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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/ 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

TIM JOHNSON, South Dakota, Chairman 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

KAY HAGAN, North Carolina 

JOE MANCHIN III, West Virginia 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

MIKE CRAPO, Idaho 

RICHARD C. SHELBY, Alabama 

BOB CORKER, Tennessee 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

TOM COBURN, Oklahoma 

DEAN HELLER, Nevada 

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 

CHARLES E. SCHUMER, New York 

SHERROD BROWN, Ohio 

JEFF MERKLEY, Oregon 

JOE MANCHIN III, West Virginia 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

BOB CORKER, Tennessee 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

TOM COBURN, Oklahoma 

DEAN HELLER, Nevada 

RICHARD C. SHELBY, Alabama 

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)

(1) 

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.’’ 

2 

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. 

3 

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 

4 

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 examVerDate Nov 24 2008 15:31 Feb 25, 2015 Jkt 046629 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 L:\HEARINGS 2014\07-30 ZDISTILL\91460.TXT JASON
5 

ple: 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? 

6 

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-YourOwns 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. 

7 

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. 

8 

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. 

9 

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. 

10 

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. 

11 

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 

12 

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. 

13 

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? 

14 

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 

15 

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. 

16 

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, 

17 

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 WriteYour-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. 

18 

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 WriteYour-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-YourOwns. 

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? 

19 

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-YourOwns. 

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. 

20 

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. 

21 

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. 

22 

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. 

23 

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? 

24 

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. 

25 

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. 

26 

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. 

27 

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. 

28 

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. 

29 

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, lowballing 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. 

30 

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-YourOwn 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. 

31 

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 lowballing. 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:] 

32 

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. 

33 

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 BiggertWaters 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 litiVerDate Nov 24 2008 15:31 Feb 25, 2015 Jkt 046629 PO 00000 Frm 00037 Fmt 6621 Sfmt 6621 L:\HEARINGS 2014\07-30 ZDISTILL\91460.TXT JASON
34 

gation, 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 

35 

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 depreciaVerDate Nov 24 2008 15:31 Feb 25, 2015 Jkt 046629 PO 00000 Frm 00039 Fmt 6621 Sfmt 6621 L:\HEARINGS 2014\07-30 ZDISTILL\91460.TXT JASON
36 

tion 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; 

37 

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 


73014001.eps
38 

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 

39 

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 

40 

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. 

41 

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. 

42 

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 

43 

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. 

44 

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 sealevel-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 

45 

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 

46 

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 

47 

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 

48 

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 flooddamage 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 

49 

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 

50 

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 

51 

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, 

52 

• encouraging State insurance regulators/legislators to place 

greater value and emphasis on flood insurance training for 

agents.