the way the process is, that you have to go there and provide
all of this documentation. She didn't have the resources or
capacity to get all that in, to take those photos to even--I
think she still had an old phone, all of these things.
When I read Michigan's flood insurance, I think the average
is about $1,047, which is about $300 more than the national
average. And on top of that, we have some of the highest auto
insurance rates in the nation in Michigan. It is layers after
layers for many of my constituents.
FEMA estimates, I think, that even if you have an inch--an
inch--of rain or water, it can cost $25,000 in damages. And so,
of course, this program is important, but it is not accessible
or affordable to my residents.
And I don't know how we change that, because I feel like we
primarily focus, to be honest, on the accessibility of those
who own the million-dollar homes on the coast, those who are in
parts of Florida, and other areas, while the senior citizen who
worked all her whole life is watching, again, everything she
put in this home just disappear day by day.
When you have an insurance product that is so risky and
unstable that the government must step in, you don't have a
free market product, do you? Mr. Martin?
Mr. Martin. To the extent that NFIP has been reformed, it
is competitive with private insurers.
Ms. Tlaib. What we have, to me, is a product that forces
teachers, nurses, retirees, and residents across my district to
pay for multi-million-dollar insurance policies so that the
wealthiest Americans can afford to rebuild their mansions after
the latest major natural disaster. That is how my residents see
it.
Mr. Martin. What you are referring to is the clear reason
why the NFIP is still needed. We have to have policy coverage
for people who don't have the resources.
The challenge is now, with the changes that have occurred,
we do have an affordability problem, so an assistance program,
particularly for low-income people, is absolutely critical.
I would say that the condition for the household that you
are describing speaks to the importance of mitigation and
insurance availability beforehand so that people don't have to
go through the suffering that these events incur.
So, I certainly encourage you all to think about the range
of mitigation tools and preparedness tools that should be
provided and resourced, particularly for low-income, vulnerable
communities.
Ms. Tlaib. Mr. Small, did you have something to say?
Mr. Small. Not necessarily. We look at all types of risk,
from the larger, more highly-valued structure to the structure
that you have described in your question. And, yes, it is a
delicate balance. I agree that mitigation is key and, again,
there--
Ms. Tlaib. We are covering 93 percent--93 percent of flood
insurance is covered by NFIP. Is that correct?
Mr. Small. I'm sorry, say that--
Ms. Tlaib. About 93 percent of flood insurance is covered
under NFIP?
Mr. Small. That is correct.
Ms. Tlaib. Yes. Many colleagues supported this resolution
that was all over the place about not supporting socialism, all
forms of socialism. To me, that is Social Security, and a
number of things. Is this program a form of socialism, Mr.
Martin?
Mr. Martin. I don't believe it is. I think what it is, is
a--
Ms. Tlaib. Government subsidizing 93 percent of flood
insurance for--
Mr. Martin. Oh, the long-term--
Ms. Tlaib. --for multi-million-dollar homes. So, for
millionaires, it is not socialism?
Mr. Martin. I'm sorry for misunderstanding your question.
Ms. Tlaib. Yes. Where the government is subsidizing and
pretty much taking over--93 percent, that is a lot.
Mr. Martin. The risk pool and diversifying the risk pool is
certainly one way that we can make the program more--
Ms. Tlaib. I am just trying to make a point, because it
seems like when it benefits my residents, it is socialism, but
when it benefits multi-million-dollar homeowners, it is not. I
yield back.
Ms. De La Cruz. Thank you.
Now, I would like to recognize myself, Monica De La Cruz,
from Texas.
Prior to 2018, NFIP featured a noncompete in its contract
with insurers that sell its products. Let me give you a little
bit of background. I was an insurance agency owner, and so I
really understand the role that insurance agents play in
relationship with their insureds.
I can tell you from my experience that the best way to sell
NFIP insurance--and I sold that for many years--is to make sure
that the insurance agents are actually equipped with the tools
to be able to sell the product and to be able to easily sell
the product.
In my experience in south Texas, first, we became licensed
with our insurance company, and then we had to go and file
independently with NFIP. The more steps you put in the way for
an insurance agent, the less likely it is that they are going
to do it.
So, even though I found myself in a low-income community, I
felt like it was very important for me to not only offer the
services of my insurance company but also with NFIP due to the
lower-income city that I was in.
That being said, NFIP does feature this noncompete
contract. Can you tell me more about this noncompete contract
and how it actually affects the independent agent? And this is
for any of you who would like to take it.
Mr. Heidrick. You mentioned independent agents, so I will
go ahead and speak, although I am probably not qualified to
answer your question completely. First, thank you for your
valuable insight. I couldn't agree with your statement more.
As you were talking earlier about making it easy for the
agent to access multiple products and provide more choice to a
consumer, that is exactly one of the most-critical points of
this. So, rather than have an agent access multiple, different
systems and prepare multiple different quotes to provide
multiple different options to a consumer, it makes a lot more
sense for them to be able to enter the client information in
one place, one time, and then see multiple quotes as a result.
And that, the removal of the noncompete for write-your-own
companies is exactly what has enabled that type of solution.
Thank you.
Ms. De La Cruz. Thank you. Would anybody else like to
discuss this portion?
Mr. Small. I think Mr. Heidrick had it right, point of
access and ease of access is critical. So, to be able to go in
and provide multiple quotes and comparisons is important for
the overall growth of policyholder accounts, whether NFIP or
private, and, again, there's ample opportunity for growth for
both.
Ms. De La Cruz. Excellent. Thank you. I yield back.
The gentlewoman from Georgia, Ms. Williams, is now
recognized for 5 minutes.
Ms. Williams of Georgia. Thank you to all of the witnesses
who are here today to discuss this very critical conversation.
It shouldn't be a surprise that the chronic underfunding of the
National Flood Insurance Program's mapping and mitigation
efforts has been particularly detrimental for communities of
color, as it was for my district during Atlanta's catastrophic
floods of 2009 when more than 20 inches of rain fell over 2
days in parts of the City, like Vine City and English Avenue,
that are already experiencing disparities in wealth, causing
$500 million of damage.
Historic and ongoing socio-economic and racial segregation
has led to people of color being more likely to live in areas
that are more susceptible to flooding, but aren't designated
Special Flood Hazard Areas, and they are less likely to have
the necessary insurance to protect themselves, their homes, and
their belongings.
And when people of color who do have flood insurance file
claims--and they are less likely to do so--they have a higher
rate of unpaid claims. Further, renters are highly unlikely to
know about the possibility of their rental home flooding.
As climate change worsens, we can expect communities of
color to be hit the hardest by its impacts, and the disparities
people of color face only exacerbate the financial harm that
they experience. And this is simply unacceptable.
Dr. Martin, what legislative reforms to the NFIP should
this committee focus on in order to address these disparities?
Mr. Martin. Thank you for noting the experience that has
happened for your constituents. I think that experience speaks
to the broader benefit of NFIP being integrated into the
National Disaster Management Framework so there is more
opportunity to think about where mitigation works best,
including very thoughtful mitigation and including buyout
programs for low-income and disadvantaged communities.
I do want to elaborate a bit on the disparities that you
are noting by race and ethnicity and income, and certainly, I
noted earlier that much of the pricing and coverage
disparities, the evidence suggests that we have eliminated much
of that, for a lot of reasons of automation.
But there are still disparities in claims treatment and
general treatment, so this is a concern that we want to make
sure gets alleviated. The recommendation that I had regarding
data transparency, not just for NFIP but also for private
insurers so that we can monitor that kind of treatment
disparity, I think is absolutely critical.
Ms. Williams of Georgia. Thank you, Mr. Martin.
Buying a home is the greatest way to produce generational
wealth, which Black people have been locked out of for
centuries, and it couldn't be more evident than in my hometown
of Atlanta where we lead the nation in the racial wealth gap.
However, if that house is in an area that is at risk of
flooding but isn't recognized as an SFHA, that wealth could
vanish with one environmental disaster.
Part of the problem here is that flood-related disclosure
requirements are set at the State level. My home State of
Georgia doesn't have any statutory or regulatory requirements
for a seller to disclose a property's flood risk or past flood
damages, greatly disadvantaging buyers who don't have this
necessary information when purchasing a home. And for renters,
there are no Federal or State laws requiring landlords to
disclose any flood risk or damages.
Dr. Martin, what can be done to remedy this issue that
affects not only Georgia but 20 other States?
Mr. Martin. That is exactly right. The disclosure rules are
determined by State policy, and State policies vary widely. In
fact, after Hurricane Katrina in Louisiana, Louisiana imposed
what is called the gold standard of property disclosures, but,
again, that only benefits home buyers and not renters. So, the
rental disclosure is very modest, at best, in this country.
One could consider national reporting disclosures or at
least provision of information that is accessible for renters
of all incomes and all backgrounds to be able to find out where
the risks are that they may be going to rent.
Ms. Williams of Georgia. Thank you. After the 2009 flood in
Atlanta, the local paper, The Atlanta Journal-Constitution
(AJC), published an article entitled, ``Damage exceeds flood
map boundaries.'' If a flood were to impact Atlanta today, like
it is raining outside and it continues to rain, we could expect
the AJC to publish the same exact headlines simply because not
enough has been done.
Federal maps are still painfully out of date and can't
accurately predict which homes and neighborhoods have a 1-
percent or greater chance of experiencing flooding in any given
year. This means that homeowners don't know if flood insurance
is something they need to even consider buying.
Dr. Martin, you might have to send me this answer in
writing, but beyond increasing funding the NFIP to continually
update floodplain maps, what can Congress do to begin to
alleviate this issue?
Mr. Martin. Thinking about the mitigation strategy, climate
change is affecting every community. We are in a dynamic time,
and it is important to make sure that we provide those
resources to account for those future risks.
Ms. Williams of Georgia. Thank you. I have more questions
that I would like to submit in writing to the witnesses to get
a follow-up on, and I yield back, Mr. Chairman.
Chairman Davidson. The gentlelady yields back. The
gentleman from New York, Mr. Garbarino, is now recognized for 5
minutes.
Mr. Garbarino. Thank you, Mr. Chairman. And thank you to
the witnesses for being here. I represent parts of Long Island
that got ravaged during Superstorm Sandy, but I am not going
to--I have my own suspicions about Risk Rating 2.0, but I am
going to save that for another day.
But I do want to ask, Mr. Heidrick, it has been about a
year since Risk Rating 2.0 did go into full effect. How have
monthly premiums changed since then, and how has your
experience been as the new pricing methodology has been rolled
out?
Mr. Heidrick. Thank you for your question, Congressman. The
difference in premium has impacted every property differently
because the whole premise of Risk Rating 2.0 was to incorporate
risk characteristics that are specific to each individual
property in the rating factor.
I have seen some people for whom the premium decreases, and
some for whom the premium increases, and a lot of that change
is dependent upon the starting point: Where was the premium
before, and was the premium adequate before? For instance, in
the prior rating system before Risk Rating 2.0, properties that
were in low-risk areas, what was formerly referred to as the
preferred risk policy, preferred risk areas, were actually the
worst-performing segment of the NFIP, and the least-profitable
segment of the NFIP. So, as you would expect from that starting
point, those least-risky properties have actually probably
seen, on whole, the largest increases in premium.
Mr. Garbarino. After Sandy, the Federal Government came in,
and a lot of money was spent raising homes either on the
barrier island, Fire Island, or on the south shore, and also
installing flood openings.
Would you say that now with Risk Rating 2.0, there are
clear benefits with those mitigation features that people have
added? Are there benefits to their new policies?
Mr. Heidrick. There are benefits to mitigation. The
challenge that agents have had under Risk Rating 2.0 is the
black box rating engine, if you will, that makes it impossible
for insurance agents, floodplain officials, and others to
really provide specific guidance to a consumer who wants to
implement mitigation but also wants to know what their return
on investment, via a lower premium, is going to be.
Mr. Garbarino. Have you seen, just because of where their
property is located, if a home has been raised, have your
consumers seen increases still in flood insurance through the
NFIP?
Mr. Heidrick. Some of my consumers have seen increases as a
result of Risk Rating 2.0, and those people who had existing
policies are protected by the glide path, the Federal statute
that caps increases at 18 percent for most policies.
Mr. Garbarino. But my question is, have they seen a
benefit? If they have done those mitigation features, like
raising the home, have they seen a benefit from that?
Mr. Heidrick. I don't have any clients who have actually
raised a home, but what I have been told by the NFIP is that
the extent of the mitigation impact interplays with a lot of
other rating factors. So, there may be one property that sees a
much smaller impact or a much greater impact as a result of
their mitigation efforts than another.
Mr. Garbarino. Thank you. I appreciate that answer, and now
I have a question for Mr. Enoizi.
I recently saw an article about a community-based
catastrophe insurance transaction spearheaded in New York City,
a pilot program to support low- and moderate-income communities
in high-flood-risk neighborhoods. It appears that the City
worked with Marsh to essentially finance emergency grants to
households in need of assistance in the aftermath of a flood.
Can you tell us a little bit more about this program and
whether the program that was set up in New York City could be
replicated in other parts of the State or even nationwide?
Mr. Enoizi. Thank you for the question, Congressman. I
think the community-based catastrophe program actually responds
to many of the questions that have been raised today,
particularly around low-income homes. What it effectively does
is it allows a community to purchase insurance as opposed
looking to buy them individually.
And the advantage of that is, first of all, parametric
trigger, which is essentially, there is no argument over
whether or not a flood occurred or didn't occur and what level
it occurred. And that allows for quick payments, $15,000
payments. Some of that money can then be put towards the risk
mitigation to which you alluded.
The New York community that bought the policy got a premium
reduction because they were buying en masse. That allowed them
to invest some of the savings that they made into further risk
mitigation. And in short, I think that is the way that you are
going to achieve greater take-up of insurance in the United
States, by buying on a community level, instead of, as the
Congresswoman was alluding to earlier, people who cannot afford
to buy insurance.
Mr. Garbarino. I appreciate that. I did have other
questions, but I am out of time, so I yield back.
Chairman Davidson. The gentleman yields back.
The gentleman from Nevada, Mr. Horsford, is now recognized
for 5 minutes.
Mr. Horsford. Thank you, Mr. Chairman, and thank you to the
ranking member as well. This is a critically-important topic
for us to discuss. And while, at the moment, Nevada is in the
grip of an historic drought, the varied ecosystems across my
State are such that many of the communities that I represent
are extremely susceptible to flash floods.
As Dr. Martin rightfully pointed out in his testimony, the
most-pressing issue and biggest barrier that I hear from my
constituents is affordability. We need to be expanding flood
insurance to everyone who needs it. The loss associated with
water damage can be absolutely catastrophic, especially for a
family that was already struggling to make ends meet. Without
insurance, these costs can lead to financial ruin, and with
upwards of 57 percent of damages not covered, our nation has
issues with both the uninsured and a massive underinsured
population.
Now, I understand that private flood insurance can be an
excellent supplement to coverage for high-value residential
properties, but today I want to focus on individuals who cannot
afford even a basic policy. It is an incredible paradox that we
find ourselves in. Individuals who are the most in need of
comprehensive flood insurance coverage are far too often unable
to afford their premiums.
So, I am eager to work with all of my colleagues on this
subcommittee to find responsible improvements to our National
Flood Insurance Program. But I want to make sure that lowering
costs and expanding coverage is at the center of anything that
we do.
Dr. Martin, could you please take just a few minutes to
discuss the consequences for working families if the National
Flood Insurance Program rates would quadruple, as you mentioned
in your testimony?
Mr. Martin. Certainly. And I would like to even expand your
question, and talk about the consequences for NFIP and the
Federal Government from not helping low-income households be
able to afford insurance. For the households themselves, the
evidence shows that a disaster event, including most floods,
would create a financial spiral lasting up to at least 4 years.
And I say 4 years only because the data that I have access to
was for 4 years after, but it is very likely that that
financial spiral will continue well after 4 years.
So, for households, it is absolutely critical to have some
preparatory assistance, to have some financial assistance to be
ready for the flood, and that is the whole purpose of
insurance.
For NFIP, certainly, you are looking at the broader Federal
coffers. The investment in insurance and mitigation saves
money. Studies from the National Institute of Building Sciences
have suggested that for every dollar invested in mitigation,
you have $6 in savings from recovery. So, it is a better
investment from a fiduciary standpoint as well.
Mr. Horsford. Great. I agree that it would be simply
unacceptable to allow that many of our constituents to have to
fend for themselves because they can't afford comprehensive
flood protection. And I want to work together to keep flood
insurance affordable to those who need it the most.
Let me conclude, Dr. Martin, by asking you to speak about
how means-tested affordability programs may have spillover
effects into the private market and result in increased
affordability for all policyholders?
Mr. Martin. It certainly would. If you are providing
resources to a certain number people who could be accessing
private insurance, NFIP, et cetera, they are actually making
sure that a broader pool of people will be purchasing products.
Assuming that they have some contribution in, because they are
clearly paying for the product, as well as having to partially
subsidize, they are going to be expanding the pool for a much
broader group.
Mr. Horsford. Thank you very much. I look forward to
working with my colleagues on this, and I will yield back my
time.
Chairman Davidson. The gentleman yields back.
The gentleman from South Carolina, Mr. Norman, is now
recognized for 5 minutes.
Mr. Norman. Thank you, Mr. Chairman.
Mr. Enoizi, renters are a group that typically has low
take-up rates for flood insurance. As noted in your testimony,
a contents-only policy is an option for many renters. Can you
speak to the benefits of contents-only and how that affects
those who choose to get the policies?
Mr. Enoizi. Thank you, Congressman. I guess it really goes
to creating a culture of people who look after themselves,
acknowledging the remarks about people affording to be to look
after themselves, but often those people would not be aware
that the property, the underlying property, was not covered for
flood insurance. So, providing a way to provide policies to
renters, perhaps through mandatory offer, not mandatory
purchase but mandatory offer, might overcome that problem.
Mr. Norman. It just specifies that it really is a tailor-
made policy that people could choose from, is that right?
Mr. Enoizi. Yes, Congressman, it is about providing options
and innovation in products so that people can actually choose
what their own risk appetite is and then purchase insurance to
cover the delta.
Mr. Norman. I guess this is for everyone, but compared to
other insurance products offered in a State-regulated
marketplace, how much consumer choice does a homeowner have
when purchasing NFIP coverage?
Mr. Heidrick. I will be happy to start, Congressman. There
certainly are fewer flood insurance options than many other
personal lines insurance products. As stated earlier, over 90
percent of the current flood insurance is with the National
Flood Insurance Program.
We have seen several new, private flood insurance companies
come into the market. I think it is important to recognize that
the private flood insurance market is still in a stage of
infancy. It has come a long way since 2014, but it is really
since 2014 that private flood insurance companies have offered
personalized insurance products.
So we are still kind of new to this, and I think the
private companies working side by side with the National Flood
Insurance Program will help that industry to continue to grow
and become more stable.
Mr. Norman. Yes, and the lending institutions are getting a
lot more, I guess, insistent that flood insurance is obtained,
even if the land that they are building on is not particularly
prone to a flood.
Mr. Heidrick. It is my experience, as an insurance agent,
that the lending institutions are very, very diligent at
enforcing the mandatory purchase requirements. They not only
are diligent in following up, making sure they have proof of
flood insurance, sometimes weeks before a closing occurs, but
then, even as that policy is in force and renews year after
year, reading the declarations page and asking for certain
language to be altered or to make sure that it is going to be
100-percent compliant with whatever regulatory agency is going
to come in and audit them on an annual basis.
In my experience, the lending institutions are actually
quite fearful of the regulatory audits regarding flood
insurance.
Mr. Norman. Yes. I am in the commercial real estate field,
and that is one of the first things we start with--you examine
the flood maps, you look at declarations, you get the premiums
if you can get it before you purchase a property to put the
improvements on.
I want to thank each of you for testifying today. This is
very important for us, having a bill which is coming forward,
with competition, letting people choose different policies that
they may want to look consider.
So thank you for what you are doing, and Mr. Chairman, I
yield back.
Chairman Davidson. The gentleman yields back.
The gentlewoman from Colorado, Ms. Pettersen, is now
recognized for 5 minutes.
Ms. Pettersen. Thank you, Chairman Davidson, for holding
today's important hearing, and I also want to thank the
witnesses for offering your expertise today.
The National Flood Insurance Program provides a critical
backstop, as all of you have talked about, to ensure that
property owners can be offered flood insurance. In Colorado, we
are routinely seeing flooding from heavy storms and early snow
melts.
However, as you know, 25 percent of all flood insurance
claims come from outside of known high-risk areas, meaning that
many communities have never experienced flood risk before
having a flood.
And, even worse, the constant and growing risk of
catastrophic wildfires leads communities that have previously
not been prone to flooding to experience repeated flood events
for a number of years until vegetation regrows and other
mitigation efforts are put in place.
These homeowners are often surprised that their homeowners
policies do not cover flood events, and I, unfortunately, have
been one of those where we unexpectedly faced a flood, and it
was told to me that only water that occurs inside the home is
covered, which is devastating for far too many people.
There are also communities throughout Colorado that have
been spared the worst of a wildfire and end up needing to
surround their home with sandbags because even minor rain
events can lead to heavy flooding.
As this committee considers the long-term reauthorization
of the National Flood Insurance Program, we must also work to
ensure that consumers are aware of their options, and I
appreciate the discussion about what options we have to do that
moving forward today.
One of the most pressing issues that this committee must
also fix is that many homeowners wrongfully assume that flood
insurance protections are covered, and disclosure requirements
and education surrounding the availability of flood insurance
will help them better understand what options that they have.
A very important issue for Colorado that we need to focus
on here, that I am especially interested in, is not just around
flood insurance but what we are going to do to address wildfire
insurance and coverage.
I have heard from so many constituents in Jefferson County
who were almost impacted by the Marshall Fire but were unable
to actually insure their homes because of the risk that is
posed due to wildfires.
What are we going to do? What options do we have to work
together to address that issue in bringing maybe some of the
similar approaches that we have with flood insurance? And I
don't know who would like to touch on that. Maybe Dr. Martin?
Mr. Martin. I would be happy to start. Thank you for that
question. Certainly, for me, this speaks to the broader issues
of all hazards that affect people, because people don't silo
their houses as being flood-related, fire-related, et cetera.
People think of their house in all of its performance
capacities, which means that they may not understand what their
various insurance policies cover.
So the idea of having documents and sort of checklists for
consumers to easily understand across all of their policies is
absolutely critical. That tends to be regulated by State, so--
and I would like to expand from Colorado to California that
went through many of the same conditions in the last 5 years,
leading to a lot of homeowners insurance policy providers
leaving the State--or threatening to leave the State because it
was a catastrophic risk that they couldn't cover anymore.
We see this sort of repeating pattern of being able to
provide private insurance, but then people not being able to
afford it when it is available, and most consumers not
understanding what their policies cover.
I would say, when it comes to documentation and
availability of information, thinking through, akin to what we
have done in healthcare insurance provisions, making sure
consumers understand what is in their policies is in their best
interest, and certainly in the best interest of State and
Federal Government.
Mr. Enoizi. Specifically, if I may, Congresswoman, I think
the other thing I would add to Dr. Martin's comments is the
need for risk mitigation, as we have already heard, regarding
flood but also regarding wildfire, and specifically when it is
regarding wildfire, there are nature-based solutions that can
be put in place that can help create fire breaks to prevent
these losses.
Ms. Pettersen. I am still getting used to being in Congress
versus the State legislature, so I was raising my hand over
here. But something that we did in Colorado is, we brought a
fee for every policy plan that actually went towards fire
mitigation.
And I know, generally speaking, insurance companies are not
in favor of fees, but that's just an example of something we
might be able to come together on, to actually put money and
investments up front to save in the long term. But I really
appreciate the conversation and what we are going to do to make
sure that constituents like mine are able to have access to the
insurance that they need.
With that, I yield back.
Chairman Davidson. The gentlelady yields back.
The gentleman from Nebraska, Mr. Flood, is now recognized
for 5 minutes.
Mr. Flood. Thank you, Mr. Chairman. In 2019, there was a
bomb cyclone that hit the State of Nebraska. It was a major
flood event in Nebraska that led to a disaster declaration and
serious damage to 104 cities in our State.
In fact, we are still feeling the effects of the flooding
to this day. Offutt Air Force Base was severely damaged, and we
are still working to restore a lot of the facilities that were
destroyed.
Nebraska is not a coastal State, but we have more miles of
river than any other State in the nation, and our flooding is a
cautionary tale. It highlights the need for protection against
flood events across the country.
So we have to ask ourselves, how can we ensure that
homeowners are better protected the next time there is a major
flooding event? And I do think that having private options is a
good direction to go.
I have a question for Mr. Enoizi. Some other nations have
adapted flood insurance marketplaces that provide robust
protection with a private model, and you have testified to this
already.
Can you speak to some of the very specific market-based
reforms that were implemented in the United Kingdom?
Mr. Enoizi. Thank you for the question, Congressman, and I
should point out that as somebody who ran one of these public-
private partnerships for nearly a decade, I am very much in
favor of public-private partnerships where the risk-sharing
between the public and the private is maximized.
In other words, you find incentives for the private market
to take as much of the risk as it is possible to do, and I
think that is much of what we have been talking about today.
First, in the United Kingdom, we have something called
Flood Re, which is a public-private partnership between the
U.K. government and the insurance industry, and that has a
number of features which we have, again, been touching on here
today, principally around making insurance affordable to those
people who cannot afford it but who are, by necessity, living
in flood zones as opposed to choosing to live in flood zones.
Second, when flooding occurs, they have to build back
better; in other words, part of the contingency of them
receiving a payment on the claim is that they then have to put
flood mitigation in place, putting their flood points halfway
up the wall or not putting carpet on the ground floor.
And, third, after three strikes, if they don't put those
mitigations in place, then they are no longer offered the
insurance. Those are the kinds of things you see in the United
Kingdom.
Mr. Flood. And how effective has that been, the Flood Re
program?
Mr. Enoizi. I think largely, it has been extremely
effective. It has a sunset clause. It was due to expire after
25 years, and as with my own experience, one of the things we
were able to do and what they are able to do is to push most of
the risk back into the private market, so that only the
uninsurable are left with the State, which is probably the way
it should be.
Mr. Flood. Mr. Luetkemeyer talked about it before, that we
have a situation in the United States where homeowners can get
their home rebuilt every couple of years. This is exactly what
you are trying to prevent by requiring the insured to build
back better after a flooding event. I don't know how familiar
you are with our Federal program, and I am brand new to
Congress as well.
What has that conversation been like among the flood
insurance community, about requiring people to build more
flood-resistant structures following a massive claim? Can you
speak to that, or would there be somebody else who could speak
to it?
Mr. Enoizi. I think it has generally been extremely well-
received because if they don't do it, then they will no longer
be eligible for the insurance. So, it is really almost they are
put into a position where they have to do it.
Mr. Flood. Thank you very much. To close, I would like to
emphasize the importance of nurturing a private flood market
that is competitive, innovative, and will drive costs down.
The National Flood Insurance Program provides a one-size-
fits-all solution on flood--and given my last name, everybody
should have flood insurance. It works for some, but a robust
marketplace would introduce more consumer choice, allow for
more customization, and eventually lead to price competition
that benefits the consumer. Thank you, sir, for your answers.
And thank you, Mr. Chairman. I yield back.
Chairman Davidson. The gentleman yields back.
The gentlewoman from Massachusetts, Ms. Pressley, is now
recognized for 5 minutes.
Ms. Pressley. Thank you so much, Mr. Chairman, and thank
you to our witnesses for joining us today on what is truly an
urgent and consequential issue.
I represent the Massachusetts Seventh Congressional
District, a district which includes several coastal communities
vulnerable to flooding. So, encouraging greater flood insurance
is an issue of significant importance to me and my
constituents.
For cities in my district like Boston, Chelsea, and
Everett, the climate crisis is not an abstract, far in the
future, distant problem; it is a reality here and now.
Communities, families, and small businesses are experiencing
firsthand the extreme impact of weather events that are growing
in severity and frequency, the combination of hurricanes, storm
surges, and rising sea levels resulting in greater flooding,
plain and simple.
The National Flood Insurance Program is essential in
safeguarding our most-vulnerable frontline communities and
helping homeowners protect both themselves and their
properties. However, this program is also facing several unique
challenges.
Mr. Enoizi, I was going over your written testimony, and
you highlight in it the challenge of the flood protection gap.
Just for the record, and for the general public, could you
expound upon what this is and why this gap exists?
Mr. Enoizi. Thank you very much for the question,
Congresswoman. The flood protection gap is essentially the
difference between economic loss and the insured payout. So if
the loss is a hundred, and the insurance policies pay out 20,
then you have a gap of 80, and that is obviously a massive drag
on the economy.
And, globally, there is something like $82 billion of flood
losses every year, and the protection gap on those is somewhere
around $25 billion. So it is an enormous problem globally, not
just in the United States.
Ms. Pressley. Thank you. So, it is critical that we ensure
that flood insurance is available and affordable, as we have
heard throughout this hearing, to those who need it, especially
for those living in high-risk flood zones.
Mr. Heidrick, what do you see as the primary barriers to
increasing flood insurance coverage, and what can Congress do
to address them? What role can we play?
Mr. Heidrick. Thank you for the question, Congresswoman. As
I stated earlier, I think the barrier really comes down to two
primary issues, and before we think of innovative and outside-
the-box issues, I really think that we need to address these
two fundamental issues which are, first, education--not just
consumer education but all of those trusted people who would
advise a consumer, family, friends, and other professionals--
and second, affordability, some sort of an affordability
solution that is outside the National Flood Insurance Program,
means-tested for those people who need that support.
Sorry, I lost the second part of your question.
Ms. Pressley. Oh, that was it. Just, what did you see as
the primary barriers, and what can Congress do?
Mr. Heidrick. What Congress can do, thank you very much, is
first, don't let the National Flood Insurance Program lapse.
Second, any long-term reauthorization that modernizes the NFIP
would be welcome by, I think, everybody, who is impacted by
flood insurance, and I can't imagine who is not.
When we talk about those reforms, I know it is sometimes
sticky and sometimes complicated. We don't have to have every
single reform, every single idea. I would encourage the
committee to not let perfect get in the way of good, if we can
make sure that this product continues to be available and maybe
even modest improvements for those many Americans who need it.
Ms. Pressley. Thank you, Mr. Heidrick. Certainly, it's a
universal issue: urban; rural; and suburban.
Dr. Martin, as a housing expert, can you speak to the
economic benefit of increasing flood insurance coverage for
homeowners and small businesses in terms of reducing those
financial losses?
Mr. Martin. Absolutely. One of the critical areas which
people often forget when they are purchasing a home, for
example, is all of the additional expenses that are associated
with maintaining and making sure that their home is going to be
safe in the long term.
So, certainly opportunities, particularly for low-income
households, to make sure that they have those opportunities,
will ensure a more stable housing product that can be insured,
that can be mortgaged and lended to, and that can be rented out
as needed.
And it is absolutely critical to ensure that we get this
right.
To speak to an earlier point that you made, Congresswoman,
is the fact that these risks are going to increase. We are
going to see continuously-changing dynamics because of the
changing climate, so it is absolutely important that we get
this right, right now.
Ms. Pressley. Thank you. Again, expanding flood insurance
coverage is an important tool to prevent everyone, especially
low-income folks, from facing financial ruin in the event of a
flood. That is my time. Thank you. I yield back.
Chairman Davidson. The gentlelady yields back.
The gentleman from New York, Mr. Lawler, is now recognized
for 5 minutes.
Mr. Lawler. Thank you, Mr. Chairman.
And thanks to our witnesses for sharing your insight and
experiences on this important topic. This is a topic that is of
great importance to my constituents in the immediate suburbs of
New York City, who have seen, over the last decade-plus,
increasing flooding and the aftereffects of storms like Sandy
and Ida.
As a nation, but especially in New York, in my district, we
are also dealing with serious affordability issues, so finding
ways to ensure that we are encouraging Americans to have flood
insurance, and to help them avoid being in a situation where,
when you have a flood, you aren't covered, is extremely
important. Currently, only homeowners with active federally-
backed mortgages in higher-risk Special Flood Hazard Areas are
subject to the law's mandatory flood insurance purchase
requirement. That means that renters and homeowners without
such mortgages may be at the same elevated risk but have no
requirement to insure their residence. Or they might be
overlooked by the NFIP's outreach and remain unaware of their
elevated flood risk.
Mr. Heidrick, would encouraging more private flood insurers
to seek out such homeowners in special, flood hazard areas and
offer them customized private flood coverage help reduce the
flood insurance gap?
Mr. Heidrick. Thank you, Congressman. I would say anything
that improves choice and access for consumers will help to
reduce the flood insurance gap.
Private flood insurers have, over the last several years,
done a good job of filling gaps and providing alternatives to
clients, alternatives that may be a lower-priced product or
even expanded coverage than the NFIP offers. And the more that
the private flood insurance industry develops, the more choice
there will be for consumers and the closer we will get to that
goal of closing the gap.
Mr. Lawler. Thank you. Beyond individual homeowners
purchasing individual policies from the NFIP or another
provider, what other insurance options exist to help insure
homeowners and communities against flood risk? This is for any
of you on the panel.
Mr. Enoizi. Congressman, if I may, on your previous
question, just by way of an anecdote, in Germany, in such areas
that you were referring to, you would have a billboard the size
of that TV screen, saying: If this river floods, you need to
have insurance; otherwise, the government will not bail you
out.
I just make that point as an anecdote.
To your specific question, in your State, we have actually
been successful in working with some of your communities to
sell a product that actually covers the community and thereby
overcomes the need for the sort of education which can be very
difficult, and also the affordability, because it is actually
the community that is purchasing the insurance on behalf of the
vulnerable community, which ensures a very speedy payout, quick
recovery, less economic drag, and reduced impact on the
taxpayer. So, that is one of the innovative solutions that we
are working on with people in your State.
Mr. Lawler. Just to follow up on your initial point about
Germany, what have you seen in terms of other countries in
Europe or Asia and their approach to closing flood insurance
gaps? And can any of those tools be utilized here to help us
meet our own domestic challenges?
Mr. Enoizi. Again, thank you for the question. I guess it
really--you see two different approaches. Mutualization of
risk, and you referred to Asia, so Southeast Asian communities
of nations that have essentially joined together to provide
this kind of insurance on a territory-wide basis. And that
includes sometimes actually even predicting, through satellite
imagery, when the flood is going to occur, and paying out
before the event actually happens, and then, the ability to
move out of the way of harm, close up your businesses, and
protect yourself that way.
Other areas use socialization of risk where you are
actually using a levy on taxpayers, homeowners who purchase the
product, where everybody, as in the U.K., pays 10 pounds. I
live on top of a hill, but I pay my 10 pounds, and that allows
people who are in a vulnerable area to purchase more affordable
insurance.
Those are cultural and political issues which I won't
comment on, but there are lots of different solutions to the
same problem.
Mr. Lawler. Thank you. I yield back.
Chairman Davidson. The gentleman yields back.
The Chair now recognizes Ms. Garcia for 1 minute.
Ms. Garcia. Mr. Chairman, I would like to ask unanimous
consent to enter for the record two documents that I failed to
do during my questions. The first one is, ``Flooding is Nearly
a Daily Occurrence Throughout the U.S.'' It is a Forbes
Magazine article.
And the second is a Houston Chronicle article entitled,
``Houston-area property owners drop FEMA flood insurance after
pricing change.'' Thank you, Mr. Chairman.
Chairman Davidson. Without objection, it is so ordered.
I would like to thank our witnesses for their testimony
today. I think we can safely say that we have good ideas to
make a better product, and hopefully we can work together to do
just that without turning this into a think tank. We can
hopefully, at least make it somewhat better.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is now adjourned.
[Whereupon, at 10:57 a.m., the hearing was adjourned.]
A P P E N D I X
March 10, 2023
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