U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

57–744 PDF 2010

LEGISLATIVE PROPOSALS TO REFORM THE 

NATIONAL FLOOD INSURANCE PROGRAM 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

HOUSING AND COMMUNITY OPPORTUNITY 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

APRIL 21, 2010 

Printed for the use of the Committee on Financial Services 

Serial No. 111–126 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY

MAXINE WATERS, California, Chairwoman 

NYDIA M. VELA ́ ZQUEZ, New York 

STEPHEN F. LYNCH, Massachusetts 

EMANUEL CLEAVER, Missouri 

AL GREEN, Texas 

WM. LACY CLAY, Missouri 

KEITH ELLISON, Minnesota 

JOE DONNELLY, Indiana 

MICHAEL E. CAPUANO, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

LUIS V. GUTIERREZ, Illinois 

STEVE DRIEHAUS, Ohio 

MARY JO KILROY, Ohio 

JIM HIMES, Connecticut 

DAN MAFFEI, New York 

SHELLEY MOORE CAPITO, West Virginia 

THADDEUS G. McCOTTER, Michigan 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

RANDY NEUGEBAUER, Texas 

WALTER B. JONES, JR., North Carolina 

ADAM PUTNAM, Florida 

KENNY MARCHANT, Texas 

LYNN JENKINS, Kansas 

CHRISTOPHER LEE, New York 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

April 21, 2010 ................................................................................................... 1 

Appendix: 

April 21, 2010 ................................................................................................... 41 

WITNESSES 

WEDNESDAY, APRIL 21, 2010 

Brown, Orice Williams, Director, Financial Markets and Community Investment, U.S. Government Accountability Office ................................................... 12 

Conrad, David R., Senior Water Resources Specialist, National Wildlife Federation ................................................................................................................... 24 

Costello, Hon. Jerry F., a Representative in Congress from the State of 

Illinois ................................................................................................................... 9 

Davey, Mark, President and Chief Executive Officer, Fidelity National Insurance Company, on behalf of the Write-Your-Own Flood Insurance Coalition 25 

Fugate, Hon. Craig, Administrator, Federal Emergency Management Agency, 

Department of Homeland Security ..................................................................... 10 

Larson, Larry, Executive Director, Association of State Floodplain Managers .. 27 

Matsui, Hon. Doris O., a Representative in Congress from the State of California ..................................................................................................................... 1 

Rollins, John W., President, Rollins Analytics, Inc. ............................................. 28 

Rutenberg, Barry, 2010 Second Vice Chairman of the Board, National Association of Home Builders ..................................................................................... 30 

Scalise, Hon. Steve, a Representative in Congress from the State of Louisiana ..................................................................................................................... 3 

Taylor, Hon. Gene, a Representative in Congress from the State of Mississippi .................................................................................................................. 5 

Veissi, Maurice, Veissi & Associates, 2010 First Vice President, National 

Association of REALTORS .................................................................................. 32 

APPENDIX 

Prepared statements: 

Childers, Hon. Travis W. ................................................................................. 42 

Costello, Hon. Jerry F. ..................................................................................... 43 

Loebsack, Hon. Dave ........................................................................................ 46 

Matsui, Hon. Doris O. ...................................................................................... 50 

Putnam, Hon. Adam H. .................................................................................... 55 

Scalise, Hon. Steve ........................................................................................... 60 

Taylor, Hon. Gene ............................................................................................. 63 

Brown, Orice Williams ..................................................................................... 74 

Conrad, David R. .............................................................................................. 100 

Davey, Mark ...................................................................................................... 112 

Fugate, Hon. Craig ........................................................................................... 119 

Larson, Larry .................................................................................................... 125 

Rollins, John W. ................................................................................................ 142 

Rutenberg, Barry .............................................................................................. 144 

Veissi, Maurice ................................................................................................. 154 

(1) 

LEGISLATIVE PROPOSALS TO 

REFORM THE NATIONAL FLOOD 

INSURANCE PROGRAM 

Wednesday, April 21, 2010 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HOUSING AND

COMMUNITY OPPORTUNITY, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:10 p.m., in room 

2128, Rayburn House Office Building, Hon. Maxine Waters [chairwoman of the subcommittee] presiding. 

Members present: Representatives Waters, Cleaver, Green, Clay, 

Ellison, Driehaus; Capito, Neugebauer, Marchant, and Jenkins. 

Also present: Representatives Taylor, Costello, and Scalise. 

Chairwoman WATERS. The Subcommittee on Housing and Community Opportunity will come to order. Thank you very much. I 

would like to ask the members to take a seat at the table. 

We are very pleased to have so many Members of the House with 

us today. And I would like to start the hearing by getting the statements from the Members. I know that you’re all busy, and you 

don’t want to sit through our opening statements. 

So, with us today, we have the Honorable Jerry Costello, the 

Honorable Doris Matsui, the Honorable Steve Scalise, and the Honorable Gene Taylor. And we will start with the Honorable Doris 

Matsui. 

STATEMENT OF THE HONORABLE DORIS O. MATSUI, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Ms. MATSUI. Thank you, Madam Chairwoman. I thank the chairwoman, my friend from California, Ms. Waters, and Ranking Member Capito for allowing me to have the opportunity to testify before 

the subcommittee today, for scheduling consideration of the Flood 

Insurance Reform Priorities Act tomorrow. 

This legislation, which I am pleased to cosponsor, would reform 

the National Flood Insurance Program, NFIP, and contains language, H.R. 5125, that I authored, which would provide technical 

changes to Federal flood zone designations. 

I would also like to thank Chairman Frank and Ranking Member 

Bachus for their continued advocacy for H.R. 1525. Both of them 

and their incredible staffs have been invaluable during this process. 

2 

Additionally, I am grateful to FEMA for collaborating with Congress to craft a number of NFIP modifications. From my hometown 

in Sacramento to the Louisiana Bayou to the plains of the Midwest, 

communities are improving their flood protection infrastructure in 

order to keep Americans safe and secure. However, as we work to 

conform to changing dynamics of Federal standards, these communities are seeking clarity as they work to meet Federal regulations. 

Public safety is my absolute number one priority. H.R. 1525, 

which was approved last summer by the House as part of the National Flood Insurance Program Extension Act, would give communities clarity, so that they can continue to improve flood defenses. 

Specifically, this legislation would update current law to take 

local and State funding into account when determining flood zone 

designations. Sacramento residents and the State of California 

have devoted hundreds of millions of dollars toward flood protection. It is crucial that this investment be recognized by the Federal 

Government. FEMA needs to identify the contributions made by 

the States and cities when they review the progress made on Federal levees as they determine an area’s flood designation. 

For example, on one project in my district in the Natomas Basin, 

by next year, the State and local governments will have spent more 

than $350 million over the last 5 years on levee improvements, 

without acknowledgment from FEMA in the remapping process. 

Protecting our constituents from the dangers of floods requires a 

comprehensive approach. Local communities, States, and the Federal Government must all be thoughtful and committed partners. 

With regard to another issue I would like to raise, I believe that 

it is equally important to note that since Hurricane Katrina, FEMA 

has issued new flood insurance rate maps in many parts of this 

country. In my district, those maps place an area in an AE flood 

zone, and trigger the Federal requirement to carry flood insurance 

for more than 15,000 homeowners. There is no doubt that the 

Natomas Basin, like most of Sacramento, is at risk of flooding, as 

it lays at the confluence of two major rivers. 

But, as I noted earlier, the Sacramento Area Flood Control Agency, SAFCA, is working with the Army Corps of Engineers and the 

California Department of Water Resources to implement an aggressive and ambitious levee improvement plan to achieve a 200-year 

level of flood protection. 

While these efforts are ongoing, flood insurance has become mandatory, and costs homeowners more than $1,250 annually. This is 

nearly 4 times the PRP rate. While I always urge homeowners in 

floodplains to purchase flood insurance, I have serious concerns 

about families being forced to incur higher insurance rates during 

an economic recession. Increased rates on top of the annual flood 

protection assessments that many residents are paying each year 

compounds this problem. 

I am pleased at the legislation to be considered by this committee 

tomorrow with phased-in rates for newly mapped areas. This provision is a good start, but I would respectfully encourage the committees to work with FEMA to offer reduced flood insurance premiums 

to those areas that have already been remapped, or implement 

other policies that would ensure the affordability of flood insurance 

rates. In doing so, the committee would make sure that responsible 

3 

homeowners across the country continue paying into the NFIP 

without adding risk to the floodplain. 

Thank you again for letting me address the subcommittee. I look 

forward to our continuing efforts to improve flood protection. I yield 

back the balance of my time, and I apologize for my hoarse voice. 

[The prepared statement of Representative Matsui can be found 

on page 50 of the appendix.] 

Chairwoman WATERS. Thank you very much, Congresswoman. 

Mr. Steve Scalise. 

STATEMENT OF THE HONORABLE STEVE SCALISE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF LOUISIANA 

Mr. SCALISE. Thank you, Chairwoman Waters, Ranking Member 

Capito, and distinguished members of the subcommittee. I appreciate the opportunity to testify before your subcommittee on H.R. 

1264, the Multiple Peril Insurance Act. This bipartisan legislation 

has 22 cosponsors, and makes critical reforms that are important 

to the people of South Louisiana. 

By adding multiple peril coverage, which includes wind and hail, 

to the National Flood Insurance Program, homeowners will have 

greater protection against damage caused by hurricanes and other 

storms. Adding wind and hail coverage to the NFIP will give the 

people in my district the peace of mind that their homes, businesses, churches, and schools will be protected in the face of catastrophic storm damage. 

I commend Congressman Gene Taylor for his leadership and diligence on this issue. I am proud to join with Congressman Taylor 

in championing this bill so that no American has to experience 

what the people of the Gulf Coast went through after Hurricane 

Katrina. 

We in south Louisiana have to live with the threat of these massive hurricanes every year. But we shouldn’t have to live without 

protection from future storms. As this subcommittee well knows, 

after Hurricane Katrina, many homeowners found themselves 

stranded with no payments from their insurance companies. Many 

homeowners were forced to sue their insurance companies in order 

to recoup any money from their policies. Some insurance companies 

overbilled the NFIP for flood damage, while denying homeowners 

on wind damage payments. 

After Hurricane Katrina hit, many private insurance companies 

refused to write any policies that included wind coverage, and 

46,000 people were forced into the Louisiana Citizens Property Insurance Corporation, which is the State’s high-risk pool, and Louisiana was forced to borrow $1.4 billion in order to reinsure these 

additional policies. 

Dumping policies into State insurers of last resort is not an effective or efficient solution to the need for wind insurance. Thousands 

of homeowners who purchased both a wind policy and flood insurance found that neither policy wanted to pay, even though they 

were covered for both. That’s because if some storm damage was 

caused by wind and some caused by flood, it was up to the homeowner, in many cases, to prove whether wind or flood came first. 

4 

This added insult to injury for thousands of homeowners who lost 

everything to the storm, and just wanted to get their homes repaired. Yet many had to take their insurance companies to court, 

just to enforce these policies they had been paying premiums on for 

years. 

This important legislation takes vital steps to implement lessons 

learned, and prevent history from repeating itself. Our current system creates an inherent conflict of interest between private insurance companies and the Federal Government over who pays what 

when both water and wind cause damage. This legislation eliminates that conflict by providing homeowners with the option to purchase one multi-peril policy for both wind and water. No longer will 

homeowners be forced into State-run wind pools when private insurance companies refuse to write wind coverage. 

Adding wind and hail coverage to the NFIP allows us to spread 

the risk geographically, and in a much more efficient manner. 

State-run wind pools concentrate the risk, and a large portion of 

those policies through the State pool could all be affected by the 

same disaster, thus making it very difficult for State-run pools to 

build up enough reserves to pay, in the event of a major disaster. 

This problem is not limited to the Gulf Coast alone, though. 

Wind damage is a risk all across the coastal United States, and it 

is important to note that 55 percent of American citizens live within 50 miles of a coast. Clearly, this is an issue that affects all 

Americans, not just on the Gulf Coast. 

I recognize that some Members may be concerned that this bill 

puts American taxpayers on the hook for coastal disasters. To the 

contrary, this legislation is designed to be actuarially sound. According to the Congressional Budget Office, this legislation would 

pay for itself through the premiums that would be assessed. 

Another important component of this bill is the additional loss of 

use coverage. After Hurricane Katrina, the Federal Government 

paid out $34 billion in disaster housing assistance alone. Adding 

loss of use coverage would reduce reliance on the Federal Government for disaster assistance in the face of catastrophic damage. 

This bill alleviates some of the burden on taxpayers, as opposed to 

adding to it, by relying on disaster assistance that is often expensive and subject to fraud. 

It is time to enact real reform so that homeowners have comprehensive hurricane insurance protection. Enacting reforms to 

NFIP will allow us to move forward with a 5-year extension and 

put an end to these short-term extensions that expire when Congress fails to act. Chairwoman Waters’ bill is a step in the right 

direction towards that full 5-year extension. And I look forward to 

continuing to work towards this goal. 

As we approach hurricane season, enacting these reforms and 

passing a long-term extension becomes more critical every day. The 

ultimate goal of our region is to build a comprehensive hurricane 

protection system that allows us to look back at Katrina and say, 

‘‘Never again.’’ 

I appreciate the opportunity to testify before your committee, and 

I look forward to working with you in the future to achieve this 

fundamental goal. Thank you, and I yield back. 

5 

[The prepared statement of Representative Scalise can be found 

on page 60 of the appendix.] 

Chairwoman WATERS. Thanks. Next we will hear from the Honorable Gene Taylor. 

STATEMENT OF THE HONORABLE GENE TAYLOR, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MISSISSIPPI 

Mr. TAYLOR. Thank you, Madam Chairwoman, for holding this 

hearing, and thank you for your many visits to the Gulf Coast region to see for yourself why the present situation isn’t working and 

doesn’t need to be repeated. 

The bill before you that you were so kind to cosponsor would do 

several things. Number one, it would increase the amount of coverage for those people who either have their homes destroyed, or 

substantially destroyed in the course of a storm. Something that 

shocked all of us who lost our homes was just the incredible cost 

of replacing them. So it increases that value up to $500,000. It increases the value of the contents up to $150,000. Because for all 

of us, again, it was a shock how much that stuff in your house was 

worth when you went to replace it. 

Most importantly, though, Madam Chairwoman, it does a couple 

of things. As my colleague from Louisiana pointed out, it would 

prevent the horrible situation where tens of thousands of homeowners have to sue their insurance company to have a claim paid 

that should have been paid the day after the storm. In many instances, it took years. And it wasn’t just average joes. The president of the United States Senate, Federal judges—if you can say 

one thing about the insurance companies after Katrina, they 

screwed everyone equally. But the sad part is that they screwed everyone. 

The second thing is, as Steve pointed out, the people who pay 

these premiums ought to cover the cost for the loss, not the American taxpayer. But after Katrina, we will prove beyond a shadow 

of a doubt, it was the American taxpayer who paid. 

And lastly, in response to this, the insurance companies, although they have opposed this measure, have walked away from 

this responsibility only to have another level of government assume 

that responsibility, and that’s the State level. Why is the present 

situation untenable? 

Number one is that the present situation has a conflict of interest built in, where we hire the private sector to sell the policy, no 

problem there. But we hire the private sector to adjust the claim. 

After Katrina, agents for State Farm, Allstate, Nationwide, etc., 

walked onto a piece of property where the house was gone, and had 

to make the decision. Did the wind do it, which means their company pays, or did the water do it, which means the National Flood 

Insurance pays? Every time they walked on that piece of property, 

they said the water did it, and the Federal Government has to pay. 

As a matter of fact, an attorney for Nationwide, before the Mississippi Supreme Court, when asked point blank if the house was 

95 percent destroyed by the wind before the water ever got there, 

how do you apportion that claim, how much would Nationwide pay, 

6 

is quoted as saying, ‘‘Not one dime.’’ For those of you who are fiscal 

conservatives, you know that is not right, and that has to change. 

Number two, it has become a governmental function where the 

States have picked up the liability. And in the case of a typical 

State—Florida, for example, now has about $436 billion of exposure. The State of Florida has exposure in a State that has a $70 

billion general fund budget. So, imagine if they have the 4 storms 

that occurred in 2004, again, you would simply bankrupt the State. 

In my home State, $6 billion of exposure, $6 billion general operating budget. 

And the private sector is going to come back and say, ‘‘Well, the 

private reinsurance is going to take care of that.’’ Quite frankly, if 

you look through that closely, you will find that most of these reinsurance policies come out of Bermuda. And the experience of the 

people of Mississippi, Louisiana, and Texas, after the last round of 

storms, was if we can’t get companies in Springfield, Illinois, and 

Hartford, Connecticut, to pay claims, how on earth do you expect 

people in Bermuda to pay those claims? 

So, the other thing that happens is—again, trying to look at this 

from the Federal responsibility—we paid that bill last time. When 

Steve mentioned—when the insurance companies didn’t pay—a 

typical homeowner’s policy says if your home is lost, if your home 

is in a way that you can’t live in it, they will pay to put you up, 

based on the value of that home. Well, when they totally deny your 

claim, as they did, then the Federal Government has to step in: $7 

billion, just for manufactured housing; $15 billion for housing 

grants; $7 billion of SBA loans; and about $3 billion just for trailers 

to put people up on a temporary basis that the Nation paid for, 

that the insurance companies should have paid for. 

So, Madam Chairwoman, I’m trying to live by your 5 minutes. 

You have been down there a number of times. But the fact of the 

matter is the present situation is unsustainable. The present situation is now where a typical person trying to rebuild in coastal Mississippi faces a bigger insurance premium for his wind coverage 

than his mortgage. And when you drive around south Mississippi 

today and see the thousands of driveways where there used to be 

a house and there is no longer a house, it’s pretty simple. They 

can’t afford to rebuild, because the insurance is so expensive because of the situation that has occurred since Katrina. 

So, I would ask that you give serious consideration to this. I very 

much appreciate you having this hearing. And with your permission, I have a much longer statement for the record. But I have 

been trying to live within the 5 minutes allotted, and apparently, 

I have done just that. 

[The prepared statement of Representative Taylor can be found 

on page 63 of the appendix.] 

Chairwoman WATERS. Thank you very much. And I want to 

thank you for appearing before the subcommittee today. Without 

objection, your written statements will be made a part of the 

record. Without objection, it is so ordered. 

And I would now like to ask unanimous consent that Representatives Matsui, Scalise, and Taylor—and Representative Costello, if 

he shows up—be allowed to be considered members of the subVerDate Nov 24 2008 16:39 Sep 01, 2010 Jkt 057744 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\57744.TXT TERRIE
7 

committee for the duration of the hearing. And please join us at the 

dais, if you would like. Thank you very much. 

Good afternoon, ladies and gentlemen. I would like to thank 

Ranking Member Capito and the other members of the Committee 

on Financial Services for joining me for today’s hearing on legislative proposals to reform the National Flood Insurance Program. 

The Flood Insurance Program provides valuable protection for 

approximately 5.5 million homeowners. Unfortunately, the lack of 

a long-term authorization has placed the program at risk. The program has lapsed twice since the beginning of this year, for 2 days 

in March, and for 18 days in April. These lapses meant that FEMA 

was not able to write new policies, renew expiring policies, or increase coverage limits. 

This also meant that, each day, 1,400 home buyers who wanted 

to purchase homes located in floodplains were unable to close on 

their homes. Given the current crisis in the housing market, this 

instability in the Flood Insurance Program is hampering that market’s recovery, and must be addressed. 

I am also concerned about the impact of new flood maps on communities. I recently was able to assist homeowners in the Park 

Mesa Heights area of Los Angeles, who had been mistakenly placed 

in a flood zone. I am pleased that FEMA acted quickly to correct 

this mistake. However, there are thousands of homeowners nationwide who now find themselves in floodplains, and subject to mandatory purchase requirements. 

The Flood Insurance Reform Priorities Act of 2010 would restore 

stability to the Flood Insurance Program by reauthorizing the program for 5 years. It would also address the impact of new flood 

maps by delaying the mandatory purchase requirement for 5 years, 

then phasing in actuarial rates for another 5 years. The bill also 

makes other improvements to the program by phasing in actuarial 

rates for pre-FIRM properties, raising maximum coverage limits, 

providing notice to renters about contents insurance, and establishing a flood insurance advocate similar to the taxpayer advocate 

at the Internal Revenue Service. 

Today’s hearing will also examine H.R. 1264, the Multiple Peril 

Insurance Act of 2009. This legislation, authored by Mr. Taylor of 

Mississippi, would allow the Flood Insurance Program to provide 

optional wind coverage. Following Hurricane Katrina, many insurers refused to pay out claims for wind damage, and instead insisted 

that the damage was caused by flood, even when there was evidence to the contrary. The gentleman from Mississippi has personal experience with this. By allowing homeowners to buy wind 

policies, H.R. 1264 would end this abuse of the Flood Insurance 

Program. 

I am eager to hear the testimony of our witnesses today, and I 

would now like to recognize our subcommittee’s ranking member to 

make her opening statement. Ms. Capito? 

Mrs. CAPITO. Thank you, Madam Chairwoman. And thank you 

for holding this important legislative hearing on the Flood Insurance Reform Priorities Act of 2010, and the Multiple Peril Insurance Act of 2009. I am looking forward to hearing the testimony 

of our witnesses today, including our colleagues who have brought 

their perspectives on the various issues related to flood and wind 

8 

storm risks in their communities, as well as their efforts to protect 

against those risks faced by many of their constituents at home. 

Floods are among the most frequent and costly natural disasters. 

And in recent years, storms that have caused flooding have been 

increasing in frequency and severity. Because private insurance 

against flooding is generally not available, more than 5 million 

property owners and 20,000 communities participate in the National Flood Insurance Program, NFIP. While the program continues to provide protection and some measure of financial security 

for many homeowners and businesses, there are many serious challenges to the financial viability in the years ahead that we must 

address. 

I would depart from my written statement and say this is almost 

like the never-ending story, because we keep extending for months, 

or a few more months, and here we need to seek a resolution to 

this. 

So, first and foremost, the NFIP carries a debt of more than $18 

billion, and has been placed on a list of high-risk government programs by the Government Accountability Office for the past several 

years. The program continues to subsidize the premiums of more 

than one million policyholders, charging them significantly less 

than the full risk rate. 

Furthermore, the NFIP does not collect sufficient premiums to 

build up reserves for unexpected disasters, such as what we experienced during the 2005 hurricanes. 

I want to commend the chairwoman for proposing her legislation 

to advance reforms, many of which I believe are steps in the right 

direction toward improving the program. While the discussion draft 

does not address the NFIP’s debt, which weighs heavily on the program’s financial future, it does propose many good reforms that 

were included in legislation previously approved by this committee 

and the House. 

H.R. 1264, the Multiple Peril Insurance Act, is intended to provide property owners with an option to purchase an insurance policy from the NFIP that covers both flood and wind storm experts. 

Unlike flood insurance, industry experts maintain that wind storm 

insurance is generally available, either from private insurance carriers or State-based residual market insurance pools. But as we 

have heard from the testimony of both of our congressional colleagues, this has presented huge challenges when trying to make 

these programs work to the benefit of the many constituents that 

were influenced. 

I am concerned that FEMA may not be prepared to handle this 

additional responsibility, and that the taxpayers in general could 

be subjected to greater losses. Perhaps we can find another way to 

address the issue, or these issues that this measure seeks to address. As I have already stated, the NFIP has an $18 billion deficit, 

and I do have concern that adding wind storm coverage while it is 

struggling financially could be a recipe for a fiscal disaster. 

I look forward to working with Chairwoman Waters and other 

members of the committee, and my other colleagues, on this legislative initiative as we begin deliberation on this. 

Chairwoman WATERS. Thank you very much. Mr. Green, for 5 

minutes. 

9 

Mr. GREEN. Thank you, Madam Chairwoman. Our colleague, Mr. 

Costello, has arrived. I will yield my time to him. 

Mr. COSTELLO. I thank the chairwoman for recognizing me. Let 

me apologize. I was supposed to be with the Member panel, but I 

was chairing an aviation subcommittee down the hall. But I do appreciate the opportunity to address the subcommittee, and ask 

unanimous consent to place my full statement into the record. 

Chairwoman WATERS. Yes, certainly, without objection. 

STATEMENT OF THE HONORABLE JERRY F. COSTELLO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS 

Mr. COSTELLO. Madam Chairwoman, for the past year, I have 

been working closely with a bipartisan working group of 40 Members, and established the Congressional Levee Caucus with Congressman Rodney Alexander, to discuss issues related to the FEMA 

map modification process. A common theme that ran through every 

one of our meetings was: one, the local jurisdictions need more time 

and more accurate information to address the impact of the new 

flood maps; and two, the burden of mandatory flood insurance for 

individuals and communities would be too much to bear during this 

economic downturn. 

The bill introduced yesterday by Chairwoman Waters addresses 

both of those concerns, and builds on legislation that I introduced 

last year, H.R. 3415. The solution crafted in this legislation will 

help a broad range of member congressional districts and communities across the country. Under Chairwoman Waters’ proposal, 

new flood insurance rate maps will take effect on schedule, to ensure that communities and homeowners have full information 

about the risk. 

However, the mandatory flood insurance requirements will not 

take effect for 5 years in newly mapped areas, and mandatory insurance rates will be phased in over the subsequent 5 years. 

I strongly support these provisions, as it will provide an incentive 

for communities to take quick action to fix levees or complete other 

work to mitigate flood risk. Prior to and during the delay and 

phase-in of rates, homeowners will be encouraged to voluntarily 

buy flood insurance and provided information about flood risk, the 

availability of flood insurance, and the potential consequences of 

the failure to purchase insurance. To qualify for this delayed and 

phased-in, local communities must develop a communication and 

evacuation plan to educate the community about flood risk, which 

are two provisions I included in our legislation, my bill, H.R. 3415. 

Allowing the flood insurance maps to take effect will achieve 

FEMA’s goal of communicating flood risk to the community, and 

ensuring homeowners will have complete information. With the 

delay in the onset of mandatory insurance, homeowners will be 

able to prepare for the high cost of insurance when the new flood 

maps take effect. 

I am an original cosponsor of Chairwoman Waters’ bill, and I believe it will achieve the goals that I have stated all along: provide 

local communities incentives to rebuild their levees; protect homeowners from the high cost of mandatory insurance; and effectively 

communicate the risk associated with living in a floodplain. 

10 

Again, I thank Chairwoman Waters, Chairman Frank, Ranking 

Member Capito, and Ranking Member Bachus, and the staff of the 

Financial Services Committee for working with me on these important issues. And I look forward to seeing the legislation marked up 

and brought to the Floor for passage. 

I thank the Chair for giving me this time, and I look forward to 

continuing to work with you on these important issues. 

[The prepared statement of Representative Costello can be found 

on page 43 of the appendix.] 

Chairwoman WATERS. Are there any other opening statements 

from this side of the aisle, Ms. Capito? If not, we will move toward 

having our second panel make their presentations: the Honorable 

Craig Fugate, Administrator, Federal Emergency Management 

Agency; and Ms. Orice Williams Brown, Director, Financial Markets and Community Investment, U.S. Government Accountability 

Office. 

I am pleased to welcome our second panel. And without objection, your written statements will be made a part of the record. 

You will now be recognized for a 5-minute summary of your testimony. Mr. Fugate? 

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

Mr. FUGATE. Thank you, Madam Chairwoman, Ranking Member 

Capito, and distinguished members of the subcommittee. I am 

pleased to be here today to discuss reauthorization of the National 

Flood Insurance Program. Since I have been at FEMA for the last 

11 months, I think one of our great challenges, as you pointed out, 

is the short-term reauthorizations and the gaps that occur, and the 

impacts, as people try to buy homes and provide insurance for their 

purchases. 

It is important that we understand what the original intent of 

the Flood Insurance Program was. It’s to protect communities 

against flood. It’s to provide affordable flood insurance. And it’s to 

reduce the financial burden on the Federal Government in providing that. 

That program is pretty straightforward, but the implementation 

is quite difficult. And as the discussion goes in many of my conversations with the Members here, as well as your colleagues in 

the Senate, we do not have a lot of flexibility to address unique 

challenges as we move forward. And so, we appreciate the work 

being done in looking at what kind of flexibility could be provided 

to FEMA, and trying to address some of these needs. 

But it comes with a cost. As was pointed out, we have an existing 

debt over $18 billion. But I also think it’s important to talk about 

what the potential exposure is. Recently, the Miami Herald ran an 

article about what would happen if a major hurricane hit south 

Florida, and what kind of exposure would occur, just from flood 

damages and storm surge. In a major category 5 hurricane, it 

would be up in the almost $60 billion range. But what was really 

disturbing was, even in a category 1 hurricane, over $20 billion 

worth of damage would be flood-related. There are not $20 billion 

worth of flood insurance policies in effect in south Florida. 

11 

So, again, the potential loss, versus what the program has insured, does not always match up. But it does illustrate the large 

exposure with the Flood Insurance Program against these events. 

This also goes back to the mandatory purchasing, in that the 

only people who are required to buy flood insurance are those at 

the highest risk—within a 1 percent or greater risk of a flood. We 

know that over 40 percent of the flood damages occur outside of 

that, yet less than 1 percent of those homeowners have flood insurance. 

So, you’re trying to maintain a program to protect homeowners 

and provide a reasonable cost for this program, yet the only requirement to purchase it is at the highest risk. It would be as, 

again, a pre-existing condition is the only people who are required 

to be in this program, yet we’re trying to be actuarially sound. It 

creates a lot of challenges as we go forward, and we continue to 

map. 

The steps we can take to ease this burden, I think, are again, 

as we do new maps and we do change rate designations, I think 

it’s important we look at existing homeowners and provide graduating scale for increases. I very much support giving us the flexibility to recognize that when levees are being improved but did not 

require or involve Federal dollars, that we give them the same recognition as we do as those with Federal dollars, and then recognize 

that work should defer and provide extended periods for implementing any changes. There shouldn’t be a distinction between 

Federal and local and State dollars if the work is being done to protect the community, and we very much support that. 

We know that there will be many challenges as we go forward, 

and we continue to pledge to work with the committee on all the 

policy recommendations from FEMA. But our challenges are 

daunting. As was pointed out, about 25 percent of the policies in 

effect are below actuarially sound rates, which means that we are 

not collecting enough money to cover that exposure. We have the 

existing balance of about $18.8 billion we owe, which we do not 

have any real ability to pay down. We currently pay about $100 

million in interest back to the Treasury. 

So, we have that debt, plus the exposure, plus the fact that we 

have policies that are actuarially below what the cost would be to 

service those policies. 

And again, we’re reminded that this program is necessary to protect homeowners and protect their mortgages. And when there are 

lapses in the programs, we literally stop home sales in these areas. 

We, again, support a longer extension. We continue to work on 

this. Americans depend upon this program. Where we have good 

flood insurance programs, and people do participate, it does reduce 

the cost to the taxpayer. We look forward to working with this subcommittee and Congress as we go forward, and I will be happy to 

answer any questions that the committee may have, Madam Chairwoman. 

[The prepared statement of Administrator Fugate can be found 

on page 119 of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Ms. Brown? 

12 

STATEMENT OF ORICE WILLIAMS BROWN, DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. BROWN. Good afternoon, Madam Chairwoman, Ranking 

Member Capito, and members of the subcommittee. I appreciate 

the opportunity to participate in today’s conversation concerning 

the condition of the National Flood Insurance Program, and options 

to reform it. 

As you know, GAO placed NFIP on its high-risk list in March 

2006, after the 2005 hurricane season exposed the potential magnitude of long-standing structural issues on the financial solvency 

of the program, and brought to the forefront a variety of operational and management challenges. FEMA continues to owe the 

U.S. Treasury $18.8 billion in losses and interest expenses, which 

it is unlikely to be able to repay under the program’s current design. 

My statement today is based on GAO’s past and ongoing work, 

and focuses on NFIP’s financial condition, its operational and management challenges, and possible actions that could be taken to address them. 

While the structural issues were well known, the management 

challenges have become more evident in the past several years. We 

have made recommendations addressing virtually every aspect of 

the program. 

For example, we have recommended that FEMA take action to 

improve NFIP’s management of data quality, the rate setting process, oversight of the insurers that sell flood insurance, the expense 

reimbursement process, its contractor oversight, and its claims 

processes. While preliminary results of our ongoing review of 

FEMA’s management reveal that many of these problems are ongoing, for the first time we are encouraged by FEMA’s new tone, beginning with its acknowledgment that it faces a number of challenges and is willing to engage in a dialogue with GAO about them. 

While acknowledgment of a problem is an important first step, 

we also expect to see FEMA take actions necessary to meaningfully 

address these challenges. We are currently engaged in a comprehensive review of NFIP that builds on our past work, and plan 

to issue a report later this year. We hope that this report will provide a road map for identifying root causes and addressing many 

of these outstanding issues. 

However, we also recognize that many of the challenges facing 

the program will require congressional action. Moreover, we understand that this is no small issue, given the complexities of the program and the often competing public policy goals, including having 

rates accurately reflect risk, encouraging participation, and limiting costs to the taxpayer. 

For example, many premium rates for properties are subsidized 

by law, and rate increases are capped for a number of reasons, including offsetting the cost of catastrophe relief. These decisions involve trade-offs that have to be balanced with the goals of NFIP. 

Specifically, while mitigation is viewed as vital to limiting the government’s exposure, charging rates that do not reflect risk may 

hamper mitigation efforts by encouraging property owners to build 

in harm’s way, and not adequately mitigating. 

13 

Moreover, the current NFIP structure increases the likelihood 

that the program will have to borrow from Treasury when losses 

exceed premiums collected, thereby exposing the taxpayer to greater financial risk. 

Part of this conversation must include a dialogue about the appropriate role of government in paying for losses for natural catastrophes, which, in 90 percent of the cases, include flooding. The 

other part deals with who should pay for the losses. That is, Congress must decide how much of the cost associated with flooding 

the government should pay, versus property owners. In closing, I would like to note that while the $18.8 billion that 

NFIP owes Treasury may not seem large by today’s standards, it 

is significant compared to NFIP’s annual premium revenue, which 

was $3.2 billion as of February. This debt may also continue to 

grow unless Congress and FEMA take action to begin to address 

some of the program’s operational and structural issues. 

Finally, one option to maintain subsidies but improve the financial stability of NFIP would be to rate all policies at the full risk 

rate, and to appropriate the subsidized amount to the program. 

This structural change would remove the financial burden on NFIP 

by making the subsidy explicit, and make the actual flood risk 

more transparent to the property owner. 

Thank you. And I am prepared to answer any questions that you 

may have. 

[The prepared statement of Ms. Williams Brown can be found on 

page 74 of the appendix.] 

Chairwoman WATERS. Thank you very much. I will recognize myself for 5 minutes. 

The map modernization process has caused a lot of concerns for 

Members and the communities they represent. What kinds of outreach is FEMA doing to communities to make them aware of this 

process, and to alert them to the possibility of mandatory purchase 

of flood insurance? 

Mr. FUGATE. Madam Chairwoman, the process is, when we go to 

begin map modernization, we work with the community and begin 

the work of preliminary data, preliminary map findings. There is 

an appeal process. 

But one of the things that has been pointed out to me by various 

members at times is the communication with the public has not always been as strong, particularly when we’re looking at what 

would be considered for many people in the public an adverse finding, in that we increase the area in the special high risk which 

would require mandatory purchasing. 

So, again, as we go through this process, there are numerous 

steps to go through for communities to appeal. But we know that 

we have to continue to work on the outreach, and communicate to 

the public what these potential changes may mean, as far as mandatory requirements. 

As you point out, about 60 percent of the mapping is done. About 

80 percent of the total maps are in a point where we will be accomplishing that in the next fiscal year. And about 20 percent remains 

to be done. Just off the top, about 7 percent of the new maps increase the risk of designation for high risk. About 1 percent drop 

out. 

14 

And so, again, it’s that communication, where 7 percent of the 

findings may increase the risk, that communication early, and explaining to people why it’s important to have flood insurance, particularly as those changes occur. 

Chairwoman WATERS. Can you explain to me the role that cities 

and counties play in this remapping? When we had the problem in 

Los Angeles, we discovered that there had been some notification 

to the City—they had done nothing—and that there was old mapping that had been done in cooperation with the county that you 

were still using as a basis for your information. How does that all 

work? 

Mr. FUGATE. It works based upon each city, each county is individual, as we try to work and identify who is the authority within 

that community responsible for mapping. Sometimes it’s in public 

works, sometimes it’s in community planning. 

And again, as you found out in that situation, we had overlapping mapping being done, but not necessarily by the jurisdiction we 

initially talked to. 

So, again, what we have found is we have to do multiple outreach, and try to understand how mapping is being done, how it’s 

going to be implemented, and the jurisdictions that would have authority, whether it be a city, a county, or, in some cases, a water 

management district, or other flood control boards, such as a levee 

board or levee authority that may have some piece of that we have 

to work with. 

Chairwoman WATERS. Thank you very much. Ms. Brown, in your 

testimony, you note that severe repetitive loss properties make up 

1 percent of all flood insurance policies, but are responsible for up 

to 30 percent of all claims. What action should FEMA take to reduce the claim rates of these properties? 

Ms. BROWN. GAO has looked at this issue over the years, and we 

believe that many of the current actions need to be ongoing. And 

there are also some structural changes that need to be made 

around definition. 

There are many challenges, in terms of forcing these particular 

homeowners to mitigate the properties. And there is also a dialogue 

that needs to take place between the program and local officials. 

We believe this is an area where a common definition would be 

helpful, in terms of defining what a significant event is, and when 

the particular issue of a repetitive loss is triggered, and what actions homeowners would have to take. 

We found examples where homeowners were able to ignore letters from FEMA and the NFIP involving losses on their property. 

And by not responding to an offer involving mitigation, they were 

able to avoid being forced to take any type of action. 

Chairwoman WATERS. I see. Thank you very much. Ms. Capito? 

Mrs. CAPITO. Thank you. I would like to ask the Administrator, 

in your comments, and also in Ms. Brown’s comments, you both 

said that the rates that are being charged to the NFIP do not reflect the risk, and they’re underpriced. What kind of action items 

do you have to solve this issue at the present time? 

Mr. FUGATE. Not many. Part of our challenge with the Flood Insurance Program is how it’s structured, and how we were required 

15 

to provide insurance, and the rates we’re allowed to charge. And 

that does— 

Mrs. CAPITO. Is that statutory? 

Mr. FUGATE. It’s both statutory and rule. And— 

Mrs. CAPITO. And—oh, rule, okay. 

Mr. FUGATE. And again, what we have found ourselves facing is, 

in trying to phase in or do some of the things that are actually 

being recommended, we would continue to subsidize that risk, and 

that risk may actually grow. 

I think it’s the intention of how do we minimize impact to existing homes, and phase in improvements or buy-outs, but deal with 

new construction. And so, this is a kind of a bind for us, in trying 

to minimize the fiscal impact to homeowners to have to buy flood 

insurance, but charge a rate that is sound enough to be able to 

keep the program whole. 

When you bring in, basically, $3.2 billion a year, as long as you 

don’t have any floods, you’re doing well. But one or two large-scale 

flood events far exceed the carrying capacity of that program. And 

so, again, with those that are subsidized—and that may be a good 

decision to be subsidized, but it’s being subsidized at the rate paid, 

not at the overall program level. 

And so, one of the recommendations of the Government Accountability Office is to have that specifically authorized by Congress, 

and to pay that differential so that we can at least maintain where 

we’re at with our current exposure, and begin to start paying down 

some of our— 

Mrs. CAPITO. So would that require a further appropriation to be 

able to subsidize? Is that— 

Mr. FUGATE. It would, but it would then allow us to start paying 

back down some of our debt. As we are structured right now, we 

really cannot pay down the $18.8 billion. We have no real prospects 

of paying it down. And, as was pointed out, any time we have flood 

disasters that exceed our intake for the annual premiums, that 

number grows. And our interest payments then back to the Treasury grow, because we’re not structured to actually adjust our rates 

high enough to take that into account. 

Mrs. CAPITO. So the reason that you can’t price for risk is because statutorily and through rule, you don’t feel that you have the 

ability to do that? Is it a combination of—that the policy purchaser 

can’t afford that? Is it all of the above? 

Mr. FUGATE. I believe it’s all of the above. I will ask my staff, 

and I will get you a detailed report back on why these are subsidized, and how it’s done. But again, if you listen to the questions 

that we get asked a lot of times, if we find that the risk has increased, we will challenge the maps. But if there is no challenge 

to the map, then we look at what is the impact to homeowners who 

now have, as pointed out, escrow billing of up to $100 a month, 

$1,200 a year that they weren’t expecting, and how do we phase 

that in? 

Well, that, in turn, will subsidize that risk until, at some point, 

we either have a rate being charged that is actually based, and we 

phase that in over 5 years—but in that phase-in, it’s under the risk 

that the exposure is being paid for. 

16 

Mrs. CAPITO. Well then, if we’re going to, under the multi-peril 

bill, which would add wind as a peril under the NFIP, do you anticipate that you would be able to adequately price that for the 

risk? And can this program sustain another large—what I would 

anticipate could be large; we really don’t know, I don’t think— 

added burden without further appropriation? 

Mr. FUGATE. It is a key concern to us. And in meeting with Congressman Taylor, we have discussed this issue. 

I, coming from Florida, recognize very clearly some of the challenges we have when we have perils that are written separately, 

and then trying to figure out how to adjudicate who pays. But that 

issue of how do we maintain and be able to run this program, and 

make it actuarially sound is a question we don’t have a comfort 

with yet. 

Mrs. CAPITO. Well, one of the concerns you just mentioned, that 

it would take further appropriations to reach the proper subsidies 

to be able to get the rates to match the risk, or for you to pour 

down—to pay down the debt that you have to the Treasury. But 

basically, you would just be taking from the Treasury to pay down 

the debt to the Treasury. That has a kind of false ring to it, I 

think, in my mind. 

And I guess, to me, adding another peril—while I understand the 

gentleman—we kind of went back and forth on this on the Floor 

of the House with Mr. Taylor and I when this was on the Floor the 

other day—or last year. I understand this, but I do have concerns 

of the long-term viability of the NFIP to be able to take on this 

added burden at a time when you’re really falling behind daily, 

as—if what I’m hearing from both of you is the correct analysis. 

And with that, I will yield back the time that I do not have any 

longer. 

[laughter] 

Chairwoman WATERS. Thank you very much. Mr. Green? 

Mr. GREEN. Thank you, Madam Chairwoman. I have a few questions for the record. The first question is, is it true that when we 

have flood damage, we also sometimes will have wind damage? I 

know the answer is yes, but I would just like to have you— 

Mr. FUGATE. Absolutely. 

Mr. GREEN. And is it true that an insurance company will send 

out an agent to assess the damages? 

Mr. FUGATE. That is true. 

Mr. GREEN. And is it true that this agent will literally be employed by the insurance company, not the Federal Government? 

Mr. FUGATE. That is true. 

Mr. GREEN. And employed by the insurance company for edification purposes—I know that everybody knows this—but it means 

that this person receives an emolument from the insurance company, something that we commonly call a paycheck. True? 

Mr. FUGATE. That is true. 

Mr. GREEN. And receiving this paycheck from the insurance company in no way influences the judgment of this person who comes 

out to assess the damages. Is this true? 

Mr. FUGATE. That is the intention of the program. 

Mr. GREEN. I understand the intention of the program. And, believe me, I understand that was a difficult question. I understand. 

17 

But the point that I would like to get to is this: We have something known as de facto subsidies. De facto subsidies, with reference to this circumstance, occur when the insurance company is 

in the unique position of deciding whether it should pay, or deciding whether the government should pay. And, in so doing, every 

time the insurance company can roll the dice and get the government to pay, it gets a subsidy—not a subsidy in law, but a subsidy 

in fact. 

So, there is really an inducement for insurance companies to 

want to have wind coverage in areas where you are going to have 

flood damages, where you’re going to have hurricanes. Because, 

when they can get that coverage—if the system remains as it is— 

there is a possibility that they will have a chance to roll the dice 

and make a decision as to whether it is going to be flood or it is 

going to be wind. 

You don’t have to agree with that, but my point to you is this. 

If we do not change that system, is it possible that the Federal 

Government is subsidizing some insurance companies by way of allowing the agent to determine the damages? Not in every case, not 

in any percentage of cases. But in some cases, the insurance companies do win, in the sense that they are in a position to deny liability, to deny coverage. And at some point, if you don’t get a court 

involved, that decision stands. Is this true? 

Mr. FUGATE. I could not affirm that at all. What I do— 

Mr. GREEN. Well, let me just ask you this, then. Okay, I—excuse 

me. Let me ask this question quickly. If the insurance company denies liability, and if the owner does nothing more, does the insurance company’s judgment stand? 

Mr. FUGATE. The adjustor’s decision would stand, unless it was 

appealed. 

Mr. GREEN. Okay. Let’s assume that it is not appealed. The adjustor makes a decision in favor of the insurance company. True? 

That does happen, right? 

Mr. FUGATE. The adjustor would determine if it was a flood or 

a wind impact, and would then— 

Mr. GREEN. The adjustor decides that it is, in fact, flood and not 

wind. And you have the possibility of it being both. At that point, 

the insurance company does not have to pay any claim on that 

property with that decision. True? 

Mr. FUGATE. It would depend on the policy. 

Mr. GREEN. The policy will allow a payment when the adjustor 

says that it was water? 

Mr. FUGATE. I don’t know if you can state—and I would not have 

this experience—state categorically that an adjustor found that it 

was only flood and not wind. They may find that it is partial wind 

and— 

Mr. GREEN. No, no, no. I am asking you—take as a fact that we 

have an adjustor who says it’s flood, not wind. What then happens? 

Mr. FUGATE. The flood insurance policy, if they have one, would 

then pay. 

Mr. GREEN. All right. And the person, then, goes to court and 

wins the lawsuit. That means that the adjustor was wrong. Correct? If you go to court and win; this is not difficult, now. 

Mr. FUGATE. That means the judge has made a ruling. 

18 

Mr. GREEN. Okay. Well, I’m taking it as a fact now that the 

judge has ruled that it was wind and not water. Does not the 

claimant win, then, the person who filed the lawsuit? 

Mr. FUGATE. Hopefully, they will receive additional insurance 

dollars from their wind to help rebuild their home. 

Mr. GREEN. Exactly. And that happens, doesn’t it? 

Mr. FUGATE. It has happened in my State, where lawsuits were 

filed against both wind and flood— 

Mr. GREEN. And the point is this: If those persons don’t have the 

resources to go to court, to do legal combat with the insurance company, they are just out of luck. 

My point is, we can’t allow that kind of de facto subsidy to continue. And I will yield back, Madam Chairwoman. 

Chairwoman WATERS. Thank you very much. Mr. Marchant? 

Mr. MARCHANT. Thank you, Madam Chairwoman. If the bill, as 

drafted, is passed and becomes law, will the homeowner have wind 

coverage with his homeowner’s insurance, as well as wind coverage 

with the new program? 

Mr. FUGATE. I do not know. 

Ms. BROWN. It would depend on the homeowner’s policy. GAO 

did a review a couple of years ago, looking at this issue. And one 

of the issues we raised is, would the private insurance market continue to offer wind. And if they do, you may have a situation that 

it would be covered in the private market, as part of the homeowner’s policy, as well as a combination wind/flood policy. 

Mr. MARCHANT. Which would present a whole different set of 

problems. 

Ms. BROWN. Possibly. 

Mr. MARCHANT. And that would be of deciding which party was 

then going to actually pay. 

But if the Federal Flood Insurance Program covers the wind 

damage, then theoretically, if it’s mandatory, the homeowner 

should be able to drop the wind damage on the residence. 

Ms. BROWN. That would be a choice. 

Mr. MARCHANT. Yes, and— 

Ms. BROWN. That’s an option. 

Mr. MARCHANT. In theory, and only in theory, the premium will 

then go down for the homeowner. 

Ms. BROWN. Correct. 

Mr. MARCHANT. It could do that. So, the question of whether 

these properties will be double-covered, or whether the private 

market will completely withdraw wind coverage from its coverage— 

we had a similar thing happen in Texas on foundation coverage, 

where at some point the insurance companies said, ‘‘We’re not 

going to cover foundations anymore.’’ 

Ms. BROWN. Well, the other issue that we raised in looking at 

this, if this structure were in place, and we maintained the WYO 

structure with the private sector selling the combined wind/flood 

coverage, it presents an opportunity for adverse selection, in that 

the insurance companies could choose to continue to offer wind to 

their lower-risk customers, and not offer wind coverage for higherrisk customers, which means that the highest-risk homeowners 

would migrate to the combined program. 

19 

Mr. MARCHANT. But if you had a situation where the homeowner’s policy actually went down in cost, then the savings could 

be absorbed in a higher premium on the flood insurance. And then 

the program would not have to run in the hole as much. You could 

recoup some of the actual cost of the flood insurance. 

Is it your opinion the bill is drafted that way, or is this still a 

question mark, as— 

Ms. BROWN. I think part of this really will depend on how the 

private insurance market reacts to—if this were to become law, 

would they continue to offer the coverage in particular areas? So 

it really depends. 

Mr. MARCHANT. Yes. For the Administrator, you testified that in 

the new mapping, there will be approximately 7 percent of area 

added to what would be the mandatory area? 

Mr. FUGATE. That has been our finding, so far, sir. 

Mr. MARCHANT. And 1 percent deducted. So you’re going to have 

a net 6 percent added. 

So, is there any reason to believe that with that increased 6 percent, you’re going to have a huge increase in the number of properties that are going to have to have mandatory flood insurance 

when they go to closing on their house? 

And in this case, does that translate into a program that is—becomes more solvent, and is able to pay its debt off, or does it make 

for a program that is going to create even more losses and even 

more debt? 

Mr. FUGATE. The simple math would suggest, absent floods, we 

will have more revenue coming in. The reality is, you are basing 

it upon a 1 percent per annum risk, which means that these people 

are most likely to flood. And you are trying to then be actuarially 

sound by only the requirement that the policies be written at the 

highest risk. 

So, you may see some short-term increase in funding. But the 

long-term exposure is actually greater. What the maps are doing, 

in many cases, is just more accurately depicting what that risk 

was. But again, because you are only requiring people to purchase 

flood insurance at the highest risk, that pool, even if it grows, does 

not offset the exposure. In fact, the exposure increases, even 

though without floods, it would give the appearance of increased 

revenue streams that may give some opportunity to pay down existing debt. 

Mr. MARCHANT. Thank you. 

Chairwoman WATERS. Mr. Taylor? 

Mr. TAYLOR. I thank the gentlewoman. And to the gentleman’s 

point, the Administrator said that the flood insurance lost $18.8 

billion the year of Katrina. What he didn’t tell you is that the Nation lost an additional $34.5 billion, because the private sector 

didn’t pay their claims. Now, that was: $4.2 billion in FEMA housing-assisted payments; $7.1 billion in FEMA manufactured housing; HUD CDBG housing grants to the tune of $15.4 billion; and 

SBA disaster loans for $7.6 billion. 

So, again, they keep looking at what the flood insurance lost. But 

because the private sector did not pay their fair share—the same 

reason that the insurance industry had $44 billion in net profits in 

2005—our Nation lost $53 billion to Katrina. We are trying to keep 

20 

that from happening again. We are trying to get those people who 

live in the high-risk areas to purchase a policy that will cover all 

these costs, so that we don’t have to pay it again. 

To that point, Mr. Fugate—and I’m sure you have had some time 

to look into this—you know that our agreement with the insurance 

industry lets them sell the policy, and they get a commission for 

that. We also pay them to adjust the claim. They get a paycheck 

for adjusting the claim. Our contract with the insurance industry 

says that they will do a fair adjustment of the claim. If it’s 60 percent water and 40 percent wind, they pay 40 percent, and the Nation pays 60 percent through the Flood Insurance Program. 

Unfortunately, testimony before the Mississippi Supreme Court 

by an attorney for the Nationwide Insurance Company—and I’m 

sure they hired the best to go before the Supreme Court of Mississippi—let’s hear this. Justice Pierce—and this is a quote—‘‘I am 

giving you the example. If 95 percent of a home is destroyed by 

wind, the flood comes in and gets the other 5 percent, and you 

know that, does your interpretation of the word ‘sequence’—now 

he’s talking to the attorney for Nationwide Insurance Company— 

mean that you pay 0?’’ 

Mr. Landau, representing Nationwide Insurance Company, in 

testimony before the Mississippi Supreme Court, said, ‘‘Yes, your 

honor. They pay zero.’’ 

Now, going back to your job—you run the Federal Flood Insurance Program. You have testimony before the Mississippi Supreme 

Court where Nationwide Insurance Company’s paid representative 

says in a circumstance where they should have been paying 95 percent of that bill, they pay 0, and stuck the Federal taxpayer with 

100 percent of the bill. 

What have you done to look into this? Because their contract 

with America says they have to have a fair adjustment of the 

claim. And to the gentleman’s point, I am not an advocate of bigger 

government, except at times when government can do better than 

it’s doing right now. And this is one of those times. 

So, to that point, how many fraudulent claims has the National 

Flood Insurance Program looked into? Because I can’t think of another single instance, Mr. Fugate—and you correct me—where 

someone can send an unlimited number of bills to the Federal Government for up to $350,000, and no one takes the time to see if it’s 

a valid claim. And you have on record where that company admitted that if 95 percent of that burden was theirs, they pay nothing 

if the last 5 percent was done by the flood. 

What have you done about this? Because I am just telling you, 

I am amazed at this Administration’s reluctance to do something. 

Because doing nothing is to repeat this $53 billion mistake. 

Mr. FUGATE. Congressman Taylor, to be specific, a lot of this is 

from Government Accountability Office recommendations we’re implementing. But to the very point of what you are articulating, 

which is, how do you reconcile dual peril, written by two different 

individuals who have a conflict of interest, yet we’re contracting 

with the insurance company to adjudicate, I actually have insurance companies come to us, asking to withdraw from the program. 

And we are currently looking at how would we provide claims adVerDate Nov 24 2008 16:39 Sep 01, 2010 Jkt 057744 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\57744.TXT TERRIE
21 

justors on the Federal dollars to do what we currently pay insurance companies. 

So, not only is this an issue that we know internally that we 

have to face, there are large insurance companies that are questioning why they want to continue this for this very reason, that 

it puts them in an untenable situation, where it questions their integrity when they’re trying to reconcile how much was flood and 

how much was wind. 

Mr. TAYLOR. Well, Mr. Fugate, again, what changes are you recommending so that this conflict of interest doesn’t happen? 

And, by the way, how many cases have you looked into where 

there obviously had to be fraud if they’re admitting before the Mississippi Supreme Court that they are liable for 95 percent of the 

bill, but if there is 5 percent of damage caused by flooding, they 

are not paying anything, which means the Federal Flood Insurance 

Program and FEMA picked up the bill for all these additional expenses? 

Mr. FUGATE. Congressman, I— 

Mr. TAYLOR. Has it been—have you looked into one case? 

Mr. FUGATE. Personally? I have not, sir. 

Mr. TAYLOR. Has your Agency looked into one case? 

Mr. FUGATE. I will need to respond for the record, so I can have 

the accurate information for that. 

Mr. TAYLOR. Well, could you give me a guesstimate as to how 

many cases you have looked into? 

Mr. FUGATE. No, Congressman, I cannot give you an estimate. 

Mr. TAYLOR. You can’t guess 1, 10, 20? 

Mr. FUGATE. No, sir. 

Mr. TAYLOR. A $53 billion bill, and nobody is looking to see if we 

should have paid it? 

Mr. FUGATE. Again, to be accurate, I— 

Mr. TAYLOR. Thank you, Madam Chairwoman. 

Mr. FUGATE. —on the record. 

Chairwoman WATERS. Thank you very much. We have 10 minutes left. We have to go up and take three votes. We’re going to 

hear from Mr. Scalise, then we are going to recess and come back 

and hear from the third panel. 

Thank you. Mr. Scalise? 

Mr. SCALISE. Thank you, Chairwoman Waters. Administrator 

Fugate, I know we have worked on a lot of different hurricane recovery issues. We still have to work on some issues regarding the 

CDL loan forgiveness rules, but that’s another issue for another 

day. 

Regarding this, and kind of following up on Congressman Taylor 

and other Members’ questions, regarding the actuarial soundness 

of the program, I agree that the $18.8 billion is a problem that has 

to be addressed, but it’s a problem that was not caused and has 

no relation to the issue that Congressman Taylor and my bill addresses, and that is bringing the wind into the Flood Insurance 

Program. And, in fact, what I want to talk to you about is it’s my 

feeling that the bill that we have would actually help solve the actuarial soundness of the program. 

And, in fact, if you look at the CBO report on our bill, it confirms 

that it would be actuarially sound, and it would pay for itself. But 

22 

what it would also do is I think it would address the heart of this 

problem that we’re having right now, and that so many homeowners had, and that is the debate between wind versus flood. 

It was such a frustration for so many of my constituents who 

bought a policy for—their homeowner’s policy, it covered fire and 

theft, but it covered wind. And then they also paid for their flood 

insurance policy. And so they paid both, and then they got both. 

They got wind and flood damage. And yet, neither policy was going 

to pay, because each was pointing the finger at somebody else. And 

in many cases, you might have had somebody who lost their whole 

roof. So, clearly, there was going to be some wind damage. But the 

homeowner’s policy was saying, ‘‘We’re just pointing to the Flood 

Insurance Program. Make them pay.’’ 

And so, what happens is your program, NFIP, can only charge 

premiums right now, based on flood risk. And so you, by law, can 

only charge premiums for flood. But, in fact, you are paying claims 

for flood and for wind. You are paying for both, but you are only 

charging premiums for one. So you can’t be actuarially sound under 

your current rules. 

And, in fact, our bill would help fix that problem, because you 

eliminate the debate. No longer do you have two different people 

with, as the Government Accountability Office had suggested—two 

different people who have conflicts of interest. Because it’s in the 

best interest of the insurance company to say, ‘‘Hey, if we can get 

NFIP to pay it, that’s money we save.’’ 

Well, if you combine them into a multi-peril policy, now you are 

basing your premium on the combined risk, and you don’t have this 

concurrent causation question any more. Because if it’s caused by 

wind or by flood, it’s all under one roof. It’s all one policy and they 

are paying you that premium. And then, when you pay the claim, 

you are paying the claim, it doesn’t matter whether it was wind or 

flood at that point. You are paying the claim because you charged 

the premium based on an actuarially sound matter to cover both. 

But right now, under the current rules, you are paying claims for 

both, but you are only charging premiums for one. So I can see why 

you’re in an actuarially unsound basis. Because for various reasons—and I hope you look into—the conversation between you and 

Congressman Taylor—and a lot of this happened before you got 

here—but clearly, the NFIP was paying claims for things that they 

had no business paying for. Because just through—and GAO gets 

into this, and they actually point out how there were those conflicts, and how the various insurance companies that chose to do 

this just said, ‘‘For everything we can dump onto the flood program, we will make them pay,’’ because they will. 

And, unfortunately, you all held up your end of the bargain and 

you paid claims, but there were so many people who were waiting 

and had to go to court, take their insurance company to court to 

make them pay for the wind damage that was done, even though 

they paid on the policy. 

And the other thing that this policy has is it has loss of use. The 

policy in our bill, it has a loss of use program. So what it also does 

is addresses the problem of those FEMA trailers for so many people 

who had to wait maybe 2 years, and maybe they finally got paid 

23 

for their insurance claims, but they had to wait 2 years and they 

were living in a FEMA trailer, because they had no means to live. 

And so, with a loss of use component that is also actuarially 

sound, now that will also be paid for not through your separate 

program that the FEMA trailer has dealt with, but also through 

their actuarially sound multi-peril claim. 

So, I just wanted to talk about all that. Because I think as you 

are looking at how it affects your program, I think it helps the actuarial soundness of the Flood Insurance Program by combining 

the perils, so you don’t have to pay for somebody else’s damage. 

Mr. FUGATE. That has a lot of interesting points. However, the 

reason I am 25 percent below has nothing to do with that. And 

there may be some degree, but I can’t quantify that. The reason I 

am 25 percent below actuarial rate is when Congress reauthorized 

a Flood Insurance Program in 1994, they limited the annual increase to 10 percent per annum. So I cannot—if you remap and you 

find areas at higher risk, I can only move up a certain amount. 

And so that leaves me not able to be actuarially sound, because I 

am capped at a 10 percent increase in the program. 

Mr. SCALISE. Yes, but that’s on flood. This— 

Mr. FUGATE. That would— 

Mr. SCALISE. The wind program is a totally separate program, 

and requires actuarial soundness. 

Mr. FUGATE. I am— 

Mr. SCALISE. And I know I’m out of time. I apologize. Thank you. 

Chairwoman WATERS. Thank you very much. And our bill will 

move that up from 10 percent to 20 percent, so you will have a little bit more flexibility. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for members to submit written questions to these witnesses, and to 

place their responses in the record. This panel will stand in recess 

until after the votes. We will be back. 

[recess] 

Chairwoman WATERS. Our first witness will be Mr. David R. 

Conrad, senior water resources specialist, National Wildlife Federation. 

Our second witness will be Mr. Mark Davey, president and chief 

executive officer, Fidelity National Insurance Company, on behalf 

of the Write-Your-Own Coalition. 

Our third witness will be Mr. Larry Larson, executive director, 

Association of State Floodplain Managers. 

Our fourth witness will be Mr. John Rollins, president, Rollins 

Analytics, Inc.. 

Our fifth witness will be Mr. Barry Rutenberg, 2010 second vice 

chairman of the board, National Association of Home Builders. 

And our final witness will be Mr. Maurice Veissi, Veissi & Associates, 2010 first vice president, National Association of REALTORS. 

Without objection, your written statements will be made a part 

of the record. You will now be recognized for a 5-minute summary 

of your testimony. 

So, let us start with Mr. Conrad. 

24 

STATEMENT OF DAVID R. CONRAD, SENIOR WATER 

RESOURCES SPECIALIST, NATIONAL WILDLIFE FEDERATION 

Mr. CONRAD. Good afternoon, Chairwoman Waters, Ranking 

Member Capito, and members of the subcommittee. My name is 

David Conrad, and I serve as senior water resources specialist for 

the National Wildlife Federation, the Nation’s largest conservation, 

education, and advocacy organization. We greatly appreciate the 

subcommittee’s holding this hearing today, and your continuing interest in the reform and reauthorization of the National Flood Insurance Program. 

I want to underscore three major points from my written testimony. First, while the National Flood Insurance Program is broken, essentially bankrupt with a debt of $18.7 billion to the U.S. 

Treasury, many of its fundamental problems can be corrected. This 

committee has an opportunity to pass meaningful reforms that will 

get the program on better fiscal footing and, most importantly, provide better protection for people, communities, and the environment. Unfortunately, the discussion draft, or the flood insurance 

reform bill, falls far short of what is needed, and may even make 

things worse. 

Second, these are not normal times. The Nation’s scientists are 

telling us that climate change is already causing heavier rainfall, 

changing patterns of snowfall, bringing more severe hurricanes, 

and increasing sea levels, all of which will increase flooding risk 

and likely exacerbate already increasing flooding damage. 

Third, tomorrow is Earth Day. And it’s important to recognize 

that the NFIP, as it is currently functioning, is leading to increasing development and damages to wildlife habitat, wetlands, coastlines, and other environmental resources. We need to fix these perverse incentives for more development and redevelopment in these 

environmentally sensitive high-risk areas. 

Unfortunately, the committee is considering adding wind storm 

coverage to the NFIP, and establishing a Federal backstop for 

State natural catastrophe funds. In our view, these are anti-environmental proposals that would exacerbate these problems. 

Let me comment directly on the National Flood Insurance Reform Priorities Act, the discussion draft that we received. First, 

what we like. We support the 5-year phase-out of pre-FIRM subsidies for two major classes of properties: non-residential properties; and non-primary residences. We also support increasing 

from 10 to 20 percent the amount that FEMA can annually raise 

premiums to reduce subsidies and improve the NFIP’s actuarial 

soundness. 

Now, what we think needs to be fixed, expanded, or eliminated 

in the discussion draft. The bill should be amended to phase out 

subsidies for severe repetitive loss properties, and properties that 

have already cost the Flood Insurance Program more than the 

value of the home or business in cumulative claims. 

We would strongly object to sections 6 and 10, that would delay 

or waive requirements for mandatory purchase, where residents remain vulnerable and inadequately protected from flooding. As we 

saw in Hurricane Katrina, it’s a dangerous mistake to assume no 

flood insurance is necessary because there are Corps of Engineers 

or other levees, especially decertified levees. 

25 

We also believe the NFIP should be reauthorized for 3 years, and 

not 5 years. Administrator Fugate has initiated a major 2-year effort to review the NFIP, with the intent to make comprehensive, 

administrative, and legislative recommendations to guide the 

course of the program in the future. The next reauthorization 

should dovetail closely with the Administration’s efforts. 

Now, another overriding concern. Given the committee’s decision 

to limit this reauthorization to insurance and finance aspects, we 

believe many of the most critical and necessary reforms are not 

being made in this bill, including needed measures that can better 

target assistance to low-income Americans, to improve land use 

planning and building codes, and to make hazard mitigation and 

environmental protection the heart of NFIP’s risk reduction strategy. 

Regarding H.R. 1264, we do not believe the Federal Government 

should get into the business of assuming liabilities and responsibilities for wind coverage. Not only would such an expansion of the 

NFIP threaten the program’s long-term financial health, it would 

also fuel development in many more high-risk and environmentally 

sensitive areas. 

In conclusion, once again, the National Wildlife Federation greatly appreciates the opportunity to provide our views on legislation 

to reform the NFIP. Many of the views we have expressed are 

shared by Smarter Safer, a broad coalition working to advance farsided policies to better protect communities and the environment. 

We look forward to working with the committee as the process 

continues, and I look forward to responding to any questions the 

members may have. Thank you. 

[The prepared statement of Mr. Conrad can be found on page 100 

of the appendix.] 

Chairwoman WATERS. Thank you. 

Our next witness will be Mr. Mark Davey. 

STATEMENT OF MARK DAVEY, PRESIDENT AND CHIEF EXECUTIVE OFFICER, FIDELITY NATIONAL INSURANCE COMPANY, 

ON BEHALF OF THE WRITE-YOUR-OWN FLOOD INSURANCE 

COALITION 

Mr. DAVEY. Madam Chairwoman, Ranking Member Capito, and 

subcommittee members, my name is Mark Davey, and I am president and CEO of Fidelity National Insurance Company. Fidelity is 

a write-your-own flood insurance partner with the NFIP, and the 

largest writer of flood insurance in the Nation. We are also a member of the Write-Your-Own Coalition, which is made up of 85 private insurers who collectively administer 95 percent of the NFIP’s 

policy base. 

Thank you for the opportunity to testify today on behalf of Fidelity National and the Write-Your-Own Coalition, and to share our 

views on proposed flood insurance reform legislation. 

First and foremost, we would like to compliment and voice our 

support for the draft flood insurance legislation authored by Representative Waters. We feel the bill provides much-needed stability 

and refinement for the betterment of the National Flood Insurance 

Program. 

26 

I would like to directly respond to the questions you proposed. 

You requested we share our views, relative to the status of the 

NFIP, and any improvements the program may need. All things 

considered, the program is functioning well, in spite of numerous 

program expiration and delays in reauthorization. While the program remains heavily in debt, the NFIP has successfully retired 

$500 million of debt accumulated from Hurricanes Katrina, Rita, 

and Wilma. Not only has the program retired $500 million of debt, 

it has also shouldered the additional burden of Hurricane Ike during the same time frame. 

The Flood Program and the stakeholders would greatly benefit 

from streamlining and simplifying the flat application process. A 

streamlined policy application and underwriting process would enable more agencies to understand a market flood insurance. 

Purchasing a traditional homeowner’s policy through our organization takes an agent approximately 5 minutes to complete the 

transaction. By contrast, even with a highly automated Web-based 

flat application process, a proficient flood producer in most circumstances will invest several hours before successfully placing a 

flood policy. 

There needs to be a continued push for adequate rates at all program levels. Our goal should be to create a program which can be 

financially self-sufficient. The program cannot survive and meet its 

responsibilities if its existence comes in question each time the 

NFIP has to ask Congress for more money. 

Not in the bill, but something I proposed, is the inclusion of additional living expense coverage. Adding this coverage will provide a 

valuable coverage, which will allow policyholders to get back on 

their feet much faster following a flood event. This coverage will 

provide the ability for the insured to keep their lives on track, as 

opposed to being thrown out on the streets. I advocate we add this 

additional coverage and charge an appropriate premium to properly 

underwrite this new proposed coverage. 

You asked in what ways the long-term reauthorization brings 

stability to the housing market. When a buyer of a property located 

within a special flood hazard area is confronted with the inability 

to buy flood insurance, it often derails the transaction, leading to 

the cancellation of the purchase. In some circumstances, purchase 

transactions have been abandoned, based on buyers’ well-founded 

fears of their inability to secure flood insurance for the duration of 

their ownership. The lack of immediate flood coverage has an extremely negative effect on housing sales in mandatory flood zones. 

You asked me to discuss how short-term reauthorizations have 

impacted our company and our clients. Lapses are extremely difficult to manage. We endeavor to run our operations as efficiently 

as possible. Our computer mail-in phone systems are matched to 

our daily work loads, both from a customer service standpoint and 

a computer systems standpoint. Digging out of a backlog accumulated by program lapses is extremely difficult, and we cannot provide the level of service to our customers to which they are accustomed. 

With the recent lapse, we were confronted with issuing approximately 5 percent of our annual policy’s renewal notices and other 

necessary documents immediately upon program reinstatement. 

27 

When our production platforms normally run 8 to 10 hours a day, 

7 days a week, the catch-up window dictates double and triple 

shifting, which is extremely costly and disruptive. 

Lapses cause undue stress, confusion, and frustration to policyholders and potential policyholders. Because we are always hopeful 

appropriate action will be taken to avoid lapses, in every circumstance we have to scramble to notify and educate the general 

population and all those involved in the Flood Program of lapse, 

and our current changes in procedures when, in fact, we do fall into 

a lapse environment. 

The non-quantifiable and most costly aspect is the loss of new 

and renewal policies, not just in special flood hazard areas, but also 

areas that the flood insurance is not mandatory. Policyholders contemplating renewing their policies with limited disposal are far less 

likely to renew if they feel the program’s existence is in jeopardy. 

As we do everything possible to encourage program participation, 

the worst message we can convey is the program’s continuation is 

in question. 

You asked me to discuss what impact the map modernization effort has had on write-your-own companies. Continued and refined 

map modernization is essential for the health of the NFIP. It is imperative we provide consumers with the most accurate information 

available. 

[The prepared statement of Mr. Davey can be found on page 112 

of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Our third witness will be Mr. Larson. 

STATEMENT OF LARRY LARSON, EXECUTIVE DIRECTOR, 

ASSOCIATION OF STATE FLOODPLAIN MANAGERS 

Mr. LARSON. Thank you, Madam Chairwoman, and members of 

the subcommittee. The Association of State Floodplain Managers’ 

14,000 members implement the National Flood Insurance Program 

at the State and local level, and I represent their thoughts. 

The NFIP really is no different than it has been for the last 42 

years. It is, essentially, the same program that was authorized in 

1968. Congress has tweaked the edges here and there over time, 

but we’re essentially operating on that same model. This bill, 

again, tweaks around the edges. We are concerned with significant 

reform to the program, and we are pleased that FEMA is undertaking an effort to come back to you with some broad recommendations on options in which that needs to happen. 

Significant changes are needed to address its debt and the inability to reduce flood losses in the Nation, which continue to go up, 

despite the program being here for 42 years. And, despite all the 

flood control projects that we built in the last 80 years, we are still 

increasing flood damages significantly, which doubled in the last 

decade per year. 

Ideas, big ideas, need to be thought about. Is it time to turn flood 

over to the private sector? Is there any reason the private sector 

can’t run flood insurance right now? That needs to be considered. 

Floods are getting bigger. We are going to have more damages. 

There is more property at risk. And that’s the big issue. Risk is the 

probability of getting flooded times the consequences if you are 

28 

flooded. Probabilities have not changed significantly, but consequences have changed dramatically. Building in high-cost coastal 

areas, building behind levees, all those consequences are going up 

greatly. And we’re not going to be able to control that under the 

current process. 

We are seeing more intense storms. People in Des Moines have 

said, ‘‘We have had three 500-year floods in the last 15 years.’’ We 

are seeing more intense rainfalls. We are seeing sea-level rise. We 

are seeing these things that will increase our risk. So, significant 

program changes are necessary. 

These issues we are dealing with: the struggles we are having 

now with mapping and levees and insurance—mapping is not the 

issue. Mapping merely identifies the risk. And we need to know 

that. Levees are not the issue. We know that all levees will fail or 

overtop at some point. That’s not just me saying that, that’s every 

expert in the world saying that. 

Insurance is the only security some of those people have for what 

they own, which typically is the only thing they own—that house. 

Without insurance, they’re left naked. 

So, delaying the map without insurance puts people in this situation such as Representative Taylor—where now there is no way to 

regain that loss that they had. Other options that are in the bill 

such as phasing in, those sorts of things, seem to make a lot more 

sense. The PRP, Preferred Risk Policy—or the policy that FEMA 

has talked about, some of those options. 

In the Nation, about 1 percent of the people are at risk of flooding. Seven percent of the land area of the Nation is floodplain, but 

only about 1 percent of the people are at risk of flooding. About 

half of those people carry insurance. And as Mr. Fugate talked 

about, trying to figure out how to run an actuarially sound program when there are only very few of those 11 million structures 

that are required to have insurance is problematic. 

So, broadening that risk, or broadening that base, spreading that 

risk, is how you have to get an actuarial program. 

We would agree with the GAO concern that part of this issue is 

who benefits and who pays, and striking that balance. Do those 

who live at risk pay their appropriate share of living at risk, or is 

that being paid for by the rest of us who don’t live at risk? That’s 

the challenge that you face in this committee, and that Congress 

faces in trying to actually reform this program. 

I will respond to other questions as you have them. Thank you 

very much. 

[The prepared statement of Mr. Larson can be found on page 125 

of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Mr. Rollins? 

STATEMENT OF JOHN W. ROLLINS, PRESIDENT, ROLLINS 

ANALYTICS, INC. 

Mr. ROLLINS. Good afternoon, Chairwoman Waters, and Ranking 

Member Capito. My name is John Rollins. I am an actuary holding 

qualifications in the Casualty Actuarial Society and American 

Academy of Actuaries. I have worked in Florida property insurance 

for the last 11 years, serving as chief actuary of private insurance 

29 

companies, as well as a director at the State-run wind pool of Citizens Property Insurance Corporation. I have testified to lawmakers 

in Florida and other States on the issue of government-backed 

property insurance systems in disaster-prone areas, and published 

some research papers on the subject. 

After many years of observing public policy decisions and their 

impact on property insurance markets as well as public finances, 

my message to you today is simply this: in designing rates for any 

property insurance program ultimately supported by taxpayer capital, great care should be taken that the legislative definition and 

the practical definition of the phrase ‘‘actuarially sound’’ conforms 

to the principles of the U.S. casualty actuarial profession itself. 

Some background is in order. We know that an insurance policy 

is really just a promise to pay for a predefined type of possible loss 

in exchange for some up-front premium. Now, by law, insurance 

contracts must be backed by capital sufficient to pay the claims, 

even when many claims occur at the same time, and the costs are 

well in excess of the premiums charged. 

Disasters, by definition, are infrequent, unpredictable, and severe. And for these events, the required capital can be catastrophic 

as well: 20 or more times the average annual loss, for example, 

contemplated in the premium. 

The job of actuaries is to determine that fair premium. But the 

job becomes more difficult when the losses are catastrophic, and yet 

more difficult when the supporting capital for the insurance is provided in other than some kind of economic transaction, such as 

through government support. 

The relevant actuarial principle states, ‘‘A rate is reasonable and 

not excessive, inadequate, or unfairly discriminatory if it is an actuarially sound estimate of the expected value of all future costs 

associated with an individual risk transfer.’’ 

Each word or phrase in that statement has implications for pricing decisions for these government-backed insurance programs. 

First, the phrase ‘‘not excessive, inadequate, or unfairly discriminatory,’’ you may recognize as the definition of a lawful rate under 

most State insurance laws. So actuarial soundness is historically a 

sufficient condition for a lawful rate. Or, said another way, it’s 

hard to imagine a rate which would be actuarially sound yet unlawful. 

Second, those rates must reflect expected costs. So, it’s not sound 

to peg the rate to the most favorable outcome or the most unfavorable outcome, or whatever is convenient. Rates have to reflect the 

probability-weighted average over all the scientifically tenable outcomes. What that means in catastrophe rate-making is that scientific models and simulation models are very useful, since any recent snapshot of activity may show bad disasters or may show no 

disasters. 

Third, such rates have to reflect all costs, not just those we prefer to reflect, or that we can easily quantify. Rates have to be made 

on a cost basis, rather than an economic basis. But real costs incurred to issue a properly capitalized policy must be reflected. 

Fourth, such rates are to reflect future costs. Rates may not be 

made to recoup past losses. So, past data may or may not be preVerDate Nov 24 2008 16:39 Sep 01, 2010 Jkt 057744 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 K:\DOCS\57744.TXT TERRIE
30 

dictive of future losses, but past experience is not some kind of an 

account to be squared by raising or lowering future premiums. 

And, finally, actuarially sound rates must reflect the cost of risk 

transfer. What that means is they have to include a provision for 

the cost of that capital, required on demand to pay claims after catastrophic events. Private insurers transfer risk through reinsurance and risk sharing arrangements, and they pay those costs immediately. Government programs can borrow from future taxpayers 

to fund today’s risks. The cost of that capital may be arguable, but 

actuaries and economists agree that it should not be zero. 

Therefore, the key is that an actuarially sound rate for a government-backed insurance program must be greater than simply the 

expected annual loss to the program, plus provisions for the known 

expenses. 

Failure to implement actuarially sound rates in such programs 

at both the State and Federal levels has had unwelcome consequences, as testified by many of my colleagues here at the table, 

including: overdevelopment of environmentally sensitive areas, as 

these low insurance rates offered by government-backed insurers 

and subsidized by future taxpayers encourage consumers and developers to underestimate the risk and build in harm’s way; expansion of the risk in government-backed insurance pools, as the private insurers may retreat from the areas in which they cannot or 

will not compete with these subsidized rates; and crowding out of 

that capital, which otherwise would be at risk in lieu of the taxpayer capital we put at risk; depletion of the public treasury, as 

new debt must be incurred and then serviced, as you have heard 

over the course of the hearing with the National Flood Insurance 

Program, by potentially generations of taxpayers. 

Finally, wealth transfers from all taxpayers to an often high-income subset of residents that choose to live in risky but perhaps 

picturesque areas, because all taxpayers pay proportionately to 

service the debt incurred to these underfunded programs. 

Despite the fact that enabling legislation frequently utilizes 

phrases like ‘‘actuarially indicated,’’ or ‘‘actuarially sound,’’ the 

rates for those programs, in practice, may not measure up. So I 

urge lawmakers to carefully define the concept of actuarially sound 

rates during the legislation development and continuing implementation of these programs. 

And I thank you for the opportunity to appear before you. 

[The prepared statement of Mr. Rollins can be found on page 142 

of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Mr. Rutenberg? 

STATEMENT OF BARRY RUTENBERG, 2010 SECOND VICE 

CHAIRMAN OF THE BOARD, NATIONAL ASSOCIATION OF 

HOME BUILDERS 

Mr. RUTENBERG. Chairwoman Waters, Ranking Member Capito, 

and members of the subcommittee, thank you for the opportunity 

to testify today. My name is Barry Rutenberg, and I am the 2010 

second vice chairman of the board of the directors of the National 

Association of Homebuilders. I am also a builder and developer 

from Gainesville, Florida. 

31 

NAHB commends the subcommittee for addressing reform of the 

NFIP program, and releasing a draft flood insurance bill that includes a much-needed long-term extension and reauthorization of 

the program. For the last several years, the NFIP has had to undergo a series of short-term extensions that have created a high 

level of uncertainty in the program. 

The NFIP recently experienced several short-term authorization 

lapses, causing severe problems for our Nation’s already troubled 

housing markets. Unfortunately, during this latest delay, many 

home buyers faced delayed or canceled closings, due to the inability 

to obtain NFIP insurance for a mortgage. 

In other instances, builders themselves were forced to delay or 

to stop or delay construction on a new home, due to the lack of 

flood insurance approval. NAHB supports this long-term extension 

to ensure the Nation’s real estate markets operate smoothly and 

without delay. 

FEMA’s Flood Insurance Program plays a critical role in directing the use of flood-prone areas and managing the risk of flooding 

for residential properties. The availability and the affordability of 

flood insurance gives local governments the ability to plan and zone 

its entire community, including floodplains. In addition, if a local 

government deems an area fit for residential building, flood insurance allows home buyers and homeowners the opportunity to live 

in a home of their choice in a location of their choice. 

The home building industry depends upon the NFIP to be annually predictable, universally available, and fiscally viable. Unfortunately, the losses suffered in the 2004 and 2005 hurricane seasons 

included the devastation brought about by Hurricanes Katrina, 

Rita, and Wilma. They have severely taxed and threatened the solvency of the NFIP. 

According to FEMA, between NFIP’s inception in 1968 through 2004, a total of $15 billion has been needed to cover more than $1.3 

million in losses. However, the combined claims for 2004 and 2005 

exceeded the total amount paid during the entire 37-year existence 

of the NFIP program. 

While these losses are severe, they are currently unprecedented 

in the history of this important program. And, in our opinion, they 

are not a reflection of a fundamentally broken program. Nevertheless, NAHP recognizes the need to ensure the long-term financial 

stability of the NFIP, and looks forward to working with this committee to implement needed reforms. While my testimony goes into 

more detail, it is absolutely critical that Congress approaches legislation with care. 

The NFIP is not simply about flood insurance premiums and 

pay-outs. Rather, it is a comprehensive program that guides future 

development and mitigates against future losses. While a financially stable NFIP is in all of our interests, the steps that Congress 

takes to ensure financial stability has the potential to greatly impact housing affordability, and the ability of local communities to 

exercise control over their growth and development options. 

While NAHB supports a number of reforms designed to allow the 

NFIP to better adapt to changes in the marketplace, we have 

strongly advocated against expansion of the regulated floodplain, or 

changes to the numbers, locations, or types of structures required 

32 

to be covered by flood insurance without appropriate study first. 

Before any such changes could be implemented, FEMA should first 

demonstrate that the result that the resulting impacts on property 

owners, local communities, and local land use are more than offset 

by the increased premiums generated and the hazard mitigation 

steps taken. 

NAHB is, therefore, pleased that the subcommittee’s draft bill requires that FEMA conduct a study on the feasibility and implications of a change to NFIP’s mandatory purchase requirements 

within the 100-year floodplain. 

Finally, NAHB is pleased to support H.R. 1264, the Multiple 

Peril Insurance Act of 2009, authored by Representative Gene Taylor. Coverage for wind insurance would provide a needed addition 

to the availability and affordability of property insurance in highhazard areas. NAHB is pleased that H.R. 1264 references the mitigation requirements of consensus-based building codes as a measure to lessen the potential damage caused by a natural disaster, 

and, thus, further ensure the financial stability of the NFIP. 

Again, thank you for the opportunity to testify today. 

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

144 of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Our final witness will be Mr. Maurice Veissi. 

STATEMENT OF MAURICE VEISSI, VEISSI & ASSOCIATES, 2010 

FIRST VICE PRESIDENT, NATIONAL ASSOCIATION OF REALTORS 

Mr. VEISSI. Chairwoman Waters, Ranking Member Capito, and 

members of the subcommittee, I want to thank you for inviting me 

to testify today regarding legislation to reform the National Flood 

Insurance Program. My name is Moe Veissi. I am currently the 

2010 first vice president in the National Association of REALTORS. I have been a Realtor for more than 40 years. I am the 

broker-owner of Veissi & Associates, Inc., and TM Realty, the 

former in Miami and the latter in Daytona, Florida. I am here to 

represent the views of the National Association of REALTORS and 

its 1.2 million members who are engaged in all the aspects of residential and commercial real estate in the 50 States and 4 territories of the United States. 

Throughout its existence, the National Flood Insurance Program 

has effectively reduced the cost to taxpayers of flood damage. It 

does that by requiring communities who wish to participate in this 

valuable program to implement flood plan management ordinances. 

It is important to note, according to FEMA, those requirements reduce flood damage by about $1 billion a year. 

In other words, participation in this program ensures that a $1 

billion savings is passed on to the taxpayers who do not have to 

shoulder the enormous expense of underinsured property owners 

after a natural disaster like Hurricane Katrina. 

It is estimated that a third of the $88 billion in remedial efforts 

that the government spent on disaster was due to underinsured 

properties. And while the National Flood Insurance Program has 

been effective at reducing societal costs, flooding and damages 

since 2005 highlight the need to reform the program so that it can 

33 

better protect our people and put this program on a strong financial footing. 

Just look at the recent floods in Rhode Island. We all saw the 

images of the Pawtucket River, cresting at about 12.5 feet above 

flood grade. The residential experienced huge damage in a flood 

characterized as 1 event in the last 200 years. NAR president-elect 

Ron Phipps experienced water above 21 feet of mean level. Imagine 

the horror of having to fill a 30-year dumpster with parts of your 

family’s memories and history. That must have been devastating. 

Extending the Flood Program month to month through stop-gap 

measures—some might say punting from one deadline to another— 

is an ineffective way to operate a major Federal program. And this 

creates financial and real estate market uncertainties for millions 

of taxpayers, financial market lenders, and insurers who can’t or 

won’t operate under these uncertainties. 

The National Association of REALTORS supports a minimum 5- 

year authorization of the flood program. Such an extension provides much-needed certainty to a recovering real estate market and 

to millions of taxpayers who depend on this important program. 

NAR also supports reforms that strengthen the program’s financial footing. Increasing participation would lead to increased funds 

for the program, help property owners recover from flood losses, 

and decrease future Federal assistance with underinsured properties and owners experience losses such as happened before. 

We support reforms that would eliminate discount insurance 

rates for older properties with a history of repeated pay-outs where 

the owner has refused to mitigate against future insured losses. 

Yet we oppose changes to rates—charge pre-flood insurance rate 

mapped commercial properties, non-primary residential or primary 

residential homes. 

Pre-flood mapped properties facing identical risks should have 

the same rate. The rate should not be based directly or indirectly 

on the type of occupancy or the income or assets of the owner. That 

way, two properties could be located next to each other, but the 

commercial property could get a bill that is about 4 times more 

than the one right next door. That’s not right. 

H.R. 1264, the Multiple Peril Insurance Act sponsored by Representative Taylor, would ensure access to affordable insurance for 

wind-related hurricane damage, and therefore, reduce the amount 

of post-disaster Federal assistance, saving taxpayers real money. 

Covering both wind and flood would eliminate the insurance 

pushback on what causes the damage. 

As we have learned in the past in Rhode Island; Florida; Fargo, 

North Dakota; Louisiana; and a host of other hometowns across 

this great land, it’s far less costly to prepare ahead of time for disasters than it is to fund recovery efforts. 

In conclusion, thank you again for the opportunity to share the 

Realtor community’s views on the National Flood Insurance Program. The National Association of REALTORS stands ready to 

work with members of the committee to develop meaningful reforms to this program that will help protect the country’s property 

owners and renters to prepare and recover from future losses resulting from floods. Thank you so very much. 

34 

[The prepared statement of Mr. Veissi can be found on page 154 

of the appendix.] 

Chairwoman WATERS. Thank you very much. And I will now recognize myself for 5 minutes for questions. 

Let me turn to Mr. Davey. You mentioned in your oral testimony 

the need for the program to offer additional living expense coverage. I am interested in this concept, since you talk about helping 

low-income Americans. Can you delve further into how this would 

work? 

Mr. DAVEY. Additional living expense was referred to as ALE— 

is an essential part of a traditional homeowner’s policy. 

Whether your house is damaged by flood, or whether it’s damaged by fire, the first thing you have to do when you’re found without a home, is you have to relocate. And your first immediate need 

is cash. You have to go rent a hotel, you have to start purchasing 

your initial meals at a restaurant. You need money. 

When your house is flooded, you have lost everything, in most 

circumstances you don’t have access to anything in your household. 

You have to go purchase clothing, start feeding yourself, find suitable shelter. That is—if there is one thing that happens after a 

flooding event that’s most crucial, the first calls we receive are people looking for this additional living expense. 

Chairwoman WATERS. But wouldn’t that increase the price of the 

premium? 

Mr. DAVEY. It would increase the price of the premium. It could 

be made optional or it could be made mandatory. And I don’t advocate giving the coverage away. I advocate charging the actuarially 

sound premium for that coverage. 

But it is an absolute need of the policyholder after their property 

has been flooded. 

Chairwoman WATERS. You heard earlier this morning the Administrator say that, by law, they were only able to increase premiums by 10 percent, or the amount that they were able to charge. 

We said we would increase by 20 percent. Do you think this is 

enough to incorporate into it additional coverage for those who 

would want to have this ADL? 

Mr. DAVEY. Additional living expense? I don’t think it falls in the 

category of an increased premium. It’s a newly introduced coverage. 

So any premium associated with that coverage would not be construed as an increase of our—of the NFIP’s rates. It’s a new coverage, of which—if it’s made optional, it’s at the purchaser’s election whether they choose to purchase that coverage or not choose 

that purchase. 

Chairwoman WATERS. Okay. I’m sorry, it’s ALE, that’s what—additional living expenses. 

Mr. DAVEY. Correct. 

Chairwoman WATERS. Now, could your company offer that? 

Mr. DAVEY. Could our company offer it outside of the flood policy? 

Chairwoman WATERS. Yes. 

Mr. DAVEY. There are companies that have written that coverage 

outside of the flood policy. Unfortunately, the areas in which they 

offer it aren’t always areas of highest needs. That may be available 

35 

through companies—through a—what they call a companion policy 

that is written in conjunction with the NFIP. 

Chairwoman WATERS. All right. Let me just ask—Mr. Veissi, I 

have heard reports that during this month’s lapse in the Flood Insurance Program, each day up to 1,400 home buyers were unable 

to close on their homes. How did this lapse impact the real estate 

market and home buyers? 

Mr. VEISSI. At a time when the real estate home market is beginning to now fire up and, from an economic standpoint, support the 

economy, it could be devastating. 

The reality is that most lenders will not loan on a home that is 

not sufficiently insured. And so, if you can’t get flood—or wind, for 

that matter—then those impediments would stop—literally, stop— 

the sale in many of the coastal areas. Remember, about 1 out of 

every 2 Americans live within 50 miles of the coast. The effect of 

that could be absolutely devastating. 

Chairwoman WATERS. Thank you very much. And I know that 

Mr. Taylor is here, and he is going to talk a lot more about wind 

insurance. But Mr. Veissi, can you discuss the importance of this 

legislation and how it’s needed to protect homeowners in areas 

prone to wind damage? 

That’s for Mr. Rutenberg or Mr. Veissi. 

Mr. VEISSI. I would be more than happy to. The reality is, especially in coastal areas where there are two types of flood—one type 

is wind-driven flood and the other is flood as we would imagine it 

in Rhode Island and some of the other areas. 

The bounce back between the insurance company and the insured can get very dramatic. In one case, the wind-driven flood 

may be—the insurer may want compensation from that, and the insurance company will say, ‘‘No, that’s flood.’’ 

And then, from the flood standpoint, that insured will go back to 

the flood and say, ‘‘Well, I need to be compensated for this,’’ and 

that insurer would say, ‘‘No, no, that’s wind-driven damage.’’ 

The impact of that is absolutely enormous. You have two insurance companies battling against one another, not wanting to pay. 

I can understand that. But understanding that something happened to that one homeowner, that one homeowner needs to be 

compensated. Combining those two together would be absolutely 

the case. 

Chairwoman WATERS. Thank you. Ms. Capito? 

Mrs. CAPITO. Thank you. Mr. Davey, I have a question. If somebody is getting an FHA mortgage, and they happen to fall within 

the FEMA floodplain, are they required to get flood insurance for 

that? 

Mr. DAVEY. They are. Yes, they are. 

Mrs. CAPITO. And how is that priced? Mr. Rollins has raised big 

questions about whether the rates are actuarially sound. How do 

you—I assume you do this in your regular line of business—calculate that? And what kind of concessions do you have to find if 

it’s going to be subsidized or otherwise? Do you do income ratios, 

or what? 

Mr. DAVEY. I am not sure I understand the question. 

Mrs. CAPITO. When you’re writing a flood policy, an NFIP policy. 

You do that, correct? 

36 

Mr. DAVEY. The pricing mechanism? 

Mrs. CAPITO. Yes. How do you determine what the rate is on 

that, and— 

Mr. DAVEY. The NFIP has set rating guidelines and rating protocols that we follow. 

Mrs. CAPITO. So you can’t go away from that? 

Mr. DAVEY. No, no. We adhere strictly to the rates that are set 

by the NFIP. 

Mrs. CAPITO. Okay. Okay, thank you. Mr. Rollins, you really 

raised some questions on whether the rates are actuarially sound. 

And with a program that is $18 billion in debt, I think that’s a logical question. 

What improvements would you make to set this on the right 

course actuarially, or with rate setting? 

Mr. ROLLINS. Thank you, Ranking Member Capito. Each program has to stand on its own, from the standpoint of being actuarially sound. So an actuarially sound rating plan for car insurance 

or wind insurance is not the same, is not necessarily going to be 

based on the same factors as one for flood insurance. 

But that said, all actuarially sound programs share one common 

characteristic, which is that they properly account for the present 

value of all expected future costs associated with the risk. And that 

includes not only the—sort of the run-of-the-mill average annual 

losses, but they have to include some kind of loading or provision 

to reflect the fact that a severe year may occur, particularly in a 

program that’s subject to catastrophes, whether that be wind, 

earthquake, or flood. And that loading can be significant. 

Now, my experience, admittedly, is more with coastal property 

and wind than it is with the NFIP’s rating structure. But that 

loading—what troubles me, as an actuary, is that loading is rarely 

recognized as a matter of legislative definition or as a matter of 

practical definition within the rating plan. 

So, what you end up with is a program that apparently is actuarially sound for perhaps a number of years, and then a loss many 

times the annual premium can overwhelm that. And it’s easy to 

then look back and say, ‘‘If we were to distribute this cost over the 

past 10 or 20 years, we could have had the right loading.’’ 

But it’s—as one major insurance company famously said, they 

lost 50 years of premiums in 5 hours in Hurricane Andrew. 

Mrs. CAPITO. Right. 

Mr. ROLLINS. That would be prima facie evidence that the program was not actuarially sound. 

Mrs. CAPITO. Okay. Mr. Conrad, I understand you are a proponent of flood insurance reform, and are concerned that the program continues to be weighted down by repetitive loss properties. 

And according to a recent report by the Congressional Budget Office, in a study sample, about 40 percent of subsidized coastal NFIP 

properties were worth at least half a million dollars. I would imagine that some of these might be repetitive loss properties. 

How would adding wind coverage, in your opinion, to the troubled NFIP exacerbate these problems? 

Mr. CONRAD. Unless and until we address the repetitive loss 

problem in the Flood Insurance Program, we have a program that 

is always in a downward spiral with repetitive losses. 

37 

I believe that if you were to—and the estimate—there have been 

some estimates about how much that’s costing a year. And I’m not 

sure that we have actually plumbed that completely to the depth, 

even at FEMA. But to add wind in this area—FEMA has no experience with wind at this point. So, at least in the first decade, they 

would be shooting in the dark in terms of how to do wind. 

I think what—the effect would be to just increase the uncertainty 

and the risk in the Flood Insurance Program that is already sort 

of there because of a number of different factors in the way the repetitive loss problems are plaguing the program. 

Mrs. CAPITO. All right. Thank you. 

Chairwoman WATERS. Thank you very much. I am going to hold 

each person to the 5 minutes. We have to be out of the room for 

the Financial Services Committee to come in. So, with that, Mr. 

Cleaver for 5 minutes. 

Mr. CLEAVER. I yield back my time, Madam Chairwoman. 

Chairwoman WATERS. Thank you. Mr. Green, for 5 minutes. 

Mr. GREEN. I will yield my time to Mr. Taylor, Madam Chairwoman, and thank you very much. 

Chairwoman WATERS. Thank you very much. Mr. Taylor? 

Mr. TAYLOR. I would like to address this question to you, Mr. 

Davey, as a representative of the National Flood Insurance Program. 

Your contract with America calls for a fair adjustment of the 

claim by your personnel. You are paid to sell the policy, you are 

paid to adjust the claim. Are you aware that, within 2 weeks of 

Hurricane Katrina, State Farm sent an internal company memo 

that instructed their adjustors—and this is a quote—‘‘Where wind 

acts concurrently with flooding to cause damage to the insurer’s 

property, coverage for the loss exists only under flood coverage.’’ 

Now, that’s an instruction to their adjustors. Does that sound to 

you like a fair adjustment of the claim? 

Mr. DAVEY. Representative Taylor, I can’t comment on State 

Farm’s practices. What I can share with you— 

Mr. TAYLOR. Okay. If I may— 

Mr. DAVEY. —is the practices we engaged in, which did not invoke the anti-concurrent clause in the settlement of our property 

claims as a result of Hurricanes Katrina, Rita, and Wilma. 

Mr. TAYLOR. All right. Well, let me ask you, since it was not an 

isolated instance, in testimony before the Mississippi Supreme 

Court, a hand-picked attorney for Nationwide Insurance Company 

was posed a question by Justice Pierce of the Mississippi Supreme 

Court: ‘‘I am giving you the example of 95 percent of the house is 

destroyed by wind. The flood comes in and gets the other 5 percent, 

and you know that. Does your interpretation of the word ‘sequence’ 

mean you pay 0?’’ 

The lawyer for Nationwide Insurance Company, Mr. Landau, answered, ‘‘Yes, your Honor,’’ which means they pay zero. Does that 

sound like a fair adjustment of the claim? 

Mr. DAVEY. I— 

Mr. TAYLOR. Come on, you have to have an opinion, sir. 

Mr. DAVEY. I can’t comment on the fashion in which they adjusted our claims. I can tell you how we adjusted our claims. Where 

there was 60 percent of the responsibility coming from wind and 

38 

40 coming from water, we paid our 60, and the water paid 40. We 

did not invoke the anti-concurrent clause in the settlement of any 

Katrina, Rita, or Wilma claims. 

Furthermore, for every loss—and we were a substantial player, 

we represented roughly 30, probably 35 percent of the market 

share in the Louisiana area—we employed a separate adjustor specifically to adjust flood losses, and the insurance companies that 

had the property had their own adjustor to adjust the wind side. 

So, where we were the write-your-own character providing the 

flood coverage, there was a separate adjustor specifically assigned 

to appraise the damages arising from flood and flood only. 

Mr. TAYLOR. Going back to my question to Mr. Fugate, how 

many, given the two things that I just told you, which were the 

practice of Nationwide Insurance Company and State Farm Insurance Company, which I think contributed to the $53.3 billion bill 

that our Nation paid after Hurricane Katrina, how many investigations for fraud were there, that you are aware of, where—instances 

of where the Nation feels like it was billed unjustly by the insurance industry? 

Mr. DAVEY. I will tell you—again, I cannot speak on behalf of 

other carriers— 

Mr. TAYLOR. Do you know of one, sir? 

Mr. DAVEY. I don’t know of one. I’m not aware of any. 

Mr. TAYLOR. A $53 billion bill to our Nation, internal company 

memos that are completely contrary to the contract that these two 

companies have with our Nation, and you don’t know of a single 

investigation for fraud? 

Mr. DAVEY. The only company that I am responsible and should 

have knowledge of, is our— 

Mr. TAYLOR. Okay. 

Mr. DAVEY. —the companies in which I am responsible for the— 

Mr. TAYLOR. Okay, just for further— 

Mr. DAVEY. —operation and owner— 

Mr. TAYLOR. —clarification, Mr. Davey, is it accurate to say that 

your adjustors were empowered to send the Federal Government a 

$350,000 bill, and no one from the Nation double-checked to see if 

that was a fair billing to our Nation? 

Mr. DAVEY. Well— 

Mr. TAYLOR. $250 for the— 

Mr. DAVEY. —contrary to that— 

Mr. TAYLOR. $250 for the— 

Mr. DAVEY. They did check. We did—the NFIP did engage in audits. They came in and audited our Katrina, Rita, and Wilma 

claims. They went through, I don’t know how—what the sample 

size, but in every and each claim which they examined, there was 

no evidence found where NFIP monies were spent on wind coverage. Every dollar we paid out through our organization went to 

actual flood damage. 

Mr. TAYLOR. Okay. 

Mr. DAVEY. I— 

Mr. TAYLOR. Lastly, are any of the—and I’m glad to hear that, 

for those companies that you represent. I am curious how many of 

those companies are offering wind coverage in coastal America 

39 

right now. And if you would like to name them, I would like to hear 

their names. 

Mr. DAVEY. The Fidelity National Group were operational from 

Maine to the Gulf of Mexico. 

Mr. TAYLOR. And have their rates increased substantially since 

Hurricane Katrina? By ‘‘substantially,’’ I mean by hundreds of percent. 

Mr. DAVEY. No, they have not. 

Mr. TAYLOR. How much have they increased, sir? 

Mr. DAVEY. I don’t—it varies, State by State. 

Mr. TAYLOR. Would you like to venture a guess? 

Mr. DAVEY. No. 

Mr. TAYLOR. You want to give me a ‘‘for instance?’’ How about 

in my State of Mississippi? How much do you think the rates have 

gone up? 

Mr. DAVEY. I don’t know. 

Mr. TAYLOR. Would it be fair to say they have more than doubled, tripled, quadrupled? Is it fair to say that wind coverage for 

a typical property owner in the three coastal counties of Mississippi— 

Mr. DAVEY. They have not doubled or tripled— 

Mr. TAYLOR. —pays more for wind insurance than they do for 

their mortgage? 

Mr. DAVEY. Wind insurance— 

Mr. TAYLOR. Would you agree with that statement? 

Mr. DAVEY. Wind insurance is a covered peril under the homeowner’s policy. And, dependent on how susceptible the property is 

to wind plays a substantial role in what portion of the overall premium that covered peril represents. 

Mr. TAYLOR. Okay. Last question. As far as wind coverage, what 

percentage of the reinsurance purchased by the companies you represent is actually coming from companies offshore in places like 

Bermuda? Is it half? Is it a third? Is it a quarter? 

Because the question is, if homeowners can’t get payment on 

Chinese drywall, and if homeowners couldn’t get folks in Springfield, Illinois, or Hartford, Connecticut, to pay claims, how do you 

really expect a reinsurance company out of the Bahamas or Bermuda to pay their fair share when the time comes? 

Mr. DAVEY. Well, let me first of all say that the contract of insurance that you hold with your insurance company, whether it be Fidelity National, Allstate, State Farm, is with that insurance company. And the responsibility for the fair settlement of your claim 

and the full payment of that claim, lies only with that carrier. 

If that carrier chooses to purchase reinsurance from a highly 

rated entity, whether it be a U.S. reinsurer, which—our book of 

business, the reinsurance we purchase is split between domestic reinsurers and reinsurers around the world, all who meet our internal guideline of financial stability—believe me, we send them millions of dollars every year. We have yet to collect any meaningful 

sum from those carriers. 

When, in fact, we make our claim, after sending them millions 

of dollars each and every year, they will pay us. They have been 

collecting our premiums, we have been paying our premiums. And 

when the time comes for reimbursement under that contract of inVerDate Nov 24 2008 16:39 Sep 01, 2010 Jkt 057744 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 K:\DOCS\57744.TXT TERRIE
40 

surance that—where we purchased insurance from those insurers, 

they will pay. 

Chairwoman WATERS. Mr. Taylor, you have the last word. 

Mr. TAYLOR. Thank you, ma’am. 

Chairwoman WATERS. Go ahead, you have the last word. 

Mr. TAYLOR. Mr. Davey, again, there were some good players 

after Katrina, but there were a heck of a lot of bad players. I hope 

you are right when it comes to reinsurance. Based on what happened after Katrina, I believe you are wrong. 

Thank you, Madam Chairwoman. 

Chairwoman WATERS. Thank you very much. The Chair notes 

that some members may have additional questions for this panel, 

which they may wish to submit in writing. Without objection, the 

hearing record will remain open for 30 days for members to submit 

written questions to these witnesses, and to place their responses 

in the record. 

This panel is now dismissed. Before we adjourn, the written 

statements of the following organizations will be made a part of the 

record of this hearing: the Honorable Charlie Melancon; American 

Rivers; the National Multi Housing Council and the National 

Apartment Association; Property Casualty Insurers Association of 

America; Independent Insurance Agents and Brokers of America; 

the Honorable Travis Childers; the Honorable Dave Loebsack; and 

the Honorable Adam Putnam. 

This meeting is adjourned. Thank you. 

[Whereupon, at 5:03 p.m., the hearing was adjourned.] 

(41) 

A P P E N D I X 

April 21, 2010 

42 


57744.001
43 


57744.002
44 


57744.003
45 


57744.004
46 


57744.005
47 


57744.006
48 


57744.007
49 


57744.008
50 


57744.009
51 


57744.010
52 


57744.011
53 


57744.012
54 


57744.013
55 


57744.014
56 


57744.015
57 


57744.016
58 


57744.017
59 


57744.018
60 


57744.019
61 


57744.020
62 


57744.021
63 


57744.022
64 


57744.023
65 


57744.024
66 


57744.025
67 


57744.026
68 


57744.027
69 


57744.028
70 


57744.029
71 


57744.030
72 


57744.031
73 


57744.032
74 


57744.033
75 


57744.034
76 


57744.035
77 


57744.036
78 


57744.037
79 


57744.038
80 


57744.039
81 


57744.040
82 


57744.041
83 


57744.042
84 


57744.043
85 


57744.044
86 


57744.045
87 


57744.046
88 


57744.047
89 


57744.048
90 


57744.049
91 


57744.050
92 


57744.051
93 


57744.052
94 


57744.053
95 


57744.054
96 


57744.055
97 


57744.056
98 


57744.057
99 


57744.058
100 


57744.059
101 


57744.060
102 


57744.061
103 


57744.062
104 


57744.063
105 


57744.064
106 


57744.065
107 


57744.066
108 


57744.067
109 


57744.068
110 


57744.069
111 


57744.070
112 


57744.071
113 


57744.072
114 


57744.073
115 


57744.074
116 


57744.075
117 


57744.076
118 


57744.077
119 


57744.078
120 


57744.079
121 


57744.080
122 


57744.081
123 


57744.082
124 


57744.083
125 


57744.084
126 


57744.085
127 


57744.086
128 


57744.087
129 


57744.088
130 


57744.089
131 


57744.090
132 


57744.091
133 


57744.092
134 


57744.093
135 


57744.094
136 


57744.095
137 


57744.096
138 


57744.097
139 


57744.098
140 


57744.099
141 


57744.100
142 


57744.101
143 


57744.102
144 


57744.103
145 


57744.104
146 


57744.105
147 


57744.106
148 


57744.107
149 


57744.108
150 


57744.109
151 


57744.110
152 


57744.111
153 


57744.112
154 


57744.113
155 


57744.114
156 


57744.115
157 


57744.116
158 


57744.117
159 


57744.118
160 


57744.119
161 


57744.120