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FLOOD INSURANCE REFORM: 

A COMMUNITY PERSPECTIVE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

HOUSING AND INSURANCE 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

MARCH 16, 2017 

Printed for the use of the Committee on Financial Services 

Serial No. 115–5 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

PATRICK T. MCHENRY, North Carolina 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

STEVE STIVERS, Ohio 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

LEE M. ZELDIN, New York 

DAVID A. TROTT, Michigan 

BARRY LOUDERMILK, Georgia 

ALEXANDER X. MOONEY, West Virginia 

THOMAS MacARTHUR, New Jersey 

WARREN DAVIDSON, Ohio 

TED BUDD, North Carolina 

DAVID KUSTOFF, Tennessee 

CLAUDIA TENNEY, New York 

TREY HOLLINGSWORTH, Indiana 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

CHARLIE CRIST, Florida 

RUBEN KIHUEN, Nevada 

KIRSTEN SUTTON MORK, Staff Director 

(III) 

SUBCOMMITTEE ON HOUSING AND INSURANCE

SEAN P. DUFFY, Wisconsin, Chairman 

DENNIS A. ROSS, Florida, Vice Chairman 

EDWARD R. ROYCE, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

STEVE STIVERS, Ohio 

RANDY HULTGREN, Illinois 

KEITH J. ROTHFUS, Pennsylvania 

LEE M. ZELDIN, New York 

DAVID A. TROTT, Michigan 

THOMAS MacARTHUR, New Jersey 

TED BUDD, North Carolina 

EMANUEL CLEAVER, Missouri, Ranking 

Member 

NYDIA M. VELA ́ ZQUEZ, New York 

MICHAEL E. CAPUANO, Massachusetts 

WM. LACY CLAY, Missouri 

BRAD SHERMAN, California 

JOYCE BEATTY, Ohio 

DANIEL T. KILDEE, Michigan 

JOHN K. DELANEY, Maryland 

RUBEN KIHUEN, Nevada 

VICENTE GONZALEZ, Texas 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

March 16, 2017 ................................................................................................. 1 

Appendix: 

March 16, 2017 ................................................................................................. 37 

WITNESSES 

THURSDAY, MARCH 16, 2017 

Berginnis, Chad, Executive Director, Association of State Floodplain Managers ...................................................................................................................... 8 

Hecht, Evan, Chief Executive Officer, the Flood Insurance Agency ................... 9 

Luckman, Melissa H., Director, Disaster Relief Clinic, Touro Law Center ........ 5 

Terchunian, Aram V., Coastal Geologist and Environmental Scientist .............. 6 

APPENDIX 

Prepared statements: 

Berginnis, Chad ................................................................................................ 38 

Hecht, Evan ...................................................................................................... 58 

Luckman, Melissa H. ....................................................................................... 73 

Terchunian, Aram V. ........................................................................................ 85‘ 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Duffy, Hon. Sean: 

Written statement of CIAB, IIABA, NAIFA, and PIA .................................. 93 

Written statement of the Consumer Mortgage Coalition .............................. 100 

Written statement of the National Association of Mutual Insurance Companies ............................................................................................................. 113 

Written statement of the Property Casualty Insurers Association of 

America .......................................................................................................... 116 

Cleaver, Hon. Emanuel: 

Written statement of the National Association of Federal Credit Unions .. 124 

Green, Hon. Al: 

Written statement of the Greater Houston Partnership ............................... 126 

Written statement of the Houston Association of REALTORS® .................. 127 

Written statement of the City of Houston ...................................................... 128 

Written statement of the Communications Workers of America, AFL– 

CIO ................................................................................................................. 129 

Written statement of the Harris County Flood Control District .................. 130 

Hecht, Evan: 

Written responses to questions for the record submitted by Representative Duffy ....................................................................................................... 132 

(1) 

FLOOD INSURANCE REFORM: 

A COMMUNITY PERSPECTIVE 

Thursday, March 16, 2017 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HOUSING

AND INSURANCE, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 3:21 p.m., in room 

2128, Rayburn House Office Building, Hon. Sean P. Duffy [chairman of the subcommittee] presiding. 

Members present: Representatives Duffy, Ross, Royce, Pearce, 

Posey, Luetkemeyer, Stivers, Hultgren, Rothfus, Zeldin, Trott, MacArthur, Budd; Cleaver, Velazquez, Capuano, Sherman, Beatty, 

Delaney, and Gonzalez. 

Ex officio present: Representatives Hensarling and Waters. 

Also present: Representative Green. 

Chairman DUFFY. The Subcommittee on Housing and Insurance 

will come to order. Today’s hearing is entitled, ‘‘Flood Insurance 

Reform: A Community Perspective.’’ Without objection, the Chair is 

authorized to declare a recess of the subcommittee at any time. 

Also, without objection, members of the full Financial Services 

Committee who are not members of this subcommittee may participate in today’s hearing for the purposes of making an opening 

statement and questioning the witnesses. 

The Chair now recognizes himself for 3 minutes for an opening 

statement. I want to welcome our members, witnesses, and audience to the Housing and Insurance Subcommittee’s second hearing 

in as many weeks on the National Flood Insurance Program 

(NFIP). On Thursday, we had a productive discussion with Roy 

Wright to get FEMA’s perspective on the NFIP. Today, we will get 

a community perspective. We are joined by four great witnesses, 

each of whom comes with a different set of experience and expertise. 

In what 60 Minutes dubbed, ‘‘The Storm After the Storm,’’ more 

than 140 NFIP policyholders who submitted flood claims due to 

damages caused by Superstorm Sandy were told by FEMA that 

they could have their claim files reviewed. FEMA’s unprecedented 

Sandy claims review process was prompted, at least in part, by a 

Federal judge’s finding of reprehensible gamesmanship by a professional engineering company that may be widespread. As a result of 

the claims review process, and with legal help from people like Melissa Luckman, nearly 82 percent of the claims closed by FEMA received additional payment of nearly $185 million. I look forward to 

2 

hearing from Ms. Luckman about the process and ways that Congress can help prevent situations like this from ever happening 

again in the future. 

I also look forward to hearing from Mr. Terchunian, who has decades of experience in coastal hazard area management and coastal 

property protection on Long Island, which was also hit especially 

hard by Superstorm Sandy. I hope that he and Mr. Berginnis can 

share their views on floodplain management and mitigation, which 

we know from last week’s hearing, can save taxpayers $4 for every 

$1 of investment. 

Finally, we need to look beyond the NFIP monopoly to a robust 

private market that can better serve communities through competitive rates and services. Mr. Hecht’s company is the largest writer 

of private insurance in the country, and we will be looking to him 

to share his views on how to do just that. 

I now recognize the gentleman from Missouri, the ranking member of the subcommittee, Mr. Cleaver, for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. Late last week, we held 

a hearing on FEMA’s perspective on the National Flood Insurance 

Program, gaining, I think, some important insight from Mr. Roy 

Wright. I would encourage the committee to continue engaging 

with FEMA as we move forward towards flood insurance reauthorization. This is especially important as the President’s Fiscal Year 

2018 budget contained significant cuts and changes to FEMA. It is 

extremely disappointing to see that the President’s budget would 

eliminate discretionary funding for FEMA mapping and mitigation 

activities. If anything, we should be increasing congressional support for these vital activities. 

Today, we will hear the community’s perspective on the NFIP, 

giving us a broader understanding of the challenges facing the program and the areas in need of improvement. Following Superstorm Sandy, which resulted in $65 billion in 

damages, allegations began to surface regarding the underpayment 

of policyholder claims, fraud, and altered engineering reports. As 

homeowners slowly recover from Sandy, we must continue to hold 

those who did wrong accountable for their actions. 

Now, I am extremely encouraged that this committee is working 

and is committed to working on NFIP reauthorization, and as this 

discussion continues, we must do so with a goal of ensuring affordability of flood insurance premiums for our constituents. The program does little good if consumers are priced out of the market and 

priced out of homes. I would like to yield the last minute to the 

gentleman from California, Mr. Sherman. 

Mr. SHERMAN. I thank the ranking member. I just want to join 

with him in my concern about this idea of cutting the budget for 

the mapping program. The idea that mapping is not an appropriate 

Federal Government expenditure would come as news to Thomas 

Jefferson, who sent Meriwether Lewis and William Clark to map 

the Louisiana Purchase. If it was a good expenditure of Federal 

funds then, and I think it was, then it is a good expenditure that 

benefits all Americans. If your home isn’t on the map, that is also 

useful information. But more importantly, the mapping process, the 

insurance process, is designed to reduce the future supplemental 

appropriations when we have the next disaster, and with global 

3 

warming, there will be more weather disasters and flood disasters. 

So if we can have an effective Flood Insurance Program that starts 

with mapping, we can avoid the huge supplemental appropriations. 

And so many Members come and pound the table and say the Federal Government shouldn’t be subsidizing, shouldn’t be doing this, 

and yet I see them on the Floor when we have a real disaster and 

millions of Americans are uninsured, and they are voting for the 

supplemental appropriation as we all do, because we all have a 

heart. I yield back. 

Chairman DUFFY. The gentleman yields back. The Chair now 

recognizes the gentleman from Florida, Mr. Ross, the vice chairman 

of the subcommittee, for 2 minutes. 

Mr. ROSS. Thank you, Mr. Chairman, and thank you for calling 

this important hearing. As we continue our efforts to reauthorize 

and reform the National Flood Insurance Program before September 30, 2017, we have a lot on our plate, and we are glad that 

you are here to help us try to solve some of these issues. 

The NFIP provides flood insurance coverage to more than 5 million policyholders across the Nation. At the same time, it faces serious financial challenges as it is nearing $25 billion in debt. As a 

result, the Government Accountability Office (GAO) has considered 

the program to be a high-risk since 2006. Damage from flooding 

has become more frequent and more severe over the past 2 decades 

despite the NFIP floodplain management efforts. Also, homeowners 

with NFIP policies have been left with more questions than answers about how their families can rebuild and recover from recent 

catastrophic storms. As this committee and Congress as a whole 

moves forward with flood insurance reforms, we must do so with 

homeowners in mind across the country. 

Severe storms transcend the typical partisan divisions we see on 

Capitol Hill. On this issue, Congress must move beyond political 

differences and put forward critical NFIP reforms to protect taxpayers and improve the program now, and very definitely for the 

future. 

As a Member of Congress from Florida, I am committed to ensuring that property owners have uninterrupted access to affordable 

flood insurance products which allow them to recover from devastating storms more quickly. I am also committed to ensuring that 

homeowners and communities have opportunities to mitigate 

against flood risks prior to a disastrous weather event. Mitigation 

is one of the best avenues that we can pursue. 

Thank you again, Mr. Chairman, for calling this important hearing, and I am excited about this opportunity to receive testimony 

from this diverse panel of witnesses. I yield back the balance of my 

time. 

Chairman DUFFY. The gentleman yields back. We now welcome 

our witnesses today. For introductions, first we have Ms. Melissa 

Luckman. Ms. Luckman is the director of Touro Law Center’s Disaster Relief Clinic, which provides pro bono legal services to Sandy 

victims. For over 4 years, Ms. Luckman has been helping homeowners navigate the NFIP’s process, seeing the program from the 

perspective of the policyholder. The Law Center has helped put 

over $2.3 million back into the Long Island community as a result 

of their work. 

4 

I now recognize the gentleman from New York, Mr. Zeldin, for 

the introduction of Mr. Terchunian. 

Mr. ZELDIN. Thank you, Mr. Chairman. It is my pleasure to introduce to the Housing and Insurance Subcommittee today Mr. 

Aram Terchunian. He is a resident of New York’s First Congressional District, and has over 30 years of experience in storm mitigation and costal restoration work. His company, First Coastal, 

deals with the NFIP on a daily basis, helping homeowners navigate 

the complicated process and red tape they face when seeking an 

improvement in their premiums after an investment has been 

made to elevate a home or take other steps to protect a property. 

He is also the wildlife commissioner of the Village of West Hampton Dunes, a coastal community where storm mitigation is top priority. Many homeowners rely on the National Flood Insurance Program. I thank Aram for being here today to share his experience 

and perspective with our subcommittee on this important topic, 

and I yield back. 

Chairman DUFFY. Our next witness is Mr. Chad Berginnis, the 

executive director of the Association of State Floodplain Managers, 

also from the great State of Wisconsin. With nearly 25 years of experience, he is a nationally recognized expert in natural hazard 

management, flood-loss reduction, and land use planning at the 

State, local, and private sector level. Welcome. 

I now want to recognize, Mr. Ross, our vice chairman, for the introduction of Mr. Hecht. 

Mr. ROSS. Thank you, Mr. Chairman. And it is my pleasure to 

introduce to the Housing and Insurance Subcommittee Mr. Evan 

Hecht, the founder and CEO of the Flood Insurance Agency, which 

is based in Gainesville, Florida. They wrote their first private flood 

insurance policy in our State on October 24, 2013. Today, they have 

over 3,285 active private flood market policies in Florida. Visiting 

your company’s website, I am very impressed with the positive response your flood insurance policies have received. Florida homeowners deserve more choices when it comes to flood insurance. I 

am excited for the subcommittee to receive your testimony and for 

you to be able to provide a perspective outlining the unique needs 

of our State and the benefits homeowners can receive from an increase in private flood options. Thank you, Mr. Hecht, for joining 

us, and I yield back the balance of my time. 

Chairman DUFFY. The gentleman yields back. The witnesses will 

now be recognized for 5 minutes to give an oral presentation of 

their testimony. And without objection, the witnesses’ written 

statements will be made a part of the record. Once the witnesses 

have finished presenting their testimony, each member of the subcommittee will have 5 minutes within which to ask the panel questions. 

On your table, there are three lights: green means go; yellow 

means you have one minute left; and red means your time is up. 

With that, Ms. Luckman, you are now recognized for 5 minutes 

for your oral presentation. 

5 

STATEMENT OF MELISSA H. LUCKMAN, DIRECTOR, DISASTER 

RELIEF CLINIC, TOURO LAW CENTER 

Ms. LUCKMAN. Good afternoon, Chairman Duffy, Ranking Member Cleaver, and members of the subcommittee. My name is Melissa Luckman. I am the director of the Touro Law Center Disaster 

Relief Clinic. While we assist homeowners with various categories 

of assistance, flood insurance has always been our primary focus. 

I want to thank you for the opportunity to testify about the National Flood Insurance Program, and to provide suggestions for reform as we quickly approach the September 2017 expiration of this 

program. To date, we have spoken with over 5,000 households, and 

have represented over 1,400 homeowners with various Sandy 

issues. We have provided assistance to homeowners with supplemental insurance claims, flood insurance appeals, flood insurance 

litigation, and most recently, assistance with the FEMA Sandy 

claims review process. 

First and foremost, I would like to state that I do believe the 

NFIP should be reauthorized as it provides a valuable subsidized 

flood insurance policy to thousands of homeowners in the United 

States. However, there must be significant reform to ensure the 

program functions in a more efficient manner than it does today. 

The greatest lesson learned from my involvement with flood insurance claims is the simple concept of getting it right from the start. 

It is imperative that we shift our focus from a reactive response to 

proactive education to ensure a full and complete recovery to create 

a more sustainable future, not only for our country, but also for the 

National Flood Insurance Program. 

My proposals for reauthorization are as follows: first, I believe 

there should be a standardized requirement of education and certification for all actors connected to an NFIP policy, which would 

include WYO staff adjusters, independent adjusters, engineers, and 

sales agents. Standardization and continued educational requirements for all actors engaged would implement quality control 

among those participating in the NFIP. 

Next, I believe there needs to be additional requirements of policyholder acknowledgment and inspection at the inception of an 

NFIP policy. In the wake of Sandy, policyholders voiced a host of 

complaints with regard to their flood insurance coverage. Those 

most commonly expressed were that they carried a structure policy 

of $250,000 when they didn’t have a mortgage, or a mortgage of 

under that amount; that they believed that they had contents coverage, which they actually did not have; and that they were not 

aware of the limitations on basement coverage. Quite often, policyholders who could barely afford their premiums felt the cost was 

not worth the coverage. A simple solution to these issues is a requirement that all NFIP policies be accompanied by an acknowledgment which must be executed by the policyholder and the sales 

agent at the inception of a policy which speaks to these issues. 

I also believe that there is a necessity for a baseline photographic 

inspection which should take place at the inception of an NFIP policy. Similar to the issuance of a homeowner’s insurance policy, 

there should be the requirement of a photographic inspection completed for the property for which flood insurance is being sought to 

ensure that the information set forth in the application is correct. 

6 

With regard to the claims and appeals process, I have proposed 

five reforms in my written statement, but would like to discuss two 

here today. 

First, I believe a policyholder should be advised in advance who 

the adjusting and engineering companies will be who will be assigned to their claim. Thereafter, the homeowner should be afforded a reasonable opportunity to research and investigate that 

company with the option to veto and request another company be 

reassigned. 

Second, I believe that the appeals process should be handled by 

a neutral arbitrator who is not employed by FEMA. With regard 

to mitigation and the increased cost of compliance, post-Sandy, we 

saw two items that homeowners struggled with the most, and that 

is the cost of accessibility, post elevation, and additional costs policyholders face when complying with local building codes. I believe 

that these are two very important items that policyholders need for 

recovery which could potentially be covered under ICC coverage 

without the trigger of substantial damage. The hot topic postSandy, of course, is litigation costs, and who covers those costs. I 

do believe that policyholders who act in good faith through the submission of a claim, throughout the appeals process, and are forced 

to pursue litigation, should be compensated with reimbursement of 

legal fees. 

I have reviewed the recently introduced legislation by Congresswoman Velazquez, and I believe that Congress should pass this legislation or adopt many of these ideas into the final reauthorization 

bill. That bill, and my proposals here today, are common-sense reforms which will lead to a stronger and more cost-effective NFIP. 

To summarize my comments here today, getting it right from the 

start is the key which will allow a quicker and stronger recovery, 

as well as a more resilient future. 

[The prepared statement of Ms. Luckman can be found on page 

73 of the appendix.] 

Chairman DUFFY. Thank you, Ms. Luckman. The Chair now recognizes Mr. Terchunian for 5 minutes. 

STATEMENT OF ARAM V. TERCHUNIAN, COASTAL GEOLOGIST 

AND ENVIRONMENTAL SCIENTIST 

Mr. TERCHUNIAN. Good afternoon. My name is Aram Terchunian, 

and for 35 years, I have been helping people identify coastal risk, 

mitigate coastal risk, and recover and adapt when risk becomes reality. Thank you to Chairman Duffy, Ranking Member Cleaver, my 

Congressman, Lee Zeldin, and the subcommittee for this opportunity to speak on the topic of flood insurance reforms. Congressman Zeldin has been a true leader in working with our communities and the U.S. Army Corps of Engineers to help to mitigate 

against future disasters. 

The NFIP has helped save lives, properties, and resources 

through a classic carrot-and-stick program of incentives and regulations. However, changing technology, science, and policy have created new opportunities to improve that system. In a nutshell, 

newer buildings that are constructed and maintained to the NFIP 

standards and ICC building codes are experiencing far less flooding 

damage than older legacy homes that do not meet present standVerDate Nov 24 2008 16:57 Jan 09, 2018 Jkt 027204 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\27204.TXT TERI
7 

ards. Moreover, those areas protected by well-designed, built, and 

maintained flood risk reduction projects, such as beach and dune 

restoration, experience significantly less damage during extreme 

events. 

The goal, in my opinion, is to decrease the number of pre-FIRM 

substandard structures and increase flood protection and resiliency 

projects. West Hampton Dunes is a small, 2-mile village on the barrier island of Long Island. In 1992, a coastal storm pierced the island, creating a one-mile inlet and destroying almost 300 homes. 

At the time, West Hampton Dunes was used as the poster child for 

how to mismanage a beach. Today, this humble community is the 

blueprint for coastal management and flood insurance modernization. It is a net economic generator to the local, regional, and national economy, as well as the NFIP premium pool. The barrier island was rebuilt through a beach and dune project engineered and 

supervised by the U.S. Army Corps of Engineers. The Village then 

embarked upon an aggressive program of sand fencing and beach 

grass planting that increased the dune. The Village also implemented zoning measures that allowed property owners to build as 

much as 4 feet above the NFIP 100-year flood level without a zoning variance. 

In the 22 years since the project was constructed, there have 

been zero houses lost and only minimal flood damage claims, even 

after Superstorm Sandy. This is an example of how integrating 

flood protection projects with locally implemented NFIP and zoning 

regulations, and locally driven beach and dune enhancements, resulted in a resilient community that is a net benefit to the NFIP. 

Conversely, surrounding communities that did not have an engineered flood protection project, and were populated by a substantial number of pre-FIRM buildings, suffered terribly during Sandy. 

The human anguish in these areas exceeded even the substantial 

flood insurance, infrastructure, and natural resource losses. 

Local communities are incentivized if they can provide increased 

flood and erosion protection to their community at minimal cost. 

However, many communities do not have the technical staff to prepare and review the community rating system applications. Aid to 

those communities and simplifying the CRS application process 

would benefit many policyholders at a small cost. Rewarding communities that streamline permitting under local zoning code when 

complying with NFIP flood mapping removes a tremendous cost 

and time impediment for homeowners. Pre-disaster mitigation 

planning is not being transformed into mitigation projects because 

of a lack of funds. The effect of recent premium increases is disproportionately impacting middle- and lower-income families. The 

payback period to raise an existing pre-FIRM home into compliance 

is too long. As a result, homeowners do not elevate their homes before experiencing flood damage. Post-disaster programs, such as 

the increased cost of compliance coverage, are insufficient to elevate a typical home on Long Island, where costs run up to 

$200,000, and the program maximum is $30,000. 

Simply stated, we must convert more pre-FIRM homes to NFIPcompliant homes faster, and policyholders are the key to the process. Homeowners will elevate and flood-proof their homes before 

the flood if it is in their immediate financial interest. The financial 

8 

stick of increased premiums without a commensurate financial carrot will not work. It is not reasonable to expect a consumer to invest up to $200,000 for an annual payback of $4,000 to $5,000. In 

summary, the NFIP plays a critical role in protecting the citizens 

of our Nation. Thank you very much. 

[The prepared statement of Mr. Terchunian can be found on page 

85 of the appendix.] 

Chairman DUFFY. Thank you. The Chair now recognizes Mr. 

Berginnis for 5 minutes. 

STATEMENT OF CHAD BERGINNIS, EXECUTIVE DIRECTOR, 

ASSOCIATION OF STATE FLOODPLAIN MANAGERS 

Mr. BERGINNIS. Thank you, Chairman Duffy, Ranking Member 

Cleaver, and members of the subcommittee for holding this important hearing and inviting the Association of State Floodplain Managers (ASFPM) to testify. I am Chad Berginnis, executive director 

of ASFPM, whose 17,000 members include many of the boots-onthe-ground State and local officials who implement the NFIP. 

I will begin by saying that the NFIP is the Nation’s most widely 

implemented flood risk management program. In fact, I almost 

wish it had a different name because it works to reduce risk in four 

important ways: making publicly available mapping to show risk 

areas; community adoption and enforcement of flood risk reduction 

standards; risk reducing mitigation of existing at-risk structures; 

and finally, the sale of flood insurance. 

The program benefits not only policyholders, but the public and 

communities. For example, buildings compliant with NFIP standards result in nearly $2 billion a year in losses avoided nationally. 

The 1.2 million miles of flood mapping in the country allow not 

only policyholders, but citizens, emergency managers, planners, 

public works officials, and others to know the flood risks in their 

areas and to take action to reduce those risks. 

Mitigation programs, increased costs of compliance, and flood- mitigation assistance are cost-effective, resulting in $5 in benefits 

for every $1 invested, and have provided $1.3 billion in mitigation 

funds for reducing risks of thousands of structures since 1997. 

These measures not only help individual property owners, but 

strengthen neighborhoods and communities, and reduce blight. 

I say all of this to convince you that this nearly 50-year-old program has very important benefits that serve taxpayers and policyholders alike. Our written testimony offers 20 specific reform ideas, 

and for the balance of my testimony, I want to highlight four of the 

areas that are most important to ASFPM. 

The first is to deal with the debt, and not only the current debt, 

but also to create long-term solutions to ensure that we effectively 

deal with catastrophic events in the future. 

The second is to reaffirm the commitment and enhance the Flood 

Mapping Program. One of the most critical and important elements 

of the 2012 Biggert-Waters Reform Act was the authorization of 

the National Flood Mapping Program. It was the absolute right 

policy, yet we have not yet finished the job of mapping the country. 

Chairman Duffy, many of the flood maps in your rural district are 

not modernized. The problem is that the priorities of the mapping 

program to date have been to map existing at-risk areas. As a reVerDate Nov 24 2008 16:57 Jan 09, 2018 Jkt 027204 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\27204.TXT TERI
9 

sult, mapping never gets ahead of development, while these areas 

are still cornfields, and instead, sets up a dynamic that makes everybody mad. 

When development occurs, the floodplain is put on an area by 

FEMA, and everybody down the line from property owners to REALTORS® to local officials are upset because they are now not only 

in the floodplain, but have to deal with flood insurance standards 

after the fact. We still have 2.3 million miles of unmapped streams, 

rivers, and coastlines in the United States, many residual risk 

areas that are not mapped, and some mapping information that is 

not publicly available. We must do better and we need your help. 

The third is to strengthen the mitigation components of the 

NFIP and to use them more often in a pre-disaster setting. This 

is particularly true with increased cost of compliance. Additionally, 

ICC should be expanded in application and scope, including raising 

the maximum ICC amount, and clarifying that it is available in addition to the maximum claim amount. 

Finally, ASFPM believes there are reforms needed related to private insurance and that they should be focused on ensuring that 

other elements of the NFIP are not weakened, and that the NFIP 

and private flood are on equal playing field, and that through competition and cooperation, we grow the overall policy base. To this 

end, there are two critical reforms. The first is a requirement that 

all private policies sold to meet the mandatory purchase requirement of the NFIP include an equivalency fee that is equal to the 

Federal policy fee on NFIP policies. Currently, this fee pays for 100 

percent of the floodplain management in the NFIP, and roughly 50 

percent of the mapping budget. If the NFIP ultimately loses policies due to competition, there will be fewer resources to help communities and States with floodplain management and mapping. 

The second is a requirement that private flood insurance policies 

meet mandatory purchase requirement to only be sold in NFIP-participating communities. Currently, most communities in the country participate in the NFIP, so while the private market is in the 

early stages, let’s enlist private industry to be partners to encourage communities to stay in the program. 

Because our members have enrolled nearly all of the 22,000 communities in the NFIP, we uniquely understand their reasons for 

joining. The primary reason is accessibility to flood insurance. 

ASFPM fears that if private flood insurance is available with no requirement to join the NFIP, communities could drop out of the program. Thank you for listening to our concerns, and we will be 

happy to answer any questions. 

[The prepared statement of Mr. Berginnis can be found on page 

38 of the appendix.] 

Chairman DUFFY. Thank you. The Chair now recognizes Mr. 

Hecht for 5 minutes. 

STATEMENT OF EVAN HECHT, CHIEF EXECUTIVE OFFICER, 

THE FLOOD INSURANCE AGENCY 

Mr. HECHT. Thank you, Chairman Duffy, Ranking Member 

Cleaver, and members of the subcommittee. My name is Evan 

Hecht, and I am the CEO of the Flood Insurance Agency. Thank 

you for this opportunity to testify. The mission statement of my 

10 

company is to provide affordable flood insurance to the maximum 

number of property owners and business owners in the United 

States. We have been an active marketing participant of the WriteYour-Own National Flood Insurance Program for almost 30 years. 

For the past 31⁄2 years, we have underwritten and distributed private market flood, an alternative to FEMA flood insurance. 

We are one of the largest, if not the largest, writer of private 

flood insurance currently in the United States, providing over $3.5 

billion of property coverage to more than 18,500 consumers. 

Private flood insurance alternatives to FEMA’s NFIP have now 

become commonplace. They first became available simultaneously 

with the unintended consequences of the Biggert-Waters Flood Insurance Reform Act in October of 2013. Our company is just one 

private market provider, and every day, we renew a previously 

written policy every 6 minutes, and we write a new policy every 10 

minutes. The general public’s knowledge of the existence of alternatives to the NFIP is readily evidenced, considering a unique user 

visits our website every 52 seconds. 

While it is understandable that some might believe the private 

market would only want to write FEMA’s best risks, and leave all 

the poor risks in the NFIP, from our point of view, almost exactly 

the opposite is taking place. Nearly all of our 18,500 risks were 

FEMA-subsidized policies, the policies FEMA believes are 45 to 50 

percent underpriced. Our risk selection is based on reports from 

the GAO to Congress summarizing total premiums received and 

claims paid from 1978 to 2011, comparing actuarial results to subsidized results. 

The subsidized premium increases over the past 10 years have 

far outpaced the actuarial premium increases during the same time 

period. I have provided three examples of actual rate increases. An 

actuarially rated policy for a property in California has increased 

65 percent over 12 years, while a subsidized rated policy written 

in Illinois has increased 153 percent over 11 years, and another 

subsidized rated policy written in Louisiana has increased 285 percent over 10 years. All of our 18,500 private market flood policies 

are written with Lexington Insurance Company, a member of AIG, 

or Lloyd’s of London. Both are surplus lines insurers. 

More than 2,000 of our policies are in Pennsylvania. Pennsylvania Insurance Commissioner Teresa Miller, in her recent letter 

to interagency financial regulators states: ‘‘I would note that even 

with the increased surplus lines activities for residential coverage 

over the past 11 months, the Pennsylvania Insurance Department 

has not received a single complaint concerning a surplus lines carrier.’’ 

The recent flooding in and around Baton Rouge, Louisiana, is the 

fourth most costly event in the history of the NFIP, and was a good 

test case for the surplus lines private flood market—381 of our private policies suffered flood damage, totaling over $30 million. Our 

average time to settle a claim was 66 days. To the best of my 

knowledge, zero complaints have been filed with the Louisiana Department of Insurance. I have included, in my written testimony, 

two of the many testimonials clients take the time to post on our 

website, one saving a client enough money to stay in their home, 

11 

and the second, offering to cook us dinner due to a positive claims 

experience. 

I urge Congress to pass the Flood Insurance Market Parity and 

Modernization Act that passed the full House of Representatives 

with bipartisan support during the last session. This legislation 

provides much-needed clarity to support the growth of a robust private marketplace. 

I thank the members of the subcommittee for allowing me to testify before you today. I wholeheartedly support your mission and 

offer you my continued efforts should you request them. 

[The prepared statement of Mr. Hecht can be found on page 58 

of the appendix.] 

Chairman DUFFY. Thank you, Mr. Hecht. And thank you to the 

whole panel for your testimony. The Chair now recognizes himself 

for 5 minutes for questions. 

Mr. Hecht, as you mentioned, Mr. Ross has a piece of legislation 

which passed in the last Congress—and he has introduced it in this 

Congress—making it easier for lenders to accept private flood insurance. Do you think his bill will go a long way to helping us create a private market? 

Mr. HECHT. I do, Mr. Chairman. The bill does two very important things: it clarifies that surplus lines insurers would qualify as 

acceptable private policies; and the very last paragraph of that bill 

talks about recognizing private policies as continuous coverage so 

that someone leaving the National Flood Insurance Program coming into the private marketplace would have the ability to go back 

into the National Flood Insurance Program with no penalty. Both 

of those would help a robust private market. 

Chairman DUFFY. And so beyond Mr. Ross’ bill, anything else 

you think we could do or should include in legislation that would 

help develop a private market? If not, that is okay. This is the silver bullet. 

Mr. HECHT. I think that there are interpretations currently that 

FEMA is making that are detrimental to a private market. FEMA 

has taken three very specific actions just since we started writing 

policies that make it much more difficult. First, they removed a 

cancellation provision. Previously, an NFIP policy could be cancelled and replaced with a private market policy. Policies can no 

longer be cancelled for that reason. 

Second, policies that are prepaid, so a FEMA flood policy when 

it renews, the Write-Your-Own companies, or the NFIP direct, 

issues renewal bills for those policies 65 to 70 days before the policy renews. Most policies are escrowed by lenders. When the lender 

pays the renewal premium, sometimes 60 days in advance, sometimes 45 days in advance, FEMA has taken the position that once 

that policy goes into force, the policyholder is no longer allowed to 

cancel that policy. 

Chairman DUFFY. Does the private market work like that? 

Mr. HECHT. No. 

Chairman DUFFY. I want to quickly move on to a couple more 

questions. Roy Wright testified last week, and he commented that 

compensation for Write-Your-Owns could be decreased. Do you 

agree with that? 

Mr. HECHT. I absolutely agree with that. 

12 

Chairman DUFFY. What would a competitive compensation be for 

the Write-Your-Owns, do you think? 

Mr. HECHT. We pay every one of our 2,000 agents a 10 percent 

commission. 

Chairman DUFFY. How much? 

Mr. HECHT. Ten percent. 

Chairman DUFFY. Ten percent. Okay. I want to move on to the 

repeated-loss properties. Mr. Terchunian, basically, we have 85,000 

properties that account for 24 percent of the losses of the NFIP, or 

basically 2 percent of properties that account for 24 percent of the 

loss. Some have said, well, listen, if you are paying for a property’s 

value 2 or 3 times, shouldn’t you be taking some action to move 

them out of the flood program, or do we have to spend dollars up 

front to help mitigate these properties? But what do you think we 

should do with this small number of properties that account for 

such a large portion of the cost of the NFIP? 

Mr. TERCHUNIAN. That is the case across-the-board, how do you 

deal with this repetitive-loss issue? Clearly, if you have that small 

a number of properties, I think you can focus an extreme effort into 

sitting down with each one of those property owners and trying to 

help them through the process of getting their homes elevated. I 

have dealt with a lot of property owners after the fact who are just 

thrilled with the fact that they got their house elevated. They are 

so much more comfortable. They are so much happier where they 

are after the fact, but you couldn’t get them there before the disaster. We are talking about people who have repeated the same 

thing over and over again. I really believe that you need, in the 

same way the NFIP does it now, a carrot and a stick. Listen, we 

will help you, and this is the path to get it done. If you don’t want 

to do it, it is going to cost you more money. 

Chairman DUFFY. Okay. Back to Mr. Hecht. Looking at new construction, if we stand up a private market, at some point in the future, whether it is 3 or 4 or 5 years down the road, do you have 

an opinion on whether new construction should be allowed into the 

NFIP, or new construction should be driven to the private market? 

And could the private market take those newly constructed homes? 

Mr. HECHT. I listened to Mr. Wright come up with that suggestion. I don’t agree with the suggestion. I don’t know of a way that 

you would make it mandatory for the private market to insure 

those properties. If they are not eligible to be insured in the National Flood Insurance Program, how can you guarantee that they 

are going to have coverage at all? 

Chairman DUFFY. Then should they be built? 

Mr. HECHT. I think you are talking about something that is already built. 

Chairman DUFFY. No. I am talking about new construction. 

Mr. HECHT. Right. So you mean you would need to have flood insurance prior to getting a building permit? 

Chairman DUFFY. We will circle back. My time is over, and I 

want to be respectful. I am now going to recognize the gentlelady 

from New York, Ms. Velazquez, for 5 minutes. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman, and thank you, Mr. 

Cleaver, for allowing me to go next. 

13 

Ms. Luckman, you and I agree that policyholders should have advance notice of an adjuster or engineer who is coming to inspect a 

flood claim, and be provided with an opportunity to veto and request reassignment. I have included this idea in my legislation, 

H.R. 1423. Can you explain why this reform is necessary in light 

of the fraud and underpayment of claims that took place after 

Sandy? 

Ms. LUCKMAN. What happened after Sandy was we saw the same 

bad actors repetitively hitting multiple homes on the same block, 

and they really—they weren’t punished at all. I think that homeowners should have advance notice of who is going to be assigned 

to their claim with the reasonable opportunity that they can research that company, and see if they were connected back to Hurricane Sandy fraud, and see if there is some other type of fraud. And 

what we have seen working at the clinic is that a lot of this information is available online. So I think it is only fair that a homeowner has a reasonable opportunity to look into those adjusting 

and especially engineering companies. An engineering report can 

make or break a flood insurance adjustment when you are talking 

about a foundation. So they should absolutely be provided with 

that right. 

Ms. VELAZQUEZ. Thank you. Ms. Luckman, following Sandy, a 

number of New York policyholders who have been denied coverage, 

or suspected their claim has been underpaid, feel they do not have 

the financial resources to assert a legal claim against the WriteYour-Owns. In response, my legislation provides for the reimbursement of legal fees and litigation expenses for prevailing policyholders. Do you think the reimbursement of legal fees and litigation expenses will level the playing field for policyholders against 

the Write-Your-Owns, and empower them to pursue a potential 

claim? 

Ms. LUCKMAN. Yes. Reimbursement of legal fees would be a huge 

advantage for homeowners. My clinic is State-funded. We are permitted to cover all filing and litigation costs for our homeowners, 

which can run upwards of $800 to $1,000. Many of these homeowners who were shortchanged immediately post-storm, they did 

not have those funds to go into Federal court and to pay those fees. 

So if a homeowner knows that they have acted in good faith, they 

have submitted a claim, and they have gone through the appeals 

process, and they are still being improperly underpaid, if they 

know that they can have legal costs reimbursed, it will level the 

playing field. And I think that, quite honestly, it would put some 

skin in the game for the Write-Your-Own carriers, who, right now, 

they are not any loss. Unfortunately, the Federal Government covers their legal costs, and there is no one left helping these homeowners with their litigation costs. 

Ms. VELAZQUEZ. Thank you. And my last question, Ms. Luckman 

is, following Sandy, a number of policyholders voiced complaints regarding the coverage they thought they had, versus the coverage 

they actually had. In response, my legislation, H.R. 1423, calls for 

a disclosure document, an acknowledgment document or company, 

the purchase of a standard flood insurance policy. Based upon your 

work with Sandy victims, will these documents provide policyVerDate Nov 24 2008 16:57 Jan 09, 2018 Jkt 027204 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\27204.TXT TERI
14 

holders with a better understanding of what is and is not covered 

under the flood policy? 

Ms. LUCKMAN. Yes, absolutely. A separate acknowledgment that 

a homeowner and a sales agent would have to execute at the time 

that they take out a National Flood Insurance Program policy 

would absolutely make them more educated on what their coverage 

is on the home. What we saw after Sandy was a lot of litigation 

from homeowners against their sales agents. They were really not 

aware of whether they had contents coverage, whether they didn’t, 

what the basement limitations were. Many homeowners unfortunately were carrying $250,000 of structure coverage when maybe 

they didn’t necessarily need that coverage because they didn’t have 

a mortgage, and then we saw a lot of lawsuit filed against sales 

agents. 

So I think a separate acknowledgment form would protect everybody. I think it would protect the sales agents selling the National 

Flood Insurance products. I think it would protect the homeowners, 

so at least that they are on notice, that they are aware of what 

their policy says and what their true coverage is. And I think it results in less litigation, which would benefit the National Flood Insurance Program. 

Ms. VELAZQUEZ. Thank you. I yield back. 

Chairman DUFFY. The gentlelady yields back. The Chair now recognizes the Vice Chair of the subcommittee, the gentleman from 

Florida, Mr. Ross, for 5 minutes. 

Mr. ROSS. Thank you, Mr. Chairman. Mr. Hecht, I appreciate 

your testimony because it seems to me that what your insurance 

company is doing is that they are actually assessing the risk independent of FEMA. Is that pretty accurate? 

Mr. HECHT. That is accurate. 

Mr. ROSS. And in that assessment of risk, you look at the subsidized risk as opposed to the actuarial adequacy of the risk, and 

it appears as though, and according to your testimony, that the bad 

risks are really being accepted by the private market. Is that also 

correct? 

Mr. HECHT. Correct. 

Mr. ROSS. And in defining your rate—and I am not asking you 

to give up anything proprietary—you look at factors, or would you 

look at factors other than just elevations and mapping that FEMA 

does? 

Mr. HECHT. Yes. 

Mr. ROSS. In fact, you probably get a little bit more granular, 

don’t you? 

Mr. HECHT. Yes. 

Mr. ROSS. Because your capital is at risk, is it not? 

Mr. HECHT. Correct. 

Mr. ROSS. And you want to make sure that what you do is right, 

not only for the consumer, but also for the capital that you are trying to protect? 

Mr. HECHT. Correct. 

Mr. ROSS. Which is why we call it insurance, because it is risk 

management and not relief, which is what I think a lot of people 

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15 

ance. And getting back to insurance, what incentives do you offer 

for mitigation, if any? 

Mr. HECHT. We do not have a mitigation offer at this point. We 

do have credits for deductibles. We do have credits for— 

Mr. ROSS. So you can have different various deductibles? 

Mr. HECHT. We do. We also give credit for insuring a home fully 

to value. 

Mr. ROSS. You go over the $250,000? 

Mr. HECHT. We do. 

Mr. ROSS. And you do your own claims management, too, don’t 

you? 

Mr. HECHT. We do. 

Mr. ROSS. So you have over 2,000 agents selling, and you have 

your own claims management, and you testified today that you can, 

in one case, you resolved all those claims within an average of 66 

days, which is pretty phenomenal, isn’t it? 

Mr. HECHT. 66 days was satisfactory, yes. 

Mr. ROSS. But you are in the private market, okay, which is why 

we need you. And we talked about the Flood Insurance Market 

Parity Act, and I appreciate your comments on that, and I appreciate the chairman’s comments on that. Would it not be appropriate 

to get this put into law sooner than the expiration of the National 

Flood Insurance Program at the end of September? 

Mr. HECHT. It affects us every day, Congressman. It would help 

us if it were passed immediately. 

Mr. ROSS. And not only would it help your company, but it would 

also help the consumers, and it would show this Congress that the 

private market not only has the capacity, but the appetite to enter 

this flood insurance market that is affordable and available to all 

consumers? 

Mr. HECHT. I am an advocate of your legislation. 

Mr. ROSS. Thank you. Let’s talk about something else. One of the 

things that Roy Wright testified to last week was that 50 percent 

of those who are receiving policies, who are in mandated flood insurance zones, let their coverage lapse, and there seems to be no 

enforcement. Does anybody on the panel have a suggestion as to 

how we maintain continuous coverage so we don’t have a lapse in 

coverage and an even greater liability to the National Flood Insurance Program? Ms. Luckman, I will start with you. 

Ms. LUCKMAN. With regard to coverage lapses, I think that 

homeowners need to be aware of their renewal timeframe, and I 

think that better notice needs to go out to them. I believe right now 

they get a 90-day notice. 

Mr. ROSS. And that is a notice from FEMA, right? 

Ms. LUCKMAN. Right. I believe that is a notice that has to go 

from Write-Your-Owns (WYOs) or the NFIP— 

Mr. ROSS. And it should go to additional insureds, should it not, 

such as the mortgagee? 

Ms. LUCKMAN. Absolutely. 

Mr. ROSS. And there should be an enforcement of that, should 

there not be? 

Ms. LUCKMAN. Absolutely. 

Mr. ROSS. Mr. Terchunian? 

16 

Mr. TERCHUNIAN. Again, thank you, Mr. Ross. I think your question is dead on point. We all get mortgage statements, and associated with that is the homeowner’s insurance, and if you don’t have 

it, the bank gets it for you and bills you. I don’t see why we can’t 

do it the same way with flood insurance. 

Mr. ROSS. I agree. Almost like an escrow? 

Mr. TERCHUNIAN. Exactly. 

Mr. ROSS. At least we know we maintain coverage. 

Mr. TERCHUNIAN. Exactly. 

Mr. ROSS. Mr. Berginnis? 

Mr. BERGINNIS. This has been a recognized issue within the program in every reform at least since 2004. I might suggest that at 

least when you look at the buckets of the mandatory purchase, you 

certainly have the regulated lenders, but you also have direct agency lending. And then you also have kind of this thing that is over 

here where folks who receive disaster assistance are supposed to 

purchase and maintain coverage as well. And at least in those latter two areas, we really do kind of question the amount of oversight that is being exercised right now. 

Mr. ROSS. So we need greater oversight of the continuous coverage? 

Mr. BERGINNIS. Yes, sir. 

Mr. ROSS. I agree with that. Mr. Hecht, any suggestions? 

Mr. HECHT. I think the percentage of penetration of mandatory 

purchase is understated. There is a robust lender-placed— 

Mr. ROSS. Forced-placed? 

Mr. HECHT. Forced-placed, flood insurance, and I believe that is 

where a lot of those policies are. 

Mr. ROSS. So would the forced-placed be through the private 

market, or would it be through the NFIP? 

Mr. HECHT. It could be through the NFIP, through the MPPP 

program, but 99 percent of it currently is in the private market. 

Mr. ROSS. I appreciate that. My time is up. I yield back. 

Chairman DUFFY. The gentleman yields back. The Chair now 

recognizes the ranking member of the full Financial Services Committee, the gentlelady from California, Ms. Waters, for 5 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. I really do 

believe that we need to have some major changes in the National 

Flood Insurance Program, and I am absolutely focused on the debt 

and trying to understand why it is that we have a $25 billion debt 

that we are paying $400 million a year interest on that debt, a 

total of $6 billion in principal and interest since 2006. And if I understand correctly how the program operates, when FEMA needs 

money because of the catastrophes that we have, we have to go to 

the Treasury and we have to borrow the money. And so we are 

paying interest to the Treasury, and we go back and borrow from 

the Treasury, and we have a $25 billion debt, and we have this relationship that doesn’t make good sense to me. I want to know 

from Mr. Berginnis, don’t you think it is time we forgive this debt, 

and if we forgive the debt and we were not paying this interest, 

couldn’t we put that money into mitigation? What do you think? 

Mr. BERGINNIS. Yes, Congresswoman, absolutely yes. In the history of the program, I think it is important to recognize that the 

program, as designed, was not designed to deal with the cataVerDate Nov 24 2008 16:57 Jan 09, 2018 Jkt 027204 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\27204.TXT TERI
17 

strophic loss here. And, in fact, in the 1980s, there were a couple 

of times that Congress did forgive the debt in the program. But 

then from the late 1980s to 2004, the program operated as it was 

designed to. Of course, we had the Florida hurricanes and Hurricane Katrina, and the debt skyrocketed from that point. One of the 

points in our testimony is that had Congress forgiven the debt at 

the time, and I believe the debt was about $18.5 billion then, then 

there would have been resources available likely in Sandy and even 

in 2016 to pay the claims that we have. 

This issue of not dealing with the debt, not only do we need to 

address it from the standpoint of the current program right now, 

but we need to have a longer-term framework to deal with catastrophic losses, because even though FEMA has implemented the 

financial risk management tools that Congress has required of it, 

I am still concerned about these catastrophic events. 

Ms. WATERS. Okay. As I understand it, there are several ways 

that mitigation is done. Some mitigation is done by FEMA. Some 

is done by the Army Corps of Engineers. And I think I talked to 

some locals down in Louisiana at one point when I visited, about 

them participating in mitigation efforts. How does this all work? 

Does the Corps of Engineers work with FEMA to make some determination about what mitigation can be done and where? 

Mr. BERGINNIS. It works in a variety of ways. Typically, in larger 

mitigation projects for bigger communities, communities will tend 

to work with the Corps of Engineers a little bit more. They can 

work with them exclusively. But the FEMA mitigation programs 

are available across the country to communities large and small, so 

we tend to see that smaller communities will tend to utilize the 

FEMA mitigation programs. There are some cases where the mitigation project may implement several different kinds of methods, 

and you actually match funding for multiple programs, and then 

supplement that with local resources. So it really can vary widely 

across the country, but that is also why we need the different authorizations for mitigation. 

Ms. WATERS. Lastly, I want to ask—I think there is something 

that I agree with Mr. Duffy on, and this is quite unusual, but I understand he may be interested in limiting development in floodplain areas. I think I agree with that. What do you think? 

Mr. BERGINNIS. One of the original purposes of the program was 

to steer development away from high-risk hazard areas, and it is 

the one unfulfilled part of the program itself. And so, to the extent 

that the program can help make that a reality, we would definitely 

agree with that. 

Ms. WATERS. Thank you. I yield back. 

Chairman DUFFY. The gentlelady yields back. We agree on more 

than just that, Ranking Member. 

The Chair now recognizes the gentleman from California, Mr. 

Royce, for 5 minutes. 

Mr. ROYCE. Thank you, Mr. Chairman. Mr. Hecht, you testified 

that, of course, no private market provider will choose to write 

FEMA’s severe repetitive loss properties, and really, that is no surprise, because repeatedly, flood properties make up 1 percent of 

those insured by NFIP, but it represents 25 to 30 percent of all the 

flood claims, and so they are not a good risk for private insurers, 

18 

or for the American taxpayer. And today, Congressman Blumenauer and I introduced a bill, H.R. 1558, the Repeatedly Flooded 

Communities Preparation Act, and the concept here is to 

proactively reduce flood risk, instead of continuing our current 

model of rebuilding these properties over and over again. The way 

we do it, and let me just give you by way of example, we have a 

couple of cities here, Tulsa and Charlotte, both have had very pronounced success in decreasing flood risk, because what they did 

was proactively take on a plan for storm water management—that 

is the first thing they did; promoting voluntary buyouts, sometimes 

that can be effective; reviewing new development proposals for 

flood impacts every time one came up; and steering development 

away from risky areas. 

So that is part of their plan. Many of their peers, though, many 

of the other cities and communities have not kept up with that 

kind of approach. So what this bill would require is that communities with a large amount of repeatedly flooded properties implement plans to have that city council or those counties put forward 

that plan for lowering flood risk, and then in terms of keeping the 

records, holds them accountable for failing to act. That is what the 

bill does. And I would just ask for thoughts on this issue, and I also 

would ask Mr. Hecht a follow-up question here that I wanted to get 

to, and that is, do you think the home-buying public truly grasps 

flood risk? Is this registering with them? Do they understand how 

subject to hazard their property is when they talk with their REALTOR®? Do they understand how flood risks change over time 

when areas nearby are developed, or when a forest fire might 

occur? And so, maybe I could ask the panel also on that aspect 

about recommendations for how we can change this lack of education on flood risk? Besides just what we can do at the county 

level or city level, how do we improve takeup rates for flood insurance and strengthen these mitigation efforts? 

Mr. HECHT. Let me address both of your questions. My statement 

that, of course, we would not want to write severe repetitive loss 

properties is a statement that we would not want to write severe 

repetitive loss properties at rates that were competitive with 

FEMA, because FEMA charges much too little for the severe representative loss properties. In the Wharton study last year regarding consumer recognition of flood risk, consumers actually think 

their property is going to flood more than it actually does. They 

overestimate that, but they underestimate the amount of damage 

that an actual flood would do. 

Mr. ROYCE. Would any other members of the panel like to jump 

in on that? 

Mr. BERGINNIS. Congressman Royce, we have taken a look at the 

legislation that you and Congressman Blumenauer have introduced, and actually, we are supportive, and one of the things that 

we like about it is that it does have a measure of accountability. 

Under current law, which comes from the Stafford Act, community 

mitigation plans are required to, at least, assess how many representative loss properties there are, but it doesn’t really require 

them to do anything about it. So I think the innovative element to 

this legislation is that it does have some requirements there to acVerDate Nov 24 2008 16:57 Jan 09, 2018 Jkt 027204 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\27204.TXT TERI
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tually do some planning and actually mitigation of those or face 

some potential consequences. 

In terms of the broader education and awareness of risk, and I 

go back to a statement I made in my testimony, we have to, first 

of all, map all of these areas in the country. Oroville Dam, I think, 

is a great example in California: 200,000 people evacuated, far beyond what the mapped floodplain showed. Yet how many of those 

people knew that they were in basically either a dam failure or 

dam release inundation zone? Probably none of them, because that 

information, while it has been produced, is not publicly available. 

Mr. ROYCE. Thank you. I thank the panel. Our time has expired. 

But transparency is part of this answer. Thank you very much, Mr. 

Chairman. 

Chairman DUFFY. The gentleman yields back. The Chair now 

recognizes the ranking member, the gentleman from Missouri, Mr. 

Cleaver, for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. Ms. Luckman, thanks 

for being here. Ms. Velazquez was talking about how helpful you 

had been to her community after Sandy. And she assured me that 

if I asked you this question, you were going to answer it in the 

fashion in which I wanted. 

We are seriously—and I think the chairman of the subcommittee 

would agree—dealing with the issue of mapping and mitigation activities. And so when we learned today that the President zeroed 

out in his budget discretionary appropriations for NFIP’s map of 

the mitigation activities, because we think that it would be devastating, what do you think we can do to enhance the program if 

it is zeroed out? 

Ms. LUCKMAN. I think this really goes back to education. I think 

if that, unfortunately, is the end result of his budget, I think we 

need to look to other sources of education that would or could appropriately advise a homeowner or a policyholder of their flood 

risks. 

Something that my statement speaks to is NFIP-certified agents. 

So I think that if you have a standardized education that is required by the NFIP, that information can be given to homeowners 

upfront, I think that would at least provide them with the same 

information that mapping and risk evaluation would. 

Mr. CLEAVER. But it wouldn’t—they are still going to have a serious problem, a homeowner problem. But— 

Ms. LUCKMAN. I think the only way to reduce that problem 

would be to increase ICC, maybe the scope of increased cost compliance, maybe allow homeowners to mitigate now. Instead of waiting 

until post-disaster, being able to mitigate their properties pre-disaster, I think, would at least put them in a safer spot that would 

raise them out of the flood zone, the immediate flood zone. 

Mr. CLEAVER. Mr. Terchunian? 

Mr. TERCHUNIAN. On that same question, I think FEMA has 

come a long way in their mapping program. I am a user of that 

program, and my clients use it and call me up and say, I looked 

at my property, and we start talking about the level of risk. 

That being said, just like in broadband, they need to go the extra 

mile. And I think that is an important aspect of bringing both the 

20 

education component but the actual mitigation component to the 

individual policyholder. 

Mr. CLEAVER. I think probably there are a number of Federal 

agencies that use FEMA, use the mapping. They don’t help pay for 

it. And now, nobody is going to pay for it if this is approved. Is this 

disastrous, Mr. Hecht? 

Mr. HECHT. Mr. Cleaver, as part of my written testimony, I suggested, similar to Senator Warren yesterday and some of the other 

panel members, that private policies are assessed a fee, the same 

policy fee that the Federal policy has, and that we remit that 

money to FEMA to augment the money that you have for the mapping. 

The private market is going to use independent mapping, but we 

are also going to have to rely on your mapping because of the mandatory purchase guidelines. So I am a big supporter of our participation in your effort. 

Mr. CLEAVER. In your testimony, Mr. Terchunian, you mention 

that the cost of elevating a home in Long Island is between 

$100,000 and $150,000. And I think everybody would agree—or 

most of us would agree that elevation is the best way to mitigate 

against flooding. It is time-consuming and very costly. Is there any 

way we can improve homeowner mitigation efforts? 

Mr. TERCHUNIAN. Yes, sir, Mr. Cleaver. I believe that we have 

to get ahead of the flood curve with these property owners. After 

a flood, there are so many different dislocations that occur: waiting 

for approval time; getting through the insurance process; and then 

having to go to a zoning board. 

If we can figure out a way to incentivize the property owner before a flood occurs, their life will be better, their policies will be 

better, and we will be living in a safer community. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentleman from New Mexico, Mr. 

Pearce, for 5 minutes. 

Mr. PEARCE. Thank you, Mr. Chairman. 

I appreciate everyone’s testimony today. 

Now, the National Flood Insurance Program was created in 1968 

because we didn’t have a private flood line and it was trying to stop 

the tremendous losses to the taxpayer. 

Mr. Terchunian and Mr. Berginnis, if I were going to kind of try 

to summarize your viewpoints, you both would sort of favor 

transitioning from a national flood insurance program to a national 

mitigation program, is that correct? I hear a really heavy emphasis. 

Mr. TERCHUNIAN. I would have to say at least 50/50. 

Mr. PEARCE. Okay. Mr. Berginnis? 

Mr. BERGINNIS. Yes, definitely increasing the mitigation component would be helpful. 

Mr. PEARCE. So, Mr. Berginnis, on page 9 of your testimony, you 

talk about the $1.3 billion in mitigation. And getting about 2,000 

houses per year for 5 years, that is—so is that all that the mitigation did or is the $1.3 billion spread out? 

Mr. BERGINNIS. The 1.3 billion was spread out. I did not have the 

data from FEMA to calculate the total amounts. 

Mr. PEARCE. The 2,000 houses, just kind of accessories, they are 

in addition to everything else they did, or is that the focal point? 

21 

Mr. BERGINNIS. The 2,000 was just for a certain time period 

where I had the data for that. 

Mr. PEARCE. I understand, but I am trying to get an approximate figure. Mr. Terchunian had said that it could cost up to $200,000. 

And if I divide the number of houses, 10,000 into the $1.3 billion, 

I get $130,000 per house, which falls into his category, close 

enough for the discussion. 

So when I just do the math in my head, do you have any idea 

how many houses out there that we need to mitigate? 

Mr. BERGINNIS. There are a lot of them out there. I think what 

you have in terms of— 

Mr. PEARCE. One million? 100,000? 

Mr. BERGINNIS. In terms of repetitive loss and severe repetitive 

loss properties, we are probably talking about 160,000 houses. 

Mr. PEARCE. 160,000? 

Mr. BERGINNIS. But those are ones that have repetitive loss 

claims. That doesn’t mean that is all the ones that are actually at 

risk. There is a lot of older buildings out there— 

Mr. PEARCE. I understand, but I am just trying to get a feel for 

it. 

Mr. BERGINNIS. So 160,000 could be the— 

Mr. PEARCE. If we are going to convert this into a 50/50 program, 

we need to know what it is going to cost us, because— 

Mr. BERGINNIS. Yes. 

Mr. PEARCE. —you are not claiming that mitigation is going to 

stop the debt. In other words, if we were to pay off the debt completely, we are going to still owe debt in 3 or 4 more years because 

we are not going to be able to get everything done at once. 

Mr. Hecht, do you have any policies up in that Long—or wherever Mr. Terchunian is talking about, the 300 houses. Do you all 

insure up in that Long Island area? 

Mr. HECHT. We do not write policies on Long Island. 

Mr. PEARCE. Okay. How about down in the area, Katrina area, 

right there in the— 

Mr. HECHT. We do not write policies in New Orleans. 

Mr. PEARCE. Okay. 

Mr. HECHT. We do write policies in 36 States and 2,000 communities. 

Mr. PEARCE. Okay. I understand. Of course, I haven’t investigated it, but what I was getting at is, could there be an accusation by people who are critical of you that you kind of cherry pick 

through? Could you write a plan, just sitting here today, if we had 

enough time, could you write a plan that would insure everybody 

up and down the spectrum in the flood map—or in the NFIP program or is that too complex? Is that very complex? 

Mr. HECHT. We would be able to write policies at premiums, but 

the premiums would not be competitive with FEMA. That is why 

we are not— 

Mr. PEARCE. Okay. That is kind of what I am getting at. Right. 

Then, Mr. Terchunian, you state on page 2 about the 22 years. 

I know there have been 10 events in that area. Have any of them 

squared up right on that same area where this is a good analysis? 

Has the mitigation defeated an event similar to 1992 that is the 

basis of your testimony on the first pages? 

22 

Mr. TERCHUNIAN. Yes, I would call Superstorm Sandy an equivalent of that. 

Mr. PEARCE. Close enough. Fair enough. That is good enough. 

Now, on page 5 in your testimony, you talk about—or page 6, 

that it is unreasonable to expect a consumer to invest $200,000 for 

an annual payback of $4,000 to $5,000. So you then would want 

the taxpayer to do it. Would it be reasonable that the taxpayer, if 

they subsidize this, would get the first $200,000 if they sell their 

home? 

Because you are basically transferring value from people out in 

New Mexico who live in trailer houses. Fifty percent of my constituents live in trailer houses, and you want us to subsidize them, 

because it is unreasonable to expect them to do that for a $4,000 

to $5,000 return in that area. My taxpayers are getting no return 

on it, and I don’t know exactly how I would go back and convince 

them that is reasonable. The term ‘‘snowflake’’ in New Mexico in 

July comes to my mind. 

Thanks. I yield back. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentlelady from Ohio, Mrs. Beatty, 

for 5 minutes. 

Mrs. BEATTY. Thank you, Chairman Duffy, Ranking Member 

Cleaver, Chairman Hensarling, and Ranking Member Waters. 

First, let me just say thank you to all the witnesses here today. 

This is a good day for me because I heard my ranking member and 

Chairman Duffy agree on something we should do, and that just 

has inspired me so much, that I know if I would ask all of you— 

Chairman DUFFY. Would the gentlelady yield? I don’t know that 

I have agreed to anything here. 

Mrs. BEATTY. I am doing this really for the chairman, not the 

subcommittee chairman; the chairman at the end. So I am going 

to say some really nice things today. And I think you will agree 

with me that, obviously, September is not that far away, and we 

certainly—I see you are nodding already—want to get this reauthorized. It certainly sounds like there are enough things that if we 

work together on, I think we could make this happen. 

Would anybody disagree with that? 

Okay. And you are all experts. So our experts, Mr. Chairman, 

are saying we have a lot of good things on both sides. 

Now, I am from Ohio. I know we have an expert from Ohio. And 

so when I think about—in my conversations with Ohioans, there is 

a perception amongst some of them that the floodplain was expanded to subsidize higher-risk policyholders in maybe States like 

Florida or Texas. And I think many members of this committee, including myself, would like to see the private sector play more of a 

role in the floodplain insurance marketplace, because it could be especially beneficial to the pockets of Ohioans who are required to 

buy flood insurance. 

I think my ranking member, Mr. Cleaver, kind of posed this 

question to you, Mr. Hecht, when he was giving his remarks. My 

concern is somewhat in the same light. And my question for you 

is, if we see private insurers take market shares from the NFIP 

and the proposed budget cuts to FEMA materialize, what would 

23 

happen to FEMA’s budget in mapping and mitigation under this 

scenario? 

Mr. HECHT. Well, I— 

Mrs. BEATTY. I am going to go to Ohio first. 

Mr. HECHT. Okay. 

Mrs. BEATTY. I want him to either expand on what you were saying or agree or elaborate. 

Mr. BERGINNIS. As I have included in my written testimony, the 

floodplain management function, again, that is technical assistance 

to States, to communities, the FEMA staffing, and the entire ball 

of wax is 100 percent paid for through that Federal policy fee. And 

so if we go from, let’s say, 5.5 million policies that we had in the 

program to, let’s say, 3 million, that is a significant reduction. Half 

of the mapping budget comes from that same Federal policy fee, so, 

again, the reduction would be significant. 

On the mitigation side, one thing I would point out is that ICC 

has its own policy surcharge, so it is kind of on a per-policy basis. 

So it is not as sensitive to that other than, I think, the fact, to 

point out that if we do work to expand private insurance, that we 

would strongly recommend that one of the coverages that needs to 

be in place for private policies, especially in the A zones where 

codes are required, is something similar to ICC, like ordinance and 

law coverage, so that the property owner can access additional 

funding to mitigation. 

Finally, the Flood Mitigation Assistance program is 100 percent 

funded through premium dollars. So, again, a substantial reduction 

in policies equals a substantial reduction in FMA funds. 

Mrs. BEATTY. Thank you so much. I have a little less than a 

minute left. 

Ms. Luckman, what would be the one thing you would say to 

us—since in your written testimony you said you would like to see 

it reauthorized. You were very clear on that. What would you say 

to us to help us get there on time? Some of your colleagues have 

also said they didn’t want to see it extended or short-term ranges. 

What would you say to us? 

Ms. LUCKMAN. I do think it needs to be done in a timely manner. 

I think there are a lot of very minor administrative tweaks that I 

have spoken about that can be made very quickly. There is no cost 

associated with them, and it really does help the program run more 

smoothly. 

And I also think that when we start looking at the relationship 

between the NFIP and the Write-Your-Own carriers, if we look to 

maybe implement some additional penalties NFIP can enforce 

against the WYOs or just bad actors in general that have been involved, whether they be adjusters or engineering firms, I think that 

it would expedite the process. I think that there would be safeguards in place for the NFIP and for all included agents. 

Mrs. BEATTY. Thank you, Mr. Chairman. 

Chairman DUFFY. The gentlelady yields back. 

The Chair now recognizes the former Chair of this subcommittee, 

now the Chair of the Financial Institutions Subcommittee, Mr. 

Luetkemeyer, for 5 minutes. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

24 

And I thank the panel today. It is a great panel. You all are very 

informative, and I appreciate your being here. 

Mr. Hecht, quick question for you. We had a great discussion so 

far on private sector involvement in flood insurance. What do you 

see as the capacity for the private sector to get involved? How 

much more—I think Mr. Berginnis a minute ago said 5.5 million 

policies in NFIP. How many of those do you think the private sector could absorb in, say, 5 years time, if there was ability to be— 

for instance, Mr. Ross’ bill would pass and there would be able to 

be purity with the policies? 

Mr. HECHT. That is really a question for the capital markets, not 

a question for the distribution system. We currently—we have written 18,500 policies. The capital markets that have provided us with 

capacity, we would be able to maybe double what we have written 

so far. At that point, we are going back to the capital markets and 

asking which other capital markets would like to provide capacity. 

Mr. LUETKEMEYER. Okay. As a private insurance company, you 

have reinsurance, I guess? 

Mr. HECHT. Now, I am— 

Mr. LUETKEMEYER. You are the agent? 

Mr. HECHT. Yes, I am an administrator. I am a program administrator and a cover holder, so I am not the insurance company. 

Mr. LUETKEMEYER. Okay. 

Mr. HECHT. So Lexington Insurance Company, part of AIG, they have reinsurance. It kicks in at a $1.5 billion level. Some of our 

syndicates at Lloyd’s of London have reinsurance that participates 

as low as $1.5 million, so that is a 1,000 times difference in terms 

of a factor of 1,000, in terms of— 

Mr. LUETKEMEYER. The reason for that is they just wanted— 

some can absorb the risk and others can’t or— 

Mr. HECHT. Correct. 

Mr. LUETKEMEYER. Okay. Mr. Berginnis, you were talking quite 

a bit about mapping. And it has been mentioned here already today 

that the President looks like he is wanting to zero out the mapping 

efforts here. 

One of the things—one of the ways that I think and what we are 

suggesting here that we can solve the problem is that if we allow 

the private sector to local communities, the local—whether it is 

city, county, subdivision, wherever it may be, to be able to map 

their own area. Today’s ability of these communities to get this 

mapped is not within their ability to pay for it because the cost has 

come down so much. Is that something that could be done if you 

had a certain level of criteria there that would allow the local communities to do that? 

Mr. BERGINNIS. So States and communities can actually do some 

of their own mapping right now under the FEMA program. It is 

called the Cooperating Technical Partners. 

Mr. LUETKEMEYER. Right. Right. 

Mr. BERGINNIS. And sometimes, like at the State level, they will 

actually do it in-house, but they can also contract with the mapping and modeling community that does a great job with that. 

One of the things I would say, though, is that we are seeing the 

cost coming down. And one of the things that the FEMA flood mapping program, I think, that is a credit to them is to take advantage 

25 

of those latest technologies as well as experiment with those cheaper costs. 

The Chair of our organization, Ceil Strauss, from the State of 

Minnesota, they are a CTP, and they are currently doing some 

large-scale mapping in rural Minnesota for as low as $200 a stream 

mile. To do a detailed flood study, we are probably talking about— 

Mr. LUETKEMEYER. Okay. Very good. 

I have one more question I want to get to before my time runs 

out here. 

I want to go back to Mr. Hecht. You were talking a while ago 

about actuarial rates. I know that Mr. Ross is from Florida and his 

State went to replacement cost rates based on the value of the 

home such that if you had a $50,000 house, you would be based on 

the cost to replace the house versus a $250,000 house. How would 

that structure work for you in your policies, you think? 

Mr. HECHT. I am really not sure that I understood that question 

in terms of— 

Mr. LUETKEMEYER. Okay. Do you settle claims at actual cash 

value or replacement cost? 

Mr. HECHT. I’m sorry. Our policy is identical to FEMA’s policy. 

It is word-for-word. So there are certain structures that qualify for 

replacement cost and there are certain policies that qualify for actual cash value. 

Mr. LUETKEMEYER. Okay. With regards to the rates, what 

about—how would it affect the rates if you went to replacement 

cost rates and availability of that sort of coverage to the insured? 

Mr. HECHT. The actual cash value settlement reduces claims by 

approximately 22 percent. So the rates would go up approximately 

22 percent, again, on just those properties that are currently written at actual cash value. About 60 percent of our policies qualify 

for replacement cost, the same as the National Flood Insurance 

Program. 

Mr. LUETKEMEYER. Okay. 

Mr. HECHT. Commercial properties are at actual cash value. 

Non-owner-occupied residential structures are at actual cash value. 

Those are the ones that you’re talking about. 

Mr. LUETKEMEYER. Very good. Thank you very much. 

My time has expired. Thank you, Mr. Chairman. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentleman from Michigan, Mr. 

Trott, for 5 minutes. 

Mr. TROTT. Thank you, Mr. Chairman. 

I thank the panel for their interesting testimony. And I want to 

ask the entire panel—and start by thanking Mr. Hecht for your 

comments because it gives me confidence that the private sector 

can fill the void that we are hoping to solve by making this program sound. 

But my concern is that 1.6 percent of the policyholders, so roughly 85,000 people of the 5.1 million, account for 24 percent of the 

claims. And so any solution has to deal with creating an actuarial 

rate that is going to make the program solvent. I am interested in 

your comments on how we can transition to that without creating 

sticker shock for the homeowners and how we can do it without 

26 

disrupting the real estate markets by causing the premiums to become unaffordable? 

Mr. HECHT. I think anything—the rates for severe repetitive loss 

properties have to be coincident with the risk. If the policyholder 

is not going to pay for that risk, then it has to be dealt with in 

some kind of an entitlement program mode. The insurance companies are not going to subsidize that risk. The risk is what the risk 

is. We are not going to compete at the rates that FEMA is currently charging for that 1 percent of the policies. 

Mr. TROTT. Any other panel members? 

Mr. BERGINNIS. One of the things that we suggested is a mitigation surge, maybe where one or a couple-year appropriation to actually take care of those properties, mitigate those to where the 

flood insurance would be less expensive. 

Mr. TROTT. To that point, though—and, Mr. Terchunian, you 

commented about the cost of raising a home, $100,000 to $200,000, 

and you had commented, one of you, that there are 160,000 properties potentially in that category. That is $160 billion. Right? 

$100,000. Let’s round down and call it $100,000 instead of 

$130,000 or $200,000. It is 160,000 properties, that is $160 billion. 

As an aside, since this hearing began, we have added $150 million to our debt, so that is a little footnote. Is the mitigation really 

going to be part of any solution? Because that seems like a large 

number under any calculation. 

Mr. TERCHUNIAN. The answer to the question is that we are paying it now, but we are paying it in post-disaster dollars, which are 

much more expensive than mitigation dollars. So, it is pay me now 

or pay me later. That is the situation the taxpayer is in right now. 

And the gentleman from New Mexico asked, why should they be 

subsidizing people on Long Island? We are doing it, and we need 

to stop doing it. And the way to stop doing it is when you have— 

is to take—85,000 homes sounds like a lot, but it is not. 

On the south shore of Long Island in Mr. Zeldin’s district, we are 

going to elevate 4,500 homes in the next couple of years. Now, that 

was spurred on by Sandy, but that is a project that has been decades in the making. We can do this around the country if we boil 

it down to bite-sized pieces and take it on one at a time. 

Mr. TROTT. Ms. Luckman, any— 

Ms. LUCKMAN. Yes, I agree. I think mitigation is key, and I think 

it needs to be upon community resiliency. I think if you took communities one at a time, block by block, and if you mitigated those 

homes and elevated them, then we may be spending more money 

out-of-pocket right now, but it will definitely result in less flood 

claims down the line, less repetitive loss claims, and it would definitely benefit the future. 

Mr. TROTT. Ms. Luckman, at the Law Center, how many people 

have you helped with their claims, to navigate that claims process? 

Ms. LUCKMAN. Through the claims process, we had 10 cases that 

we took through litigation, and we have just over 100 claims in the 

Sandy claims review process right now. 

Mr. TROTT. Okay. In how many of those claims, would you say, 

you saw abuse for the homeowners or unfair results in terms of 

how they were treated? 

27 

Ms. LUCKMAN. All of them. Right now, we have received—between litigation and the Sandy claims review process, we are over 

$3 million that we have been able to put back into people’s pockets. 

And we still have another 42 cases that need to go through that 

neutral level of review in the Sandy claims review process. 

Mr. TROTT. Mr. Hecht, so let’s fast forward maybe 10 years from 

now. Let’s assume the private sector is playing a greater role. I am 

interested, if we got rid of the noncompete clause, would that— 

what impact that would have. And then long term, if we came up 

with a model that dealt with the repetitive loss properties in a fair 

manner so people could be transitioned and not lose their homes 

because of increases, do you see a need for the NFIP long term? 

Mr. HECHT. I do see a need for the NFIP. The general principle 

of insurance is the distribution of risk. What the private market 

brings to the NFIP right now is a further distribution of risk. So 

whatever the percentage is, if the NFIP ended up with 80 percent 

of the risk and the private market ended up with 20 percent of the 

risk, it is spread so that the taxpayer is not on the hook for 100 

percent. They are on the hook for 80 percent of a disaster. 

Mr. TROTT. Thank you. 

Chairman DUFFY. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from Pennsylvania, Mr. 

Rothfus, for 5 minutes. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

Mr. Hecht, I want to talk a little bit about your experience. I 

think $3.5 billion in coverage for 18,000 customers, approximately? 

Mr. HECHT. Correct. 

Mr. ROTHFUS. So I guess you are one of the largest private flood 

insurers out there. 

As you note in your testimony, there is an ongoing debate about 

whether private sector flood providers like yours would be prone to 

cherry picking as they begin to play a greater role in the industry. 

You seem to believe that cherry picking concerns are misplaced. 

Can you elaborate on why you disagree with this commonly held 

belief? 

Mr. HECHT. Yes. Thank you for the question. 

The last actuarial rate review that FEMA reported to Congress 

was in 2011, in substantiation of the 2009 rates. When we look at 

that review, the policies that FEMA says are actuarial produced 

$121 of loss for every $100 of premium. It had a 121 percent loss 

ratio. Their actuarial policies had a 121 percent loss. 

The subsidized policies only had 114 percent loss. The subsidized 

policies are a better insurance risk to value for the private market. 

That was as of 2009. That is why, in my testimony, what I did was 

I substantiated that the rates for subsidized policies have increased 

at a much faster pace than the actuarial policies. 

The subsidized policies are the policies that we now consider rate 

adequate. FEMA’s worst performing category of risk was elevation 

rated A zones. For that 32-year period, the loss ratio was 163 percent. Their preferred risk policies, the loss ratio for that 32-year period was 133 percent. Yet their most hazardous classification of velocity, V zones, during that same 32-year period, the loss ratio was 

47 percent. 

28 

As a private insurer, I want to write risks that are going to have 

a 47 percent loss ratio, not a 163 percent loss ratio. We are not 

cherry picking the risks. We think FEMA has it upside down. 

Mr. ROTHFUS. Interesting. 

We have often heard in this committee that the private sector 

needs access to more NFIP data in order to expand its role in the 

flood insurance market. Could you elaborate on what types of data 

would be useful to firms like yours? 

Mr. HECHT. We do not have any granular level data now. Most 

insurance risks are written at an individual level. It does no good 

to know whether your high school class had 32 speeding tickets if 

you are going to underwrite an automobile policy. What is relevant 

is, does the driver that you are going to insure have a speeding 

ticket? 

FEMA releasing claims data on a community-level basis does 

nothing for us to select risk. 

Mr. ROTHFUS. You noted in your testimony that my home State’s 

insurance commissioner, Teresa Miller, recently wrote that, ‘‘Even 

with the increased surplus lines activity for residential flood coverage over the past 11 months, the Pennsylvania Insurance Department has not received a single complaint concerning a surplus 

lines carrier.’’ 

Commissioner Miller’s assessment suggests that private sector 

insurance providers can deliver a high level of service, maybe even 

better service than the NFIP. Do you believe that consumers are 

well-served by the NFIP in its current form? 

Mr. HECHT. I think we can do a better job. 

Mr. ROTHFUS. What are some of the common complaints that you 

hear from customers about their experiences with the NFIP? 

Mr. HECHT. On our website, we allow consumers to post 

testimonials, and one, two, or three consumers take their time 

every single day to tell us what we are doing right. And our rates 

are lower, our service is better. A live individual picks up the 

phone, a live licensed agent counsels them on what insurance they 

need. We are there to make changes on their policy almost instantly when they request a change. Our claims were settled in 66 

days. We simply do a better job right now. 

Mr. ROTHFUS. Thank you, Mr. Chairman. I yield back. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentleman from California, Mr. 

Sherman, for 5 minutes. 

Mr. SHERMAN. Thank you. 

Mr. Berginnis, the President’s budget request which was released 

this morning would completely eliminate discretionary appropriations for the NFIP mapping and mitigation activities. How is that 

going to impact those activities? 

Mr. BERGINNIS. It would be devastating. And the reason is that 

because mapping is the cornerstone of everything else the NFIP 

does, the mitigation, the land use, and even the insurance. And 

what will end up happening is that the inventory we have will 

begin to decay, because flood maps do have to be updated periodically, and we won’t be able to do new flood mapping. 

Mr. SHERMAN. And then how will that impact our ability to properly assess the risk to discourage building where it is particularly 

29 

dangerous and to properly assess the amount homeowners and others should pay for their insurance? 

Mr. BERGINNIS. It will degrade that capability significantly, and 

that degradation will increase over time as the maps get older. And 

that—not unlike the situation we had in the late 1990s, before the 

map modernization program where Congress saw fit to invest more 

funding in mapping. 

Mr. SHERMAN. In your testimony, you recommended that private 

flood policies include a fee equivalent to the Federal policy fee to 

help continue to pay for the floodplain mapping and the floodplain 

management standards programs. I just want to clarify with you 

your proposal. 

Do you suggest that the fee apply only to policies written in special flood hazard areas or to all private flood policies? 

Mr. BERGINNIS. We would think that, at a minimum, it should 

be associated with those in the special flood hazard areas, and kind 

of the hook to do that would be those needed to meet the mandatory purchase requirement. 

Mr. SHERMAN. Do you have a suggested dollar amount in mind 

that you would recommend as the equivalency fee? 

Mr. BERGINNIS. We call it the equivalency fee because it would 

be pegged at the same amount as the Federal policy fee so that the 

NFIP and private policies would be on the same playing field. 

Mr. SHERMAN. And what impact do you think this new surcharge 

would have on private insurers’ appetite to enter the flood market? 

What about the cost to consumers of private flood policies? 

Mr. BERGINNIS. Certainly, there is going to be a sensitivity to 

cost on any insurance product. But I was actually quite happy to 

hear my fellow witness, Mr. Hecht, as the largest writer of private 

flood, recognize the value of the mapping and endorse the concept. 

Mr. SHERMAN. And what impact do you estimate the surcharge 

would have on emerging technology or innovation in the mapping 

field? 

Mr. BERGINNIS. I think it will have a positive impact, because 

when you have the resources to invest in mapping, you can investigate those emerging technologies. When you don’t have the funds, 

you are essentially just trying to play catchup and really don’t have 

the resources available. 

Mr. SHERMAN. The President’s budget request also proposes to 

restructure selected user fees for the NFIP in order to ‘‘ensure that 

the cost of government services is not subsidized by taxpayers who 

do not directly benefit from those programs.’’ This sounds like the 

Trump Administration may be proposing to have NFIP policyholders pay the full cost of mapping activities because President 

Trump assumes that no one else benefits from those programs. 

Can you talk about how FEMA’s flood maps provide benefits for 

people in communities beyond just the NFIP policyholders? 

Mr. BERGINNIS. Yes, absolutely. Actually, a colleague forwarded 

me a case study recently from the Louisiana flooding, where a person who was not even a policyholder was close to the Amite River. 

Their son was a REALTOR®, and the son began to talk to him 

about the potential need to evacuate and that there are these 

FEMA flood maps online. 

30 

And after they looked at the flood maps and determined that the 

crest was higher than what the map showed, it showed that all the 

evacuation areas were pretty much going to be blocked. And so it 

would help that individual, non-NFIP related, to actually evacuate, 

possibly saving lives and certainly saving property. 

Mr. SHERMAN. I yield back. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentleman from New York, Mr. 

Zeldin, for 5 minutes. 

Mr. ZELDIN. Thank you, Mr. Chairman. 

And first off, just on behalf of my constituents and everyone on 

Long Island who cares very deeply about this issue, I want to 

thank the committee for the countless meetings, conversations, the 

emails, all the questions that have been asked just to understand 

the practical impacts of the NFIP on individual lives. 

This hearing is called, ‘‘Flood Insurance Reform: A Community 

Perspective.’’ And this committee has focused a lot, since I joined 

it a couple of months back, on getting the impacts on each individual committee. 

There was a lot of focus here today on mitigation. I would love 

to be able to take that to the next level. And if you wouldn’t mind, 

Mr. Terchunian, I will put you on the spot first. 

You mentioned how homeowners on the east end of Long Island, 

or a community like yours, West Hampton Dunes, make investments in mitigation. An important goal is to get clarity from FEMA 

as far as what mitigation will lower NFIP premiums and improve 

maps. 

So taking this conversation to the next level, what is the most 

effective policy approach to make sure homeowners or municipalities who mitigate get a clear return on their investment? We are 

expressing our positions with regards to dollars that should be 

saved from mitigation. What should FEMA’s response be as far as 

changing policy? 

Mr. TERCHUNIAN. I think there are two groups who are affected 

by that: the entire community that is in the floodplain and is paying flood policies; and the individual policyholders themselves. 

The FEMA rating process is reasonably opaque. I find myself 

often in conversations with the property owner, the private insurance agent, and we can’t get the FEMA underwriter on the same 

telephone call with us to explain why things are being rated the 

way they are. 

That process needs to change and needs to become utterly transparent, because there is poor predictability and I don’t know 

whether it is because the rater is not hearing what is being said 

or it is not being communicated properly to them. But that entire 

process has too many layers. It needs to be much more direct so 

that the policyholder themselves, as Ms. Luckman said, understands what it is they are buying and what it is that they may 

want to buy. 

The second aspect of it has to do with the community rating system (CRS). The community rating system is a great idea. It says, 

hey, listen, if you do a better job than NFIP requires, we are going 

to benefit everybody in the community. The problem is the CRS is 

a difficult program, and there is a lot of criteria in there that, at 

31 

least in my opinion, doesn’t advance community resiliency, but you 

can’t get to the next level without it. 

So I think that process, number one, the CRS process needs to 

be simplified. I think it is too complex. And number two, small 

communities who don’t have staff and can’t afford to hire need to 

be helped through that process, and because CRS is one of the 

ways where you reach from the NFIP through the local community 

directly to the policyholder. 

Local communities send out tax bills once or twice a year. There 

is no reason that the people who live in the floodplain can’t get a 

notice in their tax bill, but it doesn’t happen unless there is the 

linkage between the NFIP and the local community. 

Mr. ZELDIN. And for anyone else on the panel, if you want to join 

in, is there anything that hasn’t been said during this hearing of 

what FEMA should do to improve policy so that homeowners understand exactly what their investment and mitigation is going to 

return as far as a reduction of premium? Is there anything else as 

far as the FEMA end of things that we haven’t discussed yet in the 

hearing? 

Mr. BERGINNIS. I think one element is just increasing the level 

of property owner awareness of mitigation. It has been, in my experience and that of a lot of our members, that people don’t necessarily know what to do. So they either talk to experts, maybe 

they talk to their floodplain managers. And so there really isn’t a 

good mechanism right now to proactively educate property owners, 

even if they had the resources to do it, the fact that, okay, here is 

the risk and here is what you need to do to mitigate. 

Mr. ZELDIN. And if in the days ahead, the weeks ahead, any additional insight on this mitigation component that wasn’t brought 

up during this hearing, to be able to supplement your remarks here 

and your written testimony, I certainly would appreciate. I am 

sure—I can’t speak for everyone else, but I would imagine everyone 

would appreciate that insight. 

So thank you again, Mr. Chairman, for your focus on these issues 

impacting my congressional district, the greatest congressional district of America, New York One. 

Chairman DUFFY. The gentleman yields back. 

From the second greatest congressional district in the country, 

the Chair now recognizes the gentleman from Illinois, Mr. 

Hultgren, for 5 minutes. 

Mr. HULTGREN. Thank you, Mr. Chairman. 

Thank you all for being here. Again, this is a very important subject for all of us. 

But I want to address the first question to Mr. Hecht, if I could. 

As you are aware, companies who write NFIP policies must sign 

a noncompete clause, which pushes those companies to the sidelines in terms of developing and offering private flood insurance 

policies. 

Two-point question, if I could: One, could you discuss how this 

could derail efforts for private sector innovation and participation 

in the flood insurance market? And two, would you support legislation that eliminates the noncompete clause now required by 

FEMA? 

32 

Mr. HECHT. Let me answer the second one. It is easier. Yes, I 

would support the legislation. And the cause and effect, capacity is 

what the private market needs to take on a bigger share of the National Flood Insurance Program. And the Write-Your-Own companies, if they are precluded from participating in the private market, 

then you have taken that capacity out of the marketplace. There 

is no reason to take that capacity out of the marketplace. 

I listened to Mr. Wright’s testimony to the Senate yesterday 

where he described that his reasoning was that these Write-YourOwn companies had access to proprietary data and that they could 

choose just the best risks and leave him with the worst risks. 

Again, the private market is going to write the risks that they 

want to write. It is not a matter—we don’t necessarily agree with 

FEMA on what the right risks are, but that financial arrangement 

should be amended. 

Mr. HULTGREN. Thank you. 

Ms. Luckman, I wonder if I could address a couple of questions 

to you. 60 Minutes did a story on the Sandy claims review process 

in 2015, in which homeowners were interviewed about falsified engineering reports done on their homes after Superstorm Sandy. According to the story, engineers found flooding to be the cause of 

structural damages, only to learn later that their reports were 

changed by the insurance company, who, by the way, take on none 

of the loss risk as a Write-Your-Own company. According to 60 

Minutes, insurance companies have argued the reason the engineering reports were changed was to allow for a peer review process, which is a standard practice in the insurance industry. 

First question: Is it common for an engineering report to be 

changed without the knowledge of the engineer who prepared the 

report? 

Ms. LUCKMAN. No, I don’t believe that is common practice. And 

if it was truly peer review, the secondary person reviewing a report 

would have also been a licensed engineer. 

What we saw, especially in the cases of HiRise Engineering, is 

that Mr. Pappalardo, against whom the AG had recently pressed 

criminal charges, wasn’t even a licensed engineer. He was just 

purely making changes to reports, rubber stamping them, and 

sending them out the door to deny damage. 

Mr. HULTGREN. What do you believe accounts for the inexplicable 

fraud in the claims process, especially adjusters and engineering 

reports? What accounts for that fraud, do you think? 

Ms. LUCKMAN. First and foremost, I think the fear, that we have 

heard from many adjusters that we work with, that if they overpay 

a claim, that there is that fear of audit; that FEMA may come back 

and say, why did you overpay the claim, whether it be $10, $1,000, 

or $100,000; and that there needs to be put safeguards in place 

that there needs to also be an audit for underpayment. And I think 

if there was audit for underpayment, we wouldn’t have seen nearly 

half of the fraud that we saw in the review process. 

Mr. HULTGREN. That maybe answers my last question, but I will 

ask it still: What do you think we can do to prevent something like 

this from happening again? Do you think that is the answer? 

Ms. LUCKMAN. I definitely think there needs to be an audit requirement for underpayments. I think the messaging needs to be 

33 

clear that there will be an audit for under- and overpayments. Payments should be proper. If an adjuster is getting paid to adjust a 

claim, they need to adjust it properly. And if they are unable to do 

that, then they should not be allowed to participate in the National 

Flood Insurance Program. 

Mr. HULTGREN. Mr. Hecht, if I can go back to you, one last question with my one last minute. In your testimony, you mention a 

FEMA-subsidized rate policy written in Illinois in 2006 for $998 

that renewed this year for $2,525, an increase of 153 percent over 

10 years. You go on to say that private market providers may 

choose to write FEMA-subsidized risk. 

Is this policy in Illinois an example of where the private market 

could step in and provide better terms than the government? I 

could just see private providers take on a greater role in the market, but I am also a little surprised you can compete with government-subsidized policies. 

Mr. HECHT. Correct. The rate increases that FEMA has taken on 

subsidized policies have opened the door for the private market. We 

are the largest writer of private flood insurance currently. We do 

have competition. There are several other private market providers. All of them, to the best of my knowledge, are concentrating 

on writing FEMA’s subsidized risks. It is not my company that is 

not cherry picking that term. The entire private market is doing 

what we are doing. 

Mr. HULTGREN. Again, thank you all. This is obviously an important topic. We will keep learning from you and hopefully having ongoing communication. 

I yield back, Mr. Chairman. Thank you. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentleman from Texas. I would 

just note that he is not on the subcommittee, that is why he goes 

last, but we welcome him here for his questions. Mr. Green is recognized for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. And thank you for allowing me to be an interloper today. I thank the ranking member as 

well. They are both friends, and I enjoy working with them. 

Mr. Hecht, you insure properties in some 36 or 37 States; I am 

not sure which. I have seen the two numbers, 36 and 37. Do you 

insure any properties now or have you ever insured any properties 

in Houston, Texas? 

Mr. HECHT. Yes. 

Mr. GREEN. If you have insured properties in Houston, Texas, 

you are familiar with the Memorial Day flood that caused over 

$100 million in damages, approximately, and you are familiar with 

the Tax Day flood that caused about $1.9 billion, depending on who 

is counting and how you count, in damages. Now, you probably also 

are aware of the fact that Congress has appropriated funds to mitigate and eliminate some of these damages. The Army Corps of Engineers has on its docket—there are projects that when completed 

would mitigate and eliminate a lot of these damages. 

The question I have for you is this: Given that we have these $100 million floods—there is some debate as to whether they are 

100-year floods, but very little debate about the cost—and people 

are victims more than once in certain areas, and it is prognosVerDate Nov 24 2008 16:57 Jan 09, 2018 Jkt 027204 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 K:\DOCS\27204.TXT TERI
34 

ticated that if we completed the projects that have been authorized 

by Congress, money not appropriated, we would eliminate and 

mitigate a lot of this flooding. 

Your policyholders who are suffering because the projects that 

we have authorized have not had appropriate appropriations, they 

have to suffer flooding more than once. Do you tell them that they 

should elevate, knowing that if the flood control district had the 

money to properly mitigate they might not have to elevate? Are you 

following me, Mr. Hecht? 

Mr. HECHT. Yes, I am following you. 

Mr. GREEN. How do your property—your persons that you have 

insured, how do they respond to this circumstance, which is not entirely unique? There are other places in the country where similar 

circumstances exist. How do they respond to this? 

Mr. HECHT. Actually, there are other places in the country where 

similar circumstances exist. We paid $30 million for flood claims in 

Baton Rouge just a few months ago. That is a project that had already been approved. That project was approved 10 years ago and 

never came to fruition. 

Had the mitigation project, the floodplain management project in 

Baton Rouge been accomplished, we wouldn’t have paid $30 million. People wouldn’t have had to have elevated their houses, they 

wouldn’t have had to move out of their houses, they wouldn’t have 

had to rebuild their whole lives. So I am a big fan of mitigation 

projects. 

Mr. GREEN. And obviously, the people that you insure, they mitigate because they raise the level of their properties. That is a form 

of mitigation, isn’t it, when they elevate their properties? 

Mr. HECHT. Yes. 

Mr. GREEN. They are doing this, in some cases, because we are 

not appropriating the moneys that we have authorized. And in 

Houston, for example, we need about $311 million. That $311 million hasn’t been spent, but after the fact, post-disaster, we end up 

spending hundreds of millions of dollars. 

There has to be a point wherein we do this thing called cost-benefit analysis, that we are so fond of talking about here, and at some 

point we have to fund these projects and spend less on what we 

will call the front end of the process as opposed to more on what 

we will call the back end of the process. Are you in agreement with 

me, Mr. Hecht? 

Mr. HECHT. I am. 

Mr. GREEN. Okay. Does anybody differ with me on the panel? Everybody agrees. 

I am going to move to do something quickly. I have some documents that I would like to introduce into the record, without objection, hopefully, Mr. Chairman: A resolution from the Harris County 

Commissioners Court signed by all commissioners supporting reauthorization; a statement from the Communications Workers of 

America indicating that they would support the completion of these 

flood control projects; a letter from the City of Houston signed by 

Mayor Turner indicating that some 2,700 homes were damaged in 

the April 18th floods; a letter from the Flood Control District indicating that they could use the $311 million to help mitigate and 

eliminate; a letter from the Houston Partnership indicating that 

35 

about $1.9 billion in damages were done with one of the floods, the 

Tax Day flood; and a letter from the Houston REALTORS® Association indicating that the 2016 Tax Day flood caused 1,362 homes 

to be damaged that were within the 100-year floodplain. 

Mr. Chairman, I ask that these be added to the record. 

Chairman DUFFY. Without objection, the documents will be included in the record. 

Mr. GREEN. Mr. Chairman, if I may say so, just in closing, I was disappointed to hear that the President was going to cut $190 million from the discretionary appropriations in NFIP, but I was also 

even more disappointed to learn that he is appropriating $4.5 billion for Executive Orders, one of which is to deal with a wall that 

Mexico is supposed to pay for. 

I yield back the balance of my time. 

Chairman DUFFY. The gentleman yields back and is well over a 

minute beyond his 5 minutes. 

The Chair now recognizes the ranking member, Mr. Cleaver. 

Mr. CLEAVER. Mr. Chairman, I have a communication from the 

National Association of Federal Credit Unions addressed to both 

you and me that I would like to have introduced into the record. 

Chairman DUFFY. Without objection, the document will be included in the record. 

Chairman DUFFY. The gentleman yields back. 

I want to thank our panel for their testimony today. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

Again, I want to thank you for your time today and your testimony, for helping this panel get up to speed on your experience so 

we can develop the best product possible in a timely manner. 

With that, and without objection, this hearing is now adjourned. 

[Whereupon, at 4:15 p.m., the hearing was adjourned.] 

(37) 

A P P E N D I X 

March 16, 2017 

38 


27204.001

TESTIMONY 

Flood Insurance Reform: A Community Perspective 

Before the 

House Financial Services Committee 

Subcommittee on Housing and Insurance 

By 

Chad Berginnis, CFM 

Executive Director 

Association of State Floodplain Managers 

March 16,2017 
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Introduction 

Association of State Floodplain Managers 

Page 2 of20 

The Association of State Floodplain Managers is pleased to participate in this hearing about the National 

Flood Insurance Program and the community perspective. We appreciate the opportunity to discuss our 

views and recommendations for the future of the program. We thank you, Chairman Duffy, Ranking 

Member Cleaver and members of the subcommittee for your interest in this important subject. 

The ASFPM and its 36 chapters represent more than 17,000 local and state officials as well as other 

professionals engaged in all aspects of floodplain management and flood hazard mitigation including 

management of local floodplain ordinances, flood risk mapping, engineering, planning, community 

development, hydrology, forecasting, emergency response, water resources development and flood 

insurance. All ASFPM members are concerned with reducing our nation's flood-related losses. For more 

information on the association, its 14 policy committees and 36 state chapters, our website is: 

www.flood~. 

Floods are this nation's most frequent and costly natural disasters and the trends are worsening. The 

NFIP is the nation's most widely used tool to reduce flood risk through an innovative and unique mix of 

incentives, requirements, codes, hazard mitigation, mapping and insurance. At the same time, we 

understand the four main pillars of the NFIP are interconnected; and making significant changes to one 

pillar without thoughtful consideration of the other three can erode the program overall. While we are 

under no illusion that the NFIP is the only tool in the toolbox, it is one that serves policyholders, 

taxpayers and the public well. ASFPM's testimony is intended to provide a better description of these 

interdependencies as well as twenty recommendations for Congress to consider to reform the NFIP. 

The NFIP is a National Comprehensive Flood Risk Reduction Program 

The NFIP was created by statute in 1968 to accomplish several objectives. Among other things, the NFIP 

was created to: 

Provide for the expeditious identification of and dissemination of information concerning floodprone areas 

Require states and communities, as a condition of future federal financial assistance, to 

participate in the NFIP and to adopt adequate floodplain ordinances consistent with federal 

flood loss reduction standards 

Require the purchase of flood insurance by property owners who are being assisted by federal 

programs or by federally supervised, regulated or insured agencies in special flood hazard areas 

Encourage state and local governments to make appropriate land use adjustments to constrict 

the development of land exposed to flood damage so homes and businesses are safer and to 

minimize damage caused by flood losses 

Guide the development of proposed future construction, where practicable, away from 

locations threatened by flood hazards 
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Association of State Floodplain Managers 

Page 3 of20 

Authorize nationwide flood insurance program through the cooperative efforts of the federal 

government and private insu ranee industry 

Provide flexibility in the program so flood insurance may be based on workable methods of 

distributing burdens equitably among those protected by flood insurance and the general public 

who benefit from lower disaster costs 

Beyond merely providing flood insurance, the NFIP is unique as it integrates multiple approaches to 

identify flood risk, communication and reduce flood losses. It is a unique collaborative partnership 

enlisting participation at the state and local level. It is a multi-faceted, multiple objective program- a 

four legged stool as it is often called. The four legs of the stool are {1) floodplain mapping, {2) flood 

standards, {3) flood hazard mitigation and {4) flood insurance. Altering one leg without careful 

consideration of impacts on the other three legs can have serious repercussions on reducing flood 

losses. NFIP on the whole provides substantial public benefits as our testimony will further detail. 

A Pivotal Time for the NFIP - Current Status 

At the end of 2016 the NFIP, which is 50 years old, had paid $56.4 billion in claims. But beyond paying 

insurance claims, the NFIP has also mapped 1.2 million miles of streams, rivers and coastlines. It has 

invested more than $1.3 billion in flood hazard mitigation for older, at-risk structures. Because of the 

program, over 22,000 communities adopted local flood risk reduction standards, which resulted in 

nearly $2 billion of flood losses reduced annually. The NFIP has provided innumerable public benefits as 

well as direct monetary ones to taxpayers. 

At the same time, based on historical flooding and dealing with ongoing development, future conditions 

are and will continue to change, perhaps quite significantly. While floodplain managers know upstream 

development often results in increased flood heights, we also observe changing weather patterns that 

result in shifting snowmelt/rainfall in the West. Nationally, more intense short duration storms are 

causing more flash floods, and unrelenting sea level rise {SLR) is beginning to affect communities from 

Florida to Virginia to Alaska. A recent NOAA report added a new upper boundary for SLR this century up 

to 2.Sm {8 feet) by 2100 due to new data on the melting of the Greenland and Antarctic ice sheets. This 

new data is getting the attention of our state and community members. For example, a recent article 

shows Rhode Island state officials discussing how to deal with these new scenarios. luckily the NFIP, as it 

exists today, can help states and communities address these problems with its innovative mix of 

incentives, requirements, data and tools. 

Still, improvements can be made. NFIP reform legislation in 1994 and 2004, in addition to other 

measures, outlined reforms focused reducing on repetitive loss properties. Today those remain 

problematic. Reform legislation in 2012 focused on flood mapping. Today the National Flood Mapping 

Program provides important authorities for FEMA and cooperating technical partners to map all flood 

hazard areas across the country. Reform legislation in 2004, 2012 and 2014 addressed deficiencies in the 

insurance element of the NFIP. There is still more work to be done. It is important to note that the 2012 

and 2014 reform legislation resulted in 80 new sections of law that are not yet fully implemented. 
41 


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Association of State floodplain Managers 

Page 4 of20 

ASFPM hopes Congress will be thoughtful about reforms that might be considered in 2017 as we do not 

yet fully know the program outcomes that will result from the previous two reform bills. 

So what will the NFIP of tomorrow look like? ASFPM believes the nation will continue to need a robust, 

fiscally-strong NFIP to comprehensively reduce flood risk. We also believe a strong NFIP can co-exist 

with a developing private market. But at the end ofthe day we must acknowledge that at least today's 

NFIP is far more than an insurance program. It is the nation's primary tool to identify and map flood 

hazard areas used by a multitude of agencies. The program is also a tool to assess flood risk, used to 

work with communities and states to implement strong land use and building standards to prevent 

future disaster losses, and works with property owners and communities to undertake mitigation to 

reduce damage to older at-risk buildings, in addition to providing flood insurance. 

A Long-term Sound Financial Framework is Needed 

The NFIP had generally been self-supporting until2005. In the 1980s the program went into debt a few 

times and ultimately Congress forgave approximately $2 billion. But from the mid-1980s to 2005, the 

NFIP was largely self-sustaining and when borrowing from the U.S. Treasury, the debt was repaid with 

interest. However, due to catastrophic floods in 2004, 2005 and 2012, and now due to a high claims year 

in 2016, the program does currently owe $24.6 billion to the treasury. Unfortunately, we heard last 

week in testimony to the subcommittee from FEMA, that this past January, the program had to even 

borrow to pay the interest on the debt (and today's debt is financed at historically low rates). This was 

done only one other time back in 2008 after hurricane Ike. When interest rates eventually cycle back to 

more historic levels, the interest on the debt payments will destabilize the program. 

The NFIP was never designed to pay for catastrophic events. In fact, from 1968 to 1978 the concept was 

one of risk sharing with the private sector with the program actually paying a subsidy to private insurers 

for pre-FIRM structures. As recently as the late 1980s, internal communications show that the 

administration reaffirmed the federal treasury was essentially the reinsurer of last resort'. It seems this 

history has been forgotten. 

Important progress toward putting the program on a more sound financial footing was made as part of 

the past two NFIP reforms in 2012 and 2014, which ASFPM supported. Under BW-12, reforms (later 

modified by HFIAA-14) were made to the rate structure to move subsidized policies to actuarial 

premium rates, to allow the NFIP to purchase reinsurance and to establish a reserve fund. All of these 

help reduce the financial risk to the program and ultimately to the American taxpayer. 

But what has been very frustrating to ASFPM is Congress' unwillingness to address the program debt. 

After reviewing FEMA's interest and principle payments after 2005 and based on FEMA's analysis of cash 

flow, if Congress had promptly dealt with the debt amassed from the 2004-2005 hurricane seasons, then 

the NFIP wouldn't have had to borrow from the treasury to pay Hurricane Sandy claims. Those pointing 

to today's debt in the NFIP as evidence that the NFIP is irreparably broken do not understand that if the 

1 Dr. Len Shabmon with Resources for the Future has been researching this topic in-depth and will be soon 

developing o paper detailing the history and specifically the financial arrangement oft he NFIP from 1968-1978 as 

well as the strengths and weaknesses of the public-private loss sharing model that actually still exists today. 
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Association of State Floodplain Managers 

Page 5 of20 

2004-2005 debt had been resolved in a timely manner by Congress (as had been done in the 1980s and 

consistent with the program's design), the NFIP would be functioning well with little or no debt today. 

)> ASFPM recommends Congress forgive the current NFIP debt. 

::;.. This should be part of a broader commitment to develop a backstop for the program based on 

an evaluation of its current financial capacity given the financial risk management tools 

Congress has asked FEMA to implement 

Floodplain Mapping 

Floodplain mapping is the foundation of all flood risk reduction efforts, including design and location of 

transportation and other infrastructure essential to support businesses and the nation's economy. 

Today FEMA has in place right policies and procedures (i.e., requiring high-resolution topography 

(UDAR) for all flood map updates), and is using the best available technology to produce very good flood 

studies. For example, FEMA is doing some pilot studies in Minnesota and South Dakota using very 

precise topographic mapping and automated flood study methods to develop base level engineering 

that can be used as an input into future flood studies. This gives communities data immediately to use 

for planning and development rather than waiting years for the data. In coastal studies, FEMA now uses 

the state-of-the-art ADvanced CIRCulation (ADCIRC) model for storm surge analysis. Unfortunately, due 

to the length of time it takes from initiation of a flood study to final production, some maps coming out 

today may have been started a decade ago and are not being produced to today's specifications. It is 

important to distinguish between these legacy mapping projects and those meeting todays guidance 

and specifications. ASFPM is also pleased that FEMA has prioritized eliminating remaining pure "paper" 

maps that have never been modernized with newer flood study procedures. 

Recently there has been confusion around whether or not sophisticated risk assessment modeling 

developed by the private sector can be a suitable replacement for FEMA flood maps and data. However, 

this is comparing apples to oranges. First, FEMA flood maps and data are already produced by the 

private sector (under contract to FEMA). Second, the private sector risk assessment methods largely 

developed to assist the insurance industry are not publically available. Those models do not produce a 

"map" the community can use for multiple purposes and cannot inform the other needs of the program 

including hazard mitigation and floodplain management. Such methods can complement FEMA maps for 

the purposes of rating flood insurance, but do not replace FEMA maps. Further, those developing such 

models have indicated they depend on FEMA maps to calibrate their models. 

Today, flood risk maps only exist for about 1/3 of the nation- only 1.2 million of 3.5 million miles of 

streams, rivers and coastlines have been mapped. Even today some of the maps are many decades old, 

or were updated before the current standards to redraw boundaries based on more accurate study data 

and topography. Many areas have never been mapped, so there is no identification of areas at risk and 

communities have no maps or data to guide development to be safe from flooding. This is a significant 

problem and below illustrates why. 
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Association of State Floodplain Managers 

Page 6 of 20 

Cameron Chase is an 87-acre residential subdivision developed in the early 2000s in Licking County, 

Ohio. As a crow flies, it is 17 miles from downtown Columbus, Ohio (metro area population 2+ million). 

An unnamed stream flows through the subdivision: 

(Above: Aerial view of Cameron Chase division, Etna Township, Licking County Ohio. The unnamed 

stream is highlighted as the dashed blue line) 

On the FEMA maps that were effective at the time and even on today's maps, the unnamed stream is 

not mapped. Why? The old guideline for mapping these small streams was that you needed about 10 

square miles of land draining into the stream for it to reach a threshold for FEMA mapping in rural areas. 

In the case of this tributary, it only had about 760 acres or just over one square mile of drainage. Also, 

the land previously had been a cornfield and as a result never had enough property at risk for FEMA to 

map prior to development: 
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Association of State Floodplain Managers 

Page 7 of 20 

(Above: Portion of FEMA FIRM Index Pone/ for Licking County, Ohio. The Cameron Chose subdivision is 

circled; note that the unnamed stream does not have a FEMA mapped floodplain- it does not show up 

until several miles downstream) 

luckily, licking County has strong local floodplain management regulations that exceed federal 

minimum standards and the regulations required the developer to map the floodplain on any stream 

where one wasn't identified. So prior to development a flood study (similar to one that FEMA would 

prepare) was completed and the result? A 1% chance floodplain that ranged from 150 feet wide to 300 

feet wide and more importantly a map to guide the proposed development. But most communities do 

not have such standards and what happens then? The development occurs with no flood standards. 

Well, this is what is happening in thousands of subdivisions across the country: areas are developing into 

tens of thousands of housing units that use to be cornfields and cow pastures. later, after there is 

significant development at risk and often after a flood or two, FEMA comes in and maps it. Then the 

dynamic changes and everything becomes adversarial. People think FEMA put a floodplain on them 

when it was there all along. The property owner is mad because they have to buy flood insurance at high 

premiums because flood elevations were unknown. Realtors are upset because it is a surprise and may 

have an impact on the future salability of homes. And local elected officials fight to minimize the size of 

the mapped floodplain, spending thousands of dollars on competing flood studies. 
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Association of State Floodplain Managers 

Page 8 of20 

The point is it doesn't have to be like this, but we have to start changing our mapping priorities. The 

entire dynamic can change if maps showing risk are available before development starts. You can see 

from the FEMA flood map above that there is a lot of vacant farm fields that will be developed in the 

next few decades (and there are small streams running through them too). We must map today's corn 

fields and cow pastures to get mapping ahead of development. 

The National Flood Mapping Program (NFMP) authorized by Congress in 2012 Reform Act was one of 

the most important elements of the legislation and is the right approach. While FEMA has not made 

much progress on mapping residual risk areas, failure inundation areas or areas of future development, 

FEMA is making progress, paying attention to recommendations made by the Technical Mapping 

Advisory Council. Now we need to complete the job of mapping the nation and get to a steady 

maintenance state. Authorized by the 2012 Reform Act at $400 million annually, the NFMP is still 

desperately needed to map the approximately 2.3 million miles of unidentified flood hazard areas, and 

maintain the existing inventory of 1.2 million miles of flood studies. ASFPM appreciates last year's letter 

initiated by Ranking Member Maxine Waters and signed by 43 House members, not only recognizing the 

benefits of flood mapping, but urging Congress to get the job done by funding FEMA's mapping program 

at a level of $1.5 billion/year for five years. A stepped up commitment to mapping flood risk is 

essentially critical as the administration and Congress plan a major investment in building and repairing 

infrastructure. 

Another key issue is mapping areas below dams and behind levees to show the residual risk areas that 

will be flooded when the dam or levee overtops, fails or a spillway is used. This was an issue with the 

recent flooding below Oroville Dam in California. While local emergency management officials had 

access to these maps, two hundred thousand evacuated property owners did not. People need to know 

they are living or buying in a residual risk area so they can take preparedness and mitigation measures 

such as buying a low cost flood insurance policy. In just the last two years, South Carolina alone has had 

80 dam failures due to back to back flooding events. Unfortunately, DHS policy has continued 

unchanged since 9/11 which is that inundation maps for federal dams and levees are classified as For 

Official Use Only and not publically available. This means citizens living there do not know they are at 

risk until law enforcement knocks on their door in the middle of the night and orders them to evacuate. 

In recent years, a Federal Policy Fee associated with NFIP policies ($50 for high-risk policies; $25 for 

lower-risk policies) has paid between 30-60% of the flood mapping program and appropriations paid for 

the remainder. The highest level of appropriations in the past five years has fallen far short of the $400 

million per year authorized in BW-12. So funding from the Federal Policy Fee is an important part of the 

funding for map updates and corrections. Fewer NFIP policies means less funding for updated maps. 

li> ASFPM recommends the reauthorization of the National Flood Mapping Program {NFMP). 

li> ASPFM supports an increased authorization for the National Flood Mapping Program to 

accelerate the completion of the job of initially mapping the nation in five years and getting to 

a steady state maintenance phase 

li> ASFPM recommends that Congress require federal dam and levee inundation maps be 

publically available and cease their classification as For Official Use Only 
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Floodplain Regulations, Standards and Codes 

More than 22,200 communities participate in the NFIP, which basically means they have adopted 

minimum development and construction standards to reduce flood losses. As floodplain areas are 

identified and mapped throughout the nation, NFIP participating communities must adopt and enforce 

local floodplain management standards that apply to all development in such areas. 

States are required to apply similar standards for state funded, financed and undertaken developments. 

In fact, NFIP standards are the most widely adopted development/construction standards in the nation 

as compared to building codes, subdivision standards or zoning. FEMA has estimated that for 

approximately 6,000 of the NFIP participating communities, the only local codes they have adopted are 

their floodplain management standards. Today it is estimated $2 billion of flood losses are avoided 

annually because of the adoption and implementation of minimum floodplain management standards. 

Often communities decide to adopt standards that exceed the federal minimums. For example, over 

60% of the population in the United States lives in a community that has adopted a freeboard- which is 

an elevation that is higher than the base flood (or 100-year flood). A freeboard not only has the benefit 

of making the construction safer, but it can have a tremendous impact on flood insurance rates. A 

freeboard of 3 feet can reduce premiums by more than 70%. 

Why do communities participate in the NFIP and adopt local standards? State floodplain managers 

around the nation who have enrolled nearly all of the communities in the past 40 years know a major 

reason is to make flood insurance available to their citizens. If a community hasn't joined (there are still 

about 2,000 communities not in the NFIP), it is usually compelled to do so when a resident gets a 

federally-backed mortgage and needs to have flood insurance. While there are some non-participation 

disincentives in terms of restrictions on some forms of disaster assistance, such disincentives are weak 

and very limited. For most communities, they are not much of a disincentive at all, but getting flood 

insurance is. 

The entire floodplain management budget (100%), which includes staffing, community and state 

technical assistance, and the Community Assistance Program (CAP-SSSE), comes out of the Federal 

Policy Fee. 

);. ASFPM recommends almost all forms of disaster assistance (especially public assistance) be 

tied to a community's participation on the NFIP 

Flood Hazard Mitigation 

NFIP has two built in flood mitigation programs: Increased Cost of Compliance (ICC) and Flood Mitigation 

Assistance (FMA). These NFIP funded mitigation programs have resulted in more than $1.3 billion in 

funds to reduce risk to thousands of at-risk, existing structures. The Multi-Hazard Mitigation Council in 

its research of FEMA flood hazard mitigation projects determined that such projects resulted in $5 in 
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benefits for each $1 spent. ICC and FMA have mitigated, on average, 1,850 buildings annually between 

2010 and 2014. ASFPM strongly supports both programs. 

ICC is the fastest way to get flood mitigation done and is paid for 100% through a separate policy 

surcharge. Since it isn't run like a typical grant, funds are available much quicker. It is a transaction 

between the insured and insurance company. 60% of ICC claims are used to elevate a building and 31% 

of the time it's used to demolish a building. Other techniques used are flood proofing or relocation of the 

building out of the floodplain altogether. From 1997 to 2014, ICC has been used to mitigate over 30,000 

properties. 

ASFPM has been frustrated for several years over the pace of FEMA's implementation of its own 

authority to make ICC much more useful. In 2004 ASPFM worked with Congress to add triggers to ICC, so 

now there are four of them: 

A building being substantial damaged, 

A building classified as a repetitive loss, 

A building where an offer of mitigation is being made, 

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

insurance fund. 

Of these four, only one trigger is being utilized- when a structure has been determined to be 

substantially damaged. While FEMA will claim it also applies ICC to repetitive loss properties it, 

is only that subset of them that have also been substantially damaged. The point is that there 

are three triggers- in existing law-that could be used in a pre-disaster sense. It was clear in 

the hearing last week that there is interest by this subcommittee in effectively using ICC predisaster. ASFPM would note that this past fall, FEMA has finally convened an internal working 

group to look at ICC and evaluate how to make it more effective. ASFPM urges the committee 

to monitor the progress of this group to ensure that the congressional intent has been carried 

out. 

Another frustration with how ICC is currently being implemented is the determination of how the 

surcharge is set by FEMA's actuaries. Currently funding for ICC is through a congressionally-mandated 

surcharge capped at $75 per policy. The latest date ASFPM has is for calendar year 2014 where ICC 

brought in approximately $74 million for mitigation. On average this equals about $15 per NFIP policywhich is far below the statutory cap. However, as ASFPM has been discussing changes to ICC including 

increasing the ICC claim limit beyond $30,000, a response we often get is that the FEMA would have a 

tough time making the changes because it is collecting as much as it can under the existing cap and that 

the surcharge rate is set using actuarial principles. 

However, in its 2010 rate review, FEMA discussed how it was collecting more in ICC than it was spending 

and therefore adjusted the amount it would collect per policy down in 2011. The result? In 2010 the 

surcharge collected $84.5 million and in 2011 the surcharge collected $78.2 million. The point of this is 

that the rate setting becomes a self-fulfilling prophesy- FEMA's inability to implement ICC's other 

triggers result in the program not being fully used. And its low utilization in turn led to FEMA 

determining that the rates should be lowered. So it gives the appearance there is room under the 
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existing cap. ASFPM believes there is room under the existing cap. However, FEMA implied last week in 

its testimony that the cap may need to be raised. While ASFPM can be supportive of raising the cap, we 

also suggest Congress look at setting a tiered amount that would be consistent with the existing cap 

limit and reflective of risk. ASFPM calculates that under such an approach an ICC surcharge set at $25 for 

BCX-Zone properties, $50 for actuarially-rated A- and V-Zone properties and $75 for subsidized A- and VZone properties, would generate approximately $227 million in revenue that could be used by 

policyholders to mitigate their flood risk. 

ASFPM believes ICC needs two other adjustments by Congress to be more effective. First, while ICC is 

collected on every policy, FEMA believes the statute requires the ICC claim be counted toward the total 

claim limit. This means a home that gets a $250,000 damage claim, the amount available for ICC is $0. 

Second, the ICC claim limit is too low. Estimates to elevate a home range from $30,000 to $150,000 with 

an average closer to $60,000. While $30,000 is very helpful, it often does not come close enough to 

cover enough of the mitigation cost. 

? ASFPM recommends the ICC claim limit be in addition to the maximum claim limit under a 

standard flood insurance policy 

? ASFPM recommends the ICC claim limit be raised to $60,000 

? ASFPM recommends Congress specifically allow FEMA to utilize the available ICC amount for 

both demolition and acquisition costs as a means of compliance, when the claim is assigned to 

the community and deed restricted as open space 

? ASFPM recommends FEMA clarify to Congress whether or not expanding ICC to utilize predisaster triggers, raising the claim limit and allowing demolition and acquisition costs would 

necessitate increasing the cap and based on that information either raise the cap or set a 

tiered surcharge within the existing cap 

? ASFPM recommends Congress waive any rulemaking requirements that may be an 

impediment to quickly implementing the pre-disaster triggers for ICC and allowing demolition 

and acquisition costs 

FMA operates like a typical grant program where a community applies through the state through a grant 

application. Further, FMA also funds other types of mitigation that can address issues on the 

neighborhood- or community-scale such as stormwater management systems to reduce flood risk and 

flood mitigation plans. In recent years, the priority for the FMA program has been repetitive loss and 

severe repetitive loss properties. While this is an important objective, ASFPM worries that an exclusive 

focus on such projects is increasingly resulting in a gap where no assistance is available for properties 

that desperately need assistance, such as older pre-FIRM non-repetitive loss structures for which 

insurance rates may be increasing significantly. ASFPM recommends that accommodations be made for 

these types of properties as well when FEMA formulates its new policy guidance. 

As our testimony will go into more detail below, one approach to flood insurance affordability is to 

subsidize flood hazard mitigation or at least give property owners a chance to mitigate. One idea for 

Congress to consider is a mitigation surge where Congress would supplement FMA funds with a large 
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one-time or multi-year appropriation to either address the growing number of repetitive loss properties, 

or specifically address pre-FIRM properties where affordability of flood insurance has become 

untenable. 

Repetitive loss claims continue to drain the National Flood Insurance Fund and today, there are at least 

160,000 repetitive loss properties. Hazard mitigation efforts have been insufficient to reduce flood 

damage to older structures and ultimately reduce the overall number repetitive loss properties. Current 

mitigation programs within the NFIP are underfunded and not reducing the overall number of repetitive 

losses in the country. 

Flood Insurance 

Flood insurance is the easiest way for a property owner to manage their flood risk. It was also viewed by 

the original authors of the program as a way to more equitably share risks and costs of development 

decisions. Yet too few property owners and renters carry flood insurance. Today it is estimated 10% of 

the population lives in an identified floodplain and that number is projected to grow to 15% by the year 

2100 based on natural population growth and future conditions (land use, development and climate 

change). It is also estimated the number of policies increasing by 100% and the average loss per policy 

increasing by 90% in 2100. 2 The point is that these trends show growth in the human occupation of 

flood hazard areas and the potential damage that may result. As we have pointed out earlier, there are 

many more miles of rivers, streams and coastlines that aren't even yet mapped (which is why it is 

unsurprising that 20% of NFIP claims and 1/3 of federal disaster assistance come from outside of 

mapped floodplains)'. 

The Push for Expansion of a Private Flood Insurance Market 

In 2012 and today, there appears to be much interest in expanding the private flood insurance market. 

Many believe the private sector is a cure-all and can get the taxpayer off the hook for flood losses. And 

there seems to be a belief that if not for Congressional intervention in 2017, a robust private market 

would develop. ASFPM can see where the private sector can be a partner to the NFIP in growing the 

policy base nationally. We have the following observations related to expanding the private flood 

insurance market. 

First, private flood insurance has always been part and will continue to be allowed under the NFIP. 

Currently, robust private markets exist for policies in excess of NFIP limits. The private market has 

almost all of the commercial and industrial flood risk in the country. And robust private markets exist for 

forced place properties. Too often in 2012 and again this year, conversations in Congress about private 

flood insurance imply private companies are not currently writing policies. Not true! 

2 The Impact af Climate Change and Population Growth on the National Flood Insurance Program through 2100. 

2013. 

3 FloodSmart Flood Facts. Webpage accessed 3/14/17. 
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Second, the reforms to stimulate more private market participation in 2012 have worked as intended. 

ASFPM disagrees with those who believe that somehow the 2012 reforms were badly written or 

somehow missed its intent. ASFPM has spoken with numerous industry sources, as well as had extensive 

conversations with private sector companies interested in offering private flood insurance and former 

state insurance commissioners. This industry is growing and in the past year or so has grown 

significantly. For example, private flood policies today are required to contain a flood mitigation 

coverage that is similar to ICC because the 2012 reforms required that private policies have coverage "at 

least as broad as" NFIP policies. This ensures that property owners have funds to elevate flood prone 

homes and that communities are not faced with owners who just walk away from the property because 

it is too expensive to elevate. The 2012 reforms are ensuring that the private market is growing in an 

orderly way with appropriate safeguards that ensure protections for policyholders, lenders, taxpayers 

and communities. 

> As a result of the successful 2012 reforms to stimulate the private flood insurance market, 

ASFPM does not believe any further stimulation of the private market is needed at this time4 

> If Congress does consider additional changes to stimulate the private market, ASFPM urges 

that that the provision in current law related to coverages and deductibles being "at least as 

broad as" NFIP policies be retained to preserve an ICC type coverage to mitigate at-risk 

buildings 

Third, ASFPM strongly believes a strong NFIP can co-exist with the private market offering flood 

insurance as long as both are on equal playing fields. In other words, neither the NFIP nor the private 

market should be at a competitive disadvantage. As explained earlier in this testimony, private insurers 

depend on NFIP maps and agrees local floodplain regulations help all insurance, yet private policies do 

not have to include the Federal Policy Fee to help pay a share of these costs. The wholly unfair PAYGO 

surcharge has allowed private policies to be written using FEMA rate tables and the private sector is 

profiting on the difference between the loaded NFIP policy (with surcharges and fees) and private sector 

policy that does not have to charge such fees. 

Fourth, ASFPM believes that to preserve the many public benefits of the NFIP, two changes must be 

made to the existing law to ensure private sector growth does not inadvertently erode the other 

elements of the NFIP. 

The private insurance industry uses FEMA flood maps in various ways: sometimes to calibrate their risk 

assessment models, and sometimes to determine basic eligibility of their private flood insurance 

product. Industry officials ASFPM talks with all support the floodplain management efforts in a 

community that provide a meaningful program of risk reduction. Given that 100% of the Federal Policy 

' Last year ASFPM testified before the Senate Committee on Small Business & Entrepreneurship on flood insurance 

rate increases which also included detailed thoughts an HR 2901, which can be found here or on ASFPM's website 

at www.f/oods.org 
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Fee goes to mapping and floodplain management, it is only equitable that private policies help pay for 

these functions and that they are not just borne by policyholders. 

);> ASFPM recommends an equivalency fee, equal to the Federal Policy Fee, be assessed on all 

private flood insurance policies sold to meet the mandatory purchase requirement 

As private flood insurance becomes more widely and easily available, provisions must be made to 

ensure such policies can only be made available to meet the mandatory purchase requirement if the 

community participates in the NFIP. Why? For thousands of communities in the NFIP, the primary 

reason for joining the program is the availability of flood insurance to meet the mandatory purchase 

requirement. As a requirement of joining, communities agree to adopt and enforce local floodplain 

management standards. As a result, floodplain management standards are the most widely adopted in 

the United States- exceeding the coverage of building codes, subdivision regulations and zoning. The 

adoption and enforcement of these codes, in turn, reduces future flood risk to the individual, 

businesses, communities and taxpayers. ASFPM members understand that once you remove the 

incentive for joining (flood insurance availability) thousands of communities may rescind their codes, 

drop out of the NFIP, and rely on the private policies to meet needs of property owners without the 

administrative burden of adopting and enforcing local codes. Particularly susceptible to this are small 

communities with low policy counts. As stated earlier in this testimony, most communities in the nation 

already participate in the NFIP. And while the private industry is still emerging, let's be partners in 

persuading communities to comprehensively reduce flood losses. Finally, this fee has no cost to the 

private insurance industry. 

);> ASFPM recommends private flood insurance policies meet the mandatory purchase 

requirement and can only be sold in NFIP participating communities 

Flood Insurance Affordability 

Despite the longer glide path for premium increases set in HFIAA, rates may again reach high levels in 

another three or four years and a long-term solution to affordability was not included in either BW-12 or 

HFIAA. Also, to meet House PAYGO rules, there was a large surcharge imposed on non-primary 

residences, small businesses and other non-residential structures. The surcharge is neither risk-based 

nor need-based. Premium increases and surcharges have led to a notable reduction in policies in force, 

declining from a high of 5.5 million to about 5.1 million today. 

On one hand ASFPM supports pricing flood insurance premiums to accurately reflect risk. Premiums 

reflecting risk inform individuals as to the level of hazard in flood prone areas and encourage investment 

in flood mitigation measures. On the other hand, many low and middle income homeowners living in 

older homes in flood prone areas may not be able to afford flood insurance if premiums are priced to 

reflect risk. ASFPM believes that it is imperative that issues of affordability be addressed, but not by 
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subsidizing premiums. The University of Pennsylvania Wharton Risk Management and Decision Process 

Center has developed a conceptual approach that would pair a needs based voucher program with 

implementation of a low interest mitigation loan program. ASFPM supports approaches like this that 

emphasize mitigation as part of the solution. 

ASFPM notes that congressionally-mandated studies on flood insurance affordability have been 

completed and now look forward to FEMA's completion ofthe affordability framework. However, we 

are also concerned about timing of the FEMA framework relative to the reauthorization deadline and 

whether any meaningful reforms will be developed and considered. 

~ ASFPM recommends considering a shorter multi-year reauthorization of 2-3 years so FEMA 

can more fully develop affordability recommendations for Congress to consider. 

~ ASFPM recommends the elimination of the PAY GO surcharge established in 2014 from the 

standpoint of flood insurance affordability and equity with private flood policies 

Mandatory Purchase Compliance 

ASFPM shares the subcommittee's concern about compliance with the mandatory purchase 

requirement ofthe NFIP and appreciates the focus on the issue during last week's hearing with FEMA. 

Back in 2014 our members became quite concerned when FEMA decided that because mandatory 

purchase was not the agency's responsibility, it rescinded the Mandatory Purchase of Flood Insurance 

Guidelines (ironically our members report the document is alive and well in circulation as a bootlegged 

resource and while dated, it is still very helpful). 

What emerged from the hearing is that we really don't know precisely what the compliance rate is. 

Attempts to quantify this in 2005 as part of the evaluation of the NFIP concluded that while overall the 

market penetration rate of the NFIP nationwide was estimated to be around 50%, the mandatory 

purchase requirement compliance rate could not be precisely determined. That same study did come to 

the conclusion that mandatory purchase compliance at the time of loan origination did not seem to be 

an issue-' While the number hasn't been precisely determined, another study as part of the evaluation 

of the NFIP contained a very good policy discussion of the mandatory purchase issue and contained 72 

recommendations, including one that ASFPM strongly concurs with: "FEMA should explore 

opportunities to exercise a leadership role in promoting compliance and in assisting federal entities for 

lending regulation to meet their obligations related to flood insurance."' 

Aside from the compliance rate, it may be useful to divide mandatory purchase compliance into three 

areas: mandatory purchase associated with loans from federally-regulated lenders, mandatory purchase 

associated with loans by federal agencies that do direct lending (i.e., Dept. of Agriculture, Veterans 

Administration, SBA) and mandatory purchase associated with the receipt of some forms of disaster 

5 The authors did try to make an estimate of 75-80%; however, stakeholders largely thought this number was high. 

Data source: NFIP's Market Penetration Rate: Estimates and Policy Implications. RAND Corporation. 2006. 6 NFIP's Mandatory Purchase Requirement: Policies, Processes and Stakeholders. Tobin and Calfee. 2005. 
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assistance. It is important to note that while FEMA has the authority to administer the NFIP, other 

federal agencies typically have the authority to administer the NFIP's mandatory purchase requirement. 

Although ASFPM would note that compliance with mandatory purchase associated with disaster 

assistance falls on FEMA. This means there are likely very different processes and procedures in place. 

While Congress continually raises questions about mandatory purchase, FEMA continually points out 

that it does not have explicit authority to enforce the requirement. ASFPM agrees with earlier Office of 

Inspector General recommendations that FEMA could have a useful role in the implementation of the 

mandatory purchase requirement including assisting other federal entities in addressing the compliance 

issue. FEMA's Office of Inspector General in 2000 provided several examples of how FEMA could 

promote compliance without assuming a regulatory or enforcement role. One example is re-instituting 

a process FEMA used in the 1980s and early 1990s that collected information about mortgages and 

location in the SFHA from applicants seeking flood-related disaster assistance. FEMA then matched the 

information with data on which property owners carried flood insurance to determine the level of 

compliance with the mandatory purchase requirement. 

r ASFPM recommends Congress clarify FEMA's role in mandatory purchase to provide 

leadership and give FEMA explicit authority to provide technical assistance to federal entities 

to meet their obligations to related to mandatory purchase compliance 

r ASFPM recommends the subcommittee hold a hearing dedicated to compliance with the 

mandatory purchase requirement (including when flood insurance purchase is required as a 

condition of disaster assistance) to further explore this issue 

Improving the NFIP Policy Offerings 

Community floodplain managers often hear complaints about the NFIP centered around what is covered 

and what is not; and the inability to get additional coverages like living expenses as part of a NFIP policy. 

ASFPM has been impressed with FEMA's customer experience initiative after Sandy with FEMA 

committing to improving the insurance product it sells. Yet FEMA is constrained by a cumbersome 

rulemaking process that can take years to complete. 

r ASFPM recommends Congress give FEMA the flexibility to offer additional flood insurance 

policy options and make changes to existing options without the need for extensive 

rulemaking 

In Conclusion 

Floods are this nation's most frequent and costly natural disasters and the trends are worsening. The 

NFIP is the nation's most widely used tool to reduce flood risk through an innovative and unique mix of 
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incentives, requirements, codes, hazard mitigation, mapping and insurance. At the same time, we 

understand the four main pillars of the NFIP are interconnected; and making significant changes to one 

pillar without thoughtful consideration of the other three can erode the program overall. While we are 

under no illusion that the NFIP is the only tool in the toolbox, it is one that serves policyholders, 

taxpayers and the public well. 

The Association of State Floodplain Managers appreciates this opportunity to share our observations 

and recommendations with the subcommittee. For any questions, please contact Chad Berginnis, 

ASFPM Executive Director at cberqinnis@(loods.org (608 828-3000) or Merrie lnderfurth, ASFPM 

Washington liaison at merrie.inderfurth@qmail.com (703 732-6070). 
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Appendix A: Questions for Witnesses ASFPM Responses 

House Financial Services Committee, Subcommittee on Housing and Insurance Hearing 

Flood Insurance Reform: A Community Perspective 

March 16, 2017 

The Subcommittee is interested in how the operation of the NFIP affects 

consumers, policyholders, local businesses, and other members of your community. 

In addition to these matters, to the extent practical based on your experience, 

please discuss the following in your testimony: 

1. Whether the NFIP, as it is presently constituted, represents an ideal model 

for the effective protection of residential and commercial property owners 

from damages related to flooding; The NFIP is a comprehensive flood risk 

management program that involves a partnership between local, state and 

federal governments as well as property owners and the private sector. The 

basic concept is to reduce taxpayer costs for disasters through the arrangement 

to use the incentives of insurance for communities to guide future at risk 

construction, flood insurance premiums to require occupants of buildings in 

flood hazard areas to pay part of the cost of the flooding, and assistance to 

those communities with flood maps and technical assistance to manage the 

program. 

2. Whether FEMA can accurately predict flood risks, price for such flood risks and 

create an efficient administrative mechanism to serve policyholders; With the use of 

up to date contour mapping with LiDAR and modern technologies the NFIP can 

accurately predict flood risk. We note that It is only computing the risk from 

yesterday's floods, and needs to expand that to future expected flooding for purposes 

of community planning and mitigation. 

3. The extent and scope of the NIFP's interaction and relationship with local 

communities to propose and address mitigation initiatives, as well as improve the 

local Ia nd use and zoning codes to enhance local flood resilience; FEMA has about the 

same number of staff in the NFIP program to serve those 22,000 communities as it 

had decades ago to serve 6,000 communities. However, the most effective means of 

providing assistance to communities is to partner with State floodplain management 

offices to provide training, assistance and monitoring. States already have 

relationships with those communities and can best help the community integrate 

flood risk management with other related federal and state programs. 

4. How the claims process could be improved to enhance the timeliness and accuracy of 

claim payments; This is not ASFPM's area of expertise. No comment. 
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5. Suggestions on how to improve FEMA's mapping process, including whether maps 

could be developed more quickly and at lower cost by increasing community input and 

using more sophisticated technologies; FEMA has greatly improved their ability to 

provide accurate maps. Today the main obstacle is funding. Even so, FEMA is always 

looking at cost efficiencies. For example, FEMA is piloting a method in Minnesota 

where the flood study work is being completed at a cost of around $200 per mile 

versus $10,000 per mile for detailed flood studies. Increasing community input will 

likely have the effect of lengthening the process (such as extending the appeals 

process to 180 days vs. 90 days) We note that Congressionally mandated periods for 

notice, appeal, etc. has actually lengthened the process over the past five years. 

6. Whether the Committee should consider developing or enhancing Federal and local 

partnerships beyond what currently exists today; Building state capacity to provide 

flood mapping through the Cooperating Technical Partners program as well as 

training and technical assistance is the most effective means of helping 

communities. Community authority to manage land use and building codes flows 

from state authority delegated to the community. 

7. The role of the Federal Policy Fee and to what extent it has shaped FEMA'sability 

to provide timely and correct maps for local communities; For many years in the 

1990s the Federal Policy Fee was almost the entire budget for flood mapping so it 

was of critical importance. Still, the Policy fee was and is not adequate to provide 

flood maps and to update them on a needed basis. Furthermore, the flood maps 

are used by a myriad of agencies (local, state and federal) as well as the private 

sector for development planning, road and bridge construction, dam and levee 

safety, emergency actions such as evacuation planning, rescue and relief and 

planning for placement and operation of critical facilities like hospitals, emergency 

shelters, water supply, etc. That is why in 2000, the Bush Administration and 

Congress provided supplemental funding from the general fund to increase the 

timeliness and accuracy of the flood maps. 

8. Whether the patterns and practices of FEMA affect the community's ability to 

respond and recover from local disasters related to flood peril; Indeed-one of the 

biggest problems a community faces is when development is proposed in a flood 

hazard area that is not yet mapped. Because the community has no map, the 

development will occur with no guidance; then after the development is in, FEMA 

will now come along a map the area because their priority is to map developed 

areas. Unfortunately, many of those homes or businesses may now be shown in the 

floodplain, with flood insurance required, and many will have been built below the 

BFE on the maps. This makes their flood insurance premium very high, and the cost 

to mitigate an existing building is very high. IF the map had existed before 

development, the building could be built new when the cost of mitigation would be 

very low, usually 1 Y, or 2% of building cost. 
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9. The reforms, based on your experience in the community, that could improve the 

program's efficiency and reduce fraud, abuse and waste; While ASFPM is not 

commenting on the claims process, we would note the recommendations of the 

flood insurance advocate that reflect s comments we receive: the largest complaint 

is from agents who often quote the wrong premium for various reasons. Agent 

training seems to be a key need to improve efficiency. 

10. How the NFIP and the private sector could better serve high-impacted communities 

and modernize mapping systems while incorporating local community mitigation 

efforts; and, Key to helping communities and property owners mitigate is to 

provide mitigation assistance very soon after a flood or even before the flood. 

The quickest and most effective post flood mitigation is the Increased Cost of 

Compliance (ICC) that is a part of the flood insurance policy. This provides 

amount up to $30,000 to help property owners mitigate the property to comply 

with modern codes and standards. So in addition to the policy claim for damages, 

they have some added funding to actually make their home safer and to reduce 

their flood insurance premium. While this is exactly the right concept to assist the 

community and property owner, the ICC amount needs to be increased to 

$60,000. Many communities would mitigate entire neighborhoods before the 

flood if mitigation funding through program like Flood Mitigation Assistance 

(FMA) was increased. 

11. How the Committee should consider the question of affordability for low-income 

famil ies living in high-impacted communities with few personal or community 

resources to pay actuarial flood rates or complete mitigation projects that lower the 

risk for those individual properties. Affordability is a key issue Congress must 

consider. We saw the kickback from higher premiums after BW-12 and in a 

couple years we believe premiums will be approaching that threshold again. In 

addition to robust ICC and FMA programs, some kind of revolving loan fund to 

assist property owners mitigate flood risk seems critical. We suggest this or 

some similar mechanism could provide low cost loans to mitigate the building 

to where premiums would now be lower and the building would be safer. 

Rather than subsidize insurance premiums, this would subsidize mitigation, a 

much more sustainable solution. 
58 


27204.021

TESTIMONY OF EVAN HECHT 

CHIEF EXECUTIVE OFFICER 

THEFLOODINSURANCEAGENCY 

"Flood Insurance Reform: A Community Perspective" 

HOUSE FINANCIAL SERVICES SUBCOMMITTEE ON 

HOUSING AND INSURANCE 

MARCH 16,2017 

Introduction 

Chairman Dufzy, Ranking Member Cleaver, and members of the 

Subcommittee, my name is Evan Hecht and I am the Chief Executive 

Officer of The Flood Insurance Agency (TFIA). Thank you for the 

opportunity to testifY. 

TFIA is a retail and wholesale insurance agency whose sole focus is 

flood insurance. TFIA has been an active marketing participant in the 

Write-Your-Own (WYO) National Flood Insurance Program (NFIP) for 

almost 30 years. For the past three and a half years the company, operating 

as a Program Administrator for Lexington Insurance Company and a 

Coverholder for Lloyd's of London, has underwritten and distributed 

Private Market FloodTM, an alternative to FEMA flood insurance. We are 

one of the largest, if not the largest, writer of private flood insurance in the 

U.S. providing over $3.5 billion of property coverage to more than 18,500 

consumers through a network of over 2,000 independent insurance 

agencies. It is my intention to assist the Subcommittee with your 

deliberations on both flood insurance reform and the reauthorization of the 

NFIP. 

Today, I would like to: (1) inform the Subcommittee ofthe current 

status of the private market; (2) dispel some misconceptions that some 

members may have regarding the private market; (3) provide the 

Subcommittee with samples and statistics evidencing testimonials of 

exemplary customer experiences; and (4) suggest legislative and regulatory 

changes that I believe would enhance the NFIP, protect taxpayers, and 

facilitate a robust private sector market for flood insurance. 

Status of the Private Flood Insurance Marketplace 

Private flood insurance alternatives to FEMA's NFIP are more 

commonplace than some Subcommittee members may be aware. They first 
59 


27204.022

became available simultaneously with the unintended consequences ofthe 

Biggert-Waters Flood Insurance Reform Act in October of2013. Three and 

a half years have now transpired and those alternatives are no longer a 

novelty nor are they in their infancy. TFIA is just one private market 

provider, yet every day we renew a previously written policy every six 

minutes and we write a new policy every ten minutes. The general public's 

knowledge of the existence of alternatives to the NFIP is readily evidenced 

by astonishing data analytics; a unique user visits our website, 

www.privatemarketflood.com, every fifty-two seconds. 

Misconceptions Regarding the Private Market 

Concerns That the Private Market Will Cherry-Pick NFIP's Best 

Risks 

While it is understandable that some might believe the private market 

would only want to write FEMA's best risks and leave all the poor risks in 

the NFIP, from our point of view, almost exactly the opposite is taking 

place. Nearly all of the 18,500 risks TFIA has taken from FEMA are 

subsidized policies, the policies FEMA believes are 45-50% underpriced. 

We believe that FEMA's actuarially rated risks are the policies that are not 

rate sufficient. 

The July 2013 GAO Report to Congress "More Information Needed 

on Subsidized Properties", page 30, provides a summary of total premiums 

received and claims paid from 1978 to 2011 for both subsidized and 

actuarially rated policies. Surprisingly, the ratio of losses to premium is 

almost the same for both groups. Excerpts of the GAO report are provided 

with my written testimony. 

Subsidized premiums have dramatically increased over the past ten 

years, actuarial premiums have not. I have provided with my written 

testimony examples of three FEMA policies with rate increases of actual 

TFIA clients that so demonstrate: 

I. An actuarially rated policy written in 2005 for a property 

in California for $225 renewed this year for $372, an 

increase over the twelve years of 65%. 

2. A subsidized rated policy written in Illinois in 2006 for 

$998 renewed this year for $2,525, an increase over the 

ten years of 153%. 

3. A subsidized rated policy written in Louisiana in 2007 for 

$553 renewed this year for $2,130, an increase over the 

ten years of285%. 
60 


27204.023

While some private market providers may choose to write FEMA's 

actuarially rated risks, most of our private market competition is also 

choosing to write FEMA's subsidized risks. Of course, no private market 

provider will choose to write FEMA's severe repetitive loss properties, 

however they only represent a small fraction ofFEMA's total policies. As a 

group we will also not entertain writing FEMA's grandfathered risks where 

they are knowingly charging a premium less than the known current 

exposure. 

It is also noteworthy that FEMA's most hazardous rated policies, V 

(velocity) zones, have enjoyed the most favorable loss experience of any 

sub-group, while FEMA's preferred risk policies (PRP) have performed 

rather poorly. 

Concerns That Private Flood Policies Written With Surplus Lines 

Insurance Companies Are Not Regulated 

Every one of our 18,500 private market flood policies is presently 

written by a surplus lines insurer, either with Lexington Insurance 

Company, a member of the AIG group, or Lloyd's of London. 

TFIA writes more than 2,000 surplus lines policies in Pennsylvania. 

On January 6, 2017, Pennsylvania Insurance Commissioner, Teresa Miller, 

in her letter to interagency financial regulators, states "I would note that 

even with the increased surplus lines activity for residential flood coverage 

over the past 11 months, the Pennsylvania Insurance Department has not 

received a single complaint concerning a surplus lines carrier." 

Each surplus lines insurer is licensed and regulated in its home state or 

country, and is subject to the jurisdiction of the insured's home state, either 

indirectly by issuing a policy, or directly by obtaining status as an 

"approved" surplus lines insurer. Most states furnish an "approved" list of 

surplus lines insurers. The National Association of Insurance 

Commissioners (NAIC) also maintains a list of"approved" alien insurers 

that have met the criteria in the "International Insurers Department Plan of 

Operation". 

Here's a quote from the California Surplus Lines Association 

publication entitled, Non-admitted Does Not Mean Non- regulated. 

"NONADMITTED OR SURPLUS LINE non-admitted does not 

mean nonregulated, as evidenced by this document. Non-admitted 

carriers on the LESLI List have been reviewed and approved by the 

California Department ofinsurance (CDI) for surplus line insurance in 
61 


27204.024

California. Non-admitted carriers on the LESLJ List are actually 

"admitted" insurance carriers, in a state or domicile other than 

California. Surplus lines have been written by non-admitted 

carriers since the 1800's, and generally are used when a risk is 

unusual, unusually large or when coverage is not available from 

carriers licensed in California." 

(SLAC, http://www.sla-cal.org/publications/ pb _ nonadmitted.html) 

Each surplus lines broker is also licensed and regulated in the 

insured's home state, which includes regulation of the transaction itself. It 

is the broker's the responsibility to determine the solvency of the surplus 

lines insurer, as well as providing certain statutory notices to the insured, 

and complying with all state surplus lines tax laws. 

Samples and Statistics Evidencing Testimonials of Exemplary 

Customer Experiences 

TFIA is 100% committed to providing exceptional customer 

experiences. Our website allows testimonials to be submitted by a user. 

Since the first of the year we have received 73 testimonials. Remarkably, 

once or twice every day, someone takes their valuable time to let us know 

we are succeeding. Here are two such testimonials, one saving a client 

enough money to stay in their home and a second offering to cook us 

dinner due to a positive claims experience: 

TysonS 

June 25,2015 

"Great Alternate to FEMA Flood Insurance. We live in Kansas in an 

area where it rarely to never floods but we are required to have flood 

insurance since we are within the 100 year flood plain. We are a 

young couple and this was our first home. We have had FEMA 

insurance for 5+ years now and during this time we saw our premiums 

nearly double during the last few years. The insurance on the home 

was getting to be so much that we were considering moving because 

we were barely able to make the payment. We had no idea that there 

was a private market flood insurance company that could provide us 

coverage at a competitive rate compared to FEMA. In the matter of 

minutes I was on the website and had a quote of the costs to switch to 

The Flood Insurance Agency at Lloyd's. The amount of savings was 

incredible and we were able to keep the same coverage as our current 

policy. I quickly called the bank to check on my policy and we were 
62 


27204.025

able to change insurance carriers by the end of the next month when 

my current policy expired. The process was quick and easy. I worked 

with several representatives and was able to print and sign the 

documents shared in a couple of emails. TFIA worked with my bank 

to make all the changes needed on our escrow account. Within a week 

of receiving our new policy we had a check in the mail from our bank. 

They were refunding us the amount of overpaid money from our 

FEMA policy that we had been paying in over the last year. I have 

already recommended TFIA to neighbors and friends and others are 

making the switch also. Thanks to TFIA we are able to stay in our 

home." 

DanaL 

September 15,2016 

"I wanted to say thank you so very much for expediting our 

claim. When I spoke to you on the phone that day, I must apologize 

for my tone and demeanor. Normally I never speak in such a manner, 

but this was just such an unexpected event and my frustrations over 

took me. 92% of our community flooded and construction people 

were already being booked up. I was so concerned that we could not 

afford our mortgage and our temporary rental fee. Now we are on our 

way to restoring our home, thanks to you and Mr. Alex. Trying to list 

our contents has been very emotional for me but I am getting 

there. My entire kitchen contents and appliances could not be 

saved. Most girls would be devastated over losing their shoes, 

clothing, jewelry, or purses, which those were also not salvageable; 

but losing my vintage coming ware and other kitchen stuff hurt the 

worst. Everyone teases me! But they sure do love to eat my Cajun 

cooking! If you are ever over our way, let me know and I will cook 

you the best gumbo ever! Once again, we appreciate so very much for 

your attentiveness to our claim." 

The recent 2016 significant flooding in and around Baton Rouge, LA 

has been designated by FEMA as the fourth most costly event in the history 

of the NFIP. TFIA had 842 policies written in the entire state of Louisiana at 

the time of the event, 3 81 suffered flood damage. After adjusting for TFIA's 

higher average deductible, our average loss of $80,084 is the same as 

FEMA's average loss. Our average time to settle a claim was 66 days. Zero 

complaints have been filed with the Louisiana Department oflnsurance. 
63 


27204.026

Legislative and Regulatory Changes That I Believe Would Enhance the 

NFIP, Protect Taxpayers, and Facilitate a Robust Private Sector Market 

for Flood Insurance 

I urge Congress to pass the Flood Insurance Market Parity and 

Modernization Act that passed the full House of Representatives with bipartisan support during the last session. This legislation provides much 

needed clarity to include surplus lines insurers in the definition of acceptable 

private flood insurance and requires FEMA to recognize private flood 

insurance as continuous coverage when qualifYing for subsidized premiums. 

TFIA pays its agents a 10% commission for the placement of private 

market flood insurance. I recommend the WYO financial arrangement be 

adjusted to reduce agent commissions to the same level of commissions paid 

to agents placing business with the NFIP directly, 15% of the first $2,000 of 

annualized premium and 5% on the excess of $2,000. This would be more in 

line with commissions agents currently receive for placing automobile and 

homeowners insurance. Many agents today receive WYO commissions of 

20%-22% of the annualized premium. The cost savings of hundreds of 

millions of dollars could be used to either pay down the NFIP debt or provide 

assistance to low income property owners in high hazard flood areas to help 

them afford their flood insurance premiums. 

Congress should consider requiring a federal policy fee equal to the 

FEMA federal policy fee on all private market flood insurance policies in 

order for the private policy to meet the definition of an acceptable private 

market flood insurance policy. This fee would be remitted to FEMA to 

provide funds for ongoing mapping expenses, similarly to how the current 

FEMA policy fee is allocated. 

Conclusion 

I thank the members of the Subcommittee for allowing me to testifY 

before you today. I wholeheartedly support your mission and offer you my 

continued efforts should you request them. 
64 


27204.027

Jnly 2013 

GA0-13-607 

United States Government Accountability Office 

Report to Congressional Committees 

FLOOD INSURANCE 

More Information 

Needed on Subsidized 

Properties 
65 


27204.028

between 35 and 45 percent of the full-risk premium rate. 34 FEMA officials 

said that they did not report an estimate before the 1999 PwC report. 

Therefore, determining forgone premiums without these estimates would 

be difficult because the percentage of subsidized premium rates 

compared with full-risk rates may have varied considerably over time. 

Although it was not possible to estimate forgone premiums since the 

program was established, the following provides information about the 

impact of subsidized premiums on the program. 

Data are not available from FEMA to estimate the forgone premiums 

before 2002. Using FEMA's estimated range of subsidy rates to actual 

premiums collected from 2002 through 2011, we conducted an 

analysis to estimate the premiums that could have been collected if 

subsidies had not existed over that period. 35 FEMA officials have 

clarified their estimate that 2011 subsidized premiums represented 40 

percent to 45 percent of full-risk premium rates, explaining that after 

paying for all administrative and other expenses, the remaining 

premiums would cover about 40 to 45 percent of the expected 

average long-term annual losses. 

Premiums are used to cover not only claims, but also operating 

expenses and any debt. According to FEMA officials, 17 percent of 

forgone premiums would be needed to pay operating expenses that 

would increase if subsidized premiums were increased. Such 

expenses consist of premium taxes (about 2 to 2.5 percent of 

premium) and agents' commissions associated with the private 

insurance companies that sell and service NFIP policies (about 15 

percent of premium). Therefore, about 83 percent would be available 

to help cover fixed expenses (which do not vary with premiums) and 

34!n its actuarial rate review for 2011, FEMA estimated that currently subsidized policy 

rates were between 40 and 45 percent of full-risk premium rates. See FEMA, National 

Flood Insurance Program: Actuarial Rate Review (Washington, D.C.: October 2011). Prior 

ranges were between 35 and 40 percent According to FEMA officials, FEMA changed the 

estimated range of the percentage of full-risk premiums that subsidized policyholders pay 

from 35 to 40 percent to 40 to 45 percent, after gradual increases in this percentage over 

the last several years. However, in commenting on a draft of this report, FEMA officials 

informed us that this percentage was actually the portion of subsidized premiums 

available to pay expected average long-term annual losses. 

351n comments on a draft of this report FEMA officials provided new information about 

variable expenses that could impact this estimate. GAO plans to undertake additional 

work to analyze the Impact of these variables on our initial estimate of the financial 1mpact 

of subsidized premiums on the program and report the results separately 

Page 28 GA0~13~607 Flood Insurance 
66 


27204.029

FEMA Lacks the 

Information Needed to 

Establish Full-Risk Rates 

That Reflect Risk of 

F1ooding for Remaining 

Subsidized Policies 

are used to pay not only claims but other costs of administering the 

program, they provide additional descriptive information. Moreover, 

because flooding is a highly variable event, with losses varying widely 

from year to year, even analysis of the decades of historical data 

available could lead to unreliable conclusions about actual flood risks. 

Based on our analysis of NFIP claims data, we calculated the amount of 

claims attributable to historically subsidized policies from 1978 through 

2011 to have been $24.1 billion, of which $15.2 billion is attributable to 

remaining subsidized policies. NFIP had $28.5 billion in claims for policies 

charged at the full-risk premium rates in the same time period. Based on 

data provided by FEMA on all subsidized premiums, we calculated the 

amount of premiums collected for all historically subsidized policies from 

1978 through 2011 to have been $26.2 billion, of which $15.7 billion is 

attributable to remaining subsidized policies. Comparatively, FEMA 

collected $33.7 billion in premiums for policies with full-risk premium rates 

for the same time period. 

FEMA generally lacks information to establish full-risk rates that reflect 

flood risk for active policies that no longer qualify for subsidies as a result 

of the Biggert-Waters Act and also lacks a plan for proactively obtaining 

such information37 The act requires FEMA to phase in full-risk rates on 

these policies. Federal internal control standards state that agencies 

should identify and analyze risks associated with achieving program 

objectives, and use this information as a basis for developing a plan for 

mitigating the risks. In addition, these standards state that agencies 

should identify and obtain relevant and needed data to be able to meet 

program goals. 

FEMA does not have key information used in determining full-risk rates 

from all policyholders. According to FEMA officials, not all policyholders 

have elevation certificates, which document their property's risk of 

flooding. 38 Information about elevation is critical for determining the 

location of a property in relation to the risk of flooding and is a key 

element in establishing premium rates. For instance, FEMA uses 

L. No. 112-141, §100205 (a)(1). 

38Surveyors calculate the elevation of the first~levet of a structure in relation to the 

expected flood level, or base flood elevation. According to FEMA, obtaining such a 

certificate typically would cost a policyholder from $500 to $2,000 or more. 

Page 30 GA0~13-607 Flood Insurance 
67 


27204.030

PolicyNttmber:-

FLOOD POLICY DECLARATIONS 

New Hampshire Insurance Company 

Type: Revised Declaration Standard Policy 

Policy Period: Ol/31/2005 To OJ/31/2006 

Original New Business Effective Date: For payment status, call: (888) 245»7274 

These Declarations are effective 

Reinstatement Date: 

Form: Dwelling 

Producer Name and Mailing Address: THE F::,OOD !NSURP.NCE AGENCY INC 

5700 SW 34TH ST STE 402E 

GAINESVILLE, l'L 3260B-53GC 

Primary Residence: N 

Premium Payor: Insured 

Flood Risk/Rated Zone: AOB Current Zone: 

Community Number': 06 5043 0340 B 

Community Name: LOS P...:NGELES COUNT?* 

Grandfathered: No 

as of: 12/20/2005 at 12:01 AN 

NAIC Number: 23841 

Building Description: Single Family 

Two Floors Slab On Grade 

Newly Mapped into SFHA: 

Elev Diff: N/A 

Elevated Building: N 

Replacement Cost: $232, ooo 

Number of Units: 

Sub ·T~tal ~remi:um Calculation , 

Pr,e!nium Subtotal: 

$iult..iplier: 

ICC Premium: 

See Your Polley Form for Details. 

Loss Payee: 

Disaster Agency: 

••••• 02-/14/2011 New HampshiN'! Insura.•'lc.e co.,:~pany Inc 

211.00 

6.00 

22.00 

.00 

.00 

30.00 

373.00-

225.00 
68 


27204.031

PolicyNumber:-

FLOOD POLICY DECLARATIONS New Hampshire Insurance Company 

Type: Revised Declaration Standard Policy 

Policy Period: 01/31/2017 To 01/31/2018 

Original New Business Effective Date: 01/31/2005 

Reinstatement Date: 

Form: Dwelling 

Producer Name and Mailing Address: TEE FLOOD INSURANCE AGENCY !NC 

5700 SH 34TH ST STE 402B 

GAlt\"ESVIL:WE, FL 32608·5300 

Primary Residence: Y 

Premium Payor: Insured 

Flood Risk/Rated Zone: AOB Current Zone: AO 

Community Number: co 5043 oaoo F' 

Community Name: LOS ..'\NGELES COUNTY* 

Grandfathered: No 

Content-s 

Locat,ion: 

,2$(1/ 

For payment status, c:all: (88S) 245·7274 

These Declarations are effective 

as of: 03/13/2017 at 12:01 AM 

NAIC Number: ns.n 

Processed by: 

Address: 

Flood Insurance Processing Center 

P.O. Box 2057 Kalispell MT 59903-2057 

Building Description~ 

Single Family 

Two Floors Slab On Grade 

Newly Mapped into SFHA: 

Elev Diff: 1 

Elevated Building: N 

Includes Addition(s} and Extension{s} 

Replacement Cost: $232, ooo 

Number of Units: 

299,00 

4.00 

45.00 

R~se-rve Furid ASsrnt,: 39. oo 

Hlt~~A Surcha>ge: 

See Your Policy Form fOr Det-ails, 'l'ot.alPteridUlll.'Paid:': 

Loss Payee: 

Disaster Agency: 

~--

President 

~-1<-~ () Secretary 

llllloJ/l3/20l? 
69 


27204.032

PolicyNumber:-

.FLOOD POLICY DECLARATIONS 

New Hampshire Insurance Company 

Type: Revised Declaration Standard Policy 

Policy Period: 02/13/2006 To 02/B/2007 

Original New Business Effective Date: For payment status, call: (SSS) 245~7274 

These Declarations are effective 

Reinstatement Date: 

Form: Dwelling 

Producer Name and Mailing Address: '!'HE FLOOD INSURANCE AGENCY HJC 

5700 SW 34'fH ST STE 402B 

GAINESVILLE, FL 32608-5300 

as o:E: 02/14/2006 at 12:01 AM 

NAIC Number: 23841 

Processed by: Flood Insurance Processing Center 

NFIP Policy Number: •••• Agent/Agency#: 03600-00867·000 

Heference #: 

{877) 356·6348 P.O. Box 2057 Kalispell MT 59903-2057 

Property Location: 

WOOD RIVER, IL 

Primary Residence: Y 

Premium Payor: Insured 

Flood Risk/Rated Zone: A:ti Current Zone; 

Community Number: 17 0451 ooos E 

Community Name: WOOD RIVER, CITY OF 

Grandfathered: Nc 

Pre-Firm Construction 

Program Type: Regular 

Building Description: Single Far.1ily 

'r"'o Floors Basement 

Newly Mapped into SFHA: 

Elev Diff: N/ A 

Elevated Building: N 

$160,000 

P:r.e:r:niu:m Carculatio~ 

Premiurn Subtotal: 

Muhiplier: 

See Your Policy Form for Details. 

Loss Payee: 

Disaster Agency: 

••••• 03/14/2017 New Hanps~irs I;:.surance Comr-any Inc 

693.00 
70 


27204.033

PolicyNumber:-

FLOOD POLICY DECLARATIONS 

New Hampshire Insurance Company 

Type: Renewal Standard Policy Pre-FIRM Subsidized 

Policy Period: 02/13/2017 To 02/13/2018 

Original New Business Effective Date: 02/13/2006 

Reinstatement Date: 

Form: Dwelling 

Producer Name and Mailing Address: THE FT.OOD INSVRJ\J.VCE AGENCY INC 

5700 SW 34-'I"R ST STE 402B 

GAINESVILLE, FL 32608·5300 

NFIP Policy Number: •••• Agent/Agency#: 03600 *00867 -ooo 

Reference#; 

WOOD RIVER, IL 

Primary Residence: Y 

Premium Payor: Insured 

Flood Risk/Rated Zone: A .. -'1: Current Zone: 

Community Number: 17 0451 ooos B 

Community Name: WOOD RIVER, CITY OF 

Grandfatbered: No 

Pre·Firm construction 

Program Type: Regular 

'rype Cov~rag-e 

Building: 

Contents· 

For payment status, call~ (888} 245*7274 

These Declarations are effective 

as of: 02/13/2017 at 12:01 AM 

Insured Name and Mailing Address: 

NAIC Number: 23841 

Processed by: Flood Insurance Processing Center 

P.O. Box 2057 Kalispell MT 59903-2057 

Building Description: single Farnily Two Floors 

Baseme!lt 

Newly Mapped into SFHA: 

ElevDiff: N/A 

Elevated Building; )!" 

Includes Addition(s") and Extension(s) 

Replacement Cost: $160, ooo 

Number of Units: 

Sub TQt$ P:r-emhun Calculation 

Prt!mh1m Subt.otal; 2,060 .. 00 

l\;luit,iplie-r: 

Content-s 

Locabon~ 

fCC Promiuln; 70 .. 00 

CRS Disoount; 

Reser.'(! Fund Assmt-: 320 .. 00 

BFI.AASurcbarge; 25.00 

F'Pderal Policy Fe~: 

Probation Surcharge: 

Endon:ement Amount; .oo See Your Policy Form for Details. l'<ltal Premium Pal& 2,525.00 

Loss Payee: 

Disaster Agency: 

~-· 

President 

New Ha!l'.pshhe !Iumrance Company Inc 
71 


27204.034

PolicyNumber:-

FLOOD POLICY DECLARATIONS 

New Hampshire Insurance Company 

Type: New Busi:<ess Standard Po~icy 

Policy Period: 03/28/2C07 To 03/28/2008 

Original New Business Effective Date: 03/28/2007 

Reinstatement Date: 

Fonn: vwelling 

Producer Name and Mailing Address: THE !"LOOD !NSC!RANCE AGENCY INC 

5700 SW 34TH ST STE 402.B 

GAINESVILLE, FL 32608·5300 

NFlP Policy Number.- Agent/Agency#: 03600-00867·000 

Reference#: 

Primary Residence: N 

Premium Payor: Insured 

Flood Risk/Rated Zone: AE Current Zone: 

Community Number: 22 5199 0045 E 

Community Name: JEFFERSON PARISH* 

Graudfathered: No 

Pre-Firm Construction 

For payment status~ call: {888} 245·7274 

These Declarations are effective 

as of: 03/28/2007 at 12:01 AM 

~ 

Insured Name and Mailing Address: 

NAIC Number: 23841 

Processed by: Flood Insurance Processing Center 

P.O. Box 2057 Kalispell MT 59903·2057 

Building Description: Single Family 

One Floor 

Slab On Grade 

Newly Mapped into SFHA: 

E1ev Diff: N/l;. 

Elevated Building: N 

Replacement Cost: 

Number of Units: 

P:rexniu:m Caleulatiop 

Preinium Su~totai: 54o.oo 

Mult_iplier: 

ICCPromium· 75.00 

CJ?S l)ji;oount~ 92. oo 

R~e:rve Fund AssU?-t' . oo 

I:fPL>\..4:Surcharg~;>:' .oc 

Fecle.ra:l·Polk:_,., F'~-' 

.00 

Sec Your Policy Potm for Details. Total Premium Paid: 553.00 

Loss Payee: 

Disaster Agency: 

iftuftMLM .~ 

U Secretary 

••••• 03/141:'!017 
72 


27204.035

PolicyNumber:-

FLOOD POLICY DECLARATIONS 

New Hampshire Insurance company 

Type: Renewal Standard Policy Pre· FIRM Subsidized 

Policy Period: 03/28/2017 To 03/28/2018 

Original New Busine-ss Effective Date: 03/28/2007 

Reinstatement Date: 

Form: Dwelling 

Producer Name and Mailing Address: THE FLOOD INSURANCE AGENCY INC 

5700 SW 34TH ST STE 402B 

GAINESVILLE, FL 32608 · 5300 

~ METAIRIE, LAPrimary Residence: N 

Premium Payor: Insured 

Flood RiskJRated Zone: AE Current Zone: 

Communitv Number:22 5199 0045 E 

CommunitY Name: JEFFERSON PARISH* 

Grandfathered: No 

Pre·Firm construction 

Program Type: Regular 

For payment status, call: {SSS) 245·7274 

These Declarations are effective 

as of: 03/28/2017 at 12:01 AM 

Insured Name and Mailing Address: 

NAIC Number: 23841 

Processed by: Flood Insurance Processing Center 

P.O. Box 2057 Kalispell MT 59903·2057 

Building Description: Single Family 

One Floor 

Slab On Grade 

Newly Mapped into SFHA: 

Elev Diff: N/A 

Elevated Building: N 

Includes Addition(s) and Extension(s) 

Replacement Cost: $130,000 

Number of Units: 

See Your Policy Form fOr D0talls. 

Loss Payee: 

Disaster Agency; 

&uf?.~J.<.~ () Secretary 

••••• 03/1012017 .NP.w Hampshil:e Inst:ra>'l.Ce Company l:tlc 
73 


27204.036

STATEMENT 

OF 

MELISSA H. LUCKMAN, ESQ. 

VISITING ASSISTANT CLINICAL PROFESSOR OF LAW 

DIRECTOR OF THE TOURO LAW CENTER DISASTER RELIEF CLINIC 

BEFORE 

THE 

HOUSING AND INSURANCE SUBCOMMITTEE 

FINANCIAL SERVICES COMMITTEE 

U.S. HOUSE OF REPRESENTATIVES 

WASHINGTON D.C. 

"Flood Insurance Reform: A Community Perspective" 

Submitted by 

Melissa H. Luckman, Esq. 

Touro Law Center Disaster Relief Clinic 

225 Eastview Drive 

Central Islip, NY 11722 

March 16, 2017 

liPage 
74 


27204.037

INTRODUCTION 

Good afternoon Chairman Duffy, Ranking Member Cleaver, and Members of the Subcommittee. 

My name is Melissa Luckman and I am the Director of the Touro Law Center's Disaster Relief 

Clinic. My Clinic is State funded through the Social Services Block Grant (SSBG), which 

provides all pro bono legal services to Superstorm Sandy Survivors. While we assist with 

homeowners with various categories of assistance, flood insurance has always been our primary 

focus. I want to thank you for the opportunity to testify about the National Flood Insurance 

Program and provide suggestions for reform as we quickly approach the September 2017 

expiration of this program. 

TOURO LAW CENTER DISASTER RELIEF CLINIC BACKGROUND 

Within three days of Sandy, the Touro College Jacob D. Fuchsberg Law Center established a 

help center for Sandy victims in need of legal services through its Sandy Hurricane Emergency 

Assistance and Referral Team hotline. It was launched by the Touro Law Center together with 

partners the Suffolk County Bar Association, the Disaster Relief Law Center "You. Me. We." 

and the student Disaster Relief Network. The hotline has grown and evolved into a full service 

legal Clinic to address the changing needs of Sandy survivors since the storm. The Clinic stands 

as a voice for victims, a support system for those who feel helpless and need guidance, a 

community resource and an agent of change. 

The mission of the Clinic is to assist Sandy-affected New York households with a focus on 

Nassau and Suffolk Counties. The Clinic assists clients with various legal issues and disputes, 

which include: (1) Flood insurance or homeowner insurance underpayments or denials of 

coverage; (2) Contractors who misappropriated funds or incorrectly performed contracted 

services; (3) FEMA recoupments oflndividuals and Households Program (IHP) benefits; (4) 

Assistance with the NY Rising Program and NY Rising recoupments; (5) Working with 

policymakers to positively reform the flood insurance program; and (6) Assistance with the 

FEMA Sandy Claims Review Process. The Disaster Relief Clinic is one of its kind, helping 

thousands in need. To date we have spoken with over 5,000 households and represented over 

I ,400 homeowners with various Sandy issues. 

As I previously mentioned, while our Clinic provides legal assistance to all Sandy survivors, our 

main focus has been assisting homeowners navigate through the National Flood Insurance 

Program and flood claim submissions. We have provided assistance to homeowners with 

supplemental insurance claims, flood insurance Appeals, flood insurance litigation, and most 

recently, assistance with the FEMA Sandy Claims Review Process. 

To date we remain the only New York non-profit who filed ten (I 0) federal lawsuits against the 

NFIP and various Write Your Owns (WYOs), all ofwhich have settled in excess of$1.28 

million dollars for our clients. 

On April28, 2015 the Touro Law Center Disaster Relief Clinic was invited to Washington D.C. 

to participate in the first meeting of the Sandy Task Force to examine problems within the 

Federal Emergency Management Agency's (FEMA) National Flood Insurance Program (NFIP) 

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arising in the wake of Superstorm Sandy and develop recommendations for short and long term 

reform. 

As a result ofihe Task Force meeting, FEMA created a Sandy Claims Review Process, which the 

Clinic played an integral role in representing the voices of the homeowners and a non-profit 

Clinic. To date we are representing 90 Sandy victims through the claims review process, which 

has netted over $1.5m dollars for our clients. We still have 40 open cases for FEMA review 

which will be presented to a Third Party Neutral and continue to take on new cases. 

We have been fortunate to having a professional working relationship with Roy Wright, Deputy 

Associate Administrator for Insurance and Mitigation, and his predecessor Brad Keiserman, 

along with the Sandy Transformation Staff. While flood insurance proceeds are now being paid 

out to homeowners four-and-a-half(4 Yz) years post-Sandy, my involvement and understanding 

of the NFIP has exposed administrative issues within the NFIP along with necessary policy 

reform. 

PROPOSALS FOR NFIP REAUTHORIZATION 

First and foremost, I would like to state that I do believe the NFIP should be reauthorized, as it 

provides a valuable subsidized flood insurance policy to thousands of homeowners in the United 

States. However, there must be significant reform to ensure the program functions in a more 

efficient manner then it does today. 

The greatest lesson learned from my involvement with flood insurance claims, is the simple 

concept of "Getting it Right from the Start". As flooding is one of the most costly natural 

disasters, and unfortunately, floods are becoming a common event, it is imperative that we shift 

our focus from reactive response to proactive education and response to ensure a full and 

complete recovery, to create a more sustainable future not only for our Country, but also for the 

National Flood Insurance Program. 

As the NFIP underwrites and bears all risk related to all NFIP policies, the NFIP should be 

permitted to enforce stricter guidance and requirements among those participating actors. The 

relationship between the NFIP and WYOs indirectly afford private companies sovereign 

immunity, and in return, there should be stricter oversight and regulations to participate in the 

sales of a government product. 

My proposals for reauthorization are as follows: 

I. STANDARDIZED EDUCATIONAL REQUIREMENTS FOR ALL ACTORS 

CONNECTED TO AN NFIP POLICY TO RESOLVE THE ISSUE OF 

TRAINING DJSP ARITY 

First, l believe there should be standardized requirements of education and/or certification for all 

actors connected to an NFIP policy, which would include the WYO staff adjusters, independent 

adjusters, engineers, as well as the sales agent. All aforementioned actors play a key role in the 

sales and administration of an NFIP policy, yet different educational requirements are set forth 

for all actors. The NFIP should establish additional education requirements beyond the current 

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minimum and develop an ongoing continuing education requirements for all agents, adjusters 

and engineers who will touch an NFIP flood policy and/or claim. 

Sales agents are trained to tell policyholders what will be covered for a flooding event, however 

adjusters actually scope and value a claim. Additionally, engineers are hired to inspect claims 

which most often include the most expensive and costly repair damage from a flooding eventthat being the foundation. Just as there are NFIP Certified Adjusters, there should be NFIP 

Authorized Agents, and Engineers. 

Based upon information and belief, the research I have done reveals that the only requirements 

for education are as follows: (l) Sales Agents must attend a one-time, three-hour flood training 

to allow them to sell a NFIP policy; and (2) Independent Adjusters (IA) must attend an annual 

NFIP one-day certification, to remain eligible to adjust NFIP claims, and (3) Engineers must be 

licensed in the State which suffered a flooding event. 

In the time of major disaster as we saw post-Sandy, there is a great need for additional adjusters 

and engineers to ensure timely adjusting of claims. However, it was quite evident that many 

adjusters and engineers did not possess the requisite knowledge and experience to handle NFIP 

flood claims of such magnitude. 

As set forth by William Craig Fugate, former Administrator of the Federal Emergency 

Management Agency, in his Fiscal Year 2015 Report to Congress, FEMA recognizes that at any 

particular time there is a limited pool of available certified adjusters and has identified several 

ways to manage strained NFIP certified adjuster resources in large events: (1) FEMA authorizes 

emergency adjuster certification for WYO companies and independent adjusting firms by 

conducting additional adjuster certification workshops in the affected areas; (2) FEMA may 

provide a limited waiver and allow adjusters with expired certifications to adjust flood claims for 

a limited period of time. 

In September 2016, the National Advisory Council (NAC) made a similar recommendation to 

FEMA indicating that: 

"A key component of a successful flood insurance program is to maintain the confidence 

of survivors. This is accomplished by ensuring that adjusters have the training and tools 

to handle claims in a just-in-time environment FEMA should implement enhanced 

standards and guidance for all levels of adjusters resulting in a new FEMA-administered 

certification program for flood insurance adjusters to raise the level of practice within the 

adjuster community and standardize adjusting practices after a flood event." 

It is neither sufficient nor efficient to have WYOs hosting their own training and educational 

events. As has been noted by the U.S. Government Accountability Office (GAO), there must be 

additional oversight by FEMA over the WYOs. By requiring FEMA administered education and 

certification, this would ensure adjuster compliance with FEMA requirements. This would also 

create standardization within the NFIP among its numerous WYO partners, participating agents, 

adjusters and engineers. 

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As also set forth by the NAC, there are currently no testing requirements for adjusters. FEMA 

should conduct regular evaluations and testing of adjusters employed by WYO companies to 

ensure they maintain standard competencies over time as part of the certification and renewal 

process. 

Quite candidly, I would like to advise the members of the subcommittee that I personally 

attended the February 2017 NFIP Adjuster Certification in Iselin, New Jersey. While the phrase 

"policyholder centric" is continuously stated, so are phrases such as "if an item can get wet, how 

is it ruined by flood waters?". There is an obvious distinction between an item that can get "wet" 

and one that is destroyed by storm waters. 

The current certification courses taking place are hosted by H20 Partners Inc. H20 Partners, Inc. 

(H20), a Texas Historically Underutilized Business (HUB), and Women's Business Enterprise 

(WBE), was fanned in 2001 by JoAnn Howard, former Federal Insurance Administrator at 

FEMA. According to their website, H20 Partners, Inc. was selected to provide training for the 

National Flood Insurance Program beginning in 2008. 

The Adjuster Certification courses should also include construction professionals, and the 

presence of FEMA personnel. As these Certification courses are already taking place, there is no 

reason why agents, in-house adjusters, and engineers should not also be required to attend and 

ensure they are acting in compliance with the NFIP. An alternative to hosting live events would 

be the use ofwebinar presentations to ensure that one message in solidarity from FEMA is being 

set forth. 

Standardized and continued educational requirements for all engaged Actors, would implement 

quality control among those participating in the NFIP. 

II. IMPROVED REQUIREMENTS AT THE INCEPTION OF A NFIP POLICY 

Next, I believe there needs to be additional requirements of policyholder acknowledgment and 

inspection at the inception of an NFIP policy. 

First let's discuss improved disclosure requirements which would act as a safeguard for the sales 

agent, the NFIP and the policyholder. In the wake of Sandy, policyholders voiced a host of 

complaints with regard to their flood insurance coverage; more specifically, the coverage they 

actually had versus the coverage they believed they had. 

Those areas of dispute which were most commonly expressed were: (1) the 'advice' of an agent 

to carry a structure policy of $250,000 when in fact the homeowner did not have a mortgage or a 

mortgage of under $250,000; (2) the lack of contents coverage; (3) the limitation of a basement. 

Quite often, policyholders who could barely afford their premiums, felt the cost was not worth 

the coverage. This was often the case for homeowners who paid premiums for maximum 

coverages, when in fact there would never be the opportunity for that homeowner to collect their 

maximum policy of insurance proceeds. These issues resulted in lawsuits against the NFIP as 

well as against Sales Agents, which can be avoided. 

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A simple solution to these issues is a requirement that all NFIP policies must be accompanied by 

an Acknowledgement which must be executed by the policyholder and the sales agent, at the 

inception of a policy which states in plain language as follows: 

(l) I, Policyholder, understand and acknowledge that I do/do not have a mortgage on the 

property I am seeking to insure, and understand that unless 1 have a mortgage of $250,000 

that 1 am not required to carry $250,000 in structure coverage. 

(2) I, Policyholder, understand and acknowledge that contents coverage is an optional coverage, 

which has been discussed in detail with my Sales Agent, and that I have chosen to 

accept/reject contents coverage. 

(3) I, Policyholder, understand and acknowledge that based upon the description of my 

property/submission of photographic documentation, which has been reviewed with my 

Sales Agent, that I do/do not have a basement, and that there are limitations on coverage in a 

basement. 

This point also refers back to the need for standardized education so that Agents can provide 

accurate and the most updated information at the time a policyholder takes out a flood insurance 

policy. 

As policyholders have taken part in policy renewals since Sandy, we have also spoken with 

many homeowners who continue to express frustration with the Homeowner Flood Insurance 

Affordability Act (HFIAA) annual surcharge. The amount of the HFIAA surcharge, among other 

items, is dependent upon the use of the insured building with a focus on Primary Residency. The 

current surcharge for a policy on an insureds primary residency is only $25, while the surcharge 

for secondary and other properties is $250. 

In accordance with the report of the December 2015 Annual Report of the Office of the Flood 

Insurance Advocate, upon policy renewal policyholders are required to verify the structure is 

their primary residence by supplying an insurer with supporting documentation. Notification is 

sent to the policyholder by the insurer at least 90 days prior to the policy renewal date. If the 

documentation is not sent back to the insurer verifying it is a primary residence, the default 

assumption is that the structure is not a primary residence and the policyholder will be charged a 

$250 surcharge on the policy renewal invoice. This issue is exacerbated when the mortgagee 

pays the renewal premium for the higher amount, which causes an imbalance in the 

policyholder's escrow account, and may be difficult to be refunded once the policyholder 

submits the appropriate documentation to the insurer. This issue is likewise exacerbated post 

major disaster when a policyholder may completely lose their home, or not have access to their 

home for a prolonged period of time. 

While FEMA has taken steps to communicate this information through the WYO insurance 

companies, and has updated training materials, it appears that the issue of Primary Residency 

should also be included on the executed Acknowledgement form previously discussed at the time 

of inception of the policy. Furthermore, the current assumption should be reversed, and brought 

in-line with a "policyholder centric" mentality, to assume that the information signed and 

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provided at the time of policy inception is correct and has gone unchanged, and that the property 

remains the policyholder's primary residence. The Acknowledgment could state as follows: 

(4) I, Policyholder, understand and acknowledge that the property I am insuring is/is not my 

Primary Residence, and that my HFIAA surcharge will be assessed in accordance therewith. 

Next. let's discuss the necessity for a baseline photographic inspection which should take place 

at the inception of an NFIP policy. This pre-inspection affords great benefits to: (I) the NFIP, as 

they will have an accurate description regarding a covered property; (2) the Agent, as the 

photographs will substantiate the information on the Declaration Page and executed 

Acknowledgment previously addressed; and (3) the Policyholder, as they can be sure they are 

paying a premium based upon an accurate description of their property. 

Similar to the issuance of a Homeowners Insurance Policy, there should be any type of 

photographic inspection completed of the property for which flood insurance is being sought to 

ensure the information set forth in the application is correct. (Description, flood zone, presence 

of a basement, etc.) 

I believe there are various methods which could be employed to fulfill the requirement of 

photographic inspection: (I) the policyholder can provide a copy of the Homeowners Insurance 

Inspection Report to the tlood agent, which will result in no additional cost to any party; (2) the 

policyholder can provide a copy of the Appraisal Report which must be obtained in association 

with a mortgage, which will result in no additional cost to any party; (3) the policyholder can 

have the option to request a structural engineer inspect the property, which will result in an 

additional cost to either the policyholder and/or the WYO/NFIP Servicing Agent. 

A main concern for flood carriers, mortgage providers, and real estate brokers, would be the 

potential of a delay an inspection could cause in relation to the purchase of a property. Currently, 

there is a statutory 30-day wait time for a flood policy to go into effect. However, 42 USC 4013 

(c)(2)(A) CFR 6l.ll(b) allows for next day coverage when initial purchase of a policy is in 

connection with a mortgage loan transaction. This can be amended to allow for a flood insurance 

policy to operate in the same manner as a homeowner's insurance policy. For example, when 

purchasing a property, a buyer must apply for homeowner's insurance policy in advance of 

closing, however the policy does not go into effect until the closing of the property/mortgage. 

Flood insurance could operate in the same manner, to prevent any time delays and cause indirect 

harm to the real estate market. 

Currently, if at the time of a loss an adjuster reviews a policy/declaration page and determines it 

to be incorrect, the adjuster is responsible for advising the underwriting department of the 

applicable flood insurance carrier. At that time, a correction will be made to the policy. This 

again integrates human error into the proper description and rating of a policy. A pre-inspection 

would reduce improperly written policies which is associated with improper premiums. 

If the NFIP would agree to pre-inspection prior to issuance of a flood policy it would benefit (I) 

homeowner who is paying the correct premiums for the proper risk and coverage; (2) the 

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community as the policyholder could potentially recover from a storm with proper coverage; (3) 

FEMA, as they will know the true landscape of the structures they are insuring. 

Lastly, a pre-inspection could serve as a baseline of the quality of the house, items located within 

the home, etc. at the time of a storm, which could alleviate the need for a homeowner to 

photograph an entire loss, or in the case of Sandy piece a crime scene back together four years 

post-disaster. 

IlL CLAIMS & APPEALS PROCESS 

I also believe that a policyholder should have advance notice of the adjuster who is coming to 

adjust a claim. with an opportunity to "veto" and request re-assignment. A policyholder should 

be advised in advance who the adjusting and engineering companies will be who will be 

assigned to their claim. Thereafter, the homeowner should be afforded a reasonable opportunity 

to research and investigate that company, with the option to "veto" and request another company 

be reassigned to their claim. 

From working through Sandy claims. it has become apparent that the requirement fOr the 

submission of a Proo{o{Loss fOrm should be discarded. The claims process with auto insurance, 

or homeowners insurance claims (two claims most homeowners are the most familiar) are purely 

based upon the submission of proof of damages with inspection by the insurance company. 

Homeowners do not understand how to properly complete a POL, and a proper and timely POL 

is required as the pre-curser to filing a lawsuit. As a non-profit who assisted with the submission 

of these POL forms, we likewise needed the expertise of experienced adjusters to assist with the 

valuations which must be set forth on the form. Policyholders must of course be required to 

submit a "proof of damages statement", as one is required to start the SOL for a lawsuit, however 

it should be revised so that a policyholder can understand and complete the form without being 

forced to hire an expert. 

It also became apparent working through Sandy claims. that there should be an extended 

time(rame (Or the deadline to submit a Proo(o(Loss/Statement of damages. The SF!P provides 

that policyholders must submit a timely proof of loss as a prerequisite to filing a lawsuit. The 

proof of loss deadline is sixty days "after the loss" by default under the SFIP, which FEMA may 

extend. However, in all recent major flooding disasters, there have been extensions of this 

deadline upon the requests of members of Congress. It is also confusing and frustrating for 

policyholders to be waiting for FEMA to issue a bulletin allowing an extension. There should be 

a reasonable time frame, which must be set forth in the SFIP, to allow proper time for a 

homeowner to inspect his home and determine the proper value and scope of covered damages. 

Sixty days is an unrealistic time fmme for this to occur. 

The Appeals process should be handled by a Neutral arbitrator who is not employed by FEMA. 

While the NFIP has made internal improvements post-Sandy and is shifting its operation to be 

more 'sunivor centric'; based upon the most recently released February I 0, 2017 FEMA Sandy 

Claims Review Division Update, only 412 out of2,388 files received by the Neutral Review 

Operations Group have been completed. 

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The Neutral Review was implemented as an option of last resort if a dispute still existed after a 

FEMA adjuster reviewed a claim. Those files which have been completed by the Neutral 

Review Group have already resulted in additional payments in excess seven million dollars 

($7,000,000). We must remember, that for our Sandy survivors, a dollar in their pocket today is 

not equal to a dollar in their pocket immediately post-Sandy. 

Additionally, there should be an extension o(the SOL associated with the filing of a lawsuit. The 

current one year statute of limitations puts a great burden on homeowners who are in the process 

of storm recovery. Furthermore, there should be a clear indication of any denial of 

POL/Statement of Damages which starts the SOL for the time to file a lawsuit. Any denial 

should clearly state on it "This is your denial which starts your SOL to file a timely lawsuit". 

IV. MITIGATION: INCREASED COST OF COMPLIANCE 

By law, FEMA can only provide flood insurance to those communities that adopt and enforce 

floodplain management regulations that meet or exceed minimum NFIP requirements. As set 

forth by Mr. Wright in his written testimony before this subcommittee on March 9, 2017, 

"FEMA studies have found structures built to NFIP standards experience 73 percent less damage 

than structure not built to these standards; as a result, the standards reduce flood losses by 

$1.9billion per year." It is clear the mitigation is not only important to structures for future 

resiliency, but is a cost-effective measure for future flood payouts from the NFIP. 

As policyholders are already paying a portion of their premium towards Increased Cost of 

Compliance (ICC) coverage, I believe there are ways to expand the allowable scope of that 

coverage. The most used current triggers to receive ICC payments are Repetitive loss properties 

and the determination of Substantial Damage. The current options for use are Elevation, 

Relocation of property, Demolition, and Floodproofing. The two major costs post-Sandy which 

homeowners struggled with the most, are (1) accessibility (ramps/elevators) post elevation; and 

(2) additional costs policyholders face with complying with local building code. I believe these 

are two very important items policyholders need for recovery, which could be potentially 

covered through ICC, without the trigger of 'substantial damage'. 

Based upon experience from Sandy, I have also learned that the cost of elevation is well above 

the $30,000 provided from ICC. Increasing the amount of ICC, or having the option for 

homeowners to purchase additional ICC coverage, above the $250,000 would assist in proper 

recovery and a resilient future. 

V. CHANGES TO THE STANDARD FLOOD INSURANCE POLICY 

A Porch is not defined in the policy, yet it is a covered item as long as it is space under the roof 

line of the home. This should be added in plain language 

Contents: In order to receive money for contents, they must be "properly secured". After Sandy 

we saw many personal items in the street, in the water, some washed away, etc. At the adjuster 

certification presentation it was made very clear that contents which are no longer in the 

homeowners' possession would not be compensated. This should be revised to allow 

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homeowners to establish they owned the property, the doors and/or windows were opened by the 

storm, and items went missing. If the above can be proven, the items should be reimbursable, as 

we have been able to secure payments for these items based upon Affidavits in the Review 

Process, however, it was not working immediately post-storm. 

Remove Earth Movement Exclusion: The standard tlood insurance policy includes the so-called 

"earth movement" exclusion, which states that flood insurance policies do not cover damage and 

loss to property caused by "earth movement," even ifthe earth movement was caused by flood. 

This exclusion has been improperly used as a basis to deny claims filed by many Sandy 

claimants. If not removed, this exclusion should be clarified in a manner policyholders can 

understand. 

VI. NATIONAL REGISTRY 

Funding a non-profit to create and maintain a registry of all WYO's, adjusters, engineers, and 

sales agent who are involved with the NFIP. The database should track involvement which 

would affect the NFIP, including, associated adjusting companies, #claims completed as well as 

those which resulted in litigation, professional affiliations, etc. 

FEMA has assigned Flood Certification Numbers (FCN) to adjusters, which should also be 

assigned to Agents and Engineers. The Registry can use FCN's to easily track all NFIP 

associated activities. 

VII. LITIGATION COSTS 

Policyholders who act in good faith through the submission, and appeals process who are forced 

to pursue litigation as a result of continued underpayments by the NFIP, should be entitled to 

reimbursement of legal fees. 

In order to quality, a policyholder should need to establish: (1) they submitted documentation for 

an initial claim; (2) submitted substantiating documentation for supplemental claim; (3) Pursued 

Appeal; and was left with no option but to file litigation. 

Should that homeowner be successful in litigation, there should be a presumption that the flood 

insurance company acted in bad faith, and therefore the policyholder should be provided legal 

fees. 

VIU. WRITE YOUR OWN AND SERVICING PARTNERS FOR NFIP DIRECT 

There must be hard penalties put in place for Agencies selling NFIP direct policies or WYO 

carriers when there is an indication of bad faith, fraudulent activities, over-billing and improper 

adjusting. In the aftermath of Sandy, homeowners were the only individuals penalized for all the 

improper adjusting and/or engineering fraud. Not one WYO, Engineering Firm, Adjusting firm, 

was asked to refund the NFIP based upon their improper work post-Sandy. 

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First and foremost, FEMA should modify the audit requirement ofWYO carriers whereby a 

penalty is not only charged for overpaying a claim, but a similar penalty is charged (Or 

underpaying a claim. 

With regard to Hi-Rise Engineering, P.C., the NFIP should not allow any engineer who worked 

for HiRise and was involved in fraudulent reporting at the time of Sandy to take part in the NFIP. 

Matthew Pappalardo and HiRise Engineering, P.C. (HiRise) were recently charged with 25 

counts of Forgery in the Second Degree, a class D Felony; Pappalardo was also charged with 25 

counts of Unauthorized Practice of Engineering, a class E Felony. Notwithstanding evidence that 

HiRise/Pappalardo purposefully manipulated the analysis of engineers who visited these homes 

first-hand and then used the conclusions of these reports as the basis to deny homeowners of 

legitimate claims of damage from the storm, both were recently punished with a 'slap on the 

wrist'. HiRise was banned from participating in the NFIP and issued a $225,000 fine, while 

Pappalardo was given three years' probation and a $10,000 fine. 

It is imperative that the NFIP restore the public's faith in the program, and enforce strict rules 

and penalties against those who act in bad faith. The risk of "reputational harm" is insufficient. 

We found during the review process that many engineers who worked for both above listed 

companies were hired and affirmed the prior findings of numerous improper and fraudulent 

reports. In fact, we found evidence that an engineer was hired and reviewed his own report in the 

review process. Simply put, this cannot continue. 

IX. CONGRESSWOMAN VELAZQUEZ LEGISLATION 

I have reviewed the recently introduced legislation by Congresswoman Velazquez, H.R. 1423, 

the National Flood Insurance Program Reauthorization and Improvement Act of 2017, which 

calls for many of the items I have discussed here today, such as the Acknowledgements, 

education for all parties participating in the NFIP, pre-inspections, attorney's fees, the right to 

Veto a company as well as the National Registry. 

I believe that Congress should pass this legislation or adopt many of these ideas in the final reauthorization bill. This bill and my proposals here today are common-sense reforms which will 

lead to a stronger and more cost effective NFIP. 

X. MANDATORY TIME FOR RE-AUTHORIZATION TO A VOID 'SHORTTERM EXTENSIONS' OR 'LAPSES' WITH REPORTING REQUIREMENT 

Mandatory re-authorization should occur every five (5) years. Realistically, reauthorization 

during a shorter time frame could become a burden on the Government. However, a longer 

timeframe provides the NFIP with an excessive time period during which Congress would not be 

permitted to make major changes, outside oflegislation. 

The NFIP should produce a report for each reauthorization time period reporting to Congress on: 

number claims, appeals, number of cases which resulted in litigation, statistics per WYO. 

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CONCLUSION 

To summarize my comments here today, I do believe that the NFIP should be reauthorized in a 

timely manner. I believe the program offers many benefits to policyholders, however there are 

numerous administrative reforms which should be enforced, as those discussed here today. 

"Getting It Right from the Start" is the key which will allow a quicker and stronger recovery as 

well as a more resilient future. 

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United State House of Representatives 

Committee on Financial Services 

Subcommittee on Housing and Insurance 

Flood Insurance Reform: A Community Perspective 

Thursday, March 16, 2017 

Written Testimony of 

Aram V. Terchunian, M.Sc. 

Coastal Geologist and Environmental Scientist 

Good afternoon, my name is Aram Terchunian, I am a practicing coastal geologist and 

environmental scientist from Westhampton Beach, Long Island, NY. For over 35 years I 

have helped people identify coastal risk, mitigate coastal risk, and to recover and adapt 

when risk becomes reality. My main geographic area of expertise is the barrier island of 

Long Island from Montauk to Queens, including the Atlantic Ocean, Long Island Sound 

and the bays and creeks of Long Island. 

Thank you to Chairman Duffy, Ranking Member Cleaver, my Congressman Lee Zeldin, 

and the Subcommittee for this opportunity to speak on the topic of flood insurance 

reforms. Congressman Zeldin has been a true leader in working with our communities 

and the Army Corps of Engineers to help protect our communities and mitigate future 

disasters. 

Flood insurance and the National Flood Insurance Program (NFIP) have helped save 

lives, property and resources through a classic carrot and stick program of incentives 

and regulations. However, changing technology, science, and policy have created new 

opportunities to improve the program. In a nutshell, newer buildings that are 

constructed and maintained to the NFIP standards and ICC building codes are 

experiencing far less flooding damage than older, legacy homes that do not meet 

present standards. Moreover, those areas protected by well designed, built, and 

maintained flood risk reduction projects, such as beach and dune nourishment, 

experience significantly less damage during extreme events. 

Mitigation, primarily through elevation and modern construction standards, and 

incorporating resilient flood and erosion protection projects are the most cost effect 

manner of reducing damages to these homes, businesses, infrastructure, and 

resources. The goal in my opinion is to decrease the number of pre-FIRM substandard 

structures and increase flood protection and resiliency projects. 

In coastal areas, this can be accomplished by integrated coastal risk mitigation. 
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United State House of Representatives 

Committee on Financial Services 

Subcommittee on Housing and Insurance 

Flood Insurance Reform: A Community Perspective 

Thursday, March 16, 2017 

Examples of Integrated Coastal Risk Mitigation 

Several examples from Long Island's south shore help illustrate these benefits. West 

Hampton Dunes is a small two mile village on the barrier island of Long Island. In 1992 

a coastal storm pierced the island, creating a one mile inlet and destroying almost 300 

homes. At the time, it was used as the poster child of how to mismanage a beach. 

Today, this humble community is the blueprint for coastal management and flood 

insurance modernization. It is a net economic generator to the local, regional, and 

national economy as well as the NFIP premium pool. 

Here's how it happened: The barrier island was rebuilt through a beach and dune 

project engineered and supervised by the US Army Corps of Engineers that 

incorporated state-of-the-art experience-based computer modeling. The Village of West 

Hampton Dunes under Mayor Gary Vegliante embarked upon an aggressive program of 

sand fencing and beach grass planting that increased the dune. The Village also 

implemented zoning measures that allowed property owners to build as much as 4 feet 

above the NFIP 100-year (0.1%) Flood Level. 

In the 22 years since the project was constructed there have been zero houses lost and 

only minimal flood damage claims, even after Superstorrn Sandy. This is an example of 

how integrating the US Army Corps of Engineers flood protection projects, with locally 

implemented NFIP and zoning regulations, and locally driven beach and dune 

enhancements have resulted in a resilient community that is a net benefit to the NFIP. 

Conversely, surrounding communities that did not have an engineered flood protection 

project and were populated by a substantial number of pre-FIRM buildings suffered 

terribly during Superstorm Sandy. The human anguish in these areas exceeded even 

the substantial flood insurance, infrastructure, and natural resource losses. 

This integrated model of coastal flooding and erosion management is being 

implemented in other local Long Island communities through a Public Private 

Partnership (PPP). For example, in the Sagaponack and Bridgehampton areas of 

Southampton Town, local oceanfront residents proposed and formed a self-taxing 

district and partnered in 2013 with the Town of Southampton to cost share a beach 

restoration program. This beach restoration program is coupled with a private dune 

restoration program increasing dunes to the NFIP standard. The Town of Southampton 

Written Testimony of 

Aram V. Terchunian, M.Sc. 

Coastal Geologist and Environmental Scientist 

Page 2 of 8 
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United State House of Representatives 

Committee on Financial Services 

Subcommittee on Housing and Insurance 

Flood Insurance Reform: A Community Perspective 

Thursday, March 16, 2017 

also has a robust land use code that protects beaches, dunes, and other natural 

protective features. The Town's building code exceeds the FEMA requirements, and 

the Town is credited for this through the Community Rating System (CRS). 

This type of integrated coastal risk reduction is also applicable to small bayfront 

communities. In another example, 62 residents of the North Sea area of Southampton 

are developing a privately funded erosion control district that will address a chronic 

erosion problem caused by a local inlet This project will reduce coastal erosion risk 

that threatens to undermine bluffs and homes on the Peconic Bay. It's a bootstrap 

approach to citizens taking the initiative to solve their own problems with the town, 

county and state serving only in a governance and regulatory capacity. The citizens 

themselves are solving their own problems. When finalized, this will be a model for 

other middle class areas of both Long Island, and around the Country. 

The Southampton Town Supervisor, Jay Schneiderman, members of the Town Board, 

and their predecessors should be proud of their best in class mitigation efforts. 

These examples point to the local government at the catalyst for integrating the NFIP 

with other federal initiatives. There is a need to improve and integrate the NFIP into 

existing Federal, State, and local coastal risk reduction efforts. lncentivizing local 

residents is an effective way to spur this reform. 

How to lncentivize Local Communities through the NFIP 

Local communities are incentivized if they can provide increased flood and erosion 

protection to all or a portion of their community at minimal cost One method FEMA 

uses is through the Community Rating System (CRS). Meeting the CRS criteria 

reduces the flood insurance premiums for the entire community. However, many 

communities do not have the technical staff to prepare and review the CRS criteria. 

The initial review and setting up of the CRS is the most difficult and expensive part of 

the process. Aid to communities in this effort would benefit many policyholders at a 

small cost Simplifying the CRS application process is another way to lower this barrier 

to entry for many small communities. Some of the qualifying criteria for CRS credit is 

extreme and impractical. 

In some communities, there is a specific exclusion to the local zoning code for 

complying with the prevailing FEMA-NFIP flood mapping. This removes a tremendous 

Written Testimony of 

Aram V. Terchunian, M.Sc. 

Coastal Geologist and Environmental Scientist 

Page 3 of 8 
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United State House of Representatives 

Committee on Financial Services 

Subcommittee on Housing and Insurance 

Flood Insurance Refonm: A Community Perspective 

Thursday, March 16, 2017 

cost impediment for homeowners. An older home that may need a zoning variance to 

be elevated could cost tens of thousands of dollars in fees and many months of time, 

just to go through a local zoning board. lncentivizing local governments to remove this 

impediment will reduce the cost of compliance. 

Pre-disaster mitigation planning is being implemented in many communities on Long 

Island. Unfortunately, the process often stops in planning due to a lack of funds. The 

United States is in the midst of an infrastructure crisis and coastal infrastructure is the 

most vulnerable. There is presently little money at the local or State level to fully 

implement pre-disaster mitigation projects. 

Restoring beaches and dunes, enhancing the flood capacity of wetlands and making 

highways, rails and ports more resilient will cost billions, but will save even more. This 

work needs federal leadership and cannot be done in isolation. Recognizing the 

mitigation work of federal, State and local agencies in the NFIP program (where 

resiliency projects generate large benefits} requires a strong local government 

presence. 

For example, in communities that have a US Army Corps of Engineers (or other federal 

agency) flood risk reduction project, FEMA-NFIP should be part of the federal, State 

and local partnership. The benefit of the project may be reflected in the eventual FEMA 

NFIP mapping, but there is often little pre project communication between those 

agencies. 

Impact of Current Flood Insurance Rates 

The current flood insurance rate model is designed to bring flood insurance into balance 

with risk by gradually increasing premiums to the actuarial leveL The effect of these 

premium increases is disproportionally impacting middle and lower income families that 

are struggling to meet the increased expenses in many household categories. 

Many owners cannot afford either the increased insurance premium or the capital 

investment needed to elevate their homes. These owners will struggle with the 

increased premiums until they can no longer afford them and often be forced to selL 

Small communities across Long Island will be changed as middle and lower income 

families are being casted out of flood insurance. 

Written Testimony of 

Aram V_ Terchunian, M.Sc. 

Coastal Geologist and Environmental Scientist 

Page 4 of8 
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United State House of Representatives 

Committee on Financial Services 

Subcommittee on Housing and Insurance 

Flood Insurance Reform: A Community Perspective 

Thursday, March 16, 2017 

The NFIP has devoted substantial resources to convince homeowners that elevating 

their homes will reduce their flood insurance premium. Unfortunately, the payback 

period is approximately 10-20 years. This is too long a wait and too high a cost for the 

low perceived risk to motivate the average homeowner. As a result, homeowners do 

not elevate their homes before experiencing flood damage. 

FEMA has undertaken an Increased Cost of Compliance Coverage to address part of 

this issue. However, the $30,000 maximum is insufficient to elevate a typical home on 

Long Island. Raising even a modest home to comply with NFIP flood standards on 

Long Island is $100,000 to $150,000. This costs does not include addressing other 

issues that may be related to non NFIP standards, such as the State building, electrical 

and plumbing codes or local zoning requirements. Total costs easily run to $200,000. 

FEMA also provides post disaster mitigation funds to elevate and flood proof damaged 

homes and businesses. In New York, the NY Rising program administered by the State 

with FEMA funds has been elevating Superstorm Sandy damaged homes. However the 

pace is slow and the cost is high. People can be out of their homes for extended 

periods of time while waiting for FEMA approval and eventual construction, thus 

incurring excessive temporary housing costs and severe social dislocations. 

In another federal program, the US Army Corps of Engineers (Fire Island Inlet to 

Montauk Point} is proposing to raise over 4,500 homes on the south shore of Long 

Island that are located in the 10 year floodplain at a cost of approximately $660 million 

(approximately $146,666 per home. This addresses many of the most vulnerable 

homes, but clearly many other homes located in the floodplain need to be raised as 

well. 

All of these efforts are working, but at too slow a pace and too costly a price. Some 

new thinking is required to reach owners that cannot afford the insurance or the 

elevation before the flood. Failure to do so will see more middle and lower income 

families leave as they are priced out of the area. 

How to lncentivize Policy Holders 

Simply stated, we must convert more pre-FIRM homes to NFIP compliant homes faster 

and policy holders are the key to the process. 

Written Testimony of 

Aram V. Terchunian, M.Sc. 

Coastal Geologist and Environmental Scientist 

Page 5 of8 
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United State House of Representatives 

Committee on Financial Services 

Subcommittee on Housing and Insurance 

Flood Insurance Reform: A Community Perspective 

Thursday, March 16, 2017 

Unfortunately, the bulk of the effort (and the money) on mitigation is spent after the flood 

damage occurs, when it is most expensive. Both Hurricane Katrina and Superstorm 

Sandy have proven this point. Moving that expenditure to pre-storm is an extraordinary 

challenge. Speaking as a small business owner, it all about the money. 

If we want many people to elevate and flood proof their homes before the flood it must 

be in their immediate financial interest. A twenty year investment horizon is a once in a 

lifetime event for most people. A break even of five to seven years is the most that 

many owners can afford. 

Moreover, the financial stick of increased premiums without a commensurate financial 

carrot will not work. It is too much stick and no carrot. It is not reasonable to expect a 

consumer to invest up to $200,000 for an annual payback of $4,000 or $5,000. Nor is it 

reasonable to expect a homeowner to pay $20,000 to 40,000 annually for flood 

insurance. Right now, the taxpayer is paying the difference and it is in more expensive, 

post disaster dollars. Just moving that taxpayer expense to the pre-disaster dollars 

would save up to 50%. 

Regardless of anything else, the financial incentive and payback period necessary to 

elevate and flood proof a home must align with the cost or homeowners will not make it 

happen. 

Streamlining FEMA NFIP 

The claims process at FEMA is burdensome. I am most familiar with the Public 

Assistance portion of that process having participated in over a dozen federally declared 

disasters. The introduction of paperless submittals have vastly improved the process in 

the last decade. FEMA should continue to make these improvements. 

Another aspect of the burdensome claims process is the rotating personnel. 

understand that FEMA employs reservist out of necessity. It is simply the only way they 

can assemble the personnel needed in the wake of a disaster. However, consistency of 

interpretation and seamless hand off from one claims professional to the next could and 

should be improved. 

The map amendment process through eLOMA has greatly simplified the process of 

map amendments. The digital mapping program at FEMA has made the process of 

Written Testimony of 

Aram V. Terchunian, M.Sc. 

Coastal Geologist and Environmental Scientist 

Page 6 of8 
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United State House of Representatives 

Committee on Financial Services 

Subcommittee on Housing and Insurance 

Flood Insurance Reform: A Community Perspective 

Thursday, March 16, 2017 

flood hazard identification much more user friendly arid accessible. I have clients 

actually call me after having looked up their property online at the FEMA Map Service 

Center to discuss the level of hazard. 

Summary 

The NFIP plays a critical role in protecting the citizens of our nation. Making the NFIP 

more resilient means moving more pre-FIRM homes into NFIP compliant homes faster. 

Raising rates alone will drive middle and lower income families from their homes. The 

goal of elevating homes can be accomplished if commensurate financial incentives are 

balanced with reasonably priced insurance. 

It also means integrating existing and proposed flood risk mitigation projects at the 

federal level with robust State and local land use controls. FEMA should continue to 

streamline the claims and mapping delivery systems. 

Written Testimony of 

Aram V. Terchunian, M.Sc. 

Coastal Geologist and Environmental Scientist 

Page 7 of8 
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United State House of Representatives 

Committee on Financial Services 

Subcommittee on Housing and Insurance 

Flood Insurance Reform: A Community Perspective 

Thursday, March 16, 2017 

This Page is Intentionally Blank 

Written Testimony of 

Aram V. Terchunian, M.Sc. 

Coastal Geologist and Environmental Scientist 

Page 8 of8 
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STATEMENT ON BEHAlf OF 

THE COUNCil OF INSURANCE AGENTS AND BROKERS (CIAB), 

THE INDEPENDENT INSURANCE AGENTS & BROKERS OF AMERICA (IIABA), 

NATIONAl ASSOCIATION OF INSURANCE AND FINANCIAl ADVISORS (NAIF A) 

AND THE NATIONAl ASSOCIATION OF PROFESSIONAl INSURANCE AGENTS (PIA) 

BEFORE THE 

FINANCIAl SERVICES COMMITTEE 

HOUSING AND INSURANCE SUBCOMMITTEE 

UNITED STATES HOUSE OF REPRESENTATIVES 

HEARING ENTITlED: "FlOOD INSURANCE REFORM: A COMMUNITY PERSPECTIVE" 

MARCH 16, 2017 

Introduction 

On behalf of CIAB, IIABA, NAIFA and PIA (collectively "Agent Trade Associations") we submit testimony 

for the above referenced hearing outlining the important role that insurance agents play in the 

distribution of flood insurance. The Agent Trade Associations collectively represent an expansive 

nationwide network of insurance agents and brokers, and their employees in every State and 

congressional district. Our members offer customers policies from a variety of insurance companies 

across all lines of insurance-including flood insurance offered through the National Flood Insurance 

Program (NFIP), as well as private flood insurance coverages. 

Insurance agents across the country and the "boots on the ground" sales force forflood insurance. Agents 

serve as the first point of contact for a consumer to explain the necessity for flood insurance. The Agent 

Trade Associations support a reauthorization ofthe NFIP as well as the gradual development of the private 

market as a complement to the NFIP. While many of our members currently sell private flood insurance 

products, the private market needs adequate time to develop in order to provide acceptable and 

affordable flood insurance for property owners that need it across the country, especially in the area of 

residential flood risks where there are not yet as many private coverage options. Meanwhile, the NFIP 

insures more than five million property owners and is the largest flood insurer across the country. Tens of 

thousands of insurance agents work with the Write-Your-Own (WYO) program and the NFIP Direct 

program to assist policyholders in making educated choices about the purchase of NFIP policies for 

their homes and businesses. 

The sale, servicing, and underwriting of NFIP policies is complicated, especially in the Special Flood 

Hazard Area (SFHA) where the product is required by law if the property owner has a mortgage. The 

remuneration that agents receive for the sale of NFIP policies reflects the unique and complex nature of 

the product. As such, the Agent Trade Associations oppose any reductions in the commission schedule 

used to compensate agents writing NFIP policies. Cutting agent compensation specifically will not reduce 

program costs for the NFIP or the WYO program. FEMA establishes the WYO compensation level; 

however, agent commissions are paid by the WYO companies from the compensation that the WYOs 

receive. Cutting or proscribing agent commissions legislatively would leave the overall program costs the 

same while inserting price controls into the WYO's business process and only serving to harm the private1 
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public partnership of the NFIP, and will limit the delivery mechanism for flood insurance, harming 

consumers. 

The below testimony outlines information on the commissions insurance agents typically earn for NFIP 

insurance policies as well as private flood policies; and underscores the pivotal role that agents play in 

helping consumers make informed decisions about their insurance purchases. At the end of the 

testimony two graphical attachments are also included to help further explicate this. The first is 

entitled "What Does an Insurance Agent Do to Assist Consumers in the Purchase of Flood Insurance 

for their Home or Business?" and the second is entitled "How are Insurance Agents Compensated for 

the Sale and Servicing of a Flood Insurance Policy for a Home or Business?" 

Role of the Insurance Agent in Selling Flood Insurance 

Insurance agents generally serve as the initial point of contact for a consumer to explain the necessity for 

flood insurance. Agents are vital in ensuring that policyholders make educated choices about the 

purchase of flood insurance policies for their homes and businesses. Flood insurance can be one of the 

hardest products for an insurance agent to sell because homeowners have often been educated by the 

media, lenders, real estate agents, friends and neighbors to believe they are "not in a flood zone" and 

therefore do not need flood insurance. When in fact over twenty percent offloods occur outside the SFHA, 

and damage from such events is only increasing due to changes in weather patterns and land 

development. Furthermore, consumers in the SFHA often buy the product begrudgingly and do not 

understand the true need for it. When in fact flooding is the most common and costly natural disaster. 

Despite the need for flood insurance, purchasing flood insurance can be a daunting and complex process, 

especially within the SFHA. Insurance agents and brokers, whether selling in the NFIP or via a private 

insurer help consumers estimate flood risk and insurance cost, and discuss several "what if" scenarios 

with potential policyholders. Insurance agents and brokers help to prepare quotes, ensure consumers 

understand the impact of different policy limits and deductibles, and work to explain different policy 

provisions in order to inform the consumer's purchase decision. 

When flood insurance is legally required or otherwise required by a mortgagee for security on a loan, 

agents also work closely with lenders to provide evidence of coverage, and ensure that the property is 

properly covered pursuant to relevant legal and regulatory requirements. lender information requests do 

not just occur when a policy is initially purchased on a new loan but also throughout the life of the loan. 

Additionally, for the life of a flood insurance policy, agents help consumers annually review and adjust 

coverages to fit changing needs, and assist policyholders with claims when a claim occurs. Agents receive 

no additional compensation for assistance with claims related issues. For NFIP polices, agents must also 

monitor many unique issues related to policy renewals, such as legally required rate increases, frequent 

changes to the NFIP, mapping changes, statutory and regulatory changes, and underwriting changes.' 

Agent Compensation in the NFIP 

The NFIP primarily relies on the private insurance market to administer flood insurance through the WYO 

program. The WYO program began in 1983 as a way to reach more property owners who needed flood 

insurance. WYO companies are reimbursed by the government for the expense of administering flood 

1 See, attachment entitled "What Does an Insurance Agent Do to Assist Consumers in the Purchase of Flood 

Insurance for their Home or Business?" 

2 
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insurance policies; this is called the WYO expense allowance.' Currently, WYO companies receive 

approximately 31% of policyholder premiums before various federal fees and surcharges are added 

including the Reserve Fund Assessment, Probation Surcharge, HFIAA Surcharge, and Federal Policy Fee. 

These fees can sometimes account for between 2S% and 50% of consumer policy cost, meaning 

commissions are only earned on 50% to 75% of the policy amount. From their reimbursement WYOs pay 

about half to agents and also pay vendors and state premium taxes, keeping the remainder after costs. 

The 31% ratio is derived from an average of various private industry property and casualty expense ratios, 

with consideration given to the complexity of the program. Agent commissions are not paid directly by 

the government but instead are paid by WYO companies from the expense allowance. 

Compensation paid to agents for the sale of flood insurance policies through the WYO program varies. Of 

note, like the WYO reimbursement rate agent commissions are calculated on the premium amount before 

various fees and surcharges are applied. FEMA establishes overall compensation levels for WYO 

companies. WYO companies then negotiate compensation rates in private contractual agreements with 

independent insurance agencies, based on the company's business model. 

Commissions may vary based on factors such as how experienced the agent or broker servicing the 

account is, regional variations in agent and broker compensation, whether or not the policy is a new policy 

or a renewal, and how much business the agent or broker produces for the WYO. This process ensures 

that WYO companies have the ability to choose the agent compensation structure that is most efficient 

and effective so they can contract with the best and most qualified agents, who are the most 

knowledgeable about the intricacies of the NFIP. Captive agent compensation also varies and is based on 

similar factors. Inserting price controls into this process will harm the private-public partnership of the 

NFIP, and will limit the delivery mechanism for flood insurance, limiting consumer choice. 

In December 2016 GAO released a study in which the WYO companies that GAO reviewed reported 

commissions ranging from 15.2% to 20.7% with an average of 17.7% in 2014.3 IIABA also conducted its 

own research in 2016 and 2017 and found that agent commissions range from 14% to 22% with the 

average commission being around 18%.4 

For NFIP Direct business, commissions are computed for both new and renewal policies at a rate of 15% 

of the first $2,000 of annualized premium and 5% on the excess of $2,000. like the WYO program, 

commissions are based only on premium, which is the total amount due less the Reserve Fund 

Assessment, Probation Surcharge, HFIAA Surcharge, and Federal Policy Fee. 5 NFIP Direct business 

accounts for less than 20 percent of NFIP policies. In most circumstances insurance agents and brokers 

only place business with NFIP Direct when necessary, including certain repetitive loss properties that must 

be serviced through the direct program. This is due in large part to lower service levels provided to 

consumers and agents by the direct program. 

The Agent Trades Associations maintain that considering the complex nature of underwriting and quoting 

NFIP policies, especially in the SFHA, the remuneration that agents receive for the sale of NFIP polices 

2 The WYO reimbursement rate is outlined in a contract between FEMA and all the insurance companies that 

participate in the WYO program. FEMA is currently working on a multiyear update of the NFIP's financial control plan 

and WYO contract in order to streamline and modernize oversight of the WYO program. The Agent Trade 

Associations support this effort. 3 See, "FEMA Needs to Address Data Quality and Consider Company Characteristics When Revising its 

Compensation Methodology," (December 2016), at page 25, table 4. 4 See, attachment entitled "How are Insurance Agents Compensated for the Sale and Servicing of a Flood Insurance 

Policy for a Home or Business?" 5 See, NFIP Flood Insurance Manual (April2017). 

3 
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reflects the unique nature of the product and is comparable to other lines of insurance. The Agent Trade 

Associations oppose any reductions in the commission schedule used to compensate agents writing NFIP 

policies through the WYO program or via the NFIP Direct program. lowering the amounts that WYOs or 

the NFIP Direct program are permitted to compensate insurance agents will hurt competition, and will 

result in fewer flood insurance policies being written for consumers. 

Private Flood Insurance Compensation 

Because over 90 percent of NFIP policies are residential6 this section will focus on residential private flood 

insurance policies and the compensation earned for selling those policies. It is important to note when 

considering commission levels on private market products that the products generally require a much less 

time consuming and complex underwriting process and therefore less time is involved in the process. 

Furthermore, while premiums can sometimes be lower in the private market than the NFIP the 

commission rate for all private flood insurance is applied to the face value of the policy (i.e. what the 

consumer pays). Whereas the NFIP assesses various non-commissionable fees, meaning commissions are 

only earned on SO% to 75% of the policy face value. 

There are essentially two types of admitted private flood insurance policies that our members currently 

sell in the residential market. The first is an endorsement to homeowners to cover flooding. In some states 

this endorsement is available at the same amount as the homeowners insurance in both the X zones and 

the SFHA. In other states, the endorsement is available in the X zone only and is a sublimit coverage that 

operates similar to sewage backup coverage on homeowners' policies. 

Commissions earned on these products would be consummate with the underlying insurance product. 

like the NFIP, commission for homeowners' insurance vary. There is also considerable regional variation 

in commissions for homeowners' insurance. Generally, commissions can vary from 10% to 26%, 

depending on several factors such as whether or not the policy is a new policy or a renewal, how 

experienced the agent or broker servicing the account is, and how much business the agent or broker 

produces for the insurance company.' 

The second type of private flood insurance policy is offered by a small number of admitted companies. 

This policy is a standalone policy based on the NFIP (i.e. the basis for the policy form is the NFIP policy and 

it may or may not include coverage enhancements such as additional living expenses). Due to the nascent 

nature of the private flood insurance market there is not a considerable amount of public information 

available on agent commissions. 

However, filings in Florida and Pennsylvania for admitted flood products that mirror the NFIP product 

provide some information and indicate that commissions are similar to NFIP commission through the WYO 

program. For example, in Pennsylvania Federal Insurance Company states in a product filing they based 

their commission rate for private flood on homeowners' commissions of 17-17.3%. In Florida a private 

flood insurance filing by the insurance company TypTap from 2015 (the most recent available), lists 21.5% 

as "commissions and brokerage" expenses for their expected loss ratio. According to the filing this amount 

is based on Managing General Agent (MGA) compensation. 

6 See, "Report Providing an Assessment of the Current State of the Market for Natural Catastrophe Insurance in the 

United States," completed by the Federal insurance Office as part of the Biggert-Waters Flood Insurance Reform 

Act of 2012 (September 2015) at page 35, figure 7. 7 See, for example disclosures available online from Travelers Insurance Company, which provides homeowners' 

insurance as well as many other products nationally, pays a range of commission types and amounts to insurance 

agents based on a variety of factors, https:/lwww.travelers.com/about-us/spotlight/docs/pi home disclosure.pdf. 

4 
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Some of our members also sell private flood insurance through the surplus lines market. Since product 

filings are not required for surplus lines, this information was obtained by asking agents who sell the 

product. Commission for retail agents ranged from 10% to 15%, in addition to MGA or wholesale agent 

compensation which can increase the total commission percentage paid by the insurer. However, of note 

these policies require substantially less underwriting questions (if any), and no elevation 

certificate, meaning these policies are less time consuming to service. 

Conclusion 

The Agent Trade Associations thank you for the opportunity to submit testimony for today's hearing, and 

for consideration of the information we have provided. Agents are vital in assisting policyholders to make 

educated choices about the purchase of NFIP policies for their homes and businesses. As such, the 

Agent Trade Associations oppose any reductions in the commission schedule used to compensate agents 

writing NFIP policies. 

The remuneration that agents receive for the sale of NFIP policies reflects the unique nature of the 

product and the time commitment agents undertake. NFIP policies, procedures, and requirements are 

complex and agents are an integral part of the consumer experience when purchasing a flood insurance 

policy. Furthermore, as shown in the testimony, commissions earned in the WYO program are 

commensurate with other admitted private flood insurance products, as well as other property insurance. 

This is especially true when considering the complexity of the NFIP and unlike commissions earned in the 

private market, NFIP compensation is only assessed on a percentage of the policy cost not the full 

consumer cost. 

Finally, reducing agent compensation specifically will not lower program costs for the NFIP or the WYO 

program. FEMA establishes the WYO compensation level; however, agent commissions are paid by the 

WYO companies from the compensation that the WYOs receive. Proscribing agent commissions 

legislatively would leave the overall program costs the same while inserting price controls into the WYO's 

business process and only serving to harm the private-public partnership of the NFIP, and will limit the 

delivery mechanism for flood insurance. 

5 
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Independent Insurance Agents & Brokers of America, Inc. 

WHAT DOES AN INSURANCE AGENT DO TO ASSIST CONSUMERS IN THE PURCHASE OF FLOOD 

INSURANCE FOR THEIR HOME OR BUSINESS? 

* Pre-FIRM properties (i.e. built before the flood maps) inside the SFHA do not require an EC and have slightly less extensive 

underwriting processes. However, explanations of mandatory rate increases until "full risk rates" {rate calculated with an EC) are 

reached as required under BW~12 and HFIAA must be provided. 

** Properties outside the SFHA require no underwriting and have a simpler process. However, they require extensive conversations 

with consumers, as they have often been educated by the media, lenders, real estate agents, friends and neighbors to believe they 

are "not in a flood zone" and therefore do not need flood insurance. 
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Independent Insurance Agents 

& Brokers of America, Inc. 

HOW ARE INSURANCE AGENTS COMPENSATED FOR THE 

SALE AND SERVICING OF A FLOOD INSURANCE POLICY FOR A HOME OR BUSINESS? 

The National Flood Insurance Program (NFIP) relies on the private insurance market to provide flood insurance through the 

Write-Your-Own {WYO) program. WYO companies are reimbursed by the government for the expense of administering flood 

insurance policies; this is called the WYO expense allowance. Agent commissions are not paid directly by the government but 

instead are paid by WYO companies from the expense allowance. Below you will find examples of how much agents are 

compensated for the sale or renewal of a typical NFIP policy. All percentages in the chart are expressed as a percentage of the 

total consumer cost (i.e. total policy premium paid by the consumer). 

* This chart is based on Example 8 from the April 2017 NFlP Flood Insurance Manual, Rating Section ($500,000 bullding coverage/$500,000 contents coverage/$5,000 

deductib!es). The WYO expense allowance, which includes agent commissions, is not based on the total consumer cost. It is calculated as 31.8% of net premium before 

federal fees or surcharges are applied. Net premium here is $911 (Le. $622+$289). When the WYO expense allowance is expressed as a percentage of total consumer 

cost in this e:.::ample it is 22%. Agent commissions may vary. An 18% commission of the $911 net premium was used here. When agent commission is e:.::pressed as a 

percentage of total consumer cost in this example it is 12%. Agency operating costs are based on industry averages for P&C agencies of 85%, meaning the net 

compensation from a typical flood insurance policy before taxes is genera!!y 2% or less of total consumer cost. Federal fees and surcharges in this case include; $250 

HFIAA surcharge; $50 federal policy fee; and $137 NF!P reserve fund assessment. 

Flood Insurance Policy for a Non-Elevated Family Home in the Special 

Flood Hazard Area with a Total Consumer Cost of $690** 

**This chart is based on Example 7 from the April 2017 NF!P Flood Insurance Manual, Rating Section ($150,000 building coverage/$50,000 contents coverage/$1,500 

deductlbles}. The WYO expense allowance, which includes agent commissions, is not based on the total consumer cost. It is calculated as 31.8% of net premium before 

any federal fees or surcharges are applied. Net premium here is $535 (i.e. $365+$170). When the WYO expense allowance is expressed as a percentage of total consumer 

cost it is 25%. Agent commissions may vary. An 18% commission of the $535 net premium was used here. When agent commission is expressed as a percentage of total 

consumer cost in this e:.::ampl€ it is 14%. Agency operating costs are based on industry averages for P&C agencies of 85%, meaning the net compensation that agents 

earn from a typical flood insurance policy before taxes is generally 2% or less of total consumer cost. Federal fees and surcharges in this case include: $25 HF!AA 

surcharge; $50 federal po!lcy fee; and $80 NFIP reserve fund assessment. 
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Consumer ~ortgage Coalition 

Testimony Submitted for the Hearing Record 

U.S. House of Representatives House Financial Services 

Subcommittee on Housing and Insurance Hearing: 

"Flood Insurance Reform: A Community Perspective" 

March 16, 2017 
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Consumer Y"Aortgage Coalition 

Testimony- "Flood Insurance Reform: A Community Perspective" 

March 16,2017 

Page 2 of 13 

The Consumer Mortgage Coalition ("CMC"), a mortgage industry trade association, is 

very pleased to submit comments for the Record for today' s hearing. The CMC is 

particularly concerned that any policies that are developed do not result, inadvertently, in 

community blight. 

The CMC submitted lengthy testimony for the Record at the Committee's hearing on 

March 9, 2017 that provided the Committee with a detailed overview of the NFIP and the 

policy issues that need to be considered during the reauthorization of the NFIP. 

For purposes oftoday's testimony, we would like to focus on the legislation that would 

amend the Biggert-Waters Act to promote private flood insurance, which we believe can 

succeed if it is designed to prevent neighborhood blight. Unfortunately, H.R. 290 l, as 

passed by the U.S. House of Representatives and that we understand has been 

reintroduced this Congress, would increase neighborhood blight and negatively impact 

the availability of credit in disaster-prone areas. For that reason, we cannot support the 

legislation as currently drafted, even though we support private flood insurance. 

The legislation would also not meet its goal of minimizing taxpayer exposure to flood 

losses. A more comprehensive approach is needed. 

I. How the Legislation Would Cause Neighborhood Blight 

While not intended, unfortunately, this legislation would negatively impact disaster-prone 

communities in the following ways. 

The legislation would retain language from the Biggert-Waters Act that requires 

several federal agencies to accept ("shall accept") private flood insurance. At the 

same time, it would amend the Biggert-Waters definition of private flood 

insurance to repeal language that limits the definition to policies that provide 

adequate protection. The amended definition, in combination with the "shall 

accept" language, would require agencies to accept inadequate private insurance 

policies. 

• The legislation would deprive the Federal Emergency Management Agency 

("FEMA") of funding for flood mapping and flood mediation that FEMA today 

obtains through its sale ofNFIP insurance policies. FEMA uses this funding, in 

part, for flood mapping, on which private insurers rely. This funding also pays 

for flood remediation measures after a flood. Unless Congress provides 

alternative funding for mapping and flood mediation, widespread private flood 
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insurance coverage would deprive FEMA of the funding on which it relies, 

thereby increasing damages after a flood. 

• The legislation does not address the fact that widespread availability of lower-cost 

NFIP flood insurance today provides a strong incentive for local communities to 

participate in the NFIP. That participation requires communities to adopt and 

enforce flood loss mitigation and remediation measures. While costly, these 

measures are critical to reducing the likelihood and severity of flood damage 

nationwide. Reducing this incentive to participate in the NFIP would result in 

less flood mitigation, that is, in more neighborhood blight after a flood. Unless 

Congress provides alternative incentives for NFIP participation, the spread of 

private flood insurance would lead to neighborhood blight in this way as well. 

• The legislation does not address the possibility that private insurers might elect 

not to insure riskier properties, leaving FEMA to insure the riskiest properties and 

to incur higher flood losses. 

A. The Legislation Would Retain the Biggert-Waters "Shall Accept" 

Requirement but Not its Private Flood Insurance Definition 

The Biggert-Waters Act promoted private flood insurance by providing that lenders, 

Fannie Mae and Freddie Mac (the "GSEs"), and federal agency lenders "shall accept" 

private flood insurance for mortgage loans that require flood insurance. At the same 

time, Biggert-Waters defined the term "private flood insurance" to include private 

policies that are quite similar to NFIP policies, including that private flood insurance 

must provide coverage "as least as broad as" NFIP coverage. NFIP policies include a 

maximum deductable, for example, so today a private insurer must include the same 

maximum deductible to qualify as "private flood insurance" that meets the BiggertWaters definition and which lenders and federal agencies "shall accept[.]" 

Under the new legislation, the GSEs and federal agency lenders would still be subject to 

the "shall accept" requirement, but would not be permitted to rely on the Biggert-Waters 

definition of private flood insurance. Suppose, for example, a homeowner has a 

$150,000 mortgage loan, and a private insurer offers a policy with a $100,000 deductible, 

much higher than the NFJP permits. A GSE or federal agency lender would be required 

to accept ("shall accept") the private policy. In the event of total property destruction in a 

flood, the insurer would pay $50,000, which would be insufficient to restore the property. 

If there were several such occurrences in one neighborhood after a flood, the entire 

neighborhood would be blighted. 

Another aspect of the Biggert-Waters definition of private flood insurance that the 

legislation would repeal is the requirement that the private policy contain a mortgagee 

interest clause. This is a clause in the insurance policy that requires the mortgage 

investor or servicer to be named as an additional loss payee. In the event of a flood, this 
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March 16,2017 

Page 4 of 13 

clause provides the mortgage servicer, consistent with the mortgage contract, to hold the 

funds and disburse them as repair work progresses. Absent this clause, and as would be 

permitted by the pending legislation, the insurer would be required to pay the funds to the 

homeowner directly and in full. In the example of a $50,000 claim on a $150,000 loss, 

the homeowner would receive $50,000 in cash but might not have the needed financial 

resources to restore the property. The homeowner would have a very strong incentive to 

keep the cash, and abandon both the property and the mortgage loan, particularly if the 

homeowner did not have much equity in the property. The result would be neighborhood 

blight. 

The legislation would also weaken language that today permits the GSEs to set insurance 

standards "relating to the financial solvency, strength, or claims-paying ability of private 

insurance companies" from which the GSEs "shall accept" coverage. The legislation 

would repeal the GSEs' ability to set standards for insurers' financial solvency, and it 

would repeal their ability to set standards for insurers' claims-paying ability. See the 

amendments toe legislation would make to 42 12 U.S.C. § 4012a(b)(7) included below, 

showing how the legislation would amend the current statute. That is, the legislation 

would require the GSEs to accept insurance from private insurers, such as but not limited 

to, surplus lines insurers that do not contribute to state guarantee funds. In the event of a 

disaster, there might not be funds available to cover losses, even if homeowners had paid 

their premiums in full. This is another way in which the legislation would cause 

neighborhood blight. 

B. The Legislation Would Not Replace Funding FEMA Derives From 

NFIP Policies 

Sales ofNFIP insurance policies fund more than the insurance coverage alone. The 

premiums and fees also fund FEMA mapping and flood mitigation practices. Private 

insurance policies do not. If private flood insurance were widely available, FEMA would 

need a replacement source of revenue, but the legislation does not address this need. 

It is also important to note that private insurers use FEMA 's flood maps but do not pay 

for them. 

Today, FEMA has mapped only about one-third of the country. Without robust mapping, 

updated as flood risks change, land is developed in areas of unknown flood risks. This is 

short-sighted flood policy. Congress has for the past century repeatedly called for 

additional flood mapping. Legislation that would deprive FEMA of mapping resources 

would increase flood risks and flood damage. 

In addition to flood mapping, FEMA collects fees on the sale ofNFIP flood insurance 

policies to fund flood mitigation practices. These include sensible practices such as 
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Page 5 ofl3 

rebuilding after a flood in a way to reduce the risk of repetitive flood damage to the same 

property. 

It is true that some homeowners could obtain flood insurance that might be less expensive 

if they did not need to pay for flood mapping and for flood mitigation. However, the 

need for mapping and mitigation remain whether insurance is private or federal. Absent 

funding from NFIP insurance policies, another source of funding would be necessary. 

C. The Legislation Would Interfere with Incentives on Which the NFIP Is 

Based 

Community participation in the NFIP is voluntary. Congress does not mandate that 

communities adopt flood mitigation ordinances, nor does Congress dictate that 

communities enforce their ordinances. These are state law matters that Congress leaves 

to the states. 

Rather, Congress bases the NFIP on an incentive-based policy approach. One of the 

incentives for communities to undertake the costs and disruptions of adopting and 

enforcing sensible flood plain management practices is that doing so enables residents to 

purchase NFIP flood insurance policies, often at lower cost than actuarial private policies. 

This incentive undergirds the NFIP, yet the legislation would not address it. 

The legislation would enable private insurers to sell flood insurance that does not provide 

adequate coverage, and would prohibit federal agencies from rejecting that inadequate 

coverage. If a significant share of homeowners in a community were to purchase private 

flood insurance, the community would lose its incentive to participate in the NFIP. The 

community would be able to save costs by abandoning its flood plain management 

practices without losing flood insurance coverage. This would increase damages when a 

flood occurs, and result in neighborhood blight. 

II. The Legislation Would Increase Taxpayer Exposure to Flood Losses 

A goal of the legislation is to reduce taxpayer exposure to flood losses. However, in 

addition to increasing neighborhood blight, the legislation would inadvertently increase 

taxpayer exposure to flood losses: 

• The legislation would enable homeowners to select less expensive- though 

inadequate - private flood insurance coverage. 

• Private insurers might not insure the riskier properties, but FEMA would. 

• Federal agencies would be prohibited from protecting themselves against flood 

losses, unless the agencies decide to curtail the availability of credit in disasterprone areas. 
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March 16,2017 

Page 6 of 13 

The legislation would enable homeowners to select less expensive private flood 

insurance. The timing of this legislation is significant because it would coincide with 

NFIP premium increases. In 2014, Congress enacted phased-in NFIP premium increases 

to bring those premiums closer to actuarial rates. Those increases will become effective 

in the next two years, and some will be drastic. As those increases are phased in, the cost 

of private flood insurance, where available, will become increasingly attractive relative to 

NFIP premiums. Many homeowners will select less expensive private policies even 

though the coverage is inadequate. 

At the same time, there is no requirement that private insurers offer coverage for all 

properties in a special flood hazard area, as FEMA does. Private insurers would be able 

to insure the properties with the lowest risk, leaving the NFIP to insure the higher-risk 

properties. This would increase FEMA flood losses relative to its premium revenue. 

Also at the same time, the legislation would prohibit the GSEs and federal agency lenders 

from requiring adequate insurance coverage. Their risks and losses would thereby 

increase. Mortgage investors will curtail mortgage credit if they cannot protect against 

flood losses. The result would be reduced mortgage lending, increased taxpayer losses, 

or a combination of the two. 

The legislation as drafted would not achieve its goal of reducing taxpayer exposure to 

flood losses. 

III. Protections are Egually Necessary for Flood Insurance and for Homeowner's 

Insurance 

Mortgage investors and servicers need to be able to protect properties throughout the life 

of mortgage loans. For both flood insurance and for homeowner's insurance, servicers 

need to ensure that: appropriate perils are insured; deductibles, exclusions, and 

conditions are reasonable; the servicer is an additional loss payee on each insurance 

policy; and that the insurer will be able to pay any claims. Mortgage contracts require 

homeowners to maintain sufficient insurance coverage, and permit servicers to ensure 

continuous and appropriate coverage. These protections are equally important for flood 

insurance and for other homeowner's insurance. 

Despite these equal needs, the legislation would remove protections for flood insurance, 

but not for other insurance, for the GSEs and federal agency lenders. For these loans, the 

legislation would repeal servicers' ability to ensure that renewal flood insurance policies 

are adequate. It would repeal the GSEs' ability to require that insurers are solvent and 

able to pay claims. It would repeal statutory language that requires private flood 
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Testimony- "Flood Insurance Reform: A Community Perspective" 

March 16,2017 

Page 7 of 13 

insurance to have reasonable deductibles and coverage. The result would be inadequate 

flood insurance coverage. 

Adequate coverage is equally important for flood insurance and for homeowners 

insurance, yet the legislation would repeal protections for flood insurance that would 

remain available for homeowner's insurance. 

This will leave properties adequately insured against fire, but not against floods. If 

mortgage investors are unable to protect the collateral property, they will reduce the 

availability of mortgage credit, and of lending for refinances, in special flood hazard 

areas. 

IV. Private Flood Insurance Needs to Be Considered As One Part of Federal 

Flood Policies 

Reducing taxpayer exposure to flood losses through increased private insurance is a 

worthy goal. It will require considering all aspects of the NFIP, including not just flood 

insurance, but flood mapping and flood mitigation and remediation. The legislation 

would affect flood insurance alone, and would thereby interfere with other important 

aspects of federal flood policies. Private flood insurance and reasonable protections do, 

and should continue to, work hand-in-hand. 

As Congress deliberates flood insurance reauthorization, we urge a full consideration of 

all related policy issues, and to prevent unintentionally causing neighborhood blight. 

V. The Legislation Should Promote Important Flood Policy Objectives 

We support legislation that would promote the following flood policy objectives: 

• Property owners should have flood insurance options, including the option of 

purchasing private flood insurance, consistent with safety and soundness. 

• Federal and local flood policies should be to prevent and mitigate neighborhood 

blight. 

• Flood hazard areas should be mapped as expeditiously as possible, and maps 

should be updated as needed, and newer mapping technologies should be used. If 

other agencies in the government have already mapped the country using newer 

mapping technologies, those agencies' work should be shared with FEMA, in 

order to avoid paying twice for the same service. 

• Mortgage investors, lenders, and servicers should be permitted to require flood 

insurance policies to be sufficient, including: coverage of appropriate perils; 

reasonable deductibles, exclusions, and conditions; including the lender or 
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March 16,2017 

Page 8 of 13 

servicer as an additional loss payee; and the ability to reject insurers that lack 

sufficient solvency or claims-paying ability. 

• Floodplain management practices should remain in place, whether flood insurance 

is federal or private. 

• FEMA should have adequate funding to carry out its functions. 

These policies can be consistent with expanded private flood insurance. It will be 

important for Congress to carefully consider the varied and intertwined aspects of federal 

flood policies to best support flood prevention, mitigation, remediation, and insurance 

simultaneously. 

Mortgage investors and guarantors, including the GSEs, need to detennine how to protect 

their collateral by determining the appropriate insurance protection. Without the ability 

to protect the collateral, the mortgage credit might be constrained in disaster-prone areas. 

Below is a redlined copy of the existing statutory language as compared to the language 

in H.R. 2901, the bill that passed the U.S. House of Representatives in 2016. 

We look forward to working with the Committee on these important, but difficult, issues. 

Thank you. 

For further information, please contact: 

Anne C. Canfield, Executive Director, or Chris Harrington, Counsel 

Consumer Mortgage Coalition 

(202)6!7-2101 
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March 16,2017 

Page 9 ofl3 

H.R. 2901, Flood Insurance Market Parity and Modernization Act 

Amendments to Current Law 

(a) AMOUNT AND TERM OF COVERAGE 

After the expiration of sixty days following December 31, 1973 the date of enactment of 

this Act, no Federal officer or agency shall approve any financial assistance for 

acquisition or construction purposes for use in any area that has been identified by the 

Administrator as an area having special flood hazards and in which the sale of flood 

insurance has been made available under the National Flood Insurance Act of 1968, 

unless the building or mobile home and any personal property to which such financial 

assistance relates is covered by flood insurance: 

in an amount at least equal to its developn1ent or project east (less estimated land cost) or 

to the maKimum limit of coverage made available 'Nith respect to the particular type of 

pFOperty under the ·National Flood Insurance Act of 1968, whichever is less: 

Provided, That the amount of flood insurance 

( 1) in the case of Federal flood insurance. is at least equal to the development or 

project cost of the building, mobile home, or personal property (less estimated 

land cost), the outstanding principal balance of the loan, or the maximum limit of 

Federal flood insurance coverage made available with respect to the particular 

type of property, whichever is less; or 

(2) in the case of private flood insurance, is at least equal to the development or 

project cost of the building, mobile home, or personal property (less estimated 

land cost). the outstanding principal balance of the loan, or the maximum limit of 

Federal flood insurance coverage made available with respect to the particular 

type of property. whichever is less: 

Providedjitrther, That if the financial assistance provided is in the form of a loan or an 

insurance or guaranty of a loan, the amount of flood insurance required need not exceed 

the outstanding principal balance of the loan and need not be required beyond the term of 

the loan. The requirement of maintaining flood insurance shall apply during the life of 

the property, regardless of transfer of ownership of such property. 

(b) REQUIREMENT FOR MORTGAGE LOANS 

(1) REGULATED LENDING INSTITUTIONS 

Each Federal entity for lending regulation [FCA, FDIC, FRB, NCUA, OCC], (after 

consultation and coordination with the Financial Institutions Examination Council 

established under the Federal Financial Institutions Examination Council Act of 1974) 

shall by regulation direct regulated lending institutions-
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March 16,2017 

Page 10 of 13 

fAj not to make, increase, extend, or renew any loan secured by improved real estate 

or a mobile home located or to be located in an area that has been identified by the 

Administrator as an area having special flood hazards and in which flood 

insurance has been made available under the National Flood Insurance Act of 

1968, unless the building or mobile home and any personal property securing such 

loan is covered for the term of the loan by flood insurance 

Provided, That the amount of flood insurance 

(A) in the case of Federal flood insurance, is at least equal to the outstanding principal 

balance of the loan or the maximum limit of Federal flood insurance coverage 

made available with respect to the particular type of prope1ty, whichever is less; 

or 

(B) in the case of private flood insurance, is at least equal to the outstanding principal 

balance of the loan or the maximum limit of Federal flood insurance coverage 

made available with respect to the pa1ticular type of property, whichever is less. 

in an amount at least equal to the outstanding principal balance of the loan or the 

maximum limit of coverage made available under the Act with respect to the 

particular type of property, v.hichever is less; and 

(B) to accept private flood insurance as satisfaction of the flood insurance coverage 

requirement under subparagraph (A) if the coverage provided by such private flood 

iRsurance meets the requiremeRts for coverage uRder such subparagraph. 

(2) FEDERAL AGENCY LENDERS 

(A) IN GENERAL. A Federal agency lender may not make, increase, extend, or renew 

any loan secured by improved real estate or a mobile home located or to be 

located in an area that has been identified by the Administrator as an area having 

special flood hazards and in which flood insurance has been made available under 

the National Flood Insurance Act of 1968, unless the building or mobile home and 

any personal property securing such loan is covered for the term of the loan by 

flood insurance in the amount provided in accordance with paragraph (l)W. 

Each Federal agency lender may issue any regulations necessary to carry out this 

paragraph. Such regulations shall be consistent with and substantially identical to 

the regulations issues under paragraph (I). 

(B) REQUIREMENT TO ACCEPT FLOOD INSURANCE. Each Federal agency lender 

shall accept priv-ate flood insurance as satisfaction of the flood insurance coverage 

requirement under the preceding sentence subparagraph (A) if the flood insurance 

coverage provided by such private flood insurance meets the requirements for 

coverage under such sentence that subparagraph. 
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March 16, 2017 

Page II of 13 

Each Federal agency lender shall issue any regulations necessary to carry out this 

paragraph. S~:~eh regulations shall ee consistent with and s~:~estantially identical to 

the regulations issued 1:1nder paragraph (1 )(A). 

(3) GOVERNMENT-SPONSORED ENTERPRISES FOR HOUSING 

The Federal National Mortgage Association and the Federal Home Loan Mortgage 

Corporation shall implement procedures reasonably designed to ensure that, for any loan 

that is-

( A) secured by improved real estate or a mobile home located in an area that has been 

identified, at the time of the origination of the loan or at any time during the term 

of the loan, by the Administrator as an area having special flood hazards and in 

which flood insurance is available under the National Flood Insurance Act of 

1968, and 

(B) purchased or guaranteed by such entity, 

the building or mobile home and any personal property securing the loan is 

covered for the term of the loan by flood insurance in the amount provided in 

paragraph (I )fA). The Federal National Mortgage Association and the Federal 

Home Loan Mortgage Corporation shall accept pri-¥ffie flood insurance as 

satisfaction of the flood insurance coverage requirement under paragraph (1)(-A) if 

the flood insurance coverage provided ey s1:1eh private flood insmance meets the 

requirements for coverage under 5t!Cfl that paragraph and any requirements 

established by the Federal National Mortgage Association or the Federal Home 

Loan Mortgage Corporation, respectively, relating to the financial solvency. 

strength, or claims paying aeility of private insurance companies from which the 

Federal National Mortgage Association or the Federal Home Loan Mortgage 

Corporation will accept private flood insurance. provided that such requirements 

shaH not affect or conflict with any State law. regulation. or procedure concerning 

the regulation of the business of insurance. 

(4) APPLICABILITY.-

( A) EXISTING COVERAGE.-Except as provided in subparagraph (B), paragraph (I) 

shall apply on Septemeer 23, 1994 the date of enactment of the Riegle 

Community Development and Regulatory Improvement Act of 1994. 

(B) NEW COVERAGE.-Paragraphs (2) and (3) shall apply only with respect to any 

loan made, increased, extended, or renewed after the expiration of the !-year 

period beginning on September 23, 1994 the date of enactment of the Riegle 

Community Development and Regulatory Improvement Act of 1994. Paragraph 

(I) shall apply with respect to any loan made, increased, extended, or renewed by 

any lender supervised by the Farm Credit Administration only after the expiration 

of the period under this subparagraph. 

(C) CONTINUED EFFECT OF REGULA TIONS.-Notwithstanding any other 

provision of this subsection, the regulations to carry out paragraph (1), as in effect 
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March 16, 2017 

Page 12 of 13 

immediately before September 23, 1994 the date of enactment of the Riegle 

Community Development and Regulatory Improvement Act of 1994, shall 

continue to apply until the regulations issued to carry out paragraph (I) as 

amended by section 522(a) of Public Law l 03 325 such Act take effect. 

(5) RULE OF CONSTRUCTION 

Except as otherwise specified, any reference to flood insurance in this section shall be 

considered to include Federal flood insurance and private flood insurance. 

Nothing in this subsection shall be construed to supersede or limit the authority of a 

Federal entity for lending regulation, the Federal Housing Finance Agency, a Federal 

agency lender, the Federal National Mortgage Association, or the Federal Home Loan 

Mortgage Corporation to establish requirements relating to the financial sohency, 

strength, or claims paying ability of private insurance companies from which the entity or 

agency will accept private flood insurance, 

provided that such requirements shall not affect or conflict with any state law, regulation, 

or procedure concerning the regulation of the business of insurance. 

* * * 

(7) PRIVATE FLOOD INSURANCE DEriNED DEFINITIONS 

In this stlbsection,: 

(A) FLOOD INSURANCE.-The te1m "flood insurance' means-

(i) Federal flood insurance: and 

(ii) Private flood insurance. 

(B) FEDERAL FLOOD INSURANCE.-the term ·Federal flood insurance· means an 

insurance policy made available under the National Flood Insurance Act of 1968 

942 U.S.C. 4001 et seq.). 

t(C) PRIVATE FLOOD INSURANCE.-The term 'private flood insurance' means an 

insurance policy that-

(Ai) is issued by an insurance company that is-

(+1) licensed, admitted, or otherwise approved to engage in the business of 

insurance in the State or jurisdiction in which the insured building is 

located, by the insurance regulator of that State or jurisdiction; or 

(I) eligible as a nonadmitted insurer to provide insurance in the home State of 

the insured, in accordance with sections 521 through 527 of the [DoddFrank Act]; 

(ii) is issued by an insurance company that is not otherwise disapproved as a 

surplus lines insurer by the insurance regulator of the State in which the 

property to be insured is located; and 

(iii) provides flood insurance coverage that complies with the laws and 

regulations of that State. 
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(D) STATE.-The term ·state· means any State of the United States, the District of 

Columbia, the Commonwealth of Puet1o Rico, Guam, the North em Mariana 

Islands, the Virgin Islands, and American Samoa. 

(ii) in the ease of a policy of difference in conditions, multiple peril, all risk, or 

other blanket coverage insuring nonresidential commercial property, is 

recogni2eed. or not disapproYed, as a surplus lines insurer by the insurance 

regulator of the State or jurisdiction ·.vhere the property to be insured is 

~ 

(B) provides flood insurance coverage which is at least as broad as the coverage 

provided under a standard f1ood insurance policy under the national flood 

insurance program, including when censidering deduetibles, exclusions, and 

eoHditioHs offered by the insurer; 

(C) includes 

(i) a requirement for the insurer to give '15 days' written notice of cancellation or 

non rene·.val of flood insurance coverage to 

(I) the insured; a11d 

(II) the regulated lendi11g i11stitutioH or federal agency le11der; 

(ii) iHformatioH about the availability of flood iHsuraHce coverage under the 

natio11al f1ood insurance prograt'lr, 

(iii) a mortgage interest clause similar to the clause contai11ed i11 a standard flood 

insurance policy under the national flood insurance program; and 

(i\) a provision reqt~iring an iHst~red to file suit not later tha11 1 year after date of a 

written denial of all or part of a claim under the policy; and 

(D) eoHtaiHs eaneellation pro~'isions that are as restrieth e as the pro'< isions contai11ed in 

a standard flood i11surance policy u11der the Rational flood insurance progr-am-, 

Adds to NFIA § 1308: 

(n) EFFECT OF PRIVATE FLOOD INSURANCE COVERAGE ON CONTINUOUS 

COVERAGE REQUIREMENTS.-For purposes of applying any statutory, 

regulatory, or administrative continuous coverage requirement, including under 

section 1307(g)(l ), the Administrator shall consider any period during which a 

property was continuously covered by private flood insurance (as defined in 

section 102(b)(7) of the Flood Disaster Protection Act of 1973 (42 U.S.C. 

4012a(b)(7)) [the definition this bill would amend]) to be a period of continuous 

coverage. 
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lVI I c; .. --·..,.® 

NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES 

March 15, 2017 

The Honorable Mike Crapo 

Chairman 

Senate Banking Committee 

Washington, DC 20510 

The Honorable Jeb Hensarling 

Chairman 

House Financial Services Committee 

Washington, DC 20515 

Dear Senators and Representatives: 

The Honorable Sherrod Brown 

Ranking Member 

Senate Banking Committee 

Washington, DC 20510 

The Honorable Maxine Waters 

Ranking Member 

House Financial Services Committee 

Washington, DC 20515 

As your committees work to reauthorize the National Flood Insurance Program (NFIP), NAMIC 

would like to share its views on the necessary steps to properly reform the program. The NFIP 

remains an important program because flood risk remains very difficult to insure as its 

unconventional nature defies the conditions private markets typically require for operation. 

However, in its current form it remains on a fiscally unsustainable path. There are four 

fundamental areas that must be addressed to truly fix the critical problems plaguing the NFIP. 

NAMIC shares the goal of a program that ensures affordable flood insurance coverage is 

available, without the need for taxpayer-funded bailouts following major storms. Achieving this 

will require a move toward actuarially sound rates that reflect the risk of flooding for a given 

property, along with a mechanism to address affordability for those in need of assistance. 

Further, Congress should take steps to foster private-sector participation in the flood insurance 

market and make a serious investment in mitigation efforts to address repetitive loss properties 

and reduce the long-term losses to the pro!,'l'am. 

Actuarially Sound Rates 

Inadequate rates that do not reflect the actual costs of living in a high-risk flood zone is the 

source of many of the NFIP's problems. Inadequate rates fail to reflect the true cost of providing 

coverage and the actual risks of living in a high-risk flood zone. This has the effect of 

encouraging poor land use and development in high-risk areas, thereby increasing the total 

potential losses that will be incurred in the event of a flood. During the almost 50 years that the 

NFIP has been in place, there has been a large population increase in flood-prone coastal states, 

which now account for a very large portion of the NFIP portfolio. 

The NFIP must begin charging risk-based rates if it is to have any chance of being a solvent 

program. Moreover, the implementation of risk-based NFIP rates is a prerequisite for private 

insurers to be able to offer private-sector flood policies. 
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27204.077

Increase Private-Sector Involvement 

The largest impediment to increasing private-sector involvement is without a doubt the 

subsidized rates of the NFIP. Since private-sector insurance companies must charge risk-based 

rates to remain viable, they cannot compete with the subsidized rates of the NFIP. In fact, one of 

the many challenges to encouraging homeowners to take steps to mitigate flood losses is that 

hidden NFIP subsidies have led them to believe their risk of flooding is far less than it is. For any 

effort to increase private-sector participation in the flood insurance marketplace to be successful, 

it must address the fact that, unless the subsidy issue is addressed, companies will be asked to 

sell a similar product at, in many cases, a much higher price. 

While subsidized rates are the greatest impediment to the private sector, there are several other 

issues also stifling the private-sector flood insurance market. Private insurers are prohibited from 

accessing FEMA's historical loss data that is essential for any insurer to begin to assess flood 

insurance risk. Additionally, private insurers participating in FEMA's Write Your Own program 

are prohibited from writing flood insurance policies outside the program. This restriction 

prevents the companies with the most experience in the flood insurance market, and those most 

likely to increase their involvement, from operating in the private flood insurance market. 

Additionally, clarification is needed to ensure that mortgage lenders will accept private flood 

polices to meet mandatory purchase requirement guidelines of the NFIP. While the BiggertW aters Flood Insurance Reform Act of 2012 mandated lending institutions to accept privatesector flood insurance, lending institutions still maintained they could not determine what an 

acceptable private-sector policy was. Any NFIP reauthorization must address these issues to 

increase private-sector involvement in the flood insurance market. 

Address Affordability 

Affordability is a critical part of flood insurance reform. While NAMIC believes the program 

must move toward actuarial rates, such a move could create affordability issues for some 

homeowners. To reduce potential issues, NAMIC believes rate increases should be phased-in 

over a number of years to prevent an instant and undue hardship for homeowners currently 

paying subsidized rates. NAMIC recognizes that there will be some who will need assistance 

because even rate increases phased-in over time could prove too costly, and NAMIC supports 

establishing a targeted, need-based program to assist homeowners of modest means facing 

affordability issues. However, any subsidies that the government believes are necessary must be 

fully transparent. Subsidies cannot continue to be hidden within the insurance mechanism, and 

homeowners should be fully aware of the real risks of where they live. 

Increased Mitigation Efforts 

Mitigation efforts are very important to improving the solvency of the NFIP. Mitigation activities 

would protect homeowners' property and possessions, as well as reduce the costs of claims 

associated with the NFIP. Mitigation measures, such as elevating structures, have been proven to 

protect properties from damage caused by flooding, and they have the potential to save $4 in 

recovery costs for every $1 of investment. However, the upfront costs of such measures may be 

beyond the means of some homeowners, and Congress should consider creating a program that 

would make mitigation grants and loans available to property owners for whom investing in 

mitigation would be truly unaffordable. 
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Additionally, any reform legislation should address the issue of repetitive loss properties. 

NAMTC believes an increase to FEMA's repetitive loss buyout authority would help end the 

cycle of rebuilding and repairing properties that continuously suffer severe flood damage. In 

some cases, the most efficient way of dealing with these properties is to simply buy out the 

homeowner, allowing them to relocate to a safer area. 

Con elusion 

NFIP reauthorization is extremely important to homeowners, businesses, and many sectors of our 

economy, but reauthorization without meaningful reforms will continue to lead the NFIP down 

the road of taxpayer-funded bailouts. As your committees work to reform and reauthorize the 

program, NAMIC strongly encourages you to include these measures in any legislation to end 

the cycle ofloss and rebuilding that has left many Americans still vulnerable to flooding, costing 

the taxpayers billions of dollars. If my staff or I can be of assistance, please don't hesitate to 

contact me. 

Respectfully, 

Jimi Grande 

Senior Vice President- Government Affairs 
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•••• 

Pel ·:~:-. ...• -··· 

····- Property Casualty Insurers 

Association of America 

Advocacy. Leadership. Results. 

STATEMENT FOR THE RECORD 

ON BEHALF OF THE 

PROPERTY CASUALTY INSURERS ASSOCIATION OF AMERICA 

"FLOOD INSURANCE REFORM: FEMA 'S PERSPECTIVE" 

THE HOUSE FINANCIAL SERVICES HOUSING AND INSURANCE SUBCOMMITTEE 

UNITED STATES HOUSE OF REPRESENTATIVES 

March 9, 2017 

8700WestBryn Mawr Avenue. Suite 12005, Chicago, !L60631·3512 Telephone 847-297-7800 Facsimile 847-297-5064 WINW.pciaa.net 

444 N-Orth (apftoi Street NW. Suitt 801, Washington. DC 20001 Telephone 202-639·0490 

© 2017 Property Casualty Insurers Association of America 
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Thank you, Mr. Chairman, Ranking Member and Members of the Subcommittee for the 

opportunity to provide a statement on "Flood Insurance Reform: FEMA's Perspective". The 

Property Casualty Insurers Association of America (PCI) is composed of nearly I ,000 member 

companies, representing the broadest cross section of insurers of any national trade association. Our 

members write more than $202 billion in annual premium and 35 percent of the nation's home, auto 

and business insurance, reflecting the diversity and strength of the U.S. and global insurance 

markets. PCI members include two-thirds of the "Write-Your-Own" (WYO) insurers that partner 

with the Federal Emergency Management Agency (FEMA) to administer the National Flood 

Insurance Program (NFIP). 

PCI appreciates the subcommittee's continued interest in the NFIP, and we are pleased that 

you are holding this hearing. While the program has undergone numerous changes over the past 

several years, PC! and our members stand ready to work with Congress on additional improvements 

to the program while providing new opportunities for the private sector to better serve consumers. 

This statement provides a broad overview of the evolution of the program, private sector involvement 

in providing flood insurance coverage and some views on flood insurance reform ahead of the 

program's September 30, 2017. 

PC! strongly supports reauthorization of the NFIP, and we adopted a number of important flood 

insurance reform principles that our Board and our members believe will improve the program, provide 

more choices for consumers and increase opportunities for private insurer involvement. 

Reauthorization and reforms to the program should include: 

• A long enough extension to provide stability in the marketplace for both consumers and the 

companies entering, servicing, or competing with the program; 

Increased lender acceptance of private flood policies similar to bi-partisan, bi-cameral legislation 

that unanimously passed the House last year; 

Elimination of the WYO non-compete clause; 

Insurer access to NFIP underwriting data and publication of updated NFIP rate reviews; 

• Language to encourage further reinsurance purchases; and 

• Public service education on the necessity and benefits of flood insurance. 

Eyolution of Flood Insurance and the Prjvate and Public Sector Roles 

Flood insurance was provided in the United States by the private sector in the late 1800's 

and early 1900's. After catastrophic floods in 1927 and 1928, private flood insurance became less 

available. Flood losses were borne primarily by consumers and, over time, increasingly by the 

federal government in the form of disaster relief. President Truman in the 1950's proposed a flood 

program based on private insurance with federal reinsurance, with mandatory purchasing required 

for homeowners with federally insured mortgages. The program was enacted but never funded or 

implemented. Critics at the time were concerned about adverse selection with most homeowners 

unwilling to voluntarily pay risk-based rates, a high concentration of risks, and inadequate land-use 

planning and mitigation efforts. In 1966, President Johnson raised with Congress four possibilities 

for providing flood insurance- purely private sector underwriting, private underwriting with 

government backing, a purely government program, or a government program run with private 

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assistance. The Administration ultimately recommended a public-private partnership for offering 

flood insurance, although requiring homeowners to bear their full risk costs. 

In 1968, Congress created the NFJP that provided for a public-private partnership with 

communities agreeing to land-use restrictions in order to be eligible to purchase flood insurance 

from a risk pool (the National Flood Insurers Association) run by the private sector with oversight 

by the Federal Insurance Administration (FIA), then part of the Department of Housing and Urban 

Development (HUD). The federal government made loans to the private pool to pay claims, repaid 

with premiums over time, as well as providing reinsurance for catastrophic flood losses (lowering 

the premiums by eliminating the catastrophic risk costs). An explicit subsidy was provided for 

existing structures determined to be in a special flood hazard area with the expectation that those 

structures would disappear over time after severe weather events. 

In 1977, disagreements between the private sector and the government over the authority 

and the financial control of the program led to the FIA exercising its authority under an existing 

section (Part B) of the 1968legislation that allowed for an all-federal program in which the federal 

government bears all of the risk while making use of insurance industry resources. This also led to a 

period of tension between the industry and NFIP. In 1979, President Carter created the Federal 

Emergency Management Agency (FEMA) and the NFIP, along with several other disaster-related 

agencies were brought into that Agency. 

From 1977 through 1983, property owners purchased flood insurance through an agent that 

in turn dealt directly with the federal government. However, during these early years, there was 

extremely limited participation in the NFIP, despite a congressionally imposed requirement in 1973 

that all properties in a flood zone with federally backed or regulated mortgages purchase flood 

insurance. On its own, the federal government lacked adequate marketing and distribution channels 

as well as sufficient claims handling and payment capacity. 

In 1983, the government turned again to the private sector to help market, service and settle 

claims for the program. The "Write-Your-Own" (WYO) program was created to use the existing 

private insurance infrastructure of insurance agents~ companies and claims adjusters to help increase 

market participation and settle claims, while the risk of flood loss was retained by the government 

to keep premiums low. Participation in the flood program ultimately soared, climaxing at a postKatrina high of 5.7 million NFIP policyholders. 

How the NFIP and Write Your Own {WYO) Claims Process Works 

There are now just 70 companies, of the more than 1300 active home, auto and business 

insurers in the U.S. that have partnered with the federal government to help administer the NFIP 

program as Write Your Own (WYO) insurers. WYO's act as a fiduciary for the federal government 

and taxpayers to market flood insurance and settle NFIP claims. In return for their marketing, claims 

adjustment, legal fees and other administrative costs, NFIP pays WYO's a servicing fee as well as 

additional fees based on the amounts and volume of settled claims. Also, FEMA writes 

approximately 12-14 percent of flood insurance policies through its Direct Program, although even 

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the direct program relies largely on outsourced claims adjusting and processing resources as well as 

private sector agents. 

Decisions on federal flood insurance claims payments are made by claims adjusters. When 

policyholders experience a flood loss, they contact their insurance agent or WYO insurer. The insurer 

then assigns a flood claims adjuster, who may be an employee of the WYO, a contractor with a thirdparty vendor or an independent contractor. The flood claims adjuster determines the amount payable 

on a claim based on very specific guidelines and rules established by the NFIP. Flood claims adjusters 

and the independent contracting firms they represent are generally compensated in proportion to the 

amount of the loss paid. The compensation formulas are set by the NFIP and periodically updated. 

WYO insurers can be penalized for either underpayments or overpayments, and WYOs are 

audited regularly by the federal government under the Improper Payments Elimination and Recovery 

Act (IPERA) to ensure that they follow federal requirements. 

Federal compensation and settlement guidelines are periodically adjusted by Congress and the 

NFIP. For example, following Hurricane Katrina, the Government Accountability Office (GAO) 

raised concerns that the existing compensation structure could result in WYOs being overcompensated 

for claims settlement, particularly following a catastrophic event. As a result, the claims 

compensation formula was refined in 2009 by reducing the portion tied to the claim value and basing a 

portion of the payment on the WYO insurer's NFIP premium volume. There also are specific 

processes in place for dissatisfied policyholders to appeal claims decisions to the NFIP. The existing 

FEMA appeals process was put in place as a result of the enactment of the Flood Insurance Reform 

Actof2004. 

Recent Challenges in the WYO Program 

Administering and marketing the NFIP is very complex and expensive, particularly with 

numerous recent statutory changes to the program (many retroactive). The number of private insurers 

participating in the WYO program has declined significantly in recent years, with several major 

insurers exiting the program. Most WYOs sell and administer a small number ofNFIP policies, 

largely as an extra service to their policyholders. The last decade of turmoil in the program has further 

increased costs and rcputational concerns, weighing heavily on insurers' ability to continue offering 

access to the NFIP as a service for their policyholders. 

Unfortunately, as WYO private participation in the program has declined and many of the 

recent legislative changes have been implemented, the number of households and businesses in the 

program has also dropped significantly. After nine years (2006-2013) of having about 5.6 million 

policies in force, the NFIP's number of policies in force is now just over 5 million. It is more 

important than ever to educate consumers about the importance of having adequate flood insurance 

coverage to protect their property. 

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Needed NFIP Reforms 

Program Stability 

The last time a long-term NFIP reauthorization was set to expire was September 30, 2008. 

Subsequent to that, there were at least 17 short-term extensions and four lapses that created turmoil not 

just in the program, but with the housing market. A property in a flood-zone, with a federally-backed 

mortgage requiring the purchase of flood insurance, could not go to closing during a lapse. Due to the 

mounting debt owed to taxpayers, issues related to Hurricane Katrina and a desire to put the program on 

a more sound fiscal footing, the reauthorization process was not completed until July 6, 2012, when the 

President signed the Biggert-Waters Flood Insurance Reform Act. 

Following the passage ofBiggert-Waters, Congress passed the Homeowners Flood Insurance 

Affordability Act (HFIAA) in 2014, which scaled back some of the rate increases for certain 

previously subsidized properties. 

Private insurers interested in writing flood insurance risk need to develop rates, obtain state 

approval of those rates, set up administrative systems, purchase reinsurance, train agents and educate 

consumers about the options to purchase flood insurance. Those are substantial investments of capital 

and resources. For the private sector to more actively apply capital to this risk on behalf of consumers, 

assurances are needed that the current federal program will continue to exist, and continue to move 

toward risk-based rates. 

Accordingly, the insurance industry seeks a long enough extension to provide stability in the 

marketplace for both consumers and the companies entering, servicing, or competing with the 

program. 

Lender Acceptance 

Both recent flood reform bills, Biggert-Waters and HFIAA, included language designed to 

increase lender acceptance of private flood insurance. Federal lender-regulating entities have struggled 

to implement the provisions of these requirements. Federal regulators issued draft rules in 2013 and 

then again in 2016. The impact of these actions have not resulted in the intended effect, which was to 

increase private insurer risk-bearing and shift some of the potential losses from the NFIP and 

taxpayers to the private marketplace. 

The Flood Insurance Market Parity and Modernization Act (H.R. 290 I) was introduced and 

passed the House unanimously last year. That bill, recently reintroduced in this Congress (H.R. 1422), 

clarifies the roles of the various entities involved: the Federal lending regulators; state insurance 

regulators; insurers and consumers to accomplish the original goal of the provision in Biggert-Waters. 

We strongly support passage of this important legislation that will further encourage private insurers to 

enter the marketplace. 

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Elimination of the WYO Non-Compete Clause 

Insurers that partner with the Federal government to sell NFIP flood insurance policies and help 

administer the program, sign an agreement called "the arrangement" annually that prohibits them from 

selling a product or products that compete directly with those offered through the NFIP. 

Congress is interested in the private sector taking on more flood risk, the industry is interested 

in writing more flood risk, and consumers are interested in having more choices. The antiquated "noncompete" clause prevents many of the companies with the most experience with flood risk from writing 

it privately, unless they no longer participate in the WYO program. This either/or choice means that it 

will take significantly longer for a robust private marketplace to develop. Therefore, this provision 

should be eliminated immediately as part of any enacted legislation. 

Data and Rate Reviews 

One of the key components needed to develop and assure a stable and competitive public or 

private marketplace for insurance products is the availability of reliable data. Since the NFIP has been 

the risk-bearing insurer for almost 50 years, they have a significant amount of data that would be 

critical to developing reasonable and accurate rates for consumers for flood insurance. 

PCI supports the NFIP sharing that data with insurers willing to underwrite flood risk. Insurers 

do not need any "personally identifiable information" with regard to the data, just the data on the 

properties in the program. This includes loss history, past premiums and elevation information. 

The private sector rate development process is somewhat different than what is used by the 

NFIP. Nevertheless, insurers would like to have the last several years of rate reviews done by the 

NFIP's actuaries. This information has not been made public for the past several years and would be 

instructive to insurers, just as such information is filed in many states by private insurers, in developing 

and charging consumers an appropriate, risk-based premium for flood insurance. Data also means that 

the market would more accurately price the product, leading to more stability in the marketplace for 

consumers. 

Reinsurance 

Language to encourage the purchase of reinsurance by the NFIP was included in both BiggertWaters and HFIAA. FEMA made an initial small purchase in 2016 and has made a much larger 

purchase for 2017. Private market reinsurance is helpful in reducing the potential exposure to losses 

from the program and further protects taxpayers. PC! strongly supports a continued and expanded role 

with regard to purchasing private market reinsurance as it spreads the risk worldwide, provides valuable 

pricing standards regarding the risk and required FEMA to provide those reinsurers participating in the 

NFIP reinsurance placement with the key data mentioned earlier in this testimony. 

Public Education 

Since the last NFIP reauthorization, in July 2012, a number of significant flooding events have 

caused tragic human and physical losses, including Superstorm Sandy and the Louisiana floods last 

year. Unfortunately, many of those victims had not purchased flood insurance or their federal policies 

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did not provide the full types and amounts of coverage typically provided in the private insurance 

marketplace. Consumers need to understand their flood risk. PC! is advocating for a government-led 

education program to help educate consumers on their flood risk and the need for flood insurance. 

Additionally, Congress needs to enact flood insurance reform that includes a private insurance market 

so that consumers have more options and can find better protection for their property and financial 

security going forward. 

Governmental Coordination 

In the immediate aftermath of a natural catastrophe it is critical for local, state, and federal 

officials to coordinate their efforts to get basic services up and running as quickly as possible, to get 

people back in their homes, and to get businesses to begin remediation and rebuilding. Insurers need 

to be at the table during pre- and post -disaster emergency planning and coordination to ensure that 

smooth claims adjustment can be a part of the catastrophe response planning. It also is essential to 

the rebuilding process that local law enforcement and government officials allow insurers and 

insurance claims adjusters into damaged areas as soon it is safe - at least as soon as property owners 

are provided access. 

Available Claims Adjusters 

A problem following any major catastrophe when thousands of properties are damaged is the 

lack of locally licensed flood insurance adjusters. This delays the claims settlement and the rebuilding 

process. Most flood insurance adjusters are located in areas that frequently flood. Many states 

implement reciprocal recognition of claims adjusters from other states to help, and the state insurance 

department grants out-of-state adjusters access if the proper credentials are provided. However, it can 

often be difficult in the middle of a catastrophic event with an unusual number of claims to process 

the necessary paperwork in a timely manner. PCI supports federal legislation to require more 

reciprocal claims adjuster recognition. 

Mitigation and Flood Maps 

Preparation is a key factor in minimizing financial loss after a natural catastrophe. Strong, 

uniform statewide building codes that are regularly updated play a significant role in reducing the 

risk of injury or death to homeowners during a natural catastrophe. Structures built or retrofitted to 

comply with the most recent edition of the International Building Code, and other recognized 

building standards, incur less property damage during a significant weather event. Less property 

damage following an event reduces the need for federal disaster aid and can help expedite a 

community's recovery after a natural catastrophe. PCI promotes strong building codes and 

responsible land use policies, which are crucial for all stakeholders, to promote public safety and to 

be as prepared as possible for the next hurricane, tornado, or flood disaster. Updating flood maps 

immediately following such an event is critical to ensuring that homes and businesses being rebuilt 

meet the appropriate flood elevation criteria. 

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Ongoing Discussions of NFIP Reforms 

PCI hosted the National Flood Insurance Conference in 2015,2016 and will co-host it in 

2017. The 2016 program, with over 800 attendees included all the stakeholders in this program. The 

2017 conference agenda includes potential program improvements, other approaches to address the 

risk, technical issues and challenges to private sector participation and risk bearing. PCI will continue 

these discussions with stakeholders and would welcome further conversations on potential 

improvements to the NFIP with the subcommittee. 

Conclusion 

The flood insurance program protects millions of American businesses and families from 

catastrophic flood risk. PCI members and our WYO companies appreciate the opportunity to service 

the federal government and consumers. We are encouraged to sec the subcommittee taking up this 

issue early in the year. First and foremost, it is important to secure a long-term reauthorization of the 

program, without any lapses. PCI members and our WYO companies welcome a discussion with the 

Subcommittee about how to improve the program, encourage private sector alternatives and shape the 

program for the future. 

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27204.087

I 

3138 lOth Street North 

Arlington, VA 22201-2149 

703.522.4770 1800.336.4644 

NAFCU :~ic~~~~i~o!; National Association of Federal Credit Unions I www.nafcu.org 

March 15, 2017 

The Honorable Sean Duffy 

Chairman 

House Financial Services Subcommillee 

on Housing and insurance 

United States House of Representatives 

Washington, D.C. 20515 

The Honorable Emanuel Cleaver 

Ranking Member 

House Financial Services Subcommittee 

on Housing and Insurance 

United States House of Representatives 

Washington, D.C. 20515 

~e: Tomorrow's Hearing on Flood Insurance Reform 

Dear Chairman Duffy and Ranking Member Cleaver: 

On behalf of the National Association of Federally-insured Credit Unions (NAFCU), the only 

trade association exclusively representing the federal interests of our nation's federally-insured 

credit unions, I write in conjunction with tomorrow's hearing entitled "Fiood Insurance Reform: 

A Community Perspective". NAFCU is pleased to see the snhcommittee working towards a 

long-term reauthorization of the National Flood Insurance Program (NFIP) before the September 

30, 2017 deadline. 

As you know, recent reauthorizations of the NFIP have seen a series of short-term extensions 

that have created a high level of uncertainty in the program and left millions of American 

families who rely on flood insurance policies in limbo. This is especially unacceptable to our 

nation's credit onions and their members, given that residential and commercial lending is key in 

turning around our still-struggling economy. It is with this in mind !bat we strongly support a 

multi-year, long-term reauthorization of the NFIP. 

NAFCU is also pleased to see that the subcommittee is considering various program 

improvements such as: maintaining a foms on affordability of flood insurance, including private 

market options; increasing coverage limits and allowing lenders to require adequate coverage for 

both property and structures; addressing issues with the need for improved technology and 

expediency of mapping efforts; and taking steps to maintain the financial solvency of the 

program to bring stability to the market. 

We do have concerns with further NFlP privatization efforts, as a private program could target 

lesser risk policies and strain the government program, which could potentially become the 

insurer of last resort. Furthermore, we would urge that any legislation ensure that annual 

premium rates are not raised too quickly, as this could lead to attrition in the program and longterm uncertainty for lenders. 

NAFCU I Your Direct Connection to Education, Advocacy & Advancement 
125 


27204.088

We thank you and the subcommittee for your important work to reform the NFIP and move a 

long-term reaulhorization. We would urge the subcommittee to move legislation forward as 

quickly as possible. 

Should you have any questions or require any additional information please do not hesitate to 

contact me or Gaurav Parikh, NAFCU's Associate Director of Legislative Affairs, at 703-842-

2261. 

Sincerely, /'? ~/'' ~···· 

~~77;;;:-z_ ____ ..... . Brad Thaler 

Vice President of Legislative Affairs 

cc: Members of !he Subcommittee on Housing and Insurance 
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May9, 2016 

The Honorable AI Green 

U.S. House of Representatives 

2347 Rayburn House Office Building 

Washington, D.C. 20515 

Dear Representative Green, 

PARTNERSHIP 

As you know, the Houston region has just experienced unprecedented rain and flooding. According to a 

new estimate prepared by BBVA Compass, Houston has experienced over $1.9 billion in damage during 

the last few weeks, which includes damage to homes, cars, schools, parks, churches, roadways and other 

important elements of our infrastructure. For many, the recent storms have affected every aspect of their 

quality of life. Perhaps the most telling statistic of all: based on the 7,021 calls the United Way of Greater 

Houston has received through its 2-1-11ine, 1,937 calls have been requests for "food replacement." 

Thank you for signing the April 24, 2016, letter to President Barack Obama, supporting Texas's major 

disaster declaration and the need to provide individual assistance to the four most affected counties. It 

was wonderful to see the federal declaration so quickly expanded. We also want to thank you for your 

leadership in co-authoring H.R. 5025, which would provide vital funding for the completion of flood 

control projects in Harris County. We greatly appreciate your leadership. We also want you to know the 

Partnership is eager to support this and any other effort at the federal level that will help Houston heal 

and will make it more resilient in the future. 

We want to make sure that we do all we can to help you and your staff as you consider every potential 

opportunity for federal support. Please do not hesitate to call me directly if we can be helpful in any way. 

We can be reached at 713.844.3600. 

Sincerely, 

Jamey Rootes 

Chairman 

Bob Harvey 

President and CEO 

Cc: Lilyanne McClean, Executive Vice President, Public Policy and Communications 

V•lWW.houston.org 

1200 Smith, Suite 700 J Houston, TX 77002 

Austin I Brazoria l Chambers l Fort Bend i Galveston 1 Harris 1 Uberty J Montgomery 1 San Jacinto i Walker 'Waller 
127 


27204.090

HousToN AssociATION oF REALTORS® 

McnoArnogo, 

May 23,2016 

The Honorable AI Green 

U.S. House of Representatives 

2347 Rayburn House Office Building 

Washington, D.C. 20515 

Dear Congressman Green: 

{7!3) 62H900 • Fax (7i3) 

1 c.~obertHomm. -, 

On behalf of the Houston Association of REALTORS' and our 32,000 + members, we are writing 

to you to express our strong support of your bill, H.R. 5025 the "2016 Tax Day Floods 

Supplemental Funding Act." It has only been a few weeks since the 2016 Tax Day flood struck 

the Greater Houston area. The Apri118 floods had a dramatic impact on our entire region. Over 

3,700 homes were damaged in Harris County, with some flooding for the second, third or 

fourth time. There were a total of 3,710 damaged structures throughout the county: 2,348 

were outside the floodplain and 1,362 homes within the 100 year floodplain required in-home 

substantial damage inspections, 

The funds secured from this legislation would help mitigate damages from future floods 

through the completion of various flood control projects in Harris County, including the project 

to widen Brays Bayou. This bill is extremely important for homeowners living in Harris County. 

We are so grateful for your representation in Washington, and your continued support and 

interest in the real estate community is invaluable. If we ever may be of service to you, please 

do not hesitate to call on us. 

Sincerely, 

Mario Arriaga 

2016 Chair of the Board 
128 


27204.091

CITY OF HOUSTON--------=S:...Y:.;.Ives=te"--r_o_;Tu=-rn:.:..:e"--r_ 

Mayor 

June 6, 2016 

The Honorable AI Green 

U.S. House of Representatives 

2347 Rayburn House Office Building 

Washington, D.C. 20515 

Dear Congressman Green, 

P.O. Box 1562 Houston, Texas 77251·1562 

Telephone- Dial 311 

www.houstontx.gov 

On behalf of the City of Houston, I am writing to express strong support of your bill, H.R. 5025 

the "2016 Tax Day Floods Supplemental Funding Act." Every Congressional member in the 

Houston delegation has signed on to this measure, and that is a credit not only to you and your 

office, but to the urgency of the need. We join with the Greater Houston Partnership, the Harris 

County Flood Control District, and many others in the greater Houston area in supporting these 

projects and associated funding. 

The April 181

h floods had a dramatic impact on our region, damaging over 2, 700 homes in the 

City of Houston alone, some for the second time in less than a year. The funds secured from this 

legislation would help mitigate damages from future floods through the completion of various 

flood control projects in Harris County, including the project to widen Brays Bayou. As such, 

this is priority legislation for the City of Houston. 

We are very grateful for your representation in Washington, and your continued support for the 

City of Houston. 

Mayor 

Councl1 Members: Btenda Stardig Jerry Davis Ellen R Cohen Dy,ight A Boykins Dave Martin Steve Le Greg Travis Karta Cisneros 

Robert Gallegos Mike laster Lany V, Green Mike Knox David W. Robinson Michael Kubosh Amanda Edwards Jack Christie 

Controller: Chris Brown 
129 


27204.092

Communications Workers of America, AFL-C=IO::_ _________ D_i_st_ri_ct_s_H_e_a_d_,qu_a_rt_e_rs 

District 6 Arkansas, Kansas, Missouri, Oklahoma, Texas Parkway at Oak Hill, Building One 

4801 Southwest Parkway, Suite 115 

Claude Cummings Jr. Vice PreSident 

Via Email 

May 18,2016 

AI Green 

U.S. Congressman- District 9 

3003 S Loop W # 460 

Houston, TX 77054 

Re: H.R 5025 

Dear Congressman Green, 

Austin, Texas 78735 

512-330~0871 

fax: 512-330.()886 

The Communications Workers of America District 6 wants to thank you for your 

leadership in co-authoring H.R. 5025, which would provide vital funding for the 

completion of flood control projects in Harris County. We also want to thank you for 

signing the April 24, 2016, letter to President Barack Obama, supporting Texas's 

major disaster declaration and the need to provide individual assistance to the four 

most affected counties. 

We greatly appreciate your leadership. We also want you to know that CWA is eager to 

support this and any other effort at the federal level that will help Houston residents. 

We want to make sure that we do all we can to help you and your staff as you consider 

every potential opportunity for federal support. 

Please do not hesitate to call me directly if we can be helpful in any way. 

Respectfully, 

Claude Cummings Jr. 

Vice President - D6 

fat 
130 


27204.093

Apri129, 2016 ~!on~ The Honorable AI Green 

~CONTROl 

~DISTRICT 2347 Rayburn House Office Building 

Washington, DC 20515-4309 9900 Northwest Freeway 

HoustQn, Texas 77092 

713-£84-4000 

Reference: Support for H.R. 5025 wwwMcd.ory 

Federal Partnership Projects in Harris County, Texas 

Dear Congressman Green: 

As the Executive Director of the Harris County Flood Control District (HCFCD), let me thank you 

most sincerely for your extraordinary efforts to help us complete our five remaining Federal 

Flood Risk Reduction (FRR) Projects currently authorized in Harris County. The funding that 

your bill, H.R. 5025, would provide to these projects, all of which are now in the construction 

phase, will allow the U.S. Army Corps of Engineers (USAGE) and HCFCD to confidently 

execute the construction in the most efficient manner and complete them in the shortest 

possible time. 

Construction on the Greens Bayou Project and the Clear Creek Project are being led by the 

USAGE, while HCFCD leads the Brays Bayou, Hunting Bayou and White Oak Bayou projects. 

As partners we work together on all of the projects and this method of sharing the lead on 

projects allows us to maximize all of the capabilities and resources. 

We also appreciate past appropriations successes that have kept pace with project delivery on 

Brays Bayou and Greens Bayou. By fully funding the listed projects until completed it will allow 

the improved drainage systems to work together to reduce the risk of flooding to tens of 

thousands of homes and businesses - realizing economic benefits of more than $2.4 billion. 

Benefits also are realized in life-safety elements, construction cost inflation, and reduced 

recovery efforts and pressure on the National Flood Insurance Program. According to a Corps 

of Engineers calculation that 20,000 jobs are created with each billion dollars spent on Civil 

Works FRR projects, with the funding level that H.R. 5025 provides 6,220 jobs will be created in 

Harris County. 

As our community recovers from another tragic flood we wish we could eliminate flooding 

altogether. Although that is not possible, your commitment to help us work as fast as possible to 

complete these projects and substantially reduce the risk of flooding will restore confidence that 

our community is getting safer each day. 

Sincerely, 

Michael D. Talbott, P.E., D.WRE 

Executive Director 

MDT:to 

A Division of Harris County Public Infrastructure Department 

M352132 
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so[uti n 

WHEREAS, Harris County has been a participating <:oouatmity in the National Flood Insurance 

Program {NFJP) since 1973 ll!ld believes !he program re.- of providing affordable flood insu:ron<:e, 

flood plain management, aoo risk llll!(lping are hel'l!!fit!l w oor community; and 

WHEREAS, this debt is a symptom of dis~good and pteforred risk from putcllasing 

policies, and similarly not incentivizing bad risk O!ltofj!te ~gram; ll!ld 

WHEREAS, NFI!' po!ides do not rover the 

repetitively damaged doe. ro flooding; and 

WHEREAs, fedmtlly'l>lll:k..:l~ continue m he ol'!enx! fur ~ve los1rslrn<:rures and m strucrures that are mujliple l'eut below the Base Flood~; and ' 

WHEREAS, ~ldgl!iy Sllbsldize<l bad risk-remain m the~ ponl and are 

asymmetrical,ly ~the l:lltlte program yet 001lld he removed if !he program .,.imd with 

bringing a strliCttmr> mru compliance; and 

~S,1'!.srris County is bun!ened with the Bh!:matl! of property ""'Juisition and the J 

development 11"1'• fur taxes, service, and nedotenanoe it t:tellleS when the Jl!Oper!y could he IJ!l!i""d for 

redeveloptilent of a code cornpjian! structure; and ·•: 

NOW TliEllEFORE BElT RESOLVED, that Hrurls County supporlll !he reauthotiza!ion of the 

National Flood lnsumncel'rogram, and suppoti refurms m the pregram thet heller balonces the risk 

pool with profem:d risk by creating a more affordable structure specific pt<l<lu<:t, covers the full oost of 

oomplionee for~ and -~ve ~ ~ ood allowsoommllllities m redevelop 

witbcodeOO!ll!'~~-·~Jl!ll'l'~~;tbdlr~Aequisi!~Progrnrn. 
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RESPONSE TO QUESTIONS FOR THE RECORD 

SUPPLEMENT TO TESTIMONY OF EVAN HECHT 

CHIEF EXECUTIVE OFFICER 

THEFLOODINSURANCEAGENCY 

"Flood Insurance Reform: A Community Perspective" 

HOUSE FINANCIAL SERVICES SUBCOMMITTEE ON 

HOUSING AND INSURANCE 

MARCH 16,2017 

Supplement to Original Testimony 

Chairman DuffY, thank you for your follow up question. At the hearing, 

when the five minutes you recognized yourself for ran out, I was unable to 

completely respond to your final question. You asked if I thought that at 

some point in time in the future, 3, 4 or 5 years down the road, if new 

construction should be allowed into the NFIP or if it should be driven to the 

private market, and if the private market could take those newly constructed 

homes. 

My initial response voiced my concern that it would be difficult to mandate 

the private market to assume a given risk; and if the private market did not 

want to insure a specific risk, and if the NFIP was also not available, how 

would coverage availability be guaranteed to an at risk property owner? 

Upon reflection I believe there are two scenarios wherein newly 

constructed properties could be driven to the private market. 

First, my initial concern would be alleviated if there was a provision within 

the legislation enabling State Insurance Commissioners the authority to 

trigger the availability ofNFIP insurance in that State by declaring the 

insufficiency of the existence of a private flood insurance market, or the 

lack of affordably priced private flood insurance. 

The Coastal Barrier Resources Act is precedent in Federal legislation to 

create a date in time where future construction was no longer eligible for 

coverage provided by FEMA's NFIP. Eligibility under the 1982 Act for a 

building in a CBRS area requires that: 

• A legally valid building permit for the construction of the building was 

issued prior to October 1, 1983; and 
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• The building was built (walled and roofed) prior to October 1, 1983; and 

• The building was not substantially improved or substantially damaged on 

or after October 1, 1983. 

I would like to offer a second, and possibly easier to administer alternative. 

Newly constructed properties, constructed after a given date, could be 

subject to a mandatory annually accumulating 25% surcharge to then 

current NFIP "actuarial" pricing. These newly constructed properties would 

be driven to the private market naturally because after a series of one, two 

or three years of 25% rate increases the private market would believe there 

was a competitive adequacy of rate. The surcharge for "newly constructed 

properties built after September 30, xxxx" would add a new type of 

property category to the current legislative 25% mandatory price increases 

for business properties and non-primary residential properties currently 

receiving subsidized rates. 

The compounding effect of accumulating 25% increases would almost 

double premiums in three years and literally triple premium in five years. 

These rate increases would be sufficient to drive these risks to a willing 

private market. Any additional premiums collected until rates were 

sufficient to cause the private market to assume them could be used to 

reduce the burden on taxpayers for properties already written by the NFIP. 

The long standing argument that taxpayers subsidized new construction in 

high hazard flood areas because of the availability oflow cost flood 

insurance would be mitigated. NFIP flood insurance for new construction 

would no longer be inexpensive and would become more and more 

expensive. A purchaser would have to rely on their ability to secure 

affordable private flood insurance. A mandatory real estate disclosure form 

could be required notifying would be purchasers of"newly constructed 

properties built after September 30, 20??" of the potentially increasing cost 

of flood insurance. 

I believe the private flood insurance policies providing coverage for future 

construction, caused either by a date in time or 25% surcharges, would be 

priced using a risk-based approach. I believe the capital markets have 

sufficient capital and the appetite to take these risk-based policies. 

Chairman Duffy, I do think the private flood insurance marketplace is 

working as Congress anticipated that it would. As stated earlier, we are but 

one company participating in the private flood insurance space. In the short 
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time, since October 2013, that we have been selling private flood policies 

we have successfully removed approximately two percent of the subsidized 

pre-FIRM policies FEMA states are underpriced and creating a drag on the 

results of the NFIP. While doing so we have saved taxpayers, in the form of 

reduced premiums when compared to FEMA, over thirty-five million 

dollars and absorbed more than fifty-one million dollars of claims that 

FEMA would have otherwise paid. 

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