[Senate Hearing 118-591]
[From the U.S. Government Publishing Office]
S. Hrg. 118-591
REAUTHORIZATION OF THE NATIONAL FLOOD
INSURANCE PROGRAM: LOCAL PERSPECTIVES
ON CHALLENGES AND SOLUTIONS
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING THE REAUTHORIZATION OF THE NATIONAL FLOOD
INSURANCE PROGRAM
__________
JANUARY 25, 2024
__________
Printed for the use of the Committee on Banking, Housing, and Urban Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
______
U.S. GOVERNMENT PUBLISHING OFFICE
59-591 PDF WASHINGTON : 2026
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chair
JACK REED, Rhode Island TIM SCOTT, South Carolina
ROBERT MENENDEZ, New Jersey MIKE CRAPO, Idaho
JON TESTER, Montana MIKE ROUNDS, South Dakota
MARK R. WARNER, Virginia THOM TILLIS, North Carolina
ELIZABETH WARREN, Massachusetts JOHN KENNEDY, Louisiana
CHRIS VAN HOLLEN, Maryland BILL HAGERTY, Tennessee
CATHERINE CORTEZ MASTO, Nevada CYNTHIA M. LUMMIS, Wyoming
TINA SMITH, Minnesota J.D. VANCE, Ohio
RAPHAEL G. WARNOCK, Georgia KATIE BOYD BRITT, Alabama
JOHN FETTERMAN, Pennsylvania KEVIN CRAMER, North Dakota
LAPHONZA R. BUTLER, California STEVE DAINES, Montana
Laura Swanson, Staff Director
Lila Nieves-Lee, Republican Staff Director
Elisha Tuku, Chief Counsel
Amber Beck, Republican Chief Counsel
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Assistant Clerk
(ii)
C O N T E N T S
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THURSDAY, JANUARY 25, 2024
Page
Opening statement of Chair Brown................................. 1
Prepared statement....................................... 27
Opening statements, comments, or prepared statements of:
Senator Scott................................................ 3
Prepared statement....................................... 28
WITNESSES
Michael Hecht, President and CEO, Greater New Orleans, Inc....... 6
Prepared statement........................................... 29
Responses to written questions of:
Senator Warnock.......................................... 61
Daniel Kaniewski, Managing Director, Public Sector, Marsh
McLennan....................................................... 7
Prepared statement........................................... 38
Responses to written questions of:
Senator Warnock.......................................... 64
Steve Patterson, Mayor, City of Athens, Ohio..................... 9
Prepared statement........................................... 55
Responses to written questions of:
Senator Warnock.......................................... 66
Additional Material Supplied for the Record
Statement submitted by NAMIC..................................... 68
Statement submitted by ICBA...................................... 74
Letter submitted by NAR.......................................... 76
Letter submitted by ACU.......................................... 78
Letter submitted by the Nooksack Indian Tribe.................... 80
Statement submitted by PIA....................................... 84
Statement submitted by NRDC...................................... 93
Statement submitted by RAA....................................... 99
(iii)
REAUTHORIZATION OF THE NATIONAL FLOOD INSURANCE PROGRAM: LOCAL
PERSPECTIVES ON CHALLENGES AND SOLUTIONS
----------
THURSDAY, JANUARY 25, 2024
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10 a.m., in room 538, Dirksen Senate
Office Building, Hon. Sherrod Brown, Chair of the Committee,
presiding.
OPENING STATEMENT OF CHAIR SHERROD BROWN
Chair Brown. Good morning. The Senate Banking, Housing, and
Urban Affairs Committee will come to order. I thank the
witnesses for joining us. Senator Cassidy will join us in a
moment.
This hearing is a continuation of our efforts to enact a
long-term reauthorization of the National Flood Insurance
Program, NFIP. The program has been extended 28 times since
September of 2017. The latest extension will expire on March
8th of this year. We will discuss local leaders' perspectives
on the NFIP and the challenges and potential solutions to the
risks that flooding poses to communities across the country.
Local leaders are on the front lines of so many issues:
transportation, housing, the growing challenge of flooding.
Each of these is a priority for this Committee. As these
leaders know all too well, flooding is the most common and
costly natural disaster facing the country. It is devastating
to families, businesses, and communities in every State. That
is one good reason that Mayor Patterson is with us from my
State.
The risk is increasing. Outdated flood maps, population
growth in at-risk areas, land-use patterns, and over-stretched
infrastructure all play a role. And whether people want to
admit it or not, climate change is only making it worse. It is
making extreme weather events more frequent and less
predictable, and probably more extreme, all across the country.
Just this month streams overflowed in our colleague,
Senator Reed's, home State of Rhode Island; torrential rains
poured through homes in San Diego neighborhoods represented by
Senator Butler on this Committee; and flash floods have been
threatening communities across Louisiana, which is well
represented by two colleagues today in the room. And that is
just this month.
Flooding is not confined to communities on the coasts, or
even on major bodies of water. As we saw in 2022, the same
mountains and streams that make our Appalachian towns in Ohio
and elsewhere beautiful also make family homes and local
economies vulnerable to flooding in an era of more extreme
rainfall. Often the only available land for development in
Appalachia is in or near floodplains.
And disasters often fall hardest on the families and the
communities that have fewer resources to prepare and respond to
them, often because of where they live. Smaller, rural
communities often do not have easy access to resources to
respond to the immediate effects of disasters, nor do they have
access to the resources they need for long-term recovery and to
prevent disasters in the first place.
We need to ensure our families and communities can adapt
and become more resilient both to the flooding we face and to
the increases we know are coming in the next several decades.
And whenever possible, we want to help communities avoid
extreme flooding altogether, through pre-disaster flood
mitigation, doing it better than we have.
The NFIP is critical to that effort. Unlike a private
insurance company, the NFIP does not just provide insurance.
Its job is to prevent and minimize flood damage in the first
place, not just help with very expensive recovery.
The NFIP combats the overall threat of flooding through
four related components: flood insurance, currently covering
nearly 4.7 million homes and businesses, floodplain management,
floodplain mapping and mitigation. We must reauthorize and
strengthen the NFIP, and invest in mitigation and floodplain
management obviously before disasters happen in communities.
In recent hearings, we heard from a wide range of
stakeholders who discussed the need for a long-term
reauthorization to help communities and stakeholders plan; the
importance of helping communities and property owners
understand their risk, by both improving mapping and other risk
communications, and through disclosure of flood hazards to
prospective owners and tenants; and third, the importance of
building State and local capacity to carry out our floodplain
management and mitigation programs, especially for small and
rural communities.
We also heard FEMA's recommendations for strengthening the
program, including forgiving the overhang of debt from previous
disasters and providing means-tested assistance to help more
families afford insurance.
I am interested in hearing today's witnesses'
recommendations on how we can help strengthen the NFIP so that
it can help local communities meet these needs. I am pleased to
welcome Mayor Steve Patterson of the City of Athens, Ohio, in
southeast Ohio, here today to discuss some of the unique
challenges faced by cities and towns in Appalachia.
NFIP is a complex program, with multiple goals and
implications for many of the things people care about most--
their homes and their communities, often their small
businesses. I believe it is possible for us to come together to
reauthorize and improve this program. Today's hearing will help
inform this effort.
And this Committee, while sometimes partisan, often Senator
Scott and I can work together on major pieces of legislation,
as we have from fentanyl to holding banks accountable, to
banking medicinal marijuana money, and the like. This
Committee, particularly on flood insurance, is more regional an
outlook, perhaps, than partisan, and that should help us
someday, sooner rather than later I hope, come to some
agreement on NFIP.
Ranking Member Scott.
OPENING STATEMENT OF SENATOR TIM SCOTT
Senator Scott. Thank you, Mr. Chairman. Before we get
started, I would like to take the time to welcome a Charleston
native, Mr. Kaniewski, as a witness today. I cannot think of a
more helpful perspective in dissecting these issues that are
really local in perspective. Although you now live in
Minnesota--I have never met someone who left Charleston
actually--full time. Please come home soon, we really need you
back. We need all the smart-thinking individuals back in
Charleston, South Carolina. But we thank you for being here
today.
The National Flood Insurance Program comes into play when
we start thinking about how to mitigate the risks that are so
impactful and negative to communities across the country. As we
consider potential reforms to the NFIP, we must keep in mind
local perspectives and not just those of Washington
bureaucrats. Because we all know that the most effective
policymaking typically happens closer to the problem, not
farther away from that problem. So our Federal programs should
foster local, innovative solutions, not regulatory red tape.
You all have heard me say this before, that as a lifelong
Charlestonian and South Carolina resident, as well as an
insurance professional for more than 20 years, having sold
flood insurance policies, it is really important for us to
understand and appreciate the devastation caused by flooding.
There is no doubt that if you are a Charlestonian and if you
were around in 1989, Hurricane Hugo devastated our community in
ways that very few natural disasters have before and frankly,
since. The storm surge was so bad and so high that it literally
left boats in the middle of downtown in the streets of
Charleston.
More recently, Hurricanes Matthew, as well as Florence
devastated towns throughout my State, and left some towns
submerged. As a matter of fact, the town of Nichols, South
Carolina, a very small town, was hit by both storms so bad that
more than half of the houses in that small community found
themselves underwater.
And the devastation of trying to rebuild 24 months later--
again--was undeniably and frankly impossible. But the good news
is when you are surrounded by your friends and your family, the
impossible becomes possible. And they worked really hard to
start the process of rebuilding very quickly, and frankly, very
successfully.
This type of repeated flooding makes recovery harder, and
naturally, can even cause some residents to lose hope--and
certainly a part of the town--residents that they left.
It is one of the reasons why I have re-introduced my
Repeatedly Flooded Communities Preparation Act, which would
help communities suffering from frequent flooding plan for the
next storm, and hopefully, lower the risk. It is my hope that
by encouraging flood-prone areas to reduce the impact of future
storms, residents will be able to focus on long-term recovery,
long after the storm surge recedes.
And recovery does not simply mean rebuilding. It also
includes uplifting our communities. It includes making sure
that families and neighbors learn to work together, that the
synergy in the aftermath of a disaster is where community, and
the glue of community, really manifests and reveals itself.
South Carolinians who have lived through repeated flooding
know this, and my home State has taken action to prevent this
outcome. South Carolina's recent dedication of resources and
strategic mitigation efforts are second to none.
In 2023, the State's budget included significant funding
for mitigation efforts that would reduce flood damage from
future storms. Backing up that investment, the South Carolina
Office of Resilience released a nationally praised ``Statewide
Risk Reduction Plan'', identifying the communities most
vulnerable to floods and targeting mitigation resources to
protect those residents.
These are local solutions to local challenges, and they
will make a huge difference in the lives of South Carolinians.
And while I recognize that what works in South Carolina may
not work in places like Senator Cassidy's Louisiana or Chairman
Brown's Ohio, I am confident that similar, locally based
solutions and approaches could make a huge difference, not only
in those communities, but to the National Flood Insurance
Program itself.
To support these levels, we must have substantial reform to
the NFIP. The status quo is not an option. The program is
financially insolvent, with over $20 billion--$20 billion--in
debt. Instead of educating communities and homeowners on the
risks they face, the program's outdated flood maps and lack of
transparent data often obscures the risks. Without a well-
functioning and financially solvent insurance system, the NFIP
will fail to provide cities and towns with the tools they need
to be resilient. And, if the NFIP is unable to provide local
communities with improved mapping and mitigation resources, the
financial health of the insurance program will continue to
deteriorate.
When I say that, especially with my legislation I have
reintroduced, we have to recognize that the NFIP pays out 30
percent of its resources to about 1 percent of the properties
that consistently and repeatedly are flood victims again, and
again, and again. So 1 percent of the exposure absorbs 30
percent of the resources, and that is an opportunity for us to
look to the local communities to create strategies to perhaps
not rebuild there, and that will take a local engagement to
mitigate that risk for the Nation, for the program, and frankly
for the communities where they happen.
Comprehensive reform of the program is essential.
One final and important point before I close. Congress
cannot allow the NFIP to lapse. Most often we talk about States
like Florida, or South Carolina, or Louisiana, where they pay a
disproportionate share of the premiums that go into the NFIP.
The truth is that whether you are in Ohio, or California,
whether you are in the New Jersey, New York area, where
Hurricane Sandy--$8.8 billion--Hurricane Harvey--$9 billion--
the number of flood insurance policies in place? Essentially
nonexistent.
So not only do we need to have a comprehensive reform of
the program itself, we need to have a better education that
floods do not simply happen when you live near the water.
Floods today happen throughout the country.
Chair Brown. Thank you, Senator Scott.
Senator Cassidy, welcome. Senator Cassidy is not a Member
of this Committee, but he and Senator Kennedy and Senator
Menendez, especially, have been kind of leaning on this, and
are particularly interested. Senator Cassidy will introduce his
friend from Louisiana.
Senator Cassidy. Thank you, Chairman Brown and Ranking
Member Scott, and I just appreciate you all having this hearing
and allowing me to introduce, which I think is not a little bit
out of the ordinary, and I want to appreciate your staff. My
staff says your staff has been fantastic to work with, and we
thank you for that.
Chair Brown. Thank you.
Senator Cassidy. Today I have the privilege of introducing
Greater New Orleans, or as we call it, GNO, Inc., President and
CEO, Michael Hecht. Michael moved to New Orleans after
Hurricane Katrina with the goal of helping the city rebuild.
Previously, after 9/11, he had worked in New York in the
Mayor's Office, running their Small Business Recovery Program.
So when Katrina hit Louisiana, devastating tens of thousands of
people and businesses, Mr. Hecht took action by running a
similar, quarter-of-a-billion-dollar Katrina Small Business
Recovery Program for the State government. He helps when
communities have been struck.
Now there are many lingering effects of Hurricane Katrina,
which he is going to speak of, but one of the most obvious is
the method to assess flood risk. And if I may add, NFIP's new
risk assessment policy, called Risk Rating 2.0, has made flood
insurance simply impossible to afford, and in some cases
policies rising over 1,000 percent, in some cases, flood
insurance premiums being higher than a person's mortgage.
At this point we know that we are in an actuarial death
spiral, where people will be dropping insurance because they
can no longer afford, therefore, a smaller number of people for
whom to put on the risk, therefore, more expensive premiums,
and therefore, more people drop. Mr. Hecht will address this
and the impact it is having upon families and businesses.
And then, last, I thank you for having this hearing because
of the solution that Senator Menendez and I and others have
proposed, for which we would love your input, which we think
could address this.
So I look forward to hearing this testimony and the
testimony of others. Once more, I thank you very much for
having the hearing.
Chair Brown. Thank you, Senator Cassidy. I cannot improve
on the introduction offered by our friend from Louisiana. Mr.
Hecht, welcome.
Daniel Kaniewski is the Managing Director for Marsh
McLennan, which he joined after serving as Deputy Administrator
for Resilience and Acting Deputy Administrator for FEMA during
the Trump administration. Dr. Kaniewski, welcome.
Steve Patterson is the Mayor of Athens, Ohio, the largest
city in Appalachia. He currently serves as the Second Vice
President of the National League of Cities, President of the
Mayors Partnership for Progress in Appalachian Ohio. I meet
with him and other mayors frequently.
First elected in 2015, after two terms on the City Council,
Mayor Patterson is a former associate professor of psychology
at Ohio University, former Air Force pilot, serving as a major
from the District of Columbia Air National Guard, 1113th
Fighter Wing, and a graduate of College in North Dakota.
Mr. Hecht, if you would begin.
STATEMENT OF MICHAEL HECHT, PRESIDENT AND CEO, GREATER NEW
ORLEANS, INC.
Mr. Hecht. Great. Thank you so much, Committee Chairman
Brown and Ranking Member Scott and the Members of the
Committee, and Senator Cassidy, I want to thank him for his
leadership on this issue, and so many others.
My name is Michael Hecht. I am President and CEO of Greater
New Orleans, Inc., and for the past decade we have led the
Coalition for Sustainable Flood Insurance, which is a national
alliance of approximately 250 organizations across 35 States.
And today I am going to discuss the need to reauthorize NFIP,
given its benefits to the country, the need to reform the
program that has been discussed, and particularly given FEMA's
administration of Risk Rating 2.0, its associated impacts.
I want to be clear that, first and foremost, the Coalition
for Sustainable Flood Insurance absolutely supports a long-
term, multiyear reauthorization of NFIP to ensure program
stability and to minimize the negative impact across the
American economy. As Senator Scott mentioned, and as you said,
Chairman, a lapse is something that we cannot allow to happen.
This is destabilizing to the national housing market. We know,
for example, that during a June 2010 lapse, that about 1,400
home sale closings were canceled or delayed each day. And
furthermore, the benefit that NFIP provides to our Nation is
great and significant, and its five million policyholders.
And I think two points I need to make here is that, one,
they are often mischaracterized as being wealthy homeowners who
are subsidizing their beachfront homes. This is just
empirically, statistically not the case. In fact, a study that
we ran found that 98.5 percent of all NFIP policies are in
counties with a median household below $100,000, and 62 percent
of all policies are in counties with a median household income
below the national average of $54,000. The reality is that the
NFIP program is about allowing the working coast and riverine
parts of America to keep working.
And moreover, and I think this is a very important point,
we talk about the debt of the program and the cost of the
program, which is estimated to be $36 billion over the past 50
years, but on the other side of that, per FEMA's own analysis,
the standards, the floodplain standards that have been
implemented because of NFIP have saved the country $120 billion
of losses over that period. So that is a net benefit for the
American people of about $85 billion.
In terms of Risk Rating 2.0, there are some dramatic
impacts that I would like to talk about. On average, under Risk
Rating 2.0 an NFIP policy will be $1,808, which is a 104
percent increase over legacy rates, and rates will increase by
over 50 percent in 41 States. To the point that has been made
by the Senator about the death spiral, this is a major concern
about the affordability. Participation peaked at NFIP at about
5.7 million in 2009. On the day before Risk Rating in October
2021, there were 4.9 million policies. Since then, NFIP has
lost over 215,000 policyholders, and ultimately FEMA, through
their own projections, projects losses of 900,000, 20 percent
because of Risk Rating 2.0. This is not going to be good for
the program or America.
And there are also regional impacts. Our region, for
example, Greater New Orleans, is essential for the national
economy, and even global food and energy security. NFIP and
Risk Rating does not take this into account.
For example, 50 percent of all U.S. grain exports go
through the Port of South Louisiana, which is in our region.
The average increase under Risk Rating 2.0 is going to be 239
percent in that region. If our workers cannot live there this
is going to have impacts on our ability to supply America and
the world with food.
And finally, in conclusion, we do believe that NFIP should
absolutely be reauthorized but also reformed. Congress did not
cause the Risk Rating 2.0 problems but has the ability to
impact them and to make them better.
So some of our priorities, many of which are reflected in
the National Flood Insurance Program Reauthorization and Reform
Act of 2023 include requiring a peer review of Risk Rating 2.0
methodology and a thorough and holistic analysis of economic
impacts; mandating FEMA's transparency through the release of a
usable, public-facing, risk calculator, and also a rating
appeals process. We need to lower annual premiums from 18 to 9
percent cap. We need to enact a means-tested assistance
program, ideally looking at housing burden, which is a little
bit more subtle than even just looking at percentage of AMI.
And finally, the debt and interest payments should be frozen
and redirected into mitigation because ultimately mitigation is
how, as a Nation, we are going to work our way out of this
challenge.
These policies, which will resolve affordability,
transparency, and accuracy concerns would serve to stabilize
participation, sustain the program, and support communities
across the country.
Again, thank you for the opportunity to speak today, and
thank you for your service, and I look forward to taking your
questions.
Chair Brown. Thank you, Mr. Hecht. Mr. Kaniewski.
STATEMENT OF DANIEL KANIEWSKI, MANAGING DIRECTOR, PUBLIC
SECTOR, MARSH McLENNAN
Mr. Kaniewski. Chairman Brown, Ranking Member Scott, my
name is Daniel Kaniewski, and I focus on public sector
challenges and solutions at Marsh McLennan, the world's leading
professional services firm in the area 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 help
individuals, businesses, communities, and Governments address
the financial impacts of disasters through insurance and other
risk management tools.
Before coming to Marsh McLennan, I was the second-ranking
official at the Federal Emergency Management Agency, FEMA,
where, as the agency's first Deputy Administrator for
Resilience I served alongside some great leaders of this
Nation. As you can imagine, much of my work is focused on flood
risk. I welcome the opportunity to speak to you today about
that.
Now as was said, flooding is the most common and most
costly natural hazard, and yet communities often fail to
protect themselves from the physical and financial impacts.
Federal policies and programs, including the NFIP, are
essential, but ultimately all disasters are local and so too
are resilience investment decisions.
To increase the resilience of communities against the
pervasive risk of flooding, we believe that risk transfer--that
includes the NFIP, private flood insurance, reinsurance, and
parametric insurance--should be paired with risk reduction,
hazard mitigation, and strong building codes.
Now there are several ways to improve flood resilience, and
for the NFIP, as we describe more fully in our written
statement, those include strengthening the NFIP with a sound
financial framework, protecting the NFIP with reinsurance
solutions, growing the private flood insurance market,
addressing gaps in NFIP coverage, embracing parametric
insurance, promoting excess flood coverage to complement the
NFIP, and leveraging existing NFIP incentive programs.
On that final point I wish to elaborate.
One existing NFIP incentive program is the Community Rating
System. CRS is a voluntary incentive program that recognizes
and encourages floodplain management practices that exceed
NFIP's minimum requirements. It is an example of a Federal
program that incentivizes community action on risk reduction
and risk transfer.
Tulsa, Oklahoma, is one of two communities nationwide that
have achieved the CRS program's highest program rating. I
recently spoke to the Oklahoma Floodplain Managers Association
annual conference in Tulsa, and I saw firsthand how the city
had transformed its approach to flooding. The conference host,
Annie Mack Vest, helped Tulsa achieve its noteworthy status and
NFIP policyholders there now enjoy a 45 percent discount off
their flood premiums. Apparently I was not the only one to
notice Annie's accomplishments. Oklahoma Governor Kevin Stitt
recently appointed Annie to serve as the State's top emergency
management official.
In addition to FEMA grant programs, though, that
incentivize these resilience investments, States have been
launching their own innovative programs. Said by Russ
Strickland--he is the Secretary of the Maryland Department of
Emergency Management and recently elected to be the President
of the National Emergency Management Association--his quote is,
``Hazard mitigation is the center of the universe.''
To that end, South Carolina recently announced $200 million
for flood resilience projects, while Florida, South Carolina,
Alabama, and Louisiana, and others have programs aimed at
incentivizing homeowners to strengthen their homes against
hurricane risk. A recent academic study reviewing the Alabama
program found that participating homeowners found their
insurance premiums reduced and their home values increased,
confirming our view that resilience pays.
Beyond Government programs, the property and casualty
insurance and reinsurance industries are developing innovative
programs to protect communities and homeowners against floods.
Community-based catastrophe insurance, or CBCI, is a parametric
product pioneered by Marsh McLennan. It provides disaster
insurance to local government entities that wish to cover a
group of properties. The program enhances financial resilience
by simultaneously providing affordable coverage and creating
incentives for risk reduction. Our recent CBCI pilot in New
York City was developed in partnership with the city of New
York and several nonprofit and insurance industry partners and
funded by the National Science Foundation. It provides a level
of financial protection for low- to moderate-income households
that previously lacked insurance.
More broadly, other industries such as the financial and
real estate industries, can incentivize flood resilience
investments together with the insurance industry and all levels
of Government. The National Institute of Building Sciences
recently issued a roadmap for resilience incentives
specifically highlighting how residential structures prone to
flooding would benefit from these incentives. The report
identified co-beneficiaries of mitigation investments and
highlighted how these co-beneficiary industries can
together help pay for these investments.
Thank you for your time today and the opportunity to share
how Federal, State, and local programs, together with
innovations from industry, can help close America's flood
resilience gap. I look forward to your questions.
Chair Brown. Thank you, Dr. Kaniewski.
Mayor Patterson, welcome.
STATEMENT OF STEVE PATTERSON, MAYOR, CITY OF
ATHENS, OHIO
Mr. Patterson. Thank you. Good morning, Chairman Brown,
Ranking Member Scott, as well as the esteemed Members of this
Committee. I appreciate the invitation to speak to you on
behalf of the National Flood Insurance Program. I am Steve
Patterson, the Mayor of the great City of Athens, Ohio, home to
Ohio University. I am also the Second Vice President for the
National League of Cities, representing 19,000 communities,
cities, villages, and towns across the United States, and the
President of the Mayors' Partnership for Progress, which
represents 19 Appalachian counties and 120 communities and
800,000 citizens across southeast Ohio.
Cities, towns, and villages are experiencing a higher
frequency of intensity of extreme weather events, including
hurricanes, floods, wildfires, and heatwaves. These severe and
unpredictable weather conditions are leading to large-scale
disasters that can overwhelm existing infrastructure as well as
emergency response capabilities.
As we discuss the flood insurance, the recent devastation
that we are seeing in San Diego highlights the reoccurrence of
impacts of flooding on our cities and residents. My thoughts go
out to Mayor Gloria and the San Diego residents during these
tough times.
Ohio University, like many cities, has also experienced
floods, most notably the 1968 flood, at which we crested at
more than 24 feet, 20-foot flood stage, which created a large
problem for the City of Athens. Since then we have been working
with the Corps of Engineers to mitigate a lot of those flood
events that we see in our city.
While Athens strives to reduce flood risk, concern persists
about the potential for significant events like San Diego's.
That is why NFIP is critical to offset these potential losses
from such disasters and to protect our communities. NFIP
ensures rapid access to funds for repair and restoration,
minimizing the economic strains that affect our families and
contribute to our communities' resilience. Recognizing the
critical need for long-term reauthorization of the NFIP, NLC
has endorsed the National Flood Insurance Program
Reauthorization and Reform Act.
Beyond individual homeowners, NFIP impact extends to
economic stability at the community level. The program's
commitment to prompt financial assistance prevents prolonged--
and I mean prolonged--economic impacts, and financial
assistance prevents these downturns, resulting in extensive
property damage.
This stability benefits not only homeowners but also the
ripple effects on our local business economies, our schools,
public services, supporting the overall well-being and vitality
of our communities. NFIP further empowers comprehensive
floodplain management, catalyzing local governments to
establish long-term floodplain management strategies. This
includes detailed maps, risk assessment, and mitigation plans.
Through NFIP, municipalities gain access to resources and
expertise, enabling proactive measures such as robust zoning
regulations, integrated flood risk considerations into land-use
planning, and critical infrastructure improvements.
Cities such as Athens are implementing strategies like
green infrastructure, resilient housing, community-based
disaster preparedness, smart technologies, inclusive plannings,
stakeholder collaborations, social infrastructure investment,
and adoptive transportation. These efforts underscore cities'
commitments and to thrive and adapt in a changing world.
While State, Federal, and local investments from
Infrastructure Investment and Jobs Act aims to minimize losses
caused by extreme climate events, the allocation funds still
fall significantly below the escalating demand to combat the
increasing risks of extreme weather events. Local governments
continue to need additional funding and resources to enhance
our collaborative efforts to bolster resilience, protect
communities, and ensure the long-term sustainability of our
infrastructure.
NFIP continues to provide flood insurance for property
owners due to challenges in the private flood insurance
covering in the many at-risk areas--concerns about cherry-
picking by private insurers, leaving vulnerable communities for
NFIP, raising equity issues and threatening the sustainability.
NFIP's capacity to address challenges from catastrophic floods
positions it as a vital player--and I mean a vital player--in
providing financial protection to at-risk communities, a role
elusive with the private sector.
NLC's members are also concerned about the sluggish pace of
the finding that is being disbursed in the Community
Development Block Grant Disaster Recovery Program, the CDBG-DR,
hindering long-term recovery efforts after disasters.
Bureaucratic hurdles and lengthy processes delay the much-
needed funds, impacting the ability to promptly address urgent
needs and slowing down the overall recovery efforts. That is
why NLC supports the bipartisan Reforming Disaster Recovery Act
in the hopes that the legislation would significantly improve
the CDBG-DR Program for faster community recovery from major
disasters.
In conclusion, the NFIP is a critical resource, offering
financial protection for residents and aiding and building
resilience and sustainable communities. The National League of
Cities eagerly anticipates collaboration with this Committee to
ensure NFIP remains an effective tool in safeguarding
communities nationwide.
Thank you for your attention. I am available for further
information or for questions.
Chair Brown. Thanks, Mayor Patterson. Thank you all for
testifying.
We are going a bit out of order. Senator Scott and I have
agreed on that. At the request and the agreement of the Ranking
Member, Senator Kennedy of Louisiana will be first to ask
questions. I understand you have been called away for a
constituent event related to D.C. Mardi Gras, and I would hope,
Senator Kennedy, that I do not ask for much from you except to
stay within your 5 minutes, but I hope that maybe there would
be a king cake in it for Senator Scott and me. Senator Kennedy.
Senator Kennedy. When you get back to your office you will
have a surprise.
Senator Scott. Senator Kennedy, if you go 7 minutes I will
give you more.
Senator Kennedy. OK.
[Laughter.]
Chair Brown. Sorry. That was not part of the agreement,
ever.
Senator Kennedy. I want to thank our esteemed Chairman and
Ranking Member, Senator Tester, for accommodating my schedule.
Thank you all for being here, especially to my friend,
Michael Hecht. He is a very talented, able guy. Michael is head
of the business community in New Orleans and the surrounding
area. I can say some things that he cannot say.
We have two problems in Louisiana in terms of flooding. We
have hurricane flooding and we have nonhurricane flooding. I
want to talk about the nonhurricane flooding first.
When New Orleans gets 2 inches of rain in a short period of
time, it floods. Why? Because New Orleans is below sea level,
and it is in a bowl. It is in a bowl. That is why our founders
in the city built first in the French Quarter, because it is
the highest area.
We have what is called a Sewage and Water Board, which has
pumps when it rains a lot to pump the water out. We have had
that for years and years and years and years. The taxpayers pay
for it. And for years and years and years and years it has been
a model of inefficiency. In fact, it has been a cesspool of
political
patronage and corruption.
Now Michael cannot say that, and the business community
does not want to say that because they are worried about
retribution from the politicians. But it is the truth.
Look at the headlines from our TV stations. ``Payroll fraud
in a secret sex room''. ``Troubling allegations at New Orleans
Sewage and Water Board''. ``Former New Orleans Sewage and Water
Board employee sentenced for theft scheme''. ``New Orleans
Sewage and Water Department raided by FBI''. ``Ex-Sewage and
Water Board official has to pay back $100,000 he stole''. Next
headline, ``We knew the Sewage and Water Board was
dysfunctional. Now we know it's corrupt''.
The people of New Orleans deserve better, and what we need
to do is one of two things: the politicians have had their
shot. They missed. We need to either turn the Sewage and Water
Board over to the State of Louisiana and let somebody else run
it, or we need to privatize it, because the Sewage and Water
Board's plan right now, when it floods, when half of the pumps
are broken, you know what their plan is? I kid you not. Move to
higher ground. Where?
Now the second problem is hurricane flooding, and this is
the National Flood Insurance Program. We need a National Flood
Insurance Program that looks like somebody designed it on
purpose, because the one we have right now is not. The old one
was not great, but at least it sort of worked.
A few years ago FEMA decided they were going to reinvent
it, and they hired an outside group of consultants, paid them
bucket-loads of money, called Milliman, and Milliman came up
with a new algorithm. And this algorithm is so good they say
they can look in the future and look at each individual home
and predict whether it will flood or not, 20 years from now.
They made all kind of wild allegations.
Any day now, I expect FEMA to say, ``This algorithm is so
great it will grow hair,'' or ``it will cure ED.'' And I say,
``Man, I need to see this algorithm. Can I see it?'' ``No. If
we show it to you, I'll have to kill you.'' And I am in charge
of their budget. They lied. They lied. They have the
credibility of Jussie Smollett and Michael Avenatti put
together. They lied. They said a million people of the five
million people will see their rates go down. I have not talked
to a single person who has seen their rates go down. This is
just an excuse to raise premiums, and they do not care.
The whole purpose of a National Flood Insurance Program is
to provide a product that people can afford. In my State, here
is what the premiums have done. They said, ``Oh, a lot of your
people, Kennedy, they will see decreases.'' Claiborne County--
we call our counties parishes--a 305 percent increase. Another
parish, 321 percent. Plaquemines Parish, 540 percent. FEMA
lied, and they are not going to do any better.
Now the best part of Senator Menendez's bill--it is a good
bill; I am on it, he and Senator Cassidy. We have all worked
hard--but it is going to cap the rate increases at 9 percent.
Right now FEMA can raise the premiums 18 percent every single
year, and they are going to keep doing it because they do not
care. They lied to the American people and my people, and they
ought to hide their heads in a bag, along with all the
politicians that have allowed the Sewage and Water Board to
steal money for all these years.
Thank you.
Chair Brown. Thank you, Senator Kennedy.
Senator Tester is recognized for 5 minutes, from Montana.
Senator Tester. Yes, thank you, Mr. Chairman, and Mr.
Kaniewski said that he heard another person saying hazard
mitigation is the center of the universe now. I always thought
it was Cleveland, but maybe not. Enough of that.
So look, we are on our 28th straight short-term extension
of the National Flood Insurance. Beyond ridiculous, quite
honestly. My question is for all three of you, but I only want
you to use it for 30 seconds because you could all talk on it
for 10 minutes, and that is, from this Committee's standpoint,
what would you prioritize, besides the extension baloney, what
would you prioritize in an NFIP bill as the most important
qualities?
Go ahead. We will start with you, Mr. Hecht.
Mr. Hecht. Thank you, Senator. First would be affordability
because we want to make sure that people stay in the program
and it does not go into a death spiral. The second would be
comprehensibility so people understand what they can do to make
improvements and what they are paying for. And the third most
fundamentally would be money for mitigation because hazard
avoidance, reducing exposure is the center of the universe, and
it is how we are going to improve this for our Nation, over
time. Thank you.
Senator Tester. OK. Go ahead, Mr. Kaniewski.
Mr. Kaniewski. My answer is going to be hazard mitigation.
Hazard mitigation because not only does it protect existing
homeowners against their existing risk, it helps protect
homeowners in the future, and anyone else who purchases that
home in the future against future risk. It also gets at the
affordability issue, because if you have reduced your risk you
should also be able to reduce your rates.
Senator Tester. OK. Mayor Patterson.
Mr. Patterson. I would have to echo the affordability. I
would also recommend looking hard at the CDBG-DR to streamline
that. I come from one of the three chronically distressed
counties in the State of Ohio, and when I look at affordability
and look at my residents and my constituents it is a big
challenge when you live the chronically distressed part of the
State. And it is not just in our State. I look at all of
Appalachia and see the exact same thing, and see affordability
and streamlining access to CDBG-DR to where it is getting out
more quickly and more effectively.
Senator Tester. Thank you for that. I am going to go back
to you, Mr. Hecht, because you talked about sustainability. All
three of you talked about affordability with the last answer,
and I agree, it does not do any good to have insurance if it is
not attainable. But you also talked about sustainability, which
is pretty damn important. We are $30 billion in the hole on the
National Flood Insurance Program right now. I worked with
Senator Vitter, Senator Kennedy's predecessor, and Senator
Heller from a different angle on flood insurance. Affordability
is always the issue, and sustainability means it is paid for,
right? At least that is my definition of it.
So how do we do this? Because when you are comparing the
premium to risk, it is, well, you correct me if I am wrong, the
risk is pretty significant.
Mr. Hecht. Yes, thank you. So I think that there are two
ways of looking at this. One is on the cost and efficiency
side, and I think that Senator Scott spoke to this. The fact
that 1 percent of claims are accounting for 30 percent of the
payouts is something that clearly needs to be addressed.
Senator Tester. And how would you address that?
Mr. Hecht. Well, I think that you are going to have
programs that basically that if you are a repetitive-loss
building that at some point you do not qualify for new payouts.
You basically need to be remediated, and you cannot build there
any longer. There has to be a recognition to being smart about
this program going forward.
Senator Tester. So let's put this in plain talk. In other
words, what you are saying is if you have an event that is
expensive, unless you do some pretty significant mitigation you
are not going to be eligible for the policy anymore.
Mr. Hecht. I would say there is a little bit of a subtlety
to that, because I think we have to define what is the
appropriate definition of ``repetitive.'' If you have one event
then you should not be taken out of the program. And I cannot
say here today what the exact level should be, but there should
be some point, after two or three events, that if you have not
mitigated it, reduced exposure on your own, or are using public
assistance then you do not get to continue to be a bad penny.
Senator Tester. And I hate to keep going down this road,
but look, Senator Kennedy talked about being below sea level.
That is a problem. Building in the floodplains of rivers is a
problem. We see the same thing, by the way, with fires. You
build in the middle of the forest; the forest is going to burn.
So the question is, and yet we have taxpayer subsidy of
this program. We have taxpayer subsidy of a lot of programs, by
the way. But we have taxpayer subsidy of this program. So how
do we really get it to a point, because I do think
sustainability is important. How do we get it to a point where
it is a sustainable program, so that we are not dependent upon
the U.S. taxpayer, for people who make bad decisions? Yes, go
ahead.
Mr. Hecht. No, no. It is a very complicated issue. One is
efficiency. I think the other question we have to look at is
the write-your-own programs are critical to us. They work for
us. But should you get 30 percent continually as the rates
continue to go up, that is a question.
On the other side of it, we were able to be in Amsterdam
over the holidays. When you arrive in Amsterdam Airport,
Schiphol, there is a sign there that says, ``Welcome to below
sea level.'' They have mitigated so well that it is actually a
positive for them. So we do have the ability to design
structures that protect communities and homes in a way that
ultimately will reduce the exposure to the taxpayer.
And finally, flood insurance, I would argue, is really a
social good. We need to live and work near water as a Nation,
so we have to have programs that maybe provide some level of,
as you said, cross-subsidization.
Senator Tester. Thank you, all three, for your testimony. I
appreciate it.
Chair Brown. Thank you. Senator Scott, of South Carolina.
Senator Scott. Thank you. My good friend, Tester, asked a
really good question about the impact of all of these
challenges, repeated losses, but one of the things that at some
point we are going to have to have a conversation, as a Nation,
about a comprehensive catastrophic occurrence approach. The
truth of the matter is that if you live in inland, name your
State, your exposure and education on flood insurance, or the
necessity of flood insurance, or NFIP is probably just absent.
If you live in Charleston, we may have a tornado every now and
then, but not a big deal. If you live in Colorado or
California, your exposure to fires is a totally different
experience.
But if you live in America, the fact is simple. We, the
taxpayers, have paid out hundreds of billions of dollars over
the last 10 years because of catastrophic occurrences. It
matters where you live to what the occurrence is, but it is
occurring everywhere.
And so while we are here today to talk about the National
Flood Insurance Program and the importance of understanding how
to mitigate that risk, the truth of the matter is that we, at
some point, need to have a serious conversation about the
comprehensive nature of catastrophic occurrences, that an
insurance company cannot create a probably maximum loss, which
means that that experience or that occurrence will not be
insured at some point because you cannot figure out how to have
an actuary sit at a table and figure it out. So without that
comprehensive approach we really are missing the target by a
mile.
That said, if a home floods and the owner does not have
coverage, Mr. Kaniewski, what are the options?
Mr. Kaniewski. Well, if I can back up a second and say if
they do not have flood insurance the first time they may learn
about that will be when the flooding happens. Far too many
Americans believe that flood insurance is included in homeowner
policies. It is not.
Senator Scott. That was my second question.
Mr. Kaniewski. And then they also may believe that the
Federal Government will be there to help them.
Now again, in my role at FEMA, absolutely, if there was a
Presidentially declared disaster FEMA was there to help. But
the amount of assistance that FEMA is legally able to provide
to a homeowner who has experienced a loss of any kind,
including a flood, pales in comparison to what insurance would
pay.
Senator Scott. And I am not sure if the number is $39,000
from FEMA or $40,000, but it is not $400,000.
Mr. Kaniewski. Correct.
Senator Scott. It is not $50,000. It is actually around
$39,000 or $40,000, last time I checked, and I have not checked
for this hearing.
But I will say this, that the fact of the matter is that
the floods that are occurring in different places every year,
and the places where we are seeing floods occur--as an example,
we had, I think it was 2015 or so, we had a 1,000-year flood in
South Carolina. Not in Charleston, not in Myrtle Beach, not in
Hilton Head. In Columbia. The community could not have been
prepared for that because it is not supposed to flood in
Columbia, South Carolina. But that actual experience is
happening throughout the country in places where they do not
expect it to flood.
So having a conversation about the necessity of flood
insurance is very difficult. Having sold it as an agent on the
coast, it is very difficult to tell someone who is 100 yards or
1,000 feet away from the water that you need flood insurance.
Oh, it will not happen to us. We will just build high enough.
Well, sometimes ``high enough'' is a relative definition. So we
do need to have a different marketing strategy and approach as
it relates to preparing for floods in places where we just do
not think it is going to flood.
During my opening statement I mentioned some recent actions
taken by home State of South Carolina, providing communities
with tools they need to protect their residents. Combining
significant State investment in flood mitigation for a variety
of mitigation strategies seems like a recipe for success at the
local level. It has positive impacts at the national level.
Mr. Kaniewski, could you provide us with any thoughts you
may have, in about 30 seconds, on this approach?
Mr. Kaniewski. Well first I, too, applaud the State of
South Carolina. I mean, it is really a rare event where you see
a State stepping up and saying, we are going to commit hundreds
of millions of dollars to address this risk in our State. We
are going to protect our citizens. We are going to protect our
municipal infrastructure. We see it as a societal benefit.
And I just want to pause for a moment and say what a big
deal that is, because not only will that protect the citizens
of South Carolina, it will protect the American taxpayer.
Senator Scott. Thank you for that. And, Mr. Chairman, with
my last 2 seconds left just quickly, when I think about the
hundreds of billions of dollars paid out because of natural,
catastrophic occurrences, the one thing I did not think about
until you just mentioned it is that the public sector for
public infrastructure pays out on top of that expense. So I
would imagine in the last 10 years we have exceeded $1 trillion
of payout, for the residents and the public infrastructure
around this country, for an occurrence that is going to happen
again and again and again.
Chair Brown. Thank you, Senator Scott.
Senator Menendez, of New Jersey, has probably put more
thought into this issue than anybody on the panel. Thank you.
Senator Menendez. Thank you, Mr. Chairman. Thank you and
the Ranking Member for holding this hearing. I am not as
colorful as Senator Kennedy but I agree with a lot of what he
had to say.
Since FEMA recently changed its rating methodology, the
program has lost 150,000 policyholders. FEMA itself has
estimated that it will lose 1 million policyholders by the end
of the decade due to the premium increases.
In Patterson, New Jersey, where the medium household income
is $50,000 a year, policyholders will see their premiums
increase from an average of $1,500 a year to an average of
$4,000 a year. In Keansburg, New Jersey, where the medium
household income is $76,000, 1,000 policyholders will go from
an average of $1,300 to $3,500. And the list goes on.
So, Mr. Hecht and Mayor Patterson, can working families
handle these types of increases?
Mr. Hecht. Thank you, Senator, and thank you for your
leadership on this issue over many years. One of my notes here
I just looked at, which I think is important to say, is that
the challenges of flood insurance, which would be difficult for
a working-class family to handle on their own are being
compounded now by inflation, which is making groceries and
gasoline more expensive, and then homeowners insurance, which
is being driven by reinsurance, which has gone up, I know in
Louisiana, about 65 percent, I think nationwide between 15 and
20 percent.
So we really have a middle-class, working-class
affordability crisis throughout the country, where flood
insurance is just one of the vectors.
Senator Menendez. Mayor.
Mr. Patterson. Yes, I would add to that, in Athens, in
Athens County, the median household income is around $42,000,
so it is much lower than the national average. It is a
challenge, you know, to have that added burden, especially
those who are living within the floodplains, within the city
and throughout the county. It is going to be an exceptional
burden on them. And to echo the already existing cost-of-living
increases that we are all experiencing. But again, my default
becomes the distressed counties in Appalachia.
Senator Menendez. What happen is that families who are
forced to drop their flood insurance coverage due to rising
costs and later suffer damage in future disasters, that is the
ultimate disaster to them.
And look, insurance is about spreading risk, right? The
wider the pool, you know, the less the cost. The smaller the
pool, the higher the cost, and that drives people out at the
end of the day. And so if we think about how much money
taxpayers are paid when there is a disaster declaration, true,
not as much as an insurance company will pay, but still that is
the taxpayer dollars, and I have not seen too many Presidents
when there is a natural disaster somewhere in the country say,
``Sorry. Not going to give you a declaration.'' They give
declarations, which means the taxpayers' monies are being
spent. So we should put that in as part of the equation,
understanding that.
And then if the private sector could do this, and do it at
a reasonable cost, I would be all for it, but we have seen that
the private sector just really is not going to go and do this,
in a way, without a backstop that ultimately creates that
opportunity.
So, you know, the NFIP RE Act that I introduced, myself,
Senator Cassidy, Senator Kennedy, and a whole bunch of others,
on a bipartisan basis, lowers the statutory cap to 9 percent,
the average annual increase that policyholders have seen since
the Homeowner Flood Insurance Affordability Act of 2014 was
signed into law. It also creates a voucher program to help
families buy into the program. And endless increases help no
one remain in their homes if there are unmitigated and
uninsured consequences.
A long-term reauthorization of the program must include
robust funding of, as I think you have all talked about,
mitigation, to
decrease the risk profile of the program and provide a sound
financial future. If we know right now which homes are most at
risk we should not wait until a flood to step in and help. For
every dollar of mitigation the Federal Government saves $7 in
disaster relief payments.
But there is one critical mitigation financial tool of the
NFIP, the increased cost of compliance coverage that has grown
obsolete. Mr. Kaniewski, how much does it cost to raze a home,
in general?
Mr. Kaniewski. Unfortunately, flood mitigation measures,
especially one that you just described, are among the most
expensive hazard mitigation measures.
Senator Menendez. Probably anywhere between $100,000 and
$150,000. We did this in New Jersey after Superstorm Sandy. And
currently the ICC coverage only provides $30,000 to raze a
home, which is no longer sufficient to get a home in
compliance. That is why our NFIP RE Act modernizes increased
cost of compliance by increasing the amount of coverage
available to $120,000, and making it accessible the moment
homes are out of compliance with building codes.
And so in my mind there is a series of things that we can
do, but if we believe that sustainability is going to be driven
purely--purely--by rates and payment, then we are going to
drive not a million, we are going to drive a lot more people
out of the National Flood Insurance Program. That will
collapse, and then we will be in a set of circumstances when a
disaster takes place that we will have disaster declarations,
we will spend the taxpayers' money, but we will have no
mitigation from the private sector side and from the individual
citizens' participation, not to mention that the value of their
home, Mr. Chairman, goes through the basement, because if you
are in a flood zone and you do not have flood insurance, and
your mortgage requires it, or if you want to sell and someone
needs to get flood insurance and cannot afford it in order to
buy for the new mortgage that may require it on that home, that
home is virtually worthless.
And so these are all parts of the equation that we have to
think about, and that is what we try to do in our legislation,
and we look forward to working with the Chair and others to see
if we can make something happen. Thank you.
Chair Brown. Thank you, Senator Menendez.
Senator Britt, of Alabama, is recognized.
Senator Britt. Thank you to the witnesses for being here. I
certainly appreciate you taking time to be in front of us and
let us ask important questions.
I want to first echo some concerns that I previously
highlighted before this Committee, related to Government
overreach and over-regulation.
We have seen it across the board in all financial
institutions, the regulators are bringing, under this
Administration, more regulation, more overreach, more burden,
and unfortunately the Federal Insurance Office is no different.
In November, the Treasury Department announced that it is
moving forward with FIO's climate data call, and this is just
yet another blatant effort to overstep into the State-regulated
insurance industry and collect incredibly detailed information
from our communities. The effort completely undermines our
well-functioning State regulatory system and is an effort to
pursue this
Administration's climate agenda at the cost of both taxpayers
and industry.
That is why I introduced the Insurance Data Protection Act
with 16 of my Senate colleagues, including all of the
Republican Banking Committee Members. The bill would rein in
the overreach we have seen from the Federal Insurance Office
and keep the office as it was intended to be, an informational
body that supports the efforts of our State insurance
regulators. State insurance regulators understand the unique
needs, including the weather challenges, faced by their
communities, and they help drive solutions.
Unfortunately, Alabama is no stranger to the impacts of our
natural disasters. We have experienced the devastation of
everything from tornadoes to hurricanes to major weather
events, and everything in between, the effects that those have
on families, homeowners, and communities. Even this week we are
preparing for strong storms and flash flooding across southern
Alabama.
It is imperative we are forward thinking in our disaster
mitigation, disaster preparedness, and resiliency efforts. The
Alabama Department of Insurance, in particular, has been a
champion in this space. In 2011, Alabama established the
Strengthen Alabama Homes Program, designed to aid and
incentivize Alabama homeowners to improve their homes and to
minimize property loss due to weather events.
Mr. Kaniewski, I appreciate you highlighting these efforts
in your written testimony. You specifically touched on the
Fortified Roof Program that we have in Alabama and a report by
three universities that studied the demonstrated benefits of
the program. In short, the study found that the program
directly resulted in (1) lower insurance premiums, and (2)
higher home resale values.
For those that may not be aware of the efforts in Alabama,
can you further describe them and touch on the proven benefits
that they have to homeowners?
Mr. Kaniewski. Well, thank you, Senator, and I have got to
say, in many forums I often laud Alabama. Alabama has three
really notable things that you touched on. One, they have a
Resilience Council. They created a council, and you say, oh,
council, big deal. No, it is a big deal, because it meant the
Governor is prioritizing resilience. Moreover, the cochairs of
that council are the State emergency manager and the State
insurance commissioner. In some States those two do not even
speak. In Alabama, they sit together and they work on these
resilience issues jointly. So kudos number one.
Kudos number two, Strengthen Alabama Homes, as you
mentioned. That program has been so successful that other
States are now replicating it. Louisiana is now putting it into
place, a virtual carbon copy of what Alabama put in place. And
your State insurance office is working very closely with the
State of Alabama to help them implement that program.
So again, kudos number three, the study you mentioned. You
are lucky to have a researcher named Lars Powell at the
University of Alabama, who did that study. I thank Lars any
opportunity I have
because that is the first study that I have seen that gives
empirical data, real evidence, that mitigation pays.
Senator Britt. Thank you. And so how do these types of
efforts play into the larger discussion that we are having
today, I mean, around reforms to the National Flood Insurance
Program, and particularly on incentivizing communities to focus
on disaster mitigation, preparedness, resiliency? Can each of
you just speak to that quickly?
Mr. Hecht. Yes, thank you, Senator. Actually, Louisiana
competes with Alabama, or tries to, on many things like
football.
Senator Britt. Roll Tide.
Mr. Hecht. In this case the Fortified Roofs Program that
you all have put out there is the one that we model on. We were
recently in London, meeting with Lloyd's, talking about that
program. And what we love about that is that we are going to
debate affordability and how we make this work. Ultimately, it
is going to be community-based resilience, which prevents the
damage from happening, that reduces exposure. That is the
answer for our States and our country.
Senator Britt. Thank you.
Mr. Kaniewski. Well, we certainly have studies that are out
there, like the National Institute of Building Sciences that
puts out great work on the 6-to-1 number. It is 7-to-1, even
11-to-1 in building codes. But rarely do you see an opportunity
where a State is a living laboratory, puts those ideas into
action, and shows, with real data, with real homes, that
resilience pays.
Senator Britt. Thank you.
Mr. Patterson. I think what I would add, and when you are
speaking of test cases, the City of Athens is, in earnest,
taking on flood mitigation, given that we have the Hocking
River that runs right through the center of the city. And as I
mentioned earlier, we are home to Ohio University, where back
in 1968, and before that, the campus was completely split it
have during high-water events, with flooding that was taking
place. We have since worked with the Corps of Engineers to
basically reroute the Hocking River, move it to where it was no
longer as significant a flood threat, but it is still a flood
threat in the City of Athens.
And so we have, in earnest, gone to great lengths to remove
a lot of the invasives along the banks of the river itself, and
in doing so we are reintroducing native trees that are high-
volume suckers, if you will, with sycamore trees, black
willows, and swamp oak that are lining that now, which really
helps when we do have high-water events that we are able to
clear that watershed more quickly with absorption, but also
creating a more laminar flow through the City of Athens by
removing the invasives, which basically acted as snags to catch
deadheads and other debris, therefore creating basically
artificial fast-moving flash flood dams. So that has been
effective. We have seen that that has been very effective with
reducing the flooding that we are seeing in different
neighborhoods throughout the city. And we are going to continue
on that mission.
We are currently working with the Corps of Engineers under
Section 206 as well as 1135 to help work with them to explore
different ways to where the tributaries coming into the Hocking
River are also reduced. We have had significant flooding on
some of the tributaries.
But I guess my point being is that there are a lot of
things that cities can do, villages can do. Now I will also add
this, that when it comes to cities and villages, capacity
becomes a real concern. Do they have the capacity? Do they have
the financial wherewithal to be able to address some of these
things? And I would say in the cities and villages that I
engage with, that are small, the answer is no.
Senator Britt. Thank you very much. We have got to empower
homeowners and communities to be resilient against these storms
and other conditions. I appreciate it.
Chair Brown. Thank you, Senator Britt. I will continue to
waive my questions. Senator Warren.
Senator Warren. Oh, thank you, Mr. Chairman.
So climate change is wreaking havoc on our communities, and
with global temperatures on the rise natural disasters are
coming more often, and they are doing more damage. And with
floods accounting for about two-thirds of the costs of all
natural disasters our Nation's flood insurance program is
feeling the strain. In just the past decade, the National Flood
Insurance Program has been hit by 4 of its top 10 costliest
events in history. More floods, more intense floods, mean more
families and businesses need flood insurance more than ever
before.
Last year, parts of Massachusetts were devastated by
historic flooding, causing millions of dollars in damage to
homes, to businesses, to farms. Modeling shows that over
100,000 properties in the commonwealth that are not in FEMA's
flood zones and do not have flood insurance are at serious risk
of experiencing a flooding event.
Mr. Hecht, you are an expert on flood insurance market.
With climate change on the rise, more people need flood
insurance. Does that mean that everyone who needs flood
insurance today gets that insurance?
Mr. Hecht. Absolutely not. Only about 4 percent of U.S.
homeowners have flood insurance. That number should be much,
much greater.
Senator Warren. In short, our flood insurance system is not
working right now. The best and most important thing we can do
is tackle the root of the problem. We should be making big,
bold investments to stop climate change in its tracks and to
reduce the risks that floods pose to our Nation's communities.
But at the same time we need to make sure that we understand
exactly how the ongoing climate crisis is affecting our
insurance market.
So Mr. Hecht, let me come back to you. We know a few things
about how climate change is changing access to insurance. We
know that premiums are up by hundreds of dollars a year in many
areas. We know that private insurers have pulled out of flood-
prone States like Florida and your home State of Louisiana. But
if we wanted to know exactly why an insurance company was
pulling out of Leominster, Massachusetts, for example, and what
insurance options were available to people in Leominster, at
what premium levels, do we currently have data available to be
able to do that?
Mr. Hecht. Senator, no. So NAIC collects data that is at a
State level, policies in force, and so forth, but I do not
believe we have that level of granularity.
Senator Warren. OK. So down at the homeowner level, at the
town level, at the area that is flooding level, we just do not
have that information.
You know, the Federal Insurance Office at the Treasury
Department is now working to try to fill that gap. In November,
FIO proposed a plan to collect data from insurers on how
climate change is affecting Americans' access to insurance and
to the affordability of that insurance, including information
on premiums, coverage, and claims.
Mr. Hecht, FIO has proposed gathering data about the
effects of climate change on one type of home insurance. Would
it be helpful if the Administration gathered data on more types
of insurance, like flood insurance, and about more categories
of information, like the reasons for policy cancellations?
Mr. Hecht. I have two quick answers to that. One is that as
a homeowner you are looking at the cost of staying in your
home, which is all types of insurance plus your mortgage note
and your car payments and so forth. So the answer is yes.
And then second, I think data, good data, is power.
Senator Warren. So we are in the same place. I always want
more information, and particularly in an area like this we have
to understand the problem in order to fix the problem. The
Biden administration should finalize its data call about the
effects of climate change on the insurance market as soon as
possible, and the Administration should collect all of the data
necessary to understand our gaps in insurance coverage and to
work out the right regulatory response.
Good. Thank you all very much. Thank you for being with us
today.
Chair Brown. Thank you, Senator Warren.
I want to go back to your talk, Mayor Patterson, your talk
about what you did in Athens. I was in high school and I
remember, I did not know much about that part of the State but
I was maybe a sophomore in high school and I remember that
flood, and it was the first time I really thought about
something happening relatively close to home.
Talk about opportunities beyond what you did to encourage
collaboration between universities and communities. OU, for
those not familiar--I mean, you all know about Ohio University,
but it is a big university in a relatively small town, and has
a huge impact on the town, 95 percent positive impact, I would
say, not discussing the other 5 percent of the difficulty with
[inaudible] relations. But if you would comment on that.
Mr. Patterson. Senator, Thanks for the question. There is a
lot that we are doing. We are blessed in that we have Ohio
University and great partners with the city, not just the City
of Athens but also the regional campus cities. You know, by
having the Voinovich School of Leadership and Public Service
they have got a strong GIS mapping arm. So that school in
itself is a resource that has been made available to the
Mayor's Partnership of Progress, which I already mentioned. So
they play well with us to scrape the data that is necessary for
us to understand the flood risks as well as better understand
those with the greatest need when it comes to the impacts of
flooding in our region. So they have been a great partner.
I would say that having a workforce, a volunteer workforce
at that, of the 19,000 students at Ohio University, they take
part in doing a lot of the tree plantings that I had just
mentioned. You know, we planted, over the last 8 years, more
than 411 trees, both along the river and inland as well, to not
only protect us and mitigate for flooding issues but also our
decarbonization mission that we have in the City of Athens,
with a pretty strong, with a 4 percent sequestration of carbon.
But it is the students who come and help us work with that, the
river sweeps that take place. They are engaged in that effort
as well.
But for me to have the ability--and it does not hurt that I
taught at Ohio University for 18 years of my life--I know the
schools and the departments to go to, to use those resources.
But again, as I had mentioned, we are using them now in the
cities of Zanesville, in the city of Ironton, in the city of
Saint Clairsville, where there are regional campuses, and it
has become a real force multiplier to have access to some of
these resources to where, again, the capacity in some of the
smaller cities and villages to be able to get this type of work
done is insurmountable to them. They will not even think about
it. They are thinking about having someone who is going to be
hired to drive the snowplow versus someone who is going to be
their GIS tech.
Chair Brown. Few campuses have the reputation of activism
the way yours does, the way OU does, and I appreciate you
talking about the branch campuses. I have introduced a bill,
the Neighborhood Tree Act, to help communities plant more
trees. My thinking on that was informed about a book I read
some time ago called ``Urban Forests'' or ``Urban Trees'', I
think. And I remember one of the things that this book pointed
out was an aerial picture of Los Angeles County showed that
Beverly Hills was 55 percent tree covered and south central,
one of the poorest parts of the city, was something like 13
percent. I was also informed by the work you did because of the
Hocking River flooding. So this legislation surely could make a
difference in helping, in a significant, not a hugely
consequential way but significant in some communities.
Let me go, Mr. Hecht, to you for a moment, and if I have
time I will come back to you, Mayor. FEMA reports it cannot pay
back debts stemming from previous disasters. It will have to
pay nearly $8 billion in debt interest, as you know, over the
next 10 years. In 2017, at the request of the Trump
administration, we forgave $16 billion of the program's debts,
debt following Hurricane Harvey. I am glad to hear you agree
that forgiveness is important.
Would you like to comment on the benefit of using NFIP's
resources for things other than interest?
Mr. Hecht. Yes. Thank you, Mr. Chairman, and I agree with
the doctor that if we can use those funds to invest in
mitigation at the community level, things like levees, at the
individual levels, providing for better roofs or elevating
homes we are going to reduce our exposure over time.
So if you think about exposure and costs, kind of like net
present value like a stock, it is going to improve our stock
price by making these investments today. So it does not seem
like it is wise to just pay back the Treasury when that money
can be going to actually reduce costs to the Treasury over
time.
Chair Brown. OK. Thank you. And Mr. Kaniewski, I know that
you played a role in that, as I think you said number two at
FEMA. Thank you for that.
Back to the Mayor, we have heard support from each of you
for investments in mitigation. Talk about the barriers in
smaller communities, not just Appalachia but other places where
they are more likely to have natural disasters of any kind.
Talk about the barriers accessing Federal resources and
managing floodplains and other kinds of natural disaster
preparation.
Mr. Patterson. Thank you, Mr. Chair. You know, as I had
mentioned earlier, the barriers become capacity, and some of
the barriers become education. I look at my colleagues not just
across the State of Ohio but across the Nation, who come from
small cities, villages, and a lot of them do not know where to
turn to seek insurance funding. A lot of them do not know about
the funding. You know, it becomes capacity. So there is a
disconnect, I think, in a lot of the smaller cities and
villages. So that is of real concern to me.
We were talking earlier, you know--and thank you for your
work on SSI and SSDI with Senator Cassidy--our individuals who
are living on fixed incomes, you know, from a financial
standpoint, especially as I have mentioned, and I have said it
three times now, being in a distressed county where we have a
lot of individuals living on significant fixed incomes, helping
them understand how they can be able to access insurance if at
all possible, it becomes a real issue.
Chair Brown. Thank you. Senator Cortez Masto, from Nevada,
is recognized.
Senator Cortez Masto. Thank you, Mr. Chairman, and thank
you, all three of you, for this important discussion. I am from
Nevada. Flooding looks a little different in the desert, and I
will tell you we do have challenges with flooding from heavy
rains, flash floods--I grew up with those in southern Nevada--
new land development that changes the natural drainage, and
really the spring thaw of winter snow. So the questions I have
for you are kind of based on the inland challenges that we have
for flooding.
I guess my first question is I know the Department of
Homeland Security developed 17 legislative proposals to reform
the NFIP. One of those was a recommendation at the agency that
FEMA differentiate between coastal and inland locations when
determining premium rates for policies. Mr. Hecht, would you
agree with that?
Mr. Hecht. Thank you, Senator. To the degree that making
that differentiation allows for better data, more granularity,
and for people to have more appropriate coverage, yes.
Senator Cortez Masto. Good. Does anybody disagree with
that? I would be curious.
[No response.]
Senator Cortez Masto. OK. Thank you.
The next question, Dr. Kaniewski, let me ask you this.
Unfortunately we are seeing a lot of wildfires now in the West,
and that literally has an impact after the fire on the
geography, and when a big rain comes then we see horrific
flooding after the fire. So I guess my question to you is has
the NFIP made any changes to maps or policies in response to
devastating fires, because this is my concern, Bureau of Land
Management (BLM), local ranchers, we all have this concern that
there is a challenge after a fire that we do not get mitigation
dollars for, we are not able to address, when actually that is
probably the worst flooding that can occur.
Mr. Kaniewski. I agree with you that this is a risk that
many are not aware of, and unfortunately it adds additional
pain and suffering. After one disaster it creates another. So
yes, it makes a lot of sense to mitigate that flood risk,
whether it be before or certainly after that fire, to prevent
anything like a landslide or any other kind of devastating
effect. It affects, obviously, all of the living organisms,
including those that could prevent, you know, the grass and
such, that could prevent future wildfires. So it is really a
disaster onto another disaster.
Senator Cortez Masto. Yes, and that is something I am
hopeful that we try to address at many levels because it is
devasting throughout the West, and anybody that has these
devastating wildfires, there has to be remediation afterwards,
appropriate remediation.
Mayor, thank you for being here. I really appreciate it.
One of the challenges in Nevada is affordable housing, and I
suspect it is a challenge of yours as well. I am curious. What
are some strategies that you are dealing with to enable
affordable housing developments to actually remain operational
when insurance costs increase by 20 percent or more?
Mr. Patterson. It is a national problem. I think we all
recognize that. It is certainly an issue that the National
League of Cities has taken up and working through in earnest.
You know, one of the things that I have been working really
hard on is there are levers that a mayor can pull to help with
affordable housing being developed. We can use things like tax
incremental financing for neighborhood revitalization, which is
basically a 75/10, 75 percent capture of the new valuation with
having houses that are either renovated or new housing that
goes in, over the course of 10 years, and use that money to
help pay for the infrastructure that has to go in place to
support those new homes, whether it is new street surface or
new street, period, water, sewer, storm. We have been using
that to some effect in the City of Athens.
There are also some programs that I know that we are
helping with some developers who want to build more affordable
housing, with the single-family housing tax credit that we are
encouraging them to use to build more housing.
And then the other thing that we have been looking at, and
there is a challenge here as well, is looking at LIHTC housing
within our community. We are fortunate that we are able to get
to 9 percent LIHTC projects.
Senator Cortez Masto. That is great.
Mr. Patterson. We have created 192 workforce housing units.
The unfortunate with that is that we were told that there was a
4 percent LIHTC that was going to create 36 senior housing
units in the City of Athens, and unfortunately the gap was too
large for that developer to come in and cover that gap. They
did come to the city and ask if we had $1.5 million in our
bankroll somewhere to be able to fill that gap. If I had it I
would certainly consider it, of course, predicated upon City
Council.
But it is those gaps that become a real challenge. There
are a lot of different financial gaps that we are experiencing
when it comes to affordable housing. But we are working through
and doing the best that we can.
Senator Cortez Masto. Yes, and I think that is what I hear
in my community, and that is the biggest challenge, and that is
why I have to thank the Chairman, because this is an issue--
there is legislation, and his focus is on how we address the
affordable housing crisis in this country. One of them is
addressing LIHTC. There are other ways that we can figure out
how we help cobble together the financing to keep the costs
low. There is legislation that he is supporting and introduced,
and I think we need to get it done. This is not a partisan
issue. This is bipartisan. We should be focused on how we
address communities like yours, homeowners, individuals,
renters, the like, to have a roof over their head, and it is
affordable, and they can keep it.
Thank you.
Chair Brown. Thank you, Senator Cortez Masto. Mayor, I
liked how you said, ``predicated on City Council.'' Well said.
As the only elected--we do not have a lot of elected officials
at this table. I mean, last week we had Jelly Roll, who is
decidedly not an elected official. But anyway, thank you.
Thanks. This is a very good hearing, and thanks for the
wise, reflective, illuminating way that you explained this
very, very complicated issue that this body, for years and
years, has not been able to work its way through. And as
Senator Cortez Masto said, it is certainly not a partisan
issue. Almost half this Committee represents a coastal State
and deals with these, but so does Nevada deal with them, so
does Ohio deal with them, and so do other States. Thanks for
being here.
For Senators who wish to submit questions for the record
they are due 1 week from today, Thursday, February 1st. To the
witnesses, you have 45 days to respond to any questions.
Thank you. The hearing is adjourned.
[Whereupon, at 11:27 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIR SHERROD BROWN
This hearing is a continuation of our efforts to enact a long-term
reauthorization of the National Flood Insurance Program or NFIP. The
program has been extended 28 times since September of 2017. The latest
extension will expire on March 8th of this year.
Today, we will discuss local leaders' perspectives on the National
Flood Insurance Program, and the challenges and potential solutions to
the risks that flooding poses to communities across the country.
Local leaders are on the front lines of so many issues:
transportation, how expensive housing is, the growing challenge of
flooding. Each of these is a priority for this Committee.
As these leaders know all too well, flooding is the most common and
costly natural disaster facing the country. It's devastating to
families, businesses, and communities in every State.
And unfortunately, the risk is increasing.
Outdated flood maps, population growth in at-risk areas, land-use
patterns, and over-stretched infrastructure all play a role.
And whether people want to admit it or not, climate change is only
making it worse. It's making extreme weather events more frequent and
less predictable--all across the country.
Just this month:
Streams overflowed in our colleague Senator Reed's home
State of Rhode Island;
Torrential rains poured through homes in San Diego
neighborhoods represented by Senator Butler; and
Flash floods have been threatening communities across
Louisiana, which is well represented by our colleagues in the
room today.
Flooding isn't confined to communities on the coasts, or even on
major bodies of water.
As we saw in 2022, the same mountains and streams that make our
Appalachian towns beautiful also make family homes and local economies
vulnerable to flooding in an era of more extreme rainfall. Often the
only available land for development in Appalachia is in or near
floodplains.
And disasters often fall hardest on the families and the
communities that have fewer resources to prepare and respond to them.
Smaller, rural communities often do not have easy access to resources
to respond to the immediate effects of disasters, nor do they have
access to the resources they need for long-term recovery and to prevent
disasters in the first place.
We need to ensure our families and communities can adapt and become
more resilient both to the flooding we face now, and to the increases
we know are coming in the next several decades.
And whenever possible, we want to help communities avoid extreme
flooding altogether, through pre-disaster flood mitigation.
The NFIP is critical to that effort.
Unlike a private insurance company, the NFIP does not just provide
insurance. Its job is to prevent and minimize flood damage in the first
place, not just help with recovery.
The NFIP combats the overall threat of flooding through four
related components:
Flood insurance, currently covering nearly 4.7 million
homes and businesses;
Floodplain management;
Floodplain mapping; and
Mitigation.
We must reauthorize and strengthen the NFIP, and invest in
mitigation and floodplain management before disasters happen in
communities.
In recent hearings, we heard from a wide range of stakeholders who
discussed:
The need for a long-term reauthorization to help
communities and stakeholders plan for the future,
The importance of helping communities and property owners
understand their risk--by both improving mapping and other risk
communications, and through disclosure of flood hazards to
prospective owners and tenants, and
The importance of building State and local capacity to
carry out our floodplain management and mitigation programs,
especially for small and rural communities.
We also heard FEMA's recommendations for strengthening the program,
including forgiving the overhang of debt from previous disasters and
providing means-tested assistance to help more families afford
insurance.
I am interested in hearing today's witnesses' recommendations on
how we can help strengthen the NFIP, so that it can help local
communities meet their needs.
I am pleased to welcome Mayor Steve Patterson of the City of
Athens, Ohio, here today to discuss some of the unique challenges faced
by cities and towns in Appalachian Ohio.
NFIP is a complex program, with multiple goals and implications for
many of the things people care about most--their homes and their
communities.
However, I believe it is possible for us to come together to
reauthorize and improve this program.
Today's hearing will help inform this effort.
I look forward to working with Ranking Member Scott and the Members
of the Committee to strengthen the NFIP and the country's comprehensive
approach to mitigating flood risk through a long-term reauthorization
bill this Congress.
______
PREPARED STATEMENT OF SENATOR TIM SCOTT
Before we get started, I'd like to take the time to welcome a
Charleston native, Mr. Kaniewski, as a witness today.
I can't think of a more helpful perspective in dissecting these
issues that are really local in perspective.
Although you now live in Minnesota--I've never met someone who left
Charleston actually--full time. Please come home soon, we really need
you back. We need all the smart-thinking individuals back in
Charleston, South Carolina. But we thank you for being here today.
The National Flood Insurance Program (NFIP) comes into play when we
start thinking about how to mitigate the risks that are so impactful
and negative to communities across the country.
As we consider potential reforms to the NFIP, we must keep in mind
local perspectives and not just those of Washington bureaucrats.
Because we all know that the most effective policymaking typically
happens closer to the problem, not farther away from that problem.
So our Federal programs should foster local, innovative solutions--
not regulatory red tape.
Y'all have heard me say this before, that as a lifelong
Charlestonian and South Carolina resident, as well as an insurance
professional for more than 20 years--having sold flood insurance
policies--it's really important for us to understand and appreciate the
devastation caused by flooding.
There's no doubt that if you're a Charlestonian and if you were
around in 1989, Hurricane Hugo devastated our community in ways that
very few natural disaster have before and frankly, since. The storm
surge was so bad and so high, that it literally left boats in the
middle of downtown in the streets of Charleston.
More recently, Hurricanes Matthew, as well as Florence devastated
towns throughout my State, and left some towns submerged.
As a matter of fact, the town of Nichols, South Carolina--a very
small town--was hit by both storms so bad that more than half of the
houses in that small community found themselves underwater.
And the devastation of trying to rebuild 24 months later--again--
was undeniably and frankly impossible. But the good news is when you're
surrounded by your friends and your family, the impossible becomes
possible. And they worked really hard to start the process of
rebuilding very quickly, and frankly, very successfully.
This type of repeated flooding makes recovery harder, and
naturally, can even cause some residents to lose hope--and certainly a
part of the town--residents left.
It's one of the reasons why I've re-introduced the Repeatedly
Flooded Communities Preparation Act, which would help communities
suffering from frequent flooding plan for the next storm, and
hopefully, lower the risk.
It's my hope that by encouraging flood-prone areas to reduce the
impact of future storms, residents will be able to focus on long-term
recovery--long after the storm surge recedes.
And recovery doesn't simply mean rebuilding, it also includes
uplifting our communities. It includes making sure that families and
neighbors learn to work together--that the synergy in the aftermath of
a disaster is where community, and the glue of community, really
manifests and reveals itself.
South Carolinians who have lived through repeated flooding know
this, and my home State has taken action to prevent this outcome.
South Carolina's recent dedication of resources and strategic
mitigation efforts are second to none.
In 2023, the State's budget included significant funding for
mitigation efforts that would reduce flood damage from future storms.
Backing up that investment, the South Carolina Office of Resilience
released a nationally praised ``Statewide Risk Reduction Plan'',
identifying the communities most vulnerable to floods and targeting
mitigation resources to protect those residents.
These are local solutions to local challenges--and they will make a
huge difference in the lives of South Carolinians.
And while I recognize that what works in South Carolina may not
work in places like Senator Cassidy's Louisiana or Chairman Brown's
Ohio, I'm confident that similar, locally based solutions and
approaches could make a huge difference, not only in those communities,
but to the National Flood Insurance Program itself.
To support these levels, we must have substantial reform to the
NFIP.
The status quo is not an option. The program is financially
insolvent, with over $20 billion--$20 billion in debt.
Instead of educating communities and homeowners on the risks they
face, the program's outdated flood maps and lack of transparent data
often obscures the risks.
Without a well-functioning and financially solvent insurance
system, the NFIP will fail to provide cities and towns with the tools
they need to be resilient.
And, if the NFIP is unable to provide local communities with
improved mapping and mitigation resources, the financial health of the
insurance program will continue to deteriorate.
When I say that--especially with my legislation I've reintroduced--
we have to recognize that the NFIP pays out 30 percent of its resources
to about 1 percent of the properties that consistently and repeatedly
are flood victims again, and again, and again.
One percent of the exposure absorbs 30 percent of the resources--
and that's an opportunity for us to look to the local communities to
create strategies to perhaps not rebuild there, and that will take a
local engagement to mitigate that risk for the Nation, for the program,
and frankly for the communities where they happen.
Comprehensive reform of the program is essential.
One final and important point before I close: Congress cannot allow
the NFIP to lapse.
Most often we talk about States like Florida, or South Carolina, or
Louisiana--where they pay a disproportionate share of the premiums that
go into the NFIP. The truth is that whether you're in Ohio, or
California, whether you're in the New Jersey, New York area, where
Hurricane Sandy--$8.8 billion--Hurricane Harvey--$9 billion.
The number of flood insurance policies in place? Essentially
nonexistent. So not only do we need to have a comprehensive reform of
the program itself, we need to have a better education that floods
don't simply happen when you live near the water. Floods today happen
throughout the country.
______
PREPARED STATEMENT OF MICHAEL HECHT
President and CEO, Greater New Orleans, Inc.
January 25, 2024
Good morning, Chairman Brown, Ranking Member Scott, and Members of
the Committee. I am honored to speak to you today about reauthorizing
and reforming the National Flood Insurance Program (NFIP).
My name is Michael Hecht, and I am the President and CEO of Greater
New Orleans, Inc. (GNO, Inc.), the 10-parish economic development
organization for Southeast Louisiana. Since April 2013, GNO, Inc. has
led the Coalition for Sustainable Flood Insurance (CSFI), a national
alliance of approximately 250 organizations across 35 States. The
Coalition for Sustainable Flood Insurance sees NFIP as a critical
program that allows critical communities across our country to keep
working.
GNO, Inc. originally created CSFI to support NFIP reform as a
Federal priority. Thus, we appreciate your longstanding leadership, as
demonstrated today, and your continued recognition of the importance of
available, affordable, and transparent flood insurance coverage for
your respective districts and constituents. As you know, flood risk
affects us all, and flood events have occurred in all 50 States and 99
percent of counties in the United States since 1996. Your work this
Congress to address insurance challenges will shape the future of our
Nation's environment and economy, and make for a more prosperous and
resilient country.
Today, I will discuss the need to reauthorize NFIP--given its
benefits to our Nation--and the need to reform the program--given
FEMA's administration of Risk Rating 2.0 and its associated impacts.
I. Reauthorization
First and foremost, CSFI aims to ensure the availability of flood
insurance through a reauthorized NFIP. CSFI supports a long-term,
multiyear reauthorization of NFIP to ensure program stability and to
minimize ripple effects across the American economy. Since September
2017, NFIP has been operating under a series of short-term
reauthorizations without comprehensive reform. Since then, NFIP has
been extended on a short-term basis 28 times and has briefly lapsed
three times. On March 8, 2024, NFIP's current authorization will
expire.
a. Effects of a Lapse
If NFIP lapses, NFIP will lose the authority to provide new flood
insurance contracts, and existing policies will not be renewed. NFIP's
authority to provide new flood insurance contracts is a particular
necessity based on the mandatory purchase requirement (MPR). This
requires property owners to purchase flood insurance as a condition of
mortgages made or guaranteed by Federal agencies, federally regulated
lending institutions, and Government-sponsored enterprises. Property
owners, both residential and commercial, are required to purchase flood
insurance if their property is identified as being in a Special Flood
Hazard Area (SFHA) and is in a community that participates in the NFIP.
While private flood insurance coverage can now satisfy the mandatory
purchase requirement, private flood insurance availability varies
nationwide and is limited in many States, and can be prohibitively
expensive.
Thus, NFIP's reauthorization is consequential to the national
housing market and real estate transactions. During a June 2010 lapse,
about 1,400 home sale closings were canceled or delayed each day,
representing over 40,000 sales per month. There are approximately six
million homes located in SFHAs and subject to the MPR nationwide.
A lapse also jeopardizes NFIP's ability to satisfy claims. NFIP can
still process and pay claims on flood insurance policies as long as
funds are available; however, NFIP's borrowing limit would be decreased
from $30.425 billion to $1 billion.
b. NFIP's Success
NFIP covers nearly five million policyholders with an annual
premium of $3.5 billion and $1.3 trillion insurance in force. NFIP's
policyholders are often misperceived as rich, second-homeowners in
beachfront communities. However, in 2017, a CSFI study found that that
98.5 percent of all NFIP policies are in counties with a median
household income below $100,000, and 62 percent of all NFIP policies
are in counties with a median household income below the national
average of $53,889. According to FEMA, incomes are higher outside the
SFHA than they are inside the SFHA. 26 percent of policyholders inside
of the SFHA are low income, compared to 21 percent of policyholders
outside of the SFHA. Despite the MPR, 51 percent of nonpolicyholders in
the SFHA are low income, compared to 41 percent of nonpolicyholders
outside the SFHA. Thus, NFIP works to serve working Americans in need
of sustainable, reasonable flood insurance.
David Maurstad, Deputy Associate Administrator for Insurance and
Mitigation, said, ``over the last 50 years, NFIP has collected $60
billion in NFIP premiums, but has paid $96 billion in costs (including
losses, operating expenses, and interest).'' That said, a difference of
$36 billion to assist about 5 million American property owners today--
and many millions more over the course of the program--is a good
financial deal for the American public. According to FEMA, NFIP's flood
management standards save the Nation almost $2.4 billion annually in
flood losses avoided. Thus, over a 50-year period, these savings total
$120 billion in flood losses avoided--for a net benefit to the American
public of nearly $85 billion.
NFIP should be reauthorized to fulfill its original objectives, and
administered in a manner that respects these objectives. Congress, in
the National Flood Insurance Act of 1968, declared the purpose of NFIP:
``a reasonable method of sharing the risk of flood losses is through a
program of flood insurance which can complement and encourage
preventive and protective measures . . . if such a program is initiated
and carried out gradually, it can be expanded as knowledge is gained
and experience is appraised, thus eventually making flood insurance
coverage available on reasonable terms and conditions to persons who
have need for such protection.''
Congress, in 1968, did not create NFIP to charge full-risk rates,
if those premiums were onerous and exacerbated risk exposure. Rates
were supposed to be ``adequate, on the basis of accepted actuarial
principles, to provide reserves for anticipated losses, or, if less
than such amount, consistent with the objective of making flood
insurance available where necessary at reasonable rates so as to
encourage prospective insureds to purchase such insurance and with the
purposes of this chapter.'' Yet, only 4 percent of structures in the
United States are covered today, and more policyholders are being
priced out of the program as we speak.
NFIP was given the authority to borrow money from the U.S. Treasury
from the beginning, with Congress foreseeing the possibility of
collecting less in premiums than claims paid. The Congressional
Research Service (CRS) affirms that, ``The NFIP was not designed to
retain funding to cover claims for truly extreme events; instead, the
National Flood Insurance Act of 1968 allows the program to borrow money
from the Treasury for such events.''
For most of the NFIP's history, the program--exclusively on the
backs of policyholders, without any other support from taxpayers--has
been able to cover its costs. Prior to Hurricane Katrina in 2005,
NFIP's largest level of debt was $917 million in 1997, which was
reduced to zero by the end of FY 2003. Since 2005, the NFIP--through
premiums collected from its policyholders--has made six principal
repayments totaling $2.82 billion and has paid $6.17 billion in
interest. NFIP has not borrowed from the Treasury since 2016.
Unless debt is forgiven, only current and future participants in
the NFIP--via premium revenues--are responsible for repaying NFIP's
debt and accruing interest. The October 2017 cancellation of $16
billion of NFIP debt represents the first time NFIP debt has been
cancelled. The outstanding $20.525 billion in debt--and $619 million in
interest paid by policyholders annually to Treasury--continues to
hamper NFIP policyholders, and NFIP's success as both an insurance
company and a Federal program. This $619 million in interest would be
much better invested in mitigation.
Recent administrative changes by FEMA further threaten NFIP's
success. This change--Risk Rating 2.0--further diverts the program from
its original dual purposes of providing flood insurance and reducing
the Nation's flood risk.
II. Risk Rating 2.0
CSFI was formed in the wake of the implementation of the Biggert-
Waters Act, when homeowners across the county were facing skyrocketing
rate increases through a combination of the removal of grandfathering
and new maps, which often times were inaccurate. CSFI was a driving
force behind the passage of the Homeowner Flood Insurance Affordability
Act (HFIAA), which was signed into law in March 2014.
Today, we find ourselves in a similar position. As we did a decade
ago, CSFI will work with all partners--coalition members, members of
Congress, FEMA's public servants, and all other interested
stakeholders--to successfully address challenges with Risk Rating 2.0.
a. Transparency and Accuracy Concerns
Risk Rating 2.0 is a ``deja vu'' of sorts, although this time
around, Congress did not pass legislation to cause this change to NFIP,
nor has Congress had any substantial input in its development. FEMA,
through what they claim is their administrative authority, has removed
historical processes and replaced them--without a rulemaking process,
an economic impact analysis, or even requested Congressional briefings.
In short, transparency has been an issue in Risk Rating 2.0's rollout.
Risk Rating 2.0 represents the largest change to NFIP's premium
calculations since the program began in 1968. Risk Rating 2.0 was
implemented on October 1, 2021 for new policies, and April 1, 2022, for
existing policies. FEMA, in April 2023, finally released average full-
risk rates for States, counties, and ZIP Codes. Beforehand, FEMA had
only released an analysis of premium increases per month (ex:
policyholders on average see premium increases of $8 per month). This
is ironic, as FEMA doesn't yet allow for payments in monthly
installments, despite having the statutory directive from HFIAA in 2014
to provide policyholders with the option of paying premiums monthly.
FEMA's former demonstration of premium cost changes in terms of per-
month increases also hid full-risk rates, given HFIAA's annual premium
increase limit for existing policies.
With Risk Rating 2.0, FEMA has ``moved the goalline'' for
policyholders and communities who have historically followed the rules
by maintaining flood insurance coverage and satisfying floodplain
management requirements. For example, past recipients of FEMA Flood
Mitigation Assistance (FMA) grant assistance for home elevations agreed
to maintain flood insurance coverage in perpetuity, expecting large
premium discounts for mitigation, and not expecting Risk Rating 2.0 to
change their premiums. Now, they cannot drop coverage, despite current
conditions that they did not accept. CSFI's floodplain manager members
have reported cases of property owners eligible for elevations denying
FMA assistance. These property owners feel as though Risk Rating 2.0
discounts for mitigation are unclear or insufficient to make even
subsidized costs of elevation financially prudent. Thus, Risk Rating
2.0 is confounding and undermining FEMA's own programs, intended to
mitigate risk.
Contrary to common misconception, FEMA has released the Risk Rating
2.0 methodology through a ``Risk Rating 2.0 Methodology and Data
Sources'' document and appendixes. One appendix is the ``premium
calculation worksheet,'' an Excel document of four example properties
in California, South Carolina, and Michigan to demonstrate the
methodology's interaction of rating factors at the property-level. The
``Appendix D Rating Factor'' spreadsheet shows tables and scores for
Risk Rating 2.0's dozens of rating factors--including State base rates,
distance to water bodies, levee quality, drainage area, concentration
risk, foundation type, first floor height, floors of interest, and much
more. Flood zones from Flood Insurance Rate Maps (FIRMs) are not a
rating factor. CSFI members and congressional staffers have questioned
some factors, like why there are base rates by State, since NFIP is a
national program and the new methodology intends to reflect an
individual property's specific flood risk, as opposed to general risk.
Unfortunately, policyholders do not have access to their property-
level rating factor inputs, beyond the few listed on their declaration
pages, which is made available only after purchasing coverage.
Furthermore, there is no public-facing, interactive Risk Rating 2.0
premium calculator. So, it still isn't clear to policyholders how
modifying each of these factors (like elevation / first floor height)
may affect their premium at the property level. With Risk Rating 2.0,
FEMA is communicating flood risk through price of flood insurance
coverage. Alternatively, FEMA could now use its wealth of rating
factors--procured through many vendors--to demonstrate how, where, and
why policyholders are at risk, and how policyholders can most cost-
effectively mitigate this risk.
Recently, FEMA has taken additional strides towards transparency,
like through the release of a ``Flood Insurance Discount Tool.'' FEMA
also commits to future transparency improvements, in response to the
July 2023 Government Accountability Office (GAO) report on Risk Rating
2.0 (GAO-23-105977). For example, FEMA says that they will ``enhance
policyholder communication productions and public-facing websites'' by
April 30, 2024; ``pilot online quoting tool'' by April 30, 2025; and
``publish final draft'' of an annual actuarial report by September 30,
2025. FEMA should be encouraged, if not legislatively required, to
honor their commitments.
To date, FEMA's communications, materials, and tools still leave
much to be desired by policyholders, stakeholders, and local
communities. FEMA's Office of the Flood Insurance Advocate (OFIA), in
its latest annual report, underscores concerns about Risk Rating 2.0's
transparency and accuracy. For example, ``Policyholders, insurance
agents and community officials expressed to OFIA that premiums rates do
not seem to adequately reflect mitigation activities. For instance,
they have indicated that they believe insufficient credit is given for
certain mitigation techniques . . . This makes it harder for homeowners
to take action to reduce their flood premiums, and harder for OFIA to
advise customers of their mitigation options.''
Amongst other suggestions, OFIA recommends that:
``FEMA's Federal Insurance Directorate (FID) should make
information about premium rates more accessible to the public
and should update language on NFIP's Pricing Approach /
FEMA.gov to describe in further detail how risks are aggregated
and tailor new materials to wider audiences.''
``FID should make information available about who
policyholders, agents, insurers, and other stakeholders can go
to within FEMA when questions arise about premium rates that
are not addressed in the public material.''
``FID should require standardized information on quotes and
declarations pages to include a description of a property's
flood risk, including the types of flood risk and other
specific rating factors that most influence the individual
premium so that customers can understand their risk of
flooding.''
``FID should ensure that deductible discounts are applied
in a manner that meaningfully reflects the financial risk
assumed by either the insurer or the insured.''
OFIA also expresses accuracy concerns of Risk Rating 2.0's
methodology and data sources, suggesting that:
``FID should update the rating engine to allow agents and
insurance companies to provide more accurate geographic
coordinate data.''
``FID should consider establishing a process to allow
agents and policyholders an opportunity to provide other
sources of information to demonstrate replacement cost value
used for flood insurance rating.''
``FID should explore ways to incorporate more data from
communities into the catastrophe models.''
In further detail, OFIA explains issues with geolocation in Risk
Rating 2.0: ``Policyholders want to provide additional detail to FEMA
to refine the flood insurance price including correctly identifying
latitude and longitude for geolocating the structure. To determine
elevations and distance to flood sources, FEMA geolocates the address
provided and determines the latitude and longitude. For almost all
existing construction, the latitude and longitude are correct. However,
in newer developments and very rural areas, the geolocation may be off
enough to raise concerns about rating accuracy. Currently, there is not
a mechanism for agents or policyholders to correct inaccurate latitudes
and longitudes.''
Risk Rating 2.0 intends to calculate flood insurance premiums for
individual properties based on actual flood risk. But, as explained by
OFIA, there are cases where Risk Rating 2.0 incorrectly identifies
latitude and longitude for the structure.
There are other known issues with data granularity across rating
factors, from distance to coast to levee quality. Yet, there is no
appeals process--for policyholders or communities--to ensure that
FEMA's data is accurate and that rating factors are refined at the
property-, community-, or State-level. Furthermore, there is no
disputes process for policyholders to challenge the accuracy, or
fairness, of chargeable premiums.
In the ``Risk Rating 2.0 Methodology and Data Sources'' document,
FEMA's contractor speaks to data reliability: ``In performing the
services, we relied on data and other information provided to us by
FEMA and other sources. We did not audit, verify or review the data and
other information for reasonableness and consistency. Such a review is
beyond the scope of our assignment. If the underlying data or
information is inaccurate or incomplete, the results of our analysis
may likewise be inaccurate or incomplete. In that event, the results of
our analysis may not be suitable for the intended purpose.''
It also appears that there has never been an independent third-
party peer review of the Risk Rating 2.0 methodology. GAO has conducted
a review of Risk Rating 2.0; however, it was not a technical review nor
an audit for accuracy. GAO said, ``In performing this analysis, we
relied on actuarial reports and documentation provided by FEMA. We
reviewed the documents for reasonableness but did not audit them for
accuracy. To the extent that there are material deficiencies in
completeness and accuracy in FEMA's actuarial reports, the actuarial
premium estimates may be materially different from those shown in the
reports had these deficiencies not been present. This review is not a
technical review, and we did not verify the accuracy of the
calculations performed by the actuaries who developed the full-risk
premiums.''
Proper programmatic improvements to address data accuracy and
methodology development are outstanding. To address this, FEMA can
arrange for a third-party review of the methodology and data sources.
FEMA can accept more input from agents, policyholders, floodplain
managers, and technical experts. This will refine Risk Rating 2.0 based
on specific, local, or technical knowledge. Furthermore, this can
empowering policyholders and communities, making them more likely to
reduce their flood risk exposure and take on mitigation activities.
Until then, identified frustrations above, and their impacts identified
below, are expected to continue.
b. National Impact of Risk Rating 2.0
On average, under Risk Rating 2.0, an NFIP policy will be $1,808,
which represents a 103.6 percent increase over legacy rates. Although
much of the public outcry about Risk Rating 2.0 has been from
Louisiana, Louisiana is far from the most affected State. In terms of
full-risk rates, there are 17 States with higher average rates than
Louisiana. Rates will increase by over 50 percent in 41 States. States
with the highest average full-risk rates are:
1. Hawai`i: $3,653 (+154.1 percent)
2. West Virginia: $3,074 (+171.2 percent)
3. Connecticut: $3,000 (+88.6 percent)
4. Maine: $2,700 (+183.2 percent)
5. New Hampshire: $2,545 (+109.2 percent)
6. Vermont: $2,248 (+87.7 percent)
7. Florida: $2,213 (+131.1 percent)
8. Kentucky: $2,201 (+107.6 percent)
9. New York: $2,197 (+85.5 percent)
10. Mississippi: $2,137 (+149.1 percent)
In CSFI's 2022 white paper, ``An Evaluation of Risk Rating 2.0 on
NFIP Affordability'', a literature review of NFIP price elasticity
found that a price increase of 1 percent causes a decreased demand of
0.11 percent to 0.87 percent for flood insurance policies. Before Risk
Rating 2.0 was implemented, an internal FEMA study estimated that that
20 percent of policyholders nationwide would ultimately leave the
program due to premium increases. We are watching this prediction
unfold.
NFIP's participation peaked around 5,700,235 in 2009. On the day
before Risk Rating 2.0's implementation in October 2021, there were
4,899,114 policies in force nationally. As of December 2023, there are
now 4,683,971 policies in force nationally. Thus, NFIP has lost over
215,000 policyholders, or 4.39 percent of all policyholders, since Risk
Rating 2.0's implementation. 121,739 policies have been lost in Texas
alone. Participation has already fallen by over 5 percent in 26 States
and by over 10 percent in 14 States. These 14 States with the greatest
declines in policies in force, by percentage of policies, are:
1. West Virginia: -2,428 (-19.44 percent)
2. Oklahoma: -2,050 (-17.74 percent)
3. Texas: -121,739 (-15.50 percent)
4. North Dakota: -1,198 (-14.55 percent)
5. Iowa: -1,602 (-14.10 percent)
6. Minnesota: -919 (-11.29 percent)
7. South Dakota: -327 (-10.89 percent)
8. Missouri: -1,933 (-10.64 percent)
9. Louisiana: -53,558 (-10.54 percent)
10. Nebraska -886 (-10.54 percent)
11. Kansas: -848 (-10.35 percent)
12. Arkansas: -1,354 (-10.15 percent)
13. Ohio: -2,665 (-10.07 percent)
14. Mississippi: -6,086 (-10.00 percent)
Clearly, Americans are not yet benefitting from Risk Rating 2.0.
Risk Rating 2.0 is proving cost prohibitive to policyholders and is
posing a burden to FEMA itself. David Maurstad said that, ``Since 2017,
hundreds of FEMA staff, over a dozen contractors pursuant to over two
dozen different contracts, thousands of staff and insurance agents from
the 47 WYO companies participating in the NFIP, and 5 vendors have
worked on the development and implementation of Risk Rating 2.0. This
effort has cost the Federal Government over 80 million dollars, all of
which would be wasted if the implementation of the current rates were
permanently enjoined.''
CSFI supports congressionally proposed, FEMA-supported, and private
market-backed provisions that can provide coverage. For example, CSFI
supports allowing for private flood coverage to satisfy continuous
coverage requirements, which would allow policyholders to switch
between public and private coverage without permanently sacrificing
benefits of NFIP's annual rate increase limit. This priority is more
urgent with a growing private market and a less affordable NFIP.
c. Regional Impact of Risk Rating 2.0
Across the country, NFIP allows working communities to continue
working. Our region--Greater New Orleans--is essential to the national
economy, and even global food and energy security. NFIP simply does not
take these factors into account. NFIP has not conducted a comprehensive
assessment of the economic and social impacts of implementing Risk
Rating 2.0, which would demonstration ripple effects on Government
revenues, property values, national security, and more.
Illustrating the importance of Greater New Orleans, over 50 percent
of all U.S. grain exports travels through the Port of South Louisiana.
Under Risk Rating 2.0, flood insurance premiums are increasing by 239.2
percent in St. Charles Parish, where many of the port's workers reside.
While many Federal levees in the National Levee Database are considered
by Risk Rating 2.0--like the $14.5B Hurricane & Storm Damage Risk
Reduction System surrounding our region. However, St. Charles Parish
has invested in local levees and pump stations which are not accounted
for in ratemaking. For example, near a local flood control structure
that FEMA doesn't recognize, an X-Zone home in Des Allemandes, LA, will
see premiums increase from $572 to $6,131.
Higher costs of living and higher costs to employ logistics and
trade workers will be passed on to consumers nationwide. Eventually, by
pricing out workers within our region, farmers in Nebraska and
agricultural workers across the Midwest won't be able to export grain
produced. Moreover, the United States would lose competitive advantages
in logistics and trade. The United States would also sacrifice the
agility to stabilize global markets, as seen in recent years, when
Ukraine's grain exports are constricted.
The largest private investment human history--a $21B LNG export
facility--is currently under construction in Plaquemines Parish, near
the mouth of the Mississippi, for the benefit of the American economy,
global security, and global climate (switching Asia from coal to gas).
In Plaquemines Parish, the average full-risk premium is $5,431 per
year, an increase of 545.3 percent compared to legacy rates. A property
in Belle Chasse, LA is seeing an increase from $572 to $8,828. This is
a parish with a poverty rate of 16.4 percent, 5 percentage points above
the national average. The median value of owned-occupied homes is
$253,300, compared to $281,900 nationally. And, due to NFIP floodplain
management requirements, in some parts of the parish, a new home (or a
substantially damaged property) must be built or elevated to a base
flood elevation of 18 feet. NFIP is wreaking havoc on critical
communities like this, which will inevitable have cascading
consequences, without congressional intervention.
Meanwhile in Plaquemines Parish, in addition to historic industry
investment, there is historic environmental investment. The largest
ecosystem restoration in the Nation's history has broken ground. The
$2.9B Mid-Barataria Sediment Diversion will harness the land-building
power of the Mississippi River to build and sustain up to 26,000 acres
of wetlands in the Barataria Basin. This project is part of
Louisiana's' 50-year, $50B Coastal Master Plan, which is not clearly
factored into rates. Since 2016, Louisiana has restored and maintained
26,000 acres of coastal land and improved 83 miles of levees. The
projects identified in the 2023 Coastal Master Plan will restore and
maintain over 300 square miles of Louisiana's coastal wetlands and
reduce expected annual damage by up to $15 billion. Instead, through
catastrophe modeling and Risk Rating 2.0's ``disaster to coast''
factor, Louisiana may be being punished for a century of coastal land
loss, largely due to Federal management of the Mississippi River and
largely out of communities' control.
Implementing all projects in Louisiana's Coastal Master Plan over
50-year period could reduce risk from tropical storms and hurricanes to
coastal communities to less than what the current risk level is today,
even considering sea level rise projections. But, communities--and
entire States--are not necessarily being given credit for their
investments in resilience nor incentivized to do so. Thus, considering
residents' cost-prohibitive premiums, communities could be left with
fleeing populations and cratering tax bases. They will be unable to pay
for necessary adaptations from their self-generated revenues, and they
will have to rely more heavily Federal funding, both for public
improvements and for residents' flood losses.
Still, the city of New Orleans is wisely investing in green
infrastructure and smarter storm water management practices, as advised
by GNO, Inc.'s 2013 Greater New Orleans Urban Water Plan. The Mirabeau
Water Garden is converting the site of a former convent, flooded by
Hurricane Katrina, into a 10 million gallon detention pond and an urban
water management educational center. Despite being funded through
FEMA's own Hazard Mitigation Grant Program (HMGP), this project won't
necessarily reduce neighbors' NFIP premiums, although it will reduce
flooding by up to 14 inches. Moreover, when neighbors drop NFIP
coverage or move due to heighted premiums, this can affect a projects'
benefit cost analysis (BCA) of projects and impact their eligibility
for Federal funding.
Throughout the Gentilly neighborhood where Mirabeau lies, through a
``community adaptation program,'' approximately 200 households have
installed various property-level retrofits to reduce their flood risk.
These property-level flood adaptations--permeable pavement, stormwater
planter boxes, tree plantings, infiltration trenches, rain barrels, and
rain gardens--are also not considered in Risk Rating 2.0. While these
property owners have reduced flood risk for themselves and their
neighbors, they are not being credited by NFIP for doing so.
Across the State, we're also adapting by installing FORTIFIED
roofs, a construction method that reduces the chance of wind-related
losses through stronger roofs. The FORTIFIED Program, a program of the
Insurance Institute for Business & Home Safety (IBHS), is a strong
model for resilient building practices and relevant incentivization. In
Louisiana, State law requires actuarially sound premium discounts to be
provided to policyholders who install FORTIFIED roofs. Similarly, NFIP
policyholders could be incentivized to install floodproofing
adaptations, from permeable pavements to rain gardens, in exchange for
appropriate NFIP premium discounts.
Oddly, rates in our region are being treated as an anomaly,
according to FEMA's ``Risk Rating 2.0 Methodology and Data Sources''
technical document. With no further explanation, the document reads,
``As in the nonleveed analysis, GLMs were used to develop geographic
rating factors for leveed areas. For the nonleveed analysis, separate
models were fit by segments that consisted of groups of States. For the
leveed analysis, there was a smaller volume of data that was more
highly geographically concentrated. Using the same segments as the
nonleveed analysis would have produced policy counts that were too low
within a segment. Instead, the GLMs were fit on the countrywide data.
Upon reviewing the residuals, Milliman created an interaction term in
the Inland Flood model to allow for elevation as a rating variable in
Louisiana. Without this rating variable, AALs were underpredicted in
low elevation areas, especially areas with negative elevation in New
Orleans. Milliman also found it necessary to create separate GLMs for
Louisiana Storm Surge.''
Maybe regions like ours--communities that are economically
important to protect, and imperative for the national economy to exist
near water--should be treated differently in ratemaking than some
second-home, vacation communities. This differentiation is seen in some
parts of NFIP. For example, the HFIAA surcharge is $25 for primary
residences and $250 for second homes. Annual premium increases are
capped at 18 percent for primary residences but at 25 percent for
secondary home and severe repetitive loss properties. A future
affordability program to help working Americans could be only open to
primary residences that are not severe repetitive loss properties.
Our community is like many of the 22,500+ in NFIP--a hardworking
community that serves America through water resources. Over half of
America's population lives in a coastal county, and over half of all
jobs are located in coastal counties. Moreover, 57 percent of the
country's GDP is produced from counties by the coast (Emsi). A flood
insurance program should allow coastal economies to not only exist, but
provide for rest of our country through trade, logistics, agriculture,
advanced manufacturing, energy production, and all industries that are
dependent on proximity to water.
And beyond the coast, flooding still occurs--as you'll remember 99
percent of U.S. counties have been impacted by a flooding event since
1996; in 2019, of the 10 States with the most flooding events, only
three were coastal States (FEMA). Fairly priced flood insurance--and
complementary investments in mitigating flood risk--is essential to the
American economy, in Greater New Orleans, and everywhere.
III. Reform Priorities
With this understanding of NFIP's importance and current concerns,
NFIP should be reauthorized and reformed. Although Congress did not
cause the Risk Rating 2.0 predicament, fortunately, it can take action
to address it in a manner that improves economies, empower communities,
and protects policyholders.
We underscore the following reform priorities for consideration by
the 118th Congress. These priorities are informed by legislation
introduced this Congress, like the National Flood Insurance Program
Reauthorization and Reform Act (NFIP-RE) of 2023, as well as CSFI's
white paper on affordability and our coalition members' insight.
1. Require a peer-review of the Risk Rating 2.0 methodology and an
analysis of Risk Rating 2.0's economic impacts--An independent
actuarial review performed on an ongoing basis by a team of
experts could heed improvements to the Risk Rating 2.0
methodology, while establishing insight into Risk Rating 2.0.
This review may work to improve data resolution issues and a
perceived undervaluation of certain factors, like first floor
height and other mitigation measures. Congress can
simultaneously require FEMA to review national impacts of Risk
Rating 2.0. For example, the Risk Rating 2.0 Transparency Act
would mandate FEMA that ``complete and publish a comprehensive
assessment of the economic and social impacts of implementing
Risk Rating 2.0'' over a 20-year period.
2. Mandate FEMA's transparency through the release of a public-
facing rate calculator and establishment of rating factor
appeals process--Policyholders demand a way to review rating
factors, validate property-level inputs, understand their
comprehensive risks, and see the impact on premiums from
undertaking mitigation measures. The NFIP-RE Act would mandate
that FEMA ``establish a tool that allows members of the public
to estimate premium rates for covered properties under the Risk
Rating 2.0 program (or any similar methodology) within a
reasonable margin of error based on user inputs.'' Furthermore,
the NFIP-RE Act would ``establish a fair, transparent, and
streamlined process to manage disputes regarding chargeable
premium rates
prescribed.'' This appeals process is necessary so that
policyholders can ensure Risk Rating 2.0's data accuracy at the
property level.
3. Lower annual premium increases to nine percent--Cutting the
annual rate hike cap in half, from 18 percent to 9 percent,
cuts anticipated NFIP participation decreases in half,
according to statistical models of NFIP price elasticity. NFIP
participation has already decreased by over 4 percent since
Risk Rating 2.0's implementation. Congress should cap single-
family primary residential annual premium increases to a
maximum of 9 percent each year, to stabilize program
participation and serve as a bridge to a permanent
affordability program. The Flood Insurance Affordability Act
would accomplish this.
4. Enact a means-tested assistance program with housing burden as a
targeting factor--Under Risk Rating 2.0, the median percentage
of household income represented by the full-risk premium will
exceed 1 percent in 45 States and will equal or exceed 2
percent in 10 States. FEMA has proposed to administer an
affordability program for certain NFIP policyholders, but this
requires congressional authorization. This program should be
authorized and made available to both current and prospective
policyholders, with scaled discounts to assist those most in
need, in order to encourage NFIP participation growth. The
NFIP-RE Act proposes eligibility for policyholders earning up
to 140 percent of AMI, which CSFI supports. However, in lower-
income areas with higher costs of living, 140 percent of AMI
may still be insufficient to reach homeowners in need. Beyond
AMI, there are other cost of living measures--most relevantly
housing burden--that can be used to determine eligibility or
discount distribution.
5. Forgive NFIP's debt or freeze interest payments--Congress should
forgive NFIP's debt, given that it was accumulated under a
legacy pricing system. FEMA will pay the U.S. Treasury $619M
this year to service $20.5B of NFIP debt, much from
policyholders who have left the program or mitigated their
properties. According to FEMA, approximately 11 percent of each
current policyholder's premium is applied towards these
payments, equating to about $132 per policyholder per year. At
the least, Congress should grant forbearance for interest
payments over a defined period of time. The NFIP-RE Act would
pause interest payments for 5 years, and deposit these savings
into a National Flood Mitigation Fund.
The policies above--intended to resolve common equity,
affordability, transparency, and accuracy concerns--would serve to
stabilize participation, sustain the program, and support communities
across the country.
These policies are just the beginning. Other reforms called for by
NFIP stakeholders include Increased Cost of Compliance modernization,
flood mapping modernization, claims process reform, among many more.
Furthermore, Congress could work to address global insurance challenges
that put pressure on NFIP, such as skyrocketing reinsurance costs. For
example, a Federal reinsurance commission could be established to study
options for Federal intervention, as well as associated savings to FEMA
and other Federal agencies, and then propose solutions.
Again, thank you for the opportunity to testify today about the
reauthorizing and reforming the National Flood Insurance Program. We
appreciate your recognition of NFIP's value to local communities and
the American economy.
All stakeholders across the country interested in sustainable flood
insurance are welcomed to join our coalition. CSFI stands ready and
willing to assist the Committee as we work to reauthorize the NFIP by
March 8, and as we pursue long-term solutions that improve NFIP and our
country's sustainability.
PREPARED STATEMENT OF DANIEL KANIEWSKI
Managing Director, Public Sector, Marsh McLennan
January 25, 2024
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF STEVE PATTERSON
Mayor, City of Athens, Ohio
January 25, 2024
Good morning. I express my gratitude to Chairman Brown, Ranking
Member Scott, and the esteemed Committee Members for extending the
invitation to address you today. I also appreciate the Committee's
ongoing support and dedication to the National Flood Insurance Program
(NFIP) and their commitment to enhancing the resilience of our
communities.
I'm Steve Patterson, the Mayor of the City of Athens, OH, and the
2nd Vice President of the National League of Cities (NLC), which
advocates for 19,000 cities, towns, and villages across the Nation. I
am honored to present testimony today on the critical significance of
the National Flood Insurance Program for mayors, local officials, and
all members of the National League of Cities.
Since the conclusion of the fiscal year 2017, the NFIP has
undergone a series of 28 short-term extensions. This prolonged reliance
on short-term measures underscores the pressing need for a more
enduring solution. Recognizing the inherent challenges and
uncertainties associated with recurring short-term extensions, the NLC
believes that a sustained and well-defined reauthorization is
imperative for ensuring the stability, effectiveness and resilience of
the NFIP. The complexity of flood insurance issues demands a forward-
looking legislative approach that addresses long-term sustainability
and the evolving nature of flood risks.
In alignment with its commitment to fostering robust and enduring
solutions, the NLC has officially endorsed the National Flood Insurance
Program Reauthorization and Reform Act of 2023 (S. 2142). This
legislative initiative is seen as a pivotal step toward providing the
NFIP with the stability and resources needed to fulfill its crucial
role in protecting communities against the financial devastation caused
by flooding.
A long-term reauthorization not only ensures the program's
continued functionality but also fosters confidence among local
governments and residents who rely on the NFIP for financial protection
in the face of flooding events.
Local Government Support for NFIP
NFIP serves as a critical tool in protecting homeowners,
businesses, and municipalities from the devastating financial
consequences of flooding. Flooding events have become increasingly
frequent and severe, posing a significant threat to the stability and
well-being of communities across the Nation. Without the support and
provisions offered by NFIP, the financial burden on our residents would
be overwhelming, hindering our ability to recover and rebuild in the
aftermath of such disasters.
Here are key facts highlighting the importance of NFIP for local
governments and residents:
1. Financial Protection for Homeowners:
NFIP stands as a cornerstone in providing homeowners
residing in flood-prone areas with comprehensive and essential
insurance coverage. This coverage extends beyond the mere
compensation for property damages; it encompasses the broader
financial landscape affected by flooding events.
One of the distinctive features of NFIP is its commitment
to ensuring that affected homeowners can access funds promptly.
This rapid disbursement is instrumental in expediting the
recovery process and mitigating the economic strain experienced
by individuals and families.
Prompt access to funds enables homeowners to initiate
immediate repairs and restoration efforts, preventing further
damage and minimizing the duration of displacement. This, in
turn, contributes to the overall resilience of the community by
facilitating a swifter return to normalcy for residents.
It is important that the NFIP recognizes the diverse
needs of homeowners and offers flexible financial assistance
tailored to individual circumstances. This can include
temporary housing assistance for those displaced, funds for
necessary living expenses, and additional financial support to
address specific challenges faced by homeowners during the
recovery period.
The program's flexibility should extend to accommodating
various property types, from single-family homes to
condominiums, ensuring that a wide spectrum of homeowners can
benefit from the financial protection and support provided by
NFIP.
2. Economic Stability for Communities:
Flood-related damage can have a cascading effect on the
local economy. By ensuring that homeowners can promptly access
funds, NFIP contributes to the maintenance of economic
stability at the community level. Swift recovery translates to
a quicker resumption of economic activities, preventing a
prolonged downturn that could result from extensive property
damage.
The economic stability fostered by NFIP not only aids
individual homeowners but also has a ripple effect on local
businesses, schools, and public services. By preventing a
protracted economic downturn, NFIP supports the overall well-
being and vitality of the community.
In essence, NFIP's commitment to providing financial
protection goes beyond the immediate compensation for property
damage. It encompasses a comprehensive approach that considers
the broader financial needs of homeowners, ensuring swift and
flexible assistance that fosters both individual and community-
wide economic stability in the wake of flooding events.
3. Empowering Comprehensive Floodplain Management:
Having a sustainable NFIP can serve as a catalyst for
local governments to establish and implement comprehensive,
long-term floodplain management strategies. This includes the
development of detailed floodplain maps, risk assessments and
mitigation plans tailored to the unique characteristics of the
region.
Through NFIP, local authorities gain access to resources
and technical expertise, enabling them to create and update
floodplain maps regularly. This proactive approach aids in
identifying high-risk areas and implementing targeted measures
to reduce vulnerabilities.
NFIP helps municipalities to not merely be reactive to
flood events; but to actively engage in proactive measures to
enhance community resilience such as:
Zoning Regulations: Local governments are working to
establish and enforce robust zoning regulations, ensuring that
new developments and constructions adhere to flood-resistant
standards. This proactive zoning approach minimizes exposure to
flood risks and prevents the creation of vulnerable structures.
Land-Use Planning: Local governments are working to
integrate flood risk considerations into our land-use planning
processes. This involves designating appropriate land uses in
flood-prone areas, avoiding high-risk zones for critical
infrastructure, and promoting sustainable development practices
that mitigate the impact of flooding.
Infrastructure Improvements: Municipalities are also
investing in critical infrastructure projects that enhance
resilience. This includes the construction of flood barriers,
upgrading stormwater management systems, and implementing green
infrastructure solutions. These improvements not only protect
against flood-related losses but also contribute to the overall
sustainability and livability of the community.
In essence, NFIP's support for local governments
extends beyond mere risk transfer through insurance. It
actively facilitates a culture of proactive risk reduction,
enabling communities to withstand and recover from flood events
with greater efficacy. Through collaboration, local authorities
can implement a suite of measures that collectively build a
more resilient and sustainable foundation for the well-being of
their residents and the long-term prosperity of the region.
Investment in Flood Mitigation
In addition to the NFIP, unprecedented investments from Federal,
State, and local sources are dedicated to minimizing losses caused by
extreme climate events. Local governments express gratitude for the
financial support allocated in the Infrastructure Investment and Jobs
Act. This legislation includes a substantial commitment, with $3.5
billion directed toward the Flood Mitigation Assistance Program and an
additional $2.3 billion allocated for the Building Resilient
Infrastructure in Communities (BRIC) grant program.
These significant financial allocations present crucial
opportunities for States and local governments to channel resources
into strategic flood mitigation initiatives. By leveraging these funds,
communities can enhance household and community resilience,
implementing measures that fortify infrastructure against the impact of
extreme weather events. The investments provided by the Infrastructure
Investment and Jobs Act are pivotal in empowering local entities to
proactively address and mitigate the challenges posed by flooding,
thereby fostering a more resilient and secure future.
While the increased Federal investment is greatly appreciated, it
is crucial to acknowledge that it still falls significantly below the
burgeoning demand for resources to combat the escalating risks of
extreme weather events. The pressing need for additional resources is
underscored by the alarming rise in the frequency and severity of
weather-related incidents. The increased number of severe weather
events makes it increasingly urgent to invest additional resources in
fortifying communities against the escalating impacts of climate
change.
The growing frequency and intensity of extreme weather events
underscore the urgency of bolstering Federal, State, and local efforts
to enhance resilience, protect communities, and ensure the long-term
sustainability of our infrastructure.
Extreme Weather Events
Cities, towns, and villages are experiencing higher frequency and
intensity of extreme weather events, including hurricanes, floods,
heatwaves, and wildfires. These more severe and unpredictable weather
conditions are leading to a heightened risk of disasters that can
overwhelm existing infrastructure and emergency response
capabilities.
Coastal communities are facing an increased risk of storm surges
and flooding, with low-lying areas becoming more susceptible to
inundation. This poses a threat to infrastructure, property, and the
livelihoods of coastal communities.
Climate change is also exacerbating the urban heat island effect,
where cities experience higher temperatures compared to surrounding
rural areas. This can lead to heatwaves with adverse impacts on public
health, particularly among vulnerable populations. Heat-related
illnesses and stresses on energy and water resources become more
prevalent challenges for cities.
Changes in precipitation patterns and increased evaporation
contribute to water scarcity and drought conditions in many regions.
Cities dependent on local water sources face challenges in meeting the
demands of growing populations, agricultural needs, and industrial
processes, leading to potential conflicts and disruptions.
Extreme weather events, including intense storms and flooding, can
damage or destroy infrastructure such as roads, bridges, and utilities,
disrupting essential services and posing risks to public safety.
We are also seeing that climate change influences the spread of
infectious diseases, increases the risk of heat-related illnesses, and
poses challenges to air and water quality. Cities must address these
public health concerns, particularly in densely populated urban areas
where the impacts can be more pronounced.
Vulnerable communities within cities, often characterized by lower
socioeconomic status, may bear a disproportionate burden of climate-
related risks. These communities may have limited resources and
capacity to prepare in advance or recover from extreme weather events,
exacerbating existing social and economic disparities.
Addressing the risks posed by climate change requires proactive
measures at the local, national, and global levels. Cities play a
crucial role in implementing resilient urban planning, sustainable
infrastructure and community engagement strategies to mitigate the
impacts of climate change and enhance overall resilience. Collaboration
among stakeholders, innovative solutions, and a commitment to
sustainable practices are essential for building climate-resilient
cities that can withstand and adapt to the challenges of a changing
climate.
Resilience Planning
Cities, towns, and villages are implementing a variety of
initiatives to enhance their resilience and adaptability to various
challenges, including climate change, natural disasters, and
socioeconomic shifts. Here are some examples of how cities are working
to make their communities more resilient:
Green Infrastructure and Urban Planning--Many cities are
investing in green infrastructure, including parks, green
roofs, and permeable surfaces, to manage stormwater, reduce
flooding, and enhance overall resilience. Strategic urban
planning focuses on sustainable development practices that
prioritize resilience to climate-related impacts.
Climate-Resilient Housing and Infrastructure--Cities are
incorporating climate-resilient design principles into the
construction of housing and infrastructure. This includes
building structures that can withstand extreme weather events,
such as hurricanes or floods, and implementing technologies to
enhance the overall durability and adaptability of buildings.
Community-Based Disaster Preparedness Programs--Cities are
engaging in community-based disaster preparedness programs that
empower residents to be more resilient in the face of
emergencies. These initiatives involve community training,
early warning systems, and the establishment of local response
teams to ensure swift and effective action during crises.
Renewable Energy and Sustainable Practices--Transitioning
to renewable energy sources and adopting sustainable practices
are key components of building resilient cities. Cities are
investing in renewable energy infrastructure, such as solar and
wind power, to reduce dependence on vulnerable energy systems
and decrease their carbon footprint.
Smart City Technologies--The integration of smart city
technologies, including sensors, data analytics, and IoT
devices, allows cities to monitor and respond to various
challenges in real-time. This includes early detection of
environmental changes, traffic management, and improved
emergency response capabilities.
Diverse and Inclusive Planning--Resilient cities prioritize
diversity and inclusivity in their planning processes. This
involves ensuring that all community members, including
vulnerable populations, have equal access to resources,
information, and services, thereby building a more cohesive and
resilient society.
Collaboration and Partnerships--Cities are forming
partnerships with various stakeholders, including Government
agencies, nonprofit organizations, businesses, and academic
institutions. Collaborative efforts enable cities to leverage a
diverse set of skills, resources, and expertise to address
complex challenges and enhance overall resilience.
Investment in Social Infrastructure--Resilient cities
recognize the importance of social infrastructure, such as
health care, education, and social services. Investing in
robust social systems ensures that communities can better
withstand and recover from shocks, including pandemics and
economic downturns.
Adaptive Transportation Planning--Cities are adopting
adaptive transportation planning to address the challenges
posed by climate change and natural disasters. This includes
the development of resilient transportation networks,
incorporating alternative modes of transportation, and
designing infrastructure to withstand extreme weather events.
Circular Economy Initiatives--Embracing circular economy
principles, cities are exploring ways to minimize waste,
promote recycling, and reduce environmental impact. By moving
away from a linear consumption model, cities enhance their
sustainability and resilience in the face of resource
constraints.
These examples illustrate the diverse strategies and approaches
that cities are employing to enhance their resilience, ensuring that
they can thrive and adapt in the face of a rapidly changing world.
Mapping
Acknowledging the importance of accurate floodplain mapping in
determining flood risk and insurance rates, it is crucial to recognize
that the current criticism of inadequate mapping and outdated data
underscores the need for closer collaboration between the Federal
Emergency Management Agency (FEMA) and local governments. The outdated
and inaccurate nature of the existing floodplain maps highlights the
necessity for FEMA to actively engage with local authorities during the
mapping process.
To address this concern, FEMA should work more closely with local
governments, taking into consideration any recent actions or future
plans implemented by cities to mitigate flood risk in designated flood
zones. By incorporating local insights and initiatives into the mapping
process, FEMA can enhance the accuracy of floodplain maps. This
collaborative approach not only ensures that policyholders are more
informed about their true flood risk but also contributes to setting
more appropriate and reflective insurance premiums. Improved
communication and coordination between FEMA and local governments are
essential to maintaining up-to-date, reliable, and comprehensive
floodplain mapping systems.
Communicating Flood Risk
Effectively communicating flood risks to the public is a
multifaceted challenge that requires comprehensive attention and
action. One of the primary issues lies in the widespread lack of
awareness among individuals regarding the specific flood risks they
face and the crucial importance of obtaining flood insurance. To
address this, a concerted effort is needed to enhance public awareness
and education about flood risks and available insurance options.
Many individuals residing in flood-prone areas may not fully grasp
the extent of the flood risks associated with their locations. This
lack of awareness can lead to a false sense of security, with property
owners underestimating the potential impact of flooding on their homes
and communities.
Communicating the importance of obtaining flood insurance is
critical. There may be a misconception that standard homeowners'
insurance policies cover flood-related damages, leading property owners
to neglect securing specific flood insurance. Emphasizing the unique
benefits of flood insurance and its role in safeguarding against
financial losses is crucial.
Implementing educational initiatives at the community level is
essential. This can include workshops, seminars, and informational
campaigns aimed at providing residents with a comprehensive
understanding of flood risks, potential consequences, and the
protective measures offered by flood insurance.
Engaging with local communities and leveraging community leaders
can enhance the effectiveness of awareness campaigns. Establishing
partnerships with local organizations, schools, and neighborhood
associations can facilitate targeted outreach efforts to ensure that
information about flood risks and insurance options reaches a broader
audience.
Recognizing the diversity of communities and property owners,
tailored communication strategies are necessary. Information should be
presented in a clear, accessible manner, considering cultural,
linguistic, and socioeconomic factors to ensure it resonates with a
broad spectrum of residents.
Exploring incentives to encourage property owners to enroll in
flood insurance is a proactive approach. This could involve creating
awareness about potential financial assistance, reduced premiums for
proactive mitigation measures, or other benefits associated with having
flood insurance coverage.
Despite the efforts to improve awareness, there is still a
considerable number of properties at risk of flooding that remain
uninsured. Addressing this issue requires a comprehensive strategy
involving regulatory measures, financial incentives, and community
engagement to encourage property owners to prioritize flood insurance
as a vital component of their risk management.
Enhancing public awareness and education about flood risks and
insurance options is not only a critical aspect of building a
sustainable flood insurance program but is also a shared responsibility
that involves collaboration between Government agencies, insurers,
communities, and individuals. Through a concerted effort to inform and
empower property owners, we can work towards reducing the number of at-
risk properties that remain uninsured, ultimately fostering greater
resilience in the face of potential flooding events.
Private Insurance Market
While private flood insurance policies offer consumers a range of
options, including potential cost savings and broader coverage, the
feasibility of the private sector providing flood insurance for a
significant portion of those at risk remains doubtful. This skepticism
arises from the inherent challenge of insuring against catastrophic
risks at a price point that remains affordable for the general
populace, as previously discussed. This challenge is expected to
intensify with the escalating impacts of climate change and ongoing
development, heightening flood risks in numerous regions across the
country.
Moreover, local governments express valid concerns that private
insurance providers may engage in cherry-picking, selecting lower-risk
properties, and leaving the more vulnerable ones to be covered by the
NFIP. Such a scenario not only raises equity issues but also poses a
threat to the sustainability of the NFIP. If private insurers avoid
high-risk properties, the NFIP may bear the brunt of covering the most
vulnerable areas, potentially straining its resources and diminishing
its overall sustainability.
The looming threat of climate change and increased development
renders private flood insurance potentially unattainable for many
households at risk. The severity of flood losses, coupled with their
potential to jeopardize insurer solvency, dissuades many private
insurers from assuming such risks at any reasonable price point. This
cautious approach is evident in the retreat of private insurers from
various climate-related perils. For instance, insurers in States like
Louisiana and Florida are reducing their willingness to provide
homeowner's insurance, while some in California are scaling back their
presence in high wildfire-risk areas of the State.
In light of these challenges, including the concern of cherry-
picking by private insurers, and the reluctance of private insurers to
cover high-risk properties, the NFIP is poised to maintain a dominant
role in offering comprehensive indemnity flood insurance for the
foreseeable future. The NFIP's capacity to address the unique
challenges associated with catastrophic flood events positions it as a
crucial player in providing financial protection to communities at
risk, ensuring a level of coverage that may prove elusive in the
private sector.
CDBG-DR Reform
One major concern for local governments is with the Community
Development Block Grant Disaster Recovery (CDBG-DR) Program. While the
purpose of the program is for long-term recovery efforts after a
disaster the sluggish pace of funding disbursement is very problematic
to local governments. The bureaucratic hurdles and lengthy processes
associated with the program often mean that much-needed funds take too
long to reach our community in the aftermath of a disaster. This delay
hampers our ability to address the urgent needs of our residents and
businesses promptly, slowing down our recovery efforts and impacting
the well-being of our residents.
Additionally, the complexity of the CDBG-DR application and
approval procedures is a significant challenge. Navigating the
intricate requirements can be daunting, especially for communities with
limited resources. Simplifying these processes is crucial to ensure
that all eligible communities can access the funds efficiently. We need
a more straightforward and accessible application system that aligns
with the urgency of post-disaster recovery.
Moreover, the lack of flexibility in fund utilization poses another
obstacle. Communities vary in their recovery needs, and rigid
guidelines limit our ability to tailor the use of funds to our specific
circumstances. We advocate for a more adaptable framework that empowers
us to allocate funds in ways that best address the unique challenges
faced by our community, fostering a more effective and responsive
recovery process.
That is why NLC supports the bipartisan Reforming Disaster Recovery
Act (S. 1686). We are encouraged that this important legislation would
make significant improvements to the CDBG-DR program to help our
communities recover faster from major disasters.
Conclusion
In conclusion, the National Flood Insurance Program is an
invaluable resource for our community, providing financial protection
for our residents and supporting our efforts to build a more resilient
and sustainable future. I urge the Senate Banking Committee to continue
its commitment to the NFIP and consider enhancements that will further
strengthen the program's effectiveness in safeguarding communities
across the Nation.
Thank you for your attention to this matter, and I am available to
provide any additional information or answer any questions you may
have.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
FROM MICHAEL HECHT
Q.1. In your testimony, you cite data from the Coalition for
Sustainable Flood Insurance (CSFI) that denotes that 98.5
percent of National Flood Insurance Program (NFIP) policies are
in counties with a median household income below $100,000. \1\
You also note that 62 percent of all policy holders are in an
area with an annual income below the national average. Given
the rise in property and casualty insurance premiums nationally
and inflationary costs, \2\ many working families are already
struggling to maintain existing levels of insurance coverage,
let alone federally backed coverage through the NFIP.
---------------------------------------------------------------------------
\1\ Coalition for Sustainable Flood Insurance (CSFI), https://
csfi.info.
\2\ Arthur Fliegelman, ``Wind, Fire, Water, Hail: What Is Going on
in the Property Insurance Market and Why Does It Matter?'', Office of
Financial Research (Dec. 14, 2023), https://www.financialresearch.gov/
the-ofr-blog/2023/12/14/property-insurance-market.
---------------------------------------------------------------------------
How can we ensure that homeowners, specifically those from
lower- and middle-income communities and communities of color,
are aware of the importance of flood insurance coverage?
A.1. Thank you, Senator Warnock, for your question, ``how can
we ensure that homeowners, specifically those from lower- and
middle-income communities and communities of color, are aware
of the importance of flood insurance coverage?'' As put forward
in my testimony, NFIP works to protect working communities--
coastal and inland--across our country. Higher-income
households are more likely to have flood insurance than lower-
income households, yet household incomes are lower within
Special Flood Hazard Areas. This means that those who are more
prone to flooding, according to Flood Insurance Rate Maps
(FIRMs), are less able to pay for flood insurance coverage.
Communicating flood risk through price, rather than
geographic factors, actual loss, and anticipated loss
assessments, widens the insurance gap, since price is the key
variable identified as depressing flood insurance purchases.
Currently, under Risk Rating 2.0, FEMA is using premium as its
primary means of communication flood risk, which is not
effective in communicating the importance of flood insurance
coverage. This is actively evidenced by significant decreases
in participation nationwide, including a decrease of 7 percent
in Georgia, since Risk Rating 2.0's implementation.
Higher premiums and fees lead to fewer policies in force
and less coverage in force, creating greater risk exposure.
FEMA should consider communication through employing other data
points and publicizing the dozens of rating factors unique to
individual properties--like distance to coast or levee
quality--that are factored into the Risk Rating 2.0 methodology
``black box,'' ultimately generating premiums seen.
As outlined in our ``An Evaluation of Risk Rating 2.0
Impacts on National Flood Insurance Program'' white paper, from
past studies, a price increase of 1 percent causes a decreased
demand of 0.11 percent to 0.87 percent for flood insurance
policies, while causing a larger decrease in demand for
coverage in force. Conversely, recent flood damage, distance to
coast, and higher incomes--affecting ability to afford
insurance--increase demand.
There is also a misperception that those outside of Special
Flood Hazard Areas are safe from flooding. FEMA has stated that
``between 2015 and 2019 policyholders outside to high-risk
areas filed more than 40 percent of all NFIP flood insurance
claims'' and ``one-third of disaster assistance for flooding''
are outside of high-risk areas. These losses, and the
associated miscommunication, place a burden on homeowners,
lenders, and the general public who carry the tax burden for
federally funded disaster recovery.
Discussion around the expansion of flood zones and purchase
requirements may spread awareness of flood risk and improve
coverage. For example, according to their Draft 2023 Annual
Report, FEMA's Technical Mapping Advisory Committee (TMAC) is
recommending use of the 95 percent confidence value for
identifying the area in which the mandatory purchase will
apply. TMAC says this ``will reduce risk (and surprise) to
homeowners, lenders, and the general taxpayer in areas just
above the current mean 1-percent-annual-chance.''
Following flood events of Hurricane Katrina and Hurricane
Rita in 2005, Congress considered legislation, H.R. 4320,
``National Flood Insurance Program Commitment to Policyholders
and Reform Act of 2005''. This bill would have expanded the
definition of the Special Flood Hazard Area to the ``500-year
floodplain.'' The bill, which did not pass, was eventually
amended to instead require ``a study regarding the impact,
effectiveness, and feasibility of amending the . . . mandatory
flood insurance coverage purchase requirements . . . to all
properties located in the 500-year floodplain.'' Congress could
consider advancing a study like this one proposed nearly two
decades ago.
To make flood insurance important, it has to be attainable.
Thus, Congress must prioritize authorization of an
affordability program. Housing burden is high in many markets
with high NFIP participation; thus, a means-tested
affordability program, involving housing burden as a factor,
can offset and more equitably address rising costs of flood
insurance relative to a program based on Area Median Income
(AMI) alone. Considering housing burden in affordability
program qualifications will prevent communities with a lower
AMI from being unduly disadvantaged by short-sighted
policymaking. Rather, it would particularly benefit cost-
burdened communities, which may now be able to purchase or
renew NFIP coverage.
We appreciate all outreach efforts of FEMA as well as
elected officials, insurance agents, floodplain managers, and
more interest groups involved in our Coalition for Sustainable
Flood Insurance (CSFI). Their work is essential in spreading
awareness of the importance of flood insurance within
communities, while uplifting it as a Federal priority.
Q.2. Many homeowners do not realize that their standard home
insurance policy does not cover flood damage. \3\ Flood
insurance differs from other insurance products in that,
provided their community is enrolled, a homeowner may purchase
coverage at any time.
---------------------------------------------------------------------------
\3\ National Flood Insurance Program, ``Am I Required To Have
Flood Insurance?'', https://www.floodsmart.gov/am-i-required-have-
flood-insurance.
---------------------------------------------------------------------------
What have been the most effective ways you have articulated
and messaged the importance of purchasing flood insurance
coverage?
A.2. Thank you again, Senator Warnock, for your question,
``What have been the most effective ways you have articulated
and messaged the importance of purchasing flood insurance
coverage?''
Louisiana has the highest per capita uptake of flood
insurance largely because of cultural awareness of flooding,
not necessarily because of higher inherent risk. In Louisiana,
we talk often about flooding, and we know friends and family
who, in current or past generations, have experienced flood
events. Louisiana also has high coverage due to the
availability heuristic--we have had some of the largest-profile
flood events in the Nation's history. Even though this risk has
been largely mitigated through investments in flood protection,
immediately available examples of a hazard influence purchase
of coverage. However, as seen with recent NFIP participation
decreases of over 10 percent in Louisiana, recent flood events
only temporarily increase purchases. According to literature,
this effect fades after 3 years.
Studies have found that publicly funded mitigation
assistance has a positive effect on the decision to purchase
flood insurance. This contradicts assumptions that insurance
and mitigation are substitutes. So, Congress's prioritization
of appropriations for U.S. Army Corps of Engineers and
community-level flood protection projects may actually increase
flood insurance purchase. Key Federal grant programs, like
FEMA's Building Resilience in Communities (BRIC) and Flood
Mitigation Assistance (FMA) programs, should reduce risk while
improving coverage.
The glidepath of 18 percent for most residential
policyholders helps policyholders understand the importance of
renewing coverage. As policyholders may face higher prices for
flood insurance in the future if they do not maintain coverage,
they are more likely to stay in the NFIP, especially if they
understand glidepath benefits. According to participation
projections based on flood insurance price elasticity research,
authorizing a rate hike cap of 9 percent, compared to 18
percent, may cut expected long-term NFIP participation
decreases, due to Risk Rating 2.0, in half. According to NFIP,
only about 4 percent of homeowners nationwide have flood
insurance, so we cannot afford to lose more policies and
further expose the country to risk.
Meanwhile, two-thirds of Americans incorrectly believe that
their homeowners or renters policy will provide coverage for
flood damage, according to a study by Neptune Flood. Federal
all-peril solutions would subvert this misunderstanding. For
example, the recently introduced ``Incorporating National
Support for Unprecedented Risks and Emergencies (INSURE) Act'',
H.R. 6944, would stabilize the home insurance market while
ensuring vulnerable communities are not excluded from coverage.
The INSURE Act would offer a Federal reinsurance backstop,
while requiring participating insurers to cover all natural
disasters, so policyholders would indeed have flood insurance
coverage.
We appreciate your consideration of all-perils solutions,
annual premium increase limitations, and Federal investments in
mitigation, which should all serve to improve flood insurance
understanding and uptake.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
FROM DANIEL KANIEWSKI
Q.1. According to the Financial Stability Oversight Council
(FSOC), ``Climate risk might increase the costs associated with
housing such as insurance premiums and the frequency and cost
of repairs, further exacerbating the home-ownership challenges
for low-income and majority-minority communities.'' \1\ In your
testimony, you discuss a comprehensive flood resilience
strategy, that includes Federal, State, and local officials
engaging with stakeholders.
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\1\ Financial Stability Oversight Council, ``Financial Stability
Oversight Council Annual Report 2023'' (Dec. 14, 2023), https://
home.treasury.gov/policy-issues/financial-markets-financial-
institutions-and-fiscal-service/fsoc/studies-and-reports/annual-
reports.
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Can you detail what an effective model of Federal, State,
and local government officials coordinating with stakeholders,
like insurance companies, to improve resilience efforts could
look like? What type of Federal resources and authorities would
be needed to support such an effort?
A.1. An innovative approach to boosting insurance purchasing
that Marsh McLennan is involved in is known as community-based
catastrophe insurance (CBCI). Essentially, CBCI provides
disaster insurance arranged by a local government, quasi-
governmental body, or community group to cover a group of
properties.
The benefits of CBCI fall into three main areas: enhancing
financial resilience; providing affordable coverage; and
creating incentives for risk reduction at the community and
individual levels.
This type of program is flexible and can be created to
cover a single hazard or a range of natural disasters for a
given community, including flood, but also wildfire,
earthquake, and others. Such broad applications can further
incentivize a community's risk management efforts--risk
reduction, risk communication, and risk transfer--across
multiple perils. For flood risk, this could mean levee
improvements and/or ecosystem-based interventions, including
wetlands enhancements, and more.
Within broad parameters, CBCI has much flexibility in its
structure and design, with varying degrees of community
responsibilities possible. These range from a facilitator
model, where the community members contract with insurers, to a
captive insurer, in which the community establishes and
operates its own risk-bearing entity.
Federal resources and authorities could help facilitate
CBCI transactions. For example, if communities were permitted
to purchase insurance (CBCI or otherwise) through various
Federal grant programs, such as FEMA's Building Resilient
Infrastructure and Communities (BRIC) grant program,
communities would be better able to protect themselves from the
financial impacts of disasters. We recommend FEMA include
insurance premiums as an eligible type of assistance in its
BRIC grant guidance and consider doing so for its other
preparedness and hazard mitigation grant programs as well.
Additionally, FEMA has existing authorities to incentivize
State and local governments to reduce their risks and to better
protect Federal taxpayers from disaster losses. One such
authority was granted to FEMA in the 2018 Balanced Budget Act
(https://www.nibs.org/blog/disaster-resilience-trillion-dollar-
challenge-heres-what-fema-can-do-help.) This authority amends
Section 406(b) of the Stafford Act to increase the Federal cost
share of its Public Assistance programs for communities that
take proactive steps to reduce hazards. The resilience measures
identified in the statute--mitigation plans, insurance,
emergency management programs, building codes, risk ratings,
State/local mitigation funding, and tax incentives--aim to
reduce financial losses and human suffering and get communities
up and running faster after a disaster. By raising the Federal
cost share for FEMA Public Assistance on a sliding scale from
75 percent to up to 85 percent, a community that takes
proactive steps could receive millions of dollars more in post-
disaster funding.
We see the implementation of this provision as a
significant opportunity to remove existing barriers to
resilience investments and a strong incentive for communities
to do the right thing before disaster strikes. However, FEMA
has not yet implemented this authority. We strongly encourage
the full implementation of this provision.
Q.2. How would such an effort help mitigate increasing
insurance costs on low-income and communities of color?
A.2. Such an effort would help mitigate insurance costs on low-
income communities of color by providing a financial safety net
that largely does not exist today. Marsh McLennan is currently
involved with a project in New York City, which is the Nation's
first community-based catastrophe insurance (CBCI). The
project's goal is to increase the financial resilience of low-
and moderate-income households to flood risk. These communities
are increasingly vulnerable to flooding and are, in many
instances, underinsured or uninsured.
Guy Carpenter, a business of Marsh McLennan, is working
with the City of New York and the nonprofit Center for NYC
Neighborhoods (CNYCN) https://climate.cityofnewyork.us/mocej-
and-cnycn-launch-innovative-pilot-to-address-flooding-2/, as
well as the nonprofits Environmental Defense Fund and SBP,
reinsurer Swiss Re, and insurtech ICEYE, to pilot the program
in designated neighborhoods. The pilot was jointly funded by
the National Science Foundation and the Department of Homeland
Security through a Civic Innovation Challenge award.
In the NYC program, payouts will be made to CNYCN for
qualifying flood events based on a mix of satellite data; on-
the-ground, real-time sensors; and social media images. Once a
qualified event triggers the payment, homeowners will be able
to apply for assistance--on their own or with help from CNYCN's
network partners. Qualified applicants can then receive a grant
up to $15,000 from CNYCN quickly following a major flood.
The intent of these payments is to support residents and
their broader communities in getting back to normal faster. It
also will allow them to avoid having to make such tough
decisions as whether to pay for home flood repairs versus other
critical family needs, like health care, food, and saving for
education.
We are proud to have helped kickstart this innovative
program and hope it will cause other communities to establish
their own CBCI program. Federal grant funding could be a
catalyst here.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
FROM STEVE PATTERSON
Q.1. Given the rise in property and casualty insurance premiums
nationally and inflationary costs, \1\ many working families
are already struggling to maintain existing levels of insurance
coverage, let alone federally backed coverage through the NFIP.
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\1\ Id.
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How can we ensure that homeowners, specifically those from
lower- and middle-income communities and communities of color,
are aware of the importance of flood insurance coverage?
A.1. Addressing the rising costs of flood insurance amidst
national premium hikes and inflation requires a focused
approach on education and financial support, particularly for
lower- and middle-income families and communities of color.
Initiating community engagement and education programs,
utilizing multiple languages for information dissemination, and
forming partnerships with local businesses and nonprofits for
financial assistance are key strategies. It's vital to make
flood insurance information accessible and comprehensible to
everyone, ensuring materials are available in various languages
and formats, and leveraging technology and social media to
reach a wider audience.
Furthermore, advocating for policy changes at State and
Federal levels to make flood insurance more affordable is
essential. This includes seeking reforms within the National
Flood Insurance Program to ensure equity and pushing for
investments in resilient infrastructure to reduce flood risks.
By combining education with actionable support and
infrastructure improvements, we can ensure that all community
members understand the importance of flood insurance and have
the means to protect their homes and families against the
increasing threat of flooding.
Q.2. In your testimony, you discuss the importance of
resilience planning, specifically as it comes to addressing the
effects of climate change, natural disasters, and socioeconomic
shifts.
Are there currently cost-based or other barriers to
homeowners' ability to access mitigation incentives? What needs
to be done to raise awareness of and increase access to
mitigation incentives?
A.2. One of the primary barriers hindering homeowners' access
to mitigation incentives is the upfront cost associated with
implementing mitigation measures, such as retrofitting homes to
be more flood-resistant. These costs can be prohibitive,
especially for low- and middle-income families, despite the
long-term savings and environmental benefits.
Additionally, there is a significant information gap
regarding the availability and benefits of these incentives.
Many homeowners are simply unaware of the programs available to
them or find the
application process overly complex and discouraging. To
overcome these barriers, a multipronged approach is necessary.
First, the application process for mitigation incentives
should be simplified and streamlined. This can involve creating
a centralized online portal where homeowners can easily find
information and apply for all relevant incentives. Secondly,
there needs to be increased funding for these programs to
reduce the initial cost
burden on homeowners. This could include direct subsidies, low-
interest loans, or tax incentives.
Addressing the barriers to accessing mitigation incentives
requires a combination of reducing financial burdens,
simplifying the application processes, and engaging in robust
community outreach to ensure homeowners are informed and
empowered to protect their properties against the effects of
climate change and natural disasters.
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