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[Senate Hearing 113-483]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 113-483

THE FLOOD INSURANCE CLAIMS PROCESS IN COMMUNITIES AFTER SANDY: LESSONS 
                   LEARNED AND POTENTIAL IMPROVEMENTS

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

                                HEARING

                               before the

                            SUBCOMMITTEE ON
           HOUSING, TRANSPORTATION, AND COMMUNITY DEVELOPMENT

                                 of the

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

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                                   ON

 EXAMINING THE NATIONAL FLOOD INSURANCE PROGRAM'S CLAIM PROCESS IN THE 
                      AFTERMATH OF HURRICANE SANDY

                               __________

                             JULY 30, 2014

                               __________

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

                 Available at: http: //www.fdsys.gov /

                               _______

                     U.S. GOVERNMENT PUBLISHING OFFICE 

91-460 PDF                  WASHINGTON : 2015 
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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York         RICHARD C. SHELBY, Alabama
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia             PATRICK J. TOOMEY, Pennsylvania
JEFF MERKLEY, Oregon                 MARK KIRK, Illinois
KAY HAGAN, North Carolina            JERRY MORAN, Kansas
JOE MANCHIN III, West Virginia       TOM COBURN, Oklahoma
ELIZABETH WARREN, Massachusetts      DEAN HELLER, Nevada
HEIDI HEITKAMP, North Dakota

                       Charles Yi, Staff Director

                Gregg Richard, Republican Staff Director

                       Dawn Ratliff, Chief Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                 ______

   Subcommittee on Housing, Transportation, and Community Development

                 ROBERT MENENDEZ, New Jersey, Chairman

             JERRY MORAN, Kansas, Ranking Republican Member

JACK REED, Rhode Island              BOB CORKER, Tennessee
CHARLES E. SCHUMER, New York         PATRICK J. TOOMEY, Pennsylvania
SHERROD BROWN, Ohio                  MARK KIRK, Illinois
JEFF MERKLEY, Oregon                 TOM COBURN, Oklahoma
JOE MANCHIN III, West Virginia       DEAN HELLER, Nevada
ELIZABETH WARREN, Massachusetts      RICHARD C. SHELBY, Alabama
HEIDI HEITKAMP, North Dakota

         William Ruder, Republican Subcommittee Staff Director

                   Jason Tuber, Legislative Assistant

                                  (ii)

                            C O N T E N T S

                              ----------                              

                        WEDNESDAY, JULY 30, 2014

                                                                   Page

Opening statement of Chairman Menendez...........................     1

Opening statements, comments, or prepared statements of:
    Senator Booker...............................................     2
        Prepared statement.......................................    32
    Senator Schumer
        Prepared statement.......................................    32

                               WITNESSES

Craig Fugate, Administrator, Federal Emergency Management Agency, 
  Department of Homeland Security................................     4
    Prepared statement...........................................    33
    Responses to written questions of:
        Senator Reed.............................................    44
        Senator Schumer..........................................    47
        Senator Warren...........................................    48
Donald Griffin, Vice President, Property Casualty Insurers 
  Association of America.........................................    23
    Prepared statement...........................................    38
Maryann Flanigan, Supervising Attorney, New Jersey Legal 
  Services, Hurricane Sandy Legal Assistance Project.............    25
    Prepared statement...........................................    41

                                 (iii)

 
THE FLOOD INSURANCE CLAIMS PROCESS IN COMMUNITIES AFTER SANDY: LESSONS 
                   LEARNED AND POTENTIAL IMPROVEMENTS

                              ----------                              

                        WEDNESDAY, JULY 30, 2014

                                       U.S. Senate,
    Subcommittee on Housing, Transportation, and Community 
                                                Development
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Subcommittee met at 9:59 a.m., in room 538, Dirksen 
Senate Office Building, Senator Robert Menendez, Chairman of 
the Subcommittee, presiding.

         OPENING STATEMENT OF CHAIRMAN ROBERT MENENDEZ

    Chairman Menendez. This hearing will come to order.
    We have two panels today to examine the National Flood 
Insurance Program's claim process, particularly how it was 
administered in the aftermath of Superstorm Sandy. This is in 
response to the hundreds of letters, emails and phone calls I 
have received from desperate homeowners looking for help.
    And so let me thank our first panelist this morning when he 
gets here, FEMA Administrator Fugate, for being here to shed 
some light on what we must do to fix the process and make sure 
that it is a fair process with clear guidelines for homeowners 
in my State and around the country.
    Through their circumstances, and though their circumstances 
after Sandy may have varied, their stories follow a common 
thread. They did the responsible thing. They have faithfully 
paid for flood insurance for 10, 20, or even 30 years. They 
never had a claim until Sandy devastated their houses, only to 
find out it was not enough.
    They assumed, since they had insurance, that they would be 
made whole and have the resources necessary to rebuild. They 
survived the wind and the rain and storm surge only to face 
another nightmare--a flood insurance claim process that 
threatened to take what the storm had not.
    One of my constituents, Doug Quinn, who is with us here 
today, who I had the pleasure of meeting on Monday, said that 
when he contacted my office he said, ``I was in my home the 
night the flood waters rushed in. I waded out through waist-
deep water at midnight while electrical transformers exploded 
and houses burned down. That was the easy part. It is the year 
and a half since then that has been the tragedy.''
    Doug had maximum coverage of $250,000 and received 
estimates of up to $254,000 in damages, but he only received 
$90,000, a third of what he needed to rebuild.
    And Doug is not alone. The fact is the entire claims 
process, from the initial filing to the way claims are 
processed to the appeals process, is tilted against homeowners 
like Doug.
    Another constituent of mine, Steve Picciano, from Ortley 
Beach, appealed his settlement to FEMA, but after repeatedly 
inquiring about its status FEMA finally acknowledged it sent a 
response to the wrong address.
    A couple from Keansburg was only able to recover $21,000 
even after a public adjuster confirmed there was more than 4 
times that amount, or $87,000, in damage. When the couple tried 
to challenge the settlement, they were repeatedly told their 
case was closed.
    Underpayments and overly complex requirements; the 
runaround from FEMA on the appeals process; arbitrary, 
inflexible deadlines; overuse of highly technical exemptions--
all highlight a program that in my view clearly needs 
improvement.
    While FEMA, of course, needs to prevent taxpayers and 
prevent waste, fraud, and abuse, it is also necessary to 
protect policyholders and ensure that they are treated fairly. 
The question is how we strike the proper balance between 
protecting taxpayers against overpayments while not 
systemically shortchanging hardworking families who played by 
the rules.
    I think we should agree--and I would hope Administrator 
Fugate would agree--that the process needs to be made fair. 
Homeowners want to know what common-sense reforms FEMA can make 
to stop focusing disproportionately on overpayment while 
neglecting to protect qualified homeowners from being low-
balled and unable to rebuild.
    We need answers, and I hope this hearing will help us get 
there. I hope our witnesses will address the issue of 
homeowners in New Jersey, and I am sure elsewhere, who have had 
to threaten litigation just to get their insurance company to 
make them whole in time of disaster after they have paid their 
premiums and played by the rules.
    Affordable, accessible and robust flood insurance is 
critical to the prosperity and economic future of my State and 
every State that suffers the effects of a storm like Sandy. The 
stakes are simply too high to get it wrong, and I look forward 
to hearing from the Administrator and from our second panel on 
how we can absolutely be certain we get it right.
    I understand Senator Booker has joined us and would like to 
make a statement.
    I have already asked our colleague from Louisiana; at this 
point, he does not want to make a statement. So that is why I 
have turned to you.

              STATEMENT OF SENATOR CORY A. BOOKER

    Senator Booker. Well, I want to first and foremost thank 
the Chairman, who is also my senior Senator. He has been--since 
the time I was a mayor when Sandy hit--simply heroic, frankly, 
in your attention to the needs of our citizens in so many 
hundreds of thousands that were affected by Superstorm Sandy.
    Your outstanding and persistent work is something I greatly 
appreciate now as your colleague. I am honored to be a partner 
with you, bringing attention to this important issue.
    I do want to thank Senator Vitter as well, someone that has 
a deep and personal experience with this issue and had to 
struggle with it and fight with it during the aftermath of 
Katrina, and I appreciate his leadership as well, as the 
example he is modeling for myself in my early days here in the 
U.S. Senate.
    I want to thank, say thanks to, Administrator Fugate for 
being here. It is good to see him, and I welcome him.
    And, a special welcome to Ms. Flanigan. I want to thank her 
for her work on the Hurricane Sandy legal Assistance Project.
    As Chairman Menendez and one of my other colleagues, 
Senator Schumer, know well, the effects of Superstorm Sandy, 
though the storm may have come and gone, the effects continue 
to be felt in grievous manners every single day by people all 
across the State of New Jersey.
    The stories, as Senator Menendez pointed out, are 
countless. They continue to come to our office--stories of 
families who experienced the pain of the storm but now are 
going through extraordinarily painful, difficult, challenging 
processes. They were uprooted, but now the challenges they face 
and continue to face are simply unimaginable and outside of the 
glare of the media.
    I very much appreciate the Chairman, who has used this 
Subcommittee to examine how the insurance claim process has 
proceeded after Superstorm Sandy.
    The way it has proceeded is unacceptable. It is not what 
Americans should have to endure. When you have your homes 
destroyed, when you have your lives leveled, your possessions 
rotted by water and wind, you should have systems in place that 
empower you through this process and work to make you whole 
again, not systems that, as some constituents have told us, put 
you in a constant fight just to get what you deserve, make you 
have to spend upwards of a full-time job just doing what should 
be a matter of course and with greater ease.
    In a time that we should be serving, we are now seeing our 
constituents, instead, suffer. Thousands upon thousands--this 
is not an exception to the rule, but thousands upon thousands 
of homeowners have been stymied at every step of the claims 
process, from experiencing filing problems to struggling 
through appeals processes, to finding their final insurance 
payments being far below what they expected or believe they 
deserve.
    I have heard challenges like Senator Menendez's that 
continue to come in our offices, by phone or dropping in, in 
our mobile office hours, people seeking us out for help--
challenges from people like Colleen and Brian Hennen. The 
Hennens have had to take their insurance company to court to 
dispute hundreds of thousands of dollars of damages after their 
Monmouth County home was destroyed and condemned after Sandy, 
expending themselves the legal resources, the energy and the 
time and the emotional challenges of just fighting for what 
they justly deserve.
    I have heard from a small business owner in Long Beach 
Island, whose shop took on two feet of water and has had to 
struggle to haggle, to fight with claims adjusters, while 
waiting patiently for months and at times over a year to be 
compensated in a piecemeal manner, with only portions of their 
claims satisfied.
    Like Senator Menendez, we regularly hear from New Jerseyans 
who have been paying insurance premiums for years and years and 
years--thousands and thousands of dollars of paying insurance 
premiums. But now, when they need their insurance company the 
most, they are left out in the cold.
    These New Jerseyans are struggling to pay their mortgages, 
to rebuild their homes, all while trying to work regular 
business hours, but at the same time battling their insurance 
providers for funds to which they are entitled.
    These stories, as Senator Menendez knows, go on and on and 
on.
    Now it is New Jersey. But when the next storm hits, when 
the next tornado comes, when the next flood waters rise, what 
will other Americans experience if we do not get this system 
right and make it fair and make it honorable, reflecting of the 
best spirit of America?
    So I want to thank you again, our witnesses, and I hope 
this hearing helps shine lights on the needed reforms to ensure 
that policyholders--to ensure that Americans--receive the 
payments that they deserve when disaster strikes.
    Thank you, Chairman.
    Chairman Menendez. Thank you, Senator Booker. Thank you for 
your advocacy. I could not have a better partner in trying to 
help us in this fight.
    And, thank you for joining us today.
    If no other Member wishes to make a statement, our first 
panelist today is Craig Fugate, the Administrator of the 
Federal Emergency Management Administration.
    Mr. Administrator, your full statement will be included in 
the record, without objection. I would ask you to summarize it 
in about 5 minutes, and then we will get into a Q&A.

  STATEMENT OF CRAIG FUGATE, ADMINISTRATOR, FEDERAL EMERGENCY 
       MANAGEMENT AGENCY, DEPARTMENT OF HOMELAND SECURITY

    Mr. Fugate. Thank you, Mr. Chairman, Senator Vitter, 
Senator Booker.
    Flood insurance, of all the programs I administer, is 
probably one of the most complex and challenging. It is a 
program that was originally created in 1968, not as a consumer 
policy but as a policy to protect the lending institutions that 
provided the funds to back the mortgages.
    Over time, Congress has recognized that only providing 
coverage for the structure itself did not meet the needs, so 
you directed the flood insurance program to begin providing 
insurance for contents.
    But one of the key elements of this--and these are 
decisions made prior to this Administration--was that the flood 
insurance program would not be a replacement value program. 
This is what most people are familiar with oftentimes in their 
homeowner's policy, whether they have a fire, a tornado, where 
their coverage is based upon replacement of losses.
    The National Flood Insurance Program does not run that way. 
It runs as what they call an actual cash value program. An 
example: If I have a refrigerator that is perfectly fine and 
working, but it is 10 years old at the time of a flood, the 
replacement cost does not count. It is the depreciate value of 
that at 10 years.
    And so for many people who have actual cash value and are 
not familiar with that, when they look at their policy, they 
have paid for $100,000 worth of contents; they have $250,000 in 
many cases, the maximum amount that we provide for the 
mortgage.
    But as an actual cash value, we are limited to only 
reimbursing and paying out what the cash value was at the time.
    And there are certain deductibles that are within that. As 
far as with the primary coverage it is only to the building 
itself, not to any of the outbuildings, decks or other things 
that maybe another policy would cover.
    And, again, this makes it rather challenging as a different 
policy than people are familiar with. So that is part one.
    Part two has been in the servicing of those claims. As 
Senator Menendez points out, post-Katrina and other events, it 
was looking at improper payments, both under and over, and 
trying to reduce that percentage.
    We do look at both overpayments and underpayments. 
Underpayments--we do this through audits and reviews, where we 
find that the payment that was made was not should have been 
paid and should have been more. We also look at overpayments 
and seek those funds back under the improper payment reviews 
that we are required to do.
    But, again, it is not a standard homeowner's policy that 
people are familiar with. This is part of the reason why when 
you do purchase flood insurance we do have a homeowner's guide 
to go with it that we give you at the time of the insurance 
because it is different, to explain that.
    And we have looked at what we found in Sandy. Because of 
the sheer volume of claims, we made some decisions early on to 
take some risk and do some partial payments on the front end, 
particularly if we could provide estimated amounts against 
total damages to get people back in their homes and make 
repairs without waiting for the full settlement.
    We, again, try to adjudicate these in the interest of 
paying what is the claim and not try to use this program to 
somehow reduce payments. Our goal is to pay what the actual 
cash value is to the extent possible.
    Where there are disagreements, there is an appeals process. 
If the appeals process fails, there is the opportunity to take 
this to litigation.
    I have asked staff to continue to review this, and in 
several cases that Senator Menendez has pointed to me, I am 
also concerned with some of the irregularities.
    So I have asked the inspector general to step in and look 
at some of the cases you have referred to us, Senator, because 
I am not sure, given that there are players beyond FEMA, that I 
can answer this just looking at internal reviews.
    And in some cases you have asked questions that staff have 
not been able to provide me what is the management and 
oversight of that; is that sufficient?
    So I have asked the IG in several cases to look at this, 
not only from the standpoint of were the payments being made 
appropriate but also to audit the management of that and ensure 
that we have the accurate and adequate controls, that we 
provide rapid payments, appropriate to the losses, with not 
making fraud prevention our only goal. But the goal is to 
ensure rapid, accurate payments to the claimants at the time of 
the disaster based upon their coverage.
    With that, Mr. Chairman, I will turn it back over.
    Chairman Menendez. Well, thank you.
    Let me go over a series of things.
    And I am glad to hear that you have asked the inspector 
general to look at the program because I think the program has 
significant faults, as I have experienced by listening to a 
wide range.
    After 40 years of public life, I have a basic philosophy. 
If I hear one person complain about something, maybe they are 
just not happy. If I have two or three people complain about 
it, maybe it is a coincidence. When I have hundreds complain 
about it, something is wrong.
    So tell me; what is the penalty for a Write-Your-Own that 
makes an overpayment, meaning it pays a flood insurance 
claimant too much?
    Mr. Fugate. They have to----
    Chairman Menendez. Can you put your microphone on?
    Mr. Fugate. Sorry, Senator.
    They have to reimburse the flood insurance program at the 
determination that there was an overpayment.
    Chairman Menendez. And what happens if FEMA determines that 
a Write-Your-Own has made an underpayment, meaning that it pays 
a flood insurance claimant too little?
    Mr. Fugate. Then we have to go back and pay the claimant 
the difference of the underpayment to what was actually owed.
    And we also look at the record and percentages that Write-
Your-Owns have of over and underpayments. There is a review 
board made up of Write-Your-Owns and FEMA staff that would then 
look at that and see, if this is a pattern, is it in excess of 
what we would expect to see as an error rate, are there 
underlying trends, and what remedial actions may be taken 
address that, whether it is further training or other 
sanctions.
    Chairman Menendez. So a Write-Your-Own can be threatened 
with being thrown out of the program for a pattern of 
underpayments, but there is no direct, tangible monetary 
consequence like there is for an overpayment.
    Mr. Fugate. Well, again, with the overpayments, when they 
have to pay that back--and they have to make a decision whether 
they absorb that cost or seek that back from the person they 
paid to--it is not in their interest to get this wrong because 
it is for them, for public relations purposes, just as negative 
if they have to go back and seek money back and the losses to 
them are based upon that as well as having to pay back the 
flood insurance fund.
    Chairman Menendez. But a Write-Your-Own would not have to 
pay the difference it had underpaid a policyholder in the same 
way it would have to reimburse FEMA for an overpayment.
    Mr. Fugate. Again, Senator, the flood insurance program 
ultimately makes the payments, and if there are overages or 
underages, it has to be made up in the flood insurance program.
    So the Write-Your-Owns are a conduit, but if you overpay, 
that has to come back into the flood insurance; if it is an 
underpay, it still comes out of the flood insurance.
    The Write-Your-Owns get percentages for handling claims, 
but the actual payments are basically to the flood insurance 
program. Overage and underages have to be balanced out in that 
account.
    Chairman Menendez. Well, my point is there are no direct 
monetary penalties for a Write-Your-Own that makes 
underpayments.
    I understand the overpayments.
    The only action that FEMA takes with regard to 
underpayments is to conduct more audits if the improper payment 
rate reaches 20 percent and then, potentially, kick out the 
Write-Your-Own of the program if the problem continues.
    So, if that is the case, let me ask you; in the 40-plus 
years that the National Flood Insurance Program has been 
operating, how many Write-Your-Owns have been thrown out of the 
program due to repeated patterns of underpaying claims?
    Mr. Fugate. I am not aware of any, Senator.
    Chairman Menendez. OK. So, if there are none in 40 years, 
either they are doing an exceptional job or we are not doing a 
particular good job of conducting the type of audit and doing 
the type of metrics and information to determine whether there 
are underpayments taking place in a systematic fashion.
    If an insurance company pays a claimant too much money, it 
is on the hook for every dollar it overpaid while at the same 
time, if any insurer pays a claimant too little, the penalty 
is, in practice, nonexistent.
    So, to me, in terms of incentives, this structure clearly 
seems to influence the Write-Your-Owns to be more conservative 
when adjusting for claims, which leads to policyholders being 
low-balled.
    Mr. Fugate. The response to that, Senator, is again part of 
what we want to look at is the trend, but the other part of 
that is they are paid a percentage of the total claim. So, if 
they are underwriting, then they are actually reducing what 
their reimbursables are.
    And, again, these are rather expensive policies to service. 
So I am sure the Write-Your-Owns want the right balance, that 
they are not underwriting claims unnecessarily because the 
penalty then again is based upon their reimbursables for the 
expenses of doing the program.
    Chairman Menendez. Well, let's talk about that 
``incentive.''
    The reality is that the Write-Your-Owns actually have had 
the amount that they would be paid on commission cut to less 
than half of what it was prior to 2009. So they used to get 3.3 
percent commission. That number was reduced to 1.5 in 2009, 
which further diminishes their incentive to make the settlement 
as full as possible.
    And when you compare the incentive to the threat that the 
Write-Your-Own faces of an overpayment punishment, this 
drastically reduced commission is dwarfed by the threat of 
clawback and overpayment punishment.
    And so, look, I do not want anybody to be overpaid. I want 
to safeguard the taxpayers' money. But I do not want anybody to 
be underpaid--paid less than what they are due.
    You were not here for my opening statement, but one of my 
constituents, who sits in the audience, even at actual cash 
value received clearly far less than his actual cash value 
damages.
    And so his story is a story that is replicated by literally 
hundreds of others in our State. So we have got to get this set 
of balance right.
    And when the insurance companies basically say, well, if I 
get in a position where I am considered overpaying, I am going 
to have to pay that back versus if I am far more conservative 
and underpay, I do not have the risk. If there is an error to 
be made, I am going to make it on the side of underpaying, not 
overpaying, because at the end of the day the consequences to 
me are greater than the incentives are to me to do the right 
thing.
    And so we have got to find a way in which we can create the 
right balance because there is a reason that the statute treats 
underpayment equally. It does not say that it is less important 
than overpayment. It says it is to be treated equally. And that 
is not what is happening.
    I have a series of other questions, but I have colleagues 
here. So let me turn to them.
    Senator Vitter.
    Senator Vitter. Thank you, Mr. Chairman, and thank you, Mr. 
Administrator.
    First of all, let me express support for everything your 
States are going through in the aftermath of Sandy, and I 
certainly want to continue to be supportive of all of us 
addressing that in a full and robust and effective way. So, 
please count me in on all of that.
    And this hearing is certainly important in that regard.
    But I also wanted to take the opportunity, since we have 
the Administrator here, to ask him more broadly about some 
flood and FEMA issues, and so I am going to use my time doing 
that.
    Mr. Administrator, we have talked before, particularly in 
the midst of the Biggert-Waters debate and fixing that, about 
the fact that according to a RAND study, which was commissioned 
by FEMA--this was back in September 2013--only 49 percent of 
homeowners required by law to have flood insurance actually 
bought it. And so that is clearly an issue in terms of making 
the program solvent.
    I found that figure amazingly low. I think that is, again, 
clearly an issue in terms of making the program sustainable.
    When we talked about it in the past, you pointed, 
basically, as the only necessary fix or the prime fix, to 
something that we did pass into law, which was a major increase 
in the penalty for that, from a few hundred dollars to $2,000.
    What is the experience so far in terms of that getting 
people's attention and dramatically increasing, or not, that 49 
percent figure?
    Mr. Fugate. Senator Vitter, I think we are going to have to 
wait and see. This will be kicking in as we see policies or 
mortgages or some kind of transaction that would bring about 
that you have to have it.
    The issue has been, were people purchasing flood insurance 
which, with federally backed mortgages, purchasing that is a 
requirement?
    And they either have to buy flood insurance or an 
equivalent from the private sector.
    But the issue raised was, was this being enforced from the 
lenders' perspective to ensure that if they were in that 
special risk area they were purchasing flood insurance?
    So, as we go through implementing the law and we see those 
transactions, a lot of this will be done through the mortgage 
companies that are making these loans because the penalty is, 
if they are not doing that, that is where the penalties kick 
in.
    Senator Vitter. So besides increasing--let me ask it a 
different way.
    Besides increasing the penalty, are we doing anything 
differently in terms of tracking and proactive enforcement?
    Mr. Fugate. Again, we are working with former Secretary 
Shaun Donovan at HUD, to work with a lot of the Federal lenders 
to make sure that this was being communicated, that with a 
federally backed mortgage, if you are in a special risk area, 
you are required to have flood insurance equivalent to the 
National Flood Insurance Program or a private policy if your 
State provides that you can get that equivalent, as a condition 
of that mortgage. So a lot of it has been on the education 
front.
    Senator Vitter. OK. Well, I mean, in my opinion that word 
was out. That has always been a bottom-line policy. Certainly 
in a place like Louisiana, everybody knows that. But the figure 
was still 49 percent.
    Let me ask the same question a different way. Is FEMA doing 
anything to track policyholders versus those required to 
purchase insurance, to just basically look at the two lists and 
see the overlap or lack of overlap?
    Mr. Fugate. We could look at that, Senator--and it grows--
but again, I really would have to ask staff to provide that in 
writing because one of the challenges is, if you can identify 
how many homes are in the special risk area, you then have to 
determine how many of those have federally backed mortgages and 
that would trigger the requirement.
    So we could look at how many are written, how many homes 
are there and what that delta is, but it would not tell us what 
percentage of them have it.
    You could probably look at the area and make some educated 
guesses, depending upon the age of the homes, but it would be 
something that we would have to go back and actually pull that 
and get a sample.
    Senator Vitter. Well, I am not just talking about numbers. 
I am talking about actual lists to compare, to proactively 
compare, OK, who has the requirement, who has the insurance.
    And it does not sound like anyone is doing that, and if the 
figure is really as low as 49 percent, we need to do that.
    In our previous conversation, you basically say, well, you 
increase the figure and you also increase the risk; you 
increase coverage.
    Well, that is true, but I have to believe that the folks 
not buying insurance tend to have lower risk.
    So I have to believe that the program is going to move far 
ahead financially the higher you get that participation figure.
    Mr. Fugate. I understand, Senator.
    Senator Vitter. OK. Another issue we talked about 
previously that started me is the Write-Your-Own margin.
    Last time we talked, I think studies showed the Write-Your-
Own margin was 30 percent when these folks doing Write-Your-Own 
policies assume none of the risk; so, basically, 30 percent for 
doing the paperwork, for facilitating that.
    Now I know there is work involved, but 30 percent seems 
like a huge margin when they assume absolutely none of the 
risk.
    Has that changed any, or is there any effort at FEMA to 
reduce that?
    Mr. Fugate. Yes, Senator. We are looking at that.
    That was a flat rate. Particularly when you look at 
policies out of the special risk area, when you are talking 
about policies that only pull maybe $350 or $500, there is a 
cost of writing that.
    But, as you pointed out, with Biggert-Waters and now even 
with homeowners' affordability, when you start seeing premiums 
in thousands of dollars, does that flat percentage rate make 
sense?
    So we have asked the flood insurance administrator to work 
with Write-Your-Owns on what that should look like, given the 
increased rates, as rather a flat percentage. Should it be more 
scaled to the work involved, and what does that cost?
    Obviously, these are businesses. We do not want to price 
businesses out of servicing the policies, but it should not, as 
you point out, be a reward for writing the more expensive 
policies beyond which their expenses and reasonable benefit to 
them would incur.
    Senator Vitter. And, roughly, what do you think the 
timeline will be to come to a conclusion in terms of new 
policy?
    Mr. Fugate. Since we just went from one reauthorization to 
another substantial rewrite, Senator, I would need to get with 
staff and ask them what that is going to be.
    We have been focused on implementing the program to stop 
the increases and to begin the refunds. So this would be an 
additional to ask them to look at and get back to you on that 
timeframe.
    Senator Vitter. If you could get back to me.
    And if I could just have 30 seconds in closing, Mr. 
Chairman, let me make the broader point that I think we really 
need to look at the cost side, at the administrative cost side, 
of this program.
    When we talk about the flood insurance program being in the 
red, there is an assumption that we are basically subsidizing a 
lot of risk.
    Well, in fact, from 1978 to 2013, we took in a lot more 
dollars in premiums than we paid out in claims. We took in 13 
percent more dollars in premiums than we paid out in claims.
    Now I know there are other costs, like mitigation, which is 
not pure administrative cost and that reduces risk, but I think 
a lot of the problem is the administrative and cost side of the 
program, both in Government and in the Write-Your-Own program. 
And I think we need to continue to look at that and continue to 
get the participation rate way up from 49 percent.
    Chairman Menendez. Thank you, Senator.
    We look forward to working with you and appreciate your 
offers of continuing support for our efforts.
    Senator Warren.
    Senator Warren. Thank you, Mr. Chairman, and thank you, 
Administrator Fugate.
    When Congress passed Biggert-Waters a few years ago, 
homeowners got blindsided by significant rate increases and new 
flood zone maps.
    And many of us worked together to design and to draft the 
bipartisan Homeowners Flood Insurance Affordability Act, which 
gave homeowners immediate relief on huge rate increases. And I 
was glad to be part of that process, but I am still concerned 
about the ongoing mapping process.
    Last week, during testimony before the Senate 
Appropriations Committee, you stated that about 50 percent of 
the flood maps are up to date, about 40 percent need to be 
reviewed to figure out if they are OK, and about 8 to 10 
percent are clearly out of date and have to be changed.
    Now these new flood maps create a lot of difficulties for 
homeowners in Massachusetts and all around the country. And a 
particular point of contention has been that the flood maps do 
not analyze individual homes so that people are swept into 
flood zone designations based on a general area, not on the 
risks their home may face if it is a few feet higher or a few 
feet lower than their neighbors. And this lack of detail often 
requires homeowners who want to challenge a flood zone 
designation to have to go out and hire a survey just to be able 
to tell where they are.
    So I was very glad to hear you say last week that FEMA is 
working with engineers to implement a digital mapping 
technology that will map individual homes and make sure that 
the flood maps are more accurate.
    So I just want to be clear on this part. Will this 
technology mean that FEMA flood designations can go home by 
home so that each homeowner will know the elevation and, 
therefore, their part of the risk that their home faces?
    Mr. Fugate. Yes, Senator, that is the goal.
    What we are talking about doing is we are working and 
partnering with the USGS, the U.S. Geological Survey, and that 
most of our mapping has always been not structure-based but 
just a train underneath it.
    Senator Warren. Right.
    Mr. Fugate. With ground-based LIDAR and other techniques, 
it is actually possible--and there has been some work done that 
shows this actually can be cost-effective--to shoot an 
elevation that would show us in most homes that base flood 
elevation.
    I do not think it will be 100 percent because some 
structures, even from the outside, you cannot tell what that 
first floor is, and that is what determines your base 
elevation. So, if you have got a partial basement or something, 
that may be hard to see.
    But, in general, our goal would be to get to the accuracy 
in the maps where we can, most of the time, make the 
determination from the digital elevations without requiring 
further survey. I do not think it will eliminate for all cases, 
but for the majority of them. And it would give us a better 
tool to rate that risk.
    Senator Warren. All right. So we will be going property by 
property, and that information then would be available to the 
homeowners.
    Mr. Fugate. Exactly.
    Senator Warren. So, if the homeowner wants to say, wait a 
minute, we are higher than the others around here, for example, 
then they have already got the information, in effect, for free 
in this process. Good.
    So when do you anticipate that the digital mapping 
technology will be in widespread use by FEMA?
    Mr. Fugate. Well, again, we are very much in the pilot 
phase. We want to make sure that as we go forward with this--we 
have seen some interesting demonstrations that we think lead us 
there.
    That is why we are partnering with USGS, which is our 
primary national GIS map manager, to go: Can we build that 
elevation? What areas should we do it in?
    I do not think we can do it in every part of the country, 
but certainly where we have populations at risk from flooding.
    And then, what does that look like, and how do we 
incorporate that into our current maps--because this is, again, 
something that will then determine local ordinances of how they 
build in the future, and the more accurate the maps, the better 
the outcomes will be.
    Senator Warren. Well, fair enough.
    But the question I asked is, what kind of timetable do you 
think you have on this?
    Mr. Fugate. My experience has been until I have more 
information I could not give you the timetable of when we would 
implement.
    We are, right now, working with USGS on the feasibility of 
looking at some of this and going and saying, does this work, 
and can we do some pilots to demonstrate it works? And then 
that will tell us what it would take and how long it takes to 
roll this out across the country.
    Senator Warren. Well, what happens in the meantime to 
people who have been newly designated into flood zones that 
they think are not accurate and they want to challenge it?
    Mr. Fugate. Well, again, as you pointed out, the process is 
the flood maps are for the area, not per structure, and they 
would still have to produce elevation certificates to determine 
what height they are.
    And that is something we are looking at. How do we address 
that in the intermediate stage while we look at where the 
technology can take us?
    This technology is probably, I would say right now, proof 
of concept, another year or two to get that, and then it would 
be the implementation.
    I am optimistic. Some of the early work says this could be 
faster than our current techniques.
    But I am not sure. So we wanted to do the proof of concept. 
We want to work with USGS.
    But, to me, the gold standard for mapping is digital 
elevation maps that are accurate enough to do structure-by-
structure determinations versus I just do the area and then I 
still have to go back and do survey work to get those base 
flood elevations.
    Senator Warren. Well, I appreciate that.
    I really want to say here, though, this is a real hardship 
on people who are newly being designated in these flood zone 
areas. The costs of coming back and appealing so that you are 
not required to carry flood insurance that, factually, you 
believe you should not have to carry is really important to 
these families.
    And so if we see a new way to deal with this on the horizon 
that would be more accurate, save people money, perhaps reduce 
the need for appeals, but certainly reduce the cost of the 
appeals, then I think you have to start thinking about that in 
terms of what happens to people in the meantime.
    And telling people, well, sorry, our science has not caught 
up, but we are almost on the threshold, but in the meantime you 
have either got to spend a lot of money on flood insurance that 
you may not need or a lot of money challenging flood insurance 
cannot be the right place for a homeowner.
    So I urge you to think about what should happen in the 
interim as you move toward this science and, in the interim, 
how it is that we better serve families who have newly been 
added to these flood zones.
    Mr. Fugate. We will, Senator.
    Senator Warren. Thank you, Mr. Chairman.
    Chairman Menendez. Thank you, Senator.
    Let me ask you, Administrator; the flood insurance Reform 
Act of 2004 established an appeals process and required FEMA to 
respond to appeals within 90 days. Did FEMA comply with this 
requirement in the months after Sandy?
    Mr. Fugate. No, sir. We exceeded that, and we had to beef 
up and bring in more staffing for that program to handle the 
caseload.
    It was not until, I believe, January of this year that we 
cleared that block and are currently meeting the requirement to 
be within 90 days or less.
    Chairman Menendez. How many appeals during this window were 
not responded to?
    Mr. Fugate. Off the top of my head, Senator, I would have 
to respond for the record.
    It was in, I believe, more than the hundreds. I think it 
was in the thousands, but I do not have a specific number.
    Chairman Menendez. We have asked this question, and we are 
told that you do not track these data. If that is the case, 
that you do not track the data on the program, it is necessary 
to understand how it is or is not working.
    And if you do not track this information, I do not know how 
exactly you know there is a problem until it gets so big that 
you realize there is a problem.
    And if you track the information, it would give you an 
opportunity to intervene earlier in the process before you have 
a problem.
    But one of my big problems here is the consequences, right?
    So the law says it is 90 days. And if you fail to comply 
with the law, then leaving disaster victims in limbo for months 
is not only bad enough; it also jeopardizes their legal rights 
because FEMA is arguing in court that the 1-year statute of 
limitations for lawsuits begins when the Write-Your-Own creates 
a first denial, not after the appeal process is complete or a 
proof of loss is filed.
    Now an average citizen without a law degree, they are going 
to assume that they should wait for the appeal to be completed 
before they go ahead and file a lawsuit.
    So while disaster victims are waiting 4, 5, or 6 months or 
more for FEMA to rule on their appeal, the window for their 
legal rights is quickly closing, especially a person who is not 
versed in the law, which actually creates--I am not saying that 
you do it, but it creates potentially a perverse incentive for 
FEMA to delay so that appeals are reduced in terms of the 
number of lawsuits.
    Mr. Fugate. Well, Senator, we have no incentive not to pay 
claims. The normal time to file your claim is within 60 days of 
an event. We have expanded that to 2 years. We are trying as 
many cases as we can to address the backlog of appeals.
    The statute of limitations in the case which you state, 
quite honestly, is what the attorneys have determined, working 
with Justice, but that does not preclude a judge from 
determining the statute of limitations does not apply in this 
case, in these lawsuits.
    But in most cases I would rather get the cases resolved and 
not have to wait for legal remedy.
    Chairman Menendez. Let me just say you may not say you have 
an incentive, but at the same time that FEMA is not meeting its 
deadlines under the law it is strictly imposing deadlines on 
policyholders. In fact, 270 claims were summarily rejected 
because the policyholders, who had suffered through the second 
largest natural disaster in our Nation's history, missed one of 
FEMA's imposed deadlines.
    So we have the ultimate hypocrisy and double standard here. 
You do not have to live under the deadline, and there is no 
consequence to you--not you personally, no consequence to the 
agency--for not meeting the deadline, but there is a 
consequence for the policyholder for not meeting the deadline. 
That is when people think poorly of their Government.
    Mr. Fugate. I understand, Senator. Direction would be 
appreciated.
    But I also have to operate within the regulations of the 
programs, and where I can, we are trying to get these cases 
resolved and settled.
    Chairman Menendez. Well, the regulations under the program 
involve the law, which supersedes regulations, which say you 
have to respond in 90 days.
    Do you think it is fair that disaster victims were forced 
to comply with FEMA-imposed deadlines while FEMA fails to 
comply with its own deadlines?
    Mr. Fugate. Again, Senator, with the claims and the number 
of appeals and staffing that up, we did not meet the deadlines. 
We worked----
    Chairman Menendez. Well, I hope you will look at those 270 
cases that you, from my perspective, arbitrarily and 
capriciously decided: They did not hit a specific deadline. So, 
therefore, you know what? You are closed. But we get to go 
ahead and not respond in not only 90 days, but 120 days, 150 
days.
    Some cases that we have are 180 days before you all 
responded and then no consequence to you but consequences to 
the policyholders. That is fundamentally unfair.
    Let me ask you; do you track the percentage of appeals that 
overturned in favor of the policyholder?
    Mr. Fugate. Not that I am aware of, Senator.
    Chairman Menendez. Well, if you do not track that, it seems 
to me that that is information that is critically important to 
determine whether the claims process is working efficiently.
    I mean, I think that there is a high successful appeal rate 
is a red flag that initial claims adjusting is flawed, which 
would give you the wherewithal to say we need to do something 
here. But in the absence of knowing that information, there is 
no drive to be able to deal with it.
    Let me ask you this; what about the new--that we put in the 
law on Biggert-Waters a flood insurance advocate?
    There are people who have no idea that, number one, they 
have an appeal process. And those who do engage in an appeal 
process, who have never had to file a flood insurance claim, go 
alone through the appeal process or litigation and need help to 
navigate the process.
    Our flood insurance bill created a flood insurance 
advocate, and we are trying to convince you at FEMA that this 
position should help policyholders with filing claims and 
appeals in addition to questions about the policy itself and 
mapping.
    Is that something that FEMA will consider?
    And if not the flood advocate, is there any entity at FEMA 
for helping policyholders go through each of the steps of the 
appeal process?
    Mr. Fugate. Senator, my staff basically did not want me to 
go into a lot of details about this because they are still 
formulating it.
    But I said, well, I do not agree. I think we have to make 
this. Since this is an advocate, how do we create them as an 
independent office, not part or subservient to the flood 
insurance program?
    I do not think they should be limited to just looking at 
map disputes. I think on a day-to-day basis we have to have an 
advocacy office which provides the basis to look at the 
customers and represent the customers on issues dealing with 
that.
    But in a Sandy-like event that office would be too small. 
So how would we expand that capability during those kinds of 
events?
    So I am looking at this as an advocate for the consumers, 
not for any one section of Write-Your-Owns or only to limit 
itself to map issues.
    So we are looking at how to structure that.
    Senator, I do appreciate the fact that this came after the 
President's proposed budget and you have, through the Senate 
and the House, provided funding to establish this office. That 
is a key step in moving forward since this will be a new 
initiative as we go forward into the future budget.
    But it is something that I am very serious about, that I 
want this office to be the voice of the consumers and be the 
focal point for consumers for all flood insurance issues and 
not limit it to just maps.
    Chairman Menendez. Well, look, I hope that that ends up 
being the case, and I agree with you on what your perspective 
is as to what the advocate should be.
    I also hope that we get a better data management system 
because I think that is critical, to be able to know the 
consequences of low-balling individuals even under current 
value that is taking place. Certainly, we have hundreds of 
cases in that regard, and I think that without the data 
management you cannot make intelligent decisions.
    And I know that you are very capable of making intelligent 
decisions, but you cannot make intelligent decisions if you do 
not have the information on which to do it.
    Senator Schumer, would you like to----
    Senator Schumer. I would. Thank you, Mr. Chairman.
    First, I want to thank you, Mr. Chairman, for your 
diligence and partnership on Sandy. Our States are recovering 
and recovering well in good part because of your leadership.
    And I would like to thank Senator Booker for his leadership 
on this issue as well.
    Our New York-New Jersey, Senator Gillibrand and myself, 
work great with you guys.
    I also want to thank Administrator Fugate. I think FEMA has 
done an excellent job overall. There are things I disagree 
with, obviously, but an excellent job overall in helping us 
with Superstorm Sandy.
    In fact, just yesterday we were able to announce that NYC 
Langone Hospital received $1.13 billion from FEMA to recover 
the damage. We worked well together. It is a new way of doing 
things, where they get the money more up front so they do not 
have to have 30 different applications, and that is because of 
the good work of FEMA.
    So now that you know I have praised you, you know I am 
going to have a point that you will not particularly--that is 
not a positive one.
    I have a serious point of concern related to flood 
insurance claims that have come straight from constituents on 
Long Island and New York City. I must raise it to your level.
    I am doing this in concert with Senator Gillibrand, who I 
know has talked to you about this as well. She is not on this 
Committee, and so I am asking the questions, but it is really 
from both of us.
    It appears that a select few attorneys hired by Write-Your-
Own insurance companies and paid by FEMA are cashing in on the 
backs of struggling homeowners. There are still many homeowners 
trying to resolve their home insurance claims and receive 
compensation for their losses.
    I have learned that for each day a homeowner in New York 
waits to settle their claims there are attorneys benefiting 
from dragging these cases out. These are attorneys hired not by 
FEMA but by insurance companies for policies underwritten by 
flood insurance, and it appears they are using legal tactics to 
prevent homeowners from being paid back for their losses.
    I do not intend to be critical of you, Administrator 
Fugate, but because FEMA underwrites the Write-Your-Own 
policies and pays the legal expenses, I want to raise these 
concerns to your attention and consider what can be done to 
spare homeowners from the grips of overly litigious attorneys 
who have no incentive to try and resolve matters. In fact, they 
may have an incentive to stretch it out; they get more hourly 
fees. And the homeowners there are unable to deal with the 
issue.
    So these are my questions.
    And I am going to ask my entire statement go in the record.
    Chairman Menendez. Without objection.
    Senator Schumer. But we have been told that attorneys for 
the Write-Your-Own insurance companies are drawing out the 
legal battles with homeowners in an effort to drive up billable 
hours.
    The kicker is that the Write-Your-Own insurance companies 
are not even paying the legal bills for their attorneys. You 
are; FEMA is.
    So let me get into my specific questions here.
    First, given all of what I have mentioned, I read in a 
letter that defense counsel representing Write-Your-Own 
companies before the Eastern District of New York filed with 
the court on June 18th that the current prediction of the costs 
from Sandy as the total defense fees from just this 1 event are 
likely to exceed the total defense costs incurred by NFIP for 
all flood insurance events for the previous 20 years, that 
FEMA's legal bills might exceed $25 million.
    There was a letter saying that in the Eastern District.
    So, given all of that, first, will you perform an audit of 
the Write-Your-Own insurance companies' expenses and implement 
internal concerns for two reasons, two-fold--one, to make sure 
that FEMA is not overpaying, two, to make sure that homeowners 
are not stuck in lengthy legal battles and taxpayers are not 
reimbursing companies for excessive and inappropriate 
litigation costs?
    Mr. Fugate. Senator, I went one further. I turned this over 
to the IG. I have enough concern that I have too many pieces of 
this of what does not appear to be what the practice was 
supposed to be.
    We provided additional guidance to Write-Your-Owns, what we 
think are going to be acceptable legal fees. We have made it 
very clear that if there is fraud alleged it should be referred 
to the Justice Department. If this is an honest disagreement 
over what is eligible versus what the Write-Your-Owns are, I 
would much rather look at the administrative remedies versus 
the court costs.
    But in any case, based upon concerns that when I heard the 
issues being raised, it hit the threshold that something does 
not sound right, I am not sure FEMA has--we do not have any 
investigatory authorities. That is only vested in the DHS IG. 
So we have asked the IG to take a look at this.
    Senator Schumer. But something smells wrong to you. We are 
not saying that something is wrong, but it is worth 
investigating, for sure.
    Mr. Fugate. I have heard from too many cases of concerns 
that I cannot answer myself, and since I am not empowered to 
conduct investigations with outside parties, I have asked the 
Department's inspector general to take a look at this.
    We have also provided additional guidance back to the 
Write-Your-Owns on what we think are adequate defense of these.
    But, again, our goal is if we think it is fraud it should 
go to the Justice Department, but we should not be just 
litigating as a delaying tactic to not pay claims.
    Senator Schumer. Right. I have heard--and if the Chair will 
indulge me for just a minute more.
    I have heard that there are situations where the litigation 
costs exceed the cost of settlement.
    So, first, are you aware if this has happened, and second, 
shouldn't there be some rule that that should not be?
    Mr. Fugate. Again, these are things I have heard, Senator. 
That is why I have asked staff to reach back out to the Write-
Your-Owns.
    And, again, this refers back to the administrative 
remedies. If there are opportunities to settle, I want to take 
all the administrative actions versus protractive court cases 
as a remedy here.
    Senator Schumer. Right. Now, as part of the flood insurance 
bill that was passed, there was language that would allow 
homeowners to receive credit for partial mitigation.
    This is a separate question really, right? I will submit 
that one in writing because I know my colleagues are eager.
    But I would urge you to do the strongest possible 
oversight. Something really seems wrong here, and we need it 
checked out--lawyers and insurance companies taking advantage 
of homeowners and taking advantage of the U.S. Government and 
FEMA's payment system.
    Mr. Fugate. Again, Senator, I know of no actual wrongdoing, 
but I have concerns. And because I do not have the ability to 
do these types of investigations, I have asked the DHS IG to 
look at this matter.
    Senator Schumer. Thank you very much.
    Chairman Menendez. Thank you, Senator.
    I would like to give Senator Booker an opportunity to ask 
any questions.
    Senator Booker. I really appreciate it and appreciate the 
thorough questioning, pointing out a lot of the issues, Senator 
Menendez, that I have as well.
    Just very quickly, first of all, I just want to say, again, 
my office has worked well with your agency. I am just very 
grateful, Honorable Fugate, for how really dedicated of a 
public servant you are. I just want to make sure I say that for 
the record.
    I understand from your testimony that these numbers of 
insurance claims are large. The ones that have missed deadlines 
go into the hundreds. The number of cases that are dismissed as 
a result go into the hundreds. Is that correct?
    Mr. Fugate. I believe so, yes, Senator.
    Senator Booker. OK. And how does this compare to other 
disasters like Hurricane Katrina coming through?
    Is there something we have seen in the Sandy claims where 
people are missing more deadlines, or are these numbers 
commensurate?
    Mr. Fugate. I would have to go back and respond for the 
record and give you what we saw from Katrina to Sandy.
    My sense is that overall we actually saw fewer appeals and 
things of that nature, but the deadlines--again, the 60-day 
claim deadline we suspended for 2 years.
    We know there are some additional claims when it comes to 
some of the mitigation that will come in further out.
    And, again, we were focused initially on doing some things 
to get money in people's pockets--partial expenses, immediate 
repairs--without waiting for final settlement.
    So in some cases, as Senator Menendez said, we missed 
deadlines. But on the other case, we were trying to do some 
things to try to speed up a process, to get people back in 
their homes.
    So it is trying a balancing act. We did not achieve that 
proper balance.
    But as far as comparing Sandy to a lot of the large-scale 
events, I will ask staff to prepare in writing if your staff 
can say here is what you want to measure.
    And if we have those data--as Senator Menendez said, one of 
my challenges is where I do or do not have data, but where I 
have it I can show you what those comparisons were.
    Senator Booker. OK. And just, again, I want to be specific. 
Shifting gears now, back to what Senator Schumer was talking 
about, every time--so if I miss a deadline, I file a lawsuit.
    This is very costly to your agency. The estimate I got--and 
I want to confirm it--is about $19,000 per lawsuit, correct?
    Mr. Fugate. If we provided that number, I would assume that 
is accurate.
    Senator Booker. OK. And that just seems a lot of taxpayer 
numbers, as Senator Schumer was saying.
    Mr. Fugate. Particularly, Senator, when you factor in these 
are $250,000 in property and $100,000 in contents. So 
litigation is something that is very costly for all parties, 
and the flood insurance program pays for the litigation on 
behalf of the Write-Your-Owns.
    So, again, I do not think litigation is a good resolution, 
but it is the option when all else fails for people.
    Senator Booker. But seeing the high number of litigation 
claims and the gross amount of taxpayer dollars being expended, 
this is something that obviously you are committed to auditing 
and figuring out a way that we can reduce this in the future?
    Mr. Fugate. Yes, Senator, and also make sure that, again, I 
want a clear brightline.
    And this is a very rare event, but when there is fraud, 
this is a criminal justice matter. It should not be civil 
litigation.
    If we are looking at our civil litigation where we have 
disputes, we have to make sure costs are reasonable to the 
claims. We should not be spending tens of dollars to defend 
dollars in claims differences.
    So we are committed to looking at that but also how do we 
make sure that if there are differences in civil that we are 
not spending tens of dollars to defend possible claims of 
dollars.
    Senator Booker. And the last thing--and then I am done--is 
just the tracking system you all have in place is from the time 
I was in grade school and back in the early 1980s. This system 
is costly to maintain. It has not been updated in the ways that 
it should and provides only a limited access.
    To me, transparency is such an important part of 
Government's responsibility.
    And according to FEMA officials the system is neither 
efficient nor effective and does not adequately support the 
program's mission.
    The GAO testified in 2010 that identifying and correcting 
errors in submissions required 30 days to 6 months and that, in 
general, the claims processing cycle itself took 2 to 3 months.
    This system has to be changed, has to be upgraded, has to 
be brought into the modern system.
    Can you just really quickly tell me what the process is 
going to be for addressing that as rapidly as possible and 
bringing us into the 21st Century era, not back in the days 
when I had a very large afro?
    [Laughter.]
    Mr. Fugate. Senator, in looking at technology acquisition 
in the Federal Government, when I got here, one of the first 
things I dealt with was a situation where the NextGen flood 
program was in such disarray. The IG found that I had 
significant conflict of interest. The program was not 
performing. We ended up shutting it down. That was a $40 
million loss.
    And I have been around and seen a lot of Federal 
procurements where even more dollars in trying to acquire this 
technology resulted in we did not get where we wanted to go.
    And in that timeframe, as Senator Menendez will tell you, 
there has been a lot of difficulty in reauthorizing the flood 
insurance program. So we ran for a long time, reauthorized 
weeks to months.
    So we did not have the stability to go: What is the 
program, and how do we go forward?
    Now that we have the Homeowners Flood Insurance 
Affordability Act, we have now been working and scoping and 
building the program to start that process.
    I do not know if it is going to be quick, but the one thing 
I want to make sure is we are not building a system that is a 
Frankenstein monster. I want to build it modular. I want to get 
it right. We have been scoping this, and I want to go forward 
because I do not want to own the next $40 million we spend on a 
system that cannot do what it was supposed to do.
    Senator Booker. Thank you, Senator Menendez.
    Chairman Menendez. Senator Schumer.
    Senator Schumer. Thank you.
    I have one more question. I thank the Chairman for his 
indulgence.
    I have been told that there is only one attorney who does 
all of the litigation for the Write-Your-Owns, which would mean 
his billing, if it is 25 to $50 million in expenses, is to him.
    To boot, I have heard he is from New Orleans.
    First question, is that true?
    Second, what is the mechanism for selecting the attorneys? 
Is it totally up to the insurance companies? Do you oversee it? 
Do you have any say in it? And should that change?
    Mr. Fugate. Again, Senator, without getting into too much 
detail since I have asked the IG to look at this, those are my 
understandings.
    Write-Your-Owns do select their attorneys. Oftentimes, they 
use attorneys that have had experience in this before. So, 
obviously, after Katrina, there were a lot of claims down 
there.
    Senator Schumer. Only one? There is only one?
    Mr. Fugate. I do not know that for sure, Senator. That is, 
again, why I have asked the IG to look at it.
    Senator Schumer. That is what I have been told.
    Mr. Fugate. Again, I have heard this, and that is why I 
have asked the IG to look at this and determine if that is the 
case and what is going on.
    Senator Schumer. You have heard that there might be just 
one doing it all.
    Mr. Fugate. Yes, sir.
    Senator Schumer. OK.
    Mr. Fugate. For the majority of the cases, yes.
    Senator Schumer. Then I hope you will look into this.
    Changes we may need to do regulatorily or statutorily--the 
IG is looking into specifics.
    Mr. Fugate. Yes, sir, Senator.
    And this is what I have asked the IG. I have asked him for 
both looking at this to determine what is going on and also 
make management recommendations of how we should front-end.
    That is, again, one of the functions of the IG. It is not 
just to find fraud and waste but to help us invoke management 
so that we minimize that and get the value and the programs 
delivered the way they are supposed to.
    Senator Schumer. Thank you.
    Thank you, Mr. Chairman.
    Chairman Menendez. Thank you.
    Mr. Administrator, we have a vote going on.
    Let me make four key points to you, and we are either going 
to get an administrative response or we are going to get a 
legislative response.
    I would prefer that it be an administrative response so we 
can work together, but if it has to be legislative, so be it.
    We have a standard, in my view, that is stacked against 
process and a standard that is stacked against policyholders. 
There are uneven penalties for underpayment versus overpayment. 
There are uneven incentives as it relates to underpayment 
versus overpayment.
    I do not want anybody getting a dime that they should not 
get. By the same token, I do not want a policyholder who has 
done the right thing for 10, 20, 30 years, in some cases, 
getting low-balled simply because the process is stacked 
against them.
    So we have got to figure out a structural effort to create 
a greater balance.
    Second, if the policyholder has to live by deadlines, so 
does FEMA. And if FEMA cannot live under those deadlines, then 
the policyholder should have the opportunity to have the same 
period of time that you cannot live by extended so that they do 
not have their rights foreclosed.
    I think to have the expectation that an average citizen is 
Perry Mason is totally unacceptable.
    And so I think there is a double standard, and that is not 
a double standard that we should have. Disaster victims already 
have enough challenges as they deal with this question.
    Number three, we have got to get these data, help you get 
this data system running, because we cannot know and I do not 
know how it is that claims, the numbers of those who are 
appealed, the numbers who successfully appeal, the numbers that 
litigate and successfully appeal. I cannot tell the size of 
this problem and whether there is a systematic problem or just 
an occurrence problem. We need to get that straight.
    And we need a flood insurance advocate who not only is 
dealing with the immediacy of rates and flood maps but is an 
advocate as to the totality of what happens to someone with 
flood insurance. And I think in that, hopefully, we are in 
agreement, listening to your comments.
    It is just simply wrong from my perspective that we have a 
system when not one Write-Your-Own in 40 years has ever been 
kicked out of the program because they consistently low-balled 
policyholders. Now maybe they are all doing a great job, but 
every time I hear these hundreds of cases I think something is 
wrong.
    So we look forward to working with you.
    I do want to applaud you in the aftermath of Sandy. You 
were on the scene. You were engaged. Your people were 
fantastic.
    But once the storm went aside, in the immediacy, this 
program is what for a lot of people is their lifeline--the 
difference between being able to get back in their homes and 
not being able to get back in their homes.
    Doug Quinn, who is one of my constituents, is a Marine. He 
served his country honorably. He did the right thing. He paid 
his policies. He did not ever make a claim until Sandy came 
along.
    To step into his home, as I did this past Monday, and to 
see that now so much time after Sandy he still cannot live 
there with his daughter is just not acceptable. Not acceptable.
    So I hope we can work together to make this right. In the 
absence of that, we will see a legislative response to it.
    Mr. Fugate. Senator, as I told you, I will do as much as I 
can administratively. And when I hit the walls, where the 
attorneys tell me I cannot go any further, I will communicate 
to you that I have hit a wall and I need your help.
    Chairman Menendez. If you need legislative responses, you 
let me know, and we will be deducing our own. But if you need 
legislative responses, I am always willing to pursue it. We 
have got to make this program right.
    Mr. Fugate. As you helped us with Biggert-Waters when you 
asked me the question and I told you I hit the wall, you were 
willing to step forward on what had to be done to change that 
law.
    So, again, my history is when I cannot get to where you 
think I need to be I want to let you know. We may not agree to 
the reasons, but if my attorneys or my programs are not able to 
go any further I need to be up-front with you that I do not 
have a way forward; it may require legislation. But as much as 
I have the administrative ability, I will continue to work.
    Chairman Menendez. We are ready and able and willing to go, 
and we will do so if you bring us information, or in the 
absence of seeing a change that creates a greater equity in 
this process, we will do it ourselves.
    With the thanks of the Committee for your appearance, for 
our next panel, we have two votes, one that is just ending, 
then another one immediately. So we should be back in 10 
minutes.
    This hearing is in recess subject to the call of the Chair.
    [Recess.]
    Chairman Menendez. This hearing will come back to order.
    Thank you to our second panel for bearing with us as we had 
votes on the floor.
    Our second panel today includes Donald Griffin of the 
Property Casualty Insurers Association of America and Maryann 
Flanigan, Supervising Attorney of the New Jersey Legal Services 
of the Hurricane Sandy Legal Assistance Project.
    Thank you to both of you for joining us.
    Your full statements will be included in the record, 
without objection. I would ask you to summarize them in about 5 
minutes or so, so we can engage in some questions and answers.
    And, with that, Mr. Griffin, we will start off with you.

STATEMENT OF DONALD GRIFFIN, VICE PRESIDENT, PROPERTY CASUALTY 
                INSURERS ASSOCIATION OF AMERICA

    Mr. Griffin. Thank you, Senator. It is a pleasure to be 
here.
    My name is Don Griffin, and I am Vice President of Personal 
Lines with the Property Casualty Insurers Association of 
America. I also chair the Write-Your-Own Flood Insurance 
Coalition.
    PCI is composed of more than 1,000 member companies 
representing the broadest cross section of any national trade 
association. PCI members also include two-thirds of the Write-
Your-Own insurers that partner with FEMA to administer the 
National Flood Insurance Program.
    Thank you for the opportunity to appear before you today. 
My testimony is provided on behalf of PCI.
    PCI commends the Subcommittee for highlighting the merit in 
taking some time while information and memories are fresh to 
review lessons learned from Sandy. This will be helpful, too, 
as Congress, the NFIP and the WYOs prepare for the fast-
approaching 2017 NFIP reauthorization.
    WYOs' first priority is our policyholders. We want a 
program that works to protect policyholders and that is simple 
enough for everyone in the marketplace to understand so that 
consumers know what they need to buy, agents can explain how 
the coverage works and insurers can correctly service the 
program.
    So how are claims handled?
    Well, Congress passes legislation that generally 
establishes how the NFIP is to work, FEMA sets the rule, and 
the WYO insurers service the policyholders and the Federal 
Government.
    The compensation paid to insurers to administer the claims 
is offset by the expenses incurred to pay claims adjusters, 
legal fees, and other administrative costs. The WYOs are the 
third-party administrators for the NFIP and the Federal 
Government.
    WYO insurers do, however, have significant incentives to 
keep their policyholders happy and to follow Federal flood 
insurance claims regulations.
    Decisions on flood claims payments are made by the 
adjusters. When policyholders experience a flood loss, they 
contact their insurance agent or WYO insurer. The insurer then 
assigns a trained, certified flood claims adjuster who may be 
an employee of the WYO or an independent contractor. The flood 
claims adjuster determines the amount payable on any claim 
based on very specific guidelines established and rules 
established by the NFIP.
    Ultimately, WYO insurers are responsible for any 
overpayments, and the WYOs are audited regularly by the Federal 
Government.
    WYOs are generally compensated in proportion to the amount 
of the loss paid. The compensation formulas are set by the NFIP 
and periodically updated. In 2009, for example, as you pointed 
out earlier, Senator, in response to a GAO recommendation 
subsequent to Katrina, the claims compensation formula was 
refined by reducing the portion tied to the claim value and 
adjusting the payment based on the WYO's premium volume.
    There are also specific processes in place for 
policyholders to appeal claims decisions to the NFIP. The most 
appeals process was put in place as a result of the passage of 
the Flood Insurance Reform Act of 2004.
    Finally, administering and marketing the flood insurance 
program is very complex and expensive, and the number of 
insurers willing to do so has declined significantly in recent 
years. Many WYOs have determined that the reputational, legal 
and financial risks are too great. Unfortunately, as fewer 
insurers market flood insurance, fewer consumers will purchase 
this needed protection.
    So what did we learn from Sandy?
    In the immediate aftermath of any natural catastrophe, it 
is critical for local, State, and Federal officials to 
coordinate their efforts to get people back to their homes and 
businesses to begin remediation and rebuilding. Insurers need 
to be at the table during pre and postdisaster planning and 
coordination. It is also essential to the rebuilding process 
that local officials, Government and law enforcement allow 
insurers and claims adjusters into damaged areas as soon as it 
is safe, at least as soon as the property owners are provided 
access.
    An issue that arose following Superstorm Sandy was the lack 
of available trained flood insurance adjusters. Most certified 
flood adjusters are located in areas that frequently flood. 
Often, States implement reciprocal recognition of claims 
adjusters from other States to help. However, sometimes it is 
difficult, given the impact of the event and the number of 
requests, to process the necessary paperwork needed in a timely 
manner, leading to delays in responding to claimant needs.
    PCI supports Federal legislation to require more reciprocal 
claims adjuster recognition.
    In conclusion, sir, PCI will be hosting a National Flood 
Conference next year in D.C., with FEMA and all the different 
flood insurance stakeholders attending, to discuss how to 
simplify and improve the program in advance of the next 
Congressional reauthorization cycle.
    We look forward to working with you on your concerns and 
would welcome your participation at our national conference.
    On behalf of PCI and our member companies, thank you for 
the opportunity to present our views today. We look forward to 
working with you to protect consumers and improve the National 
Flood Insurance Program.
    I would be happy to answer any questions.
    Chairman Menendez. Thank you very much.
    Ms. Flanigan.

STATEMENT OF MARYANN FLANIGAN, SUPERVISING ATTORNEY, NEW JERSEY 
    LEGAL SERVICES, HURRICANE SANDY LEGAL ASSISTANCE PROJECT

    Ms. Flanigan. Thank you, Senator Menendez, for having us 
here today. Thank you for this opportunity to appear on behalf 
of the New Jersey Legal Services System and on behalf of New 
Jersey residents who were affected by Storm Sandy.
    With funding from the Robin Hood Foundation, the Hurricane 
Sandy New Jersey Relief Fund and the State of New Jersey, Legal 
Services was able to begin providing legal assistance within 2 
weeks after Sandy left the State via our toll-free statewide 
hotline.
    LSNJ is the major legal assistance provider in the State of 
New Jersey for Sandy victims, and we have provided legal 
assistance in more than 2,500 cases to residents who were 
affected by Sandy. Even now in July of 2014, 21 months after 
the storm, new Sandy clients continue to contact our offices on 
a daily basis. Many of these clients contact us for assistance 
with flood insurance claims.
    Sandy-affected New Jersey residents have sought assistance 
from Legal Services on a number of issues that highlighted the 
need for legislative attention, but one of the most prominent 
issues has involved underpayment or erroneous denials of flood 
insurance claims. Literally, hundreds of New Jerseyans have 
come to us for help with their flood insurance denials and 
underpayments.
    We have served as a critical resource for these disaster 
victims but especially for those in the low to moderate-income 
population.
    Today, I will speak about the barriers that Sandy victims 
face when filing flood insurance claims, and I will highlight 
areas which can benefit greatly from careful attention and 
improvement.
    First, flood insurance companies routinely undervalue 
claims, thereby creating barriers to repairing and rebuilding. 
Almost every client who has contacted us regarding a flood 
insurance issue has had a problem involving an insufficient 
offer.
    In one case, an adjuster from the Midwest suggested a claim 
for approximately $40,000 less than what the client needed in 
order to meet the covered repairs. After examining the line-by-
line estimate prepared by the adjuster, it was very clear that 
materials could not be purchased in New Jersey for the unit 
prices listed.
    This low-balling of flood insurance claims happens all too 
often and results in the insured suffering an unreasonable 
delay in making needed repairs to the home. The insured must 
then either sacrifice quality by finding a way to purchase 
materials for a cheaper price, or they must accrue additional 
expenses by taking out loans to cover the cost of repairs.
    In one particularly egregious case, a homeowner carried 
homeowner and flood insurance through the same WYO, and when 
the client's home was damaged on a sea-facing avenue, suffering 
approximately four feet of flood damage, the flood insurance 
department denied the client's claim, stating that the damage 
was caused by wind-driven rain, and meanwhile, the homeowner 
insurance department denied the claim, stating that the damage 
was caused by flood water.
    The client had to appeal both claims, and several months 
passed before the homeowner insurance department finally sent a 
structural engineer to prepare a report about the causes of 
damage. The client used that structural engineer report from 
the homeowner department to submit to the flood department.
    At that point in time, the flood insurance department 
finally handled the claim more fairly, but the client had been 
displaced from her home for approximately 7 months at this 
point. And this was finally when the flood insurance department 
began to assess the scope of flood damage.
    A potential Federal remedy for this issue would be 
modification of the existing incentive and penalty system for 
flood insurance companies when claims are undervalued.
    The second point I will address is the process for 
appealing or submitting a flood insurance claim is excessively 
complicated and WYOs do often create extra requirements with 
which the insured must comply. Oftentimes, the insurance 
companies offer little support or guidance to their insureds.
    A couple in Union Beach, New Jersey, submitted a proof of 
loss to their WYO in order to appeal the denial. They 
eventually received notice that their proof of loss was denied. 
The insured company did not explain the reason for denial or 
offer any guidance for what the couple could submit in order to 
lead to a reassessment or approval of the claim.
    Another client in Toms River, New Jersey, wanted to speak 
with her flood claim agent regarding her appeal, but the claim 
agent said he could not speak to her because the client had 
hired a public adjuster. Although there is no regulation 
prohibiting an insurance agent from speaking to the insured 
after a public adjuster was hired, several clients tell us that 
their flood insurance agents refuse to speak with them.
    A potential Federal remedy would be straightforward 
guidance from the NFIP to all flood insurance companies, which 
establishes a standard requirement that WYOs refrain from 
creating extra requirements in the flood claim process.
    The third point is that the statute of limitations for 
filing a lawsuit should not begin to run until the proof of 
loss has been submitted and denied in whole or in part. The 
SFIP strictly limits and reserves the rights of client claims 
if they are not submitted within the appropriate timeframe.
    A potential Federal remedy would be amending FEMA 
regulations so that the limitations timeline does not begin to 
run until there is a partial or complete denial of a submitted 
proof of loss.
    The fourth point is that the complexities of the flood 
claim appeals process have a particularly negative impact on 
low to moderate-income insureds. IN some ways, New Jerseyans 
who are low to moderate-income were the worst affected by 
Hurricane Sandy. Not only were they displaced and forced to 
incur additional expenses, but they also may have lost income 
if their jobs were affected by Sandy.
    A potential Federal remedy to reduce the costs for low to 
moderate-income insureds who have to go through the appeal 
process by trying to hire attorneys would be simplifying the 
flood insurance claim appeal process and establishing a robust 
flood advocate as authorized under the Homeowner Flood 
Insurance Affordability act so that insureds would be better 
equipped to effectively handle their appeals without incurring 
attorney expenses.
    And if I may just quickly address my fifth point, thank 
you.
    Policy coverage terms should be written in clearer 
language, and coverage should be more comprehensive in the case 
of a total loss due to flood damage. Many clients do not 
understand their coverage terms, and they do not understand 
that a flood insurance policy does not indemnify for a total 
loss in the way that most homeowner insurance policies do.
    A potential Federal remedy would be modifying standard 
flood insurance policy language so that policies are written in 
clearer terms and a directive from the NFIP requiring flood 
insurance agents to explain coverage limits to the insured.
    Thank you.
    Chairman Menendez. Well, thank you both for your testimony 
and your insights.
    Let me start with you, Mr. Griffin.
    I understand that in response to a perceived pattern of 
flood claim overpayments following Hurricane Katrina, in 2009, 
the National Flood Insurance Program changed the way that it 
compensates Write-Your-Own companies and adjusters for 
adjusting and paying flood claims.
    According to your testimony today, the calculation changed 
from 3.3 percent of the claim to 1.5 percent of the claim value 
plus 1 percent of the premiums written. Is that correct?
    Mr. Griffin. That is correct, Senator.
    Chairman Menendez. Now, however well-reasoned the 2009 
claims payment compensation may have been, couldn't reducing 
the percentage of claim value paid to handle a claim also 
reduce the claim handlers' incentive to make certain they are 
including all amounts due the policyholder in every claim?
    Mr. Griffin. Well, Senator, it could. However, as I 
mentioned before, the insurer's reputation in many cases is on 
the line.
    Most of the Write-Your-Owns sell additional products in 
addition to the flood policy. They sell auto or home or 
business policies. So they have an incentive to get it right 
because they want to make sure that policyholder is satisfied 
and stays with them for the other business that they have.
    Chairman Menendez. Well, I understand that, but let's see 
how the structure actually works to affect the decision-making 
process.
    Prior to Katrina, the NFIP did not apply the Improper 
Payments Act to Write-Your-Own claim payments. Since then, the 
NFIP has applied the Improper Payments Act to Write-Your-Owns. 
What impact does that change have on Write-Your-Owns?
    Mr. Griffin. Well, as you have heard earlier in testimony, 
if there is an overpayment situation, the WYOs are required to 
reimburse FEMA for that money. So they must pay back out of 
their own assets.
    Chairman Menendez. So insurance companies have been 
obviously more concerned about making overpayments based upon 
the set of circumstances under which they now find themselves 
having to, in essence, pay clawback, what FEMA considers as an 
overpayment.
    Mr. Griffin. That is correct, sir.
    Chairman Menendez. Now, Write-Your-Owns can be held liable 
for overpayments on flood claims they handle. Do you think 
being held financially liable for overpaying a flood claim is a 
pretty strong incentive for Write-Your-Owns to make certain 
that flood claim payments include nothing that could even 
arguably be deemed an overpayment?
    Mr. Griffin. Yes, sir, it does.
    Chairman Menendez. And isn't it a fact that Write-Your-Owns 
can appeal FEMA's determination of a claim that was overpaid?
    Mr. Griffin. I am not sure how they can, whether they can 
do that, or not. They may be able to appeal that process.
    Chairman Menendez. My understanding is they cannot appeal 
FEMA's determination that a claim was overpaid.
    So, basically, if you are making a decision about 
overpayment versus just payment and it is a question for you 
and you can clawback--FEMA can clawback the money--and you 
cannot appeal it and say, no, we think we made the right 
determination, well, I think human nature is going to indicate 
exactly what is going to happen in cases like that.
    What if we coupled the impact of the overpayment penalty 
with the 2009 reduction in the percentage of the claim that the 
National Flood Insurance Program pays for claims handling?
    Wouldn't it be fair to assume a claims handler, with less 
of a financial stake in the claim value and an awareness they 
could be held financially liable if any portion of the claim 
value is later deemed an overpayment, might think twice before 
settling on the larger of two equally well supported claim 
values?
    Mr. Griffin. It could, Senator, but again, remember the 
adjuster's job is to follow the rules that are set up by FEMA 
and apply them fairly so that the number of disputes with 
regard to claims payments are minimized.
    Chairman Menendez. I gather that, but I also can see from 
my experience in New Jersey that if there is an error it is 
made on the side of underpayment--I will call it that--versus 
overpayment because of the system, the way it is stacked.
    Are there any penalties assessed by the National Flood 
Insurance Program on underpayments made by Write-Your-Owns?
    Mr. Griffin. No, there are not, sir.
    Chairman Menendez. OK. So the bottom line is that if you 
overpay you can--if they think you overpaid, FEMA can claw it 
back; and if you underpay, there is no penalty.
    So that is part of a balance that seems to me to be totally 
unbalanced.
    Do you know if the National Flood Insurance Program even 
tracks underpayments for Write-Your-Owns?
    Mr. Griffin. I was not aware that they did. I heard 
Administrator Fugate talk about the fact that they do have some 
information on that, but it sounds like their data has not been 
well kept over the years.
    Chairman Menendez. They conduct audits, but there are no 
tangible penalties for underpayments.
    Would it be accurate to say that the disincentives that the 
National Flood Insurance Program imposes on overpayments 
outweigh those that are imposed on underpayments?
    Mr. Griffin. It could, sir. Yes, it could, but as I say, we 
do not have the data to know how this is being handled. So it 
is hard for us to say how it would be an entirely disincentive.
    Our job is to try and make sure that the policyholder gets 
every dollar they are entitled to under the rules that are 
established and apply them fairly. If there are questionable 
amounts, then obviously, they will err on the side of 
conservatism.
    Chairman Menendez. There are hundreds of cases that we 
have. And not every case that comes to me do I believe is 
automatically valid; maybe there is a misinterpretation of the 
policy or the law.
    But there are plenty of cases that I have reviewed with my 
staff to get a good grasp of this, in which clearly there is, 
my words, low-balling taking place. And whether that low-
balling is intentional or out of concern of the consequences of 
the way the program is stacked, it just simply is unacceptable.
    Let me ask Ms. Flanigan; can you describe the most common 
obstacles that policyholders are experiencing?
    Ms. Flanigan. The most common obstacles that policyholders 
are facing involve undervaluation of claims, erroneous denials, 
extensive delays in communication from the flood insurance 
providers and the lack of clear guidance from the insurance 
companies about how the policyholders can effectively pursue 
appeals.
    Chairman Menendez. And in view of that, do you believe that 
the claims and appeal process is clear and easy to understand?
    Ms. Flanigan. I believe the claims and appeal processes 
could be much easier to understand. There is room for a lot of 
improvement in the way that the processes are explained in the 
standard flood insurance policy, and claim agents might be able 
to provide more meaningful assistance to policyholders if they 
are trained to assist insureds throughout the appeal and claims 
processes.
    Chairman Menendez. Now FEMA is trying to throw out many New 
Jersey lawsuits based on the statute of limitations rather than 
getting to the merits of the case to see whether there has been 
low-balling.
    And FEMA takes the position that the clock starts on the 
statute of limitations when the homeowner receives any letter 
saying the word, denial, even if the policyholder has not yet 
submitted a proof of loss form.
    Don't you think that a completed claim requires a proof of 
loss form?
    Ms. Flanigan. I do think that a completed claim requires a 
proof of loss form. There cannot really be a claim if the 
claim--if the insured has not submitted a proof of loss form. 
There is no way to really deny or even approve the claim.
    And the current scheme sets up so many barriers to 
effective processing of appeals and particularly for low and 
moderate-income clients. They do not often have the resources 
to actually even have an attorney to help them with the case or 
help with submitting a proof of loss, and they end up at a 
significant disadvantage.
    Chairman Menendez. And don't you think that it is 
ridiculous for FEMA to argue that the statute of limitations 
can run even before the homeowner has ever submitted a proof of 
loss?
    Ms. Flanigan. It does not seem to make sense that the 
statute of limitations would run before a homeowner submits a 
proof of loss.
    Chairman Menendez. Well, this is--I appreciate both of your 
testimonies because what I have come to believe is that 
structurally the system is stacked against policyholders.
    And when the risk for an insurance company is greater for 
overpayment than any real consequence for underpayment, well, 
that dictates to me what is going to happen when it is not 
clear-cut and even maybe where it is. The incentives are on one 
side of the ledger and not on the other side of the ledger.
    I think that there is a clear problem with the appeals 
process, one, for people even knowing about it and, two, for 
being able to navigate it and understand it.
    Three, I think that if you have to live by a deadline as a 
policyholder, FEMA should live its deadlines as policyholders. 
I mean as the overall under the statutory provisions of the law 
that say that they need to be able to respond in 90 days, or if 
not, there should be some extension.
    It is pretty ridiculous to toll the statute of limitations 
before there is even a proof of loss. I have not practiced law 
in a while, but there are some fundamental principles that do 
not take a rocket scientist to figure out.
    And these elements in which in 40 years not one Write-Your-
Own has been ultimately taken out of the program for 
underpayment is just beyond the scope of imagination. Yet, I am 
sure that there are those who, with overpayments, have faced 
that consequence or a consequence of some significance.
    So we need to change this.
    And I have to be honest with you. I appreciate Legal 
Services and everything they have done, but my God, we should 
not have to have people go to Legal Services to work this 
process, or in the case--I do not know; do you have to have 
income qualifications in this particular program of Legal 
Services.
    Ms. Flanigan. Through our Hurricane Sandy Legal Assistant 
Project, we have a varying kind of income eligibility 
qualification. And, fortunately, due to the funders that I 
mentioned earlier, we are able to assist just about any client 
who comes to us for assistance with a flood insurance issue.
    Chairman Menendez. That is good to hear because I know, 
normally, Legal Services has some type of income criteria.
    But the bottom line is that this is about real people, real 
lives, real families, who do the right thing. They pay their 
premiums. They follow the rules. They obey the law. And, when 
it comes time when they have a need, you do not have the law 
actually living up to their expectation and their needs.
    Now I understand about current policy value, but that does 
not dictate the results we are getting in so many of these 
cases. We are getting far below current value realities.
    And I think we have to do a better job of educating the 
public about what these policies mean when people are buying 
them.
    Now in some cases they have no choice. If they have a 
mortgage, the mortgage company insists on having flood 
insurance policies, but at least they should clearly 
understand.
    For those who have to get flood insurance as a result of 
holding a mortgage, or for those who do not have a mortgage, 
they should understand what the flood insurance policy is and 
is not going to pay.
    And I do not think people get to read the fine print in a 
way that makes it very clear. I think there are some very clear 
statements up front that can be made that people will 
understand the nature of what their policies are.
    So we need to ultimately work to get a balance here at the 
end of the day.
    And, as I said to the Administrator, we have got to end the 
low-balling. We have got to live by the law. If policyholders 
have to live by the law, so does FEMA. We have got to have the 
data that drives us. And we have to have flood insurance 
advocates, as you suggest, being able to make the case, along 
with well-established institutions like Legal Services.
    And I hope the industry is--and I appreciate your offer, 
and I am happy to take you up on it. I hope the industry is 
willing to work with us to get this right because I do agree 
that the industry's reputation is at stake.
    And, while FEMA takes a fair share of the brunt, the other 
reality is an industry that has to do the right thing and has 
to stand up for its policyholders and has to ultimately, 
legitimately argue back with FEMA when they are overarching.
    And I think that maybe you are in a disproportionate set of 
circumstances where you feel you cannot do that. But if you are 
going to have companies that write these polices, we have got 
to get a just result for these policyholders.
    So we look forward to working with you on that.
    Well, you have been very helpful in helping us fill out the 
record here and understanding some of the challenges.
    This hearing record will remain open to the close of 
business tomorrow.
    And with the thanks of the Committee, this hearing is 
adjourned.
    [Whereupon, at 11:57 a.m., the hearing was adjourned.]
    [Prepared statements and responses to written questions 
supplied for the record follow:]
            PREPARED STATEMENT OF SENATOR CHARLES E. SCHUMER
    Administrator Fugate, first let me say that I know how hard you 
have worked and the strides that FEMA has made in helping the New York/
New Jersey region recover from Superstorm Sandy. In fact, just 
yesterday we were able to announce that NYU Langone Medical Center 
would receive $1.13 billion from FEMA to help it recover from damage 
caused by Sandy. That is just one example, but it is certainly 
emblematic of all the good work that FEMA has done in getting money out 
the door to help the region recover and build back stronger.
    I do have a serious point of concern related to flood insurance 
claims that have come straight from constituents on Long Island and in 
New York City, that I must raise to your level.
    It appears that a select few Attorneys hired by Write-Your-Own 
insurance companies, and paid by FEMA, are cashing in on the backs of 
struggling homeowners.
    As you know, there are still many homeowners trying to resolve 
their home insurance claims and receive compensation for their losses. 
I have learned that for each day a homeowner in New York waits to 
settle their claim, there are attorneys benefiting from dragging these 
cases out.
    These attorneys are hired by the insurance companies for policies 
underwritten by the National Flood Insurance Program, and it appears 
they are using legal tactics to prevent homeowners from being paid back 
for their losses.
    So, I do not intend to be critical of you, Administrator Fugate, 
but because FEMA underwrites these Write-Your-Own policies and pays the 
legal expenses I want to raise these concerns to your attention and 
consider what can be done to spare homeowners from the grips of overly 
litigious attorneys who have no incentive to try to resolve matters 
these matters quickly or efficiently.
    So, let me tell you what we have heard. Policyholders whose claims 
have been denied by these insurance companies have the ability to 
pursue legal action to resolve a dispute over the coverage that they 
believe they are entitled. And the insurance companies are certainly 
entitled to defend the determinations that they've made and the 
compensation that they believe is appropriate. However, we have been 
told that these insurance companies almost exclusively hire one law 
firm from Louisiana to litigate all of the claims brought by 
policyholders. And even more concerning, there are serious allegations 
that these attorneys have relied upon troubling legal tactics to 
continue to deny homeowners a resolution to their flood insurance 
claims.
    We have been told that attorneys for the Write-Your-Own insurance 
companies are attempting to draw out legal battles with homeowners in 
an effort to drive up their own billable hours while contemporaneously 
causing policyholders to drop these lawsuits because of their own 
mounting legal expenses. FEMA has left oversight of these legal matters 
to the insurance companies themselves, but there seems to be a perverse 
incentive structure in place that promotes these cases going to trial 
rather than being subject to an audit that calls into question the 
terms of a settlement.
    Denying homeowners who have suffered immense losses from Sandy and 
are struggling to get back on their feet is bad enough, but the kicker 
is that these Write-Your-Own insurance companies are not even paying 
the legal bills for their attorneys that are dragging out these cases--
the Federal Government is paying.
    I will get into a few of my specific questions in a moment, but the 
bottom line is that FEMA must have significant oversight of these legal 
matters not only to ensure that Federal dollars are not being wasted in 
unnecessary legal defense fees but also to ensure that homeowners are 
not being purposefully denied compensation for their loses that they 
suffered during the storm.
                                 ______
                                 
              PREPARED STATEMENT OF SENATOR CORY A. BOOKER
    Thank you, Mr. Chairman, and thank you to the Subcommittee for 
allowing me to participate in this important hearing today.
    Thanks to Administrator Fugate for being here, and welcome to Mr. 
Griffin.
    And a special welcome to Ms. Flannigan--thank you for the work of 
the Hurricane Sandy Legal Assistance Project.
    As Chairman Menendez and Senator Schumer know well, the effects of 
Superstorm Sandy continue to be felt every day by people across New 
Jersey and New York.
    The stories are countless--of the families uprooted and facing 
challenges unimaginable to most of us.
    I very much appreciate the Chairman using his Subcommittee to 
examine how insurance claims have been processed after Superstorm 
Sandy.
    Thousands upon thousands of homeowners have been stymied at every 
step of the claims process, from experiencing filing problems, to 
struggling through the appeals process, to finding their final 
insurance payout being far below what they expected.
    I've heard of these challenges from people like Colleen and Brian 
Hennen. The Hennens have had to take their insurance company to court 
to dispute hundreds of thousands of dollars of damages after their 
Monmouth County home was destroyed and condemned after Sandy.
    I've heard from a small business owner in Long Beach Island whose 
shop took on 2 feet of water and has had to haggle with claims 
adjusters while waiting patiently for months--and at times over a 
year--to be compensated piecemeal with only portions of their claims.
    Like Senator Menendez, I regularly hear from New Jerseyans who have 
been paying insurance premiums for years, but now when they need their 
insurance company the most, they're left out in the cold. These New 
Jerseyans are struggling to pay their mortgage, rebuild their home, and 
work regular hours while battling their insurance providers for funds 
to which they are entitled.
    The stories go on.
    So, thank you again to our witnesses and I hope this hearing helps 
shed light on the reforms needed to ensure that policyholders receive 
the payments they deserve.
                                 ______
                                 
                   PREPARED STATEMENT OF CRAIG FUGATE
   Administrator, Federal Emergency Management Agency, Department of 
                           Homeland Security
                             July 30, 2014
Introduction
    Good morning Chairman Johnson, Ranking Member Crapo, and Members of 
the Subcommittee, I am Craig Fugate, Administrator for the Department 
of Homeland Security's (DHS) Federal Emergency Management Agency 
(FEMA). I appreciate the opportunity to be here today to discuss the 
National Flood Insurance Program (NFIP) and claims paid as a result of 
Hurricane Sandy.
    More than 144,000 NFIP policyholders submitted notices of flood 
loss stemming from Hurricane Sandy, and the NFIP has paid out more than 
$8.1 billion in flood claims to enable these policyholders to rebuild 
homes, businesses and communities. These policyholders made the 
proactive decision to protect themselves by investing in flood 
insurance. We have an obligation to these insured survivors, and to the 
taxpayers, to administer this program well and we take this 
responsibility very seriously.
    Since Hurricane Sandy made landfall in 2012, FEMA's Federal 
Insurance & Mitigation Administration (FIMA) has been hard at work to 
help in the recovery, processing Hurricane Sandy-related insurance 
claims, and implementing the Biggert-Waters Flood Insurance Reform Act 
and the Homeowners Flood Insurance Affordability Act (HFIAA).
    At this point, more than 99 percent of the flood insurance claims 
related to Hurricane Sandy that were filed by homeowners have been 
closed. There are only approximately 640 claims still outstanding.
    In this testimony, I will discuss the NFIP and, in particular, our 
claims and appeals processes, policies, and successes.
Claims Related to Hurricane Sandy
    FEMA moved quickly to process Hurricane Sandy-related claims. The 
average claim payment related to Hurricane Sandy is $61,000, with the 
NFIP paying claims totaling more than $8.1 billion.
    When Hurricane Sandy made landfall, 236,000 NFIP policies were in 
place in New Jersey. As a result of the storm, 74,000 Hurricane Sandy 
claims were made in New Jersey. Of those, only 1,300 were appealed. 
Differences have been resolved among the adjusters, the policyholders, 
and the policyholders' contractors and local building materials 
suppliers. Based on preliminary data, we expect there may be only 453 
Sandy lawsuits filed in New Jersey. This means that 98.2 percent of the 
claims were resolved.
    In New York, 169,000 policies were in place when Hurricane Sandy 
hit. As a result of the storm, 57,000 claims were made in New York. Of 
those, only 885 were appealed. Based on the preliminary data, we expect 
there may be only 400 Sandy lawsuits filed in New York. This means that 
98.5 percent of these claims were resolved. The remaining open claims 
are due to mitigating factors such as ongoing litigation, requests for 
additional payment, or outstanding requests for Increased Cost of 
Compliance (ICC) benefits.
    NFIP policyholders may also be eligible for up to $30,000 in ICC 
coverage to bring their building into compliance with their community's 
floodplain ordinance. Elevation, relocation, demolition, and flood 
proofing are all covered options under ICC coverage.
    In New Jersey, 7,000 policyholders submitted claims for ICC 
coverage and the NFIP has paid out $69 million thus far. In New York, 
1,500 policyholders submitted claims for ICC coverage and the NFIP has 
paid out $12 million thus far.
Efforts To Process Claims Rapidly Post-Sandy
    The NFIP effectively responded to the postdisaster needs of its 
policyholders by creating a rapid claims process and by instituting 
programmatic changes that significantly reduced the procedural burden 
on policyholders. For example, we deployed our Director of Claims and 
other key NFIP leaders to the impacted area where they worked directly 
with the States to find ways to accelerate assistance and payments to 
policyholders. These changes included:

    Authorizing advance payments of up to $5,000 for claims 
        prior to meeting with adjusters for inspections;

    Authorizing another advance payment of up to $25,000 for 
        certain mechanical elements of the building to get heating and 
        electricity restored; and

    Authorizing an additional $5,000 for necessary permanent 
        repairs to doors and windows to secure a given building once 
        heating and electricity were restored.

    These claim advances, known as the 5/25/5 initiative, enabled 
policyholders to get back into their homes as soon as possible with 
necessary heat and electricity. Additionally, we extended the grace 
period for payment of NFIP renewal premiums. We also gave policyholders 
extensions to file their proof of loss statements. For Hurricane Sandy, 
NFIP policyholders have up to 2 years after the date of loss to file 
their proofs of loss.
    In addition, the NFIP established community Flood Response Offices 
in New York and New Jersey to provide services to NFIP flood-certified 
adjusters, as well as Adjuster Certification Workshops in New Jersey. 
On-site Adjuster Briefings also educated an expanded corps of flood-
certified adjusters on program changes made specifically to meet the 
needs of communities impacted by the storm. To bolster the numbers of 
adjusters who were able to respond to Hurricane Sandy claims, the NFIP 
implemented emergency adjuster certification for adjusters who were 
actively flood certified during the past 2 years, granting them a 12 
month certification extension. This emergency adjuster certification 
made an additional 5,000 adjusters available to handle the large influx 
of claims related to the storm.
    Early on, the Associate Administrator of FIMA went to the impacted 
States with senior leadership and met with State emergency management 
officials and State insurance commissioners to identify ways to get 
claims resolved expeditiously and to identify any concerns. The NFIP 
also deployed expert staff to work in the Governor's Office in New 
Jersey, worked closely with the Governor's office in New York, and sent 
experts to work with the FEMA Joint Field Offices in New Jersey and New 
York.
Increased Borrowing Authority
    When Hurricane Sandy made landfall, the NFIP owed the U.S. Treasury 
$17 billion to cover losses stemming from Hurricanes Katrina and Rita. 
Existing authorities only allowed the NFIP to borrow an additional $3 
billion before reaching the $20.7 billion cap. The NFIP used modeling 
from previous hurricane flood events and geospatial technology to 
estimate potential claims as a result of Hurricane Sandy, and estimated 
the borrowing cap could be hit as soon as early January 2013.
    On December 31, 2012, Congress amended the National Flood Insurance 
Act of 1968 (NFIA) to increase FEMA's borrowing authority from $20.7 
billion to $30.4 billion. This enabled FEMA to cover losses stemming 
from Hurricane Sandy. The President signed this bill into law (Pub. L. 
No. 113-1) on January 6, 2013, increasing FEMA's borrowing authority 
and allowing the Agency to continue paying flood insurance claims from 
Hurricane Sandy. We are grateful to Congress for this legislation, 
which was part of the supplemental the administration requested.
National Flood Insurance Program Background and Coverage Basics
National Flood Insurance Program Background
    Established by Congress in 1968, the NFIP helps communities better 
understand their flood risk, and provides affordable flood insurance to 
help lessen the devastating consequences of flooding in communities 
that agree to adopt and enforce floodplain ordinances consistent with 
the criteria developed by FEMA for sound land use in the floodplain. In 
1973, Congress amended the NFIP to prohibit Federally backed lenders 
from making loans secured by property located in a special flood hazard 
area unless the property was covered by flood insurance for the life of 
the loan.
    The NFIP serves as the foundation for national efforts to reduce 
the loss of life and property from flood. The program identifies areas 
of special flood hazards and flood risk zone data, and through its 
floodplain management criteria and grants, mitigates the long-term 
risks to people and property from the effects of flooding, and offers 
flood insurance in participating communities.
    The NFIP works closely in partnership with more than 80 
participating private insurance companies--commonly known as Write-
Your-Own (WYO) companies--to market, sell, administer and adjust claims 
for policyholders. By encouraging sound floodplain management efforts, 
the NFIP is estimated to save the Nation $1.7 billion annually in 
avoided flood losses.
    The NFIP supports 5.2 million policies, representing $1.2 trillion 
of coverage in force. The average claim paid is approximately $61,000.
Coverage Basics
    The NFIP pays claims for direct physical loss by flood to the 
policyholder's insured property. For family dwellings that house one to 
four families, the NFIP offers up to $250,000 in direct physical loss 
due to flood, and up to $100,000 for contents coverage with a 
deductible. When a loss is covered under the policy, the NFIP will only 
pay that part of the loss that exceeds the deductible. The same is true 
for contents coverage, which has a separate deductible.
            NFIP Replacement Cost Value and Actual Cash Value
    Property insurance contents claims are settled using two different 
methods.
    The Actual Cash Value settlement (ACV) is at the replacement cost 
at the time of loss, less the value of its physical depreciation. This 
means if the policyholder has a 10-year-old couch that can be replaced 
on the date of loss for $2,000 but the physical depreciation on the 
date of loss due to wear and tear and the age of the piece is $1,000, 
the ACV settlement will be $1,000. Put simply, the couch was worth 
$1,000 on the date of loss. To pay more than the item is worth, 
especially in a residual market, has been long considered to be the 
policyholder's windfall.
    The Replacement Cost Value (RCV) settlement is based on the 
replacement cost of the item at the time of loss without any deduction 
for physical depreciation. In the above ``couch'' example, if an RCV 
endorsement is purchased by the owner, that claim would be settled at 
$2,000 rather than the ACV of $1,000. Some RCV contents endorsements 
limit the payment to a multiple of the ACV. In the above, even if there 
was a limit of twice the ACV, the full $2,000 would be paid. However, 
if the couch was older and in worse condition than in this example, the 
full RCV might not be paid.
    The cost of an RCV contents policy would significantly increase the 
premium required for contents coverage and would also be very expensive 
for the NFIP. All of this would translate into higher premiums for 
contents coverage.
    In all cases, the value of the NFIP insured building does not 
include the value of land or any other improvement (building or 
nonbuilding structure) on the same parcel of land.
    The NFIP policy is an actual cash value (ACV) policy for all 
building and contents, with very limited exception applicable to 
primary residential buildings insured up to 80 percent of the 
dwelling's full replacement value. ACV means settlement amounts are 
based on the actual cash value of the property less depreciation at the 
time of loss for all building and content claims. Paying only the 
actual value of property on the date of loss is typical for many 
residual market insurance programs, especially those, like the NFIP, 
that are premium sensitive.
    Building claims under the terms of the Residential Condominium 
Building Association Policy (RCBAP) are settled at RCV, subject to a 
coinsurance clause, that allows the policyholder to be a coinsurer in 
return for purchasing building limits that are less than 80 percent of 
the full replacement cost of the building or the maximum NFIP limits 
available, $250,000, times the number of units in the building.
    All other buildings are insured at ACV. Building depreciation is 
also physical depreciation because of age, wear, and tear. In a 
building, for example, elements like paint and wall covering will 
depreciate considerably more quickly than framing wood. However, 
deteriorated framing lumber with damage that is not associated with the 
current flood will not be worth as much as the same age wood that had 
not deteriorated.
    HVAC systems and water heaters also have shorter life spans than 
framing. In all buildings, the condition of materials is considered in 
determining the depreciation and ultimately the dwelling's ACV. This 
could mean several hundred dollars, and in some cases of a building in 
poor condition it could mean a difference of thousands of dollars in 
claim payments, but would be commensurate with the actual value of the 
building.
    For eligible principal residences, the NFIP will settle building 
claims based on replacement cost values. This means the NFIP will pay 
to repair or replace the damage to the dwelling after application of 
the deductible and without deduction for depreciation. FEMA does not 
offer replacement coverage for contents. Were FEMA to offer replacement 
coverage for buildings and contents, it would result in significantly 
higher premiums.
    All NFIP claims are individually adjusted to give personal 
attention to each policyholder's losses and an NFIP flood certified 
adjuster is assigned to each claim. Building and contents claims both 
require a site visit. The determination of physical depreciation 
requires the adjuster to not only make a depreciation determination 
based on the age of either a contents item or a building element, but 
also to take into consideration the condition of the item or element on 
the date of loss. Often the adjuster will find items or elements that 
have been purchased or installed for an extended time, but are in 
pristine condition. In these cases, only a small amount of depreciation 
will be charged. Also, relatively recent purchases or installations may 
be in poor condition requiring a heavier depreciation charge. The 
adjusters are experienced in these determinations, which add an 
additional degree of fairness to the ultimate ACV of a contents item or 
building element.
            Other Coverage Factors
    Among other exclusions, the NFIP excludes coverage for decks and 
provides limited coverage in basements.
    Much like traditional homeowner's policies, the standard flood 
insurance policy includes a clause that requires the insurer--in this 
case the NFIP--to name the policyholder and any known mortgagee on all 
Building, Coverage A claim payments. The NFIP must include the lender's 
name on these payments to protect their collateral allowing continued 
lending in flood-prone areas.
    In addition, for eligible risks, some private insurance markets 
provide citizens flood insurance for coverage in excess of the maximum 
NFIP limits.
Claims Process and Improper Payments
Claims Process
    FEMA is committed to efficiently and quickly resolving claims with 
the help of its WYO partners, with the ultimate goal of getting all 
funds that can be paid legally into the hands of eligible policyholders 
as soon as possible. All insurers of real property and their contents 
are similarly concerned about getting claim funds in the hands of their 
policyholders as quickly as possible.
    The claims process was adjusted for Hurricane Sandy survivors to 
modify the proof of loss filing requirement. (Steps 10-14 represent 
minor modifications to the regular claims process to represent proof of 
loss--normally the proof of loss is due 60 days after the date of 
loss.)
    The claims process is as follows:

  1.  The policyholder calls their insurance agent to report the loss.

  2.  The policyholder's insurance agent reports the claim to either 
        the WYO Company or the Direct Servicing Agent (DSA).

  3.  The WYO Company/DSA (insurer) verifies that coverage was in force 
        on the date of loss.

  4.  If coverage was in force before the flood was in progress, the 
        insurer assigns the claim to an independent claims adjusting 
        firm hired by the insurer.

  5.  The adjusting firm assigns the claim to an independent NFIP 
        flood-certified adjuster hired by the adjusting firm.

  6.  The adjuster contacts the policyholder within 24 to 48 hours to 
        schedule an appointment to visit the policyholder's property, 
        with the visit itself usually occurring within 72 hours of the 
        assignment.

  7.  The adjuster meets with the policyholder at the property. During 
        this scoping visit, which can last hours or several days for 
        larger projects, the adjuster will:

    a.  Inspect the property to verify that direct physical loss by or 
        from flood has occurred (as defined in the Standard Flood 
        Insurance Policy (SFIP));

    b.  Offer to recommend an advance payment (if appropriate). The 
        adjuster must take care to consider the size of the recommended 
        advance against the probable loss and the deductible;

    c.  Scope the loss, to include measuring, taking pictures, 
        diagramming, and noting specific damage, and documenting serial 
        and model numbers of damaged major appliances and electronics;

    d.  Meet with the policyholder to discuss the policy, explain the 
        claim process, answer any question, and establish reasonable 
        expectations;

    e.  If the policyholder also has contents coverage, the adjuster 
        explains the contents process and provides inventory sheets to 
        list the damaged contents, the current replacement cost value, 
        age, and other details; and

    f.  If applicable, identify the need for expert opinions from 
        engineers regarding foundation damage and accountants or 
        salvors for commercial stock or inventory claims.

  8.  After completing all assigned scoping visits, the adjuster writes 
        the NFIP flood claim repair estimates and closing papers, which 
        are detailed and contain room-by-room, line-by-line estimates 
        of flood damage.

  9.  The adjuster sends a copy of the completed estimate to the 
        policyholder and informs the policyholder that the estimate is 
        only a recommendation. Only the insurer has the authority to 
        determine what will actually be paid.

  10.  The adjuster sends a copy of the completed estimate, contents 
        claim and closing papers to the insurer.

  11.  The insurer examines the adjuster's closing documents to verify 
        that the adjuster's recommended payment is correct and is the 
        maximum amount that can be paid legally.

  12.  The WYO Company/DSA then makes the payment to the policyholder. 
        Payment is typically made in two checks--one for building and 
        one for contents. The building claim check must name any 
        mortgagee know at the time of payment

  13.  If the policyholder considers the payment inadequate, he/she 
        must submit to his/her insurer a complete, proof of loss signed 
        and sworn to by the policyholder attaching all documentation 
        supporting the additional requested amount should be sent to 
        the insurer.

  14.  The insurer must consider the valid proof of loss and determine 
        whether additional reimbursement is appropriate.
            Improper Payments
    FEMA is the steward of Federal funds under the NFIP and is 
committed to reducing and eliminating waste, fraud, and abuse. FEMA and 
WYO companies take this responsibility very seriously. Particular focus 
was placed on this priority after Hurricane Katrina, when overpayments 
occurred and FEMA subsequently built a greater number of safeguards 
into programs across the agency. These changes have decreased improper 
payments over time, and increased confidence in the programs that are 
designed to assist survivors. FEMA tracks all improper payments through 
an audit of payments consistent with the Improper Payment Information 
Act. As demonstrated in the chart below representing NFIP payments, 
improper payments have decreased over time due to strengthened 
oversight and a commitment to educating WYO companies on potential 
penalties for noncompliance. The data collected does not differentiate 
overpayment, underpayment, or fraud.

    The NFIP claims mechanism incentivizes adjusters to recommend 
accurate claims payments, and pay accurate claims quickly. Adjuster 
compensation amounts are on a schedule of payments based on the amount 
the policyholder is paid. NFIP insurers receive 1.5 percent of paid 
claims for their Unallocated Loss Adjustment Expenses, those expenses 
that cannot be allocated to an individual claim, for instance, the 
opening and operation of a catastrophe office. Neither the adjusters 
nor the insurers get paid until the policyholder gets paid.
    While underpayments are rare, they are treated as a critical error 
in dealing with the WYO company at fault and closely monitored through 
an auditing process. If an audit finds that a WYO company has made 
improper payments in 20 percent or more of their claims, FEMA requires 
a follow up audit within 12 months. This process helps ensure proper 
oversight.
    Additionally, complaints and concerns are tracked and assessed 
during operational reviews of WYO companies.
            Proof of Loss Extension
    The NFIP policy requires policyholders to submit a valid proof of 
loss with supporting documentation to the NFIP insurer within 60 days 
from the loss. For Hurricane Sandy, FEMA extended the deadline for 
submitting a proof of loss from 60 days to 24 months after the loss.
Appeals process
    Once the NFIP insurer has issued a final written denial, in whole 
or part, of a claim, the policyholder may appeal the denial to FEMA. 
This process is detailed in the NFIP Flood Insurance Claims Handbook, 
which is provided to the policyholder.
    Prior to filing an appeal, policyholders should:

  1.  Try to resolve coverage issues with the adjuster or the 
        adjuster's supervisor.

  2.  If the adjuster's supervisor can't resolve your issues, the 
        policyholder should contact the NFIP insurer's claims 
        representative and ask for assistance.

  3.  If policyholder still has questions or concerns, the policyholder 
        should send the formal appeal along with the supporting 
        documentation directly to the Associate Administrator for the 
        Federal Insurance and Mitigation Administration.

  4.  Prior to issuing an appeal decision, the Associate Administrator 
        may request additional documents from the policyholder or the 
        insurer and may conduct a reinspection. After gathering the 
        documentation, the Associate Administrator will issue written 
        appeal decision.

  5.  A policyholder who does not agree with the appeal decision has 
        the option of filing suit against the NFIP insurer within 1 
        year of the date the insurer denied the claim.

    Of the more than 144,000 insurance claims received in the aftermath 
of Hurricane Sandy, 2,800 or 1.9 percent have been appealed. This large 
influx of appeals caused a backlog that FEMA worked quickly to resolve. 
A monthly plan was established to resolve the issue, which involved 
leveraging existing claims resources as well as bringing in additional 
claims, correspondence, and quality control resources. Because of these 
efforts, this backlog was cleared in January 2014.
    As of July 11, 2014, there were 122 total outstanding NFIP claims 
appeals and there were none that are over 90 days old.
Conclusion
    Through the NFIP, tens of thousands of survivors better understand 
how to mitigate their risk and when a flood does occur, have received 
payments that are helping them to rebuild their homes, businesses and 
communities. FEMA has an obligation to these survivors and to be good 
stewards of taxpayer dollars. We take this responsibility very 
seriously and have put a process in place that effectively settles 
legitimate claims and has a low improper payment rate.
    We are grateful to Congress for the supplemental borrowing 
authority provided in the aftermath of Hurricane Sandy, and we look 
forward to working with Congress as we close out the few remaining 
claims.
                                 ______
                                 
                  PREPARED STATEMENT OF DONALD GRIFFIN
   Vice President, Property Casualty Insurers Association of America
                             July 30, 2014
    My name is Don Griffin and I am vice president of personal lines 
with the Property Casualty Insurers Association of America (PCI). PCI 
is composed of more than 1,000 member companies, representing the 
broadest cross section of insurers of any national trade association. 
Our members write more than $195 billion in annual premium and 39 
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 also include two-thirds of the ``Write-Your-Own'' (WYO) 
insurers that partner with FEMA to administer the National Flood 
Insurance Program (NFIP). I also chair the WYO Flood Insurance 
Coalition that includes all the primary insurer trade associations and 
WYOs. My testimony today is provided on behalf of PCI. Thank you for 
the opportunity to appear before you today on behalf of PCI and our 
members.
Background on Flood Insurance Claims Payments
    PCI commends the Subcommittee for highlighting the merit in taking 
some time while information and memories are fresh to review lessons 
learned from Sandy. Further, identifying and recording lessons learned 
from Sandy will be helpful too as Congress, the NFIP and WYOs prepare 
for the fast approaching 2017 NFIP reauthorization.
    Congress passes legislation that generally establishes how the NFIP 
is to work, FEMA sets the rules, and WYO insurers service the 
policyholders and the Federal Government. The compensation paid to 
insurers to administer claims is offset by the expenses incurred to pay 
claims adjusters, legal fees, and other administrative costs. The WYOs 
are the third-party administrators for the NFIP for the Federal 
Government. WYO insurers do have significant incentives, however, to 
keep their policyholders happy and to follow Federal flood insurance 
claims regulations.
    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 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. Ultimately the WYO insurers are responsible 
for any overpayments and WYO insurers are audited regularly by the 
Federal Government under the Improper Payments Elimination and Recovery 
Act (IPERA) to ensure that they follow Federal requirements and do not 
overpay claimants.
    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. For example, in response to GAO recommendation 
subsequent to Katrina, in 2009 the claims compensation formula was 
refined by reducing the portion tied to the claim value and adjusting 
payment based on the WYO's NFIP premium volume. There are also specific 
processes in place for dissatisfied policyholders to appeal claims 
decisions to the NFIP. The most recent appeals process was put in place 
as a result of the passage of the Flood Insurance Reform Act of 2004.
    Insurers with unhappy policyholders face both individual consumer 
retention risks and reputational risks, particularly since most people 
are unaware that the rules for determining most flood insurance claims 
are set by the Federal Government and insurers do not have a direct 
risk-bearing interest.
    Finally, administering and marketing the flood program is very 
complex and expensive, and the number of insurers willing to do so has 
declined significantly in recent years. Many WYOs have determined that 
the reputational, legal, and financial risks are too great. 
Unfortunately, as fewer insurers market flood insurance, fewer 
consumers will purchase flood insurance.
Lessons Learned From Superstorm Sandy and Potential Areas of Reform
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 to their homes and businesses to begin remediation and rebuilding. 
Insurers need to be at the table during pre- and postdisaster emergency 
planning and coordination. It is also essential to the rebuilding 
process that local law enforcement and Government officials allow 
insurers and claims adjusters into damaged areas as soon it is safe--at 
least as soon as property owners are provided access.
    An issue that arose with Superstorm Sandy, was the lack of 
available flood insurance adjusters, and that can delay the claims 
settlement and the rebuilding process. Most flood insurance adjusters 
are located in areas that frequently flood. Often States implement 
reciprocal recognition of claims adjusters from other States to help. 
Often the State insurance department grants such access, with the 
proper credentials, but sometimes it is difficult, given the impact of 
the event and the number of requests, to process the necessary 
paperwork needed in a timely manner, leading to delays in responding to 
claimant needs. PCI also supports Federal legislation to require more 
reciprocal claims adjuster recognition.
Flood Insurance Advocate
    The Homeowners Flood Insurance Affordability Act (HFIAA) 
established the office of the Flood Insurance Advocate. In light of the 
considerable Congressional changes to the Federal flood insurance 
program last term through the Biggert-Waters Flood Insurance Reform Act 
(BW-12) and this year in the HFIAA, WYOs hope that the Advocate can be 
a central location to respond to inquiries by consumers, Congress and 
the media. As mentioned previously, the program is very complex and 
there are many questions regarding recent legislation and mapping. We 
understand that the NFIP has established the goal of filling that 
position by the end of this year and hope the Administrator will be 
able to find candidates with an understanding of mapping, flood 
insurance, and claims--that will all be needed for the Flood Advocate 
to best serve consumers and the NFIP.
Mitigation
    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.
Private Sector Participation
    The increased complexity of the NFIP, along with increased costs 
for low-risk, voluntary NFIP policyholders also risk decreasing NFIP 
participation. Together, these and other pressures could lead to 
additional adverse selection in the future, increased taxpayer exposure 
and the need for additional Federal aid following the next major 
catastrophe. Growing the number of both policyholders and insurers will 
benefit both taxpayers and the NFIP.
    PCI also supports increasing private sector involvement in flood 
insurance. BW-12 included a provision expressly authorizing FEMA to 
obtain reinsurance from the private market. PCI looks forward to 
working with companies and regulators to make certain consumers and 
other marketplace participants are properly educated and protected as 
this area develops.
Program Growth and Risk Spread
    Insurers participating in the WYO program are responsible for 
helping administer more than 80 percent of the NFIP business. 
Unfortunately, despite continued expensive education and outreach 
efforts by WYO companies, the number of homeowners and businesses 
purchasing flood insurance protection has peaked at about 5.5 million 
policyholders. This level of insurance protection is far below the 
needs of vulnerable consumers. Future storms will continue to expose 
gaps in both the number of consumers who are uninsured for flood risk 
as well as the many families and businesses that are underinsured for 
their exposures. Consumers need to be educated about the importance of 
having flood insurance and encouraged to continue purchasing it. 
Likewise, more needs to be done to assure that BW-12 provisions 
designed to incentivize lenders to require flood coverage are having 
the intended effect.
Conclusion
    The NFIP is an essential program to protecting millions of American 
businesses and families from catastrophic risk. PCI's WYO companies 
appreciate the opportunity to service the Federal Government and 
consumers and welcome a discussion with the Committee about how to 
improve the claims process. PCI also welcomes the Committee's interest 
in reforms addressing many of the lessons learned from Superstorm 
Sandy, including the need for better Government cooperation with 
industry, the need for the Federal flood advocate to address consumer 
questions, the benefits of improved mitigation efforts, the need for 
more private sector involvement and expansion of flood insurance 
coverage to better protect individual and business consumers.
    On behalf of PCI and our member companies, thank you for the 
opportunity to present our views today. We look forward to working with 
you to protect consumers and improve the National Flood Insurance 
Program.
                                 ______
                                 
                 PREPARED STATEMENT OF MARYANN FLANIGAN
Supervising Attorney, New Jersey Legal Services, Hurricane Sandy Legal 
                           Assistance Project
                             July 30, 2014
    Thank you for this opportunity to appear here today on behalf of 
the New Jersey Legal Services system, and on behalf of New Jersey 
residents who were affected by Storm Sandy. With funding from the Robin 
Hood Foundation, the Hurricane Sandy New Jersey Relief Fund and the 
State of New Jersey, Legal Services was able to begin providing legal 
assistance within 2 weeks after Sandy left our State. LSNJ established 
a statewide hotline (888-222-5765) which still operates and receives 
calls daily. LSNJ is the major legal assistance provider in the State 
of New Jersey for Sandy victims. Through our hotline, Web site, and 
targeted outreach, we have provided legal assistance in more than 2,500 
cases to residents who were affected by Sandy. We have assisted even 
more residents through educational materials which are accessed through 
our Web site and distributed as flyers throughout the State. Even now 
in July of 2014, 21 months after the storm, new Sandy clients continue 
to contact our offices on a daily basis; many of these clients contact 
us for assistance with flood insurance claims.
    Sandy-affected New Jersey residents have sought assistance from 
Legal Services on a breadth of issues that highlighted the need for 
legislative attention in certain areas, but one of the most prominent 
issues has involved underpayment or erroneous denials of flood 
insurance claims. Literally hundreds of New Jerseyans have come to LSNJ 
for help with their flood insurance denials and underpayments. Legal 
Services has served as a critical resource for disaster victims in need 
of assistance, especially for victims in the low to moderate income 
population. Today I will speak about the barriers that Sandy victims 
face when filing flood insurance claims, and I will highlight areas 
which can benefit greatly from careful attention and improvement.
1. Flood Insurance Companies Routinely Undervalue Claims, Thereby 
        Creating Barriers To Repairing and Rebuilding
    Almost every client who contacted LSNJ regarding a flood insurance 
issue had the same problem: the flood insurance claim offer was 
insufficient. Flood insurance carriers often subcontract the adjustment 
of flood claims to adjusters from all over the country; an adjuster 
from the midwest adjusted a client's claim for flood loss at 
approximately $40,000 less than what the client needed in order to make 
the covered repairs. After examining the line-by-line estimate prepared 
by the adjuster, it was clear that materials could not be purchased in 
New Jersey for the unit prices listed. This low-balling of flood 
insurance claims happens all too often, and results in the insured 
suffering an unreasonable delay in making needed repairs to the home. 
The insured must either sacrifice quality by finding a way to purchase 
materials which are within the covered price range, or accrue 
additional expenses by taking out loans to cover the cost of repairs 
and other living arrangements while fighting for a fair settlement 
offer.
    One particularly egregious case occurred when a homeowner carried 
homeowner and flood insurance through the same private Write-Your-Own 
(WYO) insurance company. The client's home was on a sea-facing avenue 
on which all of the homes suffered approximately 4 feet of flood 
damage. The flood insurance department denied the claim stating that 
the damage was caused by wind-driven rain and the homeowner insurance 
department denied the claim stating the damage was caused by flood 
water. The client had to appeal both claims and several months passed 
before the homeowner insurance department sent a structural engineer to 
prepare a report regarding causes of damage. The client used the 
structural engineer report as evidence of flood damage, and the flood 
insurance department then handled her claim more fairly. At that point 
in time, the client had been displaced from her home for approximately 
7 months before the flood insurance department began to assess the 
scope of flood damage to her home.
    A potential Federal remedy for this issue would be modification of 
the existing incentive and penalty system for flood insurance companies 
when claims are undervalued.
2. The Process for Appealing or Supplementing a Flood Insurance Claim 
        Is Excessively Complicated and Write-Your-Own (WYO) Insurance 
        Companies Often Create Extra Requirements With Which the 
        Insured Must Comply. The Insurance Companies Offer Little 
        Support or Guidance to Their Insureds
    When clients contact LSNJ for assistance with a flood insurance 
claim, we start out by providing a simplified explanation of how to 
appeal an underpayment or denial. While the National Flood Insurance 
Program (NFIP) requires ``detailed repair estimates'' in the Standard 
Flood Insurance Policy (SFIP) Dwelling Form 44 CFR  61 APPENDIX A 
(1)(VII)(H)(4)(f.), WYOs tend to reject detailed estimates if they are 
not prepared by specific software which creates an estimate report in 
an identical format to the one prepared by the claim adjuster. The 
insurance companies often do not offer any clear explanation or 
guidance to the insured when the estimate is rejected.
    By the time that the client contacts us, the client typically has 
had several conversations with the flood claim agent about the 
underpayment or denial. After we explain the flood insurance appeal 
process, clients often express gratitude for the information and state 
that they did not understand the appeal process before speaking with 
LSNJ. That is to say, the client did not receive a clear explanation of 
the appeal process from the flood claim agent. Clients also tell 
stories of unreturned phone calls and emails to claim agents, and the 
clients tend to have a sense of dismay about the entire flood claim 
process.
    After a couple in Union Beach, New Jersey, submitted a proof of 
loss to appeal their denial, they received notice that their proof of 
loss was denied. The insurance company did not explain the reason for 
the denial or offer guidance for what could be submitted in order to 
lead to a reassessment or approval. Another client in Toms River wanted 
to speak with her flood claim agent regarding her appeal, and the claim 
agent said he could not speak to her because she hired a public 
adjuster. Although there is no regulation prohibiting an insurance 
agent from speaking to the insured after a public adjuster has been 
hired to assist with the claim, several clients tell us that their 
flood insurance agents refuse to speak with them. Then, when these 
clients have difficulty getting in touch with their public adjusters, 
they are in the dark about the progress of their appeal and they have 
no idea when they might be able to return to a normal and stable living 
situation.
    A potential Federal remedy would be straightforward guidance from 
the NFIP to all flood insurance companies which establishes a standard 
requirement that WYOs refrain from creating any extra requirements in 
the flood claim process.
3. The Statute of Limitations for Filing a Lawsuit Should not Begin To 
        Run Until a Proof of Loss Has Been Submitted and Denied in 
        Whole or in Part
    Client claim rights are limited severely by the lawsuit statute of 
limitations built into the SFIP. The statute of limitations clause 
explains that the client must file suit within 1 year of the first 
partial or whole denial of the flood insurance claim, without regard to 
the submission or review of a proof of loss. Therefore, clients may 
find themselves fighting with the insurance company for several months 
over a proof of loss form without any clear decision (approval or 
denial) while the statute of limitations clock is ticking. Then the 
client may still be fighting for an approval or denial of the proof of 
loss when the statute of limitations time runs out. If the proof of 
loss is subsequently denied, the client then has no recourse through 
the judicial process and must resort back to fighting the insurance 
company with another proof of loss through the same exact process.
    A potential Federal remedy would be amending FEMA regulations so 
that the limitations timeline does not begin to run until there is a 
partial or complete denial of a submitted proof of loss form.
4. The Complexities of the Flood Claim Appeal Process Have a 
        Particularly Negative Impact on Low to Moderate Income Insureds
    Low to moderate income New Jerseyans affected by Sandy were in some 
ways the worst-off in the flood insurance claim process. Not only were 
they displaced and forced to incur additional expenses in the 
relocation or rebuilding processes, but they also may have lost income 
if their jobs were affected by Sandy. When these clients sought 
assistance navigating the flood insurance appeal process, they found 
themselves unable to afford attorney fees. If they were fortunate 
enough to find an attorney who would provide services on a contingent 
fee basis, the low to moderate income client then had to make the hard 
decision of figuring out how to possibly repair the home with only two-
thirds of what they needed to get from the insurance company. In many 
situations, attorneys would not take flood insurance appeal claims 
because the respective recovery amounts might be too low to compensate 
for the work required. With limited resources, LSNJ has been able to 
assist many of these low to moderate income New Jerseyans in navigating 
the appeal process. However, these clients find themselves struggling 
to pursue the appeal because of the costs for hiring a structural 
engineer or a contractor who can provide a ``detailed estimate'' in the 
format that the flood insurance provider wants. Also, these clients 
sometimes are unable to devote sufficient time to thoroughly preparing 
the appeal because of employment responsibilities and other day-to-day 
obligations.
    A potential Federal remedy would be simplifying the flood insurance 
claim appeal process and establishing a robust flood advocate as 
authorized under the Homeowner Flood Insurance Affordability Act so 
that insureds would be better equipped to effectively handle their 
appeals without incurring attorney expenses.
5. Policy Coverage Terms Should Be Written in Clearer Language and 
        Coverage Should Be More Comprehensive in the Case of a Total 
        Loss Due to Flood Damage
    Many clients do not understand their coverage terms. They do not 
understand that the flood insurance policy does not indemnify for a 
total loss in the way that typical homeowner insurance policies do. A 
client whose home is covered for $250,000 under the flood insurance 
policy does not expect to hear that although the home was substantially 
damaged and needs to be completely rebuilt after suffering five feet of 
flood water damage, the flood insurance policy will only pay for the 
part of the home which was damaged by flood water--even if that amount 
is less than $250,000. Policy terms should be written in clearer 
language and explained to the insured whenever the policy is renewed.
    A potential Federal remedy would be modifying SFIP language so that 
policies are written in clearer terms and a directive from the NFIP 
requiring flood insurance agents to explain coverage limits to the 
insured.
         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                       FROM CRAIG FUGATE

Q.1. One of the complaints that is often raised about the 
National Flood Insurance Program (NFIP) concerns the accuracy 
of flood maps. To help address this criticism, I worked on a 
provision of the Biggert-Waters Act to establish a Technical 
Mapping Advisory Council or TMAC. This interagency and 
stakeholder group will help advise FEMA on the development of 
flood maps, including how to evaluate and depict future risk 
due to phenomena like sea-level-rise. I'm pleased that 2 years 
after the authorization of the TMAC a slate of members was 
finally appointed a few weeks ago.
    Can you discuss how you will be utilizing the TMAC to 
improve the quality of flood maps and to help individuals and 
communities understand future risks?
    Can you also comment about how FEMA, through TMAC and with 
other Federal agencies such as NOAA and the U.S. Geological 
Survey, is working to give States and localities technical 
information and data that might help them mitigate their flood 
risk for the short and long-term?

A.1. The Technical Mapping Advisory Council (TMAC) will be 
preparing written recommendations in a future conditions risk 
assessment and modeling report that will be submitted to the 
Federal Emergency Management Agency (FEMA) Administrator. The 
report is due 1 year after the first public meeting of the 
TMAC, which will be held at the U.S. Geological Survey (USGS) 
on September 30 and October 1, 2014. The future conditions risk 
assessment and modeling report is a one-time report 
specifically called for in the Biggert-Waters 2012 legislation 
that will be produced in parallel with the first annual 
recommendations report. The separate annual report, also due to 
the FEMA Administrator 1 year after the first public meeting of 
the TMAC, will contain, among other things, recommendations on 
how to improve the quality of flood maps. An annual 
recommendations report will be produced each year until the 
TMAC is stood down. The TMAC is comprised of members and 
representatives of various Federal, State, and local 
governments. This includes representatives from the USGS, 
National Oceanic and Atmospheric Administration (NOAA), the 
U.S. Army Corps of Engineers (USACE), and other 
representatives. In addition, the TMAC includes members of 
recognized associations or organizations, such as the American 
Society of Civil Engineers and the Association of State Flood 
Plain Managers.
    The Agency has been working with other Federal agencies to 
conduct sea level rise proof of concept studies in conjunction 
with organizing and standing up the TMAC. The studies are being 
conducted for parts of San Francisco County, CA, and portions 
of Pinellas and Hillsborough Counties, FL. The objectives of 
the studies are to test methods for incorporating sea level 
rise data into FEMA's flood maps, as well as develop a product 
(sea level rise tool) that could actually be used by these 
Counties for informational nonregulatory purposes. The sea 
level rise tool will be similar to (but improved upon to 
consider differences in Pacific coast versus Atlantic coast 
methodologies) that developed by the cooperative effort of 
FEMA, USACE, NOAA, and the U.S. Global Change Research Program 
(USGCRP) for the coastal Counties/Boroughs of New Jersey and 
New York that were impacted by Hurricane Sandy. FEMA is working 
closely with NOAA, USACE, and the USGCRP in the development of 
these newer tools. Finally, it should be noted that the TMAC 
will be briefed on the findings (some preliminary) of these sea 
level rise efforts so that the information and data can be used 
in formulating recommendations on how to mitigate and 
understand flood risk for the short and long-term.

Q.2. One reason there is less confidence in flood maps is that 
so many maps have not been updated in years, decades in some 
cases. When they are updated, they can seem abrupt and 
arbitrary to the public. In Rhode Island we've only recently 
seen updates for coastal maps that go back to the 1970s and 
1980s. There are other maps in the State that are still that 
old. According to the Association of State Floodplain Managers, 
it would cost about $275 million per year simply to maintain 
proper maps on a 5 year interval. That figure does not include 
the fact that many flood risk maps have not yet been updated 
with new engineering and hydrologic data, and some lower risk 
areas have never been mapped. Unfortunately, the 
Administration's request for discretionary funding for flood 
mapping and risk analysis has declined sharply in the last few 
years. This year, the budget request cuts mapping yet again. 
I'm pleased that Chairman Landrieu has increased this funding 
be increased to $100 million in the Senate Homeland Security 
Appropriations bill. But even if we hold that number, it would 
be less than a quarter of the authorized level. I know that you 
have many priorities to address in the budget request, but 
assuming the State Floodplain Managers are correct, how will we 
get to the point where maps are updated and accurate with the 
level of funding that FEMA is currently dedicating to this 
mission?

A.2. The budget for Flood Hazard Mapping and Risk Analysis has 
experienced reductions in the last several years. Increases in 
flood insurance fee income have partially offset this 
reduction. The available budget has allowed FEMA to moderately 
maintain the Nation's flood hazard maps: however, it has 
limited FEMA's ability to advance and/or develop new analyses 
in many areas. FEMA is exploring efficiencies and innovations, 
internally and in partnership with the private sector, that may 
impact mapping operations (i.e. factors that drive improvements 
to technology, processes, or map production). Additionally, 
FEMA is looking to leverage State, local, and tribal data and 
resources along with other Federal Agencies' data to advance 
the mapping program. Through these potential efficiencies and 
innovations, FEMA is seeking ways to make more progress on 
mapping within the existing budget; however, we anticipate that 
these efficiencies could only further offset budget reductions, 
but wouldn't be enough to return our Flood Hazard Mapping and 
Risk Analysis activities to historical performance levels when 
available resources were higher.

Q.3. The Homeowner Flood Insurance Affordability Act included a 
study I authored on the feasibility of establishing community-
based flood insurance options. The idea being that such 
policies might give communities a way to increase 
participation, encourage mitigation, and reduce premiums. Along 
with the affordability study authorized under the Biggert-
Waters Act, this will help inform the conversation for the next 
NFIP reauthorization in just a few of years (2017). Can you 
give a sense of FEMA's timing to complete this study?

A.3. FEMA is working diligently to complete each of the studies 
and reports required by both the Biggert-Waters Flood Insurance 
Reform Act of 2012 and the Homeowner Flood Insurance 
Affordability Act of 2014. The contract for this study is 
expected to be executed by the end of September 2014, with a 
completion date of August 2015. FEMA will make every effort to 
perform all interval reviews quickly in order to provide the 
report to congress by the September 2015 due date.

Q.4. States with federally declared disasters typically are 
eligible for HMGP grants equal to 15 percent of the total 
Individual Assistance and Public Assistance that FEMA provides 
following a Presidentially declared disaster. In following the 
experience of Rhode Island, my impression is that FEMA's rules 
make it hard for States to use their HMGP funds in the limited 
amount of time they are available. In fact, States, 
particularly those that have little familiarity with HMGP, may 
wind up returning portions of their grants because they cannot 
execute projects quickly enough.
    Is it your experience that States wind up returning a 
portion of their HMGP funds? If so, what percentage of HMGP 
funds is returned? What steps can and should be taken to make 
sure that States are able to use their full HMGP allotments on 
good, effective projects?

A.4. Since 1988, FEMA has awarded approximately $12.3 billion 
Hazard Mitigation Grant Program (HMGP) grants for 928 separate 
declarations. Overall, approximately $8.6 billion of the $12.3 
billion has been obligated.
    States are required to submit applications for HMGP 
consideration within 12 months of the declaration. By 
regulation, this time limit is extendable with justification 
for up to 6 months. In rare situations FEMA has allowed 
additional time for States to solicit, develop and submit 
applications. The period of performance begins with the opening 
of the application period (i.e., the date of the declaration) 
and ends no later than 36 months from the close of the 
application period. At the State's request, the period of 
performance can be extended for up to 12 months with 
justification. The grantee is expected to complete all grant 
activities and to incur costs during the period of performance.
    To date, $145.3 million of $1.26 billion has been obligated 
for Sandy declarations. The States of New York and New Jersey 
still have open application periods. They have not yet 
submitted projects for all available funding, although 
approximately $500 million worth of HMGP projects are in 
process.
    A State may choose to take one or more actions below to 
ensure full use of HMGP funds.

    States and local communities are encouraged to 
        develop viable preevent mitigation plans that clearly 
        identify at risk, or vulnerable target structures or 
        areas so that they can reduce time developing projects 
        after an event. These Hazard Mitigation Plans are 
        required in order to receive HMGP project grants. FEMA 
        is working to provide additional guidance and support 
        to improve the quality of the planning process, which 
        includes an interagency effort with the Partnership for 
        Sustainable Communities to ensure that appropriate data 
        and tools for risk assessments are made available and 
        to promote better alignment of related programs to 
        ensure more coordinated planning support. Local plans 
        can address actions to address climate change and adapt 
        to changing risk environments. Examples are identifying 
        at-risk structures, obtaining current elevation data 
        and prioritizing actions that include freeboard as a 
        way to account for future risk. Areas affected by 
        wildfire may have increased flooding risk due to the 
        loss of ground cover. Local plans can be adjusted to 
        assess changing risks and to prioritize high value 
        mitigation opportunities. FEMA encourages communities 
        to develop local plans that work best for their 
        hazards. The minimum regulatory requirements for 
        acceptable plans may meet the needs of a community, 
        while another may prefer to add detail, technical data 
        and prioritization preferences. FEMA provides technical 
        assistance and training to States and communities to 
        promote a planning process that is inclusive across 
        disciplines and results in a plan with clearly 
        implementable actions.

    States may submit applications for Advance 
        Assistance. FEMA is conducting a pilot program that 
        provides up to 25 percent of the total HMGP ceiling, up 
        to $10 million for States to collect data, assist 
        communities developing projects, and set up program 
        management processes.

    States that are unable to submit complete, eligible 
        applications may request application period extensions.

    States may request technical assistance to develop 
        projects and/or determine cost-effectiveness, or to 
        implement cost share options that may reduce local or 
        individual cost shares. FEMA provides technical 
        assistance to States and local applicants--at the 
        State's request.

    States may request training in the areas of 
        application development and review, and for determining 
        cost effectiveness, and other program requirements. 
        FEMA provides training at State's request for State 
        staff, as well as local community officials that may 
        have program roles. Understanding FEMA program 
        requirements sets a firm base for States and local 
        communities as they implement post disaster recovery 
        and mitigation plans and initiatives.
                                ------                                

       RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHUMER
                       FROM CRAIG FUGATE

Q.1. In March Congress passed the Homeowner Flood Insurance 
Affordability Act and the legislation contained language that 
would allow for homeowners to receive credit for alternative 
forms of mitigation done to their homes when traditional 
mitigation efforts such as elevation may be impractical. In New 
York, we currently have homeowners in the process of rebuilding 
both in the existing and in the soon-to-be mapped floodplain 
and it is important for them to know what actions they can or 
should take to help make their homes safe and keep premiums 
low.
    So, can you give us an update on how these provisions of 
the law are being implemented, how these alternative forms of 
mitigation will be taken into account in the calculation of 
risk premium rates, and what homeowners should know in order to 
take advantage of these alternative mitigation options?

A.1. As directed by the law, FEMA is currently studying how 
homeowners might receive credit for alternative forms of 
mitigation. This study is under contract, with an expected 
completion date of February 2015. The report is due to Congress 
by March 15, 2015.
    FEMA is currently working to identify potential alternative 
mitigation measures as required under Sec. 26 of the HFIAA of 
2014. Examples of the types of alternative mitigation measures 
under consideration include use of hydrostatic openings, 
elevating all building utilities, floodproofing all building 
utilities, use of flood-damage resistant materials, use of 
floodwall without gates, abandoning the lowest floor, and 
elevating lowest interior floor. FEMA is conducting a 
comprehensive review of many alternative mitigation measures to 
determine their initial feasibility for both flood protection 
and potential flood insurance premium discounts.
                                ------                                

        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                       FROM CRAIG FUGATE

Q.1. Once FEMA determines that digital mapping technology is an 
effective and accurate flood mapping tool, how long do you 
anticipate it would take for FEMA to implement the widespread 
use of digital mapping technology?

A.1. FEMA began implementing digital mapping technologies 
around 2000. Over the course of the next 10 years, FEMA's flood 
mapping program:

    Eliminated 95 percent of paper map distribution

    Transitioned from printing presses and a paper 
        inventory to an all-digital mapping inventory

    Provided modernized geospatial data and maps for 92 
        percent of the Nation (of which all were aligned with 
        the best available topographic data and approximately 
        half of the stream miles were validated, provided with 
        new engineering study, or updated with new engineering 
        analysis)

    In 1999, FEMA was distributing 2.5 million paper maps each 
year. FEMA began the transition to digital regulatory products 
by scanning the entire map inventory and creating an easy-to-
use tool online to view and print official copies of a portion 
of the standard flood maps. These customized products were 
called FIRMettes. Downloading and printing FIRMettes soon 
replaced much of the demand for paper maps.
    By 2003, paper map demand stabilized below 1 million maps 
per year, and FEMA was initiating the Flood Map Modernization 
Program. The Flood Map Modernization Program republished flood 
maps for 65 percent of the land area of the United States, 
covering 92 percent of the Nation's population as digital 
geospatial FIRM databases, static digital map images, and paper 
maps. The Bunning-Bereuter-Blumenauer Flood Insurance Reform 
Act of 2004 (Pub. L. No. 108-264) (commonly referred to as the 
Flood Insurance Program Reform Act of 2004) added a provision 
allowing FEMA to treat digital geospatial data as official, 
equivalent to the paper maps. FEMA developed policy to 
implement this change, which was published in 2007. At the same 
time, FEMA introduced the National Flood Hazard Layer (NFHL). 
The NFHL is a digital geospatial data product composed of all 
FIRM databases available nationally and updated daily as 
revisions to flood maps are processed. The NFHL is available 
live via the Web through open Web mapping service interfaces.
    In 2008, FEMA announced it would discontinue nearly all 
distribution of paper maps, beginning with maps finalized in 
October 2009. FEMA focused on reorienting internal production 
processes to emphasize the FIRM database as the primary 
product, instead of the static digital and paper flood maps. 
This was critical to the flood determination industry 
transition from paper to digital products. Beginning October 1, 
2009, FEMA eliminated all paper distribution of flood maps, 
except a single paper copy when revised to affected communities 
to support the incorporation of the flood maps into local land 
use ordinances. This reduced the annual distribution of paper 
maps to fewer than 100,000 units annually.
    Similarly, FEMA has been encouraging the adoption of LIDAR 
technology for flood mapping since the 1990s. FEMA published 
one of the first LIDAR specifications in 1999 which became the 
industry standard for a number of years. FEMA has worked 
actively with the USGS and other Federal Agencies on LIDAR 
acquisition and standards through the National Digital 
Elevation Program. In 2010 FEMA adopted new accuracy standards 
for all flood map updates and requiring all new elevation data 
purchased to follow the current USGS LIDAR specification. This 
year, FEMA is working very closely with USGS to help launch the 
3D Elevation Program (3DEP) as a strategy to acquire updated 
digital elevation for the Nation cooperatively at a lower cost. 
The 3DEP is designed as an 8 year plan to achieve national 
coverage.

Q.2. What steps is FEMA taking to educate the public and 
broaden the base of the flood insurance program to nonrequired 
homeowners?
    Are there additional steps that Congress or the agencies 
should take to would encourage nonrequired homeowners to 
participate in the program?
    How would expanded participation of nonrequired homeowners 
impact the solvency of the flood insurance program?

A.2. The National Flood Insurance Program has a decade-long 
public education campaign--FloodSmart--which seeks to explain 
the benefits of protecting yourself financially from flood 
damage. FloodSmart is a multifaceted campaign which includes 
paid advertising through a variety of media (television, radio, 
print, billboards, Web) as well as direct mail, advanced Web 
tools for determining flood risk and policy information at 
http://www.FloodSmart.gov, public service announcements, earned 
media through public relations and other activities designed 
specifically to reach the general public. FloodSmart provides 
extensive resources in the aftermath of disasters to assist 
those impacted by the disaster file their insurance claims, but 
also to reach those in areas nearby, but not directly impacted, 
to educate them about flood risk and protection when it is 
uppermost in their minds.
    The FloodSmart program has intentionally mixed its 
investments in paid media outreach in communities with a high 
propensity to purchase (usually those at elevated risk of 
flooding) along with communities where overall flood 
probability may be lower, but flood consequences will be high 
when waters do rise. Unfortunately, we have found that without 
a recent flood history or floods making headlines elsewhere, 
interest in flood insurance coverage is generally low. As the 
economy rebounds though, and family funds become more 
available, the National Flood Insurance Program (NFIP) is 
seeing an uptick in interest in flood insurance.
    All FloodSmart materials directed to the public go through 
a rigorous six-step review process to ensure they are 
completely accurate and are as easy to read and digest as 
possible. Likewise, many materials are available in Spanish and 
other languages as well as being 508 compliant for those with 
sight or hearing impairments.
    As part of our ongoing efforts within Mitigation and the 
NFIP, FEMA has established strong partnerships with numerous 
professional organizations and associations. These partnerships 
include the Association of State Floodplain Managers (ASFPM), 
the National Association of Flood and Stormwater Management 
Agencies (NAFSMA), the National Association of Counties (NaCo), 
as well as numerous insurance associations, the National 
Association of Realtors (NAR), the Mortgage Bankers Association 
of America (MBA), the American Bankers Association (ABA) and 
other groups at the State and local levels. NFIP 
representatives also meet quarterly with Federal regulatory 
agencies with oversight for the lending industry and federally 
secured loans.
    Since May 2013, FEMA has trained more than 19,000 insurance 
agents and 45,500 total insurance professionals (lenders, 
adjusters, realtors, others) on the flood insurance program and 
ways to reduce flood risk.
    In May 2014, the NFIP released a series of Public Service 
Announcements aimed directly at understanding flood risk. The 
wildly popular ``Protect What Matters'' campaign, which can be 
viewed at https://www.floodsmart.gov/, is already being widely 
shown in Tier 1 and Tier 2 markets in Florida, the Gulf Coast, 
Hawaii, and other areas and has already earned more than $1 
million in free advertising airtime in its first 8 weeks.
    FEMA, through its Risk Mapping, Assessment, and Planning 
(Risk MAP) program, releases new flood maps and data as 
available, giving communities across America access to helpful, 
authoritative data that they can use to make decisions about 
flood risk. The Risk MAP program assists communities nationwide 
to assess flood risks and encourages mitigation planning and 
actions to avoid or minimize damage in the face of future 
disasters. Through more precise flood maps, risk assessment 
tools, and outreach support, Risk MAP strengthens local 
communities' ability to make informed decisions about reducing 
risk. A key element of Risk MAP is engaging local officials and 
other community leaders throughout the process, to discuss the 
community's flood risk and identify mitigation strategies and 
actions to reduce that risk. Throughout the flood mapping 
process, FEMA and community leaders host events to inform 
residents of their community's risk to flooding.
    In July 2014, FEMA redesigned the Flood Map Service Center 
(MSC), the public portal to access flood mapping products. The 
MSC Web site and supporting help information make it simpler 
for homeowners and professionals to access important flood risk 
information and tools. National Flood Determination Association 
(NFDA) and Risk MAP's public-facing customer service 
representatives provided design input to increase the site's 
usability. In addition to regulatory products, nonregulatory 
flood risk maps and data are available on the MSC and provide 
an alternative means to help understand risk.
    FEMA's Risk MAP managers meet regularly throughout the year 
with ASFPM and NAFSMA to share information and ideas. As 
another example of our collaboration with professional 
organizations and associations, Risk MAP conducted a workshop 
at the National Association of Counties (NaCo) annual 
conference in New Orleans, Louisiana, last month to demonstrate 
how to access and use Risk MAP tools to help inform their 
communities about flood risk.
    The NFIP has a long history of working with Congress and 
other agencies to promote flood awareness generally and flood 
insurance specifically. Any actions taken by Congress or other 
agencies to help spread the message of protecting oneself from 
the financial ruin floods can bring is an additional step in 
the right direction. The NFIP stands ready to assist Congress 
or other agencies in partnering on disseminating these 
messages.
    There is no doubt that increasing the number of properties 
insured--especially in lower risk areas--will spread the 
liability of the flood insurance program across a much larger 
pool of policyholders. It is a basic tenet of insurance: 
spreading risk across multiple policies is much safer 
financially than concentrating risk across a few. Additional 
policies would definitely bolster the NFIP's financial ability 
to withstand a major flood event, as well as pay off debt more 
quickly and increase the Reserve Fund more quickly.
    While FEMA continues to make modest headway into increasing 
flood coverage in low- to moderate-risk areas, dramatic 
increases are unlikely due to several factors including 
awareness of the availability of flood insurance in lower-risk 
areas, limited acceptance of flood risk outside of SFHAs, and 
the cost of insurance. Possible solutions include:

    expanding mandatory purchase of flood insurance for 
        federally regulated mortgages in the 0.2 percent (500 
        year) flood risk zone,

    expanding mandatory purchase for all properties 
        financed through a federally regulated lender,

    increased emphasis on non-SFHA participation in 
        Community Rating System communities,

    consider implementing incentives identified in the 
        Affordability study currently being conducted as part 
        of HFIAA,

    encouraging State insurance regulators/legislators 
        to place greater value and emphasis on flood insurance 
        training for agents.
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