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S. HRG. 112–229 

REAUTHORIZATION OF THE NATIONAL FLOOD 

INSURANCE PROGRAM 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

ON 

EXAMINING THE REAUTHORIZATION OF THE NATIONAL FLOOD 

INSURANCE PROGRAM 

JUNE 9 AND JUNE 23, 2011 

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

( 

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

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

TIM JOHNSON, South Dakota, Chairman 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

HERB KOHL, Wisconsin 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

MICHAEL F. BENNET, Colorado 

KAY HAGAN, North Carolina 

RICHARD C. SHELBY, Alabama 

MIKE CRAPO, Idaho 

BOB CORKER, Tennessee 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

ROGER F. WICKER, Mississippi 

DWIGHT FETTIG, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director 

CHARLES YI, Deputy Staff Director and Chief Counsel 

BETH COOPER, Professional Staff Member 

LAURA SWANSON, Policy Director 

BRETT HEWITT, Legislative Assistant 

ANDREW OLMEM, Republican Chief Counsel 

SHANNON HINES, Republican Professional Staff Member 

DAWN RATLIFF, Chief Clerk 

WILLIAM FIELDS, Hearing Clerk 

LEVON BAGRAMIAN, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)

C O N T E N T S 

THURSDAY, JUNE 9, 2011 

Page 

Opening statement of Chairman Johnson ............................................................. 1 

Prepared statement .......................................................................................... 29 

Opening statements, comments, or prepared statements of: 

Senator Shelby .................................................................................................. 2 

Prepared statement ................................................................................... 29 

Senator Tester .................................................................................................. 3 

WITNESSES 

Senator Roger F. Wicker of Mississippi ................................................................. 3 

Prepared statement .......................................................................................... 30 

W. Craig Fugate, Administrator, Federal Emergency Management Agency ...... 6 

Prepared statement .......................................................................................... 32 

Responses to written questions of: 

Chairman Johnson .................................................................................... 38 

Senator Shelby ........................................................................................... 39 

Senator Reed .............................................................................................. 48 

Senator Merkley ........................................................................................ 54 

Senator Vitter ............................................................................................ 57 

Senator Cochran ........................................................................................ 60 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Prepared statement of Senator Richard J. Durbin of Illinois .............................. 62 

Statement submitted by the National Association of REALTORS® .................... 63 

THURSDAY, JUNE 23, 2011 

Page 

Opening statement of Chairman Johnson ............................................................. 83 

Opening statements, comments, or prepared statements of: 

Senator Shelby 

Prepared statement ................................................................................... 113 

Senator Johanns 

Prepared statement ................................................................................... 113 

WITNESSES 

Orice Williams Brown, Director, Office of Financial Markets and Community 

Investment, Government Accountability Office ................................................. 84 

Prepared statement .......................................................................................... 114 

Chad Berginnis, Associate Director, Association of State Floodplain 

Managers .............................................................................................................. 86 

Prepared statement .......................................................................................... 135 

Adam Kolton, Executive Director, National Advocacy Center, National Wildlife Federation, on behalf of the Smarter Safer Coalition ................................ 88 

Prepared statement .......................................................................................... 140 

(III)

Page

IV 

Barry Rutenberg, First Vice Chairman of the Board, National Association 

of Home Builders .................................................................................................. 89 

Prepared statement .......................................................................................... 147 

Travis B. Plunkett, Legislative Director, Consumer Federation of America ...... 91 

Prepared statement .......................................................................................... 166 

Scott H. Richardson, Policy Advisor, the Heartland Institute, and Partner, 

Richardson and Ritchie Consulting .................................................................... 93 

Prepared statement .......................................................................................... 175 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Statement submitted by the American Insurance Association ............................ 178 

Statement submitted by Stuart Mathewson, FCAS, MAAA, Chair, Flood Insurance Subcommittee, Extreme Events Committee, on behalf of the American Academy of Actuaries .................................................................................. 179 

Letter submitted by Shana Udvardy, Director, Flood Management Policy, 

American Rivers ................................................................................................... 182 

Letter submitted by Franklin W. Nutter, President, Reinsurance Association 

of America ............................................................................................................. 186 

Statement submitted by Franklin W. Nutter, President, Reinsurance Association of America ..................................................................................................... 187 

Statement submitted by the National Association of Mutual Insurance 

Companies ............................................................................................................ 190 

Statement submitted by the Independent Insurance Agents and Brokers of 

America ................................................................................................................. 197 

Statement submitted by Craig Poulton, CEO of Poulton Associates, Inc. .......... 200 

Statement submitted by the Property Casualty Insurers Association of 

America ................................................................................................................. 205 

(1) 

REAUTHORIZATION OF THE NATIONAL 

FLOOD INSURANCE PROGRAM—PART I 

THURSDAY, JUNE 9, 2011 

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Committee met at 10:04 a.m., in room SD–538, Dirksen Senate Office Building, Hon. Tim Johnson, Chairman of the Committee, presiding. 

OPENING STATEMENT OF CHAIRMAN TIM JOHNSON 

Chairman JOHNSON. I would like to call this hearing to order. 

Today the Committee meets to examine the reauthorization of the 

National Flood Insurance Program. 

Currently, constituents from my home State of South Dakota are 

dealing with some of the worst flooding that the State has ever 

seen. When I was back in South Dakota last week, I spent some 

time talking to homeowners and business owners in the communities that are anticipating some of the worst damage. While they 

are working hard to minimize harm to people and property, they 

are understandably concerned about short-term displacement and 

long-term recovery. I will do my best to see that they, along with 

our neighbors and fellow Americans who have had their lives 

turned upside down by devastating storms, are promptly provided 

with the disaster relief that they need. 

I would also like to applaud Administrator Fugate and his staff 

at FEMA on how they have responded to the flooding in my State 

so far. I hope that the quick response that we saw during the recent sudden storms continues when addressing the ongoing flooding in South Dakota and around the country. 

The NFIP was created to help communities limit damage and 

speed recovery from flooding disasters. However, it now faces several challenges to its long-term viability, including an $18 billion 

debt to the U.S. Treasury. 

Over the past year, we have also faced several lapses in the 

NFIP. As many stakeholders have noted, lapses have detrimental 

effects on both the insurance and housing markets. This program, 

which provides over $1.2 trillion in coverage, needs certainty. It is 

my hope to provide this through a long-term extension. 

As the people of South Dakota and others have seen firsthand, 

flooding is responsible for more damage and economic loss than any 

other type of natural disaster. It affects people across the Nation 

of both parties, which is why I believe that in 2008 the Senate was 

able to come together across the aisle and pass a bipartisan reauVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
2 

thorization bill by an overwhelming vote of 92–6. Unfortunately, in 

2008, we were not able to come to an agreement with the House. 

The recent flooding has made it clear that Congress must reauthorize and reform the NFIP, which is set to expire this year on September 30. 

As we move ahead, I hope we can once again come together and 

pass a bipartisan bill that will build a sustainable future for the 

program and American citizens. 

I will now turn to Ranking Member Shelby, and then we will 

open it up to all Committee Members who wish to give an opening 

statement. Senator Shelby. 

STATEMENT OF SENATOR RICHARD C. SHELBY 

Senator SHELBY. Thank you, Mr. Chairman. 

The National Flood Insurance Program was established in 1968 

and was designed to reduce the burden on taxpayers stemming 

from Federal disaster relief for floods. By providing flood insurance 

for properties in high-risk areas, it was hoped then that insurance 

premiums could be used to cover the cost of flood damage. Since 

Hurricane Katrina, however, the program has struggled to remain 

financially viable. In fact, since early 2006, the GAO has targeted 

the Flood Insurance Program as ‘‘high risk because of its mounting 

debt and the structural flaws.’’ 

Today the program is nearly $18 billion in debt and has problems 

even servicing that debt. Unfortunately, as the GAO has shown, 

the program’s debt is only one of many difficulties facing the Flood 

Insurance Program as it is constituted today. Every aspect of the 

program I believe must undergo significant revision for it to survive and to continue on a sustainable path. 

During the 109th Congress, this Committee approved unanimously and the Senate overwhelmingly passed legislation that, 

while not perfect, addressed many of the core deficiencies of the 

program. That legislation would be a good starting point for this 

Committee as we move forward toward reauthorizing the National 

Flood Insurance Program. But as we begin this process, I believe 

several issues deserve a close examination by this Committee. 

First, we should examine the relationship between the program 

and write-your-own insurance companies. According to GAO, writeyour-own companies may be receiving excessively high reimbursements and bonuses from the program. The GAO recommended that 

the write-your-own program have more transparency and accountability. This is something we should pursue. 

The Committee should also examine the types of properties the 

Flood Insurance Program is covering to ensure that its resources 

are spent effectively. For example, the Congressional Budget Office 

has determined that 12 percent of the homes covered under the 

program are worth more than $1 million. I believe we must ensure 

that the program requires wealthy participants to pay the full cost 

of their insurance. 

The Committee should also examine the program’s map modernization effort that we have been working on. The map modernization process has been ongoing for several years, and it is crucial for the long-term success of this program. Updated maps are 

important for two reasons: first, they warn developers and homeVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
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owners about the risk of developing or living in a floodplain; second, they ensure that participants are paying fair prices for flood 

coverage. 

Some communities have called into question the validity of the 

maps, and others have argued that they have been excluded from 

the mapping process. Community participation I believe is crucial, 

but this process needs to take place rapidly to ensure that the risk 

is accurately reflected and homeowners and communities are fully 

informed. 

Many of the existing maps are several decades old and do not accurately reflect the cost and risk of living within a floodplain. I 

think we should also see—I would like to see a simple definition 

of the phrase ‘‘actuarially sound’’ in any bill to reform the program. 

This simple act will clearly state our intent to make this program 

self-sustaining. 

Finally, I believe this Committee should consider ways to privatize portions of this program. We should transfer risk from the 

program to the private sector to the maximum extent possible. If 

we are able to accomplish these objectives, we may finally achieve 

the original purpose of the Flood Insurance Program: to reduce the 

escalating cost of flooding to taxpayers. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Tester. 

STATEMENT OF SENATOR JON TESTER 

Senator TESTER. Yes, thank you, Mr. Chairman. Thank you for 

holding this hearing on the reauthorization of the National Flood 

Insurance Program. It is a very, very important program. We need 

to get a long-term solution for this. Hopefully both sides of the aisle 

can work together to make that happen because this is very, very 

important. 

I say that because the State of Montana is not exactly a flood 

State; it is a headwater State. It is underwater right now, and— 

I should back up. Good to have you here, Senator Wicker, and I appreciate your work on this issue. But the fact of the matter is we 

have seen record precipitation. We have record snowfalls still up in 

the mountains. I had talked to Craig Fugate yesterday at a hearing, and we will follow up on that conversation. 

We have many, many challenges across this country when it 

comes to disasters, and water is one of them apparently this year. 

So, with that, I want to thank you for having this hearing, and 

I look forward to the opportunity for questions and interchange between myself and Administrator Fugate. Thank you. 

Chairman JOHNSON. I would now like to welcome Senator Roger 

Wicker from Mississippi, our Banking Committee colleague, to the 

Committee. Senator Wicker has switched seats temporarily to testify before the Committee. 

Senator Wicker, welcome. 

STATEMENT OF ROGER F. WICKER, A SENATOR FROM THE 

STATE OF MISSISSIPPI 

Senator WICKER. Well, thank you very much, Mr. Chairman and 

Mr. Ranking Member and Senator Tester. I have a written stateVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
4 

ment, which I will not read in its entirety and ask that it be included in the record at this point. 

Chairman JOHNSON. Thank you. 

Senator WICKER. I would also notice that the States of Montana 

and South Dakota have sent a great deal of water down our way 

this year, which we are experiencing right now. It only enforces the 

fact that we are all in this together and that we do need a 

multiyear reauthorization, and so I am here today to agree with 

Members of the Committee in that respect and to speak for a few 

moments about my proposal, which I am calling the COASTAL Act. 

You were kind enough to allow me to testify last year before I 

became a Member of this Committee to sort of talk about the 

unique perspective we have and people in the State of Alabama 

and Louisiana and the Gulf Coast have with regard to flood insurance and the way it interplays with wind insurance. At that time 

I spoke about three reforms that I advocated: 

Number one, improving enforcement by FEMA and lenders with 

respect to those required to purchase and maintain flood insurance. 

I do not think we do a good job there. 

Number two, charging rates that are actuarially sound, as the 

Ranking Member just noted. 

And, Number three, updating FEMA’s flood insurance maps so 

that those in flood-prone areas are aware of the risk and obtain 

proper insurance coverage. 

Mr. Chairman, it has been 6 years since Hurricane Katrina devastated the Gulf Coast. While we have made significant progress 

in rebuilding our communities and businesses, for many Mississippians recovery is still not complete. And one of the biggest impediments to our efforts is the lack of affordable property insurance. 

The availability and affordability of wind insurance is crucial in 

any State where there is a coastal exposure. For vast numbers of 

property owners, private insurance coverage for wind damage has 

not been available in the Gulf Coast since the aftermath of the 

2005 hurricane season. 

Hurricanes, as we all know, present a unique problem for coastal 

property owners because damages can be caused by multiple perils, 

including high winds and devastating storm surges. Currently 

homeowners cannot purchase a single policy that covers all hurricane-related damages. Wind losses are covered by private insurers 

or State-run wind pools, while covering for flood damage is largely 

backed by the Federal Government through NFIP. 

As I have testified before, many property owners who suffered severe property damage from Hurricane Katrina were forced to go to 

court to determine which insurer was responsible for damage in 

wind versus water disputes. 

Now, I want to also quote from the Government Accountability 

Office, which issued a report in 2007 which called for greater oversight of wind and flood damage determinations. In that report GAO 

found that claims information collected by NFIP did not allow 

FEMA to effectively oversee damage determinations and apportionments after hurricane events. These are the words not of Senator 

Roger Wicker but of the Government Accountability Office, and I 

quote: 

5 

‘‘For a given property, FEMA’s ability to assess the accuracy of 

payments for damage caused only by flooding is limited because 

NFIP does not know what portion of the total damages was caused 

by wind and what portion was caused by flooding.’’ 

The report goes on to say, ‘‘Because both homeowners and NFIP 

policies can be serviced with a single write-your-own private insurer, a conflict of interest exists during the adjustment process.’’ 

The words, Mr. Chairman, of GAO. 

Now, to help resolve these issues, I have recently introduced the 

Consumer Option for an Alternative System to Allocate Losses Act, 

the COASTAL Act. This legislation, S. 1091, which I invite each of 

you to cosponsor, addresses several problems that arose in the 

aftermath of Katrina. These problems include: Number one, disputes and costly litigation between consumers and insurers over 

the wind versus water claims; Number two, inherent conflicts of interest, as GAO pointed out; and, Number three, the lack of oversight with respect to the adjustment process and claims paid by 

NFIP. 

I believe the COASTAL Act is a commonsense approach to addressing these problems. The legislation would use data currently 

collected by NOAA and other participating entities to allocate property damages following significant storms. Under the COASTAL 

Act, a formula would be established that utilizes storm information 

provided by NOAA and its partners, combined with structural information for each property, to allocate losses caused by high winds 

and storm surges from hurricanes. This alternative loss allocation 

system would be based on the timing, location, and magnitude of 

wind speeds and the storm surge before, during, and after a major 

storm impacts the coastline of the United States. Only properties 

completely destroyed by a hurricane would qualify under this loss 

allocation system. Slab cases, as they are commonly known, have 

the greatest uncertainty because there is little or no evidence left 

behind. 

The COASTAL Act is by no means a silver bullet for all the problems associated with flood insurance and NFIP. However, it is a 

fair and objective way to provide more certainty to the slab claims 

process, which is a very costly piece of the greater Flood Insurance 

Program. The advantage of my proposal is that it is based on activities that NOAA already carries out. Extensive storm data related to wind and storm surges are currently collected throughout 

each named storm that threatens the coastline. This is done primarily now for the purpose of doing a better job of informing emergency managers. I would emphasize that the COASTAL Act does 

not create a new program. It, rather, uses information that we currently have for the purpose of better allocating the responsibility 

for wind versus water. 

I believe this proposal will provide more structure in the marketplace, which should increase the availability of insurance and competition, thus driving down premiums over time. 

I also believe this system will help us hold insurance companies 

accountable for covered losses rather than forcing taxpayers to foot 

more of the bill through the deeply indebted National Flood Insurance Program. 

6 

In conclusion, Mr. Chairman, I would say Congress has an opportunity to make wind and water coverage available and affordable 

while putting the National Flood Insurance Program on a sustainable path forward. I will continue working with each of you, my colleagues on the Committee, to pass a multiyear reauthorization bill 

that can be signed into law, and I urge all of my colleagues to join 

us in this effort. 

Thank you. 

Chairman JOHNSON. Thank you, Senator, for your testimony. 

Now I would like to invite Craig Fugate, Administrator of the 

Federal Emergency Management Agency, to the table for his testimony. Prior to his May 2009 confirmation as FEMA Administrator, 

Mr. Fugate had a long career in emergency management at the 

State and local level, including serving as a volunteer fireman. 

Welcome, Administrator Fugate. You may proceed with your testimony. 

STATEMENT OF W. CRAIG FUGATE, ADMINISTRATOR, 

FEDERAL EMERGENCY MANAGEMENT AGENCY 

Mr. FUGATE. Thank you, Chairman Johnson, Ranking Member, 

and Members of the Committee. I have submitted written testimony. If it please the Chairman, we will submit that for the record. 

Chairman JOHNSON. It will be received. 

Mr. FUGATE. I will proceed with a brief statement then. 

I think Senator Shelby summed up really the structural issues 

we are faced with in the Flood Insurance Program, and I think one 

of the things that I would like to emphasize here is, as the program 

exists now, it is unlikely we can retire the $18 billion debt. I also 

see the risk that that would actually substantially increase in either a large-scale hurricane or a tsunami event. I think we do a 

much better job with riverine flooding and making the determination of how to manage that risk. But in these larger-scale events, 

there are structural issues within the Flood Insurance Program 

that produce high vulnerabilities that are not addressed in the current system. 

So how do we address that risk? I think one of the issues that 

we see and we agree with is this risk should be better shared with 

the private sector versus strictly looking at a taxpayer-run system. 

I believe there are policies that could be moved to the private sector, that there are incentives, or pilots we could use to determine 

what would be the incentives. I also think there are going to be 

those policies that are such high risk that the private sector will 

never be able to manage that risk, and that will continue to be 

something we would have to look at as what would be the Federal 

share of managing or subsidizing that risk. 

I also believe that the efforts to go forward in reauthorization 

need to take a longer view of reauthorization for a greater period 

of time than shorter-term reauthorizations. In our listening sessions with both constituents as well as the industry, they have informed us that it is very detrimental to have short-term reauthorizations, particularly in a real estate market that is trying to right 

itself. When we have lapses in the ability to write insurance or uncertainty in that, it makes it difficult for realtors and others to do 

7 

closings as well as for write-your-own companies to be able to manage their portfolios and continue to offer those services. 

So, again, I believe we need to look at in reauthorization how do 

we incentivize the program to encourage the private sector to participate, but also recognize there are going to be those higher-risk 

policies that we will still need to look at how the Federal Government does that. 

We need to look at a longer reauthorization to provide stability 

as we go forward with these improvements. Even if we do not have 

all the answers today, I think that stability is the one thing we 

heard loud and clear that we needed to address. 

Then, finally, the last piece of this that I think we need to look 

at is how do we deal with making this insurance more actuarially 

based, based upon the risk, which I think encourages the private 

sector to come into this market. And I am not opposed—I have 

heard this term that, well, why would we let the industry 

cherrypick the best policies and we keep the most toxic policies? 

The answer is the best market out there for getting this out of all 

Federal is to allow them to take those policies that they can manage the risk now. In many cases, those people do not buy flood insurance anyway because it is not mandated. Yet every time there 

is a declared disaster with flooding, we end up having to provide 

assistance. 

So I am not opposed to the private sector writing the least risky 

policies if that would increase the amount of protection people 

have. But I also think—and this comes back to something we are 

struggling with every time we do map revisions or updates and we 

change the risk. When people find that their risk has increased and 

they are now required to mandatorily purchase flood insurance because they are in a high-risk area, the price of that oftentimes becomes a detriment to people and a brand-new cost that they had 

not anticipated in their mortgage or in their budgets. 

So I think we also need to look at, as we change these designations, how do we do a graduated increase in these policies, how do 

we move people to be more actuarially sound, but also recognize for 

low-income areas, there may be a need to provide additional assistance or give more time before we get to a full adjusted rate more 

closely reflecting actuarial. And, again, these are some of the areas 

that I think—I agree with this concept that we have got to get the 

private sector more engaged in providing coverage in the flood insurance policy, and that could be either through direct provision, 

through reinsurance, or other models. But I also believe we still 

have a significant number of policyholders that it will still require 

some sort of Federal support to make it affordable and continue to 

provide that protection from these risks. 

Again, I thank you, Mr. Chairman, for the opportunity to testify, 

and I look forward to the questions. 

Chairman JOHNSON. Mr. Fugate, some South Dakotans have 

been told to evacuate for as long as 2 months. Can you tell me 

what actions you are taking in South Dakota to assist our communities and residents in this disaster? Can you also tell me what resources are available to South Dakotans while they are displaced 

and during the recovery phase? 

8 

Mr. FUGATE. Mr. Chairman, we are working with the Governor 

and the team there as we are getting moire and more flooding, 

looking at the assistance. There are two pieces of the assistance 

that can be provided. Obviously those people that have flood insurance would have that, but we also provide through other programs 

in a declared disaster. If the President grants a disaster declaration, that includes individual assistance. We do provide housing assistance and those types of support to the survivors in the event 

of a flood. So, again, we continue to work with South Dakota and 

as we go through the request from the Governor. 

Those areas that do have individual assistance, that assistance 

is being provided for housing and other assistance based upon the 

impacts to their homes. 

Chairman JOHNSON. In your testimony you outline several farreaching NFIP reform policy alternatives that the NFIP working 

group has been discussing. When do you plan to publish some of 

these alternatives? 

Mr. FUGATE. Again, we have looked at some very broad areas. In 

doing this what we found was there was no consensus, there was 

no single idea. But when we looked at both constituents and industry, we found there were about four areas—there seemed to be centers of gravity of interest. As we have done that and looked at that, 

we think some of those may not be the best way to go. I think we 

are probably now looking at focusing on a system that utilizes the 

Federal programs but with the greater participation of the private 

sector and how we do that. So as we continue to work through this 

summer, we are looking at later on coming up with a more consolidated recommendation and coming forth with the consensus report. 

Chairman JOHNSON. As you know, we are facing a September 30 

deadline for reauthorization. In the past many in the Senate have 

been reluctant to extend the program without reform. One of the 

NFIP reform policy alternative options you mention is program optimization. In this area of program optimization, what are some of 

the most important reforms Congress can make in the near term? 

Mr. FUGATE. Well, I think one of the limiting factors in being actuarially sound is we are currently held to a 10-percent rate increase, I believe, per year in moving people that can afford the insurance to being more actuarially based. Again, this comes back to, 

as Senator Shelby pointed out, those that can afford the higher premiums, we need to be able to move them to those, but we also have 

to understand that low-income or people that have limited means, 

that creates a double impact in that we may actually be forcing 

them to make hard decisions about how they are going to pay for 

flood insurance. But I think the ability to move toward where people can afford the flood insurance to pay the actuarially sound rate 

without any reductions or phase-in time frames would be the first 

step, and then looking at how we take communities that because 

of the economic structures we phase them in more gradually. But 

as it is now, we are still having to move slowly through this, even 

for those people that cannot afford a higher premium. 

Chairman JOHNSON. In your testimony you mentioned that the 

current in-or-out nature of the flood hazard areas sometimes gives 

citizens the impression that they are inaccurate. Do you have recVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
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ommendations for how rates can be set in a more granular fashion? 

What resources would you need to achieve this? 

Mr. FUGATE. Well, right now we deal with everything outside of 

a 1-percent flood zone as a preferred rate, and if you are in the 1- 

percent—which is another challenge is how do you explain the risk 

where we actually require the purchase of flood insurance is a 

chance of a 1 in 100-year flood, yet that does not mean that every 

100 years you have a flood or it takes 100 years to have a flood. 

You can have these back-to-back events. And I think the question 

is where we see an increased risk but it is below a 1-percent or 

that higher level, do we still do preferred risk? Preferred risk is actually, I think, in some cases probably below what the market 

would actually insure at. So we actually—I think in some ways we 

have created the structural imbalance where we are charging a 

preferred rate because the risk is much lower, but we are probably 

writing it below what the private sector would be comfortable writing it as, and so we create a disincentive to get the private sector 

to look at that. In effect, and particularly in large-scale events such 

as hurricanes or tsunamis, we are actually subsidizing a greater 

risk there that when you look at river floods and other things suggests that that risk is not as great. 

Chairman JOHNSON. Senator Shelby. 

Senator SHELBY. Thank you, Mr. Chairman. 

The program’s goal, as I understand it, of fiscal solvency is defined as charging premiums that will generate enough revenue to 

cover a historical average loss year. How does the program’s rate 

setting policy compare to that of private sector insurers? In other 

words, would it meet the definition that I raised in my opening 

statement of actuarially sound? 

Mr. FUGATE. I think we do a much better job on the riverine 

flooding. I do not think it is actuarially sound when you look at 

widespread impact, such as the hurricanes and the tsunamis. 

Senator SHELBY. But if we do not get—first, define what actuarially sound means, and get to this, it seems to me that every time 

there is a catastrophic event and you are hit with everything, that 

it is leading the fund toward bankruptcy rather than actuarial 

soundness. Is that fair? 

Mr. FUGATE. That is fair, Senator Shelby, but it also asks another question. It would be difficult to do that at a current rate 

that would be actuarially sound unless we had another way of distributing that risk, and since we are only writing that one hazard, 

without private sector engagement, it is hard to distribute that 

risk. 

Senator SHELBY. And how do we change the distribution of the 

risk? Do we do that by mapping and by identifying and broadening 

the amount of money coming in? How do we do that? 

Mr. FUGATE. One part would be to better reflect those areas and 

their risk and then have greater participation in the Flood Insurance Program based upon that risk. But I think the other challenge 

would be this is one risk. It means that every time you have significant floods, you are not able to balance that against other risks 

or other markets, and that is where the private sector, particularly 

in reinsurance markets, would give us more flexibility to share this 

risk against other risk so it is a more distributed versus all conVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
10 

centrated, that year to year, we probably do pretty good until we 

get a big hurricane or big tsunami, and then we are upside down 

again with large amounts of taxpayer dollars going to pay out the 

claims. 

Senator SHELBY. Where are we in our mapping program, roughly, as to where we were, say, four or 5 years ago? 

Mr. FUGATE. Senator Shelby, I would like to give you that in 

writing—— 

Senator SHELBY. Could you do that for the record? 

Mr. FUGATE. Yes, sir, for the record. We have made significant 

improvements. However, as we have gone through this, we have 

learned some valuable lessons, one of which is to provide an unbiased science technology type review before we have disputes over 

our process. And so that is building a little bit more time in, but 

we continue to move forward—— 

Senator SHELBY. What is the impediment there, or the challenge 

there? 

Mr. FUGATE. As we go through, because the funds that are available to do this, and as we hire the contractors to do the map upgrades and updates, we find ourselves from time to time dealing 

with technical issues and dispute resolution of using data that we 

have versus the local data or State data. Previously, we never had 

an impartial way to do the dispute resolution, so we have set up 

a technical advisory modeled after other dispute resolution processes using a scientific advisory panel to review our data and the 

local or State data and give us a better resolution that helps move 

that along. 

Senator SHELBY. It is my understanding that FEMA has created 

a new category of what you call grandfathered categories for homes 

that have been mapped into riskier areas. These grandfathered 

properties enjoy, as I understand it, taxpayer subsidized flood insurance rates. Discuss how the newly grandfathered category 

works. Is it a permanent category? And do these grandfathered 

properties undermine your efforts at FEMA to place the flood program on a more actuarially sound basis? 

Mr. FUGATE. Senator Shelby, I will speak in general and then I 

want to respond in writing to the specific details. 

Senator SHELBY. Sure. 

Mr. FUGATE. This refers to, as we know that we are having map 

designation changes, where prior to the updated maps, people did 

not either have a mandatory purchase requirement or had preferred risk, and as you go into the higher risk, those payments, or 

the amount that they would be required to pay has produced economic hardships. 

What we do is we work with the local communities. If people will 

purchase insurance going into that, before the maps become final, 

they maintain a preferred status and they are graduated into the 

full status. 

But again, it is an economic hardship, particularly these are not 

in many cases affluent communities. Oftentimes, what we find is 

these are existing communities, working communities, and it is a 

sudden and oftentimes very dramatic increase in their insurance 

premiums for flood insurance. 

11 

Senator SHELBY. Write Your Own Program. The GAO has uncovered several problems with the participation of Write Your Own insurers in the program. The GAO found, according to the report, 

that FEMA paid reimbursement rates that were greater than the 

actual flood-related expenses incurred by insurers and that the 

Write Your Own bonus structure is often excessive. Do you agree 

with the GAO’s finding? If not, where do you differ? 

Mr. FUGATE. We continue to look at that, but it is a question of 

incentivizing the private sector to write those policies, and so these 

are rates we negotiate with the Write Your Own policies. Again, we 

continue to look at the cost effectiveness of that, but it comes back 

to if the industry is not willing to do that at a rate that we can 

pay them, then we do not—we end up doing it ourselves. 

Senator SHELBY. Could you comment briefly on the risk that exists for communities—you have seen a lot of this lately—that are 

located behind levees, flood walls, and dams, and whether there 

should be a mandatory purchase requirement for people living in 

these residual risk areas, or are they real risk areas, not residual. 

Mr. FUGATE. Well, this is an area, again, of quite a bit of controversy. It is a zone we call Zone X. They are not required to purchase insurance because the protection of those structures reduces 

their risk below 1 percent. However, if you do have a failure, it is 

oftentimes catastrophic and many of those homeowners do not have 

flood insurance. 

Senator SHELBY. What happens when they—the Corps, recently 

we have seen, breached the levee or the dam. What happens there, 

and there is no flood insurance? 

Mr. FUGATE. In that particular case, Senator, that is a designed 

system. Residents in that floodway were notified and are notified 

annually they are in a floodway and that floodway may be activated—— 

Senator SHELBY. OK. 

Mr. FUGATE. ——and they are required to purchase flood insurance. 

Senator SHELBY. OK. Thank you, Mr. Chairman. Thank you. 

Chairman JOHNSON. Senator Tester. 

Senator TESTER. Yes. Thank you, Mr. Chairman, and I appreciate, Administrator Fugate, your recommendations on the Flood 

Insurance Program, and I particularly appreciate the short-term 

versus long-term argument. It has played havoc with the housing 

industry, a portion of our economy that we need to help promote. 

And so this flood insurance from a long-term basis is critically important. 

I want to talk a little bit about a couple other issues first, 

though. On June 1, our Governor asked the President to declare a 

disaster for the State of Montana. Can you give me any insight on 

how close we are getting to this declaration from your level? 

Mr. FUGATE. It is moving through the system, as we got the information and it is moving in the system, sir. It is at our level to 

be worked on, so it is not in the region anymore. We have it. 

Senator TESTER. OK. And so you know I am going to ask a follow-up. Can you give me any sort of idea when we can anticipate 

this declaration? 

12 

Mr. FUGATE. Again, we will be—we want to make sure we have 

the best possible data to make a recommendation for the President 

and we will then await his decision. 

Senator TESTER. OK. That did not answer my question. Can you 

give me any sort of idea on when that date might be? Is it going 

to be in a week? Two weeks? 

Mr. FUGATE. It is moving through now, sir. I would say weeks, 

not months. I would be almost ready to say days, not weeks, but 

we want to make sure we have all the information to make the recommendation. 

Senator TESTER. Good enough. Disaster Relief Fund, very quickly. This is kind of a follow-up on what I talked about yesterday 

when you were in front of the subcommittee yesterday. Are you 

confident that the Disaster Relief Fund will not be depleted in this 

fiscal year? 

Mr. FUGATE. Based upon what we have right now, I think we 

will make it to the end of the fiscal year, but we have some costs 

that have come in on the most recent flooding and the recent tornadoes that we are having to evaluate and we hope to have some answers to that in the week, particularly with the debris missions in 

Mississippi and Joplin, Mississippi [sic], we are adding those in 

and taking a look at those costs. 

Senator TESTER. OK. We will need to stay in touch on that as 

it is moving forward. 

Levee certification, it is a difficult problem. We have been in 

meetings together on this issue. And it is across the country, almost every river drainage. The Army Corps, they annually and periodically inspect levees that it constructed. However, the standards for the certification studies are incompatible with FEMA. 

FEMA and the Army Corps are not—and I am not being critical, 

but it is a fact—not on the same page when it comes to these certification standards. Has there been any discussion with the Army 

Corps about convening together to develop a common set of standards that would allow that the data collected by the Army Corps 

would satisfy your certification requirements in FEMA? 

Mr. FUGATE. Senator Tester, we are working with the Corps. I 

think the answer to that in the short term is, yes, we are working 

toward that, but I think there is another piece of this. When we 

do our maps, we only looked at previously accredited levees, and 

if it was not accredited, we would map it with nothing, which did 

not reflect any protection or accurately do the risk. 

We are currently working on and are submitting for review an 

ability to actually map the existing structure as is, so that where 

we have structures that may not be accredited but are there, we 

will no longer take the position that we are going to zero them out 

and map without the structures. That process will be going out to 

the internal review, and then we think in about another 30 to 45 

days will go external, and we are moving toward using what is 

there versus a standard that says, unless you have an accredited 

levee, we will only look at that structure. We will now, after this 

process, look at structures that are there and then map what that 

risk looks like. 

Senator TESTER. OK. So are we talking the same thing with accreditation and certification? 

13 

Mr. FUGATE. Yes, sir. Again—— 

Senator TESTER. That is good enough. So what about the levees 

that had been previously certified? And by the way, I appreciate 

that answer and I appreciate the work. What about the levees that 

had been certified before? What is the situation with those, because 

in my particular situation, some of them fall under your first answer. Some of them will fall under the answer that they are certified by the Army Corps and now that certification either does not 

work or the Army Corps says that we cannot certify anymore for 

whatever reasons, no money or liability, whatever it might be. So 

can you tell me, what about the levees that have been certified previously by the Army Corps? 

Mr. FUGATE. The previous certification is—one part is are they 

currently certified, and as the Corps looked at what happened to 

failures, and we continue to see failures in levees this year, as they 

revise those standards, that is what an accredited levee becomes. 

What we recognize is many levees do not meet that. It may be 

because they do not have on their free board or other design issues, 

but they offer protection. As we move toward factoring that in, I 

think it becomes less of an issue that we are not looking at levees 

unless they are accredited. We are looking at what is there. 

But we will respond back in writing, sir, on where we are at on 

that with the Corps. 

Senator TESTER. OK. That would be good. You know the issue. 

I know you know the issue intimately. What we have done through 

map modernization and whatever, through the Army Corps and 

FEMA not having the same standards, or whatever it might be, as 

we put communities in the situation where—and I have said this 

before to you, but it has been a while ago—where the folks that are 

going to do the certification, the errors and omissions here are so 

huge that the cost runs so high that it puts communities in rural 

America that are not exactly affluent in real problems with flood 

insurance. And so I look forward to working with you on this to try 

to get this done, because it impacts almost every community on 

every drainage, I think in this country, but I do know in Montana. 

With that, thank you for being here. 

Chairman JOHNSON. Senator Vitter. 

Senator VITTER. Thank you, Mr. Chairman. 

Thank you, Administrator, for your work, particularly and including the recent Mississippi River flooding which impacted many 

States, including Louisiana, although we were certainly not the 

most impacted. 

I agree with virtually all of your comments. I want to underscore 

something you said, something Senator Tester emphasized, which 

is the need for a full-blown longer-term reauthorization. This reauthorization or extension in tiny increments has really not served 

our communities and the economy well at all, and I know you know 

that, and you reflected that in your testimony. 

For instance, according to the testimony of Terry Sullivan, who 

is Chair of the Committee on Flood Insurance with the Realtors, 

the last lapse we had of the program in June of last year led directly to the cancellation or delay of 47,000 home sales closings at 

a time when, as Senator Tester said, we need every closing in sight 

in terms of trying to revive this economy and the real estate sector 

14 

in particular, and for no good reason, we shut down permanently 

or temporarily 47,000 closings. So my first goal is a full-blown longterm reauthorization. I know that is shared on the Committee, and 

I certainly hope we get there. 

Let me go to some particular issues of how we do that reauthorization. One is the current coverage limits. As you know, those 

have not been changed at all since 1994. That means the coverage 

limit, the amount, is a fraction, in real terms, of what it was in 

1994. Do you think it is appropriate that we would look at that and 

adjust that in the context of moving the whole program to a much 

more actuarially sound footing? 

Mr. FUGATE. Senator, I would actually—I had some conversations with some folks that have coastal property, as well, where 

their homes maybe in 1994 were $200,000 but now they are being 

appraised or their replacement cost would be a quarter-of-a-million 

or higher, and so we recognize that the Flood Insurance Program, 

particularly where we have had these homes that have appreciated 

so much, the insurance is not really covering replacement value. It 

may cover an existing mortgage, but it certainly is not covering 

what they have. 

But coming back to what Senator Shelby said earlier, is it best 

that we do that through the Flood Insurance Program, or do we 

look at the Flood Insurance Program as a base level coverage and 

then look at how we bring the private sector in to provide a higher 

level of coverage? I would argue that if I have a home valued that 

much, I may be able to afford more than a working class fishing 

family that does not have that expensive of property. 

So I guess the question is, as we look at those higher levels of 

coverage, do we do that at a full actuarial value with the Federal 

backing, or is this an area that the market may be interested in 

participating and that we do the base level coverage and they do 

a higher level. 

But I agree. We have property out there that we do not cover the 

replacement cost with the Flood Insurance Program because of its 

caps, but in many cases, the way to go forward, I think, may be 

one of those opportunities to look at how we engage the private sector. 

Senator VITTER. I am certainly completely open to that path forward as long as there is a path forward. I mean, right now, that 

opportunity for additional coverage is either not widespread or certainly not widely understood and taken advantage of, but I do not 

think it largely exists. 

I want to go back to one of Senator Tester’s comments, which is 

levee recertification. To me, at least in Louisiana, the biggest issue 

is something you did not particularly focus on, which is the fact 

that the Corps has basically walked away from their historic role 

in recertifying levees which they design and they built, and after 

Katrina, they basically said, we are walking away from that. It is 

all on the locals. 

As a practical matter, it has just proved unworkable. We are 

talking about jurisdictions and entities which in 99 percent of the 

cases do not have either the expertise or the resources to handle 

that. And again, I am talking about levees that the Corps designed 

and the Corps built and the Corps checks on and the Corps is the 

15 

logical lead agency, at least, in that ongoing recertification. Can 

you comment on that and how we can make progress on solving 

that issue? 

Mr. FUGATE. Well, Senator Vitter, what we have done, I think, 

moves us beyond only looking at a levee that the Corps has accredited or the local jurisdiction accredits to those standards. We are 

working toward looking at the levees as built and using those to 

determine risk versus only looking at the accredited levees. So that 

is step one—— 

Senator VITTER. And let me just interrupt. Thank you for that 

policy change. That is enormously important. As you indicated, before you all made that major policy change, if it was not up to the 

100-year standard, it did not exist on FEMA maps, did not provide 

any protection, which was not reality. So thank you for that 

change. But, as you know, my question still remains. 

Mr. FUGATE. Again, we continue to work with the Corps on that. 

I know this is primarily where the ownership of the levee have 

transferred from the Federal Government to State or local jurisdictions and how do they maintain that accreditation, and that is 

something, again, we continue to work with our partners in the 

Corps, but I know it is a financial difficulty for local jurisdictions 

to have those levees, to maintain those standards. In many cases, 

it is the cost of having engineers come out and review the levees. 

Again, that is why we are hoping that as we go forward with looking at those levees that may not be accredited but are providing 

significant protection, how do we map that versus only accredited 

levees would be mapped. 

Senator VITTER. Well, I just encourage you to stay involved in 

that, because the post-Katrina system is not working, and in my 

opinion, it is just the Corps trying to CYA, quite frankly, so the 

next time something bad happens, as it did in Katrina, they can 

point to somebody else rather than themselves, and we need a 

workable system. Thank you. 

Chairman JOHNSON. Senator Merkley. 

Senator MERKLEY. Thank you, Mr. Chair, and thank you for your 

testimony, Administrator. 

I want to echo what my colleague, Senator Vitter, has just said, 

that it is the sense of the many Oregon communities that the Corps 

has walked away from its historic role in certifying levees and left 

them in an almost impossible situation in which they cannot afford 

the private certification, but without the certification, their business districts and their housing districts are decimated. They are 

between a rock and a hard place, and I just want to make sure that 

those concerns of communities being decimated by this change of 

policy is getting to your ears. 

I am not sure if you have been out to visit these communities 

and understand how this affects everything—homeowners who 

were not in a floodplain but are now in a floodplain and their mortgage company demands that they now get flood insurance, and 

they may be 10 years into their policy, businesses that cannot locate in the business district because they cannot afford the policies, 

the community hit hard by the recession, unable to fund the private certification process. That is assuming that all they have to 

do is get the certification, but the expectation is, well, the world 

16 

has changed and now you are going to have to do X, Y, and Z to 

change your levee, which is a huge additional cost on top of the certification itself. 

I just want to make sure that this incredibly important issue for 

economic development and the success of our communities is making it to your ears and that you are out talking to the communities 

that are affected and understanding it firsthand. 

Mr. FUGATE. Senator, yes. In fact, our Region X Administrator 

actually was the former State Director and knows many of these 

issues. I personally dealt with Lake Okeechobee when the systems 

around that were not certified and we had to deal with the flood 

insurance premiums for rural agricultural communities. That is 

why I think our plan to move forward is to look at the existing 

structures and map those structures. If you are familiar with—unless they were accredited, we would not look at the existing structures in determining that risk, and we are moving—— 

Senator MERKLEY. Let me interrupt you there, because I was one 

of the Senators that advocated fiercely for that change. I do praise 

you for responding to our pleas on behalf of our communities. But 

let me give you an example of a community in my State, the community of Warrenton. Warrenton was in a situation of having to 

adopt the new flood zone before your change of policy, and so—and 

they had to do that because people could not afford flood insurance 

without adopting the new flood zone policies, or the new flood determinations, but they are now in the situation of—that plan did 

not take into account existing structures because it happened before you changed the policy. I praise you for changing the policy. 

But how about for these communities that did not benefit from 

what is really a more accurate appraisal of flood risk? Can it be 

possible to go back and rework with those communities that were 

unfortunately hit a little before the change in policy? 

Mr. FUGATE. Absolutely, Senator. As we go through our process 

of doing the internal review and now, I think in about 30 to 45 

days, we are going to put this out to the external stakeholders for 

comment as we go forward with a rule, once we are able to implement the rule, we will go back and work with communities to update their maps based upon the new process. So it is not—it will 

not go as fast as I think many communities want, but it will go 

back and look at those communities where they did not have a certified levee and give us the opportunity to remap based upon the 

existing structures. 

Senator MERKLEY. So I think that is great news and thank you. 

Do you anticipate, for example, for a community like Warrenton, 

just using it as an example, is that a year out or a couple years 

out, and is there a price tag associated with it? 

Mr. FUGATE. Senator, could I respond back in writing on what— 

we are still going through the methodology to get that through the 

peer review and then go to the external stakeholders. I think when 

we have that, that will be about a 50-day process, and as we get 

the comments back, we will have to adjudicate and see. My staff 

feels like we have got the 80 percent solution, but we want to make 

sure we did not get unintended consequences or miss things. 

But I would like to respond back in writing, that once we have 

the rule, what our time line would look like to come back and 

17 

remap and what those costs would look like as far as resource 

availability. 

Senator MERKLEY. I would appreciate that, and I understand it 

is a complicated process and they are trying to address it in a thorough manner and that would be very helpful. 

In terms of the role of certification, the Corps has continued to 

play a role when there is a Federal structure involved, and I can 

assure you that we have been working with our communities to try 

to make sure we know about every Federal structure that could 

possibly trigger this policy. But is the current policy the one from 

here into the future, or just as Senator Vitter noted, kind of the 

walking away from the role of certification, is there a chance to 

walk back into that role and embrace it in a more wholehearted 

fashion? 

Mr. FUGATE. Again, I will defer to the Corps of Engineers, but 

we do work very closely with them over the certification process, 

those that are still federally managed. I think this, again, is going 

to be a resource issue, in that how do we pay for or maintain the 

levees that are not Federal and understand that that is a tremendous burden and a cost for many local communities. 

Senator MERKLEY. Thank you. 

Chairman JOHNSON. Senator Johanns. 

Senator JOHNSON. Thank you, Mr. Chairman. Thanks for being 

here. 

I have just a couple of, really, quite specific questions that I 

would like to run by you. As you know, the State where I am from, 

the State of Nebraska, is bordered on the East side by the Missouri 

and we are now in this ramp-up where a historic amount of water 

is headed into the State, beyond anything the levees have ever had 

to endure, in fact, about twice as much water. 

There appears to be three events involved that cause this issue. 

Event number one was rain in Montana, a historic amount of rain. 

Event number two, of course, is snow melt. Event number three is 

the release that necessarily has to occur by the Corps of Engineers 

to avoid dam failure. 

As I understand the role relative to flood insurance policy, is you 

have to have it in place 30 days prior to the event. So how do you 

judge in this case when that 30 days starts to run? 

Mr. FUGATE. That has been a very challenging question, is, does 

the flood event start when we start seeing actual damages or is it 

because we know the event is coming. I will ask, Senator, to respond in writing, because there are some very specific things that 

we had to go through to determine when does a flood occur by the 

legal definition and when is that incident period. 

The challenge is that is when we stop writing policies. The reality is, even if people purchase the policies, if they flood inside the 

30-day period, they are not going to be covered. This really gets 

back to when would we stop writing policies because there is a 

flood event or we are in a flood situation. But I would ask that we 

respond back in writing with specific details of how we go through 

that, because it does involve measuring certain things and going 

out and sending out adjusters to look at what is going on. 

18 

Senator JOHNSON. OK. If you could do that, I would really appreciate it, because we have many people, probably not just in Nebraska but all along the river system, that have this problem. 

The second question probably is no less challenging. In a situation where you have the Corps come in and they certify a levee, 

and as a result of that, people are in the floodplain, they are out 

of the floodplain, people find themselves out of the floodplain and 

they do not need flood insurance for their mortgage, they are not 

worried about the flooding situation, and all of a sudden caught in 

this historic situation again, what happens to those people? What 

if they were to—are they treated any differently? Can they buy 

flood insurance? What is the situation for them? 

Mr. FUGATE. Up until the point where a flood is occurring and 

we are still providing flood insurance, they can purchase flood insurance. If the flooding occurs outside of their purchase window, 

the first 30 days, they would have flood insurance protection. But 

this gets back to a very common issue we face, and that is even 

though you are not in the 1 percent or greater risk, it does not 

mean you will not flood. 

And the reality is, if you leverage all the individual assistance 

programs that FEMA provides to a homeowner in an even where 

there is a flood, the Governors request the disaster declaration, and 

the President has granted individual assistance, it is a little less 

than $30,000. 

So what happens to people is they end up losing everything. 

They cannot cover their mortgage. They cannot replace their home. 

And it generally, for many people in the middle class, is their most 

significant personal holding, and they are totally unprotected without flood insurance. 

And again, this gets back to the root issue of as people who do 

not have flood insurance, whether it is required or not as part of 

their mortgage, are flooded, even when we provide Federal assistance, we do not make people whole, and it is, again, a program 

that was designed to prevent those kind of losses, but because people are oftentimes misinformed about their risk that they are not 

required to purchase it, therefore, they do not flood or do not need 

it, they find out, unfortunately, and we see this time and time 

again, where it is not only the impact of the flood, it is the financial 

impacts that many time are very difficult to recover. 

Senator JOHANNS. I will just wrap up with this, Mr. Chairman. 

This is a tragic situation because the average person just simply 

would not go out and buy a flood insurance policy if no one is advising them that it is necessary. If they are not in a 100-year floodplain and the banker is not requiring it on the mortgage, et cetera, 

the average person would look at the cost of it and say, ‘‘Why 

would I?’’ And then you have the historic event, and they are just 

flat out of luck. 

I guess what I would say to you, if you could get back with me 

on the issue I have raised, I would appreciate it, because this water 

is headed our way now, and next week I think we reach that maximum level of discharge by the Corps. And then I think it holds 

there into August, maybe all through August. I am going to guess 

I am going to have to get to know you a lot better in the months 

ahead, and probably a lot of other Senators will, too. 

19 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Schumer. 

Senator SCHUMER. Thank you, Mr. Chairman. 

First, thank you, Administrator Fugate. And before I get into the 

substance of my remarks, I want to thank you for being always responsive. We have had, you know, unfortunately, a number of disasters in my State during your tenure, and you have always been 

there and your folks have always been there, and I appreciate the 

hard work they do. 

As you know, we have a huge issue on Long Island. It is one of 

the most important issues that Long Island faces. And what has 

happened is that people whose homes have never been flooded, who 

are as much as 5 miles inland, are being told that they need flood 

insurance, and it costs them up to $3,000. And these are middleclass people. This is not a farm community or a community by a 

river. These are suburban blocks. And they are befuddled. It is 

what makes people hate Washington, because they say, ‘‘I am being 

mandated to pay $3,000 when I have never had a flood and I am 

not near any crick, any stream, any water.’’ 

And so we looked into this, and it is tens of thousands of people. 

This is not a few idle homes. And we looked into this, and what 

we found was FEMA used information gathered by the Army Corps 

in Suffolk County, where there has not been as much of a problem—small—to draft Nassau County’s flood maps. And they raised 

the level as to how high the house had to be above sea level. And, 

you know, when you do that in a relatively flat place, Long Island—I mean, I cannot imagine a storm that would flood things 5 

miles inland from Long Island Sound or the Atlantic Ocean. If it 

is, we have got a lot more trouble than this. 

But they used the wrong map to save money. That was what was 

told to us privately. Instead of doing a remapping in Nassau County, population 1.4 million, so I am sure it is—you know, it is not 

a small, little area. And Nassau has unique geography. It has different coastal and tidal characteristics than Suffolk County. It 

should have been subject to a separate study. 

When people hear this, imagine, you are a homeowner, you are 

making $60,000, $70,000 a year, which is probably the average income in New York. That is not high, as you know, because our expenses are higher and our homes are higher. And you are told that 

you have to pay $3,000 because you might be flooded, and no ifs, 

ands, or buts, you can imagine people’s reaction. 

So what I am asking is two things: first, that—the best science 

was clearly not used in Nassau County, to take a county 30 miles 

away and say we are using that—will you support starting the remapping process over so we can get an accurate look at Nassau 

County? It is just not fair to use Suffolk County’s data. No one revealed that to us. We found that out ourselves, but the Army Corps 

has confirmed it. 

Mr. FUGATE. Senator Schumer, we will work on the Corps. We 

have new updates for other parts of that basin, and we are responding back in writing to your request, and we are going to outline how we are going to address the issue as we go in and do more 

of the studies that are going to include other areas as well as the 

20 

area that you have mentioned. So we are working on that. We will 

have a response back—— 

Senator SCHUMER. You mean other areas in Nassau or other 

areas in general? 

Mr. FUGATE. Other areas in general in that basin, and we are 

going to take advantage of that to actually focus on the areas you 

have identified. 

Senator SCHUMER. The whole area by Valley Stream, the 40,000 

houses. 

Mr. FUGATE. Yes. 

Senator SCHUMER. And will I be happy with this letter? 

[Laughter.] 

Mr. FUGATE. Unable to say, sir, but it will be responsive, and we 

will continue to work with you. 

Senator SCHUMER. OK, because I am not going to be happy unless we really deal with this problem. OK? All right. 

Second, while we are waiting to deal with the problem—and I am 

glad you said something is going to be done—FEMA rightly decided 

to extend eligibility for the PRP, the preferred risk policy, so that 

the people do not get the jump for 2 years. Could you please address if we can extent that beyond the 2 years until we get a fair 

adjudication of what is happening in Nassau County? Because it 

may not be solved within 2 years, extending the PRP, which, as I 

understand it, is totally in FEMA’s discretion. 

Mr. FUGATE. Again, we have that request. We are working with 

our chief counsel to respond to that to determine if we can do that. 

Senator SCHUMER. Well, what would be the reason you could 

not? 

Mr. FUGATE. I would have to defer back to our chief counsel to 

make sure that as we go forward we are giving an accurate answer. 

Senator SCHUMER. OK. Well, look, I feel very strongly about this, 

and, you know, I am prepared to do whatever it takes around here 

to get fair treatment for these 40,000 people, because they have not 

been treated fairly by FEMA. I do not blame you, but to save a million bucks and use a different place and graft it onto Nassau County and then tell so many people that they have to pay so much 

more in a place that has never had a flood in the history—you 

know, since our known history, 5 miles inland, with no streams, no 

cricks, no rivers, no bays, we have got to do something about this. 

Mr. FUGATE. I understand, Senator. 

Senator SCHUMER. Thank you. 

Chairman JOHNSON. Senator Kirk. 

Senator KIRK. Thank you, Mr. Chairman. 

I will be much easier on you. You did a hell of a job in Illinois, 

and we had quite an inundation, and I just checked with my team 

in southern Illinois. High marks. Very high marks. 

I also want to thank you for working with me and Jerry Costello 

on this policy of not recognizing any levee at all. Your letter was 

detailed. You are working on it. I very much appreciate the comeback. 

I want to talk more generally about the program. My understanding is you are about $18 billion in the hole right now? 

Mr. FUGATE. Yes, sir. 

21 

Senator KIRK. And we have this policy—the program has been 

rolling since 1973. We have this policy of repetitive loss, which is 

now a third of all your losses. Any way we can just not reauthorize 

this, kind of like three strikes and you are out, rather than having 

the Federal taxpayer getting taken to the cleaners over and over 

again? 

Mr. FUGATE. Again, I defer to this body. It is, again, on the one 

hand, yes, we do have repetitive loss properties. We have to ask the 

question: How long do we continue to subsidize that risk? But then 

we have the situation where we get the request from the same 

body to provide that assistance? 

Senator KIRK. I notice in this hearing everybody is sort of asking 

you for money, but you have lost quite a bit of money. And if you 

were a private sector entity you would not have the constraints 

that you have now which require you to lose money. 

Mr. FUGATE. One of the options—and, again, oftentimes a preferred course is to buy out those properties so they do not flood in 

the future. And this is done in partnership with State and local 

governments. Where we have done buyouts successfully, some of 

this recent flooding we have had has been less severe because 

homes that previously flooded had been bought out. But it again 

points out: What is the appropriate level to subsidize risk? And 

how long should that risk be subsidized before we say it is no 

longer going to be managed that way? 

Senator KIRK. And I worry that Government always makes the 

wrong decision because Congress pressures it to lose money as opposed to a private entity, which, you know, clearly would not write 

the policy after the third loss. 

What about sunsetting prefirm? Certainly with the House bill, at 

least we are making the decision on vacation homes, et cetera. What about sunsetting the whole thing so we can finally have the 

map determine the risk? 

Mr. FUGATE. I would look at it as for those that could afford it, 

it would be a shock and somewhat painful, but it would not result 

in them defaulting or losing their homes. I think there are real 

issues with lower-income and fixed-income people that a sudden increase in premiums, as much as several thousand dollars that they 

had not budgeted for, would be extremely detrimental. 

So I would look at how do we do this for those that can afford 

it, and should we look at some way to continue to support those 

that this would create a hardship that could actually result in 

them losing their home or their ability to stay in their community? 

Senator KIRK. We just had news across the wire about an hour 

ago that Treasury has now said that our debt is now going to exceed our national income this year rather than 3 years from now. 

So the question is: Since we have been underwriting these guys 

since 1973, perhaps it might be the time to stop. 

Mr. FUGATE. This is the body that can make that determination, 

sir. 

Senator KIRK. You are with me. And then how about sunsetting 

the grandfathering? The Senate made this decision in its legislation. 

Mr. FUGATE. Again, the program will go as it is directed. This 

was a request that was put in to minimize the impacts as the new 

22 

maps came out and provide that grandfathering. Certainly this is 

something this body can do. I would caution, however, the unintended consequences of which could result in impacts to those that 

cannot afford this, and it may be causing adverse risk that we did 

not anticipate. 

Senator KIRK. The problem is we are subsidizing people building 

and investing in floodplains and then getting wiped out periodically. 

Mr. FUGATE. I would suggest that those that want to build new 

structures in high-risk areas, it would be better if they were assuming the full risk and not the taxpayers. But I am concerned 

about the existing communities that are there already and what 

that could do to local economies if we price people out of their 

homes because of the insurance cost. 

Senator KIRK. I think there would be a growing concern, Mr. 

Chairman, on this Committee that the program be allowed to recover its own costs. 

I think that Congress is actually the problem, not you. The direction I am hearing you want to take is that we would be far more 

sound in the running of this program if we allow you to make these 

decisions, and for a program that is a significant drag on the Treasury, it seems like operating it in that way, as we just heard the 

news this morning that our debt has exceeded our national income, 

might be the way to go. 

Mr. FUGATE. Well, another thing, Senator, is you start moving to 

more actuarially based, as how do we encourage the private sector 

to take on some of this risk. I think we are going to still have the 

highest risk properties as some form of Federal program. But as we 

move to looking at how to engage the private sector, I think we can 

distribute and manage that risk better in a private sector market 

than just looking solely at one that we are trying to administer 

within the Federal Government. 

Senator KIRK. I just would hope that maybe we could give you 

one overarching authority saying notwithstanding any other of the 

directions we have given you, you have overarching authority to 

waive the requirements of Congress so that the program can be run 

without cost to the taxpayer. Thank you. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Menendez. 

Senator MENENDEZ. Thank you, Mr. Chairman. 

Mr. Fugate, what happens if this program ceases to exist, we let 

it lapse? Tell me what happens in the real estate market. 

Mr. FUGATE. What would happen is you would have both the 

Federal Government and any hope of getting the private sector 

back into underwriting mortgages walk away from all properties at 

flood risk. This is what happened in the 1960s when the private 

sector determined that they would no longer cover flood as a risk. 

It put the financial institutions of this country and, more importantly, the taxpayer at an uncovered risk that is in—I would not 

even fathom to guess what the trillions of dollars of exposure looks 

like on flood. But what happens there is this is a hazard that currently the Federal Government is the primary provider of that coverage. Without that, those people that live in the highest-risk areas 

may not be able to receive financing for their homes, and I think 

23 

you would end up in a situation where the exposure would be so 

great that the original intent of this program to protect the mortgages would come back and it would, I think, eviscerate the housing market even more than we have seen. 

Senator MENENDEZ. Which would be an enormous body blow to 

this economy that is already struggling to recover. So with that as 

a premise, it seems to me like we need to act, so then the question 

is what do we do. 

Let me ask you, you know, in March, in my home State of New 

Jersey, the Governor filed a request for a Federal disaster declaration. FEMA denied it on the basis that minimum uninsured losses 

impacting individuals and families took place. But isn’t that, in essence, a perverse incentive—or disincentive? I mean, the reality is, 

it seems to me, that at a time when we are trying to encourage 

communities and individuals that it is in their best interest to participate in the program, does it make sense to penalize communities that have been proactive and successful in getting their residents to purchase insurance? 

Mr. FUGATE. Being the FEMA Administrator where we administer the individual assistance programs that would have come to 

bear for the uninsured, but also running the insurance company, 

I feel that way many days. But I also recognize that our FEMA 

programs will not make people whole. Even if they had gotten a 

declaration, the most we are going to provide to a homeowner, if 

they qualify for everything, which is very unlikely, would not even 

begin to cover their mortgage or replace their homes. Most recently, last year in the Tennessee floods where all the damage was 

flood related, the average amount that we provided to a family was 

less than $7,000. So going the individual assistance route in lieu 

of flood insurance has not worked, and although—— 

Senator MENENDEZ. I agree with you on that. But the question 

is: Here are communities that, for the most part, have accelerated 

their participation in the Flood Insurance Program, yet they get 

punished for those who do not have the flood insurance, and certainly that would certainly be helpful to them to have assistance 

to be able to meet the challenge in their families. And yet, you 

know, so those communities that do not participate to the level 

that many in New Jersey do, they get the benefit. The communities 

that do participate get a negative. It seems to me to be a perverse 

incentive, you know, or disincentive. 

Mr. FUGATE. Senator, this is the one hazard that that situation 

exists. The—— 

Senator MENENDEZ. Let us talk about another hazard. With billions of dollars spent each year on disaster assistance, much of 

which is going to people in communities who are uninsured, do you 

believe that it would be cost efficient to provide vouchers to help 

low-income families afford flood insurance, especially those who are 

now faced with all new flood maps and, you know, encountered in 

this set of circumstances? 

Mr. FUGATE. That is one option, Senator, we have looked at, as 

we try to move to more actuarially based and continue to increase 

participation for low-incomes in a voucher system. The question 

would be: Is that going to be sustainable? Because if we do it for 

the first year, what about the out-years? I think if it is something 

24 

where either we do vouchers or we do some sort of adjustment 

based upon the income to continue some level of participation and 

protection, those are desired outcomes. And, again, it would have 

to be something to sustain. 

What we do right now in our FEMA programs is if you do have 

flooding and you do get individual assistance, we require you to 

purchase flood insurance for the first year, and then you have to 

maintain it for future years. We will oftentimes go back to a community 3 or 4 years later where there is a flood and they have discontinued their coverage because they either did not want to or 

could not afford to continue to pay for flood insurance. 

Senator MENENDEZ. It seems to me that we need to do something 

to help those individuals now caught in this set of circumstances 

and yet do not have the wherewithal, certainly at the start where 

they are facing premium shock. 

Last, I was a mayor at one time, and, you know, the nature of 

a mayor’s resources is their ratable base, for the most part. In our 

effort to eliminate severe repetitive loss properties, shouldn’t we be 

considering a way of incentivizing in those communities that face— 

this is about a third of all of the flood insurance plan claims are 

made about 1 percent of these types of properties. Shouldn’t we be 

looking at how we maybe work to offset some of that ratable loss 

in a way that still would be an enormous savings to the program 

but would incentivize mayors to say, OK, let me take this property 

off the ratable base? 

Mr. FUGATE. It would be another way of encouraging that. Our 

current buyout programs, one of the limiting factors that I hear 

from my peers at the State and local level is a cost share, and particularly in trying to buy out properties to get those properties out 

of those rating systems, is, you know, how much money we have, 

how many properties can we buy out, and how do we factor that 

into those ratings. 

Senator MENENDEZ. But the buyout—my last point, Mr. Chairman. The buyout program is about how much money will it cost to 

buy the property, but there will be many municipalities that will 

look and say, well, I am going to lose all those ratables and, therefore, going to be resistant. When a third of all of your claims end 

up being 1 percent of those repetitive losses, it seems to me that 

it makes economic sense to figure out how you incentivize eliminating as much as possible of that 1 percent of repetitive loss properties. So we look forward to working with you on this. 

Chairman JOHNSON. Senator Moran. 

Senator MORAN. Thank you, Mr. Chairman. 

Administrator, thank you. Two days in a row of your testimony. 

It has become even more exciting as the day goes on. I appreciate 

the conversation that I have heard. I would like to ask you to include me in the letter that you apparently are going to send to Senator Johanns in regard to in-progress flooding. That is an issue for 

us along the northeaster border of Kansas. The Missouri River creates our border. 

Also, I wanted to see if you had any sense that there is any need 

to address what I see as perhaps a bias against rural disasters in 

regard to a disaster declaration and FEMA’s assistance. We have 

a number of instances in which because of its rural lower property 

25 

values, smaller population, the tornado or the flood is just as damaging to the folks who are affected by that, but we do not reach 

the threshold necessary for a Presidential declaration. Just recently 

one of our counties, Clay County, had 100 percent of their roads 

damaged by a flood, but the value will not meet that. Redding, 

Kansas, tornado, very low property values, a small community, almost totally devastated, but, again, will not meet the threshold. We 

are not looking for expanding the cost to FEMA, but I want to 

make certain that—or to the taxpayers. I do want to make certain 

that we do not have a formula that unnecessarily excludes folks 

who happen to reside in rural America. Any thoughts about that? 

Mr. FUGATE. Yes, sir. Coming from Florida, which many people 

think is only big cities or South Florida, I come from a rural part 

of the State with small rural communities. However, the Stafford 

Act and the request from a Governor is judged against a State and 

the population. And so it does put a disadvantage to smaller communities, the theory being the State does have the resources in 

many cases, if it is a small impact, to support those communities. 

So it does look at the impact to the State. It looks on a per capita 

State basis. And then we look at the per capita impacts within 

those communities. And we have taken into account and do look at 

the severity of impact of what it looks to a local community, particularly in determining at a Governor’s request what counties to 

include in the initial declaration. But it does look at the State and 

the State resources versus just looking at the community that was 

impacted. 

Senator MORAN. Let me make sure I understand what you told 

me. When you say you look at the community and the damage per 

capita, is there a way to override that State—in our case it is $1.31 

per capita—and receive that designation? 

Mr. FUGATE. There are times when the severity or the intensity 

of an impact would not reach a State per capita, but it would warrant a decision to support a declaration. Again, this is why FEMA 

does the write-ups and works with the State, but ultimately this 

is the President’s determination. But there have been times where 

we have had such an intensity of impact in a community that you 

did not meet your State thresholds, but the impacts locally were so 

catastrophic to warrant that assistance. 

Senator MORAN. It is my experience that in at least many of 

those small rural communities they have the least amount of preparation, expertise, responsibility as compared to a larger community that has more professional ongoing planning and response to 

that kind of disaster. I would welcome the chance to explore that 

issue myself further, and with your help. I would welcome your 

help. 

In the idea of saving some money, one of the things that made 

some sense to me, you talk about in your testimony the importance 

of the affordability of coverage, and I am interested in knowing 

what it would take in order for premiums to be escrowed, similar 

to property taxes or homeowners insurance. Could that help better 

manage the issue of affordability? And do you have the authority 

to escrow payments? 

Mr. FUGATE. Senator, I am going to respond in writing to that 

because there is another piece of that that we are exploring and we 

26 

have been asked to look at. But how to build this into—just like 

your other insurances, your property taxes, into your payment, 

rather than this be a separate bill that comes up and is due all at 

once. 

We have also looked at and have been asked to look at quarterly 

payments. I think we are—I am principally in favor of looking at 

making this fit the other insurance models and fitting the escrow 

model, but also allowing people to do quarterly payments so long 

as people understand they just do not buy a quarter when they 

think they are going to flood. They buy a year’s worth of insurance. 

They are going to make payments against that and they are not 

just buying a quarter’s worth. 

So we are looking at how to do that. I will ask to respond back 

in writing. But, again, if you can build this into the recurring costs 

of mortgages and treat this more like we do other types of insurance where people may want to buy this as a separate policy. Right 

now it is a lump sum, so we are looking at how to provide this as 

a similar process that is used for other types of policies. 

Senator MORAN. If you concluded that this was an appropriate 

opportunity, do you have the authority to allow escrow or quarterly 

payments? 

Mr. FUGATE. We are working on that, and we will respond back 

in writing what we can and cannot do. 

Senator MORAN. Thank you, Administrator. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Reed. 

Senator REED. Thank you very much, Mr. Chairman, and thank 

you, Director. I want to thank you, first of all, for your assistance 

last year for the floods in Rhode Island. I was repeatedly stopped 

by my constituents who went out of their way to commend FEMA 

for their efforts and for not just doing the job but going above and 

beyond, so thank you for that. I think that ethic begins at the top, 

so thank you very much. Well done. 

A lot has been discussed about mapping. Your risk map program 

is designed to ensure that by 2014 the goal of 80 percent of the Nation’s flood hazard data or new updated data are deemed valid. My 

sources indicate we are at about 55 percent at the end of 2012, so 

how do we in 2 years go from 55 to 80 percent, particularly with 

constrained budgets? 

Mr. FUGATE. Senator, we are not. 

Senator REED. OK. 

Mr. FUGATE. To be honest. In looking at where we are having to 

make targeted reductions in our budget, we have looked at reducing funding for map modernization. But we are not stopping map 

modernization. But it will take longer to complete the work. 

Senator REED. And how does that play out now when—for example, my colleague Senator Schumer was talking about issues in his 

part of the country. We have areas which are not in flood zones, 

and then some that should be, et cetera. How does that play out 

on the ground like today as flooded rage through the country? I 

would think that the maps would be sort of the first place you 

would want to—the first priority, because then you can decide who 

must have insurance, who should not have insurance, and right 

27 

now that is all based upon in many cases a lot of 35-year-old data 

from the U.S. Geological Survey. 

Mr. FUGATE. Again, Senator, it is not an easy choice, nor is it a 

preferable choice. I think that the best data we have—and, again, 

part of this has been oftentimes challenges to the data we have 

produced, having to go back and validate that, and oftentimes a restudy at the request because data—the outcomes were not what 

people thought it should be. And so that increases the cost. But I 

do agree. The best way to start is always to know what your risks 

are and to have accurate maps, not only for the purposes of insurance but, more importantly, for zoning and development so we can 

make better and wiser choices that we build in places that have 

the least amount of risk and we mitigate against a risk where we 

know the hazards. 

Senator REED. Has there been any discussion or thought about 

trying to develop a joint enterprise to do this with the private sector, with State governments, with county government who I would 

think also have a vested interest in starting with good data, not 

writing policies on data they know is wrong? 

Mr. FUGATE. We do that, and speaking from my experiences in 

two cases where I know this was done successfully, one was in 

North Carolina in the aftermath of Hurricane Floyd where they actually were able to utilize mitigation dollars from FEMA in the 

aftermath of a disaster to produce very high resolution flood maps. 

My experience is in Florida where we were mapping coastal communities to get higher resolution maps for storm surge, and then 

applying that for future map development. But I think you point 

out a key issue. Much of what we are doing is establishing what 

are the digital elevation maps. There is a significant economic advantage as we build, whether it is flood insurance, whether it is 

highway, whether it is water management districts at State or 

local programs, to be able to integrate all this digital elevation data 

into a national atlas, not o you does it provide us the tools for flood 

insurance, it is a significant economic tool to have the best available data for people planning and looking at future growth, construction, all the way through to agriculture. 

So I am firmly committed that as we do this mapping, the baseline data, as much as we can either leverage what other people 

have done or we can fill in gaps, so we are working more with the 

interagency of the Federal programs to make sure that we are 

identifying where we are doing mapping, other people are doing 

similar work, and making sure we can maximize our investment. 

Senator REED. Again, a final point on this, and I agree, these are 

very difficult judgments that you are making. You have been given 

this responsibility, and you are providing a general good, a social 

good that lots of other people depend upon, and if they could be encouraged—and, in fact, could see the wisdom that they could—it 

would make sense for them to participate to help us, and not just 

localities and States but private entities. And with technology 

today, the ability to map things from the sky and to do it quite accurately and to—you know, I think that might be an approach that 

would take some of the burden off of you, which you have had to 

historically. But, once again, let me conclude by thanking you for 

the great effort last year in Rhode Island. 

28 

Mr. FUGATE. Thank you, Senator. 

Chairman JOHNSON. I would like to thank our witnesses for 

being here today to contribute to our NFIP reauthorization discussion. The NFIP has an important mission: to aid in disaster mitigation and recovery. Today’s discussion will assist us as we chart a 

sustainable future for the program. This hearing is adjourned. 

[Whereupon, at 11:36 a.m., the hearing was adjourned.] 

[Prepared statements, responses to written questions, and additional material supplied for the record follow:] 

29 

PREPARED STATEMENT OF CHAIRMAN TIM JOHNSON 

Today, the Committee meets to examine the reauthorization of the National Flood 

Insurance Program. Currently, constituents from my home State of South Dakota 

are dealing with some of the worst flooding that the State has ever seen. When I 

was back in South Dakota last week, I spent some time talking to homeowners and 

business owners in the communities that are anticipating some of the worst damage. While they are working hard to minimize harm to people and property, they 

are understandably concerned about short-term displacement and long-term recovery. I will do my best to see that they, along with our neighbors and fellow Americans who have had their lives turned upside down by devastating storms, are 

promptly provided with the disaster relief that they need. 

I would like to also applaud Administrator Fugate and his staff at FEMA for how 

they have responded to the flooding in my State so far. I hope that the quick response that we saw during the recent southern storms continues when addressing 

the ongoing flooding in South Dakota and around the country. 

The NFIP was created to help communities limit damage and speed recovery from 

flooding disasters. However, it now faces several challenges to its long-term viability, including an $18 billion debt to the U.S. Treasury. 

Over the past year, we have also faced several lapses in the NFIP. As many 

stakeholders have noted, lapses have detrimental effects on both the insurance and 

housing markets. This program, which provides over $1.2 trillion in coverage, needs 

certainty. It is my hope to provide this through a long-term extension. 

As the people of South Dakota and others have seen firsthand, flooding is responsible for more damage and economic loss than any other type of natural disaster. 

It affects people across the Nation, of both parties, which is why I believe that in 

2008 the Senate was able to come together across the aisle and pass a bipartisan 

reauthorization bill by an overwhelming vote of 92–6. Unfortunately, in 2008 we 

were not able to come to an agreement with the House. 

The recent flooding has made it clear that Congress must reauthorize and reform 

the NFIP which is set to expire this year on September 30th. As we move ahead, 

I hope that we can once again come together and pass a bipartisan bill that will 

build a sustainable future for the program and American citizens. 

PREPARED STATEMENT OF SENATOR RICHARD C. SHELBY 

Thank you, Mr. Chairman. 

The National Flood Insurance Program was established in 1968 and was designed 

to reduce the burden on taxpayers stemming from Federal disaster relief for floods. 

By providing flood insurance for properties in high risks areas, it was hoped that 

insurance premiums could be used to cover the costs of flood damage. 

Since Hurricane Katrina, however, the Program has struggled to remain financially viable. In fact, since early 2006, the GAO has targeted the Flood Insurance 

Program as ‘‘high risk’’ because of its mounting debt and the structural flaws. 

Today, the program is nearly $18 billion in debt and has problems even servicing 

that debt. 

Unfortunately, as the GAO has shown, the program’s debt is only one of many 

difficulties facing the flood insurance program. Every aspect of the Program must 

undergo significant revision for it to survive and continue on a sustainable path. 

During the 109th Congress, this Committee approved unanimously, and the Senate overwhelmingly passed, legislation that, while not perfect, addressed many of 

the core deficiencies of the program. That legislation would be a good starting point 

for this Committee as we move toward reauthorizing the National Flood Insurance 

Program. 

As we begin this process, I believe several issues deserve a close examination by 

the Committee. First, we should examine the relationship between the Program and 

the Write Your Own insurance companies. According to the GAO, Write Your Own 

companies may be receiving excessively high reimbursements and bonuses from the 

Program. The GAO recommended that the Write Your Own program have more 

transparency and accountability. This is something we should pursue. 

The Committee also should examine the types of properties the flood insurance 

program is covering to ensure that its resources are spent effectively. For example, 

the Congressional Budget Office has determined that 12 percent of the homes covered under the program are worth more than $1 million. We must ensure that the 

Program requires wealthy participants to pay the full costs of their insurance. 

The Committee should also examine the Program’s map modernization effort. The 

map modernization process has been ongoing for several years and is crucial for the 

long-term success of the program. Updated maps are important for two reasons. 

30 

First, they warn developers and homeowners about the risk of developing or living 

in a floodplain. Second, they ensure that participants are paying fair prices for flood 

coverage. 

Some communities have called into question the validity of the maps and others 

have argued that they have been excluded from the mapping process. Community 

participation is crucial, but this process needs to take place rapidly to ensure that 

the risk is accurately reflected and homeowners and communities are fully informed. Many of the existing maps are several decades old and do not accurately 

reflect the costs and risks of living within a floodplain. 

I also would like to see a simple definition of the phrase ‘‘actuarially sound’’ in 

any bill to reform the Program. This simple act will clearly State our intent to make 

this program self-sustaining. 

Finally, I believe this Committee should consider ways to privatize portions of this 

program. We should transfer risk from the Program to the private sector to the 

maximum extent possible. 

If we are able to accomplish these objectives, we may finally achieve the original 

purpose of the flood insurance program; to reduce the escalating cost of flooding to 

taxpayers. 

Thank you, Mr. Chairman. 

PREPARED STATEMENT OF SENATOR ROGER F. WICKER OF 

MISSISSIPPI 

Thank you, Chairman Johnson and Ranking Member Shelby, for holding this 

hearing on the reauthorization of the National Flood Insurance Program. I appreciate the opportunity to testify before the Committee this morning, and I commend 

you for taking this first important step toward reforming NFIP this session of Congress. 

Less than 1 year ago I came before this Committee and testified in support of 

modernizing and reauthorizing the National Flood Insurance Program. Last year, 

NFIP lapsed three times before the Senate authorized a 1-year extension. As you 

know, that extension expires this September. 

Another program lapse is entirely avoidable, and we should not allow that to happen. Similarly, another short-term extension of a flawed program would be unacceptable to me, as I believe it would be to most Members of the Senate. I urge my 

fellow Committee Members to enact a multiyear reauthorization and in the process 

fundamentally reform this program. 

The National Flood Insurance Program is the source of protection from flood risk 

for most Americans. Nationwide, 5.6 million NFIP policies were in effect last year. 

Lapses and short-term extensions of the program create uncertainty and unnecessary burdens for property owners who depend on NFIP. Lapses also drive up the 

cost of administering the program and interrupt economic activity, including purchases of homes and other properties that require proof of flood insurance prior to 

closing. In speaking with Mississippians, it is clear that a long-term reauthorization 

with targeted reforms is necessary for coastal communities to prosper. 

Though most Americans who need flood insurance rely on NFIP, the program 

itself has become insolvent and remains nearly 18 billion dollars in debt. Without 

appropriate reform, modernization, and an extended reauthorization, our Nation 

and the American taxpayers face serious consequences when—and it is only a question of when—the next big natural disaster occurs. 

In my testimony of last year, I outlined specific reforms that would help put the 

NFIP back on a sustainable trajectory. These included: 

1. Improving enforcement by FEMA and lenders with respect to those required 

to purchase and maintain flood insurance. 

2. Charging rates that are actuarially sound and offering meaningful premium reductions for mitigation improvements. 

3. Updating FEMA’s flood insurance maps so that those in flood-prone areas are 

aware of the risk and obtain proper insurance coverage. 

Perhaps the largest threat facing NFIP, and the one responsible for the vast majority of its current debt, is that of major hurricanes making landfall on our coasts. 

In 2005, hurricanes Katrina, Rita, and Wilma impacted a wide swath of the United 

States. According to the Congressional Research Service, NFIP accrued approximately $17 billion in debt from flood claims caused by these storms alone. 

It has been 6 years since Hurricane Katrina devastated the Gulf Coast. While we 

have made significant progress in rebuilding our communities and businesses, for 

many Mississippians recovery is still not complete. One of the greatest impediments 

31 

to our efforts is the lack of affordable property insurance. The availability and affordability of wind insurance is crucial in any State where there is coastal exposure. 

For vast numbers of property owners, private insurance coverage for wind damage 

has not been available on the Gulf Coast since the 2005 hurricane season. 

Hurricanes present a unique problem for coastal property owners because damages can be caused by multiple perils, including high winds and devastating storm 

surges. Currently, homeowners cannot purchase a single insurance policy to cover 

all hurricane-related risks. Wind losses are covered by private insurers or State-run 

wind pools, while coverage for flood damage is largely backed by the Federal Government through NFIP. 

Many homeowners who suffered ruinous property damage from Hurricane 

Katrina were forced to go to court to determine which insurer was responsible for 

damage in wind-versus-water disputes, even when they had appropriate coverage. 

Other property owners failed to purchase flood insurance because they relied on outdated Federal flood zone maps that indicated they were not at risk for flooding. 

When their property was damaged by the storm, many insurance adjusters concluded that property damage had been caused by water alone and denied legitimate 

claims altogether. 

In 2007, the Government Accountability Office issued a report which called for 

greater oversight of wind and flood damage determinations. In that report, GAO 

found that claims information collected by NFIP did not allow FEMA to effectively 

oversee damage determinations and apportionments after hurricane events. 

In the words of the GAO, ‘‘ . . . for a given property, FEMA’s ability to assess 

the accuracy of payments for damage caused only by flooding is limited because 

NFIP does not know what portion of the total damages was caused by wind and 

what portion was caused by flooding.’’ The report continued, ‘‘because both homeowners and NFIP policies can be serviced by a single Write Your Own private insurer, a conflict of interest exists during the adjustment process.’’ 

To help resolve these issues, I recently introduced the Consumer Option for an 

Alternative System to Allocate Losses Act, or the COASTAL Act. This legislation, 

S. 1091, addresses several problems that arose in the aftermath of Hurricane 

Katrina. Those problems include: 

• Disputes and costly litigation between consumers and insurers over windversus-water claims. 

• Inherent conflicts of interest that can arise when the same claims adjuster assesses damages that are and are not covered by his employer. 

• Lack of oversight with respect to the adjustment process and claims paid by 

NFIP. 

The COASTAL Act is a commonsense approach to addressing these problems. 

This legislation would use data currently collected by the National Oceanic and Atmospheric Administration (NOAA) and other participating entities to allocate property damage following significant storms. 

Under the COASTAL Act, a formula would be established that utilizes storm information provided by NOAA and its partners, combined with structural information 

for each property, to allocate losses caused by high winds and storm surges from 

hurricanes. This alternative loss allocation system would be based on the timing, 

location, and magnitude of wind speeds and storm surges before, during, and after 

a major storm impacts the coastline of the United States. 

Only properties that are completely destroyed by a hurricane, leaving little but 

foundations behind, would qualify for this alternative loss allocation system. ‘‘Slab’’ 

cases, as they are commonly know, have the greatest uncertainty, because there is 

little to no evidence left to make an accurate adjustment using current practices. 

The COASTAL Act is by no means a silver bullet for all of the problems associated with flood insurance and NFIP. However, this legislation is a fair and objective 

way to provide more certainty to the slab claims process, which is a very costly piece 

of the greater flood insurance problem. 

The advantage of my proposal is that it is based on activities that NOAA already 

carries out. Extensive storm data related to winds and storm surges is currently collected throughout each named storm that threatens the coastlines of the United 

States. This is done primarily for purposes of doing a better job of informing emergency managers of imminent threats. I would emphasize that the COASTAL Act 

does not create a new Government program—rather, it adds further utility and purpose to existing Federal efforts. 

I believe this proposal will provide more structure in the marketplace, which 

should increase the availability of insurance and competition while driving down 

premiums over time. It is also my belief that this system will help us hold insurance 

32 

companies accountable for covered losses, as has proven necessary in some cases, 

rather than forcing taxpayers to foot the bill through the deeply indebted NFIP. 

A year ago I held an insurance roundtable in coastal Mississippi to hear the concerns of those still recovering from Hurricane Katrina. There is no question that one 

of the most difficult obstacles to recovery from previous storms and preparing for 

future events has been the cost and availability of insurance. 

NOAA’s hurricane outlook for 2011 indicates an active Atlantic season. Congress 

must take the initiative now to put the National Flood Insurance Program on a sustainable path forward. I will continue working with my colleagues on the Committee 

to pass a reauthorization bill that can be signed into law before the end of the fiscal 

year, and I urge all Members to join in this effort. 

Thank you. 

PREPARED STATEMENT OF W. CRAIG FUGATE 

ADMINISTRATOR, FEDERAL EMERGENCY MANAGEMENT AGENCY

JUNE 9, 2011 

Introduction 

Good morning Chairman Johnson, Ranking Member Shelby, and distinguished 

Members of the Committee. My name is Craig Fugate, and I am the Administrator 

of the Federal Emergency Management Agency (FEMA). It is an honor to appear 

before you today on behalf of FEMA to discuss the National Flood Insurance Program (NFIP). 

The NFIP serves as the foundation for national efforts to reduce the loss of life 

and property from flood disasters, and is estimated to save the Nation $1.6 billion 

annually in avoided flood losses. By encouraging and supporting mitigation efforts, 

the NFIP leads our Nation in reducing the impact of disasters. In short, the NFIP 

saves money and, more importantly, lives. While the NFIP has experienced significant successes since it was created more than 40 years ago, there are a number of 

challenges currently facing the program. The most significant challenge is balancing 

the program’s fiscal soundness with the affordability of flood insurance. The NFIP 

must continue to offer affordable insurance that will properly identify those properties at risk and provide them adequate coverage, while reducing the need for taxpayer-financed disaster assistance. 

In my testimony today, I will provide a brief history and overview of the NFIP 

and discuss critical changes FEMA has made to the program over the years. I will 

also discuss the recent efforts of FEMA’s NFIP Reform Working Group, which is developing policy recommendations for comprehensive NFIP reform for the Secretary 

of the Department of Homeland Security. It is important to note, however, that the 

Administration has not taken a position on the preferred course of action for NFIP 

reform and that these are currently draft proposals from the NFIP Reform Working 

Group. 

Congress has been a valuable and important partner in all of our NFIP efforts, 

and we appreciate your attention to this important matter. 

Overview of the National Flood Insurance Program 

The NFIP is designed to insure against, as well as minimize or mitigate, the longterm risks to people and property from the effects of flooding, and to reduce the escalating cost of flooding to taxpayers. Flooding can occur along river banks, or result 

from weather-related coastal hazards, such as hurricanes, storm surges, or tornadoes. More than half of the U.S. population now lives in coastal watershed counties 

or floodplain areas. Flooding is the most costly and prevalent natural disaster risk 

in the United States. 

History of the NFIP 

Major flood disasters in the United States in the 1920s and 1930s led to Federal 

efforts to protect lives and property from flooding. In 1936 Congress enacted the 

Flood Control Act to reduce the overall risk of flooding, but there were still significant at-risk communities that lacked insurance. In the 1950s, it became evident that 

private insurance companies could not provide flood insurance at an affordable rate. 

At that time, the only Federal relief available to flood survivors was disaster assistance through the Federal Disaster Assistance Program. In 1968, Congress established the NFIP to make affordable flood insurance available to the general public, 

and to protect communities from potential damage through floodplain management, 

which is the implementation of preventive measures to reduce flood damage. 

When Tropical Storm Agnes struck the Eastern seaboard in 1972, many communities were either unaware of the serious flood risk they faced or were unwilling to 

33 

take the necessary measures to protect residents of the floodplain. Very few of the 

communities affected by the storm had applied for participation in the NFIP. Even 

in participating communities, most owners of flood-prone property opted not to purchase flood insurance. Instead, they chose to rely on Federal disaster assistance to 

finance their recovery. As a result, Congress enacted the Flood Disaster Protection 

Act of 1973 to establish a mandatory flood insurance purchase requirement for 

structures located in identified Special Flood Hazard Areas (SFHAs) that have a 

federally backed mortgage. 

The next year, Congress enacted the Disaster Relief Act, which contained several 

preparedness and mitigation provisions to reduce disaster-related losses. Later, the 

National Flood Insurance Reform Act of 1994 established the Flood Mitigation Assistance Program, which provided cost-shared funding for States and communities 

to develop mitigation plans and implement measures to reduce future flood damages. 

The NFIP, with the certainty of the risk that it assumes, requires mitigation actions that aim to break the cycle of repeated disaster damage and reconstruction. 

To mitigate against repeated losses and damage to properties associated with flooding, Congress established two programs in the Flood Insurance Reform Act of 2004: 

the Severe Repetitive Loss program; and the Repetitive Flood Claims program. 

Today, more than 21,000 communities in 56 States and territories participate in the NFIP, resulting in more than 5.6 million NFIP policies providing over $1.2 trillion in coverage. To directly respond to the flood-risk reduction needs of communities, FEMA has produced digital flood hazard data for more than 88 percent of 

the Nation’s population. The NFIP floodplain management standards that each participating community is required to enact can reduce flood damages in newly constructed buildings by more than 80 percent. 

Prior to 2003, more than 70 percent of FEMA’s flood maps were at least 10 years 

old. These maps were developed using what is now outdated technology; and more 

importantly, many maps no longer accurately reflected current flood hazards. Over 

the last 8 years, Congress has provided over $1 billion to update and digitize our 

Nation’s flood maps so we better understand the risks that our Nation faces from 

flooding. Since the start of FY2009, we have been implementing the Risk Mapping, 

Assessment, and Planning (Risk MAP) program, which not only addresses gaps in 

flood hazard data, but uses that updated data to form a solid foundation for risk 

assessment and floodplain management, and to provide State, local, and tribal governments with information needed to mitigate flood-related risks. Risk MAP is introducing new products and services extending beyond the traditional digital flood 

maps produced in Flood Map Modernization, including visual illustration of flood 

risk, analysis of the probability of flooding, economic consequences of flooding, and 

greater public engagement tools. FEMA is increasing its work with officials to help 

use flood risk data and tools to effectively communicate risk to citizens, and enable 

communities to enhance their mitigation plans. 

This past fiscal year, the NFIP reduced potential flood losses by an estimated $1.6 

billion and increased the number of flood insurance policies in effect by 47,992. 

FEMA also initiated 600 Risk MAP projects affecting 3,800 communities and addressed their highest priority engineering data needs, including coastal and levee 

areas. 

As the Agency moves forward with our mapping program, we remain mindful of 

the challenges that flood mitigation efforts can pose for many families and communities. To that end, FEMA has used the flexibility it has under the NFIP to implement several important reforms that recognize these challenges. The most significant of these reforms are (1) the establishment of Scientific Resolution Panels and 

(2) the extension of eligibility for Preferred Risk Policies. 

Scientific Resolution Panels 

Flood hazards are constantly changing. For that reason, FEMA regularly updates 

Flood Insurance Rate Maps (FIRMs) to reflect those changes. However, when affected residents challenge revisions to the FIRMs with conflicting technical and scientific data, an independent third-party review of the information is available to ensure the FIRMs are accurate and credible. 

FEMA’s Scientific Resolution Panel (SRP) process, established in November 2010, 

provides an independent third party to work with communities to ensure the flood 

hazard data depicted on FIRMs is built collaboratively using the best science available. A community, tribe or political entity that has the authority to adopt and enforce floodplain ordinances for its jurisdiction can request that FEMA use the SRP 

when conflicting data are presented. 

The SRP is composed of technical experts in engineering and scientific fields that 

are relevant to the creation of Flood Hazard Maps and Flood Insurance Studies. 

34 

Based on the scientific and technical data submitted by an NFIP community and 

FEMA, the SRP renders a written recommendation that FEMA either deny the community’s data or incorporate it in part or in whole into the FIRM. For an appeal 

or protest to be incorporated, the community’s data must satisfy the NFIP standards 

for flood hazard mapping. The SRP process is reflective of the value FEMA places 

on the importance of community collaboration to create accurate and credible flood 

maps. 

Preferred Risk Policy 

In 2003 FEMA began using appropriated funds to implement a nationwide initiative to update our flood maps. This effort has resulted in digital maps replacing the 

previous paper inventory, and in maps that more accurately reflect today’s flood 

risk. As a result of mapping modernization, many buildings that previously were 

identified in low-risk areas have been mapped into high-risk Special Flood Hazard 

Areas (SFHAs). The flood risk is real, and those with federally backed mortgages 

find themselves subject to a statutory flood insurance purchase requirement. At the 

same time, mapping modernization has removed approximately the same number of 

structures from the SFHAs as it has added. 

While the changes resulting from map modernization provide a more accurate reflection of a property and a community’s flood risk, FEMA recognizes the financial 

hardship that a new SFHA designation may place on individuals. Consequently, effective January 1, 2011, FEMA began extending eligibility for its lowest-cost flood 

insurance policy—the Preferred Risk Policy (PRP)—for two additional policy years 

for individuals newly mapped into an SFHA. Previously, PRP eligibility was for 1 

year only. 

Extension of eligibility for the PRP should help to ease the financial burden on 

affected property owners in this difficult economic environment. With this change, 

property owners should also have adequate time to understand and plan for the financial implications of the newly communicated flood risk and the mandatory purchase requirement. Finally, this 2-year extension provides more time for the affected 

communities to upgrade or mitigate flood control structures to meet regulatory 

standards and reduce flood risks. This reduces the financial impact on residents and 

businesses in the long-term while making communities safer and stronger. 

NFIP Reform Working Group 

The NFIP has successfully reduced flood risks across the United States since its 

inception in 1968. Evidence of its success can be seen in the more than 21,000 participating communities, more than 5.6 million flood insurance policyholders, a modernized flood hazard data inventory, and a suite of incentives driving risk reduction 

across the Nation. Clearly, the program has improved the flood-resistance of existing and new construction through building standards, and has helped individuals 

and businesses recover more quickly from flooding through the insurance process. 

However, after 42 years of program operation, concerns about the program remain; and after more than a decade of seeking input, identifying issues, and undergoing studies, FEMA believes that the time has come to undertake a critical review 

of the NFIP. As Members of this Committee and others in Congress consider NFIP 

reform, the Department of Homeland Security (DHS) and the Administration is prepared to assist those efforts as appropriate. 

In 2009, I asked my staff to begin a comprehensive review of the NFIP. This review has involved three important phases designed to elicit policy recommendations 

and engage a broad range of stakeholders, including floodplain managers, emergency managers, lenders, the insurance industry, the environmental community, 

Federal agencies, and private nonprofit organizations. With so many diverse interests, stakeholder engagement has been a critical foundation of the review process. 

Phase I of the NFIP review effort began in November 2009, with a listening session designed to capture and analyze stakeholder concerns and recommendations. 

The session included more than 200 participants and resulted in nearly 1,500 comments and recommendations from stakeholders. 

Phase II began in March 2010, when FEMA formally established the NFIP Reform Working Group, tasked with identifying the guiding principles and criteria for 

potential proposals to reform the NFIP. This internal working group comprises a 

cross-section of FEMA’s NFIP staff. As a means to conduct the analysis, FEMA 

chose a participatory policy analysis framework to guide the NFIP review effort. 

This Phase II effort incorporated the recommendations and themes resulting from 

the NFIP listening session and Web comments. The NFIP Reform Working Group 

concluded this phase in May 2010 and released a final report entitled ‘‘NFIP Reform: Phase II Report.’’ The results of both Phases I and II are now available on 

FEMA’s Web site. 

35 

1 42 U.S.C. §4001(a). 

As part of Phase III, which is ongoing, the NFIP Reform Working Group is reviewing a comprehensive body of work offering a critique of the NFIP, including reports by the Government Accountability Office, the Congressional Research Service 

and the DHS Office of the Inspector General; testimony before Congressional Committees; proceedings of various policy meetings; policy papers published by industry, 

advocacy groups and professional associations; and scholarly works. We have been 

reaching out to other Federal agencies as well. For example, we have solicited ideas 

from the Federal Interagency Floodplain Management Task Force, a group of 12 

Federal agencies brought together to promote the health, safety, and welfare of the 

public by encouraging programs and policies that reduce flood losses and protect the 

environment. 

Based on this research and stakeholder input, the NFIP Reform Working Group 

drafted a number of policy options for deliberation and public comment. In December 2010, FEMA held two public meetings and initiated a public comment period 

in order to solicit input from stakeholders on the policy options. Public input from 

these efforts served as a source for the refinement of the policy alternatives. Over 

150 stakeholders attended the public meetings and we received 84 additional comments on specific policy options. 

The NFIP Reform Working Group has identified several important issues that 

Congress may wish to address in the context of reform. They include, but are not 

limited to, actuarial soundness and program solvency, cost and affordability of flood 

insurance, mandatory purchase requirements, accuracy of mapping, and economic 

development and environmental protection. I would like to briefly address each of 

these issues. 

Actuarial Soundness and Program Solvency 

Current subsidies reflect the challenge to implementing the NFIP under the legislative mandate that flood insurance ‘‘is available on reasonable terms and conditions 

to persons who have need for such protection.’’ 1 While the current program collects 

more than $3 billion in premium revenue annually, estimates indicate that an additional $1.5 billion in premium revenue is foregone due to the current subsidized rate 

policy. 

This annual premium shortfall has at times required FEMA to use its statutory 

authority to borrow funds from the Treasury. These funds were used to pay flood 

damage claims to policyholders. Although payments have been made to reduce this 

obligation, $17.75 billion in debt remains and FEMA is unlikely to pay off its full 

debt, especially if it faces catastrophic loss years. The NFIP review effort is exploring fiscal soundness by analyzing inherent program subsidies and examining potential methods to further reduce the loss of life and property. 

Mandatory Purchase Requirement, Affordability, and Cost 

The cost of an NFIP policy and the affordability of flood insurance are topics of 

frequent discussion. In some communities, the introduction of updated flood hazard 

mapping results in new requirements for the purchase of NFIP policies. These premiums represent an unbudgeted and often unanticipated expense to property owners. To some, the insurance is unaffordable. 

While FEMA has implemented some measures to address affordability concerns— 

including the Preferred Risk Policy—the program offers no means-based test that 

prices premium to income level. Affordability concerns are explored in the NFIP review effort with a variety of measures examined, ranging from credits and vouchers 

to high-deductible policies. 

Accuracy of Mapping 

When a new and more accurate map creates or expands a flood hazard area based 

on the latest science and information on flood risks, property owners newly added 

to this area, and thus required to purchase an NFIP policy, are understandably concerned. In some instances, this concern leads to questions about the scientific credibility of our mapping process. As noted above, we have created Scientific Resolution 

Panels to resolve these questions. And while FEMA is committed to working closely 

with communities to develop the most accurate flood maps possible, the current ‘‘in 

or out’’ nature of the SFHAs (one is either in an SFHA or not) has left the program 

with a perceived credibility problem, as there is no gradation of risk identified within a flood zone. 

36 

2 Association of State Floodplain Managers whitepaper, ‘‘Critical Facilities and Flood Risk’’; 

November 10, 2010. 

Economic Development and Environmental Protection 

The impact of the NFIP on economic development is another matter of debate 

among stakeholders. Areas prone to flooding may have unique resource advantages 

such as proximity to waterborne transport, as well as environmental or recreational 

value. However, these advantages, which may be revenue-positive for a property 

owner or community in the short-term, may become liabilities during a severe flooding event. As written by the Association of State Floodplain Managers: ‘‘[l]and use 

decisions are made by communities and tend to be based on local short-term economic factors in the form of community growth and resultant increases in the local 

tax base. These decisions often favor using floodplains for economic development, 

with the fact that the area is subject to flooding being a much lower priority in the 

decision.’’ 2 The challenge of balancing economic development with floodplain management and risk reduction is explored in Phase III of the review effort. 

Of course, these are not the only near-term issues that comprehensive NFIP reform should address. The NFIP Reform Working Group is examining other issues, 

which include certification of levees, properties that significantly drain the NFIP 

through repeated losses, subsidies, insurance ratings, building standards, and incentives and disincentives for mitigation. 

NFIP Reform Policy Alternatives 

In January 2011, FEMA’s NFIP Reform Working Group completed the refinement 

of policy alternatives and began the policy evaluation phase. The Working Group 

is now in the analysis phase, with a third-party policy analysis organization performing both quantitative and qualitative analyses of the policy alternatives to identify each policy’s strengths and weaknesses. The policy options are intentionally provocative and designed to represent the broadest range of policy options. The four 

policy alternatives moving forward to the evaluation phase each represent a unique 

policy theme. I would like to briefly discuss each policy option. The Administration 

has not taken a position on the preferred course of action for NFIP reform. These 

are currently draft proposals from the NFIP Reform Working Group. At this time, 

I view our role as helping to facilitate a needed conversation on identifying an effective path forward. 

Community-Based Insurance 

The NFIP uses two mechanisms for implementing the floodplain management, 

mapping, and insurance elements of the program. States and communities administer floodplain management requirements, including permitting and regulating 

land use. Communities also adopt Flood Insurance Rate Maps. However, the insurance element of the program is administered by ‘‘Write Your Own’’ insurance companies that participate in the program or by FEMA directly. Thus, while communities issue permits for construction in the floodplain, policyholders bear the cost of 

insuring against flood risk through the payment of an annual flood insurance premiums. Community land-use decisions do not account for the full cost of flood risk. 

Based on what we have heard from stakeholders, we are exploring communitybased flood insurance, whereby risk assessments would be performed on individual 

buildings and the insurance premium payment would be made by the community. 

As part of this option, the Federal Government would continue to back flood insurance contracts in exchange for the adoption and enforcement of minimum floodplain 

management standards and would provide an assessment and calculation of flood 

risk. The sum in dollars of the risk assessment for all buildings in the community 

would constitute the required premium. Incentives could be structured to encourage 

communities to implement flood mitigation measures in order to reduce their overall 

premium assessment. 

Privatization 

The NFIP was created in 1968, in part because of the absence of any substantive 

means, by insurance or otherwise, to mitigate the risk of flood hazards on the private insurance markets. Many hurdles stood in the way at the time: areas prone 

to flood hazards and the likelihood of flooding had not been identified; building practices and codes that mitigate the flood hazard were neither known nor enforced; and 

the financial risk of insuring properties with the potential for large catastrophic 

losses posed an unmanageable threat to the solvency of insurers. 

In the more than 40 years since NFIP was created, the landscape has changed: 

flood risk has been digitally mapped and identified for 88 percent of the population; 

private and public sector modeling tools are available to model riverine and coastal 

37 

flooding; the 21,000-plus communities participating in the NFIP have adopted building codes and practices to mitigate flooding; and the insurance and financial markets have developed a variety of means to spread risk from traditional reinsurance 

to more recent innovations of catastrophe bonds, risk markets, and financial derivatives. 

Historically, the private insurance market has taken the position that flood is either uninsurable or prohibitively expensive. With that in mind, in January 2011, 

we brought in Chief Executives from several Write-Your-Own companies to discuss 

the optimal balance in flood coverage between the private and public sectors. This 

preliminary discussion served to initiate the conversation with the private flood industry to better understand what’s possible in the future. We will be continuing the 

dialogue started in this session with a second meeting this fall. 

Federal Assistance 

Under the Federal assistance option, we are exploring a new framework for flood 

loss reduction in which the Federal Government would provide financial assistance 

through all Federal flood management programs only in communities in which specific flood mitigation and preparedness measures have been enacted. Failure of a 

community to enact such measures would result in a significant reduction in Federal flood-related disaster assistance, ineligibility for pre- and post-disaster grants 

for floodplain relocation, and could include limitations for flood control works. 

In this option, the program could create a rating system similar to the NFIP’s 

Community Rating System. The community rating could correspond to a cost-share 

structure for Federal flood disaster and mitigation programs. Communities with 

higher ratings could be given more favorable cost-share arrangements, whereas 

those with lesser rating could receive a significantly reduced cost-share. 

Optimization of Current NFIP Structure 

The NFIP optimization policy option outlines potential enhancements to the existing program to address programmatic weaknesses and current challenges while optimizing the existing achievements, strengths, and benefits of the program. The options for modification address many areas of the program such as Pre-FIRM subsidies, grandfathering, rating freedom, repetitive loss properties, coverage limits, 

mandatory purchase, assistance to low-income citizens, floodplain management 

standards, levees, flood hazard data, mitigation programs and grants, natural and 

beneficial functions of floodplains, and the NFIP debt. 

These four policy proposals present a broad spectrum of the options available to 

enact comprehensive NFIP reform, but they are not the only ones. All policy options, 

however, acknowledge that even an extremely successful flood mitigation effort cannot eliminate flood risk. Flooding will continue to cause economic loss, which begs 

the question: Who should bear that loss? The NFIP Reform Working Group heard 

varying opinions on this matter, which are reflected in the four draft policy options. 

Economic loss from flood could be borne by local economies, charitable organizations, 

individuals who experience the flood loss, taxpayers through disaster relief and individual assistance programs, or the private insurance market. 

The nature of the NFIP demands that it be looked at holistically rather than 

piecemeal; changing one facet impacts other aspects of the reform process. A successful outcome of NFIP reform will include a multiyear reauthorization of the NFIP 

to provide program stability, and a reform proposal that addresses short term 

issues; considers expert judgment and best practices; establishes the long term program direction; and incorporates the incremental reforms necessary to achieve that 

target State. 

Conclusion 

The NFIP helps communities increase their resilience to disaster through risk 

analysis, risk reduction, and risk insurance. It also helps individual citizens recover 

more quickly from the economic impacts of flood events, while providing a mechanism to reduce exposure to flooding through compliance with building standards and 

encouraging sound land-use decisions. 

While the NFIP has been an extremely successful program through its 42 years 

of existence, we know we can do better. Through the NFIP Reform Working Group, 

we have engaged stakeholders of various disciplines from across the Nation to help 

us guide the NFIP review effort. We look forward to sharing the findings from this 

ongoing effort with you as we continue to work together to ensure a strong NFIP. 

Thank you again for the opportunity to appear before you today. I am happy to 

answer any questions you may have. 

38 

RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN JOHNSON 

FROM W. CRAIG FUGATE 

Q.1. The mandatory purchase requirement is one important method for communicating risk to homeowners. What coordination are 

you having with the banking regulators to ensure that banks notify 

borrowers of their flood risk and maintaining their coverage? 

A.1. The enforcement of the mandatory flood insurance purchase 

requirements is the responsibility of the Federal regulatory agencies, and FEMA has taken a variety of measures to assist the regulators in this responsibility. 

• The Mandatory Flood Insurance Purchase Guidelines, compiled 

and published by FEMA, has served as a valuable resource to 

regulators, lenders, and consumers for over 25 years. 

• FEMA regularly consults with the individual regulatory agencies, Government Sponsored Enterprises, Federal agency lenders, the Federal Financial Institutions Examination Council 

(FFIEC), and lender trade associations. This includes resolution of specific problems, and mutual review of documents, 

guidance, and regulations. 

• FEMA operates a telephone response center that answers 

questions from the public on all matters relating to the NFIP, 

including the details of the mandatory purchase requirements, 

where they apply, why they are important, and how to satisfactorily comply with them. 

• FloodSmart, the NFIP’s marketing and information service, besides producing educational and informational materials for 

lenders and the public, provides a Web site for the public to 

submit inquiries to the NFIP. A large number of these inquiries are from lenders, insurance agents, and borrowers asking 

about all aspects of the mandatory purchase requirements. 

• FEMA conducts lender training both instructor-led and via 

webinar to ensure that lenders understand the flood insurance 

purchase requirements and the resources available to them in 

carrying out their responsibilities. 

• FEMA has recently established a Lender Work Group, composed of lenders, insurance agents, Federal regulators, flood 

zone determination companies, and FEMA to identify the obstacles to effective enforcement of the mandatory purchase requirements. 

The requirement to purchase flood insurance for certain high-risk 

properties is a mandate that by statute is implemented by the Federal lending regulators through the lenders they oversee to the 

homeowner applying for a mortgage. FEMA can, and does, assist 

in this implementation process, but the FEMA role must necessarily be one of providing technical guidance, educational materials, informational brochures, and technological support. FEMA 

has done all that and will continue to do so. 

39 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR SHELBY 

FROM W. CRAIG FUGATE 

Q.1. Administrator Fugate, this year has proven to be one of the 

worst in recent memory for disastrous floods. The Army Corps of 

Engineers has had to take the extraordinary action of flooding certain communities to save others. Many of the communities that 

have been flooded were located behind levees, flood walls, and 

dams. As a result, many people living in these areas did not have 

flood insurance. 

Please comment on the risks that exist for communities that are 

located behind levees, flood walls, and dams and whether there 

should there be a mandatory purchase requirement for people living in these residual risk areas. 

A.1. FEMA supports the mandatory purchase of flood insurance for 

areas behind structural flood protection systems. These areas represent a higher risk than standard X zones, and the structural 

flood prevention systems provide a false sense of security to those 

who reside there. FEMA suggests that there be further study before dams are included in this requirement. There are existing dam 

safety programs that deal with mapping of dam failures. The nature of the risk below dams is different from the risk behind levees. 

Dams serve many purposes besides flood control and the area 

below a dam would not necessarily be in the natural 100-year 

floodplain, if the dam were not there. The term ‘‘residual risk area’’ 

is not clear. FEMA would characterize the issue as whether areas 

would be in the SFHA were it not for the existence of a levee or 

other structural flood protection system. This area describes the 

‘‘natural floodplain.’’ 

Q.2. Nearly 50 percent of the people who are required to have flood 

insurance do not actually purchase flood insurance. This low participation rate exists in spite of the fact that there is a mandatory 

purchase requirement for federally backed mortgages. The GAO, 

among others, has pointed out that both FEMA and banks do a 

poor job of enforcing the flood insurance requirement. 

What steps has FEMA taken to bolster its enforcement of the 

participation requirement? 

Does FEMA need additional tools or does Congress need to take 

specific action to ensure that banks are doing their job, and, if so, 

what action does FEMA recommend? 

A.2. The enforcement of the mandatory flood insurance purchase 

requirements is the responsibility of the Federal regulatory agencies, and FEMA has taken a variety of measures to assist the regulators in this responsibility. 

• The Mandatory Flood Insurance Purchase Guidelines, compiled 

and published by FEMA, has served as a valuable resource to 

regulators, lenders, and consumers for over 25 years. 

• FEMA regularly consults with the individual regulatory agencies, Government Sponsored Enterprises, Federal agency lenders, the Federal Financial Institutions Examination Council 

(FFIEC), and lender trade associations. These discussions include resolution of specific problems, as well as mutual review 

of documents, guidance, and regulations. 

40 

• FEMA operates a telephone response center that answers 

questions from the public on all matters relating to the NFIP, 

including the details of the mandatory purchase requirements, 

where they apply, why they are important, and how to satisfactorily comply with them. 

• FloodSmart, the NFIP’s marketing and information service, besides producing educational and informational materials for 

lenders and the public, provides a Web site for the public to 

submit inquiries to the NFIP. A large number of these inquiries are from lenders, insurance agents, and borrowers asking 

about all aspects of the mandatory purchase requirements. 

• FEMA conducts lender training both instructor-led and via 

webinar to ensure that lenders understand the flood insurance 

purchase requirements and the resources available to them in 

carrying out their responsibilities. 

• FEMA has recently established a Lender Work Group, composed of lenders, insurance agents, Federal regulators, flood 

zone determination companies, and FEMA to identify the obstacles to effective enforcement of the mandatory purchase requirements. 

The requirement to purchase flood insurance for certain high-risk 

properties is a mandate that by statute is implemented by the Federal lending regulators through the lenders they oversee to the 

homeowner applying for a mortgage. FEMA can, and does, assist 

in this implementation process, but the FEMA role must necessarily be one of providing technical guidance, educational materials, informational brochures, and technological support. FEMA 

has done all that and will continue to do so. 

As discussed above, the purchase of flood insurance on certain 

high-risk properties is implemented through the Federal lending 

regulators to the lenders. We are not in a position to make specific 

recommendations regarding the policing of banks penalties against 

lenders who show a pattern or practice of noncompliance with flood 

insurance statutes and regulations. 

Q.3. Administrator Fugate, FEMA has adopted a new policy for 

mapping provisionally accredited levees. Previously, FEMA did not 

consider nonaccredited levees when developing new floodplain 

maps. This increased the flood insurance rates paid by communities located behind nonaccredited levees. Recently, FEMA has 

said that it will begin considering certain, provisionally accredited 

levees in flood maps. 

Please discuss FEMA’s change in policy and how FEMA plans to 

determine the level of protection provided by provisionally accredited levees. 

How will FEMA ensure that these levees will be brought up to 

the required protective levels within a reasonable time? 

A.3. FEMA is currently developing a new levee policy that addresses the analysis and mapping of nonaccredited levees. This new policy will be finalized in the next few months. The new policy does 

not impact provisionally accredited levees or the modeling and 

mapping of accredited levees. The provisional accreditation is a 

designation used for levees that are not currently accredited, but 

41 

are expected to become accredited in an agreed upon timeframe 

once appropriate documentation is provided. 

The responsibility for ensuring that these levees will be brought 

up to the required protective levels is beyond FEMA’s purview and 

expertise. FEMA’s responsibility lies wholly in adequately reflecting the known flood hazard in the vicinity of the levees, regardless 

of the level of protection provided by the structure. Through 

FEMA’s Risk MAP program and additional engagement with the 

impacted communities, FEMA will help the community to increase 

flood risk awareness and take additional steps toward action to reduce risk. These mitigation steps can come in many forms, including structural means and also options like relocation, elevation, etc. 

Q.4. There has been a lot of focus on the Map Modernization efforts 

that FEMA has undertaken over the past several years. I understand that you have worked through many of the initial issues you 

encountered in updating the maps and introducing them into the 

communities. However, there are still those who wish to delay the 

implementation of the maps. 

I would like to hear about the efforts made to involve the communities in the process. I understand that there is an appeals process if communities do not believe that FEMA has used the most appropriate data or their data is incorrect, but how closely does 

FEMA work with the community as it develops and updates the 

maps? That is to say, is it a collaborative process? 

A.4. Community involvement was an important component of Map 

Modernization. However, lessons learned in Map Modernization 

have helped to inform how community engagement should be improved, and these improvements have been incorporated into the 

vision for Risk Mapping, Assessment, and Planning (Risk MAP). 

During Map Modernization, communities were engaged in the 

mapping process mainly through planning, reviewing, and providing comments on preliminary Flood Insurance Rate Maps 

(FIRMs) and Flood Insurance Study (FIS) reports. In an effort to 

obtain all relevant information and ensure accurate study results, 

FEMA usually held two meetings for community officials and other 

interested parties: a Scoping Meeting and a Final Meeting/Open 

House. 

The initial coordination activities between FEMA and individual 

communities included an evaluation of the needs and the available 

funding to establish the scope of the study. During this process, 

community officials usually met with FEMA and other agencies at 

a Scoping Meeting to determine the appropriate areas of concentration for the mapping project. Once the flood study was complete, 

which may have taken several years, the community was sent copies of the preliminary FIRM and FIS report to review. After a 30- 

day review and comment period, a Final Meeting and public Open 

House was scheduled by FEMA’s Regional Office staff and community officials to review the preliminary FIRM and FIS. The Final 

Meeting was usually held with community officials only to review 

the FIRMs and FIS; the Open House was usually open to the public. They were often held on the same day. 

Unless significant technical concerns were raised before or during the Final Meeting and Open House meeting, FEMA would then 

42 

begin a 90-day appeal period, which only applied when Base Flood 

Elevations (BFEs) were either revised or newly proposed. BFE notices were published in a local newspaper on two different dates, 

usually within a week of each other, and a notice was also published in the Federal Register. The 90-day appeal period began on 

the date of the second publication in the local newspaper. During 

the appeal period, property owners and other citizens in the community would have the opportunity to submit technical and/or scientific data to support an appeal of the proposed BFEs. When the 

90-day period was complete and any appeals were resolved, the 

new FIRM and FIS report would move towards finalization. 

Starting in 2010, FEMA also implemented Scientific Review Panels (SRPs) for communities and other stakeholders to use if 

FEMA’s resolution of an appeal was not satisfactory. To be considered for the SRP, the data must be submitted during the 90-day 

appeal period, resulting in different flood hazards than those proposed by FEMA. Also, the community must consult with FEMA for 

a minimum of 60 days following the end of the appeal period. If activated, the SRP consists of a panel of five independent reviewers 

from the scientific and engineering communities. This panel reviews the engineering data, the preliminary FIRM and FIS, and 

any appeal presented by the community, then provides a written 

report with its decision and rationale to FEMA and the community 

within 150 days. The SRP’s decision will become the recommendation to the FEMA Administrator, who will make the final determination. The SRP process is managed by the National Institute 

of Building Sciences, a nonprofit organization independent of 

FEMA. 

FEMA has implemented other changes as well. Community engagement is critical to Risk MAP’s success. Through targeted, consistent outreach throughout a project, FEMA will work to make it 

easier for people and communities to reduce their vulnerability to 

flood risk. Some of the lessons learned in Map Modernization that 

have been addressed in Risk MAP are: 

• Map Modernization Scoping Meetings were often held after 

FEMA had already decided on a mapping project scope. If new 

information was uncovered at the Scoping Meeting, it may not 

have been able to be incorporated into the mapping project 

since the project had already been funded. For Risk MAP, 

FEMA has completely revised the Scoping Process (now referred to as Discovery) to include better coordination with communities watershed-wide, to broaden the types of stakeholders 

that are engaged, and to begin discussions about flood risk earlier in the process. Risk MAP’s Discovery Process will include 

coordination with communities on the project scope to a much 

larger extent than in the past. FEMA will not walk into a Discovery Meeting knowing the scope of the project. In fact, if it 

is determined after Discovery that a project is unwarranted, a 

project will not be initiated. If a project is warranted, FEMA 

will work with communities to determine and finalize the 

scope, and those decisions will be documented in a project 

charter or memorandum of understanding that all parties will 

sign. 

43 

• Communities were often not engaged thoroughly in the time 

between the Scoping Meeting and the release of the preliminary FIRM and FIS, which, for some Map Modernization studies, was a period of several years. The long period of time and 

other issues (for instance, staff turnover at the community) 

often resulted in surprise and confusion once the preliminary 

FIRMs and FIS were issued. Also, during the time the preliminary FIRM and FIS were being prepared, changes to the scope 

may have occurred. If these scope changes were not communicated to the communities, the preliminary FIRMs, once 

issued, resulted in backlash from communities. In Risk MAP, 

communities will be engaged throughout the project timeline, 

including while the data is being collected and the flood risk 

products are being made. Changes to scope will be coordinated 

with communities. Risk MAP projects may also include a Flood 

Risk Review Meeting at the Regional Office’s discretion. Prior 

to the release of the preliminary FIRM and FIS, this meeting 

is held after the engineering data has resulted in draft flood 

risk assessments and other flood risk visualizations, such as 

depth and velocity grids, a map showing areas of mitigation interest, and other products that have not been included in Map 

Modernization. 

• The products of Map Modernization (FIRMs and FIS reports) 

are regulatory products that are used in part to determine 

flood insurance purchase requirements. This often leads to a 

discussion between homeowners, communities, and FEMA regarding who is ‘‘in or out’’ of the flood zone. Discussions regarding the consequences of flooding to a community, flood 

depths and velocities, evacuation routing, warning systems, 

mitigation planning, and reducing flood risk are lost in this 

often contentious debate. For Risk MAP studies, a much more 

robust offering of flood risk products and assistance to communities will be available. In addition, Risk MAP projects will include a Resilience Meeting, which is a meeting that occurs before the preliminary FIRM and FIS are released and is focused 

on building local capacity for implementing priority mitigation 

activities within a watershed. Discussions will focus on understanding the flood risk that exists in the watershed, planning 

for that risk, and communicating that risk to citizens. While 

‘‘in/out’’ discussions will likely always exist, FEMA is attempting to refocus the discussion on mitigating and communicating 

the flood risk. 

• Currently, appeal periods are only initiated when BFEs are revised or newly proposed. No appeal period is initiated when a 

flood zone without BFEs is newly mapped or revised, or when 

flood zone delineations change based on new topographical information and become larger or smaller. This has resulted in 

backlash from communities that did not receive an official appeal period and felt that they were therefore not as integral to 

the mapping process as communities who received official appeal periods. A new interpretation of the regulatory 

underpinnings of the National Flood Insurance Program will 

result in a revised policy to provide the same due process currently provided to changes in BFE determinations to other 

44 

changes in flood hazard information on the FIRM, including 

the addition/modification of approximate floodplain boundaries 

and the regulatory floodway, and the redelineation of existing 

detailed floodplain boundaries. 

The Risk MAP community engagement approach has several 

guiding principles, which, together with the specific changes described above, will help to enhance FEMA’s community engagement strategy: 

• Engage communities early and often. 

• Agree upon and document project outcomes and responsibilities. 

• Coordinate with other programs operating within the same 

community. 

• Engage associations to provide a third-party perspective. 

• Leverage local media and use language that people understand. 

Q.5. A key issue underlying the current program is the lack of information provided to citizens regarding their true risks of flooding. 

While subsidized rates provide a certain sense of false security, the 

lack of easily understandable information provided to individuals 

living in high risk areas is another contributing factor. 

Please discuss FEMA’s efforts in introducing the new maps and 

how it may differ today from when FEMA first began introducing 

the new maps. Please also discuss how your efforts ensure that individuals get the information they need to truly understand their 

risk. 

A.5. Risk Mapping, Assessment, and Planning (Risk MAP) provides 

communities with flood information and tools they can use to enhance their mitigation plans and take action to better protect their 

citizens. Through more precise flood mapping products, risk assessment tools, and planning and outreach support, Risk MAP 

strengthens local ability to make informed decisions about reducing 

risk. 

In an effort to ensure the individuals get the information they 

need to truly understand their risk, Risk MAP focuses on products 

and services beyond the traditional Flood Insurance Rate Map 

(FIRM) and works with officials to help put flood risk data and assessment tools to use, effectively communicating risk to citizens 

and enabling communities to enhance their mitigation plans and 

actions. For example, FEMA will produce Flood Depth and Analysis Grids, and Flood Risk Assessments. Flood Depth and Analysis 

Grids help communities better understand their flood hazard and 

risk in mapped floodplains since it displays a depth of flooding for 

specific events. In addition, Flood Risk Assessments will be provided to help guide community mitigation efforts by highlighting 

areas where risk reduction actions may produce the highest return 

on investment. 

FEMA delivers these products and services in Risk MAP through 

a more robust community engagement strategy. The community 

engagement approach in Risk MAP outlines a series of important 

‘‘touchpoints’’ that occur during each project from the time FEMA 

plans for a project through a series of community meeting and any 

45 

necessary map updates. The following provides the guiding principles being used for the community engagement approach: 

• Engage communities early and often. 

• Agree upon and document project outcomes and responsibilities. 

• Coordinate with other programs operating within the same 

community. 

• Engage associations to provide a third-party perspective. 

• Leverage local media and use language that people understand. 

Community engagement is critical to Risk MAP’s success. 

Through targeted, consistent outreach throughout the Risk MAP 

timeline, FEMA works to make it easier for people and communities to reduce their vulnerability to risk. 

Q.6. The Flood Insurance program provides critical assistance to 

5.5 million families and businesses. It also provides a framework 

of responsible floodplain management, requiring safer, more environmentally sound development that limits Americans’ flood risk. 

Given that many communities may be hesitant to take more 

drastic measures to mitigate flood risk due to economic development concerns, what steps does FEMA take to ensure that communities participating in the program are active partners rather than 

just partners on paper? 

A.6. FEMA provides extensive technical assistance to 21,500 NFIP 

participating communities. FEMA places a significant emphasis on 

providing training to local floodplain managers. During these training sessions, communities are encouraged to adopt and enforce 

higher floodplain management standards that go above and beyond 

the minimum NFIP criteria. Information is provided on the overall 

flood loss reduction benefits, as well as the significant flood insurance discounts associated with safer construction. FEMA and its 

State partners conduct hundreds of these training sessions every 

year. FEMA partners with the Association of State Floodplain 

Managers (ASFPM) and its 14,000 members in an effort to communicate and outreach to NFIP communities. FEMA provides funding 

for ASFPM’s annual national conference where approximately 

1,500 State and local floodplain managers attend. FEMA also provides funding for the Associations Certified Floodplain Manager’s 

(CFM) program whereby local officials meet minimum standards 

and receive the CFM credential. 

We are pleased to see that many communities participating in 

the National Flood Insurance Program are acutely aware of their 

risk to flooding and choose to voluntarily implement floodplain 

management practices that exceed Federal minimum standards. 

These communities implement floodplain management programs 

designed to address their unique local flooding characteristics. The 

National Flood Insurance Program’s Community Rating System 

(CRS) recognizes communities that implement these higher standards and provides discounts on the cost of flood insurance, commensurate with the reduced risk. Flood insurance premium discounts are provided in 5 percent increments to policyholders according to a define program of 19 floodplain management activities. 

46 

The CRS is a voluntary program that has been in place since 1990. 

Eleven hundred and sixty four communities have joined the CRS. 

Interest in the CRS is steadily growing with approximately 30 new 

communities joining each year. Sixty seven percent of all flood insurance policies are located in communities that participate in the 

CRS. 

Additionally, FEMA provides financial assistance to help communities mitigate. FEMA has five Hazard Mitigation Assistance 

(HMA) grant programs that FEMA can utilize to provide funds to 

State and local communities to reduce the loss of life and property 

from future disasters. For example, the Hazard Mitigation Grant 

Program (HMGP) provides grants to States and local governments 

to implement long-term hazard mitigation measures after a major 

disaster declaration. The purpose of the HMGP is to reduce the loss 

of life and property due to natural disasters and to enable mitigation measures to be implemented during the immediate recovery 

from a disaster. FEMA’s Hazard Mitigation Assistance (HMA) 

grant programs provide funds to assist States and communities implement measures that reduce or eliminate the long-term risk of 

flood damage to buildings, manufactured homes, and other structures. 

The Pre-Disaster Mitigation Program is a nationally competitive 

program that provides funds to States and communities, including 

Tribal governments, for hazard mitigation planning and implementation of mitigation projects prior to a disaster event. The PDM 

Program provides Applicants with an opportunity to raise risk 

awareness and reduce disaster losses through cost effective hazard 

mitigation activities. 

The effectiveness of FEMA’s mitigation projects has been repeatedly confirmed, such as in two independent studies commissioned 

by Congress. One study, conducted by the National Institute of 

Building Sciences in 2005 reported that for every $1 spent on various mitigation activities, $4 in response and recovery costs are 

saved. In September 2007, the Congressional Budget Office evaluated the Pre-Disaster Mitigation Program and found that for every 

$1 spent on mitigation projects, losses from future disasters are reduced by $3. FEMA’s mitigation programs have allowed FEMA to 

work with its State and local partners to reduce the possibility of 

property damage, personal and commercial hardship, as well as 

long lasting monetary burdens. 

Q.7. The GAO has highlighted that in its ‘‘ongoing work examining 

FEMA’s management of the NFIP . . . FEMA does not have an effective system to manage flood insurance policy and claims data, 

although investing roughly 7 years and $40 million on a new system whose development has been halted.’’ 

Why were the investments made in these critical operational systems subsequently halted? 

What steps has FEMA taken since this time to put in place a 

more effective management system? 

A.7. At a TechStat session held on November 23, 2010, OMB and 

DHS reviewed the National Flood Insurance Program Information 

Technology System and Services (NFIP ITSS) and identified areas 

of concern, including questions regarding system functionality and 

47 

documentation completeness. DHS elected to terminate the investment amid concerns that overall software quality could not be validated and that an independent evaluation indicated that the user 

needs may not be met. 

FEMA developed a path forward to improve the management 

and governance, and the plan was presented to the DHS CIO, DHS 

OIG, and GAO. This path forward revisited the Executive Steering 

Committee (ESC) membership and added a Chairman and Deputy 

Chairman. The ESC Charter was revised as well. A Program Management office was established as part of the FEMA Office of the 

Chief Information Officer, and a Program Executive and Deputy 

Program Manager have been hired. 

Q.8. Administrator Fugate, it is my understanding that FEMA has 

created a new category of ‘‘grandfathered properties’’ for homes 

that have been mapped into riskier areas. These grandfathered 

properties enjoy taxpayer-subsidized flood insurance rates. 

Please discuss how the newly ‘‘grandfathered’’ category works. 

Is it a permanent category? 

If not, please detail how these ‘‘grandfathered’’ properties will 

move towards rates that more accurately reflect their actual risk? 

A.8. Under the law, statutory grandfathering allows taxpayer subsidized premiums only to insurance policies covering buildings constructed before a community adopts its initial Flood Insurance Rate 

Map (FIRM) upon entry in the Regular Program of the National 

Flood Insurance Program (NFIP). 

Under the law, Post-FIRM properties must be actuarially rated. 

Because Pre-FIRM buildings were constructed before the existence 

of NFIP building requirements, the subsidized premiums, while 

discounted, can often be higher than Post-FIRM actuarially rated 

policies. Thus, a Pre-FIRM policy may be actuarially rated if the 

actuarial premium for the specific type of building is less than the 

subsidized premium. However, each class of Post-FIRM rating 

must be actuarially sound under the law. 

Administrative grandfathering is distinct from statutory 

grandfathering. Administrative grandfathering involves creating a 

class of actuarially rated policies that share common traits. Under 

the rules of the NFIP, administrative grandfathering provides an 

option to use the flood zone of Base Flood Elevation (BFE) from a 

previous Flood Insurance Rate Map (FIRM) after a map revision if 

using the older rating data is more favorable than using the data 

from the current FIRM. This type of grandfathering has been employed since the early 1980s. FEMA has implemented no program 

that increases taxpayer-subsidized flood insurance rates, which 

would be illegal. 

Under administrative grandfathering rules, regardless of the application date, buildings constructed after a community’s initial 

entry into the Regular Program of the NFIP may be insured based 

on rating that uses the flood zone and BFE in effect on the date 

of construction if the older data allows a more favorable premium 

than the current FIRM data. Also under administrative 

grandfathering rules, any building may continue to be insured (renewed) based on rating that uses the flood zone and/or BFE used 

to rate the initial application, if this data is more favorable than 

48 

a subsequent map revision. In order to consider a non-SFHA flood 

zone in the rating using the administrative grandfathering rules, 

buildings constructed before a community’s initial entry into the 

NFIP (when no FIRM was effective) needed to be insured by an application submitted before the building was newly mapped into the 

SFHA. 

In the past, the NFIP’s Preferred Risk Policy (PRP) was only 

available to properties actually determined to be outside of the Special Flood Hazard Area (SFHA) on the date of application. The PRP 

cannot be grandfathered. Older buildings constructed before the 

community’s first FIRM needed to be insured under the PRP before 

a property became newly mapped into an SFHA. Upon renewal 

after the building was newly mapped to an SFHA, the property remained eligible for administrative grandfathering to the zone reflected on the PRP (an X zone). While a standard X-zone rate is 

higher than a PRP, it is typically lower than the premium calculation using the SFHA. A standard X-zone rated policy, while more 

expensive than a PRP, is less expensive than a subsidized policy 

offered under statutory grandfathering. 

On January 1, 2011, FEMA implemented the 2-Year PRP Eligibility Extension, which allows the application to be rated under the 

PRP for up to 2 years after a building is newly mapped into the 

SFHA. A slight increase in premiums to the entire PRP class nationwide made this extension actuarially sound. This extension also 

allows older building to be eligible for administrative 

grandfathering when the policy is converted from a PRP to a standard rated policy. If standard X-zone rating under administrative 

grandfathering is less expensive than the premiums available 

through statutory grandfathering, those property owners who purchased a PRP within 2 years of map revision will be eligible for the 

standard X-zone rating. 

This is not a permanent category because individual policies 

qualify for this further PRP eligibility for only 2 years. Any further 

extension of PRP eligibility (such as a longer duration than 2 

years) would need to be offset by a corresponding increase in the 

PRP premium. Thus, any further extension of PRP eligibility to 

those currently ineligible due to a higher risk of flooding will lead 

over time what is called ‘‘adverse selection.’’ As more and more 

high risk properties are added to the class, the premiums correspondingly rise. As the premiums rise, those at lower risk drop 

out. We have seen this occur with administrative grandfathering 

applied to standard-rated policies. Currently, almost all standard 

X-Zone rated policies are nonbasement properties that were once 

considered outside of the SFHA, but are now mapped in the SFHA, 

or repetitive loss properties. The premiums for a standard X-Zone 

policy are typically three to four times higher than the PRP. This 

residual book of business, as a class, is actuarially sound. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED 

FROM W. CRAIG FUGATE 

Q.1. You have indicated that the current budget will not allow 

FEMA to meet its Risk MAP objective of ensuring that 80 percent 

49 

of the Nation’s flood hazard data are new, updated, or deemed still 

valid by 2014. 

Based on the funding rate in the FY2012 request, when will 

FEMA meet its goal? 

What are the implications of delay? 

A.1. FEMA will meet the goal of ensuring that 80 percent of the 

Nation’s flood hazard data are new, update or deemed still valid by 

2020. FEMA will defer the total number of Risk MAP project starts 

in FY12 and future years. We evaluated the proposed funding level 

during the development of the budget justification for FY12, assuming that future year funding would be at the same level (adjusted for inflation) as FY12. FEMA used a life cycle cost model to 

predict the extended time to 2020. The assumptions within the 

model include: the prioritization strategy established for Risk MAP, 

program fixed and variable costs, currently identified flood hazard 

updated needs, an estimate of additional flood hazard data that 

will be validated during the current national assessment, and an 

estimate of how quickly flood hazard data that is currently valid 

will be invalidated by physical, climatological and engineering 

methodology changes. While this slower pace of production impacts 

the currency of the Flood Insurance Rate Maps, we believe that 

this pace is justified given the current Federal budget constraints. 

Q.2. Until last year, when FEMA established new standards to ensure appropriate topographical data in mapping, the U.S. Geographical Survey’s topographical data set was often the default for 

updating flood maps. GAO reported last year (FEMA Flood Maps, 

GAO-11-17) that despite the fact that it is on average 35 years old, 

USGS’s data had been used for mapping in many high risk areas 

because it was less costly. 

Can you describe the data FEMA will rely on going forward and 

the efforts you are undertaking to ensure that appropriate data 

(not just the cheapest) is used to update flood maps? 

A.2. FEMA intends to obtain high-quality elevation data. FEMA 

will manage elevation data used for Risk MAP as part of its Engineering Library system that houses all the supporting data used 

for Risk MAP. FEMA will also work with USGS to integrate Risk 

MAP elevation data with other national elevation data resources to 

make the data more widely available and easier to use. 

High-quality elevation data will not only increase the quality of 

the flood hazard maps but will also aid in developing risk assessment data, assist in developing actionable mitigation plans, and 

improve credibility, all of which help to achieve the overall mission 

of reducing the impact of disasters on lives and property. Furthermore, the data will result in a substantial increase in the public’s 

awareness of risk—one of Risk MAP’s operational goals—which, in 

turn, drives citizens to take actions toward mitigating risks. More 

information on FEMA’s elevation data strategy and collaboration 

with other Federal agencies can be found in FEMA’s ‘‘Risk Mapping, Assessment, and Planning (Risk MAP)—National Digital Elevation Acquisition and Utilization Plan for Floodplain Mapping’’, 

dated July 2010, available at http://www.fema.gov/plan/prevent/ 

fhm/rmlmain.shtm#4. 

50 

FEMA specifications for elevation data are aligned with the 

USGS to maximize partnerships and data utility. The specifications 

for FEMA’s highest risk areas are the same as USGS accuracy 

specs. The new standard establishes minimum accuracy requirements for all risk levels, that vary based on the risk and terrain. 

‘‘Best available data’’ is no longer acceptable if it does not meet the 

minimum standard. 

Q.3. FEMA has indicated it will spend $80 million between 2010 

and 2013 to secure new topographical data—something it has not 

done in the past due to its concerns about cost. 

Does FEMA plan to maintain that commitment? 

Who is (and who should be) responsible for securing the appropriate data for each map update—FEMA or local governments? 

What other funding and technical assistance, if any, are provided 

to States and communities to help them develop their own capacity 

to assist in mapping updates? 

A.3. In FY2011, FEMA plans to spend $20 million to acquire elevation data. High-quality elevation data form the foundation for increasing the quality of the flood maps, aid in developing risk assessment data, and assist in developing actionable mitigation plans 

based on improved hazard data. The lower funding requests in future years outlined in the President’s Budget will spread the elevation data investment over a longer period of time. FEMA is committed to high quality elevation data and still believes it to be a 

prerequisite for any updated flood hazard analysis. 

The National Flood Insurance Program is a partnership with 

more than 21,500 communities across the country. While FEMA 

makes the significant investments, communities often have additional data to contribute (through their Planning Departments, 

Watershed Councils, Stormwater Agencies, etc.). So while FEMA 

does not require local contributions of data, we encourage collaboration with the local agencies that have the expertise and supporting data. 

In recent years, the Appropriations Committees have directed 

FEMA to prioritize map production funding for those partners that 

provide a cash match. While this has been successful, it is not the 

sole basis for funding future studies. 

FEMA has a Cooperating Technical Partners (CTP) program. The 

CTP Program allows communities, regional agencies, State agencies, universities, and Tribal Nations that have the interest and capability to become active partners in the FEMA Flood Hazard Mapping program. Eligible regional agencies include: watershed management and flood control districts, regional planning councils, 

councils of governments, and regional offices of State agencies. 

Specifically, our partners benefit because: 

• The data used for local permitting and planning is also the 

basis for the NFIP map, facilitating more efficient floodplain 

management. 

• The CTP Program provides the opportunity to interject a tailored, local focus into a national Program; thus, where unique 

conditions may exist, the tailored approaches to flood hazard 

identification may be taken. 

51 

• The partnership mechanism provides the opportunity to pool 

resources and extend the productivity of limited public funds. 

CTP Program-related activities may be funded based on FEMA’s 

priority of mapping needs and the availability of FEMA funds for 

mapping. If FEMA funds are available, the Partner will receive 

funds through a Cooperative Agreement. Each FEMA Regional Office will determine how much of its annual mapping budget will be 

allocated to mapping activities under the CTP Program. The Cooperative Agreements awarded for mapping activities under the CTP 

Program are intended to supplement, not supplant, ongoing mapping efforts by a Partner, whether it be a community, regional 

agency, or State agency. 

Q.4. Mapping is a collaborative effort and FEMA relies on Federal 

and nonfederal partners. 

Please comment on how you are working with other Federal 

agencies, such as USGS, NOAA, and the Army Corps on mapping. 

What data and assets are these agencies providing to support 

mapping and are these complementary efforts being properly funded? 

Can you comment on how FEMA is working with the private sector and how it is using new technology to improve the accuracy and 

usability of maps? 

A.4. FEMA has close working relationships with an array of Federal agencies, including NOAA, the U.S. Army Corps of Engineers, 

and the USGS. While we each have our own statutory missions, 

there are clear areas of congruence as we better understand flood 

risk in the Nation. Specific attention is given to how we can leverage investments across the agencies and not duplicate spending. 

For the USGS, this is done through a relationship (documented in 

an MOU) at Headquarters. For the USACE, this is done through 

relationships at Headquarters as well as Region to District collaboration. The USACE efforts are enhanced by FEMA’s participation 

with the Silver Jackets initiative where States convene all the Federal agencies in their area to focus on flood risk management. Over 

the past year, FEMA has been engaged in a joint Task Force with 

the USACE and the Office of Management and Budget to specifically address levee mapping concerns across the country. NOAA coordination is done with the specific offices. 

FEMA collaborates with the USGS on elevation data and hydrology. FEMA collaborates with NOAA’s National Weather Service for 

river gage data and the Ocean Service for coastal gage data, the 

Coastal Services Center on data sets and community outreach, and 

the Climate Service on climate change data. FEMA also coordinates with Geodetic Survey for geodetic control and survey standards and best practices. 

The majority of flood hazard engineering, production, map finishing, and delivery is done by private sector contractors with oversight from FEMA SMEs. These mapping partners are adept in Geographic Information System (GIS) technologies, which are used 

throughout the mapping process. 

FEMA provides flood hazard data that the private sector incorporates into tools they develop. A good example of this is the Web 

Map Service (WMS) of the National Flood Hazard Layer that can 

52 

be viewed with Google Earth or any other application that uses 

this protocol. Mobile applications have recently been developed by 

private industry that tie our flood data from this service into devices such as iPhones and Android phones. 

FEMA works closely with ESRI, a major GIS software and services provider, through the Enterprise License agreement managed 

by the Geospatial Management Office. ESRI conferences are also 

important events to keep up with current trends and private sector 

offerings from the geospatial sciences sector. 

FEMA’s emphasis has been to focus on data, and more recently, 

data services. The emphasis on data services allows private sector 

to add value to FEMA data in making it available to the public 

while reducing cost to FEMA for distribution of this data. We are 

currently working on a strategy to more directly address external 

solution providers to help them better communicate risk to end 

users with our data. This includes not just traditional flood data, 

but other Risk MAP data as well. 

Q.5. There have been legislative efforts to delay the adoption of 

new maps in order to forestall the designation of Special Flood 

Hazard Areas. 

What are the consequences to the program and society if we 

delay the initiation of map updates and the adoption of new maps? 

A.5. FEMA has a statutory requirement to expeditiously identify 

and disseminate information regarding flood prone areas in the Nation (42 USC 4002(b2)). Timely and accurate flood hazard information provides the basis of sound decision making in communities 

and with individuals. Over the past 7 years, the updating of flood 

hazard maps has shown changes in the Special Flood Hazard 

Areas. These changes are driven by changes in the built environment throughout the watershed and by additional data regarding 

storms and water flow. Over the past 7 years, on average as many 

structures have been removed from the Special Flood Hazard Areas 

as have been placed in them through the updated analyses. These 

shifts continue to make the maps current and ensure their accuracy. Further, the structures at the greatest risk are identified and 

the public can take the appropriate actions to mitigate or buy down 

their risk through flood insurance. 

Delaying maps means that FEMA, in some instances, has analyses that demonstrate that some homeowners currently required to 

buy flood insurance should not have that mandatory requirement— 

thus their insurance, should they choose to keep it, would be significantly cheaper. In other instances, FEMA has analyses that 

clearly show an area at high risk, yet that information is withheld. 

In this latter instance, homeowners may be unaware of their risk 

(most homeowners become aware of their status from their banks 

after the Flood Insurance Rate Map goes into effect). If an intervening flood event occurs in the community, many of those who 

should have had flood insurance will not. In the absence of flood 

insurance, very limited resources are available for individuals to 

recover. 

Q.6. In response to a request from 29 senators, you announced in 

March that FEMA would temporarily withhold issuing Letters of 

Final Determination for communities whose levees do not meet acVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00056 Fmt 6602 Sfmt 6602 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
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creditation requirements in order to allow time for FEMA to develop new methodologies that will more accurately reflect the flood 

risk in areas impacted by these levees. 

When will FEMA complete the development of these methodologies? Can you provide an estimate for the cost of developing and 

applying these new methodologies? How will FEMA pay for these 

efforts without compromising other mapping objectives? 

How will these methodologies be implemented in communities 

where Final Determinations have already been issued? 

A.6. Regarding the timeline, see above. Regarding the implementation for communities where Final Determinations have already 

been issued, see above. 

Regarding your question about the costs to develop and apply the 

new methodologies, these costs estimates are under development. 

As we refine and finalize the new methods, we will be developing 

more detailed cost estimates and, moreover, assessing overall cost 

impacts to the Risk MAP program. Further, as part of this effort 

we are concurrently assessing the impacts of implementing these 

new methodologies to Risk MAP program objectives within projected funding levels. 

Q.7. Can you provide an estimate of the percentage of properties 

in Special Flood Hazard Areas that maintain flood insurance policies? 

A.7. Based on our research, FEMA estimates that approximately 

24 percent of the properties in Special Flood Hazard Areas (SFHA) 

purchase flood insurance policies. The retention rate for SFHA 

properties in FY2010 was approximately 67 percent. 

Q.8. It is my understanding that the Federal Government holds 

easements for properties in the Morganza Floodway and that the 

Morganza Spillway has been operated twice since it was built in 

1954, flooding these properties twice in less than 50 years. 

How are properties in the Floodway classified on FEMA’s flood 

maps? To what extent are Army Corps inundation maps and scenarios integrated into FEMA’s flood maps? 

As a general rule, how are Army Corps data, including inundation maps and scenarios, used in developing FEMA flood maps? 

A.8. FEMA’s Flood Insurance Rate Maps (FIRMs) currently show 

the entire area behind the spillway within the Special Flood Hazard Area. The USACE inundation maps and mapping scenarios are 

not incorporated into the FEMA FIRMs, although the inundated 

area is reflected as within the Special Flood Hazard Area. 

The USACE utilizes inundation maps for these flood control 

structures as an operational component to plan controlled water releases. If the water level reaches a predetermined height above the 

spillway, the inundation maps show how the flood control structure 

will function, operate, and reflect the areas that would be flooded 

as a result of a particular scenario. This information allows emergency management staff at a Federal, State, and local level to prepare for initial response and recovery activities prior to the event. 

FEMA’s FIRMs reflect a flood hazard for a specific statistically 

probable flood event, which is the 1 percent annual chance flood 

event. While these two products seem similar, their uses are different. The USACE’s inundation maps are intended to provide 

54 

operational information for a particular structure and FEMA’s 

FIRMs reflect flood risk based on statistical probability. Generally, 

FEMA maps do not consider the operational aspects of any spillway 

but FEMA does account for the unimpeded flow above the spillway 

for the 1 percent annual chance flood event. 

Q.9. Can you comment on the data that private insurers of large 

commercial properties use in evaluating flood risk and how those 

practices can be utilized in the National Flood Insurance Program? 

A.9. Over the last 5 years insurers and reinsurers of large commercial properties have begun to utilize more sophisticated techniques 

to evaluate the flood risk for individual buildings and for portfolios 

of buildings. Generally, those techniques start with FEMA’s DFIRMs, although the insurers typically require more detailed information than is provided on the FIRMs, particularly for areas outside of FEMA’s defined floodplains. They use various additional 

sources of data to enable them to make probabilistic calculations of 

flood risk. Those other sources include the USGS Digital Elevation 

Model, satellite imagery, USGS river gauge data and various types 

of models for storm surges caused by hurricanes and other ocean 

storms. FEMA is interested in following those developments, and 

the mapping and actuarial components of FEMA have met with a 

number of insurance company developers of flood risk models to 

better understand their techniques. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR MERKLEY 

FROM W. CRAIG FUGATE 

Q.1. I would like to thank you for changing your ‘‘without-levees’’ 

mapping method in response to our letter, and would also like to 

thank you for the commitment you made at the June 9 hearing to 

remap areas that were already done with the ‘‘without-levees’’ 

method. Communities such as Warrenton, Oregon, that have already adopted the less scientifically sound maps must pay for costly flood insurance policies while they wait for these areas to be remapped. Could you provide information on the timeline for the remapping and also any anticipated costs that will fall on local communities during the remapping? 

A.1. FEMA anticipates that the new methodologies will be completed during the Fall of 2011. While FEMA wants to move pending mapping activities forward as expeditiously as possible, we also 

believe it is imperative to follow a deliberate, collaborative approach to develop quality methods and guidance and allow for consideration of public comments before finalizing the new methodology. Therefore, FEMA has established a multidisciplinary team of 

experts made up of representatives from FEMA, the U.S. Army 

Corps of Engineers, academia, and the engineering industry to 

evaluate the available science and develop new levee analysis and 

mapping methodologies suitable for the National Flood Insurance 

Program. To provide independent, objective input, an Independent 

Scientific Body made up of recognized experts convened by the National Institute of Building Sciences is reviewing and providing 

comments on the new methodologies. Further, because of the importance of these new methods to communities with levees, in the 

55 

coming months we will conduct focus groups of community officials 

and levee boards across the Nation. Finally, FEMA will make the 

methodologies available for public review and comment. Once these 

reviews have been completed and feedback addressed appropriately, FEMA will issue new guidance for analyzing and mapping 

levee systems under the NFIP. At that time, FEMA will review impacted studies and be in contact with affected communities regarding the next steps in the mapping process. 

As opposed to the current practice of using a single ‘‘without 

levee’’ approach for analyzing and mapping nonaccredited levees, 

FEMA is developing a suite of methodologies. For each flood protection levee, FEMA will collaborate with the community and/or levee 

owner to select from this suite the best method for analyzing and 

mapping the levee that balances the need for accuracy, detail, and 

precision against the available mapping budget. Factors that will 

be important in selecting the appropriate method include levee system characteristics; flooding parameters; vulnerability of buildings, 

infrastructure, etc., within the area protected by the levee; and 

quality and availability of data necessary to perform analyses. The 

suite of methodologies is specifically being designed to accommodate communities that are unable to provide any data or analyses 

to the mapping effort. However, because FEMA must operate within the fiscal constraints of its available budget for flood studies and 

mapping, communities or levee owners that are willing and able to 

contribute data and/or perform analyses will be more likely to receive more detailed analytical methodologies. Frequently this data 

will already be in the possession of the community or levee owner 

and, thus, the community or levee owner will be able to contribute 

to the analysis and mapping effort at little or no additional cost. 

At this time it is difficult to determine when projects placed on 

hold pending new guidance will resume. However, our commitment 

to Congress places a great deal of importance on the Levee Analysis and Mapping Project, and appropriately, FEMA is aggressively 

working to meet this commitment. FEMA’s priority when we implement the new methodologies will be to apply them to the nearly 

250 ongoing studies that have been placed on hold pending development of the new levee analysis and mapping methodologies. 

Where Final Determinations already have been issued (such as 

in Warrenton, Oregon), FEMA is developing its plan to retroactively apply the new methodologies. While the details of that 

plan are still being developed, retroactive application of the new 

methodologies will depend upon the available funding and almost 

certainly will require several years to accomplish. Thus, our plan 

will include a multiyear prioritization and sequencing component. 

Any community or levee owner wishing to revise the NFIP maps 

using the new procedures faster than the time frames afforded 

through the FEMA-funded study queue will have the option to submit the necessary data and analyses in support of a map revision 

request under the provisions of 44 CFR 65. 

Q.2. Some of my constituents have complained about the policy of 

grandfathering in rates for properties that obtain flood insurance 

prior to the issuing of new maps. Their concern is that neighbors, 

who are active in local politics or who have been alerted by their 

insurance companies, know that they can save money by obtaining 

56 

flood insurance before the new maps are adopted. However, others 

don’t receive word and end up paying much higher premiums for 

the same flood risk. If FEMA is going to award these discounts, it 

is important to make sure everyone has a fair chance to benefit. 

What steps is FEMA taking to better communicate with property 

owners about these rate options? 

A.2. FEMA’s National Flood Insurance Program (NFIP) issues updated flood maps in communities to help residents understand 

their current flood risks and enable them to make informed decisions to address those risks. When local flood maps change, individuals newly mapped into a high-risk zone may be required to carry 

flood insurance because of the heightened risk they now face. The 

NFIP recognizes the potential financial burden that this may cause 

and offers significant financial savings, through the NFIP’s 

grandfathering provision and recent Preferred Risk Policy extension, to help residents stay protected at a reasonable more affordable cost. To ensure that individuals across the country understand, and take advantage of these cost saving options, the NFIP 

engages in regular outreach to communicate about map changes 

and flood insurance options. 

FEMA’s Federal Insurance and Mitigation Administration actively tracks communities that are releasing new flood maps and 

provides a range of materials on map changes and their impact on 

flood insurance requirements and costs at community meetings. 

FEMA’s information and on-the-ground assistance not only helps 

residents understand map changes and insurance implications, it 

also provides the practical guidance needed to help citizens take 

advantage of cost saving options that come into play when local 

risks change. 

Recognizing the broad impact of map changes on communities 

nationwide, the NFIP has developed, and regularly distributes and 

promotes, a suite of fact sheets, tools, and materials that help explain ways to save on coverage through the grandfathering rule 

when it issues new flood maps at the local level. We distribute 

these materials at a host of conferences and stakeholder meetings 

nationwide and they reside on FEMA’s FloodSmart Web site 

(www.floodsmart.gov), enabling widespread access to, and application of this important information. 

The NFIP has also recently expanded eligibility for its lower-cost 

Preferred Risk Policies (PRP). To raise awareness of this new program, which launched in January 2011, the NFIP sponsored extensive insurance agent trainings to help them counsel customers on 

the new option and distributed a series of fact sheets, 

backgrounders, and frequently asked question (FAQ) documents to 

help residents take advantage of these new, significant savings. 

The NFIP also continually encourages flood insurance protection 

in moderate- to low-risk flood areas and offers discounted rates to 

ensure that residents in these areas make the right choice and obtain dependable protection. PRPs start at just $129 per year and 

offer the same level of protection as a standard flood policy. To promote PRPs to eligible residents and encourage affordable coverage, 

the NFIP distributes monthly direct mailings detailing the availability of this reduced cost option and regularly promotes information and materials on PRP to agents, local leaders, and floodplain 

57 

officials to help them educate residents about how they can effectively stay protected for a modest investment. The NFIP has run 

a national broadcast television spot to promote the PRP with consumers and placed PRP-related online banner advertisements on 

various Web sites throughout the country. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR VITTER 

FROM W. CRAIG FUGATE 

Q.1. During the February 18, 2011, conversation with FEMA’s Jonathan Wescott, the request was made by St. Tammany Parish to 

allow a ‘‘Partial Map Adoption.’’ Subsequent conversations with 

FEMA Project Managers have assured communities that this is 

being considered and a feasibility study is under consideration. 

However to date, only one community in St. Tammany Parish 

(Mandeville, Louisiana) has been given verbal notice that FEMA 

will allow their Community Based Maps to be published (municipality only). 

What is the status of the feasibility study to allow ‘‘Partial Map 

Adoption’’ for the rest of the Parish? 

Will the same contractors, who created the preliminary DFIRMs 

that are currently under Appeal by St. Tammany Parish, be allowed to participate in this process? 

Has a budget been proposed for this study? 

Is there funding available for the feasibility study to allow Partial Map Adoptions? 

A.1. FEMA evaluated the possibility of a partial map adoption for 

the unincorporated areas of St. Tammany Parish. However, due to 

the configuration of the map panels as it related to panels affected 

by levees, along with a need to ensure flood hazards match along 

map edges, complicated community compliance issues, and the lack 

of a good location to segment the maps, partial map adoption was 

not a feasible approach for the unincorporated areas of St. Tammany Parish. Furthermore, at a recent meeting with Mandeville 

and St. Tammany Parish officials, Parish officials agreed that a 

partial map for unincorporated areas would present significant permitting and enforcement issues. Region 6 has not been approached 

by any other incorporated communities within the Parish to look 

at moving forward with a community based map. 

The current contract expires at the end of September. The intent 

is for the current contractors to resolve all appeals unrelated to the 

areas affected by levee guidance and coastal structure guidance 

and to complete the community based map process for the City of 

Mandeville to maintain continuity. At that point the study will be 

put on hold until the new levee guidance is finalized. 

For the City of Mandeville’s community based maps, the contractor anticipates submitting for Quality Review at the end of September with a final Letter of Final Determination sometime towards the middle of December. Additional contracting mechanisms 

are being explored to extend the current contractor long enough for 

the contractor to finish the Mandeville Community Based Map. 

There is adequate funding available to complete partial map 

adoption for the City of Mandeville. There is uncertainty on the 

budget needs to complete the remainder of the study for St. TamVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00061 Fmt 6602 Sfmt 6602 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
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many Parish as it will be affected by FEMA’s new approach to analyzing and mapping unaccredited levees. 

No, additional funding will have to be secured for any further investigation into the feasibility of additional community based maps. 

Q.2. In FEMA’s response to the February 3, 2011, Senate letter, 

FEMA states they will respond to congressional and local criticism 

by terminating the ‘‘without levees’’ practice. They will work to formulate a new methodology that takes into account lesser protection 

levels (i.e., ‘‘give credit for partial protection’’ to uncertified/decertified levees and coastal structures). 

Has FEMA begun work on the proposed ‘‘New Approach’’ to address uncertified/decertified levees, Coastal Structures and Coastal 

Levees? 

Will FEMA solicit input on the Coastal Levee Guidance procedures during their development? If not, why not? Communities are 

more familiar with the situation on the ground and have had years 

of experience dealing with their levees. 

Will there be any changes to the FEMA guidelines on the treatment of nonlevee coastal structures? These structures are very important in Louisiana for reducing flooding and providing partial 

protection. 

Will FEMA develop guidelines for the treatment of coastal restoration projects, such as mash creation and barrier island restoration, in the floodplain mapping? The principle of the Multiple Lines 

of Defense, the basis for Louisiana’s coastal planning, assumes that 

restoration projects will be credited with some flood protection benefits. 

Will the same contractors, who created the preliminary DFIRMs 

that FEMA has agreed to withdraw, be used to remodel DFIRMs 

in this ‘‘New Approach’’? 

Remodeling depends upon obtaining additional funding. Has 

FEMA proposed a budget for the remapping effort? Will the proposed budget be made publically available? 

FEMA expects all mapping efforts to be delayed by months, not 

years; however, remapping is dependent upon funding AND completion of the NEW Coastal Levee Guidance. Is there any information on the timing of a Federal Register notice? 

FEMA has stated that they will solicit for public comment on 

this new methodology for Coastal Levee Guidance. Will these comments be made available to the public? 

Will FEMA allow adequate time for public review and comment 

once the ‘‘New Approach’’ is proposed? 

What is the status of the Science Review Panel with respect to 

the treatment of coastal structures and levees in the mapping effort? 

Have any communities entered into this phase of Appeal? Will 

their concerns be made available to the public and/or other communities who are in DFIRM Appeal with FEMA? 

A.2. Work has begun on the proposed new approach to address 

uncertified levees, including coastal levees. However, the ongoing 

effort to update FEMA’s methodologies for the treatment of 

uncertified levees in flood hazard mapping for the NFIP is specific 

to levees. New methodologies for the treatment of nonlevee coastal 

59 

structures, which are not analyzed using the ‘‘without levees’’ practice and not covered by 44 CFR 65.10 certification standards, are 

not being developed at this time. 

Yes, FEMA will welcome comments on coastal levees as part of 

this new approach. 

See response to first bullet. It should be noted however that current guidelines allow for evaluating the partial protection that may 

be afforded by nonlevee coastal structures that are expected to fail 

during a base flood. This is accomplished by utilizing an appropriate failed structure configuration in the overland wave modeling. 

FEMA does not currently have guidelines specifically addressing 

the treatment of the coastal restoration projects mentioned above 

in an NFIP flood study. However, that does not mean that the effects of these types of projects cannot be reflected on the FIRM. 

FEMA uses highly detailed topographic and bathymetric data and 

information about land use and vegetative cover in the development of its flood models and resultant hazard mapping. Completed 

coastal restoration projects typically alter the topography and/or 

bathymetry in the vicinity of the project. The effects of these alterations, including any changes to the vegetation present at the site, 

can be incorporated into the FIRM at any time after the project 

completion. In situations where these projects impact Base Flood 

conditions FEMA encourages communities to provide the information needed to update the maps to reflect the effects of these 

projects within 6 months of it becoming available in accordance 

with NFIP regulations (44 CFR 65.3). 

Yes, where it makes sense to do so and in coordination with impacted communities. 

FEMA is currently performing an analysis of costs associated 

with the new levee approach. 

FEMA will publish a notice for a public review period in the Federal Register. 

Comments will be analyzed and grouped into themes. The major 

themes of the comments may be posted to the FEMA Web page for 

the Levee Analysis and Mapping Project (LAMP). 

At this time, no community has requested a Scientific Resolution 

Panel (SRP) to review data relevant to coastal structures or levees 

in the mapping effort. However, FEMA is utilizing the SRP to convene an Independent Scientific Body, comprised of technical and 

scientific experts, to review and comment on the proposed new approaches for depicting the flood risk associated with nonaccredited 

levee systems. The proposed approaches account for the treatment 

of coastal levees that cannot be accredited. 

At this time, two communities have requested an SRP and were 

eligible in accordance with the guidance provided publicly in Procedure Memorandum No. 58, entitled ‘‘Implementing the Scientific 

Resolution Panel Process.’’ Both are currently in the SRP process, 

and their concerns are publicly available at the following Web site: 

http://www.floodsrp.org/panels/. 

60 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR COCHRAN 

FROM W. CRAIG FUGATE 

Q.1. Administrator Fugate, as you know, we have been very clearly 

reminded over the past couple of months that a lot of valuable real 

estate in the Mississippi River Valley is protected from flood waters 

by the world’s best levee system. Having intimately experienced 

Hurricane Katrina and the recent floods, we take seriously the 

need of the National Flood Insurance Program to accurately reflect 

risk to the public. However, Senators from all over the Nation are 

hearing from their constituents regarding FEMA’s Map Modernization efforts. 

Do you share my view that there are practical changes we can 

make to FEMA policy that might mitigate some of the concerns of 

communities without adversely affecting risk identification or the 

solvency of the NFIP? 

A.1. FEMA is committed to reforming the National Flood Insurance 

Program. Specifically: 

• In January 2011, FEMA’s NFIP Reform Working Group completed the refinement of policy alternatives and began the policy evaluation phase. 

• The evaluation was conducted through the Spring in cooperation with Keybridge Research, a independent policy analysis 

firm. 

• The evaluation involved both a qualitative and a quantitative 

assessment of each of the policy alternatives and identified 

each policy’s strength and weaknesses. 

• The Working Group has recently received the initial findings 

of this assessment and have found that no single idea prevails 

but that there are strengths in each of these areas that could 

be combined to form a holistic reform package. 

• The Working Group has been asked to continue working 

through the summer. 

Q.2. What consideration does FEMA give to ongoing flood control 

projects when remapping an area? Is it prudent to remap an area 

when there is a reasonable amount of certainty that the flood risk 

of that area may change dramatically very soon due to the completion of a flood control repair project? Wouldn’t you then have to use 

more Federal resources to map that area again in order to keep up 

with flood risk? 

A.2. FEMA coordinates with communities as new flood control 

projects are built or older infrastructure is repaired or upgraded. 

In our experience, many construction projects encounter delays, 

and FEMA is concerned about a possible flooding event in the interim. 

For projects in progress, FEMA has an available remedy. In accordance with 44 CFR 61.12, FEMA may issue adequate progress 

determinations for flood protection systems (i.e., levee systems) construction or restoration projects involving Federal funds that may 

significantly limit the area of a community that will be included in 

the identified Special Flood Hazard Area (SFHA). The SFHA is the 

area that will be inundated by the 1 percent annual chance flood. 

Such projects reduce, but do not eliminate, the risk of flood to peoVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00064 Fmt 6602 Sfmt 6602 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
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ple who live and work behind levee systems and to the structures 

located in these levee-impacted areas. The Chief Executive Officer 

of the community or other responsible community official may request that FEMA make an adequate progress determination for a 

construction project and revise the effective FIRM to designate the 

SFHA in the impacted area as Zone A99. 

In all cases, FEMA works to expeditiously update the flood hazard depiction upon completion of the project. 

Q.3. Do you believe communities who contribute constructive scientific data to the remapping process should be compensated for 

their troubles? Why should communities in some cases have to expend local funds to prove that the Federal Government got it 

wrong? 

A.3. The NFIP is a partnership with local communities, and identifying flood hazards is not the sole responsibility of FEMA. In a resource constrained environment, FEMA must make sound investment decisions. FEMA is committed to the accuracy of all our Risk 

MAP products. The additional data rarely is about demonstrating 

that the draft FEMA product is wrong; usually the scientific data 

brings higher resolution to the product. We view such enhancements as a mutually beneficial contribution from the local partner. 

FEMA strives to provide data and information at a resolution 

sufficient to meet NFIP objectives of reducing future flood risk and 

ensuring a sound means upon which to fairly price flood insurance. 

Q.4. What is your flood insurance adoption rate among those who 

are required to participate in the NFIP? 

A.4. Ninety-seven percent of the 2,103 communities adopted the 

Flood Insurance Rate Map (FIRM). Only 73 communities did not 

adopt the FIRM and were suspended from the NFIP. 

Q.5. What are your assessments of the performance of the Mississippi River and Tributaries System during this ongoing historic 

flooding? How do the successes of this system affect your level of 

confidence in the risk reduction capabilities of our Nation’s flood 

control infrastructure? 

A.5. FEMA does not evaluate the specific performance of flood control systems. The U.S. Army Corps of Engineers along with the 

Mississippi River Commission provide oversight and management 

of the Mississippi River and Tributaries System. 

Q.6. Should it be the policy of the United States that people not 

live behind levees? 

A.6. Water is an integral part of the American society; water sustains life and moves commerce. While there is always a risk of 

flooding for businesses and homes behind levees and those affected 

must know their risk, FEMA leaves it to local communities to 

make wise land-use decisions about flood control. 

62 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

PREPARED STATEMENT OF SENATOR RICHARD J. DURBIN OF 

ILLINOIS 

Chairman Johnson and Ranking Member Shelby, thank you for this hearing on 

the reauthorization of the National Flood Insurance Program. I appreciate the opportunity to share my views on this program with the Committee. 

Discussion of reauthorization of the NFIP could not be more timely for Illinois. 

Today, hundreds of people in Southern Illinois are cleaning up after flooding from 

the Ohio and Mississippi Rivers inundated the region this April and May. President 

Obama has declared 21 counties in the southern part of my State Federal disaster 

areas. I am grateful that both Federal individual and public assistance will be made 

available there, and I will continue to do all I can to ensure that the affected communities have the help they need. 

The National Flood Insurance Program is the primary Federal resource available 

to help people and communities recover from flood damage. The program expires on 

September 30th of this year. There are many challenges to its reauthorization, not 

the least of which is its estimated $18 billion debt. The program should be reworked 

to be more actuarially and fiscally sound. 

We need to update our perception of weather patterns. In Illinois, the frequency 

of what once were considered 100- and 500-year flood events suggests we need to 

adapt to a more realistic expectation of flooding frequency and severity. This means 

accounting for evolving flood zones, through a fair and accurate flood mapping process. 

As flood maps are updated, the people who live in newly mapped flood zones have 

to adapt to the cost of mandatory insurance. The program should take into consideration efforts that are made by communities to shore up protections against flood 

events. Today, when a community learns it will be mapped into a flood zone, no consideration is given to account for that community’s efforts to bolster its levees. Instead, residents of the newly mapped zones must purchase insurance, even while 

paying to bring their levees back up to the standard of 100-year flood protection. 

This is exactly what happened in Metro East, Illinois, where most people have 

never experienced a flood. The community received a double whammy when it 

learned the levee no longer meets the 100-year flood protection standard and that 

it was being mapped as a flood zone. The community began collecting revenues to 

help repair their levee. Because they are proactive in addressing the infrastructure, 

residents feel that the requirement to purchase flood insurance does not make 

sense. For communities like Metro East that are investing in their levee and that 

have not had a flood, we should be reasonable about the mandatory insurance requirement. The Flood Insurance Program should fairly and accurately reflect communities’ risk, while taking into account efforts underway to guard against a major 

flood. 

I commend the Committee for addressing the challenges facing the flood insurance program’s reauthorization. I look forward to seeing the bipartisan measure 

being developed by the Committee and am happy to help in any way I can to see 

it passed. 

Thank you. 

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REAUTHORIZATION OF THE NATIONAL 

FLOOD INSURANCE PROGRAM—PART II 

THURSDAY, JUNE 23, 2011 

U.S. SENATE, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 

Washington, DC. 

The Committee met at 10:06 a.m., in room SD–538, Dirksen Senate Office Building, Hon. Tim Johnson, Chairman of the Committee, presiding. 

OPENING STATEMENT OF CHAIRMAN TIM JOHNSON 

Chairman JOHNSON. I would like to call this hearing to order. 

This is the Committee’s second hearing to examine the reauthorization of the National Flood Insurance Program. At our first hearing on June 9, we had a good discussion of this topic with FEMA 

Administrator Craig Fugate. Today, we are joined by a panel of experts and stakeholders who will share their perspectives on reauthorization. 

The Flood Insurance Program was created to help communities 

limit damage and recover more quickly. Flooding is responsible for 

more damage and economic loss than any other type of natural disaster. I need to look no further than my own home State for a reminder of this, as we battle historic flooding along the Missouri 

River in South Dakota. South Dakotans have shown tremendous 

hard work and community spirit in this fight, but are understandably concerned about the road ahead. I want to state again that I 

will do my best to get them the help they need now and when the 

water recedes. 

Despite the Flood Insurance Program’s importance, it now faces 

challenges to its long-term viability. Over the past year, we have 

also had several disruptive lapses in the NFIP. I hope we can provide greater certainty to the program through a long-term extension with much needed reforms. 

This recent flooding is another reminder that Congress must reauthorize the NFIP before the upcoming September 30 expiration 

date. As I said during our previous hearing, I hope that we can 

once again come together and pass a bipartisan bill that will build 

a sustainable future for the program and American citizens. I look 

forward to hearing from our witnesses on this subject. 

Senator Shelby is not here, but I will now open it up to all Committee Members who wish to give an opening statement. Before 

that, I ask unanimous consent for the record to remain open for 7 

days for additional statements and questions. 

84 

Does anybody want to give an opening statement? Senator 

Johanns. 

Senator JOHANNS. Mr. Chairman, as you know, our normal practice is to let the Chair and Ranking Member speak. I do have an 

opening statement, but I am guessing all of my colleagues would 

like to get to the witnesses. We have a long panel here. I am willing to submit my opening statement for the record and just call it 

good and get ready to hear from the witnesses. 

Chairman JOHNSON. Anybody else? 

[No response.] 

Chairman JOHNSON. With that, I would like to introduce today’s 

panel. Before I begin, I would like to note that we have invited several additional organizations representing the insurance industry 

to submit written testimony for the Committee today. I will submit 

additional statements from the Property Casualty Insurers Association of America, National Association of Mutual Insurance Companies, American Insurance Association, and the Independent Insurance Agents and Brokers of America, and others into the record. 

I encourage my colleagues on the Committee to review this testimony. 

Now, I will introduce today’s panel. Our first witness today is 

Ms. Orice Williams Brown, who is the Director of the Office of Financial Markets and Community Investment at GAO. Ms. Brown 

has led extensive reviews of the National Flood Insurance Program 

and is no stranger to this Committee. I would like to welcome her 

back. 

Mr. Chad Berginnis is the Associate Director of the Association 

of State Floodplain Managers. He has spent over 15 years in floodplain management, hazard mitigation, and land-use planning at 

the State and local levels and in the private sector. 

Mr. Adam Kolton is the Executive Director of the National Advocacy Center at the National Wildlife Federation, and is also testifying as a representative of the Smarter Safer Coalition. 

Mr. Barry Rutenberg is a home builder with more than 35 years 

of experience in the building industry. He is currently the First 

Vice Chairman for the National Association of Home Builders. 

Mr. Travis Plunkett is the Legislative Director for the Consumer 

Federation of America, a nonprofit association of over 280 organizations that advances consumer interests. 

Finally, we will hear from the Honorable Scott H. Richardson. 

Mr. Richardson has previously served as South Carolina’s Insurance Commissioner as well as a State Legislator. He is currently 

a partner in Richardson and Ritchie Consulting. 

Welcome, everyone. Ms. Brown, please begin. 

STATEMENT OF ORICE WILLIAMS BROWN, DIRECTOR, OFFICE 

OF FINANCIAL MARKETS AND COMMUNITY INVESTMENT, 

GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. BROWN. Chairman Johnson and Members of the Committee, 

I appreciate the opportunity to participate in today’s hearing on the 

National Flood Insurance Program. As you know, floods are the 

most frequent natural disasters in the United States, causing billions of dollars of damage each year. 

85 

Congress originally created the National Flood Insurance Program to address the lack of readily available insurance for property 

owners and growing costs to the taxpayer for flood-related disaster 

relief. This morning, I would like to share my thoughts about three 

issues: The program, possible reform options, and FEMA’s management challenges. 

First, NFIP serves a vital role in providing protection against 

flooding to over 5.5 million policyholders nationwide. As you know, 

NFIP is one of 31 programs or issues designated by GAO as high 

risk in 2011. NFIP first appeared on this list in March 2006, after 

the 2005 hurricane season exposed the potential magnitude of longstanding structural issues on the financial solvency of the program 

and brought to the forefront a variety of operational and management challenges that must also be addressed to help ensure the 

long-term stability of the program. 

Second, using the broad public policy goals identified by GAO in 

our past work on the role of the Federal Government in providing 

natural catastrophe assistance, I will share some thoughts on reforming NFIP. These broad goals include charging rates that reflect the risk of flooding, limiting costs to taxpayers, encouraging 

broad participation, and encouraging private sector involvement. 

As you know, successfully reforming NFIP will require tradeoffs 

among these often competing goals. For example, currently, nearly 

one in five policyholders does not pay a full risk rate and others 

pay grandfathered rates. Past reform efforts have included phasing 

out these rates. Phasing out of rates not only results in rates that 

reflect the risk of flooding, but also can help minimize costs to the 

taxpayers and could help encourage private sector participation. 

The tradeoff involves potentially losing some policyholders who 

may opt to leave the program, potentially increasing post-disaster 

Federal assistance. However, these challenges can be overcome by 

a variety of options, including targeted subsidies, vouchers, tax 

credits, and mitigation. 

The goal of encouraging broad participation in the program could 

be achieved by increasing targeted outreach to help diversify the 

risk pool. One way for FEMA to do this is to make sure its incentive structure is consistent with its goal of expanding participation 

in low-risk zones, in areas subject to repeated flooding, but have 

low penetration rates, among others. 

Encouraging private markets is one of the more difficult challenges because there is currently no broad-based private market for 

flood insurance for most residential and commercial properties. As 

originally envisioned, NFIP was established as a cooperative arrangement between the Federal Government and the private sector, with both assuming some of the risk. The private sector withdrew from the program because of the lack of flood risk data, maps, 

and relevant building codes. Given that these issues have largely 

been addressed, private sector involvement warrants consideration. 

FEMA has been reaching out to the industry to find ways to involve the private sector in the program, including exploring reinsurance and other ways to share risk. 

Third, beyond reforming the program, FEMA must take steps to 

improve its management of NFIP. In our most recent report, we 

found issues in strategic planning, human capital planning, intraVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00089 Fmt 6601 Sfmt 6601 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
86 

agency collaboration, records management, and information technology. While FEMA continues to make some progress in addressing certain areas, fully addressing these fundamental issues will be 

vital to the long-term operational efficiency and stability of the program. 

Finally, I would like to offer a few other areas that warrant consideration as the reform discussion continues, for example, mitigation programs and ways to make them more effective, including 

clarifying FEMA’s authority to charge higher rates when property 

owners refuse to or do not respond to mitigation offers, or allowing 

FEMA to apply a surcharge when mitigation offers are refused; 

full-risk rates and whether catastrophic losses should be included; 

appropriating for any subsidies until the full-risk rates are fully 

phased in; and authorizing FEMA to map for all present flooding 

risk, including erosion. 

Thank you, Chairman Johnson and Members of the Committee. 

This concludes my oral comments and I am prepared to answer any 

questions at the appropriate time. Thank you. 

Chairman JOHNSON. Thank you. 

Mr. Berginnis. 

STATEMENT OF CHAD BERGINNIS, ASSOCIATE DIRECTOR, 

THE ASSOCIATION OF STATE FLOODPLAIN MANAGERS 

Mr. BERGINNIS. Good morning. Today, our country is facing significant flooding. We have all paid attention to flooding that has occurred on the lower Ohio and Mississippi Rivers earlier this year, 

snow melt concerns in the Dakotas, and now much of the Western 

U.S. is being impacted by a combination of storm events and record 

snowpack. Levees are overtopping and critical infrastructure, including two nuclear power plants, are in this year’s flood’s devastating path. Of the 44 Federal Disaster Declarations in only the 

first 6 months of this year, 31 are at least partially due to flooding. 

Chairman Johnson and distinguished Members of the Committee, I am Chad Berginnis, Associate Director of the Association 

of State Floodplain Managers. Our organization of over 14,000 

members and 30 State chapters include State and local government 

officials, private sector companies, and other interested parties that 

are on the front line each and every day working to reduce flood 

losses. 

While the ASFPM believes that the NFIP has shown success— 

since the inception of the program, it has paid nearly $37 billion 

in claims—compliance with basic land-use standards of the NFIP 

now results in $2 billion in losses avoided every year, with buildings not constructed to NFIP standards having a likelihood of 

flooding five times higher than those built to those standards. 

Flood losses continue to increase, jumping from an average of $6 

billion annually to nearly $10 billion annually in the most recent 

decade. 

To put these data in perspective, it is important to understand 

that the NFIP is one tool and one program among many that have 

an impact on flood losses in this country. The NFIP has shown tangible success and has had a significant impact in reducing flood 

losses, and the program has been in existence for 43 years and 

there is sufficient program knowledge and experience to improve it. 

87 

Our written testimony contains 13 actionable recommendations 

that can be incorporated into an NFIP reform bill. These recommendations focus on a variety of longstanding and known 

issues, including fiscal solvency, hazard identification, hazard mitigation to deal with the built environment, and future challenges, 

such as sea-level rise. I am going to spend the balance of my time 

highlighting these recommendations. 

First, we must have an authorized ongoing national mapping 

program that addresses all the significant flood hazards. Here we 

are in 2011, 43 years into a program that insures $1.4 trillion in 

property, and flood risk rating and hazard identification are based 

on mapping funds largely coming from user fees and, more recently, some dedicated appropriations, yet we do not have a longterm authorized program. 

Second, while land-use and building standards are necessary to 

ensure new development is resilient in the unbuilt environment, we 

must have equally strong mitigation programs to address existing 

risk in the built environment. We think Congress has been on the 

correct path since 1994, when it first recognized this issue and created programs within the NFIP to help existing at-risk structures, 

including repetitive loss properties. These programs will be increasingly important, especially if measures to create a more actuarially 

sound program compel property owners to mitigate their properties 

or face significantly higher flood insurance premiums. The Severe 

Repetitive Loss Program should be reauthorized, or better yet, 

could be reauthorized and combined with other existing flood mitigation programs for efficiency. 

There should be a balanced and rational resolution to the actuarial soundness and policy affordability issue. From a risk communication standpoint, a significant failure of the program is the policy premium bill, when sent to a policy owner, reflecting a cost that 

is significantly less than the true risk. We agree that the program 

needs to be more actuarially sound, and moving certain classes of 

properties to actuarial risk rating makes sense. 

In the last decade, when Congress has debated this issue, concerns have been raised about those who cannot afford the premium 

increase, yet the program subsidy continues to be based on data 

construction of building versus the ability of a property owner to 

pay flood insurance. Recent ideas in this area, such as means-tested voucher systems, have merit and should be explored. 

The purchase of flood insurance in residual flood risk areas 

should be mandatory. Even as this hearing is occurring, flooding is 

happening in areas behind levees and downstream of dams that 

are not mapped as flood hazard zones. Flood risk does not stop at 

the 100-year flood boundary. 

And finally, we think that the debt of the NFIP must be forgiven. 

FEMA has testified that the debt cannot be repaid, even if we hold 

our collective noses to do it. We would argue that the program simply worked as designed in the years when the debt accumulated. 

In closing, I am sad to report that the flood problem this year 

and in the future is going to get worse before it gets better. The 

Western snowpack has only begun to melt, and with hurricane season around the corner, we have a lot to contend with. 

88 

That concludes my oral testimony. I will be happy to take questions. Thank you. 

Chairman JOHNSON. Thank you. 

Mr. Kolton. 

STATEMENT OF ADAM KOLTON, EXECUTIVE DIRECTOR, NATIONAL ADVOCACY CENTER, NATIONAL WILDLIFE FEDERATION, ON BEHALF OF THE SMARTER SAFER COALITION 

Mr. KOLTON. Good morning, Chairman Johnson, Ranking Member Shelby, and Members of the Committee. I am Adam Kolton and 

I direct the National Advocacy Center at the National Wildlife Federation. I am pleased to be here to speak on behalf of our four million members and supporters across the country, 47 State affiliates. 

We commend you for having this series of hearings, especially in 

light of the record-breaking floods in the Mississippi and Missouri 

River basins and elsewhere in the country. 

I am also here today to speak on behalf of the Smarter Safer Coalition, which includes taxpayer and free market groups, insurance 

and reinsurance interests, housing advocacy groups, and other conservation groups. Mr. Chairman, I am sure you can appreciate that 

it is not every day that groups like the National Wildlife Federation finds itself in agreement with Americans for Tax Reform, but 

on this issue, we stand together. 

Our collective view is that the NFIP is broken and in desperate 

need of reform. Smarter Safer has collaborated on a reform proposal, which is included with my written testimony. Let me hit a 

few of the high points of those recommendations. 

First, we need more accurate scientifically valid flood risk maps. 

Accurate maps can help ensure that people understand the risk of 

where they live, that premium rates reflect risk, and to encourage 

risk reduction strategies. Without accurate science-based maps, the 

NFIP will not work and cannot be fixed. Smarter Safer proposes 

that Congress create a Technical Mapping Advisory Council similar 

to the version in the Committee’s 2008 reform legislation. The 

Council would develop new standards for flood insurance maps that 

would incorporate true risk, be graduated, and reflect realities on 

the ground, both manmade and natural. Such a council should include representatives from Federal agencies as well as experts with 

technical expertise in mapping natural and beneficial floodplain 

functions. The work of this Mapping Council can address many of 

the concerns raised by Members of this Committee, including what 

level of protection is afforded by existing structures, levees that are 

in place, the extent to which upstream issues are exacerbating 

downstream flooding, and ensuring that maps are scientifically 

valid. 

Second, rates must reflect actual risk. Currently, the NFIP insurance rates do not reflect actual risk of flood damage, effectively 

subsidizing floodplain development and encouraging properties to 

be located in harm’s way. Smarter Safer encourages the Committee 

to move all rates to actuarial within a 5-year period. The Committee made a good start at this in the 2008 bill. However, in light 

of recent conditions and the exploding deficit, we urge the Committee to move the entire program, including prefarm properties, to 

89 

risk-based rates. Right now, million-dollar homes receive the same 

subsidies as properties valued at $100,000. That makes no sense. 

For those truly unable to afford rate increases, Smarter Safer 

does support means-tested subsidies, but that are not linked to the 

rate structure. 

Third, mitigation and risk reduction must be a central NFIP priority. It is imperative that NFIP finally fulfill one of its original 

stated goals, to encourage the mitigation of flood risks. This can be 

done by strengthening existing FEMA grant programs and improving incentives in the community rating system which rewards communities with lower insurance premiums in return for taking concrete steps to reduce flood risk. In addition, Smarter Safer believes 

FEMA should be encouraged to work directly with individuals for 

mitigation where communities lack the capacity to do so, and 

FEMA should prioritize Severe Repetitive Loss properties for 

buyout. 

Now, let me emphasize an important point. Every dollar spent on mitigation yields $4 in avoided—a return of $4 in avoided losses. 

These programs can pay for themselves, as CBO has noted. 

Now, two points of particular concern to the National Wildlife 

Federation. First, it is important to recognize that these are not 

normal times. The climate is changing and we are experiencing 

more intense storms, sea-level rise, and extreme flooding. According to NOAA, big storms seen typically once every 20 years will 

occur every 4 to 6 years by the end of this century. We are already 

seeing an upsurge in the number of heavy rainstorms and many 

other impacts. 

As this Committee looks to reform the NFIP, it is important that 

we look to the future and not in the rear-view mirror. We need to 

prepare America, and FEMA needs to plan for and factor in the increased risk the way private insurers and reinsurers already are. 

Second, nature’s infrastructure, healthy intact wetlands and 

floodplains, is the best flood protection money can buy. By working 

to reconnect rivers with their floodplains where possible and discouraging development where intact floodplains exist, the NFIP, together with other Federal, State, and local programs, can provide 

some of the best possible flood protection. What is more, healthy 

floodplains sustain countless fish and wildlife species, improve 

water quality, and support hunting, fishing, and outdoor recreation 

opportunities. In short, any meaningful reform effort must ensure 

that the natural beneficial functions of floodplains are recognized 

and that building, dredging, filling, and walling off floodplains is 

prevented to the maximum extent possible. 

This is an historic moment. We are hopeful that the Committee 

can, on a strong bipartisan basis, move forward a comprehensive 

NFIP reform bill that better protects people, communities, and the 

environment all across the country. Thank you. 

Chairman JOHNSON. Thank you. 

Mr. Rutenberg. 

STATEMENT OF BARRY RUTENBERG, FIRST VICE CHAIRMAN 

OF THE BOARD, NATIONAL ASSOCIATION OF HOME BUILDERS 

Mr. RUTENBERG. Chairman Johnson, Ranking Member Shelby, 

and Members of the Committee, thank you for the opportunity to 

90 

testify today. My name is Barry Rutenberg and I am a home builder from Gainesville, Florida, and First Vice Chairman of the Board 

for the National Association of Home Builders. 

NAHB commends the Committee for addressing reform of the 

NFIP Program. NAHB wants to make clear that we strongly support a 5-year program reauthorization. Builders see this as the best 

way to provide a steady foundation on which to build program revisions and ensure the NFIP is efficient and effective. 

For several years, the NFIP’s short-term extensions have created 

a high level of uncertainty in the program, causing severe problems 

in an already troubled housing market. During these periods, there 

were delays or canceled closings due to the inability to get flood insurance for mortgages. Often, new home construction was shut 

down or postponed due to the lack of flood insurance approval, adding unneeded delays and job losses. NAHB believes reauthorization 

will ensure the Nation’s real estate markets operate smoothly and 

without delay. 

The availability and affordability of flood insurance gives local 

governments the ability and flexibility to plan and zone their communities, including floodplains. These zoning standards allow 

homeowners the opportunity to live in a home and location of their 

choice, even when their home lies in or near a floodplain. And longtime landowners and builders depend on the NFIP to be annually 

predictable, universally available, and fiscally viable. 

The NFIP creates a strong partnership with States and localities 

by requiring them to enact and enforce floodplain management 

measures, including building requirements designed to ensure occupant safety and reduce future flood damage. This partnership depends upon the availability of up-to-date flood maps and a financially stable Federal component and allows local communities to direct development to the needs of the constituents and consumers. 

Unfortunately, the losses and devastation suffered with the 2004 

and 2005 hurricanes has severely taxed and threatened the solvency of the NFIP. While these tragedies have exposed shortcomings in the NFIP, we believe that reforms to the program must 

not be an overreaction to the historic circumstances. The NFIP is 

not just about flood insurance premiums and payouts. It is a broad 

program that guides future development and mitigates against future loss. A financially stable NFIP is in all of our interests, and 

Congress’s efforts have the potential to greatly impact housing affordability and the ability of local communities to control their 

growth and development options. 

A key tool in the NFIP’s implementation, the rate maps, or 

FIRMs, have been recognized by Congress to be inaccurate and out 

of date. FEMA has been successful in digitizing most of the FIRMs, 

yet many of the maps are not using updated data, and because of 

this, large discrepancies remain. We believe continued Congressional oversight is necessary. We commend the House bill’s efforts 

to create the Technical Mapping Advisory Council and hope to see 

it in the law. 

Beyond fixing the maps, NAHB also supports increasing coverage 

limits to better reflect replacement costs and offering various insurance options for consumers and even a possible minimum deductible increase. The NFIP must continue to allow State and local govVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00094 Fmt 6601 Sfmt 6601 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
91 

ernments, not the Federal Government, to dictate local land-use 

policies and make decisions on how private property may be used. 

FEMA must also better coordinate its activities with other Federal agencies who have oversight of other Federal programs. In my 

written statement, I discuss FEMA’s recent requirements of ESA 

compliance for certain property owners. 

Additionally, before any reforms are enacted to change the numbers, location, or type of structures required to be covered by flood 

insurance, FEMA should first demonstrate that the resulting impacts on property owners, communities, and local land use are 

more than offset by the increased premiums generated and the 

hazard mitigation steps taken. NAHB urges Congress to ensure 

construction requirements remain tied to the 100-year standard, as 

in the current House bill. Should Congress change the Special 

Flood Hazard Area from a 100-year standard to a 500-year standard, it would require more homeowners to purchase flood insurance 

and could impose mandatory construction requirements that increase cost, impact land use, and resale values. It could seriously 

diminish the value of long-time landowners in the agricultural field 

and others in their options. This would also affect FEMA by requiring modification to ordinances and policies, all at a time when 

FEMA has admitted its lack of resources to provide current services. 

I thank you for today, and NAHB looks forward to working with 

the Committee on this valuable program. 

Chairman JOHNSON. Thank you. 

Mr. Plunkett. 

STATEMENT OF TRAVIS B. PLUNKETT, LEGISLATIVE 

DIRECTOR, CONSUMER FEDERATION OF AMERICA 

Mr. PLUNKETT. Good morning, Chairman Johnson, Ranking 

Member Shelby, and Members of the Committee. I appreciate the 

invitation to appear before you today to discuss how to reform and 

reauthorize the National Flood Insurance Program. I am Travis 

Plunkett. I am the Legislative Director at the Consumer Federation of America. 

The NFIP is in very deep trouble. Its mission is crucial, as we 

have seen recently by the devastating floods in the South and the 

Midwest, but it has been struggling financially for years and is failing to achieve an essential goal of this mission, and that is to protect home and business owners by achieving safe construction in 

the floodplains and by ensuring that flood insurance is actuarially 

priced to account for the full risk of the coverage that is offered. 

To fix the long-term structural flaws that are harming consumers 

and taxpayers, we recommend, first, that you use legislation reported out of the Committee on a bipartisan basis in 2007 as the 

starting point for improving and extending the program for no 

more than 2 years beyond its expiration this September. 

Second, we strongly suggest requiring the completion of a study 

within 18 months that would examine more far-reaching measures 

to either permanently correct the deep-seated flaws in the NFIP, 

such as getting private insurers to assume substantial flood risk, 

or to phaseout the program in a responsible manner and create effective, affordable alternatives. 

92 

The third step in this process would be to enact legislation that 

addresses these broader recommendations. 

Why would a consumer group support reforms of the NFIP that 

will likely raise rates for some consumers? The answer is that 

underpricing of flood risk and poor management of the NFIP by 

FEMA subsidizes dangerous construction, threatens the safety and 

property of home and business owners, and often benefits those 

who need the assistance the least, affluent homeowners and builders. 

Look at what happened in Hancock County, Mississippi, where 

Hurricane Katrina hit ground. The average flood map, according to 

Bob Hunter, our Insurance Director’s study, of the 76 flood maps 

that existed in that county, the average was 20 years old and ten 

feet too low in measuring the 100-year flood elevation. Many home 

and business owners were misled into building unwisely, or into 

not buying needed insurance, exposing the deeply flawed program’s 

weaknesses in the most tragic way. 

The current patchwork of indiscriminate, counterproductive, and 

often hidden subsidies drains the NFIP of resources and should be 

phased out. Congress should use the money that it saves by eliminating these general subsidies to target aid to low- and moderateincome home and business owners who have difficulty affording 

flood insurance. 

Of particular concern to us right now is FEMA’s management of 

the ‘‘Write Your Own’’ Program, in which private insurers offer 

flood policies but do not underwrite flood risk. This program overcharges taxpayers and is riddled with conflicts of interest. GAO 

studies have repeatedly demonstrated that these private insurers 

overcharge for administrative and claims settlement duties and 

that FEMA has mismanaged the program. An urgent task is to 

quickly fix the Write Your Own Program. It will reduce costs. It 

will allow the program to have more money for other, more important tasks, and it will benefit policyholders. 

The time has come for Congress to consider either far-reaching, 

long-term changes to permanently fix problems in the program or 

to end the program. We would like to see a very far-reaching study 

on a number of important questions. How do you encourage private 

insurers to take some or all of the existing flood risk? How do you 

end broad subsidies that disproportionately benefit the affluent? 

How do you provide low- and moderate-income policyholders more 

targeted assistance and increase the number of people buying flood 

insurance in flood-prone areas? How do you improve the flood maps 

and the construction in local communities? 

While GAO or other bodies are studying these long-term changes, 

we would urge the Committee to reauthorize the NFIP for no more 

than 2 years and take initial steps to reform it along the lines of 

the Senate Flood Insurance Reform and Modernization Act of 2007. 

The bill takes several very important steps to protect consumers 

and taxpayers, to increase market penetration of flood insurance, 

and to eliminate unjustified subsidies of the flood program. Thank 

you very much. 

Chairman JOHNSON. Thank you. 

Mr. Richardson. 

93 

STATEMENT OF SCOTT H. RICHARDSON, POLICY ADVISOR, 

THE HEARTLAND INSTITUTE, AND PARTNER, RICHARDSON 

AND RITCHIE CONSULTING 

Mr. RICHARDSON. Yes. Thank you, Chairman Johnson, Ranking 

Member Shelby—— 

Chairman JOHNSON. Turn on your microphone. 

Mr. RICHARDSON. I am sorry. I ought to know how to do that 

after 15 years in the legislature. 

[Laughter.] 

Mr. RICHARDSON. Mr. Chairman, Ranking Member Shelby, and 

other Members of the Committee, thank you very much for this opportunity. I have written testimony, which I am going to digress 

from a little because what I am speaking to you about today is a 

more rifle shot part of this process that you are dealing with. 

But I also want to give two general statements as I talk about 

this process today, two thoughts that I think the members should 

always think about whenever you are dealing with insurance, and 

that is you must vote for whatever makes insurance more predictable and you must think to vote to what makes insurance more 

consistently available, and that is a huge issue with the flood program because it is inherently unpredictable, and it has been for the 

last 30 years, traditionally inconsistently available. So as you look 

forward in this process and the amendments that you consider over 

the next weeks and months, I would ask you to just take those two 

litmus tests and remember that every time you look at it. 

I am here today to talk about primarily Senator Wicker’s amendment, which I very much appreciated. It is a subject I have been 

working on for several years, the problem of what we call indeterminate loss and how it affects the Flood Insurance Program, consumers, companies, and others, and I want to speak briefly and 

just tell you that I have been an insurance agent and broker for 

almost 30 years. I have been a legislator. I have been the Director 

of the Department of Insurance, so I have sort of a unique look at 

all of this from all sides and have been through hurricanes, experienced many of my customers in Hurricane Hugo and others. So I 

have seen nothing but concrete slabs where there were beautiful 

homes. I have been there on the ground and I know what can happen here. 

But the indeterminate loss problem is that which when you have 

a huge storm and you basically have no evidence to show you what 

was wind and what was water, you create a big problem, not only 

for the Flood Insurance Program, but for the whole insurance system. Insurance companies, it becomes unpredictable for them. They 

are selling a policy that legally has no flood insurance in it. You 

have State wind pools who have regulations that have very specific 

things that are in their policies and are not in their policies. You 

have a National Flood Insurance Program involved that covers only 

flood. And you have to mold these things together. So that blimpeye view, I think, is important, and as the other panel members 

have mentioned many other aspects that become important to the 

flood, the mapping, the rating, and all of these things. 

But insurance, as we do this, the National Flood Insurance is a 

very, very important undergirding of the whole business system 

that we have in this country, from my point, especially on the 

94 

coast. I mean, insurance itself is the real provider for why we can 

do things in a big way in this country that we could not do otherwise. Otherwise, if you had to pay cash for your car, for your house, 

for your office building, there would be very little done in this country. So I think we all have to, as we work toward this, get to my 

premise of it must be predictable and it must be consistently available. 

Now, going to the specific point, as I said, about indeterminate 

loss, this is a problem whereby we would create a system that we 

can—we have the scientific data to do so. We would create formulas in the special loss allocation system where when you do not 

have the evidence to do it, you will have extrinsic evidence. You 

will have scientific formularies that you can put into a statistical 

model that will tell you how to predict the loss. I think this is a 

huge deal. 

I know in Mississippi, many people in the reports said, well, it 

was only 2 percent of the things. Well, it might be 2 percent of the 

total of the whole Katrina problem, for instance, but it could be 100 

percent of the losses in a six-, eight-, ten-mile area. So be careful 

about using these percentages. 

But this is a very important component. It makes it more predictable. It would make the rates, in my opinion, lower for the insurance companies because they would not have to deal with the 

unpredictability of being forced to cover flood when they did not 

offer it. It would make the Flood Insurance Program more predictable, ratable. It would encourage participation in the Flood Program. And, of course, with the help of the State FAIR plans and 

wind pools, that would all work together. 

Now, there are others—I will take quickly—there are other 

things that we can talk about, all-in plans. Those have some things 

that have to be dealt with in trying to bring the private sector into 

that and make it available that they would be able to offer that, 

and I think there are some problems with that. 

But I see that I am out of time, and so I will respectfully stop. 

I have a lot of things I could say about and would be glad to take 

questions. Thank you so much. 

Chairman JOHNSON. Thank you. 

Ms. Brown, you have mentioned a number of challenges facing 

the Flood Insurance Program. Would you please give us your recommendations for the most important steps necessary to make the 

program financially sound and remove it from GAO’s High-Risk 

List? 

Ms. BROWN. The efforts that it would take to get NFIP off the 

High-Risk List would have to come from Congress. They are the 

structural issues that need to be addressed. And then, also, there 

are a number of management challenges that FEMA would also 

have to address to get off the list. 

So in terms—I will start with FEMA. In terms of getting off the 

list, there are a number of criteria that we use to take a program 

or an agency off. We would look for commitment of management. 

We have started to see that commitment. We also would need to 

see identified action plans, so there would have to be an identification of root causes of the management challenges that they face. 

Then they would have to identify effective actionable actions that 

95 

they would have to take. And part of that would have to do with 

addressing the many open recommendations that GAO has. I 

think—I did a quick tally this morning, and it is somewhere 

around 49 open recommendations that would need to be addressed. 

Chairman JOHNSON. Ms. Brown and Mr. Plunkett Ms. Brown, 

some have proposed a delay or phasing approach for setting insurance rates for homeowners in new high-risk areas. This clearly reduces the impact on homeowners, but are there any downsides to 

such an approach? What might the impact be on the fund and the 

taxpayer? Are there any potential unintended consequences for 

homeowners’ receptions of risk? 

Ms. BROWN. I think the same challenges that having subsidized 

rates also apply to grandfathered rates for those that are remapped 

into higher-risk areas. It does not make very clear that people are 

living in harm’s way, is the biggest challenge, and that is one of 

the reasons that we cite in terms of making sure that people—that 

rates are moved to a more full-risk rate basis. The same goes for 

property owners that are remapped into higher-risk areas. 

We did work on specifically the impact of the grandfather rates 

on NFIP and we found that because FEMA was not tracking the 

number of properties that were actually grandfathered, they were 

not able to quantify the impact of those grandfathered rates on the 

program. So that is something that they are now beginning to track 

those rates, but it has to be factored into their calculation and their 

rate-setting process. 

Mr. PLUNKETT. Senator, there are several downsides. One, unsafe building will continue because people will not understand the 

flood risk that they are dealing with, or they will not purchase insurance if they are not mandated to do so. 

Second, the indiscriminate and disproportional subsidies, often to 

more affluent builders and homeowners, will continue. I would say 

those are the two top. 

Chairman JOHNSON. Mr. Kolton, Mr. Berginnis Mr. Kolton, in 

your testimony, you mentioned that you would like FEMA’s maps 

to be more graduated rather than the current system of showing 

properties as simply in or out of the floodplain in order to give people better understanding of the risks. Administrator Fugate also 

mentioned this issue in his testimony before the Committee. When 

do you think FEMA will be able to provide this level of detail in 

its maps? What resources do you think they need in order to 

achieve this goal? 

Mr. KOLTON. Thank you, Mr. Chairman. This is important that 

we look at the varying degrees of risk much in the way the private 

insurance market would for differences between, you know, like 10- 

, a 100-, a 75-year, 500-year floodplain. We ought to see those on 

the map. There are different degrees of risk and people need to understand what those risks are. In addition, the rates ought to reflect those risks. It is too simplistic to have an ‘‘in or out’’ 100-year 

floodplain approach, a 1-in-100 chance of flooding. 

In terms of resources, we believe that the mapping proposal, the 

technical mapping proposal is a good one and will provide muchneeded assistance and bring expertise to assist FEMA as it moves 

forward with the process. 

96 

Mr. BERGINNIS. In terms of the graduated risk issue, I think it 

is important to understand, at least in utility, the Flood Insurance 

Rate Maps that FEMA produces are the Nation’s flood maps, yet 

we have flood hazard areas, such as dam failure inundation maps, 

or levee failure overtopping maps, other flood risk frequencies, such 

as the 500-year flood. A lot of those are not shown on those particular maps, yet those represent, those areas represent an area of 

inherently higher flood risk and inherently catastrophic flood risk 

should those defenses fail. 

And we also have, I think, today, there is at least a partial inventory of some of that mapping that is available. They just are not 

put on the Flood Insurance Rate Maps. Now, FEMA’s new Risk 

Map Program, one of the things I think the new program is going 

to do is it provides what are called nonregulatory products, being 

the Flood Risk Map and Flood Risk Report, and at least the Flood 

Risk Map, in theory, should have the ability to show some of these 

other areas in terms of doing that. 

From a resource standpoint, one of the things that we think 

FEMA should be tasked with doing is really looking at the longterm programmatic cost of what flood mapping should be. There 

was a shift in philosophy and products developed from map modernization to Risk Map, and in doing so, the Association of State 

Floodplain Managers thinks that the data being provided under 

Risk Map is good data, but it does change the cost calculus that 

would go into that. 

So we think that there should be a long-term estimate of the 

mapping cost. But I will say that we are very, very concerned about 

the significant reduction in mapping budget that has occurred this 

year, right as we are experiencing one of the most devastating flood 

years in recent times. 

Chairman JOHNSON. Ms. Brown, do you have any comment? 

Ms. BROWN. No. 

Chairman JOHNSON. Senator Shelby. 

Senator SHELBY. Thank you. Mr. Chairman, I ask that my opening statement be made part of the record. 

Mr. Plunkett, you have been here many times on this same issue. 

I remember in 2005, 2007, you worked on this. Something that has 

been a problem for me always has been why should the American 

taxpayers subsidize these policies, or risk, for people who, a lot of 

them have second, third homes, knowing that they are in a risk 

area. Why should the other taxpayers pay for that? 

Mr. PLUNKETT. Senator, there is clearly an equity issue here. 

Senator SHELBY. Mm-hmm. 

Mr. PLUNKETT. Obviously, there are people in floodplains who 

are going to have difficult affording—— 

Senator SHELBY. We understand. 

Mr. PLUNKETT. ——flood insurance, especially if it is priced the 

correct way, if it is actuarially priced. But to have others who can 

afford it subsidized actually drains resources that could be used to 

help the people who need it the most. 

Senator SHELBY. In the Flood Insurance Program as we currently 

have, and we keep kicking the can down the road, it is basically, 

one, broken, and it is very flawed, is it not? 

97 

Mr. PLUNKETT. We think the program is extremely flawed in a 

number of ways. It is not only essentially bankrupt, but it subsidizes unsafe construction. That puts people in harm’s way. And 

there is very poor administration by FEMA of the program. 

Senator SHELBY. Ms. Brown, why do only 50 percent of the property owners who are required to have flood insurance actually— 

why do they not have a policy? 

Ms. BROWN. This is an outstanding and ongoing issue. GAO last 

looked closely at this issue about 9 years ago and found that, one, 

determining compliance with the flood insurance requirement is 

difficult to calculate. If you talk to bank regulators, we found that 

the bank regulators will generally do some limited sampling, determine it is not a compliance issue. If you talk to FEMA and other 

stakeholders, they look at the number of policies in force in Special 

Flood Hazard Areas compared to the number of new and existing 

mortgages and find that compliance is a problem. So I think it really is an issue of enforcing the requirement that currently exists, 

which is important to do. 

Senator SHELBY. All right. So, basically, that begs the question 

whether FEMA and the bank regulators are doing their job. If they 

were doing their job, they would not have a 50 percent insurance 

program. 

Mr. PLUNKETT. Senator, part of the issue of doing their job is the 

mapping. 

Senator SHELBY. I know. 

Mr. PLUNKETT. If they were doing proper mapping, then people 

would know they were in harm’s way. 

Senator SHELBY. What happened to the mapping program that 

was going to go on just a few years ago and everybody was talking 

about? They were going to map to manage risk and tell people 

what floodplain they were in, the real risk that they assumed 

where they live. 

Mr. PLUNKETT. It is a very good question. Administrator Fugate, 

when he testified before you earlier this month, said that in 2003, 

I believe, it was 70 percent of the maps were more than 10 years 

old, but he did not provide information, current information as to 

how many of the maps are too old right now. 

Senator SHELBY. Is part of the problem, Mr. Plunkett, dealing 

with people who would buy insurance or could afford insurance, is 

part of it the lack of information that they are really in a floodplain 

area or marginal area or what? Is that part of the problem, and 

does that go to mapping itself? 

Mr. PLUNKETT. Absolutely, Senator. It goes directly to mapping, 

and we saw the tragic consequences of that, especially during Hurricane Katrina. 

Senator SHELBY. Mr. Rutenberg, in your testimony, you state 

that homeowners living in residual risk areas should not be required to purchase flood insurance. That is a disturbing statement 

to me. You state that requiring communities with a flood control 

structure to first purchase flood insurance raises, quote, ‘‘real and 

powerful equity and fairness issues.’’ This year has proven that 

even those communities with a flood control structure are not immune from flooding. My question is, if communities with flood control structures are not required to have flood insurance, does this 

98 

leave them vulnerable to losses caused by floods like we have seen 

this year? 

Mr. RUTENBERG. Senator Shelby, you raise an interesting point, 

but my personal experience with the Flood Insurance Program and 

floodplains in Florida has been that the newer homes and newer 

developments are being done with increasingly more stringent 

stormwater management systems. In my locality, we have to have 

all of our stormwater structures be prepared for an 18-inch storm 

event, which is 18 inches more than the existing one. So I think 

that we have questions as to how to integrate into existing as well 

as the new developments. 

Senator SHELBY. Mr. Kolton, do you agree with him on that equity issue? Are there any issues of fairness and equity in not requiring these communities to have flood insurance? 

Mr. KOLTON. Senator Shelby, we think it is desperately critical 

that people have flood insurance—— 

Senator SHELBY. Absolutely. 

Mr. KOLTON. ——that are at risk. If they do not have flood insurance and a catastrophic event happens, they are not going to be 

made whole by the existing relief programs of the Federal Government. They will not be insured. So that is fundamental. 

Second, you can turn on your evening news and see levees being 

overtopped in North Dakota. We do not need to tell this Committee 

that just being behind a flood control structure does not mean you 

are protected. There are thousands of flood control structures 

across the country that are not providing adequate flood protection. 

People need flood insurance behind these structures. 

Senator SHELBY. Quickly, Mr. Richardson, wind versus water debate, very, very important. We do not know—we have seen some 

studies that say if we include wind damage in all this, it will cost 

a heck of a lot of money. In your testimony, you wrote that the real 

issue with slab claims is that those contesting the loss allegation 

either did not have flood insurance or did not have adequate flood 

insurance. As a result, property owners sought higher payments 

from their wind insurance policies to cover the flood damage. If the 

real issue is inadequate flood insurance, would the standard loss 

allocation method that you propose actually change the outcome for 

most policyholders, and what would it do to the insurance fund, the 

actuarial soundness of a fund, if we included wind? 

Mr. RICHARDSON. Well, we are talking about the whole ratings 

system, Senator. 

Senator SHELBY. Yes. 

Mr. RICHARDSON. What you are trying to do—I get back to what 

I stated in the beginning—is creating predictability. One of the 

things that has been mentioned here several times by panel members is that the rates become actuarially sound. I would be very 

careful with that if I were you, because if you think you have ever 

gotten 10,000 phone calls about a particular issue, you start charging actuarially sound rates right out of the chute, that would be 

problematic. I think it is a worthy goal. You need to get to that. 

But, frankly—— 

Senator SHELBY. Now, if you are not going to charge for the risk, 

who is going to be charged for the risk? 

Mr. RICHARDSON. No, I think you should—— 

99 

Senator SHELBY. You are not talking about charging the taxpayer—— 

Mr. RICHARDSON. No, sir, I am not. I think that is where you 

should go. But my point is, you have had a system for 40 years 

that was not actuarially sound. You can create actuarially sound 

rates for new construction, because then someone can make the 

choice. Do they want to pay it or not. But we have millions of 

homes right now that we have to figure out, what do we do? How 

much can they stand? Is it a 5-year phase-in? Ten-year phase-in? 

But the big issue is, if we make it actuarially sound, you will not 

need the NFIP. 

Senator SHELBY. Absolutely. 

Mr. RICHARDSON. You could basically phase this thing out by 

making—— 

Senator SHELBY. That would be my goal. 

Mr. RICHARDSON. Exactly. Now, your question, well, that is not 

a bad goal, but you just need to be—— 

Senator SHELBY. I thought it would be a worthy goal, not a bad 

goal. 

Mr. RICHARDSON. Well, it would be a worthy goal, absolutely. But 

on the indeterminate loss, one of the issues that we had not talked 

about is the value of the homes, because the flood insurance only 

provides certain limits, as you know. So the higher the values get, 

the more complicated the amount of insurance is, and whether it 

is flood, whether it is wind, and so forth. 

One panelist made the statement that we should make people 

purchase flood insurance in those zones. I totally agree with that. 

Either you buy it or you get no Federal assistance. Until the Federal Government quits giving people money for being irresponsible, 

then you are going to have a very low penetration of people that 

are going to buy it because there is no penalty for them. If they 

have no penalty and a Katrina hits and they get paid anyway, 

whether they have the policy or not. 

But in these systems, we have to have a melding of the Flood Insurance Program and the all other perils that are going to come by 

your carriers, and if you have a system that very specifically states 

who pays what—to give an example to you, let us say you had our 

Standard Loss Allocation System, and for a particular area, it said, 

OK, this was 60 percent wind and 40 percent flood. If somebody did 

not have a flood insurance policy, they have got a problem with 40 

percent of their claim. The insurance company is going to hand 

them the 60 percent of the money that was their problem. If they 

chose not to buy flood insurance, then they have got a 40 percent 

problem, as it should be. People will start saying, ‘‘I have got to 

buy flood insurance or I am going to have a problem.’’ That is how 

it takes care of itself. There are a lot of incentives in here to have 

a system that very predictably creates it. 

The other problem you have got, Senator, in your State, you had 

issues where you had—you could easily have 200 or 300 homes and 

have 200 or 300 totally different outcomes on what the claim was. 

Now, I understand some houses are frame, some houses are brick 

and mortar and so forth. Some houses are flat on the ground, some 

houses are higher. All that should be taken into effect. But let us 

assume we had 100 houses. They were all flat on the ground. They 

100 

were all frame. They were all 25 years old, et cetera, et cetera. Every one of those claims, theoretically, should be settled exactly 

the same. 

Chairman JOHNSON. Senator Reed. 

Senator SHELBY. Thank you. 

Senator REED. Well, thank you very much, Mr. Chairman, and 

thank you, the witnesses here. Great testimony. 

One of the issues we all seem to focus on is the flood mapping, 

which I would like to probe a bit further, and I want to thank Mr. 

Kolton for mentioning the Technical Mapping Advisory Council and 

the National Mapping Program. I think that was a—I helped contribute to that along with many of my colleagues here in terms of 

the 2008 legislation and I think it would be very useful if we could 

move that. 

But Mr. Berginnis, as I understand it, there is a choice of doing 

a detailed study or the approximate study, and as GAO has pointed 

out, the detailed study, as the name implies, is much more accurate, much more effective, and uses more reliable data. So who, 

from your perspective, who determines the type of study which 

should be undertaken to update a map? 

Mr. BERGINNIS. That study need is first determined at the, really 

at the State and local level. What happens in the mapping process 

is that FEMA first solicits from States and communities where 

those mapping needs are. For example, there could be an unincorporated little neighborhood area in a rural community that there 

is an acute need right there to have detailed mapping, but maybe 

on the rest of the water course, there is not. Then based on all of 

those mapping needs being evaluated at one time, you know, the 

reality is there is a mapping budget that has to be met, and I have 

not heard a situation yet where a mapping budget has been adequate enough to cover those. 

Senator REED. And just—— 

Mr. BERGINNIS. Sure. 

Senator REED. ——the mapping budget is the local budget—— 

Mr. BERGINNIS. It is—— 

Senator REED. ——or the FEMA budget or—— 

Mr. BERGINNIS. It would be the FEMA budget on a per study 

basis in doing it. And so from there, then priorities are made and 

that do take into account State and local priorities, but also FEMA, 

I know, has some formulas in terms of designating mapping budgets that includes risk, the overall community risk and watershed 

risk and doing those kinds of things. 

Senator REED. But it seems to me that because, as I understand 

it, they are—using approximate data is a lot cheaper than using a 

detailed study and there are budget pressures so that we have 

built in a disincentive to do some of the most specific detailed more 

accurate mapping. Is that—— 

Mr. BERGINNIS. The—I am not sure it is as much of a disincentive as it is just a recognition of the realities of the mapping budgets. Again, the disparity between the need and the amount of 

money available is significant. 

Senator REED. Right, but let me just pursue this one more, and 

that is, by and large, can you comment on—generally, FEMA is 

using, I would guess, approximations, if you look at their activities, 

101 

rather than detailed mapping? Is that your impression, or is 

that—— 

Mr. BERGINNIS. I think they are using a combination of both. 

Senator REED. OK. 

Mr. BERGINNIS. The one thing I do want to mention about approximations—— 

Senator REED. Yes? 

Mr. BERGINNIS. ——that are interesting, I remember when I first 

started as a State official working with the flood maps in the early 

1990s, the approximate maps were literally dots on a map. I mean, 

they were—and when I heard stories about how they were created, 

it really was not terribly technically sound. 

Today’s approximate mapping, most of the mapping, if not all of 

it, actually has engineering models behind it now. So there are efficiencies even in the approximate mapping that make it better as 

a product than before. 

Senator REED. I know Mr. Rutenberg wants to make a comment, 

but just a final point is that the new maps, are they—how effective 

are they incorporating all the different data sources that have come 

online—storm surge, coastal inundation, information from the 

Corps of Engineers, NOAA information? Is that being effectively 

factored into these maps or is that sort of still outside and not 

being used? 

Mr. BERGINNIS. Well, the process is good where it allows consideration of all those things, but actually incorporating all of those 

data into the maps is something that is not being done nearly as 

much as it should, and again, I think it goes back to the budget 

and cost of doing it. 

Senator REED. Yes. But from your perspective—— 

Mr. BERGINNIS. Sure. 

Senator REED. ——incorporating that data would be helpful, useful, and provide more accurate—— 

Mr. BERGINNIS. Oh, absolutely. Absolutely. 

Senator REED. And then in my final few moments, Mr. 

Rutenberg, you had a comment. I do not want to cut you off. 

Mr. RUTENBERG. Thank you, Senator Reed. I know my place. I 

am glad to wait. 

Senator REED. Please. 

Mr. RUTENBERG. One of the things that strikes me is that there 

is a lot of locally generated information which is not being used in 

deriving the FEMA maps, and some of it is very good and some of 

it is not, but you could have criteria to examine it. I know that 

when I did a development, I had to do—my engineer’s stormwater 

had to be checked by the city. It had to be checked by the county. 

We even hired an engineer. We paid the neighbor’s engineer to review it. And this information is not included in the FEMA maps, 

as if those stormwater areas are not there. So some areas are good, 

some are not, but there is a potential savings for the Federal Government to get better maps quicker by utilizing local information 

that meets a certain standard. Thank you. 

Senator REED. Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Vitter. 

Senator VITTER. Thank you, Mr. Chairman, very much, and 

thanks to all of our witnesses. 

102 

My top goal in this work is to produce a full long-term reauthorization of the program. That is very basic, but I want to sort of step 

back to that basic issue. My observation experience, particularly 

coming from Louisiana, where we have and need a lot of this insurance, is that the stop-gap measures we have been passing, for instance, through last year, have been really detrimental to closings 

and to helping get the market going and get out of this recession, 

and that was extremely counterproductive last year, particularly 

when we had some gaps in the program, and I wonder if anyone 

like Mr. Rutenberg, who is certainly familiar with the real estate 

sector, could comment on that. 

Mr. RUTENBERG. The gaps you are referring to are gaps in the 

program. I had a personal experience last year where we were 

building a home and we closed the construction on it in September 

and we were not supposed to have to do flood insurance and it was 

the changes. We then had to do flood insurance and then you have 

to pour the slab, do your survey, and then you have to go 30 days— 

60 days through a process which is including going back to the 

county, getting it done, send it in, and so it was, like, 60, 90 days 

late getting the first money out of the house. 

There are a lot of builders who have had to shut down construction. There are a lot of homeowners who could not close on loans, 

homeowners who cannot convey title. The gaps are very counterproductive, and the Realtors have mentioned it, as well. 

Senator VITTER. Thank you. Yes, sir? 

Mr. RICHARDSON. Yes, Senator. I think you are right on point, 

and I would go back—I hate to sound like a broken record, but if 

you make the program 5 years, if you implement the science that 

we now have available to us that we did not have available to us 

in the 1960s when a lot of these maps and things were done, you 

are going to get more and more players as the rates become closer 

to being actuarially sound. You will have the private industry enter 

this market. Insurance companies will insure anything that is predictable and is close to or actuarially sound. They will do it. 

Senator VITTER. OK. 

Mr. RICHARDSON. And so that is what you need. 

Senator VITTER. I do not want to cut you off, but I need to get 

to other questions—— 

Mr. RICHARDSON. That is what you need. 

Senator VITTER. ——but I appreciate it. So let me just underscore the point. We are coming out of a serious recession. We need 

every bit of growth we can get. We need every closing in sight. And 

so for us to work against that with short-term stop-gap measures, 

including lapses in the program, is just crazy. So I hope, whatever 

the nature of the bill, and I certainly have thoughts about that, we 

get a full long-term reauthorization. 

Second, I want to address this issue, I think sometimes there is 

this assumption that any expansion of limits or expansion of coverage under the program is directly counter to making the program 

fiscally sound, actuarially sound, and I do not think that needs to 

be the case. I think the devil is in the details. In particular, Ms. 

Brown, in your written testimony, you say that, quote, ‘‘Increasing 

participation in NFIP and thus the size of the risk pool would help 

ensure that losses from flood damage did not become the responsiVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00106 Fmt 6601 Sfmt 6601 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
103 

bility of the taxpayer.’’ Can we consider new aspects of the program, including higher coverage limits to account for inflation—we 

have not changed that since 1994—in a way, in an actuarially 

sound way that actually builds on that soundness and does not diminish it? 

Ms. BROWN. Yes. We have looked at the issue of coverage limits 

and we found that, on average, most policies are well under the 

limit, and that is driven by a variety of factors. There are many 

properties that are under the $250,000 limit, and for properties 

that are well over the $250,000 limit, million-dollar homes, for example, there is often available excess flood insurance coverage that 

the private sector is willing to provide. So the issue of whether 

changing the limit will destabilize the program, it is not a clearcut answer for that particular question. 

Senator VITTER. Mr. Rutenberg, do you have any thoughts about 

this? 

Mr. RUTENBERG. No. 

Senator VITTER. OK. 

Mr. PLUNKETT. Senator, on that question, the Consumer Federation would agree that expanding coverage does not have to be at 

odds as long as it is actuarially—at odds with the financial stability 

of the program as long as the coverage is offered in an actuarially 

sound way. But you have got to eliminate some of the subsidies 

that occur, some of which are hidden, such as FEMA administratively grandfathering rates from old maps when new maps are developed. 

Senator VITTER. OK. So I just want to underscore this point. In 

fact, I would go further. It can increase participation in the program, which would help make the program more actuarially and 

fiscally sound, to have more realistic coverage levels and lines. 

Just a final quick point. I want to support my colleague, Senator 

Wicker’s, proposal, and I think Mr. Richardson discussed this. I can 

tell you, in the Katrina experience, like he can, I cannot quantify 

it exactly, but I can tell you that the taxpayer was ripped off royally in many cases because of flood damage being pushed—excuse 

me, because of wind damage being pushed onto the flood side and 

to the taxpayer. That happened. It happened over and over and the 

taxpayer was left holding the bag. Mr. Richardson, do you have any 

follow-up on that? 

Mr. RICHARDSON. Well, Senator, I think you are exactly right, 

and once again, we get back to the science. We have the tools to 

determine this right now. I see no reason why we would not. When 

we can catalog it and we know exactly, or as close as we could from 

scientific evidence, what is wind and what is water, why would you 

not do that and eliminate litigation? You eliminate—I know in your 

State and others, one of the big problems is the economy. If you 

have thousands of situations sitting there, waiting to be paid, and 

you cannot build a house, the gentleman here, the Home Builders 

do not build the homes, you do not get the taxes paid on the property, I mean, it compounds and creates a very unhealthy economic 

situation that could have been solved in 60 days, perhaps, instead 

of 6 months, a year and 6 months, so—— 

Senator VITTER. Thank you very much. 

Chairman JOHNSON. Senator Tester. 

104 

Senator TESTER. Yes, thank you, Mr. Chairman. I want to thank 

the panel for being here today. I very much appreciate all of your 

testimony. I have got a lot of questions and little time. 

I am going to start with you, Ms. Brown. You know very well, 

or maybe you do not, the Chairman talked about a high water year 

in South Dakota and the Missouri River drainage were creating to 

that. They are adding to it along the way. We have got historic 

flooding happening. Every one of you—almost every one of you 

talked about the actuarial soundness of the program and the program being upside down. Is there any estimate out there on how 

much more borrowing the Flood Insurance Program is going to 

have to borrow this year to take care of the historic flooding? Any 

estimates? 

Ms. BROWN. No, none that we have seen. It really will depend 

on the claims, but it is a real risk. If this ends up being a very high 

flood year for NFIP, then it is very likely that they may have to 

borrow to actually pay their insurance—— 

Senator TESTER. OK. Well—— 

Ms. BROWN. ——their interest premium. 

Senator TESTER. Got you. What would the impact on that additional borrowing have on this program? 

Ms. BROWN. It would increase the debt that they owe to the 

Treasury. 

Senator TESTER. OK. 

Ms. BROWN. So it would further destabilize the program. 

Senator TESTER. Actuarial soundness was something that, I 

mean, everybody wants to see. Everybody thinks it is very important, as do I. You talked about grandfathered rates. You talked 

about rates that mirrored the risk. If we are going to make the program actuarially sound so the taxpayer is not on the hook—and I 

will start with you, Ms. Brown, and anybody else can answer this, 

but make your answers as concise as possible—what kind of increase in rates are we looking at? 

Ms. BROWN. They would be substantial. 

Senator TESTER. Would they be 25 percent? 

Ms. BROWN. Much higher than that. 

Senator TESTER. OK. And what impact would that have on people’s ability to insure? And I will kick it over to Mr. Plunkett. If 

rates went up by 25 percent plus, if they went up by 50 percent, 

possibly, what impact is that—I mean, you increase my insurance 

rates on my house by 50 percent—— 

Ms. BROWN. Hundreds. 

Senator TESTER. ——I may have nothing. 

Mr. PLUNKETT. The next step, Senator, would be to use the savings and probably more to create a means-tested program to help 

people who cannot afford the new higher rates. 

Senator TESTER. The ultimate goal here, though, is to get everybody involved in the program that we can get involved in the program, right? I mean, the ultimate goal is everybody, rich, poor, medium, everybody involved. We are running, what, a $16 billion deficit in the program right now, is that correct? 

Mr. PLUNKETT. Something like that. 

Ms. BROWN. It is almost 18. 

105 

Senator TESTER. Almost $18 billion. Has anybody done the analysis on what the subsidies would be per year? 

Mr. PLUNKETT. Those are—we do not have a number, but we 

think it is a better way to run the program. It diminishes a lot of 

the distortions and the unintended consequences and the counterproductive building that we are talking about, and it is absolutely 

essential. I mean, you have to—if you are going to require flood insurance, you have to—— 

Senator TESTER. No disagreement. 

Mr. PLUNKETT. ——help people that cannot afford it do it. 

Senator TESTER. But I think there is also agreement we want to 

take the taxpayers off the hook, and I am not sure we are doing 

that. Do you see what I am saying? 

Ms. BROWN. In terms of a dollar amount on the current subsidy—— 

Senator TESTER. Yes. 

Ms. BROWN. ——for the pre-FIRM, it is, by our calculation, we 

are talking maybe $1.6 to $2.1 billion a year. 

Senator TESTER. OK. Go ahead. 

Mr. BERGINNIS. Senator, if I could add, and this is why the actuarial soundness issue cannot be dealt with apart from the other aspects in terms of having a robust mitigation program, so again, 

folks who may be paying those rates can at least have an alternative to actually do something to reduce the rates, and then, second, why a more recent idea, this idea of if there is going to be a 

subsidy, have it outside the program. Have it as a means-tested 

voucher. 

Senator TESTER. I have got you. One of the things about mitigation, though, is I look at the pictures going up and down the Missouri right now, is that a lot of those levees that were meant to 

keep water away from people are now keeping water on people, and 

so mitigation is important, and I agree it is going to live in the 

middle of a forest, but on the other side of the coin, sometimes it 

works exactly the opposite when it comes to water. 

Mr. BERGINNIS. And that is actually a great observation and why 

mitigation has a lot of forms. There is structural, such as levees. 

But the nonstructural mitigation, such as individual house elevations, relocating areas out—just relocating folks outside of the 

floodplain in those—— 

Senator TESTER. I appreciate that. Yes, Mr. Rutenberg? 

Mr. RUTENBERG. To that point, Senator, I think that you can 

have some incentives within the program. For example, if you were 

elevated above a certain point related to the floodplain—— 

Senator TESTER. Right. 

Mr. RUTENBERG. ——then that would give you a deductible and 

that would become a good investment for someone who was building. There are some options there that could be free-marketing 

good. 

Senator TESTER. Very good, and I would love to hear those, and 

we will have a bunch of other questions directed, so I appreciate 

it. 

I have just one quick thing and then I am going to let you guys 

go. Senator Wicker does have a proposal on wind. You addressed 

it, Mr. Richardson. We are talking about actuarial soundness. Can 

106 

you get insurance for wind at this point in time in the private sector? 

Mr. RICHARDSON. Yes. 

Senator TESTER. OK. 

Mr. RICHARDSON. It is readily available. 

Senator TESTER. Has there been any estimate, if wind is added 

to the flood program, what kind of increase, if we are going to 

make it actuarially sound, what kind of increase that is going to 

have on premiums? 

Mr. RICHARDSON. I would say to you simply, why would you add 

something to a Federal program that is readily available in the private market? Do not go there. 

Senator TESTER. OK, so—— 

Mr. RICHARDSON. Do not go there. It would blow the Federal program—— 

Senator TESTER. I do not want to do that. Maybe I will back up. 

I thought that was the proposal, is—— 

Mr. RICHARDSON. No, no, no—— 

Senator WICKER. It is not in the proposal. 

Senator TESTER. OK. Super. I was misinformed and I apologize, 

and you are absolutely right. You do not add it if it is available in 

the private sector. 

Once again, thank you all very much. I appreciate your testimony and your perspective. 

Chairman JOHNSON. Senator Wicker. 

Senator WICKER. Thank you, Mr. Chairman, for a balanced 

panel. I think so many issues have been raised that it demonstrates why this program has not been reauthorized up until this 

point, because it is so complicated. 

And, Senator Tester, thank you for raising that question. My proposal, which we are calling the COASTAL Act, would not add wind 

to the Flood Control Program. It is a scientific way of allocating the 

loss between wind and flood when both perils are involved and 

when there is nothing but a slab left. 

And in that regard, I would point out, Ms. Brown is here on behalf of GAO. In 2007, GAO said, for a given property, NFIP does 

not know how each peril contributed to the total loss. GAO does not 

know and NFIP does not know how much was contributed by wind 

and how much was contributed by water. The GAO report goes on 

to say, or how adjustors working for Write Your Own insurers 

made such determinations. NFIP does not know how they made the 

determination between wind and water. 

Further, the report says, FEMA cannot be certain whether NFIP 

has paid only for damage caused by flooding when insurers with 

a financial interest in apportioning damages between wind and 

flooding are responsible for making such apportionments, a conflict 

of interest that is underscored by the testimony today from the 

Consumer Federation of America. In the full testimony submitted 

for the record, Mr. Plunkett says these Write Your Own insurers 

also have a serious conflict of interest when they settle hurricane 

claims for the program, since they make more money if they determine that losses were caused by flood damage rather than by wind 

damage. 

107 

I think Senator Vitter is right. It may very well be, based upon 

the testimony of these two witnesses, who I did not request but I 

think have made valuable contributions today, based upon their 

testimony, it may very well be that the Flood Insurance Program 

and the taxpayers have paid more than their fair share because 

you have got private insurance adjustors who have an inherent 

conflict of interest, or at least the appearance of a conflict of interest, in allocating more of the loss to the taxpayer and Uncle Sugar 

rather than to their own insurance companies, and it would seem 

to me, Mr. Richardson, that your proposal of scientific allocation 

deals with this. Am I correct in that? 

Mr. RICHARDSON. Yes, sir, it is, and you are also correct in the 

Write Your Own Program does have a frailty of when you have an 

insurance company basically determine what they pay and what 

the National Flood Insurance Company would pay, with a single 

adjustor, is a potential moral hazard. There is no question. They 

get paid—I have forgotten what the—to manage those policies, they 

get paid, what, 30 percent? Ms. Brown might know. I think it is 

close to 30 percent. That is a huge number. If you look at TPA, 

what we call third party administrative things in the insurance industry, that is a number that is off the charts, you know, 30 percent to do that. That is way too high, but anyway, I will leave that. 

But, I mean, it is efficient in many ways to have a single adjustor, but to have the single adjustor working for an individual company against the Federal Government where the Federal Government is the big honey pot, as you say, is crazy. And when you have 

the science to create a formula that would eliminate that, I cannot 

see why you would not do it and I applaud you for—— 

Senator WICKER. Let me ask you this, Mr. Richardson. We are 

not asking the Federal Government to come up with a new regime 

of data collection, are we, in your proposal? 

Mr. RICHARDSON. No, sir. I would—— 

Senator WICKER. Tell us about the data that you would use, because I do not think we have spread that—— 

Mr. RICHARDSON. Well, NOAA and a lot of the things that are 

out there, this information is available. Now, we might want to 

make it more robust. We might want to have more collection centers. But a lot of this is already being done, and if this information 

is basically brought together and put into an algorithm that you 

could use actuarially, it is there. And not only that, but you could 

use the information for other people. You could rent the information to all sorts of people. We have studied that, as well, and I 

think you could dramatically reduce the cost of it in that way. 

Senator WICKER. Let me—— 

Mr. PLUNKETT. Senator, could I pitch in here on this? 

Senator WICKER. Yes, sir. 

Mr. PLUNKETT. Thank you for mentioning our concern with the 

conflict of interest with the Write Your Own Program. We think 

your bill is laudable in its goal. We do worry, however, that even 

though some of this information is being collected now, charging 

FEMA, which has had trouble managing simpler aspects of the program, with creating this formula and getting all this information 

together and doing it right and doing it fair is too much for them 

to handle. 

108 

In the testimony—I will not give you the details because you only 

have a little time, but we suggest an alternative approach involving 

the law of averages, which is the way that auto claims are used 

when you have different claims between auto insurers. We would 

love to talk to you about that. 

Senator WICKER. Well—— 

Mr. RICHARDSON. Senator, this does not make FEMA do it. It 

gives FEMA the ability to engage whomever they choose to do it. 

They can go to the private industry—I think I am correct in saying 

that—and have them create this formula. FEMA does not have to 

do it. 

Senator WICKER. OK. I am—— 

Mr. PLUNKETT. They do have to manage it, though, and we are 

worried about their ability to do that. 

Senator WICKER. I am a little over on my time, but I do appreciate Mr. Plunkett making that suggestion. I think you would concede that the current program does not work when it comes to the 

wind versus water claims in a slab situation, and you point out—— 

Mr. PLUNKETT. Most certainly, we would—— 

Senator WICKER. ——you point out that many Gulf Coast consumers are still in court dealing with claims they believe should 

have been paid under their wind coverage, and here we are in 2011 

on a 2005 event, and your testimony is consumers still are in court 

on this determination, which whether under your proposal or under 

Mr. Richardson’s proposal could be done much simpler and keep us 

out of court and away from huge legal fees. 

Thank you all for your testimony, and thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Merkley. 

Senator MERKLEY. Thank you, Mr. Chairman, and thank you to 

all for discussing these issues. 

I am trying to get my hands around just how big a hole the program is in currently, and if I catch these various statistics correctly, and I am going to say them out loud so somebody can correct me here, but the policies being sold are about $3.5 billion per 

year, that the debt is about $18 billion currently, that if they are 

borrowing from Treasury at a 3-percent rate, that puts you at 

about half-a-billion per year. So just to pay the interest would be 

about a seventh of the current price of the policies, that is, if we 

are just paying the interest on that debt, and if we are paying off 

that debt and amortizing it over a certain number of years, depending on the number of years, policies would have to go up substantially. Is there any—I am assuming the answer is no, but is there 

any—first of all, are these numbers in the ballpark, and is there 

any sort of mechanism in the law in which rates are adjusted in 

order to cover the interest on the debt and to pay off the capital 

over a particular number of years, and if so, how many years and 

so forth? Who would like to help us understand the dynamics of 

this hole? 

Ms. BROWN. Well, I would say your numbers are in the right 

ballpark, and no, there is no current mechanism in the law to allow 

FEMA to increase rates to start paying down the debt. 

Senator MERKLEY. Why not? 

Ms. BROWN. It just does not exist. 

109 

Senator MERKLEY. So FEMA has paid off some of the loans it has 

borrowed, I believe I understand. 

Ms. BROWN. Yes. 

Senator MERKLEY. So what determined how much they could pay 

off how fast? 

Ms. BROWN. It is—basically, it has been driven by the claims 

rates. It is—— 

Senator MERKLEY. So if the claims were below the premiums and 

there is a surplus, you pay off some of the debt. Otherwise, you just 

live with an increasing balance. So what would you propose? 

Ms. BROWN. Well, there are a couple of options we have looked 

at. I would like to note that FEMA can increase rates up to 10 percent annually by zone, so there is a possibility to adjust rates 

through that. But we have—— 

Senator MERKLEY. On an enduring basis? 

Ms. BROWN. Umm—— 

Senator MERKLEY. Ten percent each year, it could go up? 

Ms. BROWN. Yes. Yes. 

Senator MERKLEY. OK. 

Ms. BROWN. That is the cap for an increase in any given year. 

Senator MERKLEY. All right. 

Ms. BROWN. We have looked at various scenarios in terms of 

what it would take to pay down the current outstanding debt, and 

one option would be, for example, to have an additional fee to pay 

it down, but it would be in addition to a movement toward more 

full-risk rates and there are questions of equity and fairness to 

have future or current policyholders to repay the debt that was created for previous policyholders. So there are a number of ways to 

do it. I know the last legislation the Senate approved actually 

would forgive the debt. Dealing with the $18 billion outstanding 

debt is vital to increasing the ongoing stability of the program. But 

in years of any type of above-average flooding, FEMA risks having 

to borrow to make interest payments. So the debt would continue 

to balloon unless it is dealt with. 

Senator MERKLEY. Yes, Mr. Richardson? 

Mr. RICHARDSON. Senator, I would submit to you, and I have 

seen some studies, and perhaps—I think it might have been done 

by the Heartland Institute, who is here today—penetration of policy ownership is the way to solve this financially. If you had a 

much higher—you know, we have got some good regulations in the 

laws. If you make more people that are in flood zones, designated 

flood zones, have the flood insurance or they are ineligible for any 

kind of Federal help, you are going to raise the penetration, you 

are going to have more money coming in, and I think—I have seen 

that study, it shows, and Ms. Brown could relate to this, but you 

could very quickly take your—let us just say 10 percent of the people have flood insurance now. You raise that to 20, 30, 40, it will 

show you very quickly that you have enough money to make the 

Flood Insurance Program solvent just like it is. 

Senator MERKLEY. And you are talking about only 10 percent inside a 100-year flood zone? 

Mr. RICHARDSON. Some places, it is true. I mean, I would rather 

refer to Ms. Brown because I do not have those figures readily 

available, but, I mean, the only people you have mandating flood 

110 

insurance is people who have mortgages that are federally backed 

and they have to have it. Other than that, I do not think—Ms. 

Brown might be able to say—I do not think there is any other mandate on the flood insurance. But—— 

Senator MERKLEY. Well, and indeed, no, I think you are absolutely right, and previously, someone had referred to the Federal 

mandate, but indeed, we have had a lot of discussion about mandates up here and it is quite different for it to be tied into a mortgage. But separate from a mortgage, you are proposing to say, yes, 

you must spend your money on this form of insurance? 

Mr. RICHARDSON. If you want to be available for Federal assistance in the event of—— 

Senator MERKLEY. OK. I see. 

Mr. RICHARDSON. ——not going to make you buy it—— 

Senator MERKLEY. I see. 

Mr. RICHARDSON. ——but if you do not buy it and your house 

goes bye-bye, do not expect the Federal Government to come write 

you a check for your house. 

Mr. BERGINNIS. Senator, if I could just also add this, this ties 

into the actuarial and really what is actuarial rating under this 

program. The debt that accrued was from catastrophic events and 

even though the subsidized policies are about a quarter of the policies in the NFIP, one could probably say that 100 percent are subsidized to the extent that you do not have any factor for catastrophic events built in there. Senator Shelby has—this is a point 

that he has raised repeatedly. But this is also one of the areas that 

perhaps is more promising for private sector involvement in terms 

of the use of reinsurance and those types of things. 

Senator MERKLEY. My time is up and I thank you very much. 

Ms. BROWN. I would like to note one thing. In terms of doing an 

analysis in terms of what it would take to pay down the debt, you 

also have to factor in that current interest rates are very low. If 

interest rates change, if there is another event, there are a number 

of moving parts that will impact the ability of the program to be 

able to pay off the debt. 

Senator MERKLEY. Absolutely. Thank you. 

Chairman JOHNSON. I would like to thank our witnesses for 

being here today. 

Senator WICKER. Mr. Chairman? 

Chairman JOHNSON. Yes. 

Senator WICKER. I wonder if I could take a moment or two on 

a second round. It will not be long—— 

Chairman JOHNSON. Yes, you may. 

Senator WICKER. I appreciate that. Let me ask—I want Mr. 

Rutenberg and Mr. Kolton to address this issue, and I will start 

with Mr. Kolton. If there is a levee, surely the property owner 

should get some reduced premium because that levee is there. You 

are not advocating, are you, flood insurance at the same premium 

for that type of property owner, are you? 

Mr. KOLTON. No, Senator. We believe that what ought to be accounted for is the level of flood protection that exists and we ought 

to be looking at what level of protection exists from a particular 

levee. But it would be a mistake not to have any flood insurance 

behind a levee that is not accredited. 

111 

Senator WICKER. Well, OK. Well, the fact is, and I think, Mr. 

Rutenberg, you would agree with this, that most levees work, that 

most levees provide the protection that is necessary, and it is really 

not fair to make property owners act as though they had no protection whatever in their premiums, do you not agree, Mr. Rutenberg? 

Mr. RUTENBERG. Senator, I agree, but I think it is a broader 

question than just the levees, if I might. This also goes back to my 

earlier point, that we have some communities and counties require 

much more in-depth stormwater management than others, and if 

you are going to take it to a different level, then you should really 

take it to a different level and have the rates be commensurate 

with the risk. 

Senator WICKER. And just one final question, and that is to you, 

Ms. Brown. I do not understand why the banks do not do a better 

job of enforcing the requirement for flood insurance. If flood insurance is required at a closing, it would seem to me that NFIP and 

the banks have a responsibility to be just as aggressive as the 

banks are with any other kind of insurance. I have gotten calls 

from my mortgage company about my insurance. Even when there 

was a mistake, I did have insurance, but the company changed or 

whatever, they called me quickly. And I can assure you, they make 

sure that my hazard insurance premiums are up to date or they 

will impose another insurance requirement on me quickly. 

Ms. BROWN. Mm-hmm. 

Senator WICKER. That is not the way the Flood Insurance Program works, and I am mystified as to why banks and NFIP do not 

work together to enforce this requirement as aggressively as banks 

enforce the other types of insurance. 

Ms. BROWN. No, it is, you know, very unusual, and part of it goes 

to this issue of it is not clear if the banks focus at the closing to 

ensure that there is flood insurance at closing, but the flood insurance is not maintained over the life of the mortgage. And part of 

the problem is the bank regulators, as I mentioned, they do a riskbased approach to examinations, so they have a number of consumer protection laws that they test for compliance with. So they 

are doing limited testing. They are not finding problems in their 

limited testing, so they are concluding that compliance is not an 

issue. But you talk to FEMA, and as I mentioned, they are looking 

at the number of properties in the Special Flood Hazard Areas and 

they are looking at new mortgages and they are determining that 

there is a gap in terms of the compliance. So it is an ongoing issue 

and it is one that definitely warrants attention. 

Senator WICKER. It needs to be addressed in any reauthorization. 

Thank you, and Mr. Chairman, thank you for indulging me. 

Chairman JOHNSON. Senator Shelby for a last observation. 

Senator SHELBY. I was intrigued by the exchange a minute ago 

dealing with someone who would build a home or an office or whatever behind a levee and so forth, because it looks to me like that 

would tell me that, boy, I am in a floodplain. It is just a question 

of risk, and I understand that. To not have insurance would be 

nonsense. It would remind me if I had a home here in Washington 

or in my home town of Tuscaloosa, Alabama, and if I were ten 

houses from a fire station and a fireplug, water out there in front 

of my house, and I said, well, I do not need fire protection because 

112 

I have got the fire department, you know, I am fine. That is nonsense to me. If I were in a floodplain, at or near or building behind 

a levee, that would send a signal to me, whoa, we are in a floodplain. Mr. Kolton, what do you—— 

Mr. KOLTON. Senator, you are absolutely right. The National 

Committee on Levee Safety, which Congress authorized to look at 

this issue in the 2007 Water Resources Development Act, recommended that there be mandatory flood insurance behind levees, 

and—— 

Senator SHELBY. Because that would be a false security. You 

would think, looking at what has happened lately, the breaching— 

well, as we are talking, up in the Dakotas, for example. It could 

have happened in my State or in Mississippi or anywhere, breach 

those levees. And sooner or later, they could be breached. It might 

be 50 years. It might be 10 years. It might be 100 years. But the 

chances are in the floodplain. 

Mr. PLUNKETT. Senator, we would also agree, and we would 

agree with Senator Wicker that, I mean, there should be coverage, 

but it could be lower if—— 

Senator SHELBY. Oh, I understand—— 

Mr. PLUNKETT. ——if the levees are in good shape. We would 

warn against an approach in the House NFIP bill which would say 

that if a levee has been decertified by FEMA as being in good 

shape, that rates could be lowered upon promises, essentially promises by communities that they are going to fix it. In other words, 

they are not done yet. They are thinking about it or they have 

started it, but it is not back up to snuff. 

Senator SHELBY. Sure. 

Mr. RICHARDSON. Senator—— 

Mr. BERGINNIS. Senator—— 

Mr. RICHARDSON. Senator, I would just say, do not rate anything 

based on promises. I mean, that goes against everything that has 

been said at this table here. In the insurance formula, when it is 

there, when you can prove it, that is when it gets rated and that 

is when you pay for it. Do not give somebody—— 

Senator SHELBY. I have been around politics for 40 years. You 

are absolutely right. Watch the promises. 

Mr. BERGINNIS. And if I could just add one more thing on the rating of those properties behind levees, currently, if you had a levee 

that is certified to provide a level protection, so it is certified it is 

in good shape, if you made the flood insurance mandatory, you are 

paying those low-risk rates. That is in the current rating structure 

as it exists. 

Senator SHELBY. Thank you. 

Chairman JOHNSON. I would like to thank our witnesses for 

being here today to contribute to our NFIP reauthorization discussion. The NFIP has an important mission to aid in disaster mitigation and recovery, and the views that we have heard today will assist us as we chart a sustainable future for the program. This hearing is adjourned. 

[Whereupon, at 11:43 a.m., the hearing was adjourned.] 

[Prepared statements and additional material supplied for the 

record follow:] 

113 

PREPARED STATEMENT OF SENATOR RICHARD C. SHELBY 

Thank you, Mr. Chairman. 

This year has been marked by extreme weather and natural disasters across the 

country. My own State was devastated by massive and deadly tornadoes in April. 

According to NOAA, the United States has suffered eight natural disasters each 

costing in excess of $1 billion. The total damage is $32 billion and rising. 

While these natural disasters include droughts, fires, and tornadoes, the historic 

flooding of the Mississippi and Missouri rivers has dominated the headlines lately. 

Unfortunately, the flooding may not end for months because rainstorms continue in 

the Midwest and last winter’s snowfall is still melting. 

To make matters worse, many communities that thought they were protected by 

levees have been flooded due to intentional breaches by the Army Corps of Engineers. 

We may see even more extreme weather later this year as the National Weather 

Service predicts that 2011 will be a ‘‘busier-than-usual’’ hurricane season. 

The severity of this year’s weather highlights the need for the National Flood Insurance Program to be reauthorized and placed on a sustainable path. 

For nearly 6 years, Congress has been unable to pass a long-term reauthorization 

of the flood program. 

The short-term extensions have kept the program alive, but have prevented the 

implementation of important reforms. 

This has made it difficult for communities in high-risk flood zones to plan for the 

future. 

Accordingly, it is my hope that this year we can pass a long-term extension of 

the flood program that includes the reforms needed to make the program ‘‘actuarially sound.’’ 

I look forward to hearing from today’s witnesses and hope that they can provide 

further insights on how the flood program should be modernized. 

I am especially interested in hearing what can be done to increase participation 

in the program. 

We know that most people that need flood insurance do not have it. We must explore ways to change that. 

We can have the best flood insurance program in the world, but it will do little 

good if people do not participate. Although the flood program expires in a few 

months, I am confident that the Committee can successfully work together to, once 

again, pass bipartisan legislation. 

Thank you Mr. Chairman. 

PREPARED STATEMENT OF SENATOR MIKE JOHANNS 

Thank you for being here today and your willingness to testify about an issue that 

is currently so critical to Nebraskans. According to the National Geospatial-Intelligence Agency, about 110,000 acres of land have been affected by the flood waters 

in Nebraska. The water has hit people’s homes and livelihoods; in some areas, wiping them out. Yesterday, I met with FEMA Administrator Craig Fugate and the 

U.S. Army Corps of Engineers Brigadier General John McMahon to talk about what 

they’re doing to try and relieve some of the suffering Nebraskans are facing. I also 

shared with them some of the concerns surrounding their water release and flood 

insurance decisions. My constituents and I are concerned about some of the Corps 

decisions on water releases, and FEMA’s decision to designate a single start date 

for the entire Missouri River Basin. FEMA has announced that June 1, the date 

at which floodwaters were first released from the Garrison Dam in North Dakota, 

is the official starting point of the Missouri River Basin flooding. 

However, there were multiple releases from multiple dams, some much closer to 

Nebraska. It’s not clear why releases from the Garrison Dam, in North Dakota, are 

the start of the floods in Nebraska. I know that these agencies have their hands 

full right now getting help to people. But they’re also going to have to answer some 

pretty frank questions. I look forward to having our witnesses help us understand 

the risk that people both inside and outside of 100-year floodplains contend with, 

and how that impacts the overall insurance system. With that, Mr. Chairman, I conclude my statement, and thank the witnesses again for being here today. 

114 

PREPARED STATEMENT OF ORICE WILLIAMS BROWN 

DIRECTOR, OFFICE OF FINANCIAL MARKETS AND COMMUNITY INVESTMENT, 

GOVERNMENT ACCOUNTABILITY OFFICE

JUNE 23, 2011 


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PREPARED STATEMENT OF CHAD BERGINNIS 

ASSOCIATE DIRECTOR, ASSOCIATION OF STATE FLOODPLAIN MANAGERS

JUNE 23, 2011 

Introduction 

The Association of State Floodplain Managers (ASFPM) is very pleased to offer 

our thoughts and recommendations regarding the reauthorization and reform of the 

National Flood Insurance Program (NFIP). We thank Chairman Johnson and Ranking Member Shelby for your attention to the importance of providing reauthorization and guidance for the future direction of the program. We appreciate the opportunity to share with you observations about the current status of the NFIP, challenges the program confronts and opportunities to improve our Nation’s efforts to 

reduce flood-related losses. 

We are hopeful that this Congress can provide stability for the NFIP while also 

moving the program in the direction of needed improvements and adjustments. We 

note that extensive work in both the House and Senate in the 110th Congress did 

not result in final action on reform legislation and legislation passed by the House 

in the 111th Congress also did not result in final legislative action. Since then, other 

issues have emerged and actions have been taken by the Federal Emergency Management Agency that point to the need to update those earlier reform and revision 

proposals and to seriously consider further and possibly significant NFIP reform 

ideas. 

The convergence of several areas of concern, in particular new flood maps, accreditation status of levees, and affordability of flood insurance, has focused considerable 

attention on challenges faced by the NFIP. We believe this creates an opportunity 

to better manage flood risk, to better protect lives and property and to help communities and individual citizens restore their economic and personal lives more fully 

and quickly after a flood disaster. 

Central Question 

Perhaps the central question for the Congress to consider during reauthorization of 

the NFIP is what the program is expected to do and what it should be expected 

to do in the future? 

We are all well aware that the program is in debt to the Nation’s taxpayers for $17.6 billion after being overwhelmed by claims following flood damage resulting 

from the major hurricanes of 2004 and 2005. Floods are our Nation’s most frequent 

and, overall, most costly disasters. We also know that due to the ever-changing climate, scientists predict that some parts of the country are expected to experience 

more frequent and more intense storms in the future, and that sea-level rise along 

the coasts of the United States will result in oceans being at least several feet higher by 2100. Given this, should the NFIP be expected to cover all claims associated 

with catastrophic losses or should the program be expected to cover claims in the 

average annual loss year with catastrophic losses handled in some other manner. 

How Congress decides the answer to this question is central to the way in which 

future reforms to the NFIP should be framed. 

About ASFPM 

Members of the Association of State Floodplain Managers (ASFPM) are the Federal Emergency Management Agency’s (FEMA’s) partners in coordinating and implementing the insurance, risk identification and hazard mitigation components of 

the NFIP. ASFPM and its 30 Chapters represent over 14,000 State and local officials and other professionals who are engaged in all aspects of floodplain management and hazard mitigation, including management, mapping, engineering, planning, community development, hydrology, forecasting, emergency response, water 

resources, and insurance for flood risk. All ASFPM members are concerned with 

working to reduce our Nation’s flood-related losses. Many of our State members are 

designated by their governors to coordinate and implement the National Flood Insurance Program, and many others are involved in the administration and implementation of FEMA’s mitigation programs. For more information on the Association, 

our Web site is: http://www.floods.org. 

The NFIP and Benefits to Communities, Policyholders, and Taxpayers 

Intentions 

The National Flood Insurance Program was enacted into law in 1968 following 

several years of policy development. The private insurance industry was not writing 

flood insurance policies as it was not deemed to be a profitable enterprise and potential flooding areas had not been identified and mapped making quantification of risk 

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difficult. Taxpayers paid the bills for Disaster Relief following flood disasters. The 

original purposes of the NFIP were several: 

• to require those living in at-risk locations to pay for a portion of their risk 

through insurance premiums; 

• to reduce dependency on disaster assistance and save the taxpayers’ money by 

requiring insurance in at-risk locations; 

• to make flood victims closer to whole following a disaster than they would be 

with only disaster relief; 

• to reduce flood related losses over time by requiring participating communities 

to adopt ordinances to guide development in areas at risk of flooding; and 

• to identify areas at risk of flooding for the dual purposes of knowing where to 

require the purchase of flood insurance and of guiding development and building practices to save lives and reduce property damage. 

As originally authorized, rates were to be affordable to encourage broader participation in the program, thereby expanding the base of policyholders. Properties built 

before issuance of Flood Insurance Rate Maps (FIRMs) would have flood insurance 

available at lower, ‘‘subsidized’’ rates based on the presumption that the builder and 

property owner were not aware of the flood risk. It was thought that, over time, the 

number of such subsidized properties would diminish because they would be substantially damaged by floods or would be demolished for other reasons. In the early 

years, some 70 percent of policies were subsidized. Currently, only about 23 percent 

are subsidized, and the remaining are charged actuarial rates based on risk. As authorized, the NFIP does not incorporate the potential for catastrophic losses in the 

rate structure. Rather, to pay for claims that exceeded the resources of the National 

Flood Insurance Fund, the program is authorized to borrow, with interest, from the 

U.S. Treasury. Prior to the 2004 and 2005 hurricane seasons the NFIP had built 

a strong reputation for repayment. 

Results Thus Far 

The Association of State Floodplain Managers concludes that the NFIP has been 

successful in meeting a number of its original objectives, but less so in reducing 

total flood losses in the Nation. The statute does mandate lenders to require certain 

borrowers to obtain flood insurance, sparing taxpayers from paying many millions 

of dollars in disaster relief and casualty loss deductions, and enabling those citizens 

with flood insurance to more fully restore their lives to normalcy after a disaster. 

Additionally, the NFIP has prevented some unwise development and promoted flood 

hazard mitigation through local adoption of floodplain management ordinances. On 

the other hand, too many Americans continue to build in at-risk locations, including 

residual risk areas behind flood control structures and high risk coastal areas. Thus 

collective flood losses for the Nation continue to increase in real dollars. In the first 

decade of this century, average yearly flood losses have increased from $6 billion 

to $10 billion. 

Over the 40-plus years of the NFIP, there have been revisions and reforms, but 

the program has, in large part, functioned as it was designed to function. The original framers did not require the NFIP to set rates for truly catastrophic flooding associated with extreme events like Hurricane Katrina, or to have reserves to cover 

the fiscal impact such events would have on the program. A significant, often unrecognized, and difficult to measure benefit of the NFIP is the number of decisions people have made to build on higher ground and the damage that does not occur because buildings have been built to resist flood damage. For those who decide to build 

in mapped flood hazard areas, FEMA estimates that meeting the NFIP standards 

prevents over $2 billion in damage each year. 

However, issues have emerged which now necessitate some reevaluation of the 

scope of the program and some significant readjustments to better meet the original 

and still valid purposes. 

Emerging Issues 

The program has saved taxpayer dollars in disaster relief and, until recently, flood 

claims have been covered by premium and fee revenues or by Treasury borrowing 

which was repaid with interest. (In the 1980s, approximately $2 billion in borrowing 

was forgiven.) The rate structure was generally sufficient to cover the costs of the 

average loss year. Currently, however, the program has a debt of approximately 

$17.75 billion. The FEMA Administrator has testified that full repayment from current revenues is unlikely. This leads to questions about how the program should 

cope with catastrophic losses in the future and about how to put the program back 

on solid footing. 

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Enforcement of local floodplain management ordinances, land-use regulations (i.e., 

subdivision and zoning codes) and building codes has reduced flood losses. However, 

other policies in some cases, including levee construction, have had the opposite effect of encouraging development in areas that still have a residual flood risk and 

where the consequences are dramatic when flooding occurs. Incentives for communities and property owners to take steps to mitigate future flood losses have not 

been sufficient. As a result, flood losses in the Nation continue to increase. 

Concern about the debt has led to calls to increase premiums and to take other 

steps to reduce exposure and increase revenues. In particular, there have been calls 

to move certain properties that currently receive ‘‘subsidized’’ rates to full actuarial 

rates. However, this feeds existing concerns about affordability of flood insurance. 

Can the program be fiscally sound and still have affordable rates? 

Concerns about affordability have played an important role in response to 

issuance of new, updated flood risk maps and to decertification of levees, which is 

beginning to interfere with improved identification of risk because of the related requirement to purchase flood insurance. Identification of risk is key to both providing 

property owners with the insurance protection they need as well as to facilitating 

appropriate construction techniques and loss mitigation activities. 

When Map Modernization began in 2003, most flood maps were between 15 and 

30 years old. The Map Modernization program, which ended in 2009, focused primarily on bringing modernized maps to a current and consistent digital platform 

while only focusing some effort on identifying new flood hazard areas and updating 

the maps with new engineering studies. Also, levees were analyzed for their ability 

to provide flood protection based on current engineering and design standards on 

a national level—which hadn’t previously been done on such a large scale. One of 

the lessons learned under Map Modernization is that outreach and data are critical 

to help communities understand flood risk. Another is that the publication of new 

flood maps with old engineering data and methods casts doubt as to the credibility 

of the maps overall. In reflection, the digital conversion of the flood maps was an 

important and necessary step to bring the national inventory of flood maps into a 

modern platform; however, that step alone is not the final answer. Many maps have 

been converted to digital format but significant work remains to update them with 

new engineering studies to reflect the effects of increased watershed development 

and increased storm intensity on flood hazards. 

Why is new engineering and risk data so important? When new and improved engineering models are used, when data is updated to reflect changes from watershed 

development, when additional stream gage and precipitation data are incorporated 

to better reflect changing storm intensity and watershed runoff patterns, and when 

better topographic data is used, you get a better flood map. The result? The poor 

condition of much of the Nation’s infrastructure, including levees, dams, and other 

flood control structures, as well as stormwater facilities, has become much more evident. Updated flood maps more accurately reflect the floodplain by showing some 

areas as now in 100-year flood hazard areas and, conversely, by showing many 

areas as no longer in the 100-year flood hazard areas. (It is important to note that, 

to date, approximately as many properties are newly shown as out of a Special 

Flood Hazard Area (SFHA) as are newly shown as in the SHFA due largely to improved topographic mapping.) 

Under FEMA’s RiskMAP program, which has replaced Map Modernization, there 

is more focus on providing new engineering data as well as providing adequate flood 

risk data and outreach to communities. The mapping program has evolved to incorporate some of the lessons learned under Map Modernization. Newly designed map 

products will provide much more risk information for areas both inside and outside 

the 100-year flood hazard area which will enable citizens and communities to make 

better decisions about management of risk. New maps will also reflect whether levees are reliable which can change the hazard designation behind the levee. However, budgetary limitations threaten to significantly slow the process of making 

RiskMAP products available. The National Flood Insurance Fund pays the administrative costs of the NFIP, but does not collect enough in policy fee income to pay 

the full cost of mapping and risk identification. This has necessitated the appropriation of funds for the Map Modernization Initiative and now the RiskMAP program 

to supplement the funds available from policy fees associated with premiums. 

The use of the 100-year flood (or 1 percent annual chance flood) for designation 

of the Special Flood Hazard Areas (SFHAs) has led to overreliance on this artificial 

boundary and underestimation of flood risk beyond that boundary. Currently, 25 

percent of flood claims are paid on properties located outside of the mapped SHFA. 

Improved awareness of risk beyond the SFHA boundary is necessary along with better communication about the affordability of policies in these areas. Whether these 

areas lie outside of the natural floodplain or exist behind levees, downstream of 

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dams, or in designated floodways of major flood control systems, these areas are at 

risk from flooding. And that risk can be catastrophic in the case of areas behind 

levees or downstream of dams. 

Reforms for the Congress To Consider 

The Association of State Floodplain Managers has been very pleased that FEMA, 

at the direction of Administrator Craig Fugate, has undertaken a ‘‘Re-Thinking the 

NFIP’’ analysis. A report to the Congress on the options reviewed is expected this 

summer. Some of those options and possible reforms from this analysis could be 

acted on by the Congress, but others will undoubtedly require further study and research. ASFPM recommends that this Committee seriously evaluate FEMA’s findings. At this time, our suggestions range from larger issues to smaller adjustments: 

1. ASFPM recommends that the Congress clarify whether or not the NFIP should 

be structured to accommodate catastrophic losses, as discussed at the beginning of 

this testimony. Many reform decisions would flow from this clarification. 

2. Authorization of an ongoing flood mapping program is needed. The Senate-passed 

2008 bill included a well-conceived section providing such an authorization and outlining important mapping activities. It is important that the section authorize the 

continuation of an annual appropriation in addition to funds available from policy 

fee and map fee revenue. The 2008 act would have authorized establishment of a 

Technical Mapping Advisory Committee of key NFIP stakeholders much like the one 

authorized in the 1994. That body proved to be very effective and its reports led 

to development of the Map Modernization Initiative. 

3. The Severe Repetitive Loss Program (SRL) was established in the 2004 Flood Insurance Reform Act as one component of a three part approach to diminish the 

problem of repetitive loss claims by mitigating these properties. SRL has not been 

fully effective largely because the statutory provisions establishing the program are 

so prescriptive that FEMA’s ability to design an effective program was limited. The 

statutory requirements also heavily burdened States and communities to the point 

that some declined to participate. Statutory changes are needed to simplify the program and make it more attractive to States and communities. 

The SRL program is intended as a fiscally responsible means of investing funds 

from the National Flood Insurance Fund (NFIF) to reduce the approximately $200 

million per year drain on the fund represented by properties that have received multiple claims. Instead of simply reauthorizing the SRL program, we recommend that 

the well-received Flood Mitigation Assistance (FMA) program be expanded to include the focus and funding from both SRL and another component, the Repetitive 

Flood Claims (RFC) program. The combined program would retain the authorized 

level of funding (by transfer from the NFIF) for each component provided in the 

2004 Flood Insurance Reform Act—$40 million for mitigation of severe repetitive 

loss structures (defined in statute), $40 million for FMA and $10 million for certain 

properties in certain communities. This would have the effect of simplifying administration so that the unobligated balance in the program can be put to its intended 

use of reducing claims from severe repetitive loss properties. 

4. Improved flood hazard mitigation incentives are needed. ASFPM suggests that 

better linkages between premium rates and mitigation actions must be encouraged. 

We support the suggestions made by FEMA Administrator Fugate for a communitybased risk assessment system involving payment by the community for a community policy. As the Administrator said, ‘‘ Incentives could be structured to encourage 

communities to implement flood mitigation measures in order to reduce their overall 

premium assessment.’’ The Committee could direct either further research on the 

feasibility of this concept or direct that pilot group policies be tested. 

5. As in the 2008 Senate-passed bill, the debt to the Treasury should be forgiven. 

Since the debt exceeds the NFIP’s ability to repay, it is prudent to stabilize the program without debt and to build in reforms to improve its fiscal soundness. The definition of ‘‘actuarial premium rates’’ will depend on whether or not the program is 

to accommodate catastrophic losses. 

Due to two mild hurricane seasons and a favorable refinancing of the debt, the 

NFIP has been able to cover claims, to pay interest on its debt, and to repay $2 

billion of the original loan. However, full repayment of the debt is not a reasonable 

expectation because mild loss seasons cannot be expected to continue, the Nation’s 

flood risk is increasing due to development and more intense storms, the interest 

on the debt will go up, and the annual program income is about $3.2 billion, from 

which operating expenses and claims must be paid. It is not expected that program 

income will change significantly unless dramatic changes are made to the NFIP’s 

rate structure. 

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6. Purchase of flood insurance in residual risk areas behind levees should be mandatory. 

The Senate-passed 2008 bill included such a provision. Engineers know that all levees are subject to failure or over-topping. Because of the low probability but catastrophic loss possibility, premium rates in such areas would likely be relatively low, 

but property owners would be protected with insurance as well as appropriate risk 

messaging. The report to Congress from the National Committee on Levee Safety 

(established by the Water Resourced Development Act of 2007) strongly recommends 

mandatory purchase of flood insurance behind levees. 

7. The affordability issue must be addressed. Not only is the mandatory purchase 

requirement a financial hardship for many lower income property owners, but affordability concerns are beginning to interfere with identification of risk, related 

mitigation of risk and protection of public safety. Legislative suggestions for delaying map issuance or for delaying effective dates for the mandatory purchase requirement are examples. We note that the bill soon to be considered by the House of Representatives includes language which focuses and limits the application and time 

frame for a delay in the mandatory purchase requirement for areas newly mapped 

as within the SFHA. A phase-in of actuarial rates in these areas is a better approach to ease the financial burden because property owners are insured during the 

phase-in period rather than entirely without insurance protection. 

Ideas have emerged in academic research for a means-tested system of flood insurance vouchers. ASFPM recommends that the Committee direct that an economic 

analysis be conducted of the overall effect on taxpayer funds of providing flood insurance vouchers to low income property owners as opposed to providing assistance 

through disaster relief funds. Such an analysis should include aspects such as restoration of community and economic vitality and speed of rebuilding, repair, and 

restoration of lifestyle. 

8. ASFPM has long supported movement of policies toward actuarial rates for both 

for fiscal soundness and for clarity of the risk message. As we have identified earlier, however, there are affordability issues that will emerge. ASFPM also believes 

that robust mitigation programs can be an opportunity for property owners who are 

affected by such changes to help offset the resources needed to mitigate. Movement 

of certain classes of properties towards actuarial rates such as second homes, commercial properties and severe repetitive loss properties is consistent with ASFPM 

positions and this should be done so within a reasonable timeframe. 

9. Exploration of additional private insurance engagement with the NFIP should be 

conducted. For example, the private reinsurance market could possibly provide part 

of the solution to the problem of catastrophic losses. We recommend studying the 

feasibility of purchasing some amount of reinsurance for the NFIP. 

10. The NFIP should operate within a true flood risk management framework. The 

Committee could direct that FEMA work with other Federal agencies in the Federal 

Interagency Floodplain Management Task Force to develop a comprehensive flood 

risk management framework to improve Federal coordination toward the objective 

of reducing flood related losses in the Nation. 

The Nation must carefully balance the issue of who benefits and who pays for development at risk. There are about 130 million housing units in the U.S. Of that, about 

10 to 11 million are in flood hazard areas, with fewer than half of those carrying 

flood insurance. This means 90 percent of the population does not live in identified 

Special Flood Hazard Areas, yet they must continue to support large outlays each 

year for disaster relief for flooding of uninsured buildings and rebuilding damaged 

infrastructure in flood areas, including the possibility of having to cover the $17.75 

billion debt of the NFIP. Yet those same taxpayers obtain few, if any, of the benefits 

of that development. This points out the need to tie program outcomes of the NFIP 

to these other programs such as FEMA’s disaster relief programs and programs of 

HUD, DOT, USDA, and others. 

The U.S. Army Corps of Engineers has adopted the comprehensive flood risk management approach in many of its programs at the national level. For this approach 

to be successful for the Nation, FEMA must also actively promote the concept and 

integrate its programs for the NFIP, mitigation and disaster relief internally, and 

must integrate them with other Federal programs that impact flood risk. 

11. Future changes in flood levels and sea-level rise should be reflected in flood 

mapping and risk data and long term adaptation strategies should be programmed 

into the land use and planning provisions of the NFIP and mitigation planning. It 

is clear that many parts of the Nation are experiencing more intense rainfall and 

storm events. The Mayor of Des Moines, Iowa, relates how his community suffered 

a 500-year flood event in three consecutive months during the summer of 2010. Sea 

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levels have fluctuated over time and the current pattern shows an accelerated rise 

through at least the year 2100. FEMA flood maps need to reflect these future conditions so communities have the data to implement adaptation and mitigation strategies. This is essential in order for communities to be economically and socially sustainable and to incorporate resiliency in infrastructure and development now when 

it is incrementally less expensive versus later when it will be much more expensive 

to retrofit these facilities. 

12. FEMA is authorized to delegate to qualified States the administration of the 

post-disaster mitigation grant program authorized in the Stafford Act and known 

as the Sec. 404 Hazard Mitigation Grant Program. If selected States develop the capacity necessary for that delegation, FEMA should also delegate the authority to administer the NFIP-funded grant programs where appropriate. ASFPM continues to 

focus on building State capacity. We believe that those States which have developed 

the capacity to assume program administration are in the best position to efficiently 

and effectively carry out the purpose of reducing flood losses. 

13. ASFPM concurs with many recommendations for a longer-term reauthorization 

for the NFIP to avoid the dislocations for the housing market, lenders, and insurers 

when the program undergoes periods of lapsed authority. In view of the ‘‘Re-Thinking the NFIP’’ effort, Congress could direct FEMA to perform necessary studies from 

the policy options for major policy reform consideration at the end of that 5-year 

authorization. This would facilitate the Committee taking action on FEMA’s findings and recommendations in 2016. 

The Association of State Floodplain Managers appreciates this opportunity to 

share our observations and recommendations with the Senate Committee on Banking, Housing and Urban Affairs as you consider reauthorization and reform of the 

National Flood Insurance Program. We look forward to answering any questions you 

may have and to assisting in any way that is helpful as you develop legislation. 

PREPARED STATEMENT OF ADAM KOLTON 

EXECUTIVE DIRECTOR, NATIONAL ADVOCACY CENTER, NATIONAL WILDLIFE

FEDERATION, ON BEHALF OF THE SMARTER SAFER COALITION

JUNE 23, 2011 

Good Morning Chairman Johnson, Ranking Member Shelby, and Members of the 

Committee. I am Adam Kolton and I serve as the Executive Director of the National 

Advocacy Center of the National Wildlife Federation (NWF), the Nation’s largest 

conservation education and advocacy organization with more than four million members and supporters and affiliate conservation organizations in 47 U.S. States and 

territories. We greatly appreciate the opportunity to offer our views on the need to 

reform the National Flood Insurance Program (NFIP). 

At the outset let me express our concern over the impact that the recent and ongoing record breaking flooding is having on thousands of people across America’s 

heartland. The first priority of the Federal, State, and local government is appropriately focused now on preventing loss of life, minimizing property damage, and assisting those in need with all resources possible. At the same time it’s imperative 

that we not miss this opportunity to reform Federal policies so that we are better 

prepared for and can better protect people and communities from future storms and 

floods. In that regard, reforming the National Flood Insurance Program could not 

be more urgent. 

National Wildlife Federation has joined forces with a uniquely diverse set of interests that includes other national conservation organizations, insurance and reinsurance companies and associations, housing advocacy groups, taxpayer and free market think tanks, and others to form the Smarter Safer coalition (list attached). 

While each Smarter Safer member has different underlying motivations and interests we all support the same goal—environmentally responsible, fiscally sound approaches to natural catastrophe policy that promote public safety. We all believe 

that the NFIP is broken and in desperate need of reform. 

The unprecedented string of flooding disasters including Hurricanes Katrina, 

Rita, and Wilma in 2005, Hurricane Ike and the Midwest floods of 2008, the New 

England Floods of 2010, and this year’s Midwest floods that continue to unfold along 

the Mississippi, Missouri, and Ohio Rivers have strained the flood program. These 

events caused tremendous damage, threw the program into record level debt and 

highlighted the limited effectiveness of the Nation’s floodplain management strategy 

to protect property owners and reduce Federal disaster relief expenditures. 

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The NFIP is in the most serious trouble of its entire 43-year history and, without 

significant reform, it could be in danger of eventual collapse. The NFIP is currently 

$18 billion in debt to the U.S. Treasury, and that amount is likely to increase in 

the near future as a result of recent flooding. With annual revenues of only $3 billion, FEMA Administrator Fugate recently testified that it will be virtually impossible to repay the debt. The NFIP is essentially bankrupt. 

The program has essentially been bailed out by U.S. taxpayers, and given the 

many problems the program continues to face, we have little reason to believe that 

without major changes this scenario will not repeat itself over and over in the future. We do not believe the public or Congress will continue to support the program 

under such conditions. 

While the program has established some minimum standards for flood risk management, which are now in place in most communities, the NFIP has fundamentally 

failed to keep pace with and to substantially discourage and reduce the buildup of 

flood risks and damages across the Nation. It has also contributed to the deterioration and loss of important floodplain and coastal habitat areas and the serious decline of valuable and sensitive ecosystems. The NFIP minimum standards have 

changed little since the program was initiated over 40 years ago. Standards are so 

weak that even when properly enforced they virtually guarantee increasing flood 

losses. In addition, these standards remain in desperate need of updating, strengthening and reform. 

The NFIP was originally founded on a strategy developed by eminent scientists 

and Government officials in the early 1960s, which combined the ideas of identifying 

flood risks (generally through mapping), developing and implementing risk-reducing 

land use and building codes, and providing affordable insurance that was not otherwise available in the private markets. It was believed that the NFIP would slowly 

reduce the amount of development of the floodplain. Forty-three years later, we find 

major failures on each of these fronts. This is in large part due to the failure to 

charge actuarially sound rates, the failure to aggressively mitigate risks, and the 

failure to protect the vital functions that floodplains perform. National flood damages, instead of decreasing as the program’s founders would have hoped, are now 

rising at alarming levels. 

The Smarter Safer Coalition has formulated a proposal to reform the National 

Flood Insurance Program that we believe will better protect taxpayers; will protect 

environmentally sensitive areas; will ensure that people understand their true risks; 

and will encourage mitigation of homes, property and communities. Our proposal focuses on the following (full proposal attached): 

• Flood maps must be accurate, up to date, and based on the best science available. This will ensure that people understand their true risk and will increase 

the confidence in FEMA’s ability to accurately assess risk. 

• The NFIP must charge rates that are based on true risk. This will reduce the 

burden on taxpayers, encourage private sector engagement, and allow market 

forces to direct development toward higher ground. 

• Finally, the NFIP must incentivize and encourage mitigation with an increased 

emphasis on protection of natural ecosystem functions, in lieu of subsidizing development in environmentally sensitive areas. 

My testimony today will focus on necessary reforms that must be made to ensure 

the survival and viability of the National Flood Insurance Program in each of these 

key areas: rates, mapping, and mitigation. But first, allow me to explain the National Wildlife Federation’s underlying interest in the NFIP and its reform—the protection of America’s floodplains. 

The NFIP Must Protect Floodplain Functions 

Floodplains, the flood-prone bottomlands that cradle rivers, streams, and oceans 

are where the land and the waters meet. Naturally functioning floodplains provide 

vital habitat for countless species. These areas provide breeding, foraging, and other 

life cycles and grounds for a variety of plants, insects, reptiles, amphibians, birds, 

and mammals. Floodplains are also crucial to the survival and recovery of many 

threatened and endangered species, including salmon, steelhead trout, sturgeon, 

and sea turtles. Alterations to floodplains, however, create multiple threats to wildlife through a range of impacts including: changing the flow and hydrology of rivers; 

eliminating wetlands and side channels, nesting, and other important habitat areas; 

straightening and deepening channels; and causing siltation, nutrient, and other 

water quality problems. 

Additionally, floodplains, in their natural form, provide an array of environmental 

and public health benefits, including: reducing the number and severity of floods; 

fostering vegetation to limit nonpoint water pollution from storm water runoff; proVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00145 Fmt 6621 Sfmt 6621 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
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1Testimony of Craig Fugate, Administrator, Federal Emergency Management Agency, Department of Homeland Security before the Subcommittee on Housing and Community Opportunity, Committee on Financial Services, House of Representatives. April 21, 2010, p. 4. Available at http://www.house.gov/apps/list/hearing/financialsvcsldem/fugatel4-21-10.pdf. 

viding a tree canopy for shade to moderate temperature extremes in adjacent rivers 

and streams, which in turn increases dissolved oxygen levels and consequently improves habitat for aquatic plants and animals; allowing water to recharge underground drinking water aquifers; and providing aesthetic beauty and outdoor recreation benefits. 

The current floodplain management system in the United States is not working. 

Instead of reducing floodplain development, one of the NFIP’s original goals, it has 

incentivized and exacerbated development. The result has been large-scale loss and 

alteration of floodplains, as these important natural systems have been developed, 

filled, and leveed off due in part to ill-conceived NFIP policy choices. As such, landuse patterns have been altered, impairing the ability of the systems themselves to 

provide natural flood protection values. We are bearing the high costs of these policy 

failures: increased flood risk and flood intensity, habitat loss and destruction, the 

placement of people in harm’s way, and economic devastation when floods hit. Between 1978 and 2008, the number of NFIP policies in force has nearly quadrupled 

from 1.4 million to 5.6 million. And as more and more properties are located in 

floodplains, the ecological benefits they provide are being further degraded or lost. 

The Federal Government has done far too little to protect floodplains, and what 

it has done has too often been ineffective. Not only does the current system fail to 

discourage people from building and rebuilding in vulnerable locations, it also uses 

taxpayers’ dollars to encourage and enable development by subsiding flood insurance rates and masking the true cost of risk associated with this type of development. This is the primary reason the NWF and its conservation partners take an 

extremely serious interest in the NFIP. 

FEMA Mapping Must Use the Best Available Science To Accurately Reflect 

Risk and Place a Priority on Natural Resources Protection 

The NFIP is dependent upon the accuracy of its flood insurance rate maps. They 

show whether a property lies within the 100-year floodplain (and in some cases, the 

500-year floodplain), high-risk storm surge zone, floodway, or Coastal Barrier Resource Area and ultimately are the basis for the premiums associated with a property. The maps are key to the program’s success or failure. They must be up-to-date, 

accurate and based on the best available science. This is why we support FEMA’s 

Risk Map program and recognize its impact on the long term fiscal viability of the 

NFIP. However, we believe that Congress should mandate that maps be updated in 

a way that ensures they are as accurate as possible. 

The Nation’s floodplains are dynamic. Changes include not only natural forces, 

but also the impacts of development, weather patterns, and topographical changes. 

Areas that were previously less prone to flooding may now be at greater and increasing risk of flooding. Levees that were thought to provide 100-year (1 percent 

annual chance) protection a decade ago may now provide far less protection due to 

poor maintenance, heightened flood elevations due to increasing runoff, new development, increased weather intensity, or sea-level rise. 

Since 2003, FEMA has been working to update thousands of flood maps. In addition, levees are being reviewed and in many cases decertified and losing accreditation for not meeting the required levels of protection. According to FEMA, the Nation’s special flood hazard areas (SFHA) have grown in size by 7 percent. While in 

some cases map updates have revealed more land and housing vulnerable to flooding, in other areas fewer areas are vulnerable. In fact, the number of housing units 

in SFHAs has seen a net decrease of 1 percent. 1

Not surprisingly, FEMA’s map updating effort has been met with some controversy. Some homeowners now face dramatic increases to their premiums, and 

others are now required to purchase insurance that was not mandated in the past, 

despite the fact that their home hasn’t moved. However, as noted above, risk levels 

and understanding of risk can change. 

Some have suggested that FEMA delay updating maps or waive building standards. But what may make good politics generally makes horrible insurance policy— 

and by extension with Federal flood insurance—bad public policy. People deserve to 

know the cost and risks of where they live, and should be responsible for insuring 

against those risks. The Smarter Safer coalition strongly opposes any effort to delay 

map changes or mandatory purchase requirements. We believe this is not only bad 

policy, but it is irresponsible. If people are in harm’s way, they must be informed 

of their risk, and they should have insurance protection. While many people believe 

143 

2 CCSP, 2008a. ‘‘Weather and Climate Extremes in a Changing Climate, Regions of Focus: 

North America, Hawaii, Caribbean, and U.S. Pacific Islands’’, a Report by the U.S. Climate 

Change Science Program and the Subcommittee on Global Change Research, [Thomas R. Karl, 

Gerald A. Meehl, Christopher D. Miller, Susan J. Hassol, Anne M. Waple, and William L. Murray (eds.)]. Department of Commerce, NOAA’s National Climatic Data Center. 3 CCSP, 2008a. ‘‘Weather and Climate Extremes in a Changing Climate, Regions of Focus: 

North America, Hawaii, Caribbean, and U.S. Pacific Islands’’, a Report by the U.S. Climate 

Change Science Program and the Subcommittee on Global Change Research, [Thomas R. Karl, 

Gerald A. Meehl, Christopher D. Miller, Susan J. Hassol, Anne M. Waple, and William L. Murray (eds.)]. Department of Commerce, NOAA’s National Climatic Data Center. 4 Id. 

that the Federal Government will write blank checks after a natural disaster, in 

general, the Federal Government pays little for the uninsured losses of individuals. 

Federal disaster payments focus principally on debris clean-up and rebuilding of 

public structures and infrastructure, and are only available in presidentially declared disasters. Homeowners who suffer losses can access temporary assistance 

through FEMA and may be allowed to apply for an SBA disaster assistance loan. 

However, if people are not covered by flood insurance, they will often have limited 

resources to rebuild after a flood. If they are not required to purchase flood insurance, many fail to purchase it and they will be unable to rebuild after a flood. 

To ensure that maps are accurate and fair, the Smarter Safer coalition proposes 

that Congress create a Technical Advisory Mapping Council. Much like the one this 

Committee included in its 2008 reform legislation, this council would develop new 

standards for flood insurance rate maps that would incorporate true risk, be graduated, and reflect both realities on the ground—both man-made and natural. Such 

a council should include a broad membership including representatives from all impacted Federal agencies, as well as experts with technical expertise in mapping natural and beneficial floodplain functions. This will ensure that maps are accurate and 

comprehensively designed to assist communities and FEMA with high quality flood 

hazard identification, insurance rating, and effective floodplain management. 

We propose that the standards they create ensure that maps accurately detail 

risk, requiring that rate maps be graduated to include not only the 100-year floodplain, but also the 10-, 50-, 200-, 250-, and 500-year floodplain areas (for example) 

and residual risk areas and associated depths of flooding, along with other floodrelated hazards and important habitat and key natural ecosystem functions areas 

and be graduated further to include additional risk areas. While it has been expedient to list whether a property is located in or out of a floodplain (special flood hazard area), that does not reflect real risk. We believe maps should be as graduated 

as possible, so that a homeowner knows if they are in a 10-year floodplain or a 70- 

year floodplain. The council should ensure that maps meet current topographic conditions, account for altered hydrology from fill, and reflect natural features that 

mitigate risk like wetlands and riparian buffers. 

These standards also must address the issue of levee decertification. Like the 100- 

year floodplain, FEMA’s rate maps are currently based on an in-out model. When 

a levee is no longer accredited to provide protection from a 100-year flood, FEMA’s 

maps are redrawn as if the levee is not in existence. Again, while this may have 

been expedient in the past, it does not reflect real-life conditions. Our proposal will 

require FEMA to take into account each levee based on the level of protection each 

confers. 

Finally, the Technical Mapping Advisory Council must address the impacts of sealevel rise and likelihood of increasing storm surges and precipitation events as it 

pertains to increased risk to policyholders. While members of Smarter Safer may 

disagree on the causes of these phenomena, we all agree that in recent years we’ve 

experienced heavier rainfall, changing patterns of snowfall, more severe hurricanes, 

and increasing sea levels, all of which will increase flooding risk. Across the Nation, 

precipitation is already more likely to fall in heavy downpours than in light sprinkles, a trend a large number of scientists expected to continue. 2 3

The trends are troubling: 

• In the Midwest and Northeast, big storms that historically would only be seen 

once every 20 years are projected to happen as often as every 4 to 6 years by 

the end of the 21st century. 4

• Winter precipitation is beginning to shift toward more rain instead of snow. The 

fraction of wintertime precipitation falling as snow declined by 9 percent since 

1949 in the Western United States and 23 percent in the Northeast. The biggest 

144 

5 Id. 

6 Hamlet, A.F., and D.P. Lettenmaier, 2007. ‘‘Effects of 20th Century Warming and Climate 

Variability on Flood Risk in the Western U.S.’’, Water Resources Research 43:W06427. 7Mapes, L.V., January 1, 2010, 2009. ‘‘Was a Year of Weather Extremes’’, The Seattle Times. 8Knutson, T.R., et al., 2010. ‘‘Tropical Cyclones and Climate Change’’, Nature Geosciences Advance Online Publication on February 21, 2010, DOI: 10.1038/NGEO779. 9Knutson et al., 2010. 10 CCSP, 2008a. 11Knutson et al., 2010. 12 Id. 13 Intergovernmental Panel on Climate Change (IPCC), 2007. ‘‘Climate Change 2007: The 

Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of 

the Intergovernmental Panel on Climate Change’’ [Solomon, S., D. Qin, M. Manning, Z. Chen, 

M. Marquis, K.B. Averyt, M. Tignor, and H.L. Miller (eds.)]. 

shifts from snow to rain are in March for all regions studied, December in New 

England, and January along the Pacific coast. 5

• Rain-on-snow events may become more common in some locations. 6 Recent 

events in the Pacific Northwest have caused extensive and notable flooding. In 

January 2009, tens of thousands were evacuated and major transportation 

routes were closed when 10 inches of rain fell over 2 days, causing major snow 

melt and flooding in western Washington State. 7 At the same time, scientists 

have been gaining confidence in projections for more intense hurricanes and 

tropical storms in the future, even as they continue to debate whether they can 

detect the signal of climate change in the records of past storms. The latest 

studies indicate that hurricanes will have stronger winds and more rainfall, but 

will become somewhat less frequent. 8

• The mean maximum wind speed of tropical cyclones is likely to increase by 2 

to 11 percent globally by the end of the century. The biggest changes may occur 

for the most intense storms, with the wind speeds of these storms increasing 

by a significantly larger percentage. 9 While these changes in wind speed may 

seem small, they can translate into large increases in damages. For example, 

a 10 percent increase in wind speed of a category four hurricane can increase 

damages by about 50 percent. 10

• All climate models project more rainfall from tropical cyclones in a warmer climate. The latest projections are that rainfall from hurricanes may increase from 

3 to 37 percent. 11 The average increase projected by the late 21st century is 

about 20 percent within 62 miles of the storm center. 12

Sea-level rise will further increase the vulnerability of States along the Gulf and 

Atlantic coasts to storm-surge flooding. When a tropical storm hits, higher sea level 

translates into bigger storm surges that can cause flooding further inland. Sea-level 

rise will also endanger coastal wetlands and barrier islands that form a first line 

of defense and help buffer coastal areas against hurricanes and storm surges. Even 

in the unlikely circumstance that the characteristics of tropical cyclones do not 

change, scientists are highly confident that sea level is rising and that coastal areas 

will have a greater risk of damaging storm surge. Globally, sea level has already 

increased by about seven inches over the past century due to thermal expansion of 

water and the melting of land-based glaciers and ice. 13 Additional increases in sea 

level are considered inevitable; the question only remains is how much and how 

fast. 

For these reasons, the NFIP must find a way to account for these changes to accurately assess and underwrite increased risks of flooding throughout the country. 

Smarter Safer strongly believes that mapping underlies the whole flood program 

and if maps are not accurate the program will be constantly undermined. 

Rates Must Reflect Risk 

Currently, NFIP insurance rates do not reflect actual risk of flood damage. The 

NFIP does not charge market-based or risk-based rates, or increase rates based on 

previous loss experience. The program’s goal of fiscal solvency is defined as charging 

premiums that will generate enough revenue to cover a historical average loss year. 

That means catastrophic loss years are largely left out of the equation. The program 

covers any fiscal shortfalls by borrowing from the U.S. Treasury, which is a significant subsidy in itself, especially since the loans are virtually interest free. 

Perhaps the best example of the program’s failure regarding rates can be demonstrated by the alarming number of repetitive loss properties that account for payouts. In 1998, NWF completed and released a landmark report, Higher Ground, on 

the NFIP repetitive flood loss properties—those that have two or more paid claims 

of at least $1,000 each over a rolling 10-year period. At that time our report showed 

145 

14 United States Government Accountability Office. GAO-08-437. Report to the Ranking Member, Committee on Banking, Housing, and Urban Affairs, U.S. Senate. National Flood Insurance 

Program. Financial Challenges Underscore Need for Improved Oversight of Mitigation Programs 

and Key Contracts, p. 18. 

there were 74,501 repetitive loss properties in the NFIP. While only approximately 

2 percent of insured properties, but with 200,182 paid claims from 1978–1995, 

which had cost the NFIP $2.581 billion, they represented approximately 40 percent 

of all claims paid. More recently, despite Congress’ efforts in the 1994 and 2004 

Flood Insurance Reform Acts, the total number of repetitive loss properties has 

grown to 153,000 repetitive loss properties with 447,700 claims that have cost the 

NFIP $10.692 billion. Within these properties, 9,129 properties are ‘‘severe repetitive losses’’ with 50,607 total losses that have cost the NFIP over $1.5 billion. These 

types of losses cannot be sustained. 

NFIP’s fiscal solvency is further challenged because properties that predate a 

community’s involvement in the NFIP or the applicable flood insurance rate map 

(whichever is later) enjoy significantly subsidized rates, paying only 35 to 40 percent 

of their actual full-risk level premium. While the initial thought may be that because of their vulnerability these pre-FIRM (Flood Insurance Rate Map) properties 

wouldn’t be long for this world, according to GAO in 2008, over 1.1 million properties, or 25–30 percent of the program, was subsidized. FEMA puts the percentage 

of properties in the NFIP receiving explicitly subsidized rates at more than 20 percent. 14

As the Committee begins to draft a reauthorization bill, we urge you to address 

this issue by moving all rates towards risk-based over a 5-year period. We believe 

that this Committee made a good start with the Flood Insurance Reform and Modernization Act of 2007 by requiring that certain properties (including nonprimary 

residences; severe repetitive loss properties; commercial properties; properties damaged over 50 percent of the home’s value; and properties improved by over 30 percent of the home’s value) phase up to actuarial rates over 4 years, and by raising 

the limit of annual policy increase from 10 to 15 percent. These are great steps, but 

in light of recent conditions and a growing deficit, we urge the Committee to go further. 

We believe that to prevent further taxpayer bailouts, and to ensure the program 

does not incentivize building in harmful and environmentally sensitive areas, all 

rates must be based on risk. The coalition believes that properties should begin paying risk-based rates, through a phase in over a period of no longer than 5 years. 

We understand that there may be some homeowners who are unable to pay riskbased rates; however, that population is limited. For that limited population, we recommend establishing a subsidy system; however, any subsidies should be fully divorced from the insurance rates. Subsidies could be limited to those only with true 

affordability issues, and could be paid for through surcharges on higher-end properties. Currently, million dollar homes receive the same subsidies as homes valued 

at $100,000. We believe that in this current fiscal environment, we should not be 

providing subsidies to people who do not need Federal assistance. 

I want to stress that it is imperative that any subsidy mechanism be separate 

from the rate structure of the NFIP. Tying these two issues together masks and exacerbates risk. Once rates are risk-based, the program will be better positioned to 

encourage mitigation and the private sector will be in a position to compete with 

the Federal Government, helping to lower risk to the U.S. taxpayer. Until rates are 

risk-based, the NFIP cannot fully incentivize mitigation. Once rates are based on 

risk, NFIP could provide discounts if homeowners undertake mitigation that lowers 

their risk. 

NFIP Community Eligibility Criteria Must Reduce Flood Risk to People 

and Protect and Restore Natural Resources 

We urge the Committee to consider addressing the community participation eligibility criteria in the NFIP to require adequate protection or restoration of natural 

resources and the functions of floodplains that benefit communities and species. 

This current oversight misses an important opportunity to better protect the public 

and beneficial natural resources. 

Eligibility criteria must be enhanced so that participation in the NFIP requires 

communities to maintain or improve the habitat and flood management values of 

floodplains. NWF believes that this can be addressed by taking the following principles into account. First, the program should restrict or prohibit development in 

floodplains in high hazard and environmentally sensitive areas unless it is shown 

to have no adverse effect on natural resources or can be fully and sustainably mitigated. Second, repairs or improvements to existing structures should include mitigaVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00149 Fmt 6621 Sfmt 6621 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
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15 Congressional Budget Office. Review of H.R. 5114, Flood Insurance Reform Act of 2010. 

May 17, 2010. 

tion for damage to natural resources. Third, all mitigation should prefer nonstructural means and must account for the impacts of climate change. Fourth, voluntary buyouts of homes and businesses in high flood risk areas should be promoted 

with appropriate lands dedicated to open space uses. Fifth, communities participating in the NFIP should be required to strengthen land-use and building code 

standards and provide increased incentives to encourage communities to use higher 

standards. This should include requiring higher building freeboard; limiting use of 

floodplain fill to exempt areas from flood insurance purchase requirements; eliminating the 1-foot rise for determining floodways; greater use of open-space and low 

density zoning; protection of natural shorelines; identifying additional no-build 

zones for public safety and protecting natural floodplain functions; establishing 

building setbacks for maintaining flood conveyance, shoreline erosion zones, and 

natural channel migration; and employing low-impact development methods to prevent and/or minimize the degradation of floodplain habitat. Finally, Congress must 

encourage or require FEMA to bring the NFIP into compliance with the Endangered 

Species Act (ESA) and other conservation laws to prevent harm to ESA listed species affected by floodplain development. 

FEMA’s Community Rating System Must Be Improved 

FEMA’s Community Rating System is a voluntary incentive program designed to 

encourage communities to go beyond the minimum standards of the NFIP. If a community takes mitigation steps, the premiums of individual policyholders are reduced. However, individuals only have so much sway over the mitigation decisions 

of their local governments. Local government officials must have an incentive to 

make smart mitigation decisions. FEMA must take steps to address this shortcoming and bolster incentives for participation in the program. 

One way to do this is for FEMA to offer this incentive through a voluntary, community-based flood insurance policy in which a local government holds a policy that 

covers homes and buildings in their jurisdiction. A local government will be more 

likely to undertake mitigation steps that will reduce their risk and the cost of flood 

insurance if they are also responsible for paying the flood insurance bill. This idea 

holds great potential to improve floodplain management decision making on a local 

level. We recommend that the Senate authorize the GAO and FEMA to study the 

feasibility and implementation of community-based flood insurance, including authorization for a pilot program with volunteering communities. 

The NFIP Must Encourage Mitigation of Natural Features To Protect 

Against Flooding 

We strongly support measures that would encourage and assist homeowners in 

taking steps to mitigate damage to protect their homes against natural disasters. 

As claims to the program increase, the need to implement techniques and activities 

to mitigate flood damage is reinforced. The NFIP has already encouraged this 

through NFIP-funded hazard mitigation grant programs, created with bipartisan 

support, which have successfully reduced property damage, protected floodplains, 

and reduced the financial burden on the program. In light of these benefits, Smarter 

Safer has urged Congress to streamline, consolidate, and permanently extend the 

NFIP-funded grant programs under the Flood Mitigation Assistance (FMA) Program. 

Currently, FEMA administers three separate programs to help property owners 

and communities mitigate against flood damage: the Flood Mitigation Assistance 

(FMA) Program provides funds to assist States and communities to implement 

measures that reduce or eliminate the long-term risk of flood damage to buildings, 

manufactured homes, and other structures insured under the National Flood Insurance Program; the Severe Repetitive Loss (SRL) program provides funding to mitigate SRL structures insured under the NFIP to reduce or eliminate the long-term 

risk of flood damage; and the Repetitive Flood Claims (RFC) grant program provides 

similar direct assistance to reduce flood damages to insured properties in communities that don’t have the capacity to undertake mitigation activates. Given that 

every one dollar spent on mitigation yields a return of four dollars in avoided losses, 

these programs have helped slow the growth of the program’s enormous $18 billion 

deficit. Furthermore, in its review of H.R. 5114, the Flood Insurance Reform Act of 

2010, CBO noted that ‘‘[o]ver the next 10 years, some or all of the costs of the mitigation program may be offset by lower claim payments, depending on the effectiveness of the mitigation efforts.’’ 15

147 

Yet as effective as these programs have been, they can be made more effective 

and efficient by consolidating the RFC and SRL Grant Programs into the Flood 

Mitigation Assistance Program as subsets. Doing so would allow the SRL program 

to reach its full potential, by reducing the burden that SRL properties have on the 

NFIP, and improving participation in RFC grant program by allowing FEMA or 

States to work directly with property owners if communities decline to participate. 

This solution does not change the net authorization levels for the combined programs, funding for which comes from the transfer of funds from the National Flood 

Insurance Fund rather than the general treasury. It would, however, reduce bureaucracy and cost and allow FEMA to continue to help communities and property 

owners reduce flood damage and claims to the NFIP. These cost savings would reduce the program’s burden to taxpayers, safeguard communities, help restore the 

fiscal soundness of the NFIP, and better manage our Nation’s floodplains. We urge 

the Committee to consider this important fix as you begin to draft an NFIP bill. 

FEMA Should Consider Reinsurance To Ensure Risk and Protect Taxpayers 

We were pleased to see that the House included in its bill authority for FEMA 

to purchase private reinsurance. This is one of the few means available to FEMA 

to reduce the risk on Federal taxpayers and move the program to safe and sound 

financial practices. Like a ‘‘real’’ insurance company, the NFIP would retain some 

risk and buy protection in the private market for catastrophic exposures. This is a 

prudent step and one we hope the Senate will emulate. 

Conclusion: A New Approach to the Nation’s Flooding Problems 

As we begin to assess the damage from some of the most severe flooding since 

1927, it is critical that Congress not miss this opportunity to substantially reform 

the NFIP to better protect people, property and the environment. We urge the Committee to pass a strong, comprehensive reform bill that improves flood risk mapping, 

ensures risk-based rates and incentivizes mitigation by individuals and communities. Reforming the NFIP can lead to less development and redevelopment in some 

of the most high risk sensitive areas, better land-use planning, and significant savings for U.S. taxpayers. 

PREPARED STATEMENT OF BARRY RUTENBERG 

FIRST VICE CHAIRMAN OF THE BOARD, NATIONAL ASSOCIATION OF HOME BUILDERS

JUNE 23, 2011 

Introduction 

Chairman Johnson, Ranking Member Shelby, and Members of the Senate Committee on Banking, I am pleased to appear before you today on behalf of the 160,000 

members of the National Association of Home Builders (NAHB) to share our views 

concerning efforts to reform the National Flood Insurance Program (NFIP). We appreciate the invitation to appear before the Committee on this important issue. My 

name is Barry Rutenberg and I am the First Vice Chairman of the Board for NAHB 

and a home builder from Gainesville, Florida. 

NAHB commends the Committee for addressing reform of the NFIP program. As 

we have seen this year, floods can devastate every part of the country—even areas 

we would never think of, and for this reason, NAHB wants to be very clear that 

it strongly supports a long-term program reauthorization. We believe a 5-year term 

is the only way to provide a steady foundation on which to build program revisions 

and ensure the NFIP is efficient and effective in protecting flood-prone properties. 

As you know, 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 

and caused severe problems for our Nation’s already troubled housing markets. During these uncertain times, 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 stop or delay construction on a new home due to the 

lack of flood insurance approval, adding unneeded delay and job loss. NAHB believes a long-term extension will ensure the Nation’s real estate markets operate 

smoothly and without delay. We therefore commend the Committee for making this 

issue a priority. 

Background 

The Federal Emergency Management Agency’s (FEMA) National Flood Insurance 

Program (NFIP) plays a critical role in directing the use of flood-prone areas and 

managing the risk of flooding for residential properties. The availability and affordVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00151 Fmt 6621 Sfmt 6621 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
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ability of flood insurance gives local governments the ability to plan and zone their 

entire communities 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, 

even when the home lies in or near a floodplain. The home building industry depends upon the NFIP to be annually predictable, universally available, and fiscally 

viable. A strong, viable national flood insurance program enables the members of 

the housing industry to continue to provide safe, decent, and affordable housing to 

consumers. The NFIP provides flood insurance to over 5 million policyholders, enabling homeowners to protect their properties and investments against flood losses. Further, the 

NFIP creates a strong partnership between State and local governments by requiring them to enact and enforce floodplain management measures, including building 

requirements that are designed to ensure occupant safety and reduce future flood 

damage. This partnership, which depends upon the availability of comprehensive, 

up-to-date flood maps and a financially stable Federal component, allows local communities to direct development where it best suits the needs of their constituents 

and consumers. This arrangement has, in large part, worked well. Unfortunately, 

the losses suffered in the 2004 and 2005 hurricane seasons, including the devastation brought about by Hurricanes Katrina, Rita, and Wilma, have severely taxed 

and threatened the solvency of the NFIP. 

According to FEMA, between the NFIP’s inception in 1968 through 2004, a total 

of $15 billion has been needed to cover more than 1.3 million losses. The 2004 hurricane season required close to $2 billion in NFIP coverage, and the 2005 hurricane 

season resulted in payments totaling over $13.5 billion. Combined claims for these 

2 years exceeded the total amount paid during the previous 37-year existence of the 

NFIP program. While these losses are severe, they are clearly unprecedented in the 

history of this important program, as losses since that time have dropped significantly (e.g., $612 million in 2007 and $773 million in 2009). Thus, in our opinion, 

the losses of 2004 and 2005 are not a reflection of a fundamentally broken program. 

Nevertheless, NAHB recognizes the need to ensure the long-term financial stability 

of the NFIP and looks forward to working with this Committee to consider and implement needed reforms, including the possibility of privatizing the NFIP. 

While NAHB supports reform of the NFIP to ensure its financial stability, it is 

absolutely critical that Congress approach this reauthorization with care. The NFIP 

is not simply about flood insurance premiums and payouts. Rather, it is a comprehensive program that guides future development and mitigates against future 

loss. NAHB believes a financially stable NFIP is in all of our interests, and the 

steps that Congress takes to ensure financial stability have the potential to greatly 

impact housing affordability and the ability of local communities to exercise control 

over their growth and development options; thus any such steps must be carefully 

designed and implemented to minimize these real impacts. 

NAHB Supports Thoughtful NFIP Reforms 

The unprecedented losses suffered in 2004 and 2005 have severely taxed and 

threatened the solvency of the NFIP. While these events have been tragic, sobering, 

and have exposed shortcomings in the NFIP, any resulting reforms must not be an 

overreaction to unusual circumstances. Instead, reform should take the form of 

thoughtful, deliberative, and reasoned solutions. A key step in this process is to take 

stock of where we are today, what has worked, and what has not. 

An important part of the reform process is determining what area or areas of the 

NFIP are in actual need of reform. In the past, a key tool in the NFIP’s implementation, the Flood Insurance Rate Maps (FIRMs), have been recognized by Congress to 

be inaccurate and out-of-date. Through the strong leadership of both Chambers, 

FEMA is completing its map modernization effort to digitize, update, and modernize 

the Nation’s aging flood maps. While FEMA was successful in digitizing most of the 

FIRMs, not all are based on updated hydrologic data and a recent National Academy of Sciences report faulted some of the maps because of a lack of reliable topographical data. As a result of these data deficiencies, there are large discrepancies 

between what was mapped as the 1-percent annual chance of flood (100-year floodplain) decades ago and what areas may be reflected as falling within the 1-percent 

annual chance of flood on the newer maps, and what the actual 1-percent annual 

chance of flood is today. While FEMA is currently addressing this oversight through 

its RISKMAP program, NAHB believes that continued Congressional oversight is 

necessary. Ensuring the scientific validity of the maps, as well as ensuring that they 

reflect the true risks to property is an extremely important step for all who rely on 

NFIP. It is for this reason that NAHB supports the establishment of a Technical 

Mapping Advisory Council, as proposed in the House bill H.R 1309. We are hopeful 

149 

1Procedure Memorandum No. 64—http://www.fema.gov/library/viewRecord.do?id=4312 (see, Appendix). 

that if such a council is approved, it would also result in further collaboration and 

coordination among the agencies and the private sector, thus leading to regular dialog to help ensure that the NFIP is working as intended. 

Fixing the maps, however, is merely the first step. In an attempt to improve both 

the solvency of the program and its attractiveness to potential policyholders, NAHB 

supports a number of reforms designed to allow FEMA, through the NFIP, to better 

adapt to changes to risk, inflation, and the marketplace. Increasing coverage limits 

to better reflect replacement costs, for example, would provide more assurances that 

legitimate losses will be covered and improve program solvency by generating increased premiums. Similarly, the creation of a more expansive ‘‘deluxe’’ flood insurance option, or a menu of insurance options from which policyholders could pick and 

choose, could provide additional homeowner benefits while aiding program solvency. 

Finally, increasing the minimum deductible for paid claims would provide a strong 

incentive for homeowners to mitigate and protect their homes, thereby reducing potential future losses to the program. 

The NFIP and its implementing provisions were not created solely to alleviate 

risk and generate premiums. They were created to balance the needs of growing 

communities with the need for reasonable protection of life and property. Part and 

parcel of this is the need for regulatory certainty and expedient decision making. 

First, the NFIP must continue to allow State and local governments, not the Federal 

Government, to dictate local land-use policies and make decisions on how private 

property may be used. While officials at all levels of government must work together 

so that lives, homes, schools, businesses and public infrastructure are protected 

from the damages and costs incurred by flooding, the local communities must provide the first line of defense in terms of land-use policies and practices. It is clear 

that the NFIP was specifically designed to allow this to occur, as the availability 

of flood insurance is predicated on the involvement of the community and relies on 

the breadth of activities that local governments can (and do) take to protect their 

citizens and properties from flood damage. 

Additionally, FEMA must better coordinate its activities with those of other Federal agencies who have oversight over other Federal programs. For example, FEMA 

recently began requiring certain property owners to demonstrate compliance with 

the Endangered Species Act (ESA) prior to FEMA issuing them a Conditional Letter 

of Map Revision. 1 To do so, FEMA must engage the U.S. Fish and Wildlife Service 

or the National Marine Fisheries Service in an extensive consultation to determine 

the potential impacts on the endangered species in question and to develop any 

steps that could be taken to mitigate any adverse effects. FEMA, however, has 

claimed it does not have to resources to conduct the review and has deflected its 

responsibilities to the landowner. Not only does this cause confusion, but FEMA’s 

dereliction of duties places landowners in a no-win situation, creating project delays, 

increased construction costs, and a decreases in housing affordability. As NAHB 

does not believe that the NFIP is a proper trigger for the ESA, we are hopeful that 

any legislation will clarify that such consultations are unnecessary. Likewise, we 

are hopeful that FEMA will work to improve collaboration and cooperation with the 

other Federal, State, and local entities as this program continues to evolve (see, Appendix). 

Similarly, NAHB believes FEMA could do a better job of coordinating and overseeing local efforts to implement building codes as part of a community’s floodplain 

management program. In an effort to address this shortcoming, past NFIP bills 

have asked for a report on the inclusion of building codes in floodplain management 

criteria. While NAHB supports efforts to allow FEMA to conduct a study on the efficacy, economic and regulatory impacts, and effectiveness of including national model 

building codes, NAHB believes it would be beneficial to evaluate the effectiveness 

of allowing States to continue to use the national model codes—specifically, International Building Code and International Residential Code—with State-specific 

amendments, as currently allowed. 

Past language has been unclear about exclusions and would allow State-prescribed or other privately developed building codes and standards to be considered 

in the study. This is problematic because over the last 5 years, State and local governments have begun adopting various ‘‘green’’ codes and protocols for use as mandatory building standards within their respective jurisdictions. In addition to the 

fact that these codes may not adequately consider the unique geographic needs for 

building in zones with the potential for high-impact natural disaster risks, these 

codes and standards generally exist outside of the scope of the national model code 

development bodies. As such, they can be prohibitively expensive and may not proVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00153 Fmt 6621 Sfmt 6621 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
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vide all stakeholders an opportunity to equally participate in the codes’ development. 

NAHB supports allowing FEMA to investigate the costs and benefits of using the 

national model codes with respect to floodplain management and enforcement in 

areas with high-impact weather risks. However, NAHB recommends that the study 

language be modified to focus only on the national model codes that have provisions 

to address floodplain management criteria—i.e., the International Building Code 

and the International Residential Code—and not to consider ‘‘green’’ codes, even 

‘‘green’’ codes that have been developed in accordance with the model codes development process, as such codes are not designed to accommodate affordability criteria, 

which is critical in any cost-benefit analysis. 

More importantly, NAHB believes that FEMA must maintain the flexibility for 

State and local governments to adopt innovative ways to address building needs 

that cannot be achieved through a nationally applied or privately developed code. 

As such, NAHB recommends that any study on the cost-benefit impacts of adopting 

national model building codes must include codified safeguards preserving the rights 

of State and local governments to amend the model building codes to meet specific 

local needs. Lastly, FEMA must ensure that any study on the impacts of building 

codes in NFIP be conducted with explicit prohibition against the development, implementation, or enforcement of national model codes by FEMA itself. 

NAHB Is Concerned With Potential Negative Reforms 

As Congress considers strategies to bolster the financial stability of the NFIP, 

NAHB cautions against those reforms that have far-reaching and unintended consequences, including reforms that decrease housing affordability and the ability of 

communities to meet current and future growth needs. Chief among these concerns 

are changes that would require more homeowners to purchase insurance and expand the Special Flood Hazard Area (SFHA), or expand the current Federal minimum residential design, construction, and modification standards. 

NAHB believes that modifying the numbers, location, or types of structures required to be covered by flood insurance may play an important part in ensuring the 

NFIP’s continued financial stability, but any such decision must be taken with extreme care. Two options have been widely considered in recent years. The first 

would require the mandatory purchase of flood insurance for structures located behind flood control structures, such as levees or dams. The second would mandate 

that all structures within the 1-percent annual chance of flood obtain flood insurance regardless of whether or not they currently hold a mortgage serviced by a federally licensed or insured carrier. While both of these strategies would increase the 

number of residences participating in the NFIP, buttressing the program against 

greater losses, they are not as simple as they seem. At a minimum, NAHB believes 

that before any reforms are enacted FEMA should first demonstrate 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. Only after such documentation is provided, documentation that includes the 

regulatory, financial, and economic impact of reform efforts, can Congress, FEMA, 

stakeholders, and the general public fully understand whether or not such actions 

are appropriate. 

One important component of the NFIP is the ability of communities, with the assistance of the Federal Government, to design, install, and maintain flood protection 

structures for the purpose of reducing risk. In most instances, residential structures 

located behind dams or levees that provide protection to the 1-percent-annualchance flood level are not required to purchase flood insurance. This is a planned 

trade off. In exchange for constructing adequate flood controls, structures located behind those controls are removed from the 100-year floodplain or SFHA on the relevant FIRM. Accordingly, any reforms that contemplate bringing these same residences back under a mandatory purchase requirement raise very real and powerful 

equity and fairness issues. Should Congress or FEMA produce adequate documentation indicating that the benefits of mandating flood insurance purchase for residences behind flood control structures outweigh the costs to homeowners, NAHB 

would support these residences being charged premiums at a reduced rate to reflect 

their reduced risk. A great deal of time and taxpayer money was invested to provide 

additional flood protection to these residences, and it is only fair that homeowners 

in these areas, if required to purchase insurance, be recognized for their communities’ efforts. In addition, some localities charge a levee fee on property taxes to 

residents for operation and maintenance of the levee, charging for flood insurance 

is an additional burden. 

While changes to the NFIP’s mandatory flood insurance purchase requirements 

present one set of issues, a programmatic change of the SFHA presents an entirely 

151 

2Federal Emergency Management Agency, ‘‘Homeowner’s Guide to Retrofitting’’, (Dec. 2009) 

table 3-3—Using the dollar figures in table 3-3 multiplied by a 2,200 square foot median house 

size (see, Appendix). 3Federal Emergency Management Agency, ‘‘Actuarial Rate Review: In Support of the October 

1, 2010, Rate and Rule Changes’’, (July 2010) p. 22 (see, Appendix). 

different and overwhelming set of concerns. Changing the SFHA from a 100-year 

standard (1-percent-annual chance flood) to a higher level (i.e., 500-year standard 

as described in previous bills) would not only require more homeowners to purchase 

flood insurance, but would also impose mandatory construction requirements on a 

completely new set of structures. Furthermore, those homeowners who had been in 

compliance with the 100-year standard will suddenly find themselves below the design flood elevation for the increased level. Although these structures may be grandfathered and avoid higher premiums as a result of their noncompliant status, this 

ends when the structure is sold or substantially improved. Placing these homes in 

this category impacts their resale value in a very real way, as any new buyer may 

be faced with substantially higher premiums or retrofit and compliance costs. 

Any revision of the SHFA standard would not only affect homeowners, but also 

home builders, local communities, and FEMA. An expanded floodplain means an expanded number of activities taking place in the floodplain, and a corresponding increase in the overhead needed to manage and coordinate these activities. A larger 

regulated floodplain would likely result in an increased number of flood map amendments and revisions, placing additional burdens on Federal resources to make these 

revisions and amendments in a timely fashion. Residents located in newly designated SFHAs would need to be notified through systematic outreach efforts. Communities would likely need to modify their floodplain ordinances and policies to reflect the new SFHA. In short, the entire infrastructure of flood management and 

mitigation practice and procedures that is currently institutionalized around the 1- 

percent-annual chance flood standard would need to change, all at a time when 

FEMA has admitted its lack of resources to provide current services. 

Furthermore, there is little convincing data to demonstrate that such a change 

is necessary or prudent. Indeed, even specially convened policy forums have failed 

to reach consensus on the issue. As a result, NAHB strongly cautions against making such sweeping changes to the NFIP and supports the House bill (H.R 1309), 

which maintains the 100-year level for both maps and the SFHAs. 

While requiring mandatory flood insurance purchase is one option, another option 

that has been considered is to require structures to meet Federal residential design, 

construction, and modification requirements. NAHB is strongly opposed to expanding such requirements to any new classes of structures, including those found behind flood protection structures and those affected by any programmatic change to 

the SFHA. Any such requirements would substantially increase the cost of home 

construction and severely impact housing affordability. For example, elevating structures could add $60,000 to $210,000 to the cost of a home. 2 It is easy to see the 

tremendous impact that such reforms would have not only on Nation’s home builders, but also on the Nation’s home buyers and homeowners. NAHB urges Congress 

to soften the impact of any programmatic changes to the NFIP by ensuring that construction requirements remain tied to the 1-percent-annual chance flood standard. 

Finally, past bills would phase-in actuarial rates for nonresidential properties and 

nonprimary residences. NAHB’s primary concern is that flood insurance remains 

available and affordable. FEMA reports that 78 percent of policyholders are already 

paying actuarial (risk-based) premiums; 3 nevertheless, NAHB believes reforms 

aimed at reducing Federal subsidies for any subset of the remaining properties must 

ensure that overall affordability is not adversely affected. NAHB looks forward to 

working with the Committee to strike the proper balance between ensuring the 

long-term financial viability of the NFIP, and ensuring program affordability and 

equality for those who rely on this valuable Government insurance program. 

Thank you for this opportunity to share the views of the National Association of 

Home Builders on this important issue. We look forward to working with you and 

your colleagues as you contemplate changes to the National Flood Insurance Program to ensure that federally backed flood insurance remains available, affordable, 

and financially stable. We urge you to fully consider NAHB’s positions on this issue 

and how this program enables the home building industry to deliver safe, decent, 

affordable housing to consumers. I look forward to any questions you or other Members of the Committee may have for me. 

152 

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1 J. Robert Hunter’s Testimony on Flood Insurance before the Senate Banking Committee, October 2, 2007. http://www.consumerfed.org/elements/www.consumerfed.org/file/finance/ 

Hunter%27slSenatelTestimonylFloodlInsurancel10-2-07.pdf; Testimony of CFA’s J. Robert 

Hunter before the Senate Banking Committee on Oversight of the National Flood Insurance Program, October 18, 2005. http://www.consumerfed.org/elements/www.consumerfed.org/file/finance/FloodlInsurancelSenateloversightltestimonyl101805.pdf 2 ‘‘FEMA: Action Needed to Improve Administration of the National Flood Insurance Program’’, GAO-11-297, June 9, 2011; ‘‘Flood Insurance: Public Policy Goals Provide a Framework 

for Reform’’, GAO-11-429T, Mar 11, 2011; ‘‘GAO’s 2011 High Risk Series: An Update’’, GAO-11- 

394T, Feb 17, 2011; ‘‘FEMA Flood Maps: Some Standards and Processes in Place To Promote 

Map Accuracy and Outreach, But Opportunities Exist To Address Implementation Challenges’’, 

GAO-11-17, Dec 2, 2010; ‘‘National Flood Insurance Program: Continued Actions Needed To Address Financial and Operational Issues’’, GAO-10-1063T, Sep 22, 2010. 

PREPARED STATEMENT OF TRAVIS B. PLUNKETT 

LEGISLATIVE DIRECTOR, CONSUMER FEDERATION OF AMERICA

JUNE 23, 2011 

Chairman Johnson, Ranking Member Shelby, and Members of the Committee, I 

appreciate the invitation to appear before you today to discuss how to reform and 

reauthorize the National Flood Insurance Program (NFIP). My name is Travis 

Plunkett and I am the Legislative Director of the Consumer Federation of America 

(CFA). CFA is a nonprofit association of 300 organizations that has sought to advance the consumer interest through research, advocacy, and education since 1968. 

I am here today because our Insurance Director, J. Robert Hunter, is, unfortunately, 

not available. Hunter was the Federal Insurance Administrator under Presidents 

Ford and Carter, where he helped create and run the NFIP in the 1970s. He also 

served as Texas Insurance Commissioner. 

As Hunter has testified before this Committee several times, the NFIP is in very 

deep trouble. 1 CFA recommends a three-step process to fix long-term, structural 

flaws in the program that are harming consumers and taxpayers. First, use legislation reported out of the Committee on a bipartisan basis in 2007 as the basis for 

improving and extending the program for no more than 2 years beyond its expiration on September 30, 2011. Second, require the completion of a study within 18 

months that thoroughly examines more far-reaching measures to permanently address problems with the NFIP, including how to terminate the insurance aspects of 

the program if strong movement toward fiscal soundness cannot be made, or how 

to revamp it so that private insurers assume a significant amount of flood risk. 

Third, enact legislation that addresses these broader recommendations. 

The insurance component of the NFIP has proven unworkable because political 

pressure has kept flood insurance rates in many areas below the real cost of providing coverage. This has led to chronic taxpayer subsidies now totaling $18 billion. 

Much of this subsidy has led to risky coastal development, often by affluent builders 

and homeowners. The Federal Emergency Management Agency (FEMA) has been 

repeatedly criticized by the Government Accountability Office (GAO) 2 and many 

others for grossly mismanaging the program, especially the process of updating flood 

insurance maps. This has misled many people into concluding that it was safe to 

buy homes or start businesses in dangerous floodplains. FEMA has also failed to 

fix the costly ‘‘Write Your Own’’ (WYO) program, which allows private insurers who 

assume no flood risk to reap excessive fees for servicing flood policies, especially at 

times of severe flooding. The WYO program eats up one-third to two-thirds of the 

insufficient premium dollars and exposes taxpayers to unnecessary costs. 

As meaningful changes to the NFIP to deal with these systemic problems have 

not been made, the time has come for Congress to begin the process of evaluating 

how to revamp the program to make it fiscally sound or to end the insurance aspect 

of the program and allow more effective alternatives to take its place. Such an evaluation could examine a number of factors, including: how to encourage private insurers to take some, and ultimately all, of the existing flood risk covered by the program; how the insurance part of the program could be phased out to spur such private risk taking; how low and moderate-income homeowners and renters could be 

protected from rate shock and provided with a targeted subsidy to help them afford 

private flood insurance while removing general subsidies for people who do not need 

them; and requirements that should be kept in place and improved regarding flood 

maps and construction in local communities. 

I. The Consumer Interest in Fixing the NFIP 

In assessing the potential impact of changes to the NFIP on consumers, it is important to note that most policyholders receive few if any subsidies under the program. Some consumers receive intended subsidies, such as those who own strucVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00170 Fmt 6621 Sfmt 6621 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
167 

3 ‘‘An Examination of the National Flood Insurance Program’’, testimony of J. Robert Hunter, 

Director of Insurance, CFA before the Committee on Banking, Housing, and Urban Affairs of 

the U. S. Senate, October 2, 2007. http://www.consumerfed.org/elements/ 

www.consumerfed.org/file/finance/Hunter%27slSenatelTestimonylFloodlInsurancel10-2- 

07.pdf 4The current deficit is estimated at $18 billion by the GAO. GAO, ‘‘National Flood Insurance 

Program: Continued Actions Needed To Address Financial and Operational Issues’’, GAO-10- 

1063T, Sep 22, 2010. http://www.gao.gov/new.items/d101063t.pdf 

tures built before the flood maps began being issued in 1974. However, many others 

benefit from unintended taxpayer subsidies that support unwise construction in the 

Nation’s floodplains, which is exactly the opposite intent of the NFIP. The policyholders who benefit from these unintended and expensive subsidies include: the 

owners of structures in areas with flood maps that have not been updated; builders 

selling homes that appear to be safe from flood under outdated flood maps, but are 

not; and those who own ‘‘grandfathered’’ buildings in higher risk areas who FEMA 

still allows to pay older, lower rates, contradicting the program’s intent. 

CFA is often asked how a consumer group can favor bringing the NFIP into actuarial soundness, which will likely raise rates for some consumers. CFA strongly believes that the program should set fair, actuarially sound rates that accurately reflect the potential loss risk. However, the worst thing Government can do is run an 

‘‘insurance’’ program that is not true insurance, but an unwise and untargeted subsidy program that misleads consumers into putting their homes, businesses, and 

lives at risk in areas that are dangerously flood-prone and that often unfairly subsidizes affluent individuals and contractors who do this building. 

Homeowners who buy new homes in areas that they think are safe from floods 

are harmed when old maps underestimate risk. Some are misled into believing their 

homes are safe from floods when they build or buy new homes built to the old map’s 

100-year flood estimates that are, in fact, far below the real 100-year elevation. 

These people and their families are at risk of being killed or injured if a storm hits, 

or of having their homes or treasured possessions destroyed. Paying a little more 

and being truly aware of the risk is a blessing, not a curse, for consumers. 

Other homeowners will look at these inaccurate flood maps and think, ‘‘I don’t 

need insurance, I am way outside the risk area.’’ But they are really well inside the 

area of high risk when the maps are old and development, erosion, climate change, 

and other impacts have caused the 100-year flood to rise significantly, as those living on the Gulf found out the hard way during Hurricane Katrina. CFA’s study of 

Hancock County Mississippi flood maps after Hurricane Katrina hit found that the 

average map (of 76 in the county) was 20 years old and 10 feet too low in measuring 

the 100-year flood elevation. 3 Many home and business owners were misled into 

building unwisely, or not buying needed insurance, in the county where Hurricane 

Katrina hit, exposing the deeply flawed program’s weaknesses in a most tragic way. 

The current patchwork of general subsidies that drain the program of resources 

should be phased out. Targeted subsidies should be used to help low- and moderateincome people in flood-prone areas who cannot afford flood insurance. It is improper 

for the Government to require the purchase of insurance, as the NFIP does, and not 

help those who cannot afford it. It is also improper to give broad, hidden subsidies 

to consumers and call it ‘‘insurance.’’ Targeted subsidies for those who are most in 

need would cost far less than the current mix of general subsidies, some of which 

appear not to have been authorized by Congress. 

II. Signs That the NFIP Is in Serious Trouble 

The NFIP was intended to end unwise construction in high-risk floodplains 

throughout the country, while providing affordable coverage for people who really 

needed it. In return for taxpayer funding for the development of flood risk maps and 

the provision of subsidized insurance for older buildings, new construction was to 

be done wisely, and full ‘‘actuarial’’ rates were to be paid for flood coverage. Over 

time, the subsidies would be phased out and the program would reach complete actuarial soundness. 

The NFIP was brilliantly designed, but it has failed to live up to its promise. Politics and inept administration have made it a sort of Frankenstein monster, encouraging and even subsidizing unwise construction. Millions of consumers have also 

been misled into thinking their homes or businesses were not in harm’s way, because FEMA has completely mismanaged the process of updating flood insurance 

maps. 

A. The NFIP is bankrupt, requiring billions of dollars in taxpayer support. 4 Such 

a deficit would be acceptable for a short time if the program was doing what Congress intended, ending unwise construction in the Nation’s floodplains and requiring 

inhabitants of floodplains to bear their own risk through actuarially sound insurVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00171 Fmt 6621 Sfmt 6621 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
168 

5Testimony of William Craig Fugate, FEMA Administrator, before the Committee on Banking, Housing, and Urban Affairs of the U.S. Senate, Hearing on Reauthorization of the National 

Flood Insurance Program, June 9, 2011. http://banking.senate.gov/public/ 

index.cfm?FuseAction=Hearings.Testimony&HearinglID=a2c7e4b9-5b4d-4635-befe8ce662da1774&WitnesslID=bdf843f6-112e-4009-80bb-2cc0f50d92c8 6 Ibid. 

7GAO, ‘‘FEMA: Action Needed To Improve Administration of the National Flood Insurance 

Program’’, GAO-11-297, June 9, 2011, p. 52. http://www.gao.gov/products/GAO-11-297 8See, GAO’s listing of the NFIP problems at: http:www.gao.gov/highrisk/risks/insurance/nationallfloodlinsurance.php 9 Ibid. 

10GAO, ‘‘Flood Insurance: Opportunities Exist To Improve Oversight of the WYO Program’’, 

GAO-09-455, August 2009. http://www.gao.gov/products/GAO-09-455 11GAO, ‘‘FEMA: Action Needed To Improve Administration of the National Flood Insurance 

Program’’, GAO-11-297, June 9, 2011, p. 26. http://www.gao.gov/products/GAO-11-297 12 ‘‘Resources: Frequently Asked Questions’’, FEMA, May 26, 2011. http:// 

www.floodsmart.gov/floodsmart/pages/faqs/faqslconsidering.jsp 

ance premiums. However, the NFIP is doing the opposite of what Congress intended. These unwise subsidies will likely persist and worsen until the program is 

dramatically restructured or ended. 

B. This taxpayer subsidy is not just due to catastrophe losses, but is routine. FEMA 

Administrator Craig Fugate testified before this Committee earlier this month that 

it is collecting $3 billion a year in premiums, but said that this amount would be 

$4.5 billion if coverage rates were actuarially sound. This represents an astonishing 

50-percent shortfall in the amount collected. 5 If correct, this estimate means that, 

over the next decade, the current $18 billion NFIP deficit will almost double. From 

the beginning of the program until late 2009, the Congressional Budget Office 

(CBO) determined that the average annual taxpayer subsidy has been $1.3 billion 

for the known/intended portion of the subsidy involving structures that existed before flood maps were developed. What is more shocking is that the NFIP’s actuarially rated coverage, which is supposedly self-supporting, has been priced 5 percent 

too low if paid catastrophic claims are not considered and an astonishing 100 percent too low if they are included. 6 Moreover, the GAO reported this month that the 

number of policies receiving subsidized rates has steadily increased recently and 

will likely continue to grow if changes to the program are not made. 7

C. NFIP subsidies are hidden. FEMA administratively ‘‘grandfathers’’ rates from 

old maps when new maps are developed, which means that there is a hidden subsidy for structures covered by the NFIP from the old map. (FEMA allows new rates 

if the price drops but freezes the rate if the risk increases, as is usually the case.) 

This subsidy, which is not stipulated in law, means that the number of structures 

receiving subsidies will grow continuously. Absent a huge infusion of funds from 

Congress, the NFIP has no chance of paying back the borrowed funds or of building 

adequate reserves for future catastrophic flooding. Another hidden subsidy stems 

from old maps, which almost always show flood elevations that are too low because 

construction raises elevations over time. (See discussion below.) 

D. GAO found that the NFIP is a ‘‘high-risk’’ program for the American people. 

GAO placed the program on the high-risk list in 2006 ‘‘because of the potential for 

the program to incur billions of dollars in losses and because the program faces a 

number of financial and management problems.’’ 8 The GAO findings included: the 

NFIP could not generate enough revenue to repay the billions it had borrowed from 

taxpayers; the program would not be able to cover catastrophic claims that it paid 

in the future; oversight of the WYO program was weak, with potential for overpayment and inefficiency; FEMA does not study the program’s expenses to see if WYO 

insurers are overpaid; the NFIP is actuarially unsound; maps are out of date; FEMA 

does not understand the long-term impact of planned and ongoing development on 

projected damage estimates; NFIP debt is likely to grow; and FEMA has not implemented its own financial control plan. 9

E. FEMA has created a Write-Your-Own program that overcharges taxpayers and 

policyholders and is riddled with conflicts-of-interest. Considerable evidence has 

demonstrated that private insurers in this program overcharge for administrative 

and claims settlement duties 10 and that FEMA has repeatedly mismanaged this aspect of the program. 11 Additionally, FEMA refuses to broadly inform policyholders 

that they have an option to directly purchase flood insurance and potentially save 

taxpayers a considerable amount of money. 12 These WYO insurers also have a serious conflict-of-interest when they settle hurricane claims for the program, since they 

make more money if they determine that losses were caused by flood damage rather 

than wind damage. This is because taxpayers pay for 100 percent of flood claims 

under the NFIP, while WYO insurers must pay 100 percent of legitimate wind 

169 

13 ‘‘The National Flood Insurance Program: Factors Affecting Actuarial Soundness’’, Congressional Budget Office, November 2009. http://www.cbo.gov/doc.cfm?index=10620 14GAO, ‘‘Flood Insurance: FEMA’s Rate Setting Process Warrants Attention’’, GAO-09-12, October 31, 2008. http://www.gao.gov/products/GAO-09-12 15 ‘‘Managing Future Development Conditions in the National Flood Insurance Program’’, 

Blais, et al., October 2006. 16 ‘‘An Evaluation of Compliance With the NFIP Part A: Achieving Community Compliance’’, 

Monday, et al., a study for FEMA, 2006. 17 Ibid. 

claims. Many Gulf Coast consumers are still in court dealing with claims that they 

believe should have been paid under their wind coverage. 

F. FEMA is far behind in keeping flood maps up-to-date. ‘‘FEMA is not reviewing 

its flood maps every 5 years as required by law—older maps do not reflect significant changes in local conditions that tend to increase the risk of flooding.’’ 13 Coastal 

erosion, climate change, urbanization, loss of wetlands, and other changes tend to 

make flooding worse. Old maps encourage construction in high-risk areas and subsidize such construction by charging actuarial rates with a hidden subsidy, which 

is the difference between what the old map would require to be charged and what 

the charges would be if the map were current. According to the GAO, 50 percent 

of the maps are over 15 years old and another 8 percent are between 10 and 15 

years old. 14

G. FEMA does not take into account development that is already planned and in 

the process of being completed when a map is published. By the time a map is printed, it is out of date. FEMA’s own research shows the problem. In a test of what 

planned development would do to projected damages in the pricing model they use, 

FEMA funded a study that showed that it would raise projected damages by 20 percent in Fort Collins, CO, by 100 percent in Du Page County, IL, and Macklenberg, 

NC, and by a whopping 1,200 percent in Harris County, TX. 15 Ignoring what is 

planned means that a greater subsidy is built into the rate development process 

FEMA uses. 

H. FEMA is running into opposition as it updates its maps because communities 

are balking at adopting the much higher 100-year storm elevations now required. Big 

increases in elevations are often needed, since FEMA allowed the Flood Insurance 

Rate Maps (FIRMs) to become so antiquated. FEMA has been too willing to compromise under political pressure from affected communities regarding the restrictions on development that are required. As a result, FIRMs are not being developed 

that will result in actuarially sound rates and properly elevated homes and businesses, and include all at-risk homes within the designated floodplains. 

I. FEMA is not ensuring that communities live up to their land-use commitments, 

the quid pro quo that Congress mandated for the creation of the entire program. 

FEMA’s own studies show the problem. It has a goal of visiting communities once 

every 5 years to promote, monitor, and enforce compliance. The real rate is only 

once every 10 years, however, ‘‘and only half of those contacts include a community 

visit. This is not a sufficient level of FEMA or State presence to maintain a level 

of monitoring necessary to avert compliance problems.’’ 16

Worse, even if problems of compliance are found, FEMA is timid. FEMA uses probation and suspension, the two sanctions they have to assure compliance, ‘‘only 

sparingly.’’ As of June 23, 2010, less than 1 percent of the communities participating 

in the NFIP (212 out of 21,153) have been suspended from participating in the NFIP 

for noncompliance with the maps. Virtually all of the suspended communities appear to be small, rural towns. One study of the NFIP found that the threat of penalty is 

used so infrequently that there has developed a widespread perception that 

it is unlikely to be imposed in any given situation. This perception deprives 

the threat of its credibility and thus keeps recalcitrant communities unresponsive. Further, FEMA regional office and State staff themselves have 

grown to believe that they will never be able to succeed in having probation 

imposed on a noncompliant community, and their frustration is detrimental 

to an effective community compliance initiative. FEMA should make an effort to act with deliberation on existing or future recommendations for probation action, with an eye toward reestablishing the credibility of this sanction. 17 (Emphasis in original.) 

This study also recommended that FEMA should undertake an investigation of 

State compliance with NFIP criteria, since FEMA regional staff and State officials 

do not ‘‘know whether the development activities of State agencies (are) in compliance with NFIP regulations.’’ Finally, these 2006 FEMA studies found noncompliance with record keeping and construction requirements in the Community Rating 

170 

18 Ibid. 19GAO, ‘‘FEMA: Action Needed to Improve Administration of the National Flood Insurance 

Program’’, GAO-11-297, June 9, 2011, p. 53. http://www.gao.gov/products/GAO-11-297 20GAO, ‘‘FEMA: Action Needed to Improve Administration of the National Flood Insurance 

Program’’, GAO-11-297, June 9, 2011, p. 57. http://www.gao.gov/products/GAO-11-297 21 ‘‘State Farm Won’t Handle Claims for Flood Insurance Program’’, National Underwriter, 

June 7, 2010. 22 H.R. 1309, Flood Insurance Reform Act of 2011, Section 5(a). 

System (CRS) communities that were getting a rate break for complying well with 

such requirements. This ‘‘affects the viability of the flood insurance fund even more 

than noncompliance in other communities.’’ 18

Anyone who walks barrier islands on the Nation’s eastern and Gulf Coasts and 

looks at recent construction along the beaches will know that the NFIP has failed 

to stop unwise construction at high-risk locations. It does not take an engineer to 

find relatively new structures that are at high risk and are not safe from storm 

surge. For years, CFA has been urging FEMA to create an enforcement program administered by an independent party, like the GAO, that would conduct spot checks 

to see if local building enforcement is occurring, even regarding the current inadequate maps, but FEMA has not done so and Congress has not required it. 

J. Instead of challenging communities that refuse to make land-use improvements 

as required by updated rate maps, FEMA offered ‘‘preferred risk’’ policies that underprice insurance. As detailed by the GAO in their most recent critical report of 

FEMA’s management of the NFIP, FEMA recently created a new coverage option 

called the Preferred Risk Policy (PRP) Eligibility Extension that lowers rates for up 

to 2 years for policies that would have converted to higher premium costs upon renewal. 19 This is an unauthorized give away of taxpayer money to subsidize highrisk structures for no reason other than the fact that new maps had raised required 

building elevations. Giving high risk people below-cost rates for 2 years is an unjustifiable increase in taxpayer subsidies. If a subsidy is needed, it should be targeted to policyholders who have low or moderate incomes. General subsidies should 

be ended. 

K. FEMA has mismanaged the NFIP’s policy and claims management system at 

considerable cost to taxpayers. The GAO found that FEMA spent 7 years and $40 

million dollars to create a new policy and claims management system called 

‘‘NextGen’’ that it canceled in November of 2009 because it was ineffectual. ‘‘As a 

result, the agency continues to rely on an ineffective and inefficient 30-year old system.’’ 20

L. State Farm Mutual Insurance Company stopped servicing flood insurance policies for the Federal Government last fall, causing 829,273 NFIP policyholders to 

scramble for coverage. State Farm blames Congress and FEMA for poor administration of the program. The move is also at least equally likely to be related to State 

Farm’s long-term strategy to significantly reduce its home insurance risk along the 

Nation’s coasts. FEMA’s spokesperson Rachel Racusen says that these policyholders 

will be just fine because they will be able to continue to use State Farm’s agents 

‘‘or one of the other 90 insurers that sell flood insurance through the NFIP.’’ 21 However, this approach will likely cost taxpayers millions of dollars and result in poor 

customer service. It would be a mistake to allow ‘‘captive’’ State Farm agents to 

work for another WYO carrier because these agents are only responsible to State 

Farm. They are not prepared, trained, equipped or otherwise ready to deal with another company. Only so-called ‘‘independent’’ agents have such experience. Additionally, WYO companies cost about twice as much administratively as FEMA’s contractor, which handles the direct program of flood insurance for FEMA. Removing 

the agent and using the direct contractor would reduce overhead and profit-costs for 

the State Farm policies by about two-thirds, saving millions of taxpayer dollars. 

M. If FEMA were to try to make the program more actuarially sound, existing law 

limits that possibility. Currently, rates cannot rise more than 10 percent a year. 

Limits on 1-year rate increases are necessary because consumers need time to adjust to insurance price increases but 10 percent is too low. The House proposal to 

raise the allowable rate increase to 20 percent makes more sense. 22 However, it is 

important to note that this limit is not related to income or any measure of the ability of homeowners to pay increased rates. This means that a substantial portion of 

the NFIP subsidy will likely continue to be provided to affluent homeowners living 

on barrier islands, or near lakes and other waterways. 

N. Congress has allowed the NFIP to lapse several times recently, creating uncertainty and instability in the program. As an insurance executive recently put it, 

‘‘this is now the fourth time Congress will have let this program lapse, and it’s beVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00174 Fmt 6621 Sfmt 6621 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
171 

23 ‘‘NFIP Lapses Again Due to Senate Inaction’’, National Underwriter, May 28, 2010. 24 NFIP is an insurance program and is not designed to be a charity program. The current 

subsidies are disbursed indiscriminately, with no test of the ability of the subsidy recipient to 

pay the real cost of risk of the structure he or she owns. 

ginning to feel like ‘Groundhog’s Day,’ ’’ said Blain Rethmeier, a spokesman for the 

American Insurance Association. 23

O. Until now, Congress has been unwilling to stop the trend toward making NFIP 

more of a giveaway program to some consumers and businesses than an insurance 

program with sound risk management. Overall, Congress has not moved fast enough 

to lift woefully inadequate limits on flood insurance rates to allow the program to 

move to actuarial soundness, which is undermining hope for a self-sustaining NFIP 

anytime in the near future. 24

FEMA’s Response to Systemic Problems at the NFIP 

In his testimony before the Committee on June 9th, FEMA Administrator Craig 

Fugate acknowledged many of the systemic problems with the NFIP that I have 

cited, but offered little information and no details regarding what the agency will 

do to address long-standing and well-documented concerns about its management of 

the NFIP. It is of particular concern to CFA that he provide no information about 

how FEMA intends to cut the excessive costs of the WYO program or overcome the 

wind/water conflicts-of-interest that exist for insurers who participate in the program. I understand that the agency is in the middle of a lengthy effort to review 

proposals for NFIP reform. However, after years of concern about the direction of 

the NFIP from Congress, the GAO and outside organizations, the Senate deserves 

a more specific, urgent reform plan from FEMA. 

III. The Future of the NFIP 

As mentioned above, CFA recommends that Congress evaluate far-reaching, 

longer term measures that would either permanently fix fatal flaws in the NFIP, 

such as ideas for getting private insurers to assume substantial flood risk, or that 

would phase out the program in a responsible manner and create effective, affordable alternatives. While this research is being done, we recommend the adoption of 

legislation that would take steps to bring the program back towards solvency and 

that would extend it for no more than 2 years. 

A. Congress should study ending the NFIP to correct fatal flaws. If Congress were 

to decide to end the systemic problems with the NFIP described above, the only responsible way to do so would be to make sure that the program becomes fully actuarially sound. However, to date, strong political pressure on Congress and from Congress, as well as from State and local leaders, has prevented the program from becoming actuarially sound. It is likely that developers will continue to find loopholes 

to let them build unsafe structures, politicians will resist community suspension, 

and higher (but proper) rates will not be allowed. 

The only counter-weight to this one-way pressure to soften the program’s impact 

on communities, developers and consumers at taxpayer expense would be to encourage private insurers to get more involved in at least some of the risk-taking aspects 

of the program. If the private sector has some ‘‘skin in the game,’’ then there would 

be pressure brought to bear by insurers to make sure maps are accurate and enforced, updated actuarial rates were used and that everyone was doing all things 

necessary to make the program effective and to protect the taxpayer (and the insurer’s) bottom line. Insurers would resist pressure from politicians and developers to 

lower rates below cost. Politicians would resist pressure from insurers to have rates 

that were excessive. These checks and balances would help keep flood insurance 

prices reasonable but adequate. 

However, many private insurers will not jump at the opportunity to underwrite 

more flood risk. Many are in the midst of significantly cutting back on the coverage 

they offer on the coasts because of wind risk. As private sector participation in the 

risk-taking aspect of NFIP is questionable, it is necessary to study the possibility 

of protecting taxpayers by ending the insurance component of the program in a responsible way that protects vulnerable consumers. 

The point of the study would be to evaluate potential outcomes if the program is 

ended and to develop a transition plan that allows all affected parties to prepare 

for the consequences of such an event. The transition plan will be complex and must 

be done with great concern for the current inhabitants of floodplains, particularly 

NFIP policyholders. CFA recommends that Congress task the GAO and FEMA with 

evaluating the following specific topics when making recommendations about how 

to end the NFIP, as part of the legislation to extend the NFIP beyond September 

30, 2011. 

172 

1. Ending only the insurance part of the program. (As stated below, accurate and 

up-to-date FIRM information on risk is vital if any private sector insurance underwriting is to become viable.) Ultimately, after a long transition where the Federal 

Government participates in risk taking either directly or through reinsurance, a private market could develop if there is accurate and current risk information and safe 

construction in the floodplains. 

2. Providing a long transition period to allow all parties time to adjust to the lack 

of a Federal insurance program. Thirty years, for example, would provide time for 

the Government to gradually phase out its subsidies, for insurers to determine how 

to underwrite flood risk and for consumers to find alternatives to the NFIP. 

3. Phasing out the provision of insurance over this period. A likely first step in 

the phase-out process would be for the Federal Government to stop writing new 

business. Even this measure would have to be done in a way that allowed safely 

constructed new homes to receive mortgages through the provision of clear, accurate 

information on flood risk to lenders. 

4. Protecting LMI homeowners and renters. Congress could likely end the NFIP 

over a 5 or 10-year period if not for the need to protect LMI consumers from rate 

shock. The study should consider providing an ongoing subsidy to LMI homeowners 

during the transition and even after some degree of private insurance enters the 

market. 

5. Requirements that should be placed on communities in floodplains and on 

FEMA regarding flood maps. Keeping the mapping and community participation requirements in current law would provide private insurers with sufficient information to begin to take risk. This knowledge base is vital to encouraging a private response. Insurers will need information to help them write coverage for structures 

at actuarial rates and to have an ability to determine which communities are requiring safe building in floodplains to help them focus their insurance capacity. When 

HUD did its 1966 Feasibility Study into why flood insurance was not privately 

available at the time, it found that the factors were: 

• Lack of any way to accurately determine pricing (i.e., no mapping of the flood 

risk); 

• Consumers knew more about the risk of flood than the insurers, which meant 

that there would be adverse selection by people against any price insurers set; 

• If prices were raised, only people at higher and higher risk would buy the insurance; 

• No one was controlling new construction, so changes up or down stream could 

make prices for insurance too low; 

• Lenders did not require flood insurance. 

Unlike 1966, we now have the ability to solve many of these old insurance concerns. Maps, if they are kept up-to-date, can calculate rates that are actuarially 

sound for every structure. Adverse selection is minimized since lenders in the highrisk floodplains now require all building owners to get flood insurance. Floodplain 

management is in place as a condition of flood insurance availability in a community. 

6. Encouraging private insurers to take some, and ultimately all, of the existing 

flood risk. This could be done either on a property-by-property basis or with some 

overall sharing of risk. The sharing might start with the Government taking 95 percent of the risk and setting actuarial rates that would have to be paid. Insurers 

would initially assume 5 percent of the risk and set rates for those structures they 

would underwrite. FEMA could advertise which insurers were selling flood insurance in its ‘‘Flood Smart’’ ad program. Over time, the Government’s percentage of 

the risk would decline. In order to incentivize insurers to participate, the Government could develop a stop-loss reinsurance program, which caps the private insurer 

annual exposure to loss. 

7. Mandating the purchase of flood coverage. If flood insurance is unavailable, 

there should obviously be no requirement to purchase it. On the other hand, if the 

private market does develop, a purchase requirement might allow insurers to effectively spread their risk. This would further increase their ability to soundly underwrite flood coverage. Whether and how to mandate purchase during the transition 

is a key question the study must consider. 

B. The Senate Flood Insurance Reform and Modernization Act of 2007 (S. 2284) 

is the best starting point for making much-needed incremental changes to the NFIP. 

S. 2284 takes several very important steps to protect taxpayers, increase the market 

penetration of flood insurance, and eliminate unjustified subsidies in the flood program. In particular, the bill would phase out subsidies for vacation and second 

homes, properties built before the availability of Flood Insurance Rate Maps 

173 

25 As a leading reinsurance executive told Hunter, reinsurers often get ‘‘too greedy’’ when a 

big event opens the door for price gouging. 

(FIRMs), and structures that have experienced severe repetitive losses. It would also 

require the NFIP to build reserves over time, add a 500-year floodplain to the flood 

maps, and require the evaluation of flood risk behind dams and levees. It would also 

take the important step of creating a flood insurance advocate’s office to assist those 

with flood coverage in resolving problems with the NFIP and add deductibles to 

NFIP policies. 

CFA recommends that the Committee add provisions to this bill that would move 

the NFIP even more quickly towards solvency, so that it will become financially viable over time and be there for homeowners who need it. The bill should require a 

study of NFIP to determine the steps needed to make it fully self-sufficient, including the review detailed above on how to increase private insurer underwriting of 

flood risk or to responsibly end the program should self-sufficiency be unattainable. 

Just studying these possibilities will demonstrate that Congress is serious about 

making the program viable for the long term. The bill should also increase the cap 

on allowable rate increases per year from 15 to at least 20 percent. Finally, in order 

to give Congress a meaningful opportunity to make needed, more far-reaching 

changes to the program that result from required studies, the bill should only renew 

the NFIP for 2 years, instead of five. 

C. House legislation to renew the NFIP (H.R. 1309) has significantly improved over 

previous House bills, but still contains some damaging provisions. (This bill has been 

marked-up this year by the House Financial Services Committee and is currently 

on the House Floor.) On the positive side, the bill allows rates to rise by 20 percent 

annually, rather than the 10 percent cap in the current program. It adds mandatory 

deductibles to NFIP policies. It phases in full actuarial rates a bit more slowly than 

we would like to see (at 20 percent of the required increase per year over 5 years) 

for commercial properties, second and recently purchased homes, existing policyholders, severely damaged homes, and repetitive loss homes. No subsidy is allowed 

on lapsed policies. It also protects those who are required to purchase high-priced 

‘‘forced-placed’’ coverage by requiring repayment to the borrower for any coverage 

that is paid for under a forced-placed policy in force at the same time an NFIP policy is in place. 

The bill also requires some important studies within 18 months of the effective 

date, including both a FEMA and GAO report on how to privatize the program. 

FEMA is also required to report annually on its ability to pay claims with and without authorized borrowing authority. It must study community-based flood insurance 

and adding building code requirements to floodplain management standards. Finally, the National Academy of Sciences must evaluate how to do a ‘‘graduated risk’’ 

assessment of flood risk behind levees. 

The bill also contains several negative provisions. FEMA is permitted to suspend 

flood insurance purchase requirements for 1 to 2 years for several questionable reasons: (1) if an area has no history of flooding, even though the science underlying 

the new maps that show increased flood risk is sound; (2) if a community says it 

is upgrading a levee or dam that has been decertified because it can’t provide 100- 

year flood protection, even when improvement efforts are not complete; or (3) when 

someone appeals a requirement to purchase insurance. 

The bill also contains several provisions that will increase the cost of the program 

and taxpayer exposure. It allows maximum policy coverage to be indexed according 

to the cost-of-living. Coverage for loss-of-use is also added. Maximum coverage benefits will be indexed. It also requires policy rates in newly mapped areas to be significantly less than what is actuarially required for the first year of coverage. 

The bill authorizes FEMA to purchase private reinsurance, which is silly and unnecessary, given the financial ability of the Federal Government to cover losses. It 

is analogous to requiring a very large insurance company, such as State Farm or 

Lloyd’s of London, to seek reinsurance from a very small, single-State reinsurer. 

Moreover, when a big insured event occurs, reinsurers often suspend coverage or 

overreact by making rates too high, 25 which will further increase Federal costs. 

The bill also increases the chances that taxpayers will be overcharged by the 

WYO program by requiring that those who are insured through the more-efficient 

and less-costly direct program be notified that they should consider finding a WYO 

company. Since WYO program costs are significantly higher than those of the direct 

program, this requirement encourages policyholders to make a choice that will cost 

taxpayers more money. Even worse, the bill requires FEMA to study how to keep 

participation in the direct program under 10 percent of the NFIP portfolio, even if 

WYO costs continue to be too high. 

174 

Finally, the bill renews the NFIP for 5 years, instead of two. As mentioned above, 

this is too long to renew a program that needs far-reaching changes, which will be 

recommended in the bill’s mandated studies. 

D. The COASTAL Act of 2011 is well-intended, but unnecessarily complex and 

probably unworkable under FEMA’s management. The Consumer Option for an Alternative System To Allocate Losses Act of 2011 (S. 1091) was proposed this year 

by Senator Wicker. This bill does more to ease the NFIP shortfall than the current 

program, with an allowable 20 percent annual cap on rate increases and mandated 

full actuarial rates on new and lapsed policies. It also does not raise program costs 

by increasing coverage limits or adding new loss-of-use coverage. It requires Statecharted banks to mandate the purchase of flood insurance when underwriting mortgage loans, but insurers that do mortgage lending do not have to meet this requirement. However, the bill does not require study of how to get private sector involvement or how to cut the systemic program deficits, both of which are very important 

to bringing the program back into solvency. 

As with the 2007 Senate bill and the House bill, this legislation extends the NFIP 

for 5 years without making broad reforms. This is too long for Congress to wait to 

take the further steps recommended by the studies required in final legislation. 

The centerpiece of the bill is a system to handle wind and water claims that is 

unnecessarily complex and probably unworkable. It requires FEMA to come up with 

models to calculate wind speed and storm surge whenever a named storm hits. 

These models must be accurate to 90 percent, but it is quite unclear exactly what 

such a 90 percent standard requires. (As written, the requirement is statistically 

meaningless.) The bill requires a massive effort to develop these models involving 

data collection from academics, private persons, State and Federal agencies, and so 

on. It would even require storm ‘‘sensors’’ to be put along the coasts. 

When adjusters find a loss to be ‘‘indeterminate,’’ because they are unable to tell 

which losses are due to wind damage and which are from water damage, the asyet-unavailable data from the massive collection effort will be plugged into a yetto-be-determined formula the Administrator of FEMA will create. The formula 

would include the property’s FEMA Flood Elevation Certificate and other information the Administrator would like to use. Taken together, these very complex requirements seem quite inappropriate for an agency that has had serious, well-documented trouble managing relatively simple NFIP requirements, such as the WYO 

program and the mapping of floodplains, where the science is mature. 

Wind and flood insurers are required to use this method to distribute losses. 

Other insurers ‘‘may’’ use this process if the policyholder agrees to it at the time 

of policy sale. There is no judicial review of this formula, or the data that is used 

to create it. However, there is an appeal to a five-member Arbitration Panel. Prior 

to the allocation, insurers can do a ‘‘good faith’’ allocation and true it up when the 

formula results are known. All this relates only to ‘‘indeterminate’’ claims. Other 

claims will rely on good faith between wind insurers and FEMA. Disputes here are 

also to be sent to the Arbitration Panel. 

The method proposed in this legislation for accurately assessing wind versus 

water claims is unnecessarily complex and costly. A look at what private insurers 

do when faced with apportioning costs from losses is instructive. Large property/casualty insurers do not bother to balance out subrogations they have between themselves after auto accidents since there are so many claims and they have learned 

that doing a lot of research on each claim is not required, since the costs between 

insurers even out over time. Therefore, it makes no sense with flood insurance to 

try to be so complex. The law of averages will lead to a fair division between wind 

and water claims over time. All that is needed are three things: a Federal claims 

adjusting contractor to do all of the adjusting of flood claims; an occasional GAO 

audit of the WYO carriers to make sure their apportionments are not biased on the 

wind claims; and for FEMA to disallow insurer use of anticoncurrent causation 

clauses, which allow them to refuse to pay wind damage if flood damage occurred 

to the insured property at the same time. If apportionment bias is occurring, FEMA 

must then initiate enforcement actions against WYO companies by removing them 

from the program. 

After this monumental effort, the Wicker bill allows the policyholder and insurer 

to agree to opt-out of this approach. It also allows an insurer to opt-in so that every 

one of its claims from a named storm will be done using this method. (It seems unlikely that many insurers would want to opt-in, however.) In sum, the goal of the 

legislation is laudable, but the methods it requires will create a lot of bureaucratic 

difficulty and would likely fail. 

Thank you for the opportunity to offer CFA’s thoughts on reform and reauthorization of the NFIP. 

175 

1 A good example of the total destruction that can result from a hurricane and the damage 

it causes can be found at Dan Swenson and Bob Marshall, ‘‘Flash Flood: Hurricane Katrina’s 

Inundation of New Orleans, August 29, 2005’’, New Orleans Times Picayune, September 13, 

2005, http://www.nola.com/katrina/graphics/flashflood.swf. See also ‘‘Total Devastation from 

Hurricane Katrina’’, http://www.katrinadestruction.com/images/v/hurricane+katrina+photos/ 

Imgl19kd45-slidell-katrina-lr2.html. 2 Jihyun Lee, et al., ‘‘Flood Insurance Demand Along the Gulf and Florida Coast’’, Southern 

Agricultural Economics Association, 2010, http://ideas.repec.org/p/ags/saea11/99239.html. 

PREPARED STATEMENT OF SCOTT H. RICHARDSON 

POLICY ADVISOR, THE HEARTLAND INSTITUTE, AND PARTNER, RICHARDSON AND

RITCHIE CONSULTING

JUNE 23, 2011 

Chairman Johnson, Ranking Member Shelby, and Members of the Committee, I 

am here today to address an issue of great concern to the National Flood Insurance 

Program’s future and to explain how a proposal that has been brought before your 

Committee by Senator Roger Wicker presents what I believe is a solution to a problem that has long plagued coastal communities. 

As a former insurance agent, member of the South Carolina State Legislature, 

and Director of Insurance of the State of South Carolina, I have seen the difficulties 

that coastal communities, their residents, insurers, courts, and insurance regulators—in short, just about everyone involved in coastal insurance—face in the 

course of dealing with severe windstorms. I speak, of course, of the problem of indeterminate loss. The problem of what is to be done when a storm is so severe that 

it leaves nothing in place to determine whether wind or water caused damage. 

This is a particular problem because it undermines the insurance system that 

undergirds our entire modern economy by allowing for certainty. Insurance allows 

people to build skyscrapers, develop miracle drugs, advance technology, drive automobiles, and operate businesses with the knowledge that the risks implicit in doing 

these things will be managed in an effective manner. Our current system for managing the risk of severe windstorms does not create that certainty. Indeed, it creates 

uncertainty. It is broken and it needs to be fixed. 

In this testimony, I aim to outline the problem of indeterminate loss, describe how 

the current flood/wind loss allocation system fails many communities, outline why 

other solutions are not practical, describe how a Standardized Loss Allocation Model 

would work, go over several public policy concerns involved in implementing a 

Standardized Loss Allocation system, and describe how I believe it will solve the 

problem of indeterminate loss. 

The Problem of Indeterminate Loss Resulting From Windstorms 

Hurricanes rank among nature’s most destructive phenomena. High winds, winddriven debris, and the storm surges that follow hurricane landfall can do enormous 

damage to everything in their paths. In many cases, over areas of several miles, all 

above-ground traces of buildings can be torn apart, leaving nothing but foundation 

slabs in place. 1 I have seen total losses myself: what remains after a particularly 

severe storm resembles a moonscape. 

Because they combine high winds with storm surge, hurricanes cause both wind 

and water-related losses in very close proximity to one another. When nothing above 

remains of a structure and both wind and storm surge were sufficient to cause its 

total destruction, claims adjusters, consumers, and insurers currently have no practical way to determine how to distribute losses between NFIP, which provides nearly all flood coverage, and private insurers or State residual wind insurance markets, 

who cover wind and related damage. When a home is totally destroyed, there’s no 

simple way to resolve disputes over who should pay for losses. When this happens, 

the current U.S. system for paying insurance claims can cause enormous problems 

for consumers, insurers, and regulators. The problems are most serious when people 

do not have flood insurance and therefore try to get insurers that sell wind insurance policies to cover damages that may have resulted from flood. Insurers often 

refuse these claims and say flooding (which they do not cover) caused the damage, 

leaving consumers with little recourse besides litigation. 2 This, in turn, can lead to 

enormous and protracted legal battles among insurers, consumers, and regulators. 

The Problems Communities Face and the Inadequacy of Other Solutions 

Following the terrible 2005 hurricane season—the season of Hurricanes Rita, 

Wilma, and Katrina—nearly all States impacted by major hurricanes saw significant litigation between insurers and insured over responsibility for wind and water 

claims. Many of these legal disputes stretched over months and years. Many people 

176 

and many communities did not get the resources they needed and deserved to rebuild. The costs of litigation, of delayed rebuilding, and of damage to the fabric of 

communities, were all immense. 

Fundamentally, these problems exist because separate parties are responsible for 

paying for wind and water damage. A huge incentive exists for insurers and consumers alike to shift the responsibility for paying any given claim to someone else 

and, right now, it’s difficult (sometimes impossible) to determine what (and therefore who) is responsible for any given damage. 

Proposals have been made to solve this problem by unifying responsibility for 

flood and wind damage. If a single party is responsible for covering both flooding 

and wind damage, the problem of indeterminate loss would no longer exist. In principle, I believe that this unification of responsibility under private insurers is a worthy long-term goal. Many provisions in the flood reform bill before you would increase the private sector role in the flood insurance program but, based on my 

knowledge of the insurance industry, I simply do not believe that the major private 

insurers could or would cover all flood risk in the near future. Thus, even if you 

take every step towards privatization of the flood insurance program that has been 

proposed, the problem of indeterminate loss will continue to exist for some time. 

Thus, if Congress is not to privatize flood insurance entirely, it ought to come up 

with another solution to the problem of indeterminate loss. And I believe that a 

Standardized Loss Allocation model as Senator Wicker’s COASTAL Act envisions is 

such a solution. 

Standardized Loss Allocation—How It Works 

Under a Standardized Loss Allocation (SLA) system, insurers, NFIP, and Staterun or State-mandated residual insurance markets such as wind pools and Fair Access to Insurance Requirements (FAIR) plans would agree in advance to distribute 

liability based on standardized loss allocations models. The sizes of the distributions 

would be based on extrinsic, meteorological evidence. This approach would solve almost all of the problems implicit in the current system and could potentially save 

money for both NFIP and private insurers. Implementing it properly, however, will 

require the collection of more meteorological data. I’d like to use the remainder of 

my testimony to describe how it would work and what public policies should be implemented to make sure that it is effective. 

How an SLA System Would Work and How It Solves Problems 

An SLA system would begin by establishing a model for assessing the damage resulting from each major storm based on four major inputs: direct observations, information about building characteristics, indirect aerial observations of storm surge, 

and widely used storm models. Direct observations are what they sound like: direct 

information, collected by scientific instruments about wind speed and storm surge. 

Information about building characteristics—particularly elevation information that 

would provide input as to the consequences of storm surge—is not always included 

in current insurance underwriting standards but is necessary in certain cases to determine the exact damage resulting from storm surge. Aerial observations collected 

during and immediately after a storm (as well as satellite imagery collected during 

a storm) could provide additional information on storm surge since few instruments 

can withstand the most severe storm surge. Finally, a wide range of storm modeling 

techniques would work together to build a model that could, ideally, provide a very 

good estimate of the extent to which wind or water caused the damage to a given 

structure. The National Oceanic and Atmospheric Administration and several private-sector modeling firms already have created such models; building a standardized national one would not require significant additional scientific work. 

Public Policies To Implement an SLA System: Improved Data Collection 

All this said, some minor public policy changes would have to be made to assure 

the success of an SLA system. These would primarily involve improving data collection. Although the scientific instruments and mathematical techniques needed to develop a standardized loss allocation model already exist, there are places where data 

collection could be improved. This is not universal: Particularly along the Gulf 

Coast, the Coastal-Marine Automated Network (C–MAN) already provide the data 

now needed. In some other areas—areas further from the coast and thus less likely 

to be hit by hurricanes—the available data may not be quite as good and measures 

should be undertaken to improve data quality over time. Senator Wicker’s COASTAL Act asks the National Oceanographic and Atmospheric Administration to form 

partnerships with private entities, other Federal agencies to place new sensors on 

Federal Government property. It also envisions paying some or all of the costs for 

keeping an expanded network in place by leasing space on new observation posts 

(many of them on existing Federal property) to mobile phone providers, other weathVerDate Nov 24 2008 08:59 Mar 06, 2012 Jkt 048080 PO 00000 Frm 00180 Fmt 6621 Sfmt 6621 L:\HEARINGS 2011\06-09B AND 623 DISTILLER\60911.TXT JASON
177 

er-related businesses, and anyone else who has need for such access. This particular 

funding approach certainly has promise, but Congress, the Federal Emergency Management Agency (which oversees the flood program), NOAA, and State and local 

agencies should, over time, consider other proposals as well. 

Public Policies To Implement an SLA System: Making the System Universal 

But Voluntary 

A standardized loss allocation system is a good idea but it should not become a 

straightjacket. There are far too many unknowns for it to be wise to force the system on every consumer, every community, every insurer, and every insurance agent 

in the country. Instead, participation should be voluntary. 

To facilitate universal but optional participation, NFIP should participate in an 

SLA model for all policies written under the Write Your Own program and not participate in it for most policies written by independent agents under NFIP Direct. 

This is the approach that Senator Wicker’s bill takes and it is one I believe that 

the Committee should take care to continue and to clarify in the bill’s legislation 

language. 

A voluntary system will provide a choice to all consumers, insurers, and State residual insurance market mechanisms. Individuals who want to opt out of the SLA 

program can purchase a direct policy, since nearly all independent insurance agents 

in the country will write them, and thereby get the same flood coverage at the same 

price as they would otherwise. Private insurers and residual insurance market 

mechanisms that don’t want to take part can simply leave (or never join) the Write 

Your Own program. In short, it seems possible to make SLA-based policies an available option for almost everyone without mandating them for anyone. 

Conclusion: An SLA System Is Better 

An SLA system would work better than the current system. For those participating in the system, the model essentially would end litigation, assure payments 

to consumers, shore up NFIP finances, and provide certainty to NFIP itself. With 

payments determined by formula alone, there would be little to litigate: The use of 

the model would be written into policy language for both NFIP and private-sector 

coverage, and anyone challenging it in court would have to present expert scientific 

testimony indicating why the model was invalid. If anyone went through the trouble 

to do this, it would probably help improve the system by pointing out flaws in the 

models. 

Customers, even those who live in flooded areas but lack flood insurance, generally would be assured of at least some payments from their wind insurance policy 

rather than outright claims denial. NFIP itself, likewise, would rarely if ever face 

the prospect of having to pay the full cost of damage caused in part by wind. Insurers, finally, would have the same assurance, that they would never have to pay total 

losses when flood has done part of the damage. Quite simply, an SLA system promises to be less expensive, more certain, and more efficient than any currently available alternative. 

I am delighted to take your questions. 

178 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

STATEMENT SUBMITTED BY THE AMERICAN INSURANCE 

ASSOCIATION 

The American Insurance Association (AIA) is pleased to submit this statement as 

the Committee considers proposals to reform and reauthorize the National Flood Insurance Program (NFIP). AIA appreciates the Committee’s attention to this important issue. 

AIA represents approximately 300 major U.S. insurance companies that provide 

all lines of property and casualty insurance to U.S. consumers and businesses, writing $100 billion annually in premiums. AIA and several of its members are also 

members of the ‘‘Write-Your-Own’’ Flood Insurance Coalition (WYO Coalition), a 

group that includes private insurers that participate in the NFIP Write-Your-Own 

program. 

Background 

The NFIP’s current authorization expires on September 30, 2011. Prior to its current 1-year extension, the NFIP has experienced repeated short-term extensions, including four actual lapses when the program was effectively unable to write new 

or renewed business. Those lapses hindered numerous consumer housing closings 

and caused significant uncertainty for our Nation’s millions of NFIP policyholders, 

as well as real-estate professionals, lenders, and insurers. AIA and its member companies believe that a long-term extension, combined with essential reforms, is needed to bring stability and certainty to the program. 

A cornerstone of AIA’s proactive natural catastrophe agenda has been meaningful 

reform of the NFIP. When considering NFIP reforms, AIA and its members start 

with the following principles: (1) program certainty is first and foremost; and (2) 

premiums need to better reflect risk. 

Following from these two principles, AIA recommends several reforms for the 

Committee’s consideration. Many of these reforms were included in 2008 legislation 

previously approved by the Senate and are in legislation (H.R. 1309) that the House 

Financial Services Committee recently passed. 

Specifically, any legislation to reform and reauthorize the NFIP should include: 

(1) a meaningful long-term extension of the program; (2) movement toward riskbased premiums; (3) a reduction in price subsidies; (4) deductible increases that help 

increase program capacity while encouraging mitigation by consumers; (5) an increase in coverage limits that have not changed in more than 15 years; and (6) authorization for the purchase of additional living expense coverage (residential) or 

business interruption (commercial). Again, many of these reforms were included in 

legislation (S. 2284) approved by the Senate in 2008. 

Meaningful Extension/Reauthorization of the Program 

AIA has advocated for a long-term reauthorization of the NFIP to protect consumers and help increase stability for real estate transactions and policyholders. 

AIA believes that a long-term reauthorization, such as a 5-year extension, will provide certainty in the flood program thereby increasing consumer and business confidence in the NFIP. Moreover, AIA believes that a long-term extension is necessary 

to allow for meaningful rate and premium appreciation so that the program may 

get on a solid financial footing and allow prices to more accurately reflect risk. 

Premiums Reflecting Risk 

The NFIP must ensure that premiums for coverage reflect the true costs to taxpayers so that flood loss subsidies can be eliminated over time. Understanding that 

this could cause significant hardship for those who cannot afford true risk-based 

premium payments, a possible solution is a Government premium subsidy that 

could be provided outside of the NFIP. We believe this could be less expensive to 

taxpayers than flood loss subsidies and would likely result in more coverage being 

purchased while reducing cross-subsidies that make the program less attractive to 

many potential policyholders. 

Legislation approved by the Senate in 2008, as well as H.R. 1309, take positive 

steps toward better pricing NFIP coverage. Both bills would increase the permissible 

annual premium—the so called ‘‘elasticity band’’ and move toward actuarial rates 

for a variety of properties—(1) commercial properties, (2) second homes and vacation 

homes, (3) homes sold to new owners, (4) homes damaged or improved, (5) homes 

with multiple claims, and (6) pre-FIRM properties. These are all positive steps that 

move the program toward a better financial position. 

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Changes to Coverage 

WYO insurers help administer 95 percent of the NFIP business providing market 

penetration, innovation and efficiency. Unfortunately, the number of homeowners 

and businesses purchasing flood insurance has dropped from its peak following the 

2005 hurricane season. In order to maximize the program’s effectiveness and reduce 

its reliance on the treasury, participation in the NFIP needs to continue to grow and 

consumers should be encouraged to purchase flood coverage. 

For several years AIA has supported changes in flood coverage to make the product more attractive. These include: (1) increasing coverage limits which will mean 

fewer uncovered losses for consumers while allowing greater premiums to be collected by the program; (2) increasing deductibles which will allow consumers to save 

more on premiums by assuming greater risk while encouraging mitigation; and (3) 

allowing the purchase of additional living expense coverage (residential) or business 

interruption coverage (commercial) thereby providing consumers with greater product options. 

Undertaking these steps will increase product diversification which should encourage more consumers to consider purchasing NFIP flood coverage. 

Other Proposals Being Considered 

During the continuing discussions to reauthorize and reform the NFIP several additional proposals have been brought forward. One such proposal centers on the notion of immediately ‘‘privatizing’’ the flood insurance program. AIA strongly supports an open and free market environment; however, the NFIP was created precisely because the private insurance market could not write flood insurance on an 

economically feasible basis in the vast majority of instances. The NFIP arose from 

the simple fact that prior to 1968, for all practical purposes, flood insurance that 

was both actuarially sound and affordable was unavailable to the home-owning public because it was subject to such acute adverse selection (only those who need it 

would purchase it). Indeed, long before the creation of the NFIP, private insurers 

had effectively stopped providing flood coverage. 

While it constitutes a declining percentage of all NFIP policies, the number of 

properties receiving subsidized premium rates has grown since 1985; by 2007 it was 

at its highest point in almost 30 years. To date, more than half of the subsidized 

policies are concentrated in five States with relatively high flood risk. Based on our 

experience, these subsidies would not vanish if the NFIP were privatized. Unfortunately, in many States—including those States that are exposed to losses by natural 

catastrophes—insurers face arbitrary rate suppression. That said, any discussion of 

privatization of the NFIP or large portions of it must be carefully considered. 

Another suggestion is a proposal by Senator Wicker. Senator Wicker recently introduced the COASTAL Act, (S. 1091), which proposes a new approach to adjusting 

total losses in which both flood and wind played a role and yet remaining physical 

evidence is scant or nonexistent. For such claims, the legislation proposes the use 

of a new post-event model to produce a formulaic allocation of total losses between 

certain wind and flood coverages when both are present. This is a significant departure from long standing NFIP and wind claims adjusting and how they are governed 

by Federal and State law, respectively. As with any new idea that could impact a 

large, important program, AIA believes this allocation proposal needs proper consideration and study to ensure that it will not result in unintended consequences. 

Conclusion 

As we noted at the time, AIA supported many of the provisions contained in the 

2008 Senate legislation, particularly those provisions providing for a long-term reauthorization and those that put the program on sound financial footing. Thank you 

for the opportunity to submit this statement. We look forward to working with the 

Committee as this process moves forward. 

STATEMENT SUBMITTED BY STUART MATHEWSON, FCAS, MAAA, 

CHAIR, FLOOD INSURANCE SUBCOMMITTEE, EXTREME EVENTS 

COMMITTEE, ON BEHALF OF THE AMERICAN ACADEMY OF ACTUARIES 

Chairman Johnson, Ranking Member Shelby, and distinguished Members of the 

Committee, on behalf of the American Academy of Actuaries’ Subcommittee on 

Flood Insurance, I appreciate the opportunity to provide testimony regarding the 

National Flood Insurance Program (NFIP). 

The American Academy of Actuaries is a 17,000-member professional association 

whose mission is to serve the public and the U.S. actuarial profession. The Academy 

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assists public policy makers on all levels by providing leadership, objective expertise, and actuarial advice on risk and financial security issues. The Academy also 

sets qualification, practice, and professionalism standards for actuaries in the 

United States. 

The NFIP is a complex program and is perceived by some/many as having a selective impact within certain areas. Nevertheless, critical factors stemming from constantly changing climate, coastlines, rivers and streams, building construction, landuse, the scientific understanding of hydrology and hydraulics and the technologies 

used to measure and address flood risk create new opportunities for constructive 

NFIP reform. 

Two issues are of the highest priority with respect to the NFIP. First, we support 

reauthorizing the program for a period of time of 5 years or longer to establish some 

stability in flood insurance coverage. This will help stabilize the market and minimize uncertainty for consumers: policyholders, mortgage holders, taxpayers, the real 

estate and construction market economies, and insurers and agents. In the recent 

past, short-term reauthorizations (for fewer than 5 years) have resulted in dislocations and additional costs to those involved in the process because of the near-term 

prospect that the program might be permitted to expire. Second, we support efforts 

to move NFIP insurance rates closer to a financially adequate level. The underlying 

principle necessary to guide those efforts is: insurance rates should cover the full 

cost of the transfers of risk taking place within the program. To accomplish this 

goal, rates should cover the expected losses and expenses involved in the insurance 

transaction and should provide a reasonable additional provision for the risk or uncertainty associated with the coverage being provided. This risk provision means 

that additional premiums should be collected to cover catastrophic events like Hurricane Katrina, which, although infrequent, may happen in any given year. 

The current NFIP rate subsidies do not allow the program to generate premiums 

that are sufficient to cover average annual losses. Furthermore, the NFIP does not 

collect additional premium, in excess of the premium sufficient to cover average annual losses and expenses, to allow the NFIP to build up catastrophic reserves, so 

the NFIP must borrow from the United States Treasury when very large loss events 

do occur. 

Before Hurricane Katrina, the NFIP was generally able to repay its debt with 

subsequent premiums, because the borrowing had been relatively modest. By contrast, the borrowing that was necessary to cover the losses incurred during Hurricane Katrina resulted in a debt many multiples of what it was before. Thus, much 

of the current income to NFIP goes to paying interest and some part of the principal 

for that debt. This leaves much less current income to pay losses, increasing the possibility of further borrowing. At the current rate, it will take decades to repay the 

existing NFIP debt. Consequently, it is important that any NFIP reform legislation 

address the debt issue to put the program on sound and sustainable financial footing. 

In addition to the above priorities, there are several other issues that we believe 

should be addressed in any reform legislation: 

1. If the NFIP could increase and diversify its pool of policyholders, the financial 

strength of the program would be improved. Thus, we support efforts to increase 

participation in the NFIP. It is especially important that the percentage of covered 

properties subject to riverine flooding be increased. Also, properties outside of the 

100-year floodplain, but still subject to flooding, have had significant losses but are 

not well-represented in the NFIP pool. (Ostensibly, properties outside the 100-year 

floodplain would have lower rates than those within the 100-year floodplain.) In 

general, the NFIP’s premium base would be increased if more of these types of properties were insured. Increased participation in the program would minimize the impact of adverse selection, in which only the owners of the most exposed properties 

purchase insurance. Minimizing the impact of adverse selection would help to 

strengthen the program overall. 

2. Repetitive loss properties have been shown to be much more at risk than the average property insured by the NFIP. We recommend Congress address this issue 

and decide whether these properties should be covered at all and, if so, at what 

price and under what conditions. 

3. Continual attention to the updating of flood hazard maps is needed to better identify properties located within severe flood hazard areas. The Risk Mapping, Assessment and Planning (MAP) program provides digital access and dissemination of new 

maps. The Risk MAP program is intended to allow maps to be updated in a more 

timely way. More accurate, up-to-date maps allow a better assessment of hazard. 

The assessment and reassessment of hazard is vital overall to property liability insurance programs. As the hazard changes, so, too, should the rates and premiums. 

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This would allow the NFIP to better differentiate rates among policyholders, resulting in more adequate and equitable premiums. 

Finally, the National Flood Insurance Program is critical to protecting home and 

business owners in the U.S. and should be strengthened and extended for a sufficiently longer reauthorization to allow the program to establish a sound financial 

footing. Steps should be taken to assure that the true costs are accurately apportioned to all property owners at risk. In addition, the current debt should be addressed, so that the program can use its premium income to pay the future losses 

that will invariably occur. 

Thank you for the opportunity to provide this testimony to the Committee. 

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LETTER SUBMITTED BY SHANA UDVARDY, DIRECTOR, FLOOD 

MANAGEMENT POLICY, AMERICAN RIVERS 


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LETTER SUBMITTED BY FRANKLIN W. NUTTER, PRESIDENT, 

REINSURANCE ASSOCIATION OF AMERICA 


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STATEMENT SUBMITTED BY FRANKLIN W. NUTTER, PRESIDENT, 

REINSURANCE ASSOCIATION OF AMERICA 

My name is Frank Nutter and I am President of the Reinsurance Association of 

America (RAA). The RAA is a national trade association representing reinsurance 

companies doing business in the United States. RAA membership is diverse, including reinsurance underwriters and intermediaries licensed in the U.S. and those that 

conduct business on a cross border basis. I am pleased to appear before you today 

to provide the reinsurance industry’s perspective on reforms to the National Flood 

Insurance Program. 

Reinsurance is critical to insurers and State-based property insurance programs 

to manage the cost of natural catastrophe risk. It is a risk management tool for insurance companies to improve their capacity and financial performance, enhance financial security, and reduce financial volatility. Reinsurance is the most efficient 

capital management tool available to insurers. 

Reinsurers have helped the U.S. recover from every major catastrophe over the 

past century. By way of example, 60 percent of the losses related to the events of 

September 11, 2001 were absorbed by the global reinsurance industry, and in 2005 

61 percent of Hurricanes Katrina, Rita, and Wilma losses were ultimately borne by 

reinsurers. In 2008, approximately one-third of insured losses from Hurricane Ike 

and Gustav were reinsured. 

The National Flood Insurance Program (NFIP) was established on the fundamentally sound principles of encouraging hazard mitigation and promoting the use of 

insurance to reduce postevent disaster assistance. However, the NFIP, as it has 

evolved and been modified by legislative action, compromises, rather than embraces 

sound public policy, insurance principles and practices. Actions (in whole or in part) 

to introduce private sector risk assessment into the NFIP, therein retaining the 

proper role for Government in land-use planning and hazard mitigation, could address those issues and reestablish the flood risk management program as a successful public–private partnership. 

In 1973 George Bernstein, the first Federal Insurance and NFIP Administrator, 

cautioned prophetically: ‘‘It is the combination of land-use controls and full actuarial 

rates for new construction that makes the National Flood Insurance Program an insurance program rather than a reckless and unjustifiable giveaway program that 

could impose an enormous burden on the vast majority of the Nation’s taxpayers 

without giving them anything in return.’’ 

As it currently operates, the NFIP is not an insurance program. But it should be 

and can be. The fuller application of risk-based rates and an appropriate risk-bearing role for the private reinsurance sector would transform the program. By doing 

so, the NFIP could also achieve the goal of protecting taxpayers and the Treasury, 

thereby returning the Program to its original goal of being fiscally sound. 

It is a commonly held belief the NFIP is fundamentally bankrupt and a private 

sector risk bearing role is unachievable. Given the nearly $18 billion dollar debt to 

Treasury, the Program is demonstrably a millstone on the Federal budget and U.S. 

taxpayers. The assumption about a private sector risk-bearing role, however, deserves to be considered. 

Protecting Taxpayers With Risk-Based Rates 

Rates in the NFIP that have been subsidized without regard to the present character or ownership of the property should be risk-based. Subsidized rates were introduced early in the Program as an inducement for communities to enter the Program. It was a successful strategy. Nearly 22,000 communities now participate. 

However, it was the intent of the original legislation that subsidized rates and the 

properties to which they apply were to be gradually eliminated. In the last 20 years, 

however, the number of subsidized properties has actually risen by 1.2 million. Additionally, the Program was designed to address primary residences, yet second 

homes, investment, and vacation properties continue to receive the benefit of subsidized rates. 

The Program’s subsidies have also facilitated the development of environmentally 

sensitive coastal areas, including those at high risk to flood losses. The Government 

Accountability Office (GAO) reports that repetitive loss properties account for 1 percent of policies and 25–30 percent of losses. The Congressional Budget Office (CBO) 

reports the number of repetitive loss properties has increased by 50 percent in the 

last decade. 

The Congress must also recognize that statutory caps on rates may be popular 

with its beneficiaries, but the caps distort risk assessment by builders, local officials, 

property buyers, and NFIP policyholders. They increase the cross subsidy from low 

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or no risk persons and taxpayers to those living in high risk flood areas. The classic 

‘‘robbing Peter to pay Paul’’ analogy applies. 

According to the GAO, subsidized-rated properties generate 70 percent of the Program’s claims. The NFIP and the Congress should address these fundamental flaws 

in the Program and remove inequitable and unjustifiable rate subsidies. Proposals 

to provide needs-based subsidies independent of NFIP rates are worthy of support. 

The NFIP Should Plan for Extreme Events 

From 1978 to 2004, the NFIP had a net loss of just $2 billion. CBO reports that 

if the ‘‘early’’ years, when rates were lower and community participation was not 

as significant as now, were not included, the Program would have had a profit of 

$600 million. As a result of losses in 2005—the year the Program had to borrow 

$20 billion from Treasury—debt service of 30 percent of premiums collected is built 

into the NFIP’s finances. With the addition of a contingency plan for extreme event 

years and without this financing load, the Program can be fiscally sound. 

FEMA represents that 75 percent of its policies are ‘‘actuarially’’ sound. Sound insurance pricing would reject this representation because the NFIP does not incorporate a catastrophe factor for infrequent, yet severe, loss years. The Program unfortunately takes into account only 1 percent of the losses from the 2005 program 

year (Hurricanes Katrina, Wilma, and Rita) and relies on the ‘‘average annual loss’’ 

model for its pricing. This ignores the fact that extreme event catastrophes must 

be financed. FEMA’s average annual loss (FEMA presumes $1.3 billion) pales in 

comparison to actual insured and reinsured loss costs in recent natural catastrophes. This average annual loss pricing model is ill-suited for natural catastrophe 

risk—whether it be in the private or public sector. 

Because of the pricing model, the NFIP has neither adequately planned, nor 

priced for, extreme event(s) years. As a result, the GAO recently concluded the Program does not have a viable funding model to repay the existing debt to Treasury. 

No private sector solution is available for this existing debt. However, as the GAO 

points out, the Program should operate like an insurance entity. If it did, it could 

reduce or eliminate taxpayer exposure to future debt by laying off risk to the private 

sector through reinsurance and catastrophe bonds. As the GAO admonished, 

Private insurers typically retain only part of the risk that they accept from 

policyholders, ceding a portion of the risk to reinsurers (insurance for insurers). This mechanism is particularly important in the case of insurance for 

catastrophic events, because the availability of reinsurance allows an insurer to limit the possibility that it will experience losses beyond its ability 

to pay. NFIP’s lack of reinsurance, combined with the lack of structure to 

build a capital surplus, transfers much of the financial risk of flooding to 

Treasury and ultimately the taxpayer. 

The Private Sector Role in the Program 

In recent years, the private insurance sector has worked in partnership with 

FEMA through the Write Your Own program (WYO). This role for insurers has provided the NFIP with a valuable marketing arm and administrative capability that 

minimizes the need for a Federal bureaucracy to issue policies and adjust claims. 

A private insurance market for flood risk has not developed. Insurers are concerned about State rate regulatory manipulation and suppression and adverse selection of risk. Historic rate subsidies by the NFIP make a traditional private market 

flood insurance product for homeowners noncompetitive. Without a viable private insurance market, the NFIP cannot be terminated or put into run-off in the short 

term. 

Yet, there have been positive developments in recent years: (1) recognizing there 

are significant concerns about map integrity, the NFIP has established a map program for all communities participating in the NFIP; (2) catastrophe modeling firms, 

as well as some reinsurance brokers and underwriters, now provide flood models for 

underwriting purposes in the U.S. and in other countries; (3) there has been growth 

in private sector flood mapping entities; (4) twenty-two universities now have flood 

research programs; and (5) satellite imaging has improved risk assessment. 

We believe a private reinsurance risk bearing role for the NFIP can be established, with the following conditions: (1) preserve the WYO program; (2) retain the 

current Federal risk bearing role; (3) introduce the risk analysis and risk spreading 

role of the private reinsurance and capital markets; (4) utilize the existing statutory 

framework; and (5) consult with knowledgeable public and private interests about 

long-term approaches to the development of a greater private sector flood insurance 

market. 

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The Role of Reinsurance: Two Complementary Options 

We believe the NFIP can address its volatility and extreme event exposure and 

reduce the dependence of the Program on taxpayers and Federal debt through risk 

transfer to reinsurance and private market capital providers. The NFIP could also 

seek the placement of catastrophe bonds to augment reinsurance. Both financial sectors have significant capacity and believe flood risk can be reinsured or transferred 

into capital markets. Utilizing private reinsurance or catastrophe bond risk transfer 

mechanisms also introduces a private sector rating verification model into the 

NFIP—thus providing an incentive and guidepost for risk-based rates. 

Transactional Reinsurance: As with most State property insurance plans, and 

nearly all private insurers, the NFIP could address its volatility and extreme event 

problem through the purchase of reinsurance from private market capital providers. 

Additionally, where appropriate, NFIP could seek the placement of catastrophe 

bonds to supplement reinsurance capacity. Both markets have significant capacity 

and an appetite to take flood risk. These sectors believe flood risk can be reinsured 

or transferred into capital markets if properly structured. As with other governmental insurance entities and private sector insurers, the NFIP would work with 

modelers, underwriters, and/or brokers to provide the market with an evaluation of 

its risk portfolio, determine what types of risk (by geography, insured exposure, or 

category of risk) are amenable to risk transfer and then seek coverage in the private 

sector. This would allow these entities to evaluate the NFIP data and introduce 

their own risk assessment into the process. Like any catastrophe reinsurance and 

‘‘cat’’ bond program, it would transfer catastrophe risk from taxpayers and the 

Treasury to the capital markets. Should the NFIP find the bids unattractive on a 

price or coverage basis, it would not go forward with the placement. The NFIP 

would, therefore, be in the same place as it is now: dependent on public debt. If the 

placement were successful, the private sector would provide financial relief to taxpayers. No study is necessary to evaluate this approach as the market and NFIP 

officials can pursue it at this time with the full opportunity to evaluate coverage 

proposals without prior commitment. 

Reinsurance Pool: Section 4011 of the NFIP legislation adopted in 1968 provides 

for the Director of FEMA (at the time HUD) to ‘‘encourage and arrange for appropriate financial participation and risk sharing . . . by insurance companies and 

other insurers.’’ Section 4051 provides that the Director is authorized ‘‘to assist insurers to form, associate or join in a pool’’ on a voluntary basis ‘for the purpose of 

assuming on such terms . . . as may be agreed upon, such financial responsibility 

as will enable such insurers, with the Federal financial assistance’ to assume a reasonable proportion of responsibility for the adjustment and payment of claims for 

losses under the flood insurance program.’’ Such a pool of insurers did in fact operate as the National Flood Insurers Association from 1968 to 1978, as the administrative arm of the Program and with a risk-bearing role through a formula negotiated with the Government. Section 4052 authorizes the Director to enter into 

agreements with the pool to address risk capital, participation in premiums and 

losses realized, and operating costs. Section 4055 authorizes the Director to enter 

into a reinsurance relationship with the pool to address losses in excess of those assumed by the pool. 

The provisions of the statute authorizing the pool, created in conjunction with the 

adoption of the Act, have long been dormant. Yet they remain a viable mechanism 

for the creation of another pool. This time it would be to reinsure the NFIP—capitalized by those insurers that voluntarily wish to provide capacity. By doing so, 

these insurers would have access to the NFIP’s flood insurance coverage and underwriting data. The Director and those participating insurers would enter into negotiations over the risk-sharing formula and could individually subscribe capacity on 

an annual basis. As with the traditional reinsurance proposal noted above, FEMA 

would work with modelers, underwriters, and brokers to assess its risk portfolio. 

Such collaboration would determine what types of risk are appropriate, what method of reinsurance the pool would offer to the NFIP, as well as what type of reinsurance, if any, FEMA would provide to the pool. As with the prior suggestion of laying-off risk through traditional catastrophe reinsurance placement, this proposal 

does not change the WYO program. FEMA remains the insurer of flood risk at the 

consumer level, transfers flood risk from taxpayers to the private sector and allows 

those insurers that wish to participate in the risk to do so through a standing facility. 

These two approaches, a traditional property catastrophe program and the reauthorization of a standing reinsurance facility or pool, are both complementary and 

yet not exclusive to each other. The existing statutory authority may well be sufficient to move forward without delay, on either or both. 

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The RAA looks forward to working with Members of this Committee, the Congress, FEMA, and officials from the NFIP to explore and pursue private sector reinsurance and capital market options. 

STATEMENT SUBMITTED BY THE NATIONAL ASSOCIATION OF 

MUTUAL INSURANCE COMPANIES 

The National Association of Mutual Insurance Companies is pleased to offer comments to the United States Senate Committee on Banking, Housing, and Urban Affairs on the National Flood Insurance Program (NFIP). 

NAMIC believes that there are significant problems with the NFIP as it is currently structured and the best solution involves reforming and optimizing the program. The views we share with the Committee are based on the perspective of over 

1,400 NAMIC members. 

Founded in 1895, the National Association of Mutual Insurance Companies 

(NAMIC) is the largest and most diverse property/casualty insurance trade association in the United States. Its 1,400 member companies write all lines of property/ 

casualty insurance business and include small, single-State, regional, and national 

carriers accounting for 50 percent of the automobile/homeowners market and 31 percent of the business insurance market. We also have over a quarter of the companies that participate in the NFIP’s ‘‘Write-Your-Own’’ program as members. 

NAMIC’s membership truly represents a cross-section of the industry and has been 

proudly protecting its policyholders throughout North America for many years. 

The Nature of Flood Risk 

Insurance markets function best when certain conditions are met. For example individual exposures should be independent of each other (i.e., not correlated) and 

there should be a large number of individual risk exposures to allow the use of statistical predictions of future losses. Losses should be accidental or unintentional in 

nature and should be generally predictable, allowing insurers to set premiums properly. Insurers must be able to spread risk over a large enough pool and each insured 

must pay the cost of adding to the risk pool. 

For some risks, however, private insurance markets are unable to provide sufficient coverage. Certain risks are uninsurable because they defy the conditions private markets require for operation. Flood risk is one of these unconventional risks. 

Adverse selection prompts only those who believe they are at risk of flooding to purchase insurance limiting the ability to properly pool risk. Flooding is extremely devastating and markets face serious problems providing coverage for these truly large 

and costly events. The fact that flooding involves a risk that is highly concentrated 

and correlated makes flood loss especially difficult to insure. In most lines of insurance (e.g., life, auto, fire insurance), the total amount in premiums collected and the 

total amount paid in claims are almost continuously in balance because claim costs 

for any given year are relatively predictable. This is not the case with flood risk, 

which by nature tends to result in losses that are very low in some years and extremely high in other years. Additionally, unlike other traditional threats to property, flooding has historically been spatially confined and generally limited to specific geographic locations complicating an insurer’s ability to widely spread the risk. 

Compensating for these challenges requires insurers to charge high premiums to 

cover the sizable cost of capital that they must hold in reserve to ensure they are 

able to pay all the claims that will be filed in high-loss years. 

The nature of flood risk and the factors that affect its insurability are a recipe 

for adverse selection, whereby the only people willing to buy insurance are those 

with the highest levels of risk. Thus the insurers flood portfolio consists solely of 

these high-risk individuals. Properly priced insurance (which takes into account the 

amount of surplus needed to pay claims in high-loss years) would be regarded by 

most potential purchasers as a ‘‘bad buy’’—property owners who perceive that there 

is little likelihood they will experience loss due to flooding will conclude that the 

cost of purchasing insurance is not worth it. Consequently, the only people who 

would be interested in purchasing flood insurance would be those most likely to suffer a significant flood-related loss, and the cost to insurers of providing coverage for 

these properties would cause premiums to rise to unaffordable levels. Simply put, 

the nature of flood risk makes it virtually impossible to pool risk among a large 

enough population for private insurers to be able to offer a viable and affordable 

insurance product. 

The National Flood Insurance Program 

Prior to the creation of the NFIP, flood losses were dealt with in a simple and 

direct fashion by the Federal Government. As noted in a 2002 report by the Federal 

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Emergency Management Agency, ‘‘major riverine flood disasters of the 1920s and 

1930s led to considerable Federal involvement in protecting life and property from 

flooding through the use of structural flood-control projects, such as dams and levees, with the passage of the Flood Control Act of 1936.’’ 

These projects proved to be a costly and generally ineffective solution. Despite billions spent by the Federal Government on flood control projects during that time 

the report noted that ‘‘the losses to life and property and the amount of assistance 

to disaster victims from floods continued to increase.’’ Furthermore, the only assistance available to flood victims at that time was direct Federal disaster aid, which 

also contributed to the high costs of a major flooding catastrophe. Congress began 

considering the potential for a national flood insurance mechanism as early as the 

1950s, but quickly realized that the private market simply could not underwrite the 

highly concentrated and correlated risk of massive floods. In 1968, the Federal Government stepped in to create the NFIP to mitigate the exposure both to taxpayers 

as well as citizens in flood-prone areas. Congress sought to address the increasing 

costs of taxpayer-funded disaster relief by using premium dollars taken in every 

year to pay out any flood losses incurred by policyholders for the same year. 

Originally, the only way property owners could purchase NFIP coverage was 

through specialized insurance agents. To increase take-up rates and streamline the 

claim handling process, the NFIP in 1983 created a ‘‘public–private’’ partnership 

with private insurers known as the Write-Your-Own (WYO) program. The program 

utilizes private insurers to market, sell, and administer the Standard Flood Insurance Policy. These companies—WYO carriers—use their own agents and letterhead 

and deal directly with the policyholders while the Federal Government retains responsibility for underwriting losses. Over 90 percent of all flood policies are written 

through WYO companies. The partnership has proven very successful in facilitating 

the prompt settlement of claims, even when faced with a very large volume of 

claims following extreme flooding events. 

For example, as of May 2006, more than 95 percent of the 162,000 claims for flood 

damage caused by the 2005 Gulf and Atlantic Coast hurricanes had been settled by 

the WYO companies. 

Over the last 40 years, the NFIP has allowed millions of Americans to avoid serious financial losses brought about by disastrous flooding, and as of today, the program had more than 5.6 million policies in force. However, the NFIP has many 

flaws in its design and execution and is need of serious reform in order to maintain 

a sound financial footing and better protect the American taxpayer. Subsidized premiums have been charged on a nonactuarial basis; development has increased the 

amount and value of property exposed to flood risk; take-up rates for those in need 

of coverage remain extremely low (under 30 percent of those that need flood insurance purchase it); and the recent severity of flood losses has demonstrated that the 

NFIP is not constructed to handle major catastrophic events. Although virtually 

self-sustaining for the 25 years prior, in 2005 the program incurred over $20 billion 

in debt, and currently carries $17.75 billion in debt. 

Optimization of the NFIP 

Under the current circumstances, it is not surprising that policy makers would 

raise questions about the future direction of the NFIP. Clearly the status quo is unacceptable. However, we urge caution to those who think we can do away with the 

program entirely. Nothing about the realities of flood risk has fundamentally 

changed and primary insurers are still unable to offer this coverage. The presence 

of a Federal program is just as important today as it was 40 years ago. The phenomenon that led to the creation of the NFIP—the absence of a viable private flood 

insurance market—remains the fundamental problem, and there is no reason to believe that dismantling the NFIP would suddenly cause a private market to materialize. 

The NFIP fulfills an important role, and with the right mix of reforms, the program can begin to address the problems of adverse selection, moral hazard, and financial instability that have plagued it in the past. Therefore we believe that the 

best and most viable option is optimization—maintaining the current NFIP framework while implementing reforms that address existing weaknesses. 

First and foremost, the program must be reauthorized for the long term. Constant 

reauthorization debates create uncertainty and can lead to lapses in the program 

as we saw in 2010. During these lapses, companies were not permitted to write new 

policies, issue increased coverage on existing policies, or issue renewal policies, and 

lenders and home buyers were prevented from closing on mortgage loan contracts. 

The NFIP should be reauthorized for an extended period in order to bring stability 

to the program and instill confidence among consumers. 

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In addition to long term reauthorization we recommend a package of key reforms 

designed to achieve five essential objectives: 

1. Charge Actuarially Sound Rates and Eliminate Subsidies 

2. Update and Improve the Accuracy of Flood Maps 

3. Increase Take-Up Rates 

4. Discourage Repetitive Loss Properties 

5. Improve Management and Correct Operational Inefficiencies 

Charge Actuarially Sound Rates and Eliminate Subsidies 

Inadequate rates that do not reflect the actual costs of living in a flood-prone area 

are the source of many of the NFIP’s problems. In the original NFIP legislation, 

Congress tasked FEMA with setting rates to meet the ‘‘objective of making flood insurance available where necessary at reasonable rates so as to encourage prospective insureds to purchase such insurance.’’ The program was structured to subsidize 

the cost of flood insurance for existing homes, while charging actuarially sound 

rates for newly constructed properties built after the introduction of flood insurance 

rate maps. It has been estimated that, on average, the premiums charged for these 

older properties are 60 percent less than the amount that would be considered actuarially sound. 

Moreover, it is doubtful that the rates charged for properties built after the advent of flood maps comport with most private insurers’ conception of ‘‘actuarially 

sound.’’ The price for NFIP flood insurance is relatively low—on average nationwide, 

property owners pay only $2.64 per $1,000 of flood coverage, or $528 per year for 

$200,000 in coverage. This average is constant across all States, including highly 

flood-prone States, which sustained major flood losses during the 2004, 2005, and 

2008 hurricane seasons. Insofar as these rates do not reflect the true cost of providing coverage, the NFIP bears less resemblance to insurance than to a targeted 

public spending or risk-management program. 

Just as inadequate rates fail to reflect the true cost of providing coverage, they 

also fail to reflect the actual risks of living in a flood-prone area. This has the effect 

of encouraging poor land use and development in high-risk areas, thereby increasing 

the total potential losses that will be incurred in the event of a flood. During the 

40-plus years that the NFIP has been in place, there has been a large population 

increase in flood-prone coastal States, which now account for a very large portion 

of the NFIP portfolio. In Florida, for example, the population has increased from 6.8 

million in 1970 to nearly 18.5 million in 2009. During the same period, there was 

a sevenfold increase in the number of NFIP flood policies in force and now more 

than two-thirds of NFIP policies are located in just five coastal States. 

An updated rating system should include the following: 

• Elimination of subsidized rates (implicit as well as explicit); 

• Immediate institution of risk-based rates for nonprimary residences, repetitive 

loss properties, and business properties; 

• Tiered structure that reflects differences in risk based on updated maps; 

• All new policies should charge actuarially sound, risk-based rates; 

• Under certain circumstances, areas significantly impacted by changes in mapping could be eligible for phase-ins of actuarial rates; 

• Once risk-based rates are in place, credits should be given for mitigation efforts. 

The NFIP must begin charging risk-based rates if it is to have any chance of 

being a solvent program; under the current structure there is no chance that the 

program will ever repay the debt it accumulated in 2005. However, the move to actuarially sound rates is likely to be painful due to the higher premiums that will 

have to be charged in many instances. For those property owners who need assistance, flood vouchers might be offered on a means-tested basis to help mitigate the 

costs. Any subsidies that the Government believes are necessary must be independent of the NFIP and fully transparent. Subsidies cannot continue to be hidden 

within the insurance mechanism, and homeowners should be fully aware of the real 

risks of where they live. 

Update and Improve the Accuracy of Flood Maps 

Flood maps must be updated based on the best available science, with the goal 

of ensuring that NFIP flood maps accurately reflect the risks caused by flooding. 

Increasing and maintaining the accuracy of flood maps is essential to the operation 

of an effective flood insurance program. The power of newer technologies must be 

harnessed to provide program officials and property owners, as well as rescue workers and land development officials, with the most accurate information possible. 

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1Smarter Safer Coalition Flood Proposal, February 22, 2011. www.SmarterSafer.org 

The availability of new technology has given FEMA the ability to better evaluate 

flood exposure in every region of the country, but the more accurate maps made possible by this technology will inevitably raise protests from residents who are suddenly informed that their home is located in a floodplain. Not only will they face 

the prospect of having to purchase flood insurance (which may be expensive assuming actuarial rates are charged), but some evidence suggests that homes designated 

as being in a floodplain suffer a loss in value. Elected officials will likely face pressure from constituents and interest groups to postpone the starting date of the new 

maps or to attack their credibility. 

These considerations have led NAMIC to endorse a new mapping protocol developed by the SmarterSafer coalition, 1 of which NAMIC is an active member. The coalition’s proposal contains the following elements: 

• Establishment of a council to develop updated and accurate flood maps. This 

new body—the Technical Mapping Advisory Protocol (TMAP) Council—could be 

composed of the following members: 

• Federal Emergency Management Agency 

• U.S. Geological Survey 

• Department of the Interior 

• National Oceanic and Atmospheric Administration 

• A data management expert 

• U.S. Army Corps of Engineers 

• A flood/stormwater management representative 

• Department of Agriculture’s Natural Resources Conservation Services 

• A State emergency management representative 

• U.S. Fish and Wildlife Service 

• National Marine Fisheries Service 

• A recognized professional surveying association or organization 

• A recognized professional mapping association or organization 

• A recognized professional engineering association or organization 

• A recognized professional association or organization representing flood hazard determination firms; 

• The TMAP Council should have a balance of State, local, Federal, and private 

members. 

• The Council should consult with stakeholders through at least four public meetings annually, and seek input of all stakeholder interests including: 

• State and local representatives 

• Environmental and conservation groups 

• Insurance industry representatives 

• Advocacy groups 

• Planning organizations 

• Mapping organizations 

• Within 1 year, the TMAP Council should propose new mapping standards that 

ensure the following: 

• Maps reflect true risk, including graduated risk that better reflects risk to 

each property. This does not need to be at the property level, but should be 

at the smallest geographic level possible—whole communities should not be 

mapped together without taking into account different risk levels. 

• Maps reflect current land use and topography and incorporate the most current and accurate ground elevation data. 

• Determination of a methodology for ensuring that decertified levees and other 

protections are included in maps and their corresponding flood zone reflect 

the level of protection they confer. 

• Maps take into account best scientific data and potential future conditions 

(including projections for sea-level rise). 

• TMAP should continuously function, reviewing the mapping protocols, and making recommendations to FEMA when they should be altered. 

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• Within 6 months of TMAP recommending new mapping protocols, FEMA should 

begin updating maps based on the recommendations. 

• Within 5 years from the implementation of the mapping protocols, all flood 

maps should be updated according to the new protocol. 

• NAMIC believes the TMAP process would facilitate development and adoption 

of accurate maps. Speedy adoption of these updated flood maps is essential to 

ensure that the individuals and businesses in flood-prone areas can get the protection they need and we owe these people and the American taxpayer no less. 

Mapping technology has significantly improved since the 1970s. Putting off the 

adoption of updated flood maps does a disservice to those citizens living in floodprone areas who in the end, risk losing their homes and their lives. 

Increase Take-Up Rates 

Insurance is inherently dependent on the ‘‘law of large numbers,’’ thus the insurance mechanism works best when everyone participates in the program. Currently 

only 20 to 30 percent of individuals exposed to flood hazards actually purchase flood 

insurance. To make matters worse, many of those who purchase flood insurance do 

so only after suffering damage from a flood, then allow their policies to lapse after 

several years have passed during which they experienced no flood loss. The program 

must take steps to address this adverse selection and increase these numbers dramatically in order to properly pool the flood risk and achieve financial soundness. 

There are several possible ways to improve these take-up rates: 

• Stiffer penalties could be imposed on financial institutions that either fail to require flood insurance coverage for mortgages on properties in flood-prone areas, 

or allow the policies to lapse. Although owners of properties located in special 

flood hazard areas are required to purchase and maintain flood coverage as a 

condition of obtaining a federally backed mortgage, experience suggests that enforcement of this rule is spotty at best. For example, following a Vermont flood 

in 1998, FEMA discovered that of the 1,549 homes that were damaged by the 

flood, 84 percent lacked flood insurance, even though 45 percent were required 

to have flood coverage in place. Apparently mortgage lenders had done little to 

ensure that the mandatory flood insurance purchase requirement was met. 

• Require homeowners in flood-prone areas to sign a ‘‘Disaster Relief Waiver’’ 

stipulating that they forfeit their right to disaster relief in the event they 

choose not to purchase flood insurance. This requirement should apply to all 

homeowners, not just those with federally backed mortgages, and would serve 

to disabuse property owners of the expectation that generous Federal disaster 

relief will be available to flood victims and therefore they need not purchase 

flood insurance. 

• The NFIP should be given a renewed mandate to improve and expand its 

public education programs to ensure that more people are made aware of the 

program and the benefits of having flood insurance coverage to protect their 

properties. 

Discourage Repetitive Loss Properties 

A recent Congressional Budget Office study revealed that there are currently 

about 71,000 NFIP-insured ‘‘repetitive loss properties,’’ which represent just 1.2 percent of the NFIP portfolio but account for 16 percent of the total claims paid between 1978 and 2008. Moreover, roughly 10 percent of these repetitive loss properties have received cumulative flood insurance claim payments that exceed the 

value of the home. American taxpayers should not be forced to subsidize a small 

subset of NFIP policyholders who continue to rebuild in high-risk areas. 

A reformed NFIP would include a system to ensure repetitive loss properties are 

not a drain on the program. Options to achieve this goal include: 

• A buyout program. A prioritized list of properties for buy out—those that 

have had the largest payouts from the program—could be created and purchase offers made. If a reasonable buyout offer is made (based on appraisals) 

and a repetitive loss property owner refuses, that property could be prohibited 

from purchasing flood insurance through the NFIP. 

• Make owners of repetitive loss properties ineligible for NFIP coverage if they 

choose to rebuild in the same place following a loss from a flood. 

• Make owners of repetitive loss properties ineligible for disaster relief. 

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2Government Accountability Office; GAO-11-278 High-Risk Series. An Update, pp. 167–170. 

Improve Management and Correct Operational Inefficiencies 

The GAO’s report 2 on at-risk Federal operations highlighted the deficiencies in 

FEMA’s data tracking capabilities. The report found that FEMA lacks clear procedures for monitoring contracts and claims records, despite the investment of $40 

million over 7 years for new systems. FEMA needs to be held accountable for both 

establishing and executing these procedures so the program can better monitor the 

flood situation. One of NAMIC’s recommendations to improve take-up rates is a 

stronger enforcement of mandatory purchase and maintenance of flood insurance requirements by mortgage lenders. While lenders must take steps to ensure greater 

compliance, responsibility lies with the NFIP for monitoring policy data and coordinating enforcement with the lenders. To achieve this goal, FEMA must develop and 

institute clear procedures for monitoring contracts and claims records, effectively 

communicating with lenders and triggering enforcement actions for noncompliance. 

NAMIC’s Views on the COASTAL Act 

Finally, NAMIC would also like to take this opportunity to comment on S. 1091, 

the Consumer Option for an Alternative System to Allocate Losses (COASTAL) Act, 

sponsored by Senator Roger Wicker. We believe Senator Wicker has taken a constructive approach to a very complex issue, and we appreciate his hard work. We 

share the objective of expediting the claims resolution process for customers where 

allocation of loss between wind and water is indeterminate. These cases sometimes 

lead to coverage disputes, resulting in litigation between policyholders and insurers 

that can take up to 2 years to decide in court. This delay in claim resolution and 

payment is burdensome and unfair to all parties concerned. 

Notwithstanding its laudable intent, we fear that this plan could cause more confusion for insurers and consumers in the aftermath of a major natural disaster. 

Most claims are settled in a matter of days or weeks. For the vast majority of policyholders, waiting 90 days for a determination would significantly slow the claims 

payment process. More specifically, the following are four areas where we would 

seek to amend or clarify. 

New Federal Authority Over State Regulated Insurers 

The loss allocation plan raises the specter of a greater intrusion by the Federal 

Government into the private insurance market. Under the COASTAL Act, for the 

first time a Federal agency would be telling State-regulated property/casualty insurance companies what they have to pay in claims. We strongly believe that State insurance commissioners should be involved in the loss allocation process. At the very 

least, State commissioners should have a seat on the arbitration panel. 

Technical Questions on the Standardized Loss Allocation Model 

The COASTAL Act establishes a mechanism called the ‘‘Standardized Loss Allocation’’ (SLA) model that will purportedly utilize the most scientifically valid determinations of wind and water loss for insured coastal properties, in cases where only 

a foundation, or ‘‘slab,’’ remains of the original property. The model is developed by 

the National Oceanic and Atmospheric Administration (NOAA), and is required to 

be 90 percent accurate for each individual property that is subject to the SLA system for allocating losses. If the SLA model is less than 90 percent accurate, it will 

not be used to allocate losses and claim disputes could then move to litigation, as 

happened in several Gulf Coast States after the 2005 Hurricane Season. 

While NOAA may have a sufficient number of weather sensors in hurricane-prone 

areas, experience has shown that strong storms, which cause the greatest number 

of indeterminate losses, are likely to damage the NOAA sensors relied upon for this 

model, causing the sensors to fail. In this scenario, the NOAA model would not 

reach 90 percent accuracy and the affected policyholders and insurers would receive 

no more clarity than they have today. Ironically, the low-probability, high-impact 

events whose aftermath the model is intended to address are precisely those for 

which it will probably be rendered useless. 

We also are concerned that the model may be overly reliant on NOAA while disregarding credible private sector resources for this type of loss analysis. For example, specialized engineering and scientific firms also offer baseline damage surveys, 

topographic surveys, and meteorological analysis of such total loss properties. Such 

additional input into the model would ease our concerns about NOAA’s potential 

limitations. If not added to the NOAA model, independent causation analysis should 

be admissible in the appeal arbitration process. 

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Voluntary Participation in the Loss Allocation Model 

NAMIC appreciates the intent by Senator Wicker to make participation in the 

SLA system voluntary for all non-Write Your Own (WYO) insurers. However, as the 

bill is written, this provision appears somewhat vague. Additional language clarifying the category of insurers for whom participation will be truly voluntary would 

be appreciated. 

Furthermore, we believe this model could create an unstable business environment for the Write Your Own carriers and thus force their exit from the WYO marketplace. While we are unable to substantiate such claims before implementation, 

concerns remain over the civil liabilities provision and the lack of preemption from 

‘‘bad faith’’ lawsuits. WYO carriers may very well determine that the number of 

‘‘slab’’ claims that would trigger use of the model is not great enough to cause real 

concern. The true market signal will come in response to implementation of the 

COASTAL Act. As such, a pilot program that includes full implementation throughout the United States with a sunset provision requiring reauthorization may be a 

prudent move by Congress. 

Limitations on Private Claims Adjusting 

NAMIC is concerned about limitations placed on the private insurance adjuster’s 

role in the indeterminate loss allocation process. We appreciate that the bill allows 

private insurance adjusters to participate in the process by determining ‘‘slab-only’’ 

cases and contributing additional pertinent property-loss data to the NOAA storm 

model. However, after the ‘‘slab’’ determination and data entry, the adjuster must 

then cede decision-making authority and defer to NOAA’s ‘‘standard formula’’ as a 

tool to settle the claim. Aside from our questions about the SLA model’s accuracy, 

forfeiting control by private insurers to the Federal Government creates a disconcerting precedent. 

It will be imperative that the appeals through the five-member arbitration panel 

include consideration of the private insurers’ findings, both from their adjusters and 

from independent causation analysis professionals. 

Finally, the bill also appears to invite lawsuits against adjusters for their determinations of ‘‘slab’’ properties, which we believe sets another dangerous precedent 

that could potentially cause WYO carriers to leave the WYO program. By the same 

token, it could deter adjusters from handling flood claims, especially ‘‘slab’’ cases. 

The ensuing reduction in the number of certified adjusters handling such claims 

may, in turn, result in delays in NFIP claim adjustment. 

Scope of the Standardized Loss Allocation Process 

As we understand the current draft of the bill, the Standardized Loss Allocation 

process established by the COASTAL Act would apply only to indeterminate loss 

claims where both private wind coverage and NFIP flood coverage are in place; it 

would not apply in cases where the affected property was not covered by flood insurance. However, some proponents of the bill have suggested that it would apply as 

well in cases where no flood coverage is in place. We trust that this interpretation 

is incorrect, but the fact that there is evidently some confusion on this point indicates that clarifying language should be added to the bill. 

Summary of COASTAL Act Viewpoint 

There is no doubt that insurers and policyholders alike would benefit from the 

creation of a fair and efficient method for allocating indeterminate losses that obviates the need for costly and time-consuming litigation. On the other hand, neither 

insurers nor coastal property owners will benefit from a new system that ultimately 

limits access to, and affordability of, homeowners insurance. We share Senator 

Wicker’s goal of ensuring timely and fair claims payments to victims of natural disasters. NAMIC looks forward to working closely with Senator Wicker and his colleagues to ensure that the measure will succeed in achieving positive results for insurers and policyholders while avoiding potential negative consequences. 

Conclusion 

The NFIP is in need of significant reforms in order to continue providing flood 

protection to those who need it. As a practical matter, there is no private residential 

market for flood insurance and efforts to create one will continue to be frustrated 

by rate regulation, adverse selection, and capital constraints. However, other proposals that seek to explore a risk-bearing role for the private sector in the NFIP 

may have merit and should be given due consideration. For example, ceding a portion of the NFIP’s risk to the private sector through reinsurance and catastrophe 

bonds could reduce taxpayer exposure to future debt. 

In sum, the objective of any reform legislation should be to maintain and optimize 

the current flood insurance program. We believe that optimization is the best way 

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to balance the many goals of the reform effort: fiscal soundness, affordability of insurance, adequate coverage for those at risk, floodplain management (reduction of 

flood hazard vulnerability), economic development, individual freedom, and environmental protection. 

NAMIC thanks the Committee for its consideration of National Flood Insurance 

Program reform. We hope that current legislative proposals will incorporate 

NAMIC’s five fundamental objectives outlined in this testimony. We look forward 

to working with the Committee on these and further suggestions for ways that the 

current structure can be maintained and optimized. 

STATEMENT SUBMITTED BY THE INDEPENDENT INSURANCE AGENTS 

AND BROKERS OF AMERICA 

The Independent Insurance Agents and Brokers of America, also known as the 

Big ‘‘I’’, is grateful for the opportunity to submit testimony to the U.S. Senate Committee on Banking regarding the reauthorization of the National Flood Insurance 

Program (NFIP). The Big ‘‘I’’ is the Nation’s oldest and largest trade association of 

independent insurance agents and brokers, and we represent a nationwide network 

of more than 300,000 agents, brokers, and employees. IIABA represents independent insurance agents and brokers who present consumers with a choice of policy options from a variety of different insurance companies. These small, medium, 

and large businesses offer all lines of insurance—property/casualty, life, health, employee benefit plans, and retirement products. In fact, our members sell 80 percent 

of the commercial property/casualty market. It is from this unique vantage point 

that we understand the capabilities and challenges of the insurance market when 

it comes to insuring against flood risks. 

Background 

The Big ‘‘I’’ believes that the NFIP provides a vital service to people and places 

that have been hit by a natural disaster. The private insurance industry has been, 

and continues to be, largely unable to underwrite flood insurance because of the catastrophic nature of these losses. Therefore, the NFIP is virtually the only way for 

people to protect against the loss of their home or business due to flood damage. 

Prior to the introduction of the program in 1968, the Federal Government spent increasing sums of money on disaster assistance to flood victims. Since then, the NFIP 

has saved disaster assistance money and provided a more reliable system of payments for people whose properties have suffered flood damage. It is also important 

to note that for almost two decades, up until the 2005 hurricane season, no taxpayer 

money had been used to support the NFIP; rather, the NFIP was able to support 

itself using the funds from the premiums it collected every year. 

Under the NFIP, independent agents play a vital role in the delivery of the product through the Write Your Own (WYO) system. Independent agents serve as the 

sales force of the NFIP and the conduits between the NFIP, the WYO companies, 

and consumers. This relationship provides independent agents with a unique perspective on the issues surrounding flood insurance, yet also makes the role of the 

insurance agent in the delivery process of flood insurance an incredibly complex endeavor. Agents must possess a high degree of training and expertise and must regularly update their continuing education credits through flood conferences and seminars. Every agent assumes these responsibilities voluntarily and does so as part of 

being a professional representative of the NFIP. 

Despite our strong support of the NFIP, we also recognize that the program is 

far from perfect, which was made all the more clear by the devastating 2005 hurricane season. The current $18.3 billion dollar debt, incurred in 2005, reveals some 

of the deficiencies of the program and has strained Government resources. It is important that Congress shore up the NFIP’s financial foundation and use this opportunity to enact needed reforms to ensure the long-term sustainability of the program. 

For this reason, the Big ‘‘I’’ strongly supports both reauthorizing and reforming 

the NFIP. 

Long Term Extension 

As you know, the NFIP is a Congressionally authorized program that requires 

periodic extensions. Traditionally these extensions have been for multiple years 

(often for 5-year periods) but in recent years Congress has not passed a long-term 

extension of the program and instead has opted to pass numerous short-term extensions. Last year alone the NFIP expired three separate occasions only to be retroactively extended by Congress each time. Each expiration of the program led to concrete damage to the real estate market and the country’s economy. During one 

198 

month-long expiration in June 2010, for example, the National Association of Realtors estimated that as many as 50,000 new home loans were either significantly delayed or canceled. While the IIABA appreciates each of the retroactive extensions, 

we strongly believe that in order to provide certainty to the marketplace as well as 

avoid damage to our fragile economy, Congress should pass a long term extension. 

Even the short term extensions passed over the last several years, while thankfully staving off expiration of the program, caused their own economic damages. 

Every time the program is set to expire, WYO companies send notices to their consumers about the pending expiration, agents must then communicate to their clients 

about what the ramifications of an expiration would be (as well as oftentimes providing real time legislative updates on extension legislation), banks must prepare 

for how and if to enforce the mandatory purchase requirement of an expired program, and Realtors and mortgage bankers must discuss with their customers how 

and if to proceed with home loan closings. While not nearly as damaging as an actual expiration, the uncertainty and the increased work-load caused by short term 

extensions justifies a long term extension of this critical program. 

It is for these reasons that IIABA strongly urges the Senate to include a 5-year 

extension in any NFIP reform legislation. 

Flood Insurance Reform and Modernization Act of 2007 

As you know, the Senate in May of 2008 passed the Flood Insurance Reform and 

Modernization (FIRM) Act of 2007 by an overwhelming vote of 92–6. The Big ‘‘I’’ 

strongly supported this legislation and urges the Committee to use its text as a 

starting point for writing a reform and reauthorization bill in this Congress. In addition to a 5-year extension, the 2007 Senate FIRM Act included common sense reforms to the program that were intended to put it on the path towards financial 

sustainability. Some of these common sense reforms strongly supported by the Big 

‘‘I’’ include the phasing out of many subsidies and the increase in the elasticity band 

for annual premium increases. 

The Big ‘‘I’’ has for many years asked Congress to explore phasing out subsidies 

in the NFIP altogether and strongly supports these provisions found in the 2007 

Senate FIRM Act. Almost 25 percent of property owners participating in the NFIP 

pay subsidized premium rates. These subsidies allow policyholders with structures 

that were built before floodplain management regulations were established in their 

communities to pay premiums that represent about 35 to 40 percent of the actual 

risk premium. The subsidized rates were deliberately created by Congress in 1968 

in order to help property owners during the transition to full-risk rates. However, 

after 43 years the Big ‘‘I’’ believes it is time to start phasing out this significant 

subsidization. 

In addition to the fact that subsidized rates torpedo any hope that the NFIP could 

ever be actuarially sound, FEMA estimates that subsidized properties experience as 

much as five times more flood damage than structures that are charged full-risk 

rates. Customers that are paying a full actuarial rate have a vested interest to take 

measures to reduce the economic damages associated with floods. In contrast, those 

with subsidized rates have less incentive to mitigate. The Big ‘‘I’’ supports phasing 

out subsidies for commercial buildings, second and vacation homes, homes experiencing significant damage or improvements, repetitive loss properties, and homes 

sold to new owners. 

The Big ‘‘I’’ also strongly supported the Senate’s proposal to increase the ‘‘elasticity band’’ with which FEMA can increase premiums in any given year. Currently 

the annual elasticity band for premium increases is a maximum of 10 percent on 

any property. The legislation would have proposed to increase this band to 15 percent, which will hopefully allow the program to move even more properties towards 

actuarially priced rates. The Big ‘‘I’’ hopes that any new reform legislation will include both the removal of many of these subsidies and the increase in the elasticity 

band for premium adjustments. 

Additional Recommendations 

The Big ‘‘I’’ urges the Senate to consider modernizing the NFIP by increasing 

maximum coverage limits and by allowing FEMA to offer the purchase of optional 

business interruption and additional living expenses coverage. 

The inclusion of optional business interruption coverage is particularly important 

to Big ‘‘I’’ members and their commercial customers. If a flooding catastrophe causes 

a business’ premises to be temporarily unusable, that business may have to relocate 

or even close down temporarily. Property owners are still required to pay employees, 

mortgages, leases and other debts during this process, and these ongoing expenses 

can mount up quickly for a business on reduced income or no income at all. For 

property insurance policies, business interruption insurance provides protection 

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against the loss of profits and continuing fixed expenses resulting from an interruption in commercial activities due to the occurrence of a peril. The inclusion of an 

optional business interruption provision at actuarial rates will provide stability to 

the local economies in the areas affected by flood damage and will offset Government disaster relief payments should the flood peril result in widespread destruction 

across a region. Business interruption coverage, and the security and peace of mind 

it provides, is important to our members and to small businesspeople across America. 

The Big ‘‘I’’ also strongly supports the option for a consumer to purchase additional living expenses. Additional living expenses coverage would allow the consumer to purchase, at an actuarial price, a dollar amount of coverage for such expenses as hotel, food, replacement clothes, etc., should the consumer be dislocated 

from his or her residence. This provision will provide consumers with greater security during the often bewildering post-flood period, and will do so in an actuarial 

basis as opposed to relying solely on FEMA grants and assistance. 

Both the optional business interruption and additional living expense coverages 

are common in the private market for other perils, but are specifically excluded for 

flood insurance and are not currently available through the NFIP. Unfortunately, 

this gap in coverage leaves consumers unprotected and in many cases confused, as 

consumers falsely believe that they are either covered for such losses by their private insurance or their NFIP policies. 

The business interruption and additional living expenses coverage were not 

present in the 2007 Senate FIRM Act, but we urge the Committee to reconsider 

their inclusion in the new reform legislation. In particular, we urge the Committee 

to consider modifications made to language in the House of Representatives that we 

feel rein in any potential for an impingement on the private market or a deleterious 

effect on taxpayers. New language added this year imposes three important factors 

that must be met before FEMA could consider offering the coverages: that FEMA 

charges actuarial rates for the coverage, that FEMA makes a determination that a 

competitive private market does not currently exist, and that FEMA certify that 

these coverages will not result in any additional borrowing from the Treasury. Additionally new language was added that limits the amount of optional business interruption coverage at $20,000 and additional living expenses at $5,000. The Big ‘‘I’’ 

supports the goals of each of these conditions and the limits and believes their addition should put at ease any concerns that stakeholders may have over their inclusion. In fact, the CBO recently released its score of the House bill and specifically 

noted that they do not anticipate the business interruption and additional living expenses provisions to have any impact on Federal revenues. 

Finally, also chief among our additional recommendations is the proposed increase 

in the maximum coverage limits. The NFIP maximum coverage limits have not been 

increased since 1994. An increase in the maximum coverage limits by indexing them 

for inflation will better allow both individuals and commercial businesses to insure 

against the damages that massive flooding can cause and will increase the program’s popularity and take-up rates. The CBO score on the House reform legislation 

also found that indexing maximum coverage limits to inflation would have no effect 

on Federal revenues. 

Privatization of the NFIP 

Some observers have argued that the program should be eliminated or completely 

privatized. These arguments center on the assumption that the private market 

could step in and offer flood insurance coverage. However, the IIABA has met with 

many insurance carriers who categorically state that the private market is simply 

unable to underwrite this inherently difficult catastrophic risk, especially in the 

most high-risk zones where it is needed. IIABA would always prefer to utilize the 

private market, and our members would almost certainly prefer to work directly 

with private insurance carriers rather than a Government agency. However, where 

there is a failure in the marketplace, as there is in the case of flood insurance, we 

believe it is imperative that the Government step in to ensure that consumers have 

the protection they need. This was the reason the NFIP was first created in 1968, 

because the private market could not offer flood insurance and a series of high profile floods had consumers turning to direct Federal disaster assistance as their only 

recourse. We see no evidence that the private marketplace is any more prepared or 

capable of underwriting flood risk in 2011 than they were in 1968. 

We do not, however, oppose any Government studies on private market capacity. 

We believe that these studies will likely show that the private market cannot properly underwrite flood risks, but if it can be demonstrated that a private market 

could emerge in some way, we would welcome that discussion. 

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COASTAL Act 

The Big ‘‘I’’ appreciates Senator Roger Wicker’s (R–MS) efforts to address the complicated issue of loss allocation of wind versus water damage on total loss properties 

following named storm events. Hurricane Katrina clearly demonstrated both the 

devastating power of hurricanes as well as the havoc they can wreak on homeowners that are left with nothing more than slabs of concrete where their home once 

stood. Independent insurance agents pride themselves on standing with their consumer throughout the entire claims process, and the difficult and often lengthy loss 

adjudication process between flood damage and wind damage following Hurricane 

Katrina was clearly an undue burden on many consumers. It is important that a 

clear method of allocating these losses in both a fair and timely manner is developed, and we look forward to continuing to work with Senator Wicker and this Committee on developing such a process. 

Conclusion 

The IIABA is very pleased that the Committee is conducting today’s hearing on 

comprehensive flood insurance reform and we urge the Senate Banking Committee 

to quickly develop legislation and send it to the full Senate for action. As we have 

stated, we believe the Flood Insurance Reform and Modernization Act of 2007 is a 

useful starting point for developing new legislation, and urge the Committee to also 

consider adding provisions allowing the offering of optional business interruption 

and additional living expenses at actuarial rates. We hope very much that this hearing will contribute to additional action taken by Congress to pass flood insurance 

reforms and to ensure the stability of the NFIP. 

STATEMENT SUBMITTED BY CRAIG POULTON, CEO OF POULTON 

ASSOCIATES, INC. 

My name is Craig Poulton. I am the CEO of Poulton Associates Inc. which is located in Salt Lake City Utah. Poulton Associates is engaged in the business of property and casualty insurance brokerage. Our organization acts as the administrator 

of the Natural Catastrophe Insurance Program. The Natural Catastrophe Insurance 

Program is available in all 50 States through over 2,500 independent insurance producers. Under the Natural Catastrophe Insurance Program the perils of flood, earthquake and landslide may be insured for both personal and commercial properties 

through Certain Underwriters at Lloyds (London). Thank you for allowing us to participate in this hearing. 

With the exception of insurance policies backed by the Federal Government 

through the National Flood Insurance Program (NFIP), the Natural Catastrophe Insurance Program is the largest provider of primary flood insurance coverage in the 

United States with well over $2.2 billion in property values being insured for the 

risk of flood on a primary basis. 

Perhaps the most illuminating thing I could point out for your consideration is 

that after 7 years of aggressively marketing the Natural Catastrophe Insurance Program we have been able to capture only about one-tenth of one percent of the flood 

insurance market represented by the 5.5 million risks insured through the NFIP. 

One might initially suppose that we have been, by and large, unsuccessful in our 

efforts to penetrate the primary flood insurance market because the insurance coverage we offer is somehow less appealing or the pricing is much higher than that 

available through the NFIP. This is not the case; in fact our product is widely recognized by laypersons and insurance professionals (including the over 2,500 who market the product) as being superior in both coverage and pricing to the insurance coverage available through the NFIP. 

Flood zone borrowers will often explore alternatives to the NFIP by looking for 

competitively priced privately backed non-NFIP policies. They often find that our 

policy is more attractive than the NFIP policy; since they have been informed that 

they have the option to choose private flood insurance, they do so and submit it to 

the lender to comply with the Mandatory Purchase Requirement. Often, just hours 

prior to loan closing, the borrower is informed by the lender that the coverage they 

have elected and paid for will not be accepted to satisfy the terms of the Mandatory 

Purchase Requirement. 

Often the lenders’ paradoxical rational is that the policy is a non-NFIP private 

policy and is therefore not acceptable, even though as required under the Act, it was 

the lender who informed the borrower that private coverage may be available. The 

lender will explain that their Federal regulator/auditor will not accept anything but 

NFIP coverage, even if the coverage provided by us is in the best interest of the 

property owner and the lender from a coverage and pricing standpoint. 

201 

The borrower is then forced to either cancel our policy and purchase an NFIP policy, or walk away from the purchase arrangement. As one would expect, the borrower rushes to cancel our policy and purchase NFIP coverage. 

The reason we have been relatively unsuccessful in our efforts is that, even 

though Congress obviously intended for the NFIP to be a stepping stone to the assumption of primary flood risk by the private market, the NFIP and Federal Lending Regulators have combined to preclude our program from being accepted by the 

mortgage banking community as a satisfactory replacement for NFIP insurance. 

This unfortunate circumstance results from the fact that regulators at the NFIP 

publish a booklet known as the ‘‘Mandatory Purchase of Flood Insurance Guidelines’’ typically referred to as the Mandatory Purchase Booklet. This booklet contains a series of six guidelines describing what a private insurance policy should 

look like in order to be acceptable in the place of an NFIP policy. In addition the 

booklet includes the following instruction, ‘‘ . . . a lender should understand and 

comply with FEMA’s criteria for selection of private insurer and the form of Coverage.’’ 

The problem is that having published these guidelines FEMA/NFIP officially refuses to interpret them. No one has been designated by FEMA or the NFIP to interpret these guidelines. Like any law the guidelines need someone to interpret them. 

In the United States Congress makes laws and the courts interpret those laws when 

necessary. In this case, FEMA/NFIP has acted to create what has been taken for 

the law but has provided no one to interpret it or adjudicate differences of interpretation. 

Federal Lending Regulators have implemented the Mandatory Purchase Booklet 

guidelines in such a way that FEMA is now perceived as a de facto private flood 

insurance regulator among Federal Lending Regulators and regulated lenders. In 

FEMA’s efforts to issue appropriate rules and regulations, FEMA has created an impression of authority which is absolute but leaves Federal Lending Regulators and 

regulated lenders in the dark as far as which private insurance policies are acceptable. As a default position, most lenders simply elect to preclude all private insurance policies from being accepted in the place of NFIP insurance policies. 

I don’t think it is too difficult to see why with an attractively priced product providing broader coverage, we have been unable to compete effectively against NFIP. 

Federal Lending Regulators, being without expertise in insurance regulation, take 

what they see as the most conservative position: that if a private insurance policy 

is not identical to the NFIP policy, it is not acceptable. This, of course, limits consumer choice, forces taxpayers to assume even more flood risk and limits competition. 

Consider, in concert with all of this, that virtually all insurance regulation in the 

United States is accomplished by State insurance regulators and that the NFIP policy, which is not State regulated, has many provisions that would not be allowed 

in most States. Now, consider the fact that NFIP guidelines are implemented by 

Federal Lending Regulators in such a way that they require private, State regulated 

policies to be exactly like the NFIP policy. This puts us in a classic ‘‘Catch 22’’, with 

no way to compete without violating a perceived Federal regulation or a very real 

State regulation. 

As part of the notification process, Congress requires the lender to provide written 

notification to the borrower which includes, ‘‘ . . . a statement that flood insurance 

may be purchased under the national flood insurance program and is also available 

from private insurers.’’ And yet, Federal regulation has made private flood insurance effectively unavailable. 

You may find the following examples and observations about the unintended consequences which have been born of the current regulatory paradigm revealing. 

Because the NFIP guidelines are so vague, bank regulators reject private policies 

because the private policy contains State mandated cancelation provisions beneficial 

to the insured but not ‘‘allowed’’ by the bank regulator’s interpretation of the NFIP 

guidelines and NFIP cancellation provisions. For example, NFIP will not refund any 

premium if the insured cancels the policy; however, private carriers must return the 

premium in order to comply with State law. 

Additionally, NFIP forces each detached structure to be insured on a separate policy. State regulators disallow the practice of selling multiple insurance policies on 

the same property when it could be done more inexpensively under a single contract. Bank regulators consistently require that the home and the garage and the 

shed and the chicken coop and the rabbit hutch be insured, each under its own insurance policy because ‘‘that is the way NFIP does it.’’ This occurs even though private insurance policies such as ours typically provide automatic coverage on the garage, shed, chicken coop and rabbit hutch at no additional charge under a combined 

limit. 

202 

The FEMA private insurance guidelines have some obviously foolish requirements 

such as that found in Section 5. Private Flood Insurance, f. Legal Recourse, which 

says: ‘‘The policy must contain a provision that the insured must file suit within 

1-year after the date of written denial of all or part of the claim.’’ The result of this 

provision is to force a private insurer to limit the recourse of the buyer because 

‘‘that is the way NFIP does it.’’ This results in requiring the private insurance company to adopt a provision which is directly against the public interest, as well as 

being against the interest of each policyholder. 

In direct contradiction of the congressionally mandated requirement that notification of the availability of private insurance is to be given to all borrowers, agencies 

such as Fannie Mae and the FHA specifically require that the borrower obtain a 

National Flood Insurance Policy to satisfy the Mandatory Purchase Requirement. 

The Fannie Mae regulations state that flood policies should generally be issued directly by the NFIP, or alternatively, a policy may be obtained by licensed property 

and casualty insurance company authorized as a ‘‘Write Your Own’’ (WYO) participant. The Federal Housing Administration Handbook states, ‘‘Insurance under the 

NFIP must be obtained as a condition of closing and maintained for the life of the 

loan for an existing property when any portion of the residential improvements is 

determined to be located in a SFHA.’’ Thus, Fannie Mae and the FHA have summarily limited choice to NFIP flood coverage only for millions of borrowers. 

NFIP’s Lender Compliance Officers and Federal Lending Regulators consistently 

recognize the validity of privately backed insurance policies known as ‘‘force placed’’ 

primary flood coverage on properties where the borrower has not furnished flood insurance to satisfy the Mandatory Purchase Requirement. FEMA estimates that 

these non-NFIP policies placed by the lender equaled approximately 100,000 to 

200,000 risks in 2004. These policies obtained by the lender are typically placed 

with Lloyd’s of London under a more restrictive form to the one we offer. Yet regulators take no issue with lenders purchasing flood insurance on this more restrictive 

Lloyds of London coverage form, while they deny individual borrowers the same 

freedom of choice. Shouldn’t consumers have the same option as is allowed to the 

bank in choosing the best coverage they can find? 

Stretching believability by comparison, our most widely purchased policy which 

provides coverage for flood, earthquake, and landslide has often been rejected by 

Federal Lending Regulators because we cover MORE PERILS than the NFIP policy. 

The NFIP will only cover flood while our policies routinely cover multiple perils. 

This circumstance is stunning and this interpretation of the guidelines is clearly not 

in the interest of the consumer, but it continues to happen because, ‘‘that’s not how 

NFIP does it.’’ 

Our program has many other enhancements not available under NFIP such as 

much higher limits of coverage, a broader policy definition of flood, coverage for additional living expense for homeowners and business income and extra expenses for 

property owners, coverage for increased cost of building materials and coverage for 

finished basements and basement contents, to name a few. In addition, we offer coverage for the perils of earthquake, flood and landslide at a competitive price when 

compared to flood only coverage from NFIP. When our flood insurance is purchased, 

it is most often provided in combination with coverage for earthquake and/or landslide, thus insulating the Federal balance sheet from loss due to the need to provide 

disaster recovery assistance for losses from the perils of earthquake and landslide. 

When you think of this in relation to the fact that Federal Lending Regulators cite 

to much coverage as a reason to reject our policy, it is just staggering. We have submitted as part of this testimony a brief comparison of the NFIP policy and the policy 

form most purchased by consumers under our program. 

By establishing the National Flood Insurance Act, Congress clearly intended that 

regulators should encourage, not discourage, the acceptance of private flood insurance by financial institutions in addition to, or in lieu of, NFIP coverage. 

Regulatory practices should foster and support free market participation and creativity, rather than limiting the consumer to NFIP products. Insurance products 

and services should be allowed to enter the market unfettered by over-reaching regulatory mandates and guidelines, thus benefiting consumers by giving them options 

that meet their needs while spreading the risk of flood loss. 

It seems to us that the current situation can be most easily and simply corrected 

by directing FEMA and all Federal Lending Regulators to recognize that, like all 

other private property insurance policies, private flood insurance is regulated by the 

States. State regulators should be charged with the interpretation and enforcement 

of the existing Private Insurance Guidelines published by FEMA along with any applicable State regulations. In this way, Congress will provide for interpretation of 

all regulations by qualified regulators who can bring consistency and harmony to 

the process of regulating private flood insurance. This course of action will improve 

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outcomes for all concerned while actually reducing the cost of administration for all 

parties, especially the Federal Government. It will be crucial to disallow FEMA from 

creating any additional guidelines in order that unmanageable complications do not 

destroy the ability of State regulators to modify, coordinate, and synchronize Federal and State regulations in the long term. 

In many developed countries, flood risk is entirely shouldered by the private market. Because the NFIP has been allowed to become ‘‘the only game in town’’ for so 

many years, the vast majority of people are not even aware that private primary 

flood insurance is available in the United States. If decisive actions to support the 

private market are not taken by Congress soon, over time, there will be no private 

alternative to taxpayer funded flood insurance in the United States. By taking action now, Congress can spread the assumption of flood risk more widely, provide 

consumers with real options, and give taxpayers greater protection from unnecessary exposure to federally funded flood insurance losses. 

Thank you. 

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STATEMENT SUBMITTED BY THE PROPERTY CASUALTY INSURERS 

ASSOCIATION OF AMERICA 

Introduction 

The Property Casualty Insurers Association of America (PCI) believes that the 

National Flood Insurance Program (NFIP) is a necessary public policy program that 

should be continued. Currently, the flood program is set to expire at the end of September this year. 

We commend Chairman Johnson, Ranking Member Shelby, and the Members of 

this Committee for taking up this issue in a timely manner. We would urge you to 

pass legislation providing for a long-term reauthorization of the NFIP as soon as 

possible. There have been ten short-term extensions of the program since September 

30, 2008, and there were four ‘‘lapses’’ in the program in 2010, causing significant 

disruption in the vulnerable housing markets at a time when the U.S. economy and 

particularly the housing sector is struggling to recover from the recent financial crisis. 

While significant reforms in the NFIP are needed, we believe that such changes 

should be kept to a minimum. There are more than 5.6 million NFIP policyholders 

in the U.S., and a long-term reauthorization of the program is essential to help provide stable protection for the country’s property owners. 

PCI believes the most important reforms are as follows, and several were addressed in the legislation that passed in the Senate in 2008 (S. 2284): 

The Program Should Be Reauthorized on a Long-Term Basis (e.g., for 5 Years) 

The program has been extended on a short-term basis a total of 10 times since 

its original expiration on September 30, 2008, and is set to expire again on September 30, 2011. A long-term reauthorization will ensure that there will be no gaps 

in coverage, which occurred four times in 2010 alone, each one longer than the previous. 

Gaps in coverage caused significant disruption in the housing markets. Home buyers in flood zones with a federally backed mortgage are required to purchase flood 

coverage before the property can be closed on, and last year, over 40,000 real estate 

transactions were delayed because of the NFIP expirations. 

The following are specific changes in the program that should be addressed as 

Congress considers improvements in the program: 

Fix the Rate Structure 

The rates charged for certain properties in the NFIP have been subsidized since 

its inception in 1968. It is time that these subsidies end and that the true cost of 

insuring property in hazardous areas is reflected in the premiums for those properties. These properties should not continue to be subsidized by other NFIP policyholders or U.S. taxpayers. 

Long term reauthorization passed by the Senate in the 110th Congress included 

raising the maximum annual rate increase from 10 to 15 percent (and up to 25 percent until the appropriate premiums are being charged). This is critical as we believe that the premiums should reflect the risk of loss. The previous bill also increased the minimum deductibles which we believe more appropriately represents 

deductible amounts in the private market for homes and businesses. Increasing the 

deductible amount should also help from a fiscal standpoint as smaller losses would 

be absorbed by the policyholder and the vital protection provided for significant 

losses would be protected. 

PCI also believes that a reserve fund, setting aside 1 percent of total potential 

loss exposure as proposed in the 2008 legislation, is important. Increasing the rates 

is the first step; however, the program must begin to further offset the significant 

subsidy (which FEMA states is 40–45 percent for pre-FIRM properties). The rates 

need to be closer to the true market rate before any discussion related to the private 

industry taking on flood risk can take place. 

PCI estimates that flood insurance premiums would potentially need to double, 

and in some cases triple if the private insurance market was to write this business 

on a primary basis (see attached). Proposals to end the NFIP’s primary flood underwriting are unrealistic given the current steep subsidies and the recognized unwillingness of many homeowners to purchase coverage even when mandated and at 

highly subsidized rates. 

Depopulate the NFIP Direct Program 

In 2010, the second-largest WYO program participant decided that the cost of participation and the litigation exposure were too great given the current reimbursement amount. PCI is opposed to any reduction or other proposal that would further 

impact the number of WYOs participating in the program. 

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The departure of the second largest WYO participant created another problem, a 

700 percent growth in the amount of business being written in the NFIP ‘‘direct’’ 

program. When a WYO insurer decides or is forced to leave the program, there are 

two options for these policies through an agreement with the departing insurer and 

the NFIP: (1) contracting with one or more other WYO insurers to assume the business at renewal; or (2) placing it in the ‘‘direct’’ program administered by the NFIP. 

The ‘‘direct’’ program had roughly 125,000 policies at the beginning of October, 2010. 

With the departure of this large WYO insurer and a decision by that insurer to put 

the business in the ‘‘direct’’ program, the program will now have more than 900,000 

policyholders, making it the largest servicing entity in the program. This could create significant problems regarding staff handling claims following a major flooding 

event. 

PCI believes that this ‘‘direct’’ business should be redistributed and administered 

by private insurers who are part of the WYO program. As previously mentioned, the 

WYO program has been a significant success with regard to increasing the awareness and purchase of flood insurance nationwide. The number of policyholders in the 

program has more than tripled and taxpayers, policyholders, and the Federal Government benefit from the private insurance industry infrastructure. PCI would encourage you to look at a legislative approach to reduce the size of the NFIP ‘‘direct’’ 

program such as setting a cap and pushing policies eligible to be written by WYO 

participating insurers back into the private sector. We pledge to work with you and 

interested stakeholders on this important issue. 

Address Servicing Issues 

The ‘‘Write-Your-Own’’ (WYO) program, established in 1984, has been very successful increasing participation in the NFIP; however, it has also been the subject 

of legislative discussion over the past few years. There have been issues related to 

loss settlement, expense reimbursement and participation in the NFIP by WYO insurers. 

Following Hurricane Katrina, there were significant issues related to the settlement of wind and water losses. However, many of these issues would have been addressed by the application of the NFIP appeals process that was included in the 

Flood Insurance Reform Act of 2004. Unfortunately, that process was not ready 

when Katrina hit. 

S. 2284 called for a National Flood Insurance Advocate as one way to address policyholder issues. PCI is opposed to the creation of yet another Federal Government 

office that would, essentially, be charged with appeals and other responsibilities addressed by the flood insurance legislation enacted in 2004. This would be duplicative 

of existing methods available to NFIP policyholders. That legislation also required 

that insurers file information with the NFIP related to any claims related to wind 

losses. This is inappropriate. Many insurers are not involved with the NFIP program at all. This provision would further the Federal regulation of entities already 

very heavily regulated at the State level. In fact, any concerns expressed by a policyholder with regard to the handling of the claim fall under and can be addressed 

through other methods and by State claims settlement practices acts. 

A new legislative proposal calls for allocation of wind and water damages by a 

Federal agency after the event as a way to solve this problem. PCI does not believe 

that this approach is viable or appropriate. It calls for the use of this process only 

with regard to ‘‘indeterminate losses’’ (i.e., where the cause cannot be determined) 

for total losses (e.g., ‘‘slab’’ claims). We believe that despite the restrictive language, 

it will be used for other flood or wind loss related claims as well. While well-intentioned, this proposal has the effect of federally regulating private insurance entities 

that, more likely than not, are not even involved with the Federal NFIP. 

The allocation sets up the expectation for policyholders that, once the percentages 

are determined, the total of the payments will equal 100 percent of the loss. In fact, 

due to the many coverage differences between the property insurance policy and the 

NFIP policy (e.g., the aforementioned additional living expenses included in a homeowners policy), this will not be the case. It may also create more litigation since 

there are specific State laws that require claims to be settled within a specific time 

frame. Those time frames are typically significantly shorter than the proposed 90 

days to establish the allocation formula. The formula would also allocate based a 

general geographical area, not a specific property location. Finally, we know following Hurricane Ike (2008), some allocation formulas were used following this 

event. This method was later challenged through litigation that has just been settled for $200 million. We would be happy to discuss other issues related to this approach with Members of the Committee. 

The expense reimbursement has also been the subject of debate without any 

changes that would help reduce costs. Following Katrina, the NFIP worked with the 

207 

WYO participating insurers to revise the claims expense reimbursement when significant catastrophes occur. The NFIP reduced the amount of the claims expense reimbursement where the number of losses are significant and insurers and the NFIP 

benefit from some economies of scale. Another issue is that the number of actively 

writing WYO participants continues to drop. 

Fix the Maps 

We understand that numerous issues have surfaced regarding the certification of 

levees and the ongoing map modernization efforts. We believe that a phase-in for 

these purchasers as well as the reestablishment of the Technical Mapping Advisory 

Council are important steps in addressing these significant issues for consumers, 

communities, the States and policyholders. We would ask that our industry be represented by inclusion of a representative of a flood insurance servicing carrier (a 

‘‘Write-Your-Own’’ company) on this Council. 

PCI would encourage the extension of the Flood Insurance Reform Act of 2004 

program for Severe Repetitive Loss Properties. It is time to buy-out, or otherwise 

charge the appropriate premium for these properties that continually flood and are 

rebuilt time after time. 

PCI also supports the inclusion of nationally recognized building codes in the 

floodplain management criteria. This would require FEMA/NFIP to work with the 

building code councils to include this information. It would provide for better construction of properties and help minimize damage from a variety of perils, including 

flood as well as reduce the repetitive loss properties over time. 

Include Additional Living Expenses and Business Interruption 

We believe that including some minimum protection, with the appropriate riskbased premium charge, for additional living expense coverage for residential properties as well as optional business interruption coverage is important and should be 

part of any reform. Additional living expenses help consumers and business interruption coverage helps business owners immediately move forward after a flood. 

This is a significant difference between the coverage that has been traditionally provided by private market property policies and the lack of such coverage in the flood 

policy. This has also been the subject of policyholder problems and litigation where 

there are losses under a flood policy as well as under a private or State policy providing windstorm protection. 

Conclusion 

PCI is very pleased that the Committee is taking up this important issue at this 

time in an effort to provide for a long-term reauthorization of the program before 

another lapse occurs. We are eager to work with the Committee on legislation that 

would put the NFIP on a more sound financial footing by eliminating rate subsidies 

and addressing mapping issues. Finally, we believe that minimizing Federal intervention in private entities and providing private WYO insurers with the tools to 

service NFIP policyholders and the Government with access to and the economies 

of scale of our members’ infrastructure is extremely important. 

Therefore, we would support passage of reauthorization and reform legislation 

and pledge to work with you to improve the National Flood Insurance Program. 

Thank you.