[Congressional Record Volume 140, Number 35 (Thursday, March 24, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: March 24, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
       LEGISLATION REFORMING THE NATIONAL FLOOD INSURANCE PROGRAM

                                 ______


                         HON. WILLIAM J. HUGHES

                             of new jersey

                    in the house of representatives

                        Thursday, March 24, 1994

  Mr. HUGHES. Mr. Speaker, I rise to introduce legislation to reform 
the National Flood Insurance Program. I am pleased to be joined in 
introducing this bill by my colleague Jim Saxton.
  The National Flood Insurance Program was established by an act of 
Congress in 1968 and substantially amended in 1973. The intent of the 
program is to provide financial protection for property owners against 
flood loss while, at the same time, working with communities to develop 
floodplain management programs that will reduce or prevent future 
losses. Premiums collected from policies issued under the program help 
reduce the need for taxpayer funded disaster assistance payments.
  In recent years, the New Jersey shore has experienced three major 
storms which caused millions of dollars in property damage. At the same 
time, flooding along the Mississippi River devastated much of the 
Midwest, while hurricanes destroyed property throughout Florida, Hawaii 
and South Carolina.
  These incidents have all served to focus attention on the role the 
Federal Government plays in dealing with natural disasters, and upon 
the National Flood Insurance Program in particular.
  I believe that--for the most part--the National Flood Insurance 
Program has served its purpose well. However, as many in this body, in 
New Jersey, and across the country have pointed out, there is 
substantial room for improvement. We need to strengthen this program 
and increase the stability of the National Flood Insurance Fund.
  That is why we are introducing the Flood Insurance Risk Management 
Act of 1994. Our legislation aims to increase participation in the 
National Flood Insurance Program, while at the same time creating a 
more risk-based system without causing a large and rapid rise in 
premiums for policyholders.
  The Flood Insurance Risk Management Act contains many of the same 
provisions the Banking Committee has approved to improve compliance 
with flood purchase requirements. It will assure that those who 
purchase properties in special flood hazard areas carry flood insurance 
in order to obtain a loan from a federally backed lender. While the law 
does require this now, the current enforcement provisions are not 
strong enough to ensure that once a mortgage holder purchases 
insurance, that person maintains the insurance as long as he or she 
owns the property. The result is that only some 15-20 percent of those 
who should carry flood insurance actually have it in force.
  The FIRM Act will provide lending institutions the authority to 
purchase and maintain flood insurance for those whose properties are in 
special flood hazard areas and are required to carry insurance under 
the law. Furthermore, our bill requires that lenders who are providing 
loans for properties in special flood hazard areas inform borrowers 
both in writing and verbally of their requirement to carry flood 
insurance in advance of a closing.

  But the FIRM Act will do more than strengthen enforcement of existing 
law. The Act will help strengthen the stability of the National Flood 
Insurance Program by giving owners and communities incentives and 
funding to reduce risks. For example, the bill establishes a community 
rating system that will take into account a property's location, past 
history of incidents and claims. The system will also provide premium 
credits for communities that pursue recommendations to eliminate flood-
prone conditions.
  The FIRM Act will also give communities and individuals the tools to 
reduce flood risks by establishing a revolving loan fund and mitigation 
insurance to help cover the costs of floodproofing. Under the FIRM Act, 
policyholders who own repetitive loss structures that are not built to 
FEMA's post-1974 standards can receive up to 40 percent of the 
increased cost of construction if they rebuild to the post-1974 
standards following a flood event. However, if policyholders floodproof 
before a major flood event--thus saving the fund money--they are 
eligible to receive up to 60 percent of the cost of floodproofing.
  To make up the remaining costs of floodproofing, the FIRM Act creates 
a low-interest revolving loan fund that policyholders and communities 
may borrow from to fund flood mitigation activities that are authorized 
under the Act. Some of these activities include floodproofing of 
individual structures, constructions of sea walls and levees, and the 
public purchase of properties to create buffer zones.
  The FIRM Act will also allow communities more flexibility in 
complying with the flood insurance purchase requirements by 
establishing a community rate pooling program. Under the community rate 
pooling program the Director of FEMA is authorized to enter into an 
agreement with a community to allow that community to take over the 
flood insurance payments for all structures in a flood zone that are 
mandated to carry flood insurance.
  While the FIRM Act holds out many carrots to encourage participation 
in the flood insurance program, the Act also provides the sticks 
necessary to ensure that the most endangered property owners take steps 
to reduce their risks.
  One of the most frequently heard criticisms about the flood insurance 
program is that it provides subsidies to landowners in risky areas. 
Under the law, the Director is given the authority to charge less than 
actuarial rates on certain structures in order to make flood insurance 
available and affordable. I agree in part with this philosophy because 
it is important that we have broad participation in the program. 
However, it is time we begin to move toward actuarial rates. I do not 
believe it was Congress' intent to provide that subsidy in perpetuity.
  The FIRM Act will begin to program away from subsidies and do it in 
such a way so as not to strain policyholders. First, the bill requires 
that in order to offer policies at less than actuarial rates, the 
Director must certify to the President and Congress, on a biannual 
basis, that such rates are necessary in order to make insurance 
available where necessary at reasonable rates so as to encourage 
participation in the National Flood Insurance Program. This will force 
FEMA, Congress and the administration to reassess the need for 
subsidies every 2 years.

  Next, the FIRM Act puts limitations on claims for repetitive loss 
structures--properties that have suffered at least two losses of 25 
percent or more over a 10-year period. These structures represent the 
largest drain on the flood insurance fund, accounting for some 40 
percent of claims. Almost all of these repetitive loss structures are 
subsidized buildings not designed to FEMA's post-1974 construction 
standards which require elevation to the 100 year flood level and other 
floodproofing measures.
  The FIRM Act would remove subsidies for these structures over a 
period of time. Repetitive loss structures would be assessed at 
actuarial rates; however, premiums would only be permitted to rise five 
percent per year. The Director would also have the authority to 
continue to subsidize certain structures, such as multilevel 
condominiums, that--in his judgement--could not be made to conform to 
the post-1974 FEMA building regulations.
  As a final stick, our bill would require the Director to establish a 
program placing increasing penalties upon repeated claims beginning 
after the second claim of $5,000 or more. Under private insurance 
programs, in order to maintain the stability of the insurance fund, 
after each time a policyholder files a claim that policyholders' 
premiums rise. This is not the case with the flood insurance program--
in large part because such premium increases might drive people out of 
the program. Our legislation would bring increased stability to the 
fund while keeping premiums reasonable by having the director deduct 
increasing penalties from repetitive claims rather than by increasing 
premiums.
  My intention in offering this bill is to expand the debate on flood 
insurance reform and to offer my colleagues my view on where we should 
be going with respect to this issue. Many of our colleagues have 
offered legislation aiming to reform the flood insurance program over 
the last few years. In fact, last week our colleague from Florida, Mr. 
Bacchus, introduced a fine piece of legislation that would accomplish 
many of the goals of the FIRM Act. I am very supportive of his bill and 
I will certainly be working with him in the coming weeks on many issues 
of mutual concern.
  I also want to compliment Mr. Kennedy and Mr. Bereuter for their 
efforts in this area. Mr. Bereuter, in particular, has been a major 
advocate of flood insurance reform for many years. While I disagree 
with some of the approaches they have advocated, I am hopeful that Mr. 
Bacchus, Mr. Saxton, Myself and others can work with the distinguished 
gentleman from Massachusetts to develop a national flood insurance 
reform proposal that will benefit both the Flood Insurance Program and 
the policyholders.

                          ____________________