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S. HRG. 113–103 

IMPLEMENTATION OF THE BIGGERT–WATERS 

FLOOD INSURANCE ACT OF 2012: ONE YEAR 

AFTER ENACTMENT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

ECONOMIC POLICY 

OF THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

ON 

EXAMINING THE CURRENT STATUS OF IMPLEMENTING THE FLOOD INSURANCE ACT REFORMS AND THE POSSIBLE EFFECTS ON POLICYHOLDERS 

SEPTEMBER 18, 2013 

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

( 

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

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

TIM JOHNSON, South Dakota, Chairman 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

KAY HAGAN, North Carolina 

JOE MANCHIN III, West Virginia 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

MIKE CRAPO, Idaho 

RICHARD C. SHELBY, Alabama 

BOB CORKER, Tennessee 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

TOM COBURN, Oklahoma 

DEAN HELLER, Nevada 

CHARLES YI, Staff Director 

GREGG RICHARD, Republican Staff Director 

DAWN RATLIFF, Chief Clerk 

KELLY WISMER, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

SUBCOMMITTEE ON ECONOMIC POLICY

JEFF MERKLEY, Oregon, Chairman 

DEAN HELLER, Nevada, Ranking Republican Member 

JOHN TESTER, Montana 

MARK R. WARNER, Virginia 

KAY HAGAN, North Carolina 

JOE MANCHIN III, West Virginia 

HEIDI HEITKAMP, North Dakota 

TOM COBURN, Oklahoma 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

MIKE CRAPO, Idaho 

ANDREW GREEN, Subcommittee Staff Director 

SCOTT RIPLINGER, Republican Subcommittee Staff Director 

MIRVAT ABDELHAQ, Fellow 

(II)

C O N T E N T S 

WEDNESDAY, SEPTEMBER 18, 2013 

Page 

Opening statement of Chairman Merkley ............................................................. 1 

Opening statements, comments, or prepared statements of: 

Senator Heller ................................................................................................... 3 

Senator Tester .................................................................................................. 4 

Senator Warren ................................................................................................ 5 

WITNESSES 

David Vitter, U.S. Senator from Louisiana ........................................................... 6 

Mary Landrieu, U.S. Senator from Louisiana ....................................................... 7 

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

Department of Homeland Security ..................................................................... 9 

Prepared statement .......................................................................................... 48 

Responses to written questions of: 

Senator Heller ........................................................................................... 101 

Senator Schumer ....................................................................................... 104 

Senator Tester ........................................................................................... 115 

Alicia P. Cackley, Director, Financial Markets and Community Investment, 

Government Accountability Office ...................................................................... 30 

Prepared statement .......................................................................................... 53 

Responses to written questions of: 

Senator Tester ........................................................................................... 115 

Christine Shirley, National Flood Insurance Program Coordinator, Planning 

Services Division, Oregon Department of Land Conservation and Development ...................................................................................................................... 32 

Prepared statement .......................................................................................... 70 

Steve Ellis, Vice President, Taxpayers for Common Sense .................................. 34 

Prepared statement .......................................................................................... 74 

Birny Birnbaum, Executive Director, Center for Economic Justice .................... 35 

Prepared statement .......................................................................................... 80 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Statement of the Independent Community Bankers of America, submitted 

by Chairman Merkley .......................................................................................... 117 

Statement of Representative C.W. Bill Young of Florida, submitted by Senator Heller ............................................................................................................ 119 

National Flood Insurance Fund Operating Results Summary submitted by 

Senator Landrieu ................................................................................................. 128 

Statement submitted by the National Association of Realtors ............................ 130 

Statement submitted by the National Association of Home Builders ................. 135 

Letter submitted by Brad Thaler, Vice President of Legislative Affairs, National Association of Federal Credit Unions ...................................................... 140 

(III)

(1) 

IMPLEMENTATION OF THE BIGGERT–WATERS 

FLOOD INSURANCE ACT OF 2012: ONE YEAR 

AFTER ENACTMENT 

WEDNESDAY, SEPTEMBER 18, 2013 

U.S. SENATE, 

SUBCOMMITTEE ON ECONOMIC POLICY, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 

Washington, DC. 

The Subcommittee met at 2:43 p.m., in room SD–538, Dirksen 

Senate Office Building, Hon. Jeff Merkley, Chairman of the Subcommittee, presiding. 

OPENING STATEMENT OF CHAIRMAN JEFF MERKLEY 

Chairman MERKLEY. Good afternoon. I call to order this hearing 

of the Economic Policy Subcommittee of the Senate Committee on 

Banking and Housing. Welcome, everyone. We will have opening 

statements, limited to 5 minutes or less, and then we will proceed 

with our first panel, and we are so delighted to have both Senator 

Vitter and Senator Landrieu here to share their insights on the 

challenges that are occurring in the State of Louisiana. 

As a Nation, we are constantly reminded about the loss and damage caused by flooding, and the recent events in Colorado highlight 

the flooding and how it is affecting communities all across our Nation. And my thoughts are with the families and the communities 

in Colorado at this moment. 

Historically, flooding has been the most common and costly natural disaster. We see and hear the stories of flooding along river 

banks and along coastlines in all parts of America. We have seen 

flooding events become more severe as storms intensify and storm 

surges increase, leaving untold destruction in their wake. 

Currently, about 50 percent of the Nation’s population lives along 

the coast or in floodplains, and this number is expected to grow. 

Thus, the impact of storms on our communities is also likely to 

grow. 

In 1968, Congress enacted the National Flood Insurance Act, 

which established the National Flood Insurance Program. NFIP 

provides property owners in floodplains with an opportunity to purchase insurance, and over the years, the program has expanded. 

There are now 22,000 participating communities with 5.5 million 

policyholders, including $1.3 trillion in property and contents. However, NFIP has also suffered many years of catastrophic losses and 

is $24 billion in debt. 

2 

Last year, Congress enacted sweeping reforms to NFIP, commonly referred to as the ‘‘Biggert-Waters Flood Insurance Act.’’ 

Folks may remember that this was added in conference to the 

MAP–21 transportation bill. 

In order to make the program financially sound, insurance rates 

were restructured by establishing a schedule to phase out subsidies 

for certain homeowners. Moreover, the flood maps are being 

redrawn in many communities, resulting in mortgage companies 

requiring many families to buy flood insurance for the first time. 

These two factors working together are really the reason that we 

are here today. We are holding this hearing for Senators to better 

understand the challenges of how these two circumstances are impacting ordinary families. Here are a few of the concerns. 

First, unaffordable flood insurance. Many insurance policies that were previously $300 to $500 a year are now going up to several 

thousand dollars a year. And there are a whole bunch of folks who 

are buying homes between July 6th of last year and October 1st 

of this year who are getting a subsidized rate, and it is my understanding when they renew that they are going to have a big surprise because they will get an unsubsidized rate that may be a 

manifold increase. 

A second significant problem is forced placement insurance. 

Many Oregonians who have been previously told by their lenders 

that they are not required to have flood insurance are now being 

told that they need to have that insurance, either because mapping 

has placed them into a floodplain or because mortgage companies 

that were not enforcing this standard are now enforcing it, in part 

because the bill that was adopted last year has higher penalties for 

not enforcing. 

Carol from Cornelius, Oregon, purchased her home in 2005, reassured by a realtor that she would not need flood insurance. She received a letter from her mortgage company earlier this year informing her that if she did not buy insurance, they would place a $1,200 

policy on the property. She is in the process of challenging this, but 

is forced to pay during the process of appealing the situation. 

And one of the things we have to look at on force-placed insurance is whether or not there are abuses in that category in terms 

of very high rate policies with subsidies paid back to the mortgage 

servicers. 

A third issue is the inability to sell a home. Take Carl Hay of 

Eagle Creek. Mr. Hay and his wife have been unable to sell their 

home and have had potential buyers withdraw their offer after 

learning that flood insurance will increase tenfold to $5,000 annually upon the sale of their home. Buyers are not protected by the 

same 20-percent cap that exists for homeowners. 

Fourth, the challenge to the homeowner of obtaining accurate 

flood risk data. If a homeowner is challenging the fact that they 

have been described as being in a floodplain and the mortgage company thinks otherwise, the homeowner carries the burden of proof, 

and this can be expensive, costing between $500 and $2,000 to get 

a survey. And while such proof is being provided and acceptance 

of it is being sought, the homeowner must continue to pay. 

Now, in addition to these problems facing the homeowners, many 

communities are having great difficulty with the challenge of securVerDate Nov 24 2008 12:32 Oct 17, 2014 Jkt 046629 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\09-18 ZPM DISTILLER\USE THIS HEARING\91813PM.TXT JASON
3 

ing accurate information for flood maps, which raises another set 

of issues. The 2012 NFIP bill has a number of features designed 

to address this challenge, and hopefully today we will hear a little 

bit about the progress in this regard. Some of those include a requirement for the agency to establish a technical mapping advisory 

council and an independent scientific resolution panel. 

There is also a feature in Biggert-Waters to establish a flood protection structure accreditation task force. We would like to hear if 

this is set up and what value it is bringing to the process. 

FEMA and the U.S. Army Corps are required to form a task 

force to better align the data the Corps is collecting during levy inspections with the data required under FEMA’s accreditation program. 

Also, Biggert-Waters requires FEMA to provide flood insurance 

to people living behind a levee that is undergoing construction or 

improvements at the same rate or the same premium price as 

those who reside behind a completed levee. Again, it will be interesting to know if this has gone into effect and is helping. 

I look forward to all of the insights that our witnesses have, both 

on the challenges faced by the homeowners and the challenges 

faced by communities in obtaining and using accurate maps. 

And I am so delighted that Cochair Heller is here today, and it 

is now your turn to give some comments. 

STATEMENT OF SENATOR DEAN HELLER 

Senator HELLER. Chairman, thank you. Like the Chairman, I 

want to start off by saying that my thoughts and prayers are with 

the citizens of Colorado who are dealing with the devastating flooding within their communities, and I wish to thank all the first responders and rescuers involved and hope that all those who are affected can recover as soon as possible. 

Unfortunately, the flooding in Colorado demonstrates the importance of this hearing. I think almost everyone here would say that 

when they think of Nevada, flooding is not usually something that 

comes to mind. While wildfires are often our most dangerous natural disaster, in several parts of Nevada flooding is a very serious 

concern, especially when heavy rains or snow melts occur. 

Just to give you an example, in Reno, Nevada, the Truckee River 

has continually flooded its banks, causing tremendous damage to 

residents, businesses, and infrastructure. None of the citizens of 

northern Nevada will forget the 1997 flood that put downtown 

Reno under several feet of water, with damages exceeding $1 billion over six counties. 

In response to this flood, local communities and stakeholders, in 

partnership with the U.S. Corps of Engineers, have been working 

on measures to reduce future flood damages, restore miles of river 

wildlife habitat, and provide safe open-space amenities in the region. 

Now, as we have seen from flooding in the Midwest to Hurricanes Katrina, Rita, and Sandy, flooding is the most costly and 

prevalent natural disaster risk in the United States. Many communities remain at serious risk of flooding, which threatens lives, 

property, and the economy. 

4 

I have always said that one of the most important roles the Federal Government plays is providing responsible safety nets for 

those who fall on hard times, and flood insurance is a critical safety net for many Americans who are victims of flooding disasters. 

As we all know, for years Congress struggled to strengthen the 

financial solvency of the National Flood Insurance Program, which 

is billions of dollars in debt. With the passage of Biggert-Waters 

last Congress, new key reforms were enacted to try to avert the 

need for a taxpayer bailout. Today many communities and individuals are experiencing these new reforms for the first time. Now is 

the time that Federal agencies like FEMA must be open and transparent with accurate information for the American public about the 

implementation of these reforms. 

I appreciate Administrator Fugate’s willingness to address some 

of the concerns that many Americans have been voicing, and I 

want to thank all of our witnesses for being here today, including 

Senators Vitter and Landrieu, to share their experiences and to 

offer their thoughts on how to provide the best flood insurance policies for the American public. 

Mr. Chairman, thank you, and I look forward to hearing all the 

testimonies from our witnesses. 

Chairman MERKLEY. Thank you. 

Senator Tester. 

STATEMENT OF SENATOR JON TESTER 

Senator TESTER. Well, thank you, Chairman Merkley. I, first of 

all, want to thank Senators Landrieu and Vitter for being here, 

and I look forward to your testimony and that of Mr. Fugate later 

on. 

I would just like to say that, you know, we have been here before. Last year, Senator Vitter and I worked on a flood insurance 

bill with some certain parameters around it. Those parameters 

were to make sure that the Flood Insurance Program was actuarially sound. It was in the hole. It continues to be in the hole. And 

hopefully this bill, if implemented as intended, will help get the 

flood insurance back on sound ground without having to be bailed 

out with taxpayer dollars and increasing the liability on taxpayers. 

That comes about with a price, and that price, especially with 

the regularity of major disasters in this country, is who pays the 

bill. Is it the Federal Government? Is it the taxpayer? Is it the 

property owner? And we tried to find the sweet spot in that, and 

we tried to level out the premium increases so that they did not 

hit all at once. 

But the bottom line is that, as a body, we have to make a determination at what level are we going to subsidize flood insurance. 

And if we are not going to subsidize it at all, with the regularity 

of disasters, it is going to cost the premium payer a lot of dough. 

And if we are going to subsidize a little, it will help reduce that. 

If we subsidize a little more, it will reduce it some more. 

So the bottom line is I think we all want something that is going 

to work and does not break the bank on folks who live in areas 

that are susceptible to flood, and work on this issue together as we 

move forth. 

5 

On the other hand, we have got to figure out what role the Federal Government is going to play in this, too. 

Thank you, Mr. Chairman. 

Chairman MERKLEY. Thank you. 

Senator Warren, do you have an opening statement? 

STATEMENT OF SENATOR ELIZABETH WARREN 

Senator WARREN. I will just be brief. Thank you. Thank you, Mr. 

Chairman. 

You know, I understand why it is important for flood insurance 

rates to reflect the real risks and the costs of flood damage. I get 

this. And I understand why we want our flood maps to represent 

the best scientific data available, including the latest evidence of 

climate change. And over time, I agree that it makes sense for us 

to move to a market-based system for setting flood insurance rates, 

provided we adequately take into account affordability concerns for 

low-income families. I get this. 

I have more trouble understanding, though, why it has made 

sense for FEMA to implement various new rules at the same time 

that they are updating the flood insurance maps. When FEMA put 

out the new flood maps this year and last year, they placed hundreds of thousands of homeowners into a flood zone for the very 

first time, and so now there are thousands of people in Massachusetts, thousands of homeowners, who are suddenly being asked to 

pay thousands of dollars in premiums that they had never been 

asked to pay before. And many of these homeowners are dealing 

with new and unexpected costs. Many have no good options available to them. 

One Massachusetts resident wrote to me and said, ‘‘I am 70 

years old. I live on a fixed income, and I am unable to pay the proposed flood insurance.’’ 

That constituent and many others have said they do not know 

what to do. 

So I am here today. I am very glad to have the opportunity to 

hear from Senator Landrieu, to hear from Senator Vitter, to hear 

from my colleagues and others who will be here to testify. I think 

we all know where we are trying to get, but I think there is a question about the path getting there. So thank you very much for 

being here. 

Thank you, Mr. Chairman. 

Chairman MERKLEY. Thank you, Senator. 

I am particularly delighted that our first panel involves two of 

our colleagues who have been very engaged in this topic. Senator 

Vitter, thank you for your conversations that we have had that 

were very encouraging in terms of holding this hearing, and I look 

forward to your testimony. 

And, Senator Landrieu, you have been passionately engaged on 

this, including getting David Miller, the head of NFIP, down to understand directly what is going on with Louisiana communities. I 

was there on the Senate Appropriations Committee when you laid 

out your proposal to grandfather properties and certainly the introduction of the Strengthen, Modernize, and Reform the NFIP Act 

that I hope you will be able to say a word or two about. 

6 

And so thank you both. I know this is certainly a huge issue in 

Louisiana, and so much to look forward to, to your thoughts and 

insights. Senator Vitter. 

STATEMENT OF DAVID VITTER, U.S. SENATOR FROM 

LOUISIANA 

Senator VITTER. Thank you, Mr. Chairman and Ranking Member 

Heller, for agreeing to this hearing, and thanks to all the Members 

here. Senator Landrieu and I really, really appreciate it. 

I also want to recognize and thank several elected officials and 

community leaders here from Louisiana. But in doing so, I know 

we both want to emphasize that this is not some parochial Louisiana issue. This is a national issue, be assured. We might be feeling it first. More of our people might be experiencing first. But this 

movie is coming to a theater near you, and it ‘‘ain’t’’ a good ending 

right now. And so we need to really get ahead of that curve and 

discuss and fix this problem. 

I also want to thank Administrator Fugate for being the key witness of this hearing, and I am hopeful that with his presence this 

can be a truly substantive discussion that actually advances the 

ball down the field and is not just a lot of talk. 

You know, we all knew what the discussion was when we were 

debating Biggert-Waters, and Senator Tester is right. We all expected some premium increases. We know that is necessary to 

make the system fiscally sound. But, quite frankly, what we have 

been told to expect since then is a completely different planet in 

some cases. 

Before the fact and before the debate and the vote, we had several studies—and I have the citations here from Senate committees, GAO reports—that basically suggested that properties that 

were subsidized under the Flood Insurance Program might be subsidized up to 50 percent or 40 percent or 55 percent, those that 

were subsidized, and that was a minority. You know, to deal with 

some modest premium increases over time, to deal with that situation, and make the program fiscally sound is one thing. 

Since Biggert-Waters has started to be implemented, we are 

hearing something dramatically different. We are hearing that— 

and my constituents and Mary’s constituents are specifically hearing that they could face a premium increase from $633 a year to 

$28,544 a year for a policy worth $250,000. 

Now, that is not just made-up numbers. That is Bill Bubrig, a 

resident of Plaquemines Parish. He lives in a home that was constructed at or above the elevation he was told he needed at the 

time. He followed all the rules at the time. He followed those rules, 

and that is what he is now being told that he might expect. 

Now, one thing I hope this hearing gets to is exactly what he can 

expect because, quite frankly, in Administrator Fugate’s written 

testimony, I think he is again downplaying the possible impacts. 

He is talking about some rates in Louisiana reaching as high as 

$10,000. Well, his FEMA employees have told many of our constituents to expect something way beyond that. So I hope we can 

clarify that. 

Several weeks ago, on August 8, we did have a productive visit 

from David Miller and others at FEMA to south Louisiana to talk 

7 

about just this, and it was productive. I asked David three questions then, and I told him they would be my three main and first 

questions to Administrator Fugate. And I think they are the three 

questions we need to start to get answers on, and so the Administrator has had well over a month’s notice, and I want to lay those 

questions out. 

Number one, the President has delayed major parts of 

Obamacare because they are not ready for prime time for implementation. So will the Administration and FEMA delay BiggertWaters or at least major portions of Biggert-Waters for at least a 

year? Because it is clearly not ready for implementation. 

Number two, will FEMA agree to halt releasing new flood insurance rate maps until issues involving their accuracy, properly taking into account all flood features, are completely worked out? 

And, number three, will FEMA join Members of Congress, including everyone in the Louisiana delegation, and proactively promote solutions to the affordability issue? That is key, and we need 

help and leadership from FEMA. We are doing that. Many members are doing that. We need FEMA to do the same. 

I will stop here and certainly look forward to expanding on those 

thoughts in our discussion. 

Chairman MERKLEY. Thank you. 

Senator Landrieu. 

STATEMENT OF MARY LANDRIEU, U.S. SENATOR FROM 

LOUISIANA 

Senator LANDRIEU. Thank you, Mr. Chairman. I have a long, detailed statement I am going to submit, and I am going to try to 

summarize the highlighted points in addition to what Senator Vitter has highlighted. 

First, let me thank you for agreeing to have this hearing to begin 

the discussion to fix Biggert-Waters, to either repeal it, radically 

amend it, delay it, because we need help—not only in Louisiana 

but in many, many, many places in this country, not only along the 

coasts but as we all marked this morning the tragedy that is unfolding right now in Colorado and what happened most recently in 

Massachusetts, New York, and New Jersey. 

Twelve days from now, FEMA will begin the process of increasing insurance rates on hundreds of thousands of homeowners and 

small businesses across the United States as a result of legislation 

that Congress passed without, in my view, full consideration of the 

potential impact that skyrocketing rates might have on families, 

small businesses, home sales, property values, local economies, or 

continued participation in the program. Good intentions to make 

the program self-sufficient, wholly inadequate data about the loss 

of affordability to the program, which is hitting us hard, hitting us 

right away, and devastating to our communities. 

Both Biggert-Waters and the companion Flood Insurance Reform 

and Modernization Act that cleared this Committee 2 years ago in 

my view were built backwards and upside down. They authorized 

immediate rate increases on homeowners and businesses that 

played by the rules, did everything asked of them, before they even 

began to study the impacts these rate increases would have on affordability. 

8 

Let me mention two things about affordability. One, when this 

bill was debated in the House last year, there was an amendment 

offered by a Member of the House that was voted down by voice 

vote that would have required at least some vouchers for low-income and middle-income families that are going to be affected not 

only in Louisiana but Massachusetts. But let me say for the record, 

middle-income families, even some at the high end of the middle 

class, are going to have a hard time accepting the new rules and 

regulations coming from this bill. 

There are 17.4 million households that live in Special Flood Hazard Areas where flood insurance is mandatory, but the question is: 

How many are going to, Senator Tester, be living in areas that are 

not special flood hazard but will flood, have flooded, can flood, and 

flood insurance is not mandatory, but they are going to be facing 

some rate increases as well? 

Let me talk about the home trigger sale, which is very important, and this was in both bills. One of the most problematic provisions in Biggert-Waters, in both bills, is a requirement that under 

Section 205 any property purchased after July 6th of last year will 

immediately lose its entire subsidy on the active sale, penalizing 

homeowners who are buying these homes that had no way of knowing it; but, more importantly, in my view, penalizing the homeowners themselves who are without the ability to sell their homes 

now after July 6th without losing a substantial amount of their entire life equity. 

I want to get us beyond premium increases into the fact that 

when you lose your subsidy on your home, which is your largest 

asset, you basically lose the majority of your wealth accumulated 

over a lifetime because of this bill. It was premature. It was not 

well thought out. It must be fixed. 

Two of my constituents, Penny and David Boquia, bought a home 

in Baton Rouge on August 23rd. They were told they would maintain the seller’s flood insurance at $650 a year. One week later, on 

August 30th, they received a letter notifying them it would go up 

400 percent $2,500. That is an example of what happens to homeowners. But basically many of our folks are just saying they cannot 

put their homes for sale; they have no value. 

All right. The catastrophic flood losses that occurred—and I want 

to submit this for the detail, and thank Michel Claudet, who is the 

president of Terrebonne, for bringing this to my attention. I kept 

hearing and hearing the program is underwater, underwater, underwater by $20 billion. I just assumed. I should have looked. The 

truth of the matter is that, before Katrina, this program was fairly 

actuarially sound, and you can look at the numbers yourself. What 

sticks out is, at Katrina, it was a $16 billion hit to this program. 

Katrina was the biggest natural disaster ever to hit the United 

States in the history of our country. It rocked everything. So what 

we did was we took this outlier year, $16 billion, and then reflected 

that loss, you know, I think prematurely forward, and created a 

program that is now not self-sustainable, not affordable to even 

middle-class families, businesses, and we have got to fix it. 

Now, in closing, maybe FEMA can do some things to delay it. I 

hope they can find a way. I am very frustrated with them, as Senator Vitter is, for not finishing their affordability study. They say 

9 

you all did not give them enough money, $750,000; they needed 

more time, they needed more money. I do not buy that excuse. But, 

anyway, there was no affordability study done. 

I am going to put the rest of my comments into the record, but 

we have got to, you know, push back, reform, repeal, this flood insurance, get a better approach that works not just for Louisiana, 

the gulf coast, and coastal, but for everyone in the country. You 

know, whoever was to blame, let us forget about that, but let us 

move on together to try to fix it. And I know this Committee had 

good intentions, believe me. I have been here long enough to know 

the Members on this Committee on both sides. But we made a mistake, and we have got to fix it. And I wish it could be fixed administratively. Maybe it can. But I think it may need some action by 

this Committee. And, Chairman Merkley and Senator Tester, I am 

so grateful, and Senator Heller, for your at least openness to consider some of the testimony you are going to hear today. 

Thank you so much. 

Chairman MERKLEY. Thank you both very much for your testimony, and you are both invited to join us here on the panel. 

With that, we will ask Administrator Fugate to join us up front. 

Mr. FUGATE. Mr. Chairman, Senator Heller—— 

Chairman MERKLEY. Thank you very much for joining us, Administrator, and I will just do a brief introduction and then ask you 

to jump in, and we particularly appreciate your attendance today 

given the disaster in Colorado. I know you have worked very hard 

to try to make sure that everything was attended to so that you 

could be here with us for this conversation. 

William Craig Fugate was confirmed by the U.S. Senate and 

began his service as Administrator of FEMA in May 2009. At 

FEMA, he has promulgated the whole-community approach to 

emergency management, emphasizing and improving collaboration 

with all levels of Government and external partners, including voluntary agencies, faith-based organizations, the private sector, and 

citizens. Prior to coming to FEMA, he has served as Director of the 

Florida Division of Emergency Management. 

We very much look forward to your testimony, and, again, thank 

you so much for coming. 

STATEMENT OF W. CRAIG FUGATE, ADMINISTRATOR, FEDERAL EMERGENCY MANAGEMENT AGENCY, DEPARTMENT 

OF HOMELAND SECURITY 

Mr. FUGATE. Well, thank you, Mr. Chairman, Senator Heller, 

Senators. 

I think Senator Tester started out with—I want to take a step 

back. Why we are in flood insurance in the first place? What is the 

purpose of it? And how did we get here? 

Flooding in the 1940s and 1950s was so significant that ultimately the private sector insurance companies no longer provided 

coverage, and that created huge exposure for the financial market 

for mortgages. 

In the 1960s, Congress determined to form a capability to provide that insurance to ensure those mortgages were protected 

against this risk, this singular risk that the private sector no 

longer would provide coverage to. 

10 

Until about 1979, the program actually was operated by a consortium of companies that they managed the program, and at a point 

where losses were greater than their ability to cover, appropriations were made by Congress to pay the difference. 

In the 1970s, the decision was made for the Federal Government 

to take over the entire program and provide those coverages and 

provide the maps and other tools to implement the program in one 

National Flood Insurance Program. At that point the Federal Government was now not only providing the catastrophic coverage but 

the day-to-day coverage. And the history of the program was that 

in catastrophic losses, the program was not determined to be able 

to cover those. Appropriations would be made, but the actuarial 

rates that were charged and the primary tool here was actually 

land use and growth management. So as new homes were built, 

they were built to reduce future risk. That was the real importance 

of the maps, to establish a base flood elevation that, if you built 

above that, would significantly reduce the risk to the communities 

in the future. 

So one element of this is, to participate in the programs, communities have to adopt land use ordinances and building codes for new 

and future construction based upon best available data. 

Now, as this program came about, obviously there were very little areas that were mapped, and so in order to provide the opportunity to get people insured—and these are oftentimes referred to 

as ‘‘pre-FIRM,’’ ‘‘pre-map,’’ ‘‘pre-flood’’ insurance rate maps—many 

people were brought in at rates that, as new data came up, decisions were made to grandfather them and hold them at their preFIRM rates. 

So as map changes would occur, if you maintained your current 

policy, there was no change to those rates. That led to some interesting outcomes that we have started seeing repetitive loss properties that would literally be paid out every couple years. But there 

was no incentive for people to make any changes because their 

rates were so low. So one of the things in Biggert-Waters was to 

address should we continue to subsidize the repetitive loss properties. 

Another concern was there was a lot of secondary homes that we 

were providing very good insurance rates to. The question then became, which Biggert-Waters addressed: Should we subsidize somebody’s vacation home? And the answer was no, and starting January 1st of this year, as you renew your policy, if you have a secondary property, you are going to a full actuarial rate. 

But then it gets into how do you cover these catastrophic disasters. I think we have seen the program grow, but so has the exposure. Right now our exposure, total policies, is $1.28 trillion. Now, 

there are no disasters that are ever going to get to that point, but 

there are some areas along our coast—Florida in particular, Houston, New York, New Jersey—that have exposures that in a Category 2 or Category 3 storm would be even greater than Katrina, 

Senator Landrieu, potentially, and some of those again hitting 

those $16 to $20 billion exposures. 

So in trying to move to a more actuarially based rate, we also 

have this other issue, which I think the Senators are well versed 

in. Is it public policy, is it the intention to fully charge the rate for 

11 

a primary homeowner to the point where they cannot afford their 

home? Or should it be the public policy that we have determine an 

ability to pay on affordability? And recognizing some people who 

live and choose to live in areas may be able to afford those actuarial rates that can be very expensive. But should people who have 

lived their all their lives, who are middle class, be priced out of 

their homes? And I do not agree. 

But to get to Senator Vitter’s first question, I have found very 

little leeway, as much as I have tried, in how we can address affordability under the current provisions of the law as enacted. And 

so I look forward to the questions, Mr. Chairman. I fully believe we 

should stop subsidizing risk as we go forward for new construction, 

for secondary homes, and for businesses. But I think we need to 

look at affordability for people who live there, look at how we can 

mitigate the risk in the future, and not grow our risk at the same 

time, not putting people out of their homes because flood insurance 

is prohibitively expensive. 

Thank you, Mr. Chairman. 

Chairman MERKLEY. Thank you very much for your testimony, 

and we are now going to have a period of 5 minutes. And just to 

let folks know, according to how the staff has documented arrivals, 

after I ask questions and Senator Heller asks questions, it is Senator Warren, Senator Vitter, Senator Tester, Senator Schumer, and 

then Senator Heitkamp. And Senator Landrieu, whom we do not 

have on the list yet. Thank you. 

Could you address first this issue of the affordability report that 

was required? FEMA was directed, I believe, in the legislation to 

advise Congress on the affordability of flood insurance and problems that might arise in that regard within 270 days, which would 

have been April 6th of this year. I understand FEMA has now said 

that it will take 2 more years, until 2015, to do this affordability 

report. Clearly, you can see from the many comments and concerns 

and questions, affordability is at the heart of many of our concerns. 

So if you could explain why the 270 days was not achievable and 

whether something in the nearer future rather than 2015 might be 

possible. 

Mr. FUGATE. Mr. Chairman, we approached the National Academy of Science to conduct a study. Their initial response back to 

us was that, given the amount of money and the time, they could 

not do a complete report. And I guess this is as most succinctly as 

I can. The challenge is on those homes that are what we call preFIRM, there was never any elevation established. There was never 

any elevation required. So we do not know what the costs are. And 

one of the examples given of how they calculated this actuarially, 

as our team has built those tables, if you are at base flood elevation 

and you have maximum contents in a $250,000 home, it is about 

$1,600. If you are 4 feet above that, it drops to 400—about $500, 

I am sorry. If you drop to 4 feet below that, you get $10,000. And 

for every 4 feet you go down below base level elevation, it basically 

doubles. 

So as Senator Vitter points out, you can very easily get to these 

very high numbers if you are in an area of significant risk that you 

were built part of that. But without that data, without those elevation certificates—and that is, we are finding out as one of the 

12 

things. You cannot really get the calculation on a per house basis 

of what this number looks like. And so part of this is getting that 

kind of data and resolution to make those calculations is what we 

are getting as one of the reasons it is going to take longer and more 

money. 

The other parts of the economic stuff, we have already started 

the process to give us at least what does the framework of this look 

like and what are the elements that they would need to calculate 

the affordability. But as we understand it, knowing base flood elevations, since those do not exist for the most of the pre-FIRM 

homes, makes it extremely difficult to just calculate what that 

looks like. 

Chairman MERKLEY. So I would toss out the idea that I will be 

happy to follow up with subsequent to this hearing that perhaps 

there is a lot of work that could be done in the near term just by 

understanding the case stories that we are hearing back from folks 

about the challenges. For example, a family in which a corner of 

their property is in the flood zone and so a mortgage company concerned about the fees that would be charged to them is insisting 

on flood insurance even though the house is not in the flood zone 

itself, that is certainly one example. And there are many others 

that I have been hearing from different corners of Oregon. Certainly perhaps even a compilation of the categories of concerns that 

are flowing in would be very useful for our consideration of changes 

that we might need to make in the law, and kind of in this regard, 

the sooner the better. 

Let me turn to FEMA has outlined new procedures to produce 

flood insurance rate maps while incorporating partially accredited 

levees, and I do not want to ask you to spend a lot of time on this, 

but is there any progress in that pilot program? 

Mr. FUGATE. Yes, sir. We are in the pilot phase right now. We 

are working with several communities across the country, several 

in Louisiana, working on now taking the tool that we built to update the maps, working with the local community, and calculate 

the value. Senator Vitter, Senator Landrieu, and others have pointed out that our previous policy was, even if you had a levee, if it 

was not accredited, we basically took it out and said there was no 

structure there. We now have the tools to build it back in. We are 

working with the local communities as we use that tool, and we update their maps and show them what this looks like, because part 

of this will also be, as these results come back, in doing mapping 

there is a lot of the interaction with the local officials as they look 

at that data and go but have you looked at this, and there is other 

data so we get the best outcome of looking at the structure. 

So we are in that process in the pilot phase, and from that that 

would be the point that would generate the formal rulemaking once 

we see that we have the ability to do this tool and get the results 

that local communities and others are looking for. 

Chairman MERKLEY. Thank you. I have many more questions, 

but I am going to be fairly strict about the time so that everybody 

can get their thoughts in. So we will turn to Senator Heller. 

Senator HELLER. Chairman, thank you. Mr. Fugate, thank you 

for being here today. 

13 

I have heard the word ‘‘mitigation’’ several times already in testimony. Besides elevation, what is another form of mitigation that a 

homeowner can use or provide to reduce insurance costs? 

Mr. FUGATE. Well, this is not mitigation, and there is a cost to 

the homeowner because the program does not have the ability to 

provide it. But that is getting an elevation certificate, and that will 

be one of the challenges, because it does cost, and it can run anywhere from a couple hundred dollars to several thousand dollars, 

depending upon what you have to do to get that survey done. 

But that will then be the point at which if you are at or above 

base flood elevation, you would see discounts in what these proposed rates would be. The elevation, again, something that we have 

seen and used quite a bit post disaster, but also you gave us additional tools within the National Flood Insurance Reform Act to do 

two things: elevations but also buyouts, offer some homeowners, 

particularly after a devastating flood—it may be the option that 

they do not want to rebuild there, yet they cannot really sell their 

property and it is destroyed, the opportunity to buy out. This is 

being used rather successfully in parts of the country, including in 

the Northeast after Sandy, to take some of the most vulnerable 

areas and buy those properties out, turn it into greenspace, and 

give people the resources to move elsewhere and reestablish their 

homes. 

Senator HELLER. With the discussions that we had on the first 

panel and Members of both the Senate and the House, and the 

number of calls they get—and, again, even Nevada, I receive phone 

calls on this particular issue—it seems to me that there are so 

many numbers bouncing around. When a homeowner testified earlier, when numbers are thrown out like $28,000 a year, it just 

seems like there is a big communications gap between what your 

administration is doing and being able to educate and spend time 

with the citizens and letting them know what their options are. 

What are we doing to enhance the communications? 

Mr. FUGATE. Well, since the primary point of information of determining your rate is going to be the Write-Your-Own insurance 

agent, we have been working to get all of that training done and 

get them up to speed. I think right now we are over 8,000 that 

have been trained, because Senator Vitter, rightly so, said, you 

know, we are putting a lot of information out there prematurely, 

and until you get the actual actuarial tables done which have been 

completed, the Write-Your-Own agents then have to get the elevation of the home and knowing what that elevation is, where the 

map is, then they have the ability to then calculate the rate. And 

it is, as has been pointed out, can be substantial if your home was 

built below the current base flood elevation, either because you 

have new map data or when you were brought in pre-FIRM, there 

was never any requirement to have an elevation certificate. 

But those are the two pieces that actually calculate an individual 

homeowner’s rate: an elevation and the tables that have been generated. 

And so part of this has been to communicate that part to the 

agents, work with the communities and States, but now as we go 

through this process, making sure that that information is out 

14 

there both to local officials as well as to the public, that that will 

be the process. 

Now, for people that have secondary homes, they are already getting those rates adjusted. Again, that started in January, and you 

will continue to hear from constituents because it will be when 

they renew that they get their increases. So we started in January, 

but it will probably be for the full year before everybody has seen 

that on a secondary home. 

Senator HELLER. Thank you. 

Mr. Chairman, I have additional questions, but I will wait until 

the second round. 

Chairman MERKLEY. Senator Warren. 

Senator WARREN. Thank you, Mr. Chairman. 

Mr. Fugate, I just want to go back and make sure I understand 

this. What kind of outreach did FEMA do before it released the 

new maps or as it was releasing the new maps to tell homeowners 

who had never before been in flood zones that now they were going 

to end up in flood zones. 

Mr. FUGATE. Well, community by community, when we go into 

update maps—and there is usually either we have a map that is 

old that we have new data, we have been requested by the community, or we have had a disasters, and disasters have been 

prioritizing a lot of that. We start our conversations with the community itself, the Government that is responsible for that jurisdiction. This process is actually a several-year process, that we start 

with them, we get the best available—— 

Senator WARREN. So you talk to the mayors? I just want to make 

sure I am following. You talk to the mayors, you talk to the county 

officials. 

Mr. FUGATE. Yes, ma’am. We send a notification. Oftentimes the 

people we are working with are the public works, utilities, or whoever the land use management agency is. And then we work with 

them in developing the scoping of the maps, the areas we are going 

to look at to update any additional concerns they have. If they have 

data or newer data, FEMA contracts with engineering firms that 

then update those maps. 

We do a series of preliminary maps. You may hear the term ‘‘preFIRM,’’ a pre-Flood Insurance Rate Map, that we then go back to 

the community. They do notices. Oftentimes, though, this process, 

even though there is a public notices and there is outreach, most 

people do not pay too much attention to it until they see that their 

status has changed. 

That is why we do the hearings. We provide that opportunity. At 

that point, if new information is given, we are able to take a look 

at that. We have had several where we have issued pre-FIRMs. 

Members of the communities have questioned the data. We got new 

data. 

This process can take 2, 3 years, and then the community has 

to—the local officials, to make the maps official—FEMA cannot 

make the maps official, but to make them enforceable, the local 

government has to vote to adopt the maps as part of their ordinance. 

Senator WARREN. So let me follow up to make sure that I am 

tracking on this. So when someone discovers that, because of the 

15 

map, they are now in a flood zone, they had not been in a flood 

zone before, I understand that there is an appeals process for that. 

Mr. FUGATE. Yes, ma’am. 

Senator WARREN. Can you tell me how many people have appealed their status in a flood zone? Do we know yet? Do we have 

any idea? 

Mr. FUGATE. I would have to respond for the record to that. I 

know it is in the hundreds, if not thousands. But I would have to 

go back, because we do so many maps across the country, and they 

are in all phases of production. Some are preliminary, some have 

already been in the pre-FIRM. But pre-FIRM is usually when the 

public first gets their look at the maps, and one of the things that 

we used to do was—it was always on paper, so you had to go somewhere to see it. 

Senator WARREN. Yes. 

Mr. FUGATE. So we have been working to get these out online as 

digital so people can go look up and get information easier to see 

that information and then make determinations about is there anything that they need to do or want to do about that information. 

Senator WARREN. So maybe I should have asked this the other 

way to get the base rate. How many homeowners have been affected by moving from not in a flood zone to in a flood zone? Do 

you have some sense? Or have had their status changed because 

they are—— 

Mr. FUGATE. It is substantial, and it goes both ways. 

Senator WARREN. Substantial as in—— 

Mr. FUGATE. Thousands. And I would have to—it depends upon 

maps. Some maps had good data, so you do not see big changes. 

Others are more substantial. We know—I can show you that in 

New York and New Jersey post Sandy that—we had already been 

doing maps prior to Sandy, and so in using that data, it has increased the flood risk in those areas. The maps display the risk, 

and so as we went through, we were actually mapping those areas 

and updating maps prior to Sandy. But there were substantial 

changes. So it is impacting how and where people rebuild. It is also 

affecting decisions local officials are making about where they want 

to buy out or apply mitigation dollars. 

Senator WARREN. That surprises me, though, that you would say 

it is thousands. I would think it would be far more homeowners 

than that. But let me ask, in the appeals process, for someone to 

take an appeal—I had heard from someone in Massachusetts about 

this, someone in Brockton who was told that if she wanted to take 

an appeal, the only way she could do it was to pay more than 

$1,000 to an engineer to come in and do an elevation study of a 

nearby brook, even though the city of Brockton and the Army 

Corps of Engineers have no record of the brook ever overflowing at 

any time in history. 

So the question I have is: For a homeowner to take an appeal, 

if they have to take on a cost like this, does that really give them 

an effective tool if they think that they should not be rated as in 

a flood zone? 

Mr. FUGATE. Well, there are two parts to that. 

16 

The first piece is, unfortunately, the program does not have the 

money to pay for the elevation certificates, and that is what determines. 

The second piece is I have been all over the country, and no disrespect, Senator, I have been in many places that have never flooded before until it is declared a disaster. 

So we look at the basins, we look at the topography, we look at 

the risk, and we are dealing with risk of 100-year and 500-year and 

calculating these flood tables. So it is not uncommon to go into 

areas that have not had recent flooding because, quite fortunately, 

that is not the case in many places. But if you do have that rainfall 

event or that storm event, their risk would fall greater than 1 percent, which is the special flood risk area. But if we can get the elevation and say you are 1 foot above that, then that would move you 

back into a much better category of risk and would make the insurance much more affordable. 

Senator WARREN. Good. Well, I have some more questions about 

the process. I want to say thank you, Mr. Chairman. I am sorry 

we ran over. 

Chairman MERKLEY. Senator Vitter. 

Senator VITTER. Thank you, Mr. Chairman. And thank you 

again, Mr. Administrator. 

My first question was: Is FEMA willing to delay Biggert-Waters 

or significant parts of it for at least a year? And basically the answer I heard was no. I am not going to encourage that answer, but 

that is what I heard. 

Mr. FUGATE. Senator—— 

Senator VITTER. Let me just finish the question. Part of BiggertWaters was the affordability study. That was due April 6th of this 

year. In the same paragraph, you said that is nowhere in sight; 

that will be 2, 21⁄2 years. So you can delay that or cannot complete 

that on time, or for whatever reason, and yet you cannot delay the 

axe which will in some cases yield unaffordable rates. 

Doesn’t that seem a little ironic, to put it politely? 

Mr. FUGATE. Senator, I have read the legislation. I have had attorneys read the legislation. Our staff has looked at it. If I had a 

way to do it based upon anything other than the technical implementation of the program, I do not see it. And so, again, I am not 

trying to be obstructive here. 

Senator VITTER. Aren’t there all sorts—— 

Mr. FUGATE. I need help. 

Senator VITTER. Aren’t there all sorts of questions about technical implementation that are problems that make this not ready 

for prime time, questions you highlighted in your reason for not 

being near completing an affordability study? 

Mr. FUGATE. Senator Vitter, let me put my cards on the table. 

I need your help. I have not, my attorneys have not found a way— 

and, again—— 

Senator VITTER. Well, let me use—— 

Mr. FUGATE. I understand the question, sir. I do not have— 

again, from our attorneys and everybody looking at this, I do not 

have the answer you are looking for. I need your help. 

Senator VITTER. OK. Let me—— 

17 

Mr. FUGATE. Without some additional legislative support, I am 

getting bound and boxed into—I cannot address—there is no provision for affordability in this bill. It is delayed and phased in, but 

there is no way to build affordability in. It is clear the bill wanted 

to go to an actuarial rate, and the affordability study was not coupled to a delay. 

Senator VITTER. OK. 

Mr. FUGATE. If it had been written so that until the study is 

done you would not raise rates—it was not written that way. 

Senator VITTER. Let me be clear. I am not asking you to make 

up an affordability section out of thin air. I am asking you to properly recognize a lot of true implementation problems that make a 

lot of the implementation not ready for prime time. 

That goes to my third issue. You say you need help. We all need 

to come together and participate in this. So my third question is 

pretty simple. I have put forward specific legislative and administrative proposals. So have others. When will FEMA make any specific legislative and/or administrative proposals to address affordability? 

Mr. FUGATE. I have no answer for that, sir, because we continue 

to look at what the possible options are. And part of this is coming 

back to what is it that, as we go through the process of doing the 

implementation, we are identifying as we need more guidance or 

authorities or there are issues coming up that we cannot address. 

So we have not drafted—— 

Senator VITTER. Mr. Administrator, you say you need our help. 

Mr. FUGATE. Yes, sir. 

Senator VITTER. Many of us are willing to offer that help. We 

need your help as some of the experts involved. So when will we 

get your help? When will we get any specific proposals—legislative 

proposals, administrative proposals—regarding affordability? 

Mr. FUGATE. Without the study, the affordability piece of this, I 

would not be able to give you a specific date, plus this will require, 

as anything in the Administrator position, a lot of input to provide 

you a very specific piece of legislative recommendations. So I do not 

have a date—— 

Senator VITTER. So no time soon? 

Mr. FUGATE. No, sir. 

Senator VITTER. OK. I will submit my second question that I 

highlighted and ask you to answer it for the record. 

I do in my time want to highlight a few other factors that go to 

solvency and, therefore, rate levels. 

The best figure I have, number one, is that 40 percent of properties that are supposed to participate in the program do not, and 

there is little to no enforcement action to make them get in the program. 

Now, that can clearly yield huge revenue into the program. It 

will mean some additional risk, but my guess is those folks do not 

think they are much at risk. So I would guess it yields a whole lot 

more revenue than risk. That can make a huge difference in terms 

of solvency and what premiums need to be. That is number one. 

Number two, the best figure I have regarding the private side of 

the program, private participation, is that those private companies 

get basically a 30-percent markup, a 30-percent commission and 

18 

servicing cost for paperwork not taking on any risk. To this probusiness conservative Republican, that seems absurd. 

What am I missing? 

Mr. FUGATE. On the first piece, because of the penalties of $2,000 

if you do not as a financial institution ensure that you have identified those people in the special risk, you are getting a lot of folks 

now that are finding that their mortgage companies are notifying 

them that they have to buy that insurance now, and because they 

were not grandfathered in, they are going to the full rate; and if 

they fail to, they will buy it for them and put it in their account. 

So that is happening, Senator, and that tool of penalizing the financial institutions for not ensuring that if they write a mortgage 

for somebody in a special risk area and they do not have flood insurance is exactly what the Chairman was talking about; he heard 

from constituents that they were being told that they had to get 

it, and it was now at a very high rate that they had not expected. 

And the second piece, the private sector does more than just 

write. This is not an easy policy to write for the private sector, particularly for the insurance agent. They have to have elevation certificates. There is a lot of reporting. We do very specific training 

that they have to have. They have to be certified to do flood insurance. You cannot just be an insurance agent. You have to be certified to do flood insurance. And then there is the servicing of that. 

And even with those dollars, some companies have chosen not to 

continue to write your own, rather large companies who shed significantly their exposure to this, because they did not see it in the 

interest of their shareholders. 

So it is something we were looking at. You have asked us in this 

law to study that and also make recommendations, and as the 

rates increase, I think when you are talking smaller policies, 30 

percent probably makes sense in some of those. But as you start 

getting to higher rates, is it proportional? Should it be at 30 percent fixed across the board? Or as it escalates, would you see that 

increase like you would a lot of other situations? 

But that is something that we are working on and working with 

the insurance industry and the Write-Your-Own companies. 

Chairman MERKLEY. Senator Tester. 

Senator TESTER. Thank you for being here, Administrator 

Fugate. In your tenure as the head of FEMA, you have seen some 

pretty amazing disasters, maybe the largest in American history. 

I will start out by saying I appreciate your cooperation with Montana on the flood and fire seasons that we have had the last few 

years, and I want to thank FEMA for their fast response for the 

fire management grants this summer. When we had fires that were 

lapping at communities’ doors, you guys stepped up, and I want 

you to know I very much appreciate that. 

We worked pretty hard on Biggert-Waters to include a provision 

that got FEMA and the Army Corps to share information when it 

comes to flood protection structure, accreditation requirements. 

You are familiar with it. It established an accreditation task force 

to carry this out. It was supposed to be done and back to Congress 

by July 2013. Where is it at? And why is there a delay? 

Mr. FUGATE. It is in concurrence in the Administration. We expect to have that report out in the next month. I am always cauVerDate Nov 24 2008 12:32 Oct 17, 2014 Jkt 046629 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\09-18 ZPM DISTILLER\USE THIS HEARING\91813PM.TXT JASON
19 

tiously optimistic in the concurrence process, knowing how that can 

sometimes take longer than I anticipate. But it took us that much 

time to get everything together, to get the report written, to get it 

into concurrence, and to get the product ready. And our hope is 

that we will be able to provide that to you I would say in the next 

month. 

Senator TESTER. Thank you. 

Mr. FUGATE. I know of nothing that is holding it up. It is just 

going through that final concurrence process to get it released, sir. 

Senator TESTER. This is not an indication of the cooperation level 

between FEMA and the Army Corps? 

Mr. FUGATE. No, sir. General Bostick and I have been working 

side by side, both through disasters but also in our responsibilities, 

in ensuring that we have the best cooperation working on our levees, maps, and other technical efforts to look at flood. 

Senator TESTER. OK. You talked about needing our help, and I 

will say that there has been some talk about delay. You talked 

about the fact you do not want to price middle-class families out 

of their homes, and I appreciate all of that. I do not think there 

is an insurance company on the panel today, but what impact—I 

mean, you were talking about notices being sent out. What impact 

would a delay have on all that? And would that have an impact 

on—we are always being accused of not a lot of predictability 

around here. Would that have an impact on the overall program as 

far as people’s comfort with it? 

Mr. FUGATE. The one impact that would be most immediate 

would be those that either had a lapsed policy, a map change, or 

for some other reason would see the rates begin increasing now. 

My real question is: Is—I do not believe—and I have not—I know 

there are concerns, but we have already done secondary homes, vacation homes, secondary properties. I do not know of any reason 

why we would want to delay that. That is already in effect. Those 

notices are out, and those properties are moving to these rates. 

Again, it is based upon secondary homes. 

Repetitive loss properties, you had a provision in there, and this 

is something we run into. People refuse to be bought out or elevated, and we continue to subsidize their rates and pay them. And 

that ends as part of that. 

Of the two sections, 205 I feel most strongly about implementing 

those now because they are the private sector businesses, they are 

the secondary homes, they are the repetitive loss that have not 

done things to mitigate. Section 207 gets into those areas that we 

are now talking about previously, either pre-FIRM’d or were grandfathered in rates that you cannot sell your home unless it jumps, 

you lose that, it is going to go up. If the map changes as we update 

maps, you now have a very short period of time, over several years, 

to move to those higher rates. And we have no basis to adjust those 

rates based upon affordability and what that affordability means. 

Quite honestly, Senator, I am not sure we should be not slowing 

this down for new construction. If you are building condos in my 

home State of Florida, should we be giving you a discount rate? 

Senator TESTER. Right. So from my perspective as a policy 

maker, those are the kind of recommendations I would like to hear 

from you, and I would hope that you would work with both SenVerDate Nov 24 2008 12:32 Oct 17, 2014 Jkt 046629 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\09-18 ZPM DISTILLER\USE THIS HEARING\91813PM.TXT JASON
20 

ators from Louisiana, and all of us, quite frankly, the leadership 

on this Committee, to try to figure out what we can do to not price 

the middle-class folks out of their home, OK? 

Could you give me an idea—because Senator Vitter brought this up in his opening statement—what kind of a $250,000 property 

would have a $28,000 premium? 

Mr. FUGATE. Based upon the actuarial tables that we produced— 

and we did this using the insurance models and everything—if you 

are at base flood elevation, that is considered about the medium 

risk, a $250,000 home with $100,000 contents, about $1,600. If you 

go 4 feet above that, it would drop to a little over $500. But if you 

drop below that in increments of 4 feet, it goes from about $1,600 

to $10,000 and continues to almost double for every 4 feet. 

So you can see very quickly how, if you had a community that 

was not mapped, you are in that Special Flood Hazard Area and 

you may be as low as 10 to 12 feet below that, particularly in coastal areas where you have got storm surge risk and those type of factors, as you look at that, you could see dramatic increases for a 

home that is worth $250,000 but now may have insurance rates potentially of almost 10 percent or more of the actual value of the 

home. 

Senator TESTER. Thank you. 

Chairman MERKLEY. Senator Heitkamp. 

Senator HEITKAMP. Thank you so much, Mr. Chairman, and 

thank you for your testimony. Bet you do not know what I am 

going to ask. 

As you know, more than 50 communities across the country, including 14 in my home State of North Dakota, have a so-called 

basement exemption. And I just want to make this point because 

I think for a lot of folks they wonder why that is. But a basement 

in a State like North Dakota and in a State that is plagued with 

tornadoes and bad weather can be a significant mitigation factor 

itself. And so I think there is good public policy to encourage the 

availability. And as we all know, those of us who have dealt with 

flood work in the past, you do not replace a finished basement if 

the basement is destroyed. You look at things that traditionally 

would be down there, like freezers and furnaces and maybe an electrical panel. And so a basement exemption is not—you know, recovering from a flooded basement is not full recovery. It is simply limited to those things that you would expect would be in a basement. 

As part of this exemption, the city of Fargo, which has experienced its share of floods, has developed and adopted pretty rigorous 

flood-proofing construction requirements that meet or exceed the 

technical manuals. For example, the city requires that all residential structures be flood-proofed if they are located in the Special 

Flood Hazard Area or within 50 feet of it. The top of the basement 

walls must be elevated 2.5 feet above the base flood elevation, and 

fill adjacent to the structure must be 2 feet above the base flood 

elevation. Additionally, the foundations are subject to annual inspections. For new developments in the Special Flood Hazard 

Areas, the properties must be elevated with fill to at least the base 

flood elevation. 

Now, overall the flood-proofing requirements have been a very effective flood mitigation tool in the region. In spite of some pretty 

21 

heavy water pressures, not just floods but obviously high groundwater tables, more than the 600 flood-proofed foundations installed 

over the past 40 years, none have failed. But it is a great concern 

that I am going to raise with you, which is the elimination of the 

basement exemption. 

What we are hearing from the officials in the city of Fargo is that 

that exemption—the elimination of that exemption could result in 

a $10,000-a-year increase for very modest homes, homes that are 

middle-class homes. And we have been discussing, I think quite accurately, the affordability issues. 

And so I have two questions. Do you have an estimate on what 

those premiums would be in communities if the basement exemption is eliminated? And will you be maintaining this exemption? 

Have you made any decisions? I know that Senator Hoeven and I 

have been on this since I first got here, and we are curious about 

what your thinking is. 

Mr. FUGATE. As far as the cost, I would have to go back and ask 

the question of staff: Does base flood elevation start at the base 

floor or would it be the basement? Because if a basement is 8 foot 

below and that is where they look at, you would see those numbers. 

But I do not know how you calculate, and I would have to ask staff. 

Do we calculate at the floor level, at grade, or do we calculate from 

the basement? So I would not know that, but we can get that for 

the record. 

Mr. FUGATE. As far as the second part, I do not know that either. 

I will have to ask staff, because we saw so much of the language 

that allowed us to do exemptions exempted out that most of the affordability pieces, which this may be how it was looked at, were 

being exempted. I would have to ask staff is that what that is or 

is that still able to stand on its own. But because the way that 

Biggert-Waters is written, there were so many exemptions previously for affordability grandfathering that were taken out that I 

do not know if we even have that flexibility. But we will get back 

to you on that, Senator. 

Senator HEITKAMP. That would be terrific, and if I can just indulge just one follow-up, I think it is important that, you know, as 

people think about it, maybe in areas where there are not tornadoes and areas where they do not need the basement for additional 

protection, that it is not just about affordability. It is about making 

sure that my people are safe when bad weather comes. And so I 

really encourage you to take a look at this, understand what that 

means not only for a State like mine but a State like Missouri and 

a number of States that are very dependent on a basement as an 

opportunity for shelter. 

Mr. FUGATE. I understand. Senator, we will get back to you on 

those two points. 

Senator HEITKAMP. Thank you very much. 

Chairman MERKLEY. Senator Schumer. 

Senator SCHUMER. I defer to Senator Landrieu. 

Senator LANDRIEU. Thank you so much, Senator Schumer. I really appreciate that special opportunity. I am not a Member of the 

Banking Committee, and I really appreciate, Mr. Chairman, you allowing me to be here. This is such an important issue for Louisiana 

and for the gulf coast, but more importantly than that, this is an 

22 

important issue for the whole Nation. And I really appreciate Senator Heitkamp’s questioning because what I have tried to impress 

upon the Members of this Committee and the Senate in both parties, this is not a Louisiana issue. This is not a gulf coast issue. 

This is not a coastal issue. This is a national issue. And for the 

record, to impress upon that, I want to submit for the record of this 

Committee the 15 States that have more than—that have substantial policies: California, 256,000; Florida, 2 million; Louisiana, 

486,000; Mississippi, 75,000; North Carolina, 138,000; New Jersey, 

238,000; New York, 173,000; Pennsylvania, 73,000; South Carolina, 

204,000; Texas, 645,000 homes and businesses; Virginia, 115. I am 

going to submit this to the record. It is 5 million homes in Louisiana—I mean in the Nation, including Louisiana, and businesses. 

Now, one of my questions—and I do not want an answer, but I 

am going to ask you to submit in writing—are we going to see this 

total 5 million go up to 10 or 15 when new maps come out? What 

is the scale? That is rhetorical. 

It is important, Mr. Chairman, to understand the scale of this. 

We have been talking about the details of the affordability study, 

the technical aspects. But the scale of this is important. This is a 

major bill that passed without the data necessary to use either 

compassion or common sense. OK? Compassion and common sense 

is what we are asking for. And it affects millions of homeowners 

and businesses. And it is not just homeowners and businesses. It 

is banks, real estate companies. It could have a devastating economic impact. It must be delayed, fixed, or modified. 

Now, I do have a specific question. GAO’s testimony cites five, 

Mr. Fugate, just five current gaps—there may be more, but five. I 

am going to do them quickly. 

Second homes. Data on primary versus second home residence is 

outdated. You might have it. It is not dated correctly. FEMA classified properties as residential or nonresidential, but does not know 

which of these properties are schools and churches, still eligible for 

a subsidy, as opposed to businesses, which are not. 

In substantial-damage properties, GAO says the law eliminates 

subsidies for properties with damage over 50 percent of their fair 

market value, but you do not even have data about people’s fair 

market value of their home and no way to get it. 

Substantially improved properties. The law also eliminates subsidies for properties whose renovations exceed 30 percent of their 

fair market value. You cannot calculate that ratio anyway. 

Finally, multifamily SRL. FEMA does not define severe repetitive loss for multifamily properties either, so you would be unable 

to eliminate subsidies on these. You do not have the data to implement this law. 

Now, there has got to be some overriding law in the Constitution 

of the United States that says you cannot implement a law if you 

cannot implement it. You know what I am saying? Like you have 

to implement it, but you cannot implement it if you do not have 

the data. 

Now, this is maybe how we do business in Louisiana. I do not 

know. I can hear Chuck Schumer saying that. But there has got 

to be a way. If you do not have the data, how can you implement 

it? That is number one. 

23 

Number two, there are 3,000 counties in this country. We have 

64 in Louisiana—parishes. What I would like to know is what 

FEMA is doing to reach out to NACo and to the mayors and to the 

national counties? Because this poor woman that Senator Warren 

spoke about never flooded in her life, creek never overflowed, never 

came out of the creek, now she has got to have $1,000. Maybe the 

county could organize a program to help homeowners like this. 

So what are you doing county-wide? And will you include the levees that we build at our own experience into our rates? 

Mr. FUGATE. We are reaching out through all the associations. 

We have been working through associations, floodplain managers 

and other associations, associations of Government, and we continue to do that. 

As far as levee data, yes, ma’am, we will build whatever information, whatever protective measures—in fact, you gave us some tools 

in Biggert-Waters. There is not all bad here. One of the things you 

did do, which was really important, was remember—— 

Senator LANDRIEU. Mostly bad. 

Mr. FUGATE. ——that we had a community that was getting and 

had funding to build a levee, and even though we would know it 

was being built, we would charge the higher rates and then we 

would have to adjust them when the levee got built? You gave us 

the provision that if we know it is being built within a certain time 

frame, that we do not have to raise the rates, knowing that the 

funding is obligated and there would not be new construction. 

So, yes, we worked those in and built those in the maps, and we 

also factor in if it is under construction or will be under construction with funding, we can actually use that to do the map. 

Senator LANDRIEU. OK. Mr. Chairman, beg me—just for 45 more 

seconds for two points. 

One, if Biggert-Waters and the bill was prospective, I think the 

country could deal with this in a better way. The fact that it is so 

retrospective and catching people that have been in their homes for 

decades on slabs in places like Louisiana, we live below sea level, 

but we have been living below sea level for 300 years. We did not 

move there yesterday. And may I say just for the big picture of it, 

half the population of the Netherlands, which is 16 million people—I have been there five times. I think Mr. Fugate has been 

there—live below sea level. But, you know, they do not flood. They 

do not price their people out of the market. 

You can live safely below sea level. People have been doing it for 

hundreds of years. But we have to have a policy that acknowledges 

that, supports that, not subsidizes at the great generosity of taxpayers, but is smart to recognize these economic coastal communities, like New York, New Jersey. People are not sunbathing 

there. We are operating the biggest port systems in the country. 

So thank you, Mr. Chairman. 

Chairman MERKLEY. Thank you very much, Senator. 

Senator Schumer. 

Senator SCHUMER. Thank you, Mr. Chairman. Thank you for 

holding this hearing. I thank Administrator Fugate. 

Unfortunately, we have been dealing a lot with each other in the 

last few years. I say ‘‘unfortunately’’ not because I do not like dealing with you—you are an outstanding administrator, you are very 

24 

responsive; I think the world of the job you are doing—but because 

we have had so many natural disasters in the New York area over 

the last few years. Between Irene and Lee and Sandy, just about 

every part of my State has been hit in addition to other issues. 

So, first, I just want to add my voice. People have made the point 

well that we do not have an affordability study, and yet we are 

making people pay unaffordable rates, and they are just 

unaffordable. As Mary said, as Senator Landrieu said, this is not 

for rich people. We have got lots of middle-class and even poorer 

people living on the shore in Staten Island, in Brooklyn, in Queens, 

and Long Island. They cannot afford $9,000. And they are going to 

have to either leave their homes—and this is many people who 

were ravaged by Sandy. They are just beginning to rebuild their 

homes, and then they get their flood insurance go way up. And 

they do not have any money. 

So I would ask you this: You say the law DOES NOT allow you 

to change it. What if all these people just drop out of the program? 

Which they will and make the program much less viable. Doesn’t 

that give you the ability to delay things? You have delayed the affordability study. Why shouldn’t you be delaying imposing these 

huge, huge fees on people? That is question one. I am going to ask 

my question seriatim. 

Second, we are building—— 

Senator MENENDEZ. Does that mean in a row? 

Senator SCHUMER. And that means in a row. 

Mr. FUGATE. Yes, sir. 

[Laughter.] 

Senator SCHUMER. Thank you, Bob. In Hudson County, they 

have never heard the word ‘‘seriatim,’’ but in Brooklyn we have. 

Anyway, Brooklyn and Hudson County, we can say that our kindred spirits in many ways. 

Senator MENENDEZ. Does it mean something different in Hudson 

County? 

Senator SCHUMER. It means something different in Hudson 

County. 

[Laughter.] 

Senator SCHUMER. I will not try to figure out what that is. 

Second, in New York, we are building all kinds of dunes to protect our coastal areas, heavily populated, like never before, 12-foot 

dunes in the Rockaways and in Long Beach, maybe higher in parts 

of Suffolk County. But these people have just gotten their flood insurance rates, and they are based not on building a dune. So Mary 

asked, Senator Landrieu asked about what if they are building 

something—what if they are in the process of building with the levees? But what about us? We have already labeled—you have raised 

the rates, and now in 2 years it will be much more protected. I 

know how it is to get FEMA to redo a map because an area of half 

a million people has very strong, good protective dunes. We will 

never get you to do it. I hope we can look at that as well, because 

even on an actuarial basis, once these dunes are built, the likelihood of flooded is less. 

So if you could answer both those questions seriatim, I would appreciate it. 

25 

Mr. FUGATE. I will start, first go backwards. Doing the dunes, it 

does offer significant protection against storm surge, and I would 

have to look at the data, but I also know that the back bay flooding 

the dunes do not address. So, again, looking at the protection and 

building that into the map updates we will continue to work on. 

And maps are not as final—I know this is—and I have been there 

a lot. When we publish maps and they get adopted, that is not the 

end of it. We always have the opportunity to come back and put 

new data in there, and since those maps, as you know, Senator, 

were already pretty well through the system before Sandy hit, we 

can still build in the improvements and run—— 

Senator SCHUMER. But, sir, in reality, I have tried to get—they 

used the wrong map for Nassau County, an egregious mistake. 

They used Suffolk County’s map for Nassau County. Do you know 

how much effort and years it took to get a change? So to say you 

will redo it does not give us much comfort, because any of us who 

have dealt with FEMA, it is like pushing a big boulder uphill to 

get them to redo a map. We need some kind of ruling prospectively 

that when new—and, by the way, for the back bay areas, we are 

doing things for mitigation there, too. It may not be a dune, but 

we are doing other things there in terms of sewage systems, in 

terms of barriers, in terms of jetties, things like that. And is there 

any way to implement a system when that—they have to come out 

with a new assessment 6 months after something is built? We need 

something that you cannot just say, well, call your Senator, call 

your Congressman. Boy, oh, boy, that is frustrating for them and 

frustrating for us dealing with FEMA to change the maps. And 

then everyone’s view is FEMA is doing this because they are in 

deep trouble and they want to collect as much money, correctly or 

incorrectly, as possible. 

Mr. FUGATE. Well, Senator, the answer to that one is—and I am 

honest about this, and I realize there are always doubts. No, sir. 

But what I also believe is we should give people the best possible 

data. Much of the data for the areas impacted is what was called 

pre-FIRM. It was in the process of going through the adoption process. But we knew a lot of people had to make decisions about how 

they were going to rebuild, and they did not want them building 

back the way they were if you knew that if they built higher and 

elevated, they would get a preferred rate. 

So there is the challenge of Sandy hit with the data we had trying to start that process, and we made decisions, working with 

State and local officials, to use that data to plan the future. But 

those maps are still going through the adoption process. 

Senator SCHUMER. OK. Well, I wish you would consider some 

kind of—because we are going to be building our shoreline—I am 

sure Bob is in New Jersey—for a long time. And you did not answer—my time has run out, but you did not answer my first question. If you can delay the affordability study, why can’t you delay— 

because on the basis that so many people are going to quit if you 

keep this in place, that it will affect the viability of the program? 

Mr. FUGATE. The answer is, Senator, if there was those tools 

there, we would be looking at it. Staff has advised me, attorneys 

have advised me internally at FEMA that I do not have that authority. And it is not as easy to drop out as that, Senator. You have 

26 

to maintain that as part of your mortgage if you have a federally 

backed mortgage. And if you were to voluntarily drop it, your mortgage company would purchase it and bill you for it anyway. So it 

does—— 

Senator SCHUMER. Well, that is of great consolation. Thanks for 

that. 

Mr. FUGATE. I am just trying to be factual, Senator, that—— 

Senator SCHUMER. I know you are. 

Mr. FUGATE. ——in a special flood risk area, it is tied—the requirement to have it—there is no requirement to buy flood insurance out of the special risk area. There is no requirement to buy 

flood insurance if you are in a special risk area unless you have 

a federally insured or backed mortgage, and then that is the requirement to purchase. So that is one of the ties that has been 

pointed out, looking at affordability, many of these people in the 

middle class have mortgages. They are also required to have the 

flood insurance to cover the exposure. 

Senator SCHUMER. But they cannot afford it. They do not have $9,000, when they were paying $1,000 before. And you can say 

what you want—excuse me. You can say what you want, that, oh, 

they have to, because everyone has a federally insured mortgage in 

middle-class areas, so it is not saying, oh, all the people who do not 

have federally insured mortgages are not covered by this. But you 

are not giving them—it is not a satisfying answer to you or to us. 

We need a better one. 

Mr. FUGATE. Absolutely, Senator. 

Chairman MERKLEY. With that, we are going to have to continue, 

because we do have a second panel. Senator Menendez. 

Senator MENENDEZ. Thank you, Mr. Chairman, and to the Ranking Member, for holding this hearing. And while I am not a Member of the Subcommittee, I appreciate the opportunity to be here 

as a member of the full Committee. 

Administrator, first of all, I want to say that I think the incredible challenges that we have had in the region—Irene, Sandy—your 

overall responses and those of your agency have been extraordinary. And let me preface my remarks by saying that. I do not 

think that in the midst of this hearing we should lose sight about, 

from my perspective at least from the region, the tremendous work 

that you have done. 

But this particular issue falls also in your bailiwick, and I have 

to be honest with you. Part of it is that telling my colleagues, some 

of my colleagues here, that you reap what you sow, I was very 

much one of those voices who said we should have some degree of 

subsidies. And I had an amendment to try to pursue that in the 

Committee. When it became clear that that was going to be a nonstarter because some of our colleagues on the Committee would not 

hear of it and would not move forward, then it was I who was pursuing the affordability study that ultimately got included in the 

legislation, which was supposed to be achieved 270 days after the 

enactment. 

Now, I have read your testimony, and while I was not here physically, I have heard the answers. And I have a problem that we do 

not have the income levels, we do not know what the rates are. I 

do not know what you need to get the study done, but, you know, 

27 

I would like to have the specifics of what you need to get the study 

done, number one. 

Having said that, while we work to get the study done, I do not 

believe that FEMA should be allowed to phase out subsidies or end 

grandfathering until it presents a plan to make flood insurance 

more affordable. 

Now, I hear that you say you do not have the wherewithal legislatively to do that, and I would invite you to submit to my office 

what is the language that you need, because I would like to put 

my colleagues to the test. Everybody who is complaining about 

flood insurance and the consequences to middle-class families, let 

us see if you are willing to put your vote to the opportunity to 

amend through some vehicle that I am sure will move to the floor 

the opportunity to create the affordability mechanism, or at least 

to delay while we determine what is the consequences, because 

these consequences are for real people. It is not just about property. It is not the property I am worried about. It is the people, the 

families, the people who call this their home, the people who are 

not going to be able to afford it as a result of this, the people who 

have put a lifetime of work and sacrifice to own the single piece 

of property that is their single economic asset that they have overwhelmingly for most American families. We are going to take that 

rug out right from underneath them. This is the triple whammy. 

You have the storm that came in and destroyed people’s lives. 

Then you had the flood maps and, you know, with all due respect, 

some of those flood maps in our New Jersey experience from where 

we went from to where we were, thank God that we had a push 

on the refinement of them because 80-percent reductions in V 

zones that would have dramatically—even beyond what we are 

talking about, would have made it impossible for people to afford 

flood insurance. So we will have to look at that process in the future. 

And then, any, now a human-made disaster, which is the consequences of the insurance premiums that are unaffordable for 

families to keep. 

And then, in addition the consequences to families, look at what 

is going to happen to this economy. The ripple effect of real estate 

that you cannot sell because the premium is unaffordable, that no 

one is going to buy because the premium is unaffordable, the consequences of falling ratables—and as a former mayor, I know the 

consequences of the challenges of falling ratables—and instead of 

getting behind this final nascent growth for the housing market, 

we are going to really pull the rug right out from underneath it, 

and that is going to have effects upon our economy as a whole, not 

just those people who find themselves in flood zones. 

So I would like to get language from you to deal with the specificity that you think you need, and I expect the Department to give 

us that so that we know, and I am going to find a way to challenge 

my colleagues. I know Senator Landrieu had an amendment, which 

I supported, on the floor. Unfortunately, it was held up by one of 

our colleagues, would not let us even have a vote on it. I want to 

see who is really willing to help these property owners. 

Finally, there are two other issues that I think are incredibly 

challenging. I mentioned the flood maps, and I do not think we 

28 

should put out information when it ends up with 80-percent inaccuracy. I know there was the drive to get information and prepare 

people, but 6 months of preparation in which you are trying to 

think about what is the cost is enormous. 

The last thing I would like to ask you—this is seriatim—how 

many claims for foundation repair have been denied due to earth 

movement? I have heard from a ton of constituents who had their 

flood insurance claim denied or reduced because the damage to 

their foundation was caused by earth movement, and the only reason the earth moved was because of the flooding. And most homeowners had no idea their policy did not protect them from this type 

of damage and are understandably—they have said they are being 

denied after responsibly paying flood insurance for years and years 

and years. 

So how many claims for foundation repair have been denied due 

to earth movement? And what outreach is done when terms are 

changed, not the fine line, you know, that most people never read, 

but when terms are changed and certain types of damage are excluded from coverage, how do they know? 

Thank you, Mr. Chairman. Can I get those answers before moving to the next—— 

Chairman MERKLEY. Yes. 

Mr. FUGATE. First one, yes, we will work with your office on technical directing assistance, and we will continue to work with all 

members on that. 

On the foundations, I will get those numbers to you, Senator. 

One thing, again, as Senator Landrieu points out, in BiggertWaters one of the things they did do, which I think is helpful in 

the Write-Your-Own policies, it requires in big bold print what your 

policies cover and do not cover. I think that was to address the concerns when this comes up. But we will also get back to your office, 

Senator, those things we are doing about earth movement and how 

that appeal process works and the information on that. 

Senator MENENDEZ. Thank you. 

Chairman MERKLEY. Thank you very much. 

Senator VITTER. May I have 10 seconds? 

Chairman MERKLEY. Yes, 10 seconds. 

Senator VITTER. Just as a brief follow-up to the first question, I 

do not think Senator Menendez was asking for technical drafting 

assistance. I think he was asking for the same thing I was asking 

for, which is leadership. And we would really like that as partners 

in fixing this issue. 

Chairman MERKLEY. Senator Heller, did you want to jump in for 

a second? 

Senator HELLER. Because of time restraints, I will submit additional questions. I have some mapping questions that I would certainly like you to address, and I will leave them with the Chair 

here and hear back from you, if that is OK. 

Chairman MERKLEY. Thank you very much. 

Administrator Fugate, I know given the number of emergencies 

around the country, we really appreciate you showing up to address this. I think it is very clear from this set of questions that 

there is a lot of concern about fundamental issues of fairness, families who have never needed flood insurance are suddenly being told 

29 

they need it, but for every $1,000 they pay in flood insurance, the 

value of their house goes down by $20,000. And all sorts of challenges result if new buyers have to get flood insurance at a rate 

that essentially means that the house is now worthless. 

And so we have conflicting issues that we are trying to get our 

hands around. I really will follow up and ask for aggressive help 

in translating all the stories you are hearing from around the country into a clear set of affordability challenges, and if there are other 

ways we can accelerate the affordability study as required, perhaps 

the goal is too expansive that you have set for yourself, and maybe 

there is information that would be very helpful. But I think you are 

going to see a lot of continued conversation from all of us because 

there are issues here that just demand our attention and our action. 

Thank you again for appearing today, and we will be getting 

questions to you that are submitted. We will hold the record open 

for 7 days for any additional questions, and if you and your team 

could be responsive to those, we will then make sure they are circulated thoroughly. Thank you. 

Mr. FUGATE. Thank you, Mr. Chairman. Thank you, Senators. 

Chairman MERKLEY. We will now have our third panel come forward, please. 

[Pause.] 

Chairman MERKLEY. We are deeply appreciative that the four of 

you have come to testify, and indeed we are fortunate to be joined 

by top-notch experts. I would like to especially thank Christine 

Shirley, who has come from my home State of Oregon, and we look 

forward to hearing all of your testimony. 

I am going to give an introduction for each and every one of you 

now, and so we can just proceed from one testimony to the next. 

Alicia Cackley is Director in the Financial Markets and Community Investment Team at the U.S. Government Accountability Office. She oversees policy research and program evaluation on a 

broad range of insurance, consumer protection, housing, and finance issues, including the National Flood Insurance Program, consumer product safety and consumer financial protection, bankruptcy, financial literacy, and homelessness. Ms. Cackley received 

her Ph.D. in economics from the University of Michigan and has 

been with the Government Accountability Office since 1990. 

Christine Shirley is the NFIP coordinator and natural hazards 

program planner for the State of Oregon, a position she has held 

since 2007. Ms. Shirley offers technical assistance to Oregon’s 260 

communities that participate in NFIP. She interacts daily, in addition, with State agencies, surveyors, building officials, real estate 

agents, building owners, and others who have questions or concerns about implementation of the act. Ms. Shirley studied at the 

energy and resources group at UC–Berkeley prior to earning a 

master of science degree in geographic information science from 

Birkbeck College, University of London, in 2004. She became a certified floodplain manager in 2005. 

Steve Ellis joined Taxpayers for Common Sense in 1999 and 

serves as vice president, overseeing programs and serving as a 

leading media and legislative spokesperson. His expertise ranged 

from earmarks to flood insurance and a lot of spending issues in 

30 

between. Mr. Ellis received his B.S. in Government from the U.S. 

Coast Guard Academy. He has earned both the Coast Guard Commendation Medal and the Coast Guard Achievement Medal. 

Mr. Birny Birnbaum is a consulting economist and former insurance regulator whose work focuses on insurance regulatory issues. 

He serves as an economic adviser to and executive director for the 

Center for Economic Justice, a Texas nonprofit organization whose 

mission is to advocate on behalf of low-income consumers on issues 

of availability, affordability, accessibility of basic goods and services, such as utilities, credit, and insurance. He holds two master 

degrees from MIT in management and in urban planning, with concentrations in finance and applied economics. 

Thank you all four for coming and bringing your expertise and 

frontline experience from across the Nation. Ms. Cackley. 

STATEMENT OF ALICIA P. CACKLEY, DIRECTOR, FINANCIAL 

MARKETS AND COMMUNITY INVESTMENT, GOVERNMENT 

ACCOUNTABILITY OFFICE 

Ms. CACKLEY. Chairman Merkley, Ranking Member Heller, I am 

pleased to be here today to testify on an NFIP, the National Flood 

Insurance Program. 

As you know, the Flood Insurance Program is a key component 

of the Federal Government’s efforts to minimize the damage and financial impact of floods. As of the end of fiscal year 2012, the program had more than 5.5 million policies with an insured value of 

about $1.3 trillion and collected about $3.5 billion in annual premiums. 

My statement today will discuss the reasons that NFIP is considered high risk, changes to subsidized policies and implications of 

potential additional program changes, and additional challenges for 

FEMA to address. The testimony is based on two reports we recently issued in July of 2013 in NFIP coverage limits and subsidized properties, as well as other prior GAO reports on various 

issues related to NFIP. 

The NFIP was added to GAO’s high-risk list in 2006 and remains 

high risk due to losses incurred from the 2005 hurricanes and subsequent losses, the financial exposure the program represents for 

the Federal Government, and ongoing management and operational 

challenges. As of July 31st of this year, the program owed approximately $24 billion to the U.S. Treasury. 

NFIP’s financial condition highlights structural weaknesses in 

how the program has been funded, primarily its rate structure. 

NFIP offers two types of flood insurance premiums to property 

owners who live in participating communities, subsidized and full 

risk. The annual amount that NFIP collects in both subsidized and 

full-risk premiums is generally not enough to cover its operating 

costs, claim payments, and principal and interest payments for the 

debt owed to Treasury, especially in years of catastrophic flooding, 

such as 2005. Thus, much of the financial risk of flooding is transferred to the Federal Government and ultimately the taxpayer. 

Furthermore, the weaknesses we identified in NFIP management 

and operations, including financial reporting progresses and internal controls, strategic and human capital planning, and oversight 

of contractors, also put the program at risk. 

31 

The Biggert-Waters Flood Insurance Reform Act of 2012 mandated that GAO conduct a number of studies related to actual and 

potential changes to NFIP, including analyses of remaining subsidies and the effect of increasing coverage limits or adding coverage options. In our study of remaining subsidies, we estimated 

that, as of enactment of the Biggert-Waters Act, approximately 

438,000 policies no longer would be eligible for subsidies, while 

subsidies on most of the approximately 715,000 remaining subsidies policies are expected to be eliminated over time as properties 

are sold or coverage lapses, as are previous exemptions from rate 

increases after flood zone revisions. 

Reducing the financial impact of remaining subsidized policies on 

NFIP generally could involve accelerating elimination of subsidies, 

targeting assistance for subsidies, expanding mitigation efforts, or 

some combination of these three. Each approach has advantages 

and disadvantages that would need to be carefully considered, and 

action would be required from both Congress and FEMA. 

Similarly, in our mandated report on raising coverage limits or 

adding optional coverage types, we found there were advantages 

and disadvantages to making more changes to the program, which 

would need to be carefully weighed. We estimated that the financial impact on the program of raising coverage limits or adding 

business interruption or additional living expenses coverage would 

depend on the adequacy of the rates charged. 

Looking forward, FEMA will require several years to fully implement the Biggert-Waters Act, and FEMA officials have acknowledged that they have challenges to resolve. These include updating 

and correcting information on whether a policy is for a primary or 

a secondary residence, determining the fair market value of insured properties, and developing a definition of ‘‘severe repetitive 

loss’’ for multifamily properties. Further, FEMA must establish 

full-risk rates that reflect flood risk for active policies that are no 

longer eligible for subsidies. However, at this point in time, it does 

not have a plan to do so. 

In conclusion, when we placed NFIP on the high-risk list in 2006, 

we noted that comprehensive reform likely would be needed to address the financial challenges facing the program. Since passage of 

the Biggert-Waters Act, FEMA has taken some important first 

steps toward implementing the reforms the act requires, but the 

extent to which the changes included in the act and FEMA’s implementation of these changes will reduce the financial exposure created by the program is not clear, and the program’s long-term financial condition is not yet assured. Getting NFIP on a sound footing, both financially and operationally, is important in achieving its 

goals, and at the same time reducing its burden on the taxpayer. 

Mr. Chairman, this concludes my prepared statement. I would be 

happy to respond to questions. 

Chairman MERKLEY. Thank you very much. We are going to hold 

questions until the end. 

Ms. Shirley. 

32 

STATEMENT OF CHRISTINE SHIRLEY, NATIONAL FLOOD INSURANCE PROGRAM COORDINATOR, PLANNING SERVICES 

DIVISION, OREGON DEPARTMENT OF LAND CONSERVATION 

AND DEVELOPMENT 

Ms. SHIRLEY. Thank you for having me. I am very grateful to be 

here, Chairman Merkley and Ranking Member Heller and the rest 

of the panel. 

For the last 5 months, I have been making the rounds to our 

local floodplain managers, surveyors, real estate agents, and so on, 

and some appraisers, to talk about the Flood Reform Act, and I can 

say there is a lot of confusion out there, and this confusion is causing a lot of fear and causing FEMA to lose some credibility out 

there in the community. And the real estate market is responding, 

as we heard earlier. Darby from the State of Florida actually contacted me yesterday and summed up the situation there as saying, 

‘‘The reality of the situation is that this crisis has immediately 

stopped all real estate sales in my area. Overnight, once word got 

out, no homes in any flood areas are selling.’’ 

Appraisers who were crazy busy before the market was booming 

are now going 3 or 4 days without seeing an appraisal, and banks 

are refusing refinancing because they cannot determine fair market 

values. I am seeing exactly the same thing, especially on the coast 

areas of Oregon, but also in other flood-prone areas in Oregon. 

The main thing is it is very important to note that markets do 

not like uncertainty, and the uncertainties caused by this rollout 

of the program are having an effect. 

I want to stress that Oregon supports the intent of the NFIP, 

and the NFIP is woven into our statewide land use plan, and we 

really are trying hard to make Oregon a flood-resilient State. In 

order to do that, we need an NFIP that is based on accurate flood 

maps, that is understandable, and that goes beyond insurance and 

encourages mitigation. The reform act, as we see it, focuses too 

heavily on insurance and not enough on mitigation. 

As you know, the flood maps provide the basis for cities and 

counties to identify and manage their floodplains, and we have generally found the FIRMs to be accurate, in some areas better than 

others, but they do help us manage our floodplain. 

And I want to also point out that there is a difference between 

having an accurate flood map and being able to read the flood 

maps, and most of the problems that we see are a result of flood 

zone determination companies and lenders not reading the maps 

accurately and determining whether a building is in or out of the 

flood zone. 

Map improvements can be made, and those require funding. We 

are very happy that the reform act authorized $400 million a year 

for mapping, but we need that to be translated into appropriations. 

In 2010, $220 million was appropriated for flood mapping. Now we 

are down to $95 million, and we really need to get those numbers 

up to the previous—even the $400 million would be great. 

So as I said, our problem is not so much with the quality of 

FIRMs. Our real problem is with risk communication, and this has 

increased with the reform act. It has always been a challenge. 

The reform act implementation has been very poor in terms of 

communicating what is happening out there to the professionals 

33 

and the public that need to hear about it. First of all, the training 

for the Write-Your-Own agents is terrible. There is not enough of 

it. It is too short. And many of the agents that I have talked to do 

not have sufficient information to translate to their customers what 

the reform act means. 

Also, there is a large population of buildings in the Special Flood 

Hazard Areas that do not have flood insurance, and they have not 

for a long time. They do not have an agent that they can talk to. 

So reliance on flood insurance agents is not a good way to get the 

word out. 

Also, important professional groups like surveyors and real estate agents have not been informed properly, and those should be 

our partners. We need to talk to them, NFIP needs to talk to them, 

and likewise local government officials. 

And, finally, NFIP has not provided sufficient information to the 

public in a form that they can understand and digest. It has too 

much jargon. It assumes too much knowledge about the flood program. So in response, we need NFIP to do a much better job communicating with these groups of people that I just pointed out. 

I want to say that I applaud NFIP’s recent release of the specific 

rating guidelines. Those were formerly in a black box, a secret document that talked about how FEMA rated below base flood elevation policies. That is public now. It will help me a great deal in 

communicating risk to my public. 

But the reform act problems go well beyond those associated with 

education and outreach. We have talked about affordability. I am 

very concerned that the unaffordability of flood insurance will 

cause people to drop their flood insurance, and they drop it by paying all cash. And what is happening in Oregon is that all-cash buyers are buying buildings at fire-sale reduced prices, and they are 

not insuring those buildings, which does not make Oregon resilient 

against flood. 

I am going to skip some things here, but I do want to point out 

that mitigation is extremely important, and I think we need to 

think creatively about it. We need to encourage partial mitigation, 

which involves installing flood vents, perhaps filling in below-grade 

crawl spaces, and removing mechanicals from basements to help 

reduce costs, even if those actions do not result in a lowest floor 

that is above the base flood elevation. 

And then I want to talk briefly about those people who bought 

policies after July 6th and before October 1, 2013—July 6, 2012, 

and October 1st. They are seeing renewals at full-risk rates. They 

need to get an elevation certificate, and they cannot afford it, and 

I have already received many tearful phone calls. And if there is 

anything I want to get out of this hearing, it is that policy has to 

be reversed. Those people need to be extended—have the subsidized rates extended to them for a longer period of time. 

And then my last point is I would like to see NFIP institute an 

ombudsman program so that policyholders can have a venue to go 

to when they have rating issues. And because the insurance agents 

are not well informed, they cannot get through to their underwriters, they cannot get through to the FEMA insurance specialists, they do not know they exist, I get the phone calls, and I really 

think that FEMA needs to have an ombudsman function. 

34 

Thank you. 

Chairman MERKLEY. Thank you very much. 

Mr. Ellis. 

STATEMENT OF STEVE ELLIS, VICE PRESIDENT, TAXPAYERS 

FOR COMMON SENSE 

Mr. ELLIS. Thank you. Good afternoon, Chairman Merkley, 

Ranking Member Heller. I am Steve Ellis, vice president of Taxpayers for Common Sense, a national nonpartisan budget watchdog. Thank you for inviting me here today to testify on the National Flood Insurance Program, something I have worked on pretty much my whole professional career. 

TCS works on this issue with SmarterSafer.org, a broad coalition 

of taxpayer, environmental, and insurance interests, in favor of 

promoting public safety through fiscally sound, environmentally responsible approaches to natural catastrophe policy. We applaud the 

work this Committee did last Congress to address the long-term 

sustainability of the NFIP by enacting the Biggert-Waters Flood 

Insurance Reform Act. Even with flaws, this legislation eliminates 

wasteful subsidies and moves flood insurance premiums to more 

closely match rates that are charged in the private market. It is 

critical that these reforms proceed without delay. 

When the NFIP was established in 1968, Congress was warned 

by the task force reviewing the issue that subsidies could ‘‘invite 

economic waste of great magnitude.’’ Well, $25 billion later, we 

know how that story unfolded. Although the subsidies were largely 

envisioned to be limited and short term, they were not. As of July 

2013, out of 5.5 million policies, an estimated 1.15 million subsidized policies remain. And even after the reforms of BiggertWaters, 62 percent of the subsidized policies will remain until rate 

maps are updated. 

The availability of taxpayer-subsidized Federal flood insurance 

over the last several decades made it financially attractive to develop in high-risk areas and helped fuel the coastal development 

boom that increased the program’s risk exposure and losses. Even 

worse, the program’s benefits have flowed disproportionately toward repeatedly devastated properties and to the wealthy. Repetitive loss properties represent only 1 percent of all policies, yet 

have accounted for 25 to 30 percent of the cost of claims. And the 

Government Accountability Office study has found that, even after 

reform, subsidized NFIP policies are skewed toward counties in the 

top deciles of median home value and income. 

As a consequence of the Biggert-Waters reforms, several types of 

properties that had previously received subsidies would gradually— 

25 percent a year—have their rates increased until they meet full 

risk-based rate, most notably second homes, businesses, and severe 

repetitive loss properties. In addition, properties in newly mapped 

or remapped areas would not have a subsidized grandfathered rate. 

Instead, the new rate would also be gradually implemented 20 percent per year. 

While this may be financially painful in some cases, the new 

rates incentivize practices that reduce risk and in the long run will 

be good for the individual and for taxpayers. Not surprisingly, this 

effort has been met with some backlash, a lot of which we saw 

35 

here. In some cases, homeowners are facing steep increases in premiums after years, even decades, of paying the same subsidies 

rates. As a result, there has been a series of efforts in Congress to 

delay flood map modernization or delay rate increases. 

There have been charges of exorbitant rate increases to as much as $30,000 a year. It is worse, considering the underlying data that 

would lead to such a rate. Considering the maximum amount of 

flood insurance a homeowner can obtain under NFIP is $250,000 

and an additional $100,000 for contents, that would basically mean 

that FEMA expects this property to be a total loss every decade. 

Either this individual and their property are at incredible risk, in 

which case delaying the rate increase sends absolutely the wrong 

signal; or the possible rate increase is overstated, as seems to have 

been the case when more recent information came to light, knocking the price down by half as much or more in some cases. Also, 

it appears it is a relatively small number of total properties involves. If there is a mapping error, Biggert-Waters set up a process 

to deal with it. Communities have to accept the map. Congress 

should develop solutions to help deal with affordability, not try to 

delay reality. 

It may be politically expedient or popular locally to delay reforms, but what may make good local politics generally makes bad 

insurance and public policy. People deserve to know the costs and 

risks of where they live, and taxpayers deserve to have those who 

choose to live in harm’s way pick up their share of the tab. Furthermore, delaying map implementation reduces rates for some, 

but policy owners remapped with reduced flood risk will keep higher premiums. 

Delay also does not change the total amount of premium revenue 

the program must generate as a whole, meaning everyone will have 

to pay more. If Congress wants to deal with the issue of affordability, there are responsible ways to accomplish this goal. Any responsible approach to affordability should be temporary, targeted 

to those who need it, account for existing protection of homes, and 

independent of the NFIP rate structure. 

FEMA’s updated flood maps, which are crucial to the program’s 

success or failure, must be up to date, accurate, and based on the 

best available science to be effective. 

There is an increasing fatigue around the country with the cost 

of the NFIP program among taxpayers. To delay or derail the reforms enacted a year ago would put this program on perilous footing, fiscally, politically, and existentially. The reforms must be enacted as planned. Affordability should be addressed. 

Thank you very much for the opportunity to testify, and I look 

forward to answering any questions you might have. 

Chairman MERKLEY. Mr. Birnbaum. 

STATEMENT OF BIRNY BIRNBAUM, EXECUTIVE DIRECTOR, 

CENTER FOR ECONOMIC JUSTICE 

Mr. BIRNBAUM. Thank you, Chairman Merkley, Ranking Member 

Heller. Thank you for the opportunity to speak about the impact 

of the Biggert-Waters Act on the availability and affordability of 

flood insurance. My name is Birny Birnbaum. I am executive director of the Center for Economic Justice. I have been asked to talk 

36 

about force-placed flood insurance, a topic on which I have worked 

for many years as an insurance regulator, a consumer advocate, 

and consulting economist. My comments today are presented on behalf of CEJ, the Consumer Federation of America, United Policyholders, the Center for Insurance Research, the National Fair 

Housing Alliance, and the National Consumer Law Center. 

So what is force-placed insurance? Well, federally regulated lending institutions may not make a loan secured by improved real estate in a Special Flood Hazard Area unless the improved property 

serving as collateral for the loan is covered by a minimum amount 

of flood insurance. If a borrower fails to maintain the required voluntary flood insurance, the mortgage servicer will force-place insurance and charge the borrower. Consequently, a borrower cannot 

simply opt out of the NFIP to escape high flood premiums. In fact, 

force-placed flood is likely to cost the borrower much more than an 

NFIP policy. 

Federal law also provides for forced placement of flood insurance 

in the event the borrower fails to maintain the required amount, 

and this law places the responsibility on the lender or servicer to 

determine if a lapse in required coverage has occurred and to notify 

the borrower of such a lapse prior to force-placing. 

So the way these force-placed policies work is a mortgage 

servicer purchases a master or group policy from an insurance company, and it provides automatic coverage for any property in the 

servicer’s portfolio if the coverage, the voluntary coverage, lapses. 

When coverage lapses and coverage is issued, force-placed coverage 

is issued, then the insurance company charges the mortgage 

servicer, who in turn charges the borrower. So this is a group policy that provides automatic coverage, and that is the key to forceplaced insurance. 

In terms of the force-placed market, data are not available for 

force-placed flood alone, but they are available for all of forceplaced insurance, including force-placed hazard, which is like fire 

insurance. 

The overall data show that force-placed insurance premiums 

quadrupled from 2004 to 2011, and during this period, loss ratios 

were very low. And by ‘‘loss ratio,’’ I am talking about the claims 

that were paid under these force-placed policies compared to the 

premiums that were collected. The loss ratios over the period were 

25 percent. That compares to over 60 percent for homeowners. 

What that means is these very low loss ratios suggest that forceplaced rates were significantly excessive. However, force-places 

rates are inflated because of reverse competition, and what that 

means is the insurance companies market to the mortgage 

servicers, not to the consumers. And by marketing to the mortgage 

servicers, they actually pay kickbacks, and they build the cost of 

those kickbacks into the force-placed insurance premiums. So what 

happens is that consumers pay inflated amounts for this forceplaced insurance. 

Investigations by the New York Department of Financial Services and Fannie Mae have shown that FPI rates are significantly 

inflated by kickbacks in the form of commissions, captive reinsurance agreements, and free or below-cost services. 

37 

So there is going to be an explosion in the amount of force-placed 

flood insurance in the coming years, for three reasons: 

First, more borrowers will now be required to purchase flood because of new flood maps. With more borrows required to purchase, 

there is going to be more force-placed flood. 

Second, the rate hikes are going to make it unaffordable for consumers who are not going to be able to purchase the NFIP, but 

they are still going to have to pay for somehow force-placed flood. 

And then, third, as lenders and servicers face greater penalties 

from Biggert-Waters for failure to ensure required flood insurance 

is placed, servicers are more likely to err on the side of too many 

force-placed placements. And, in fact, testimony in hearings before 

the New York department indicated that something on the order 

of 10 to 20 percent of force-placed insurance was wrongly placed. 

So there is little consumer protection for excessive and unreasonable force-placed rates. There are only a few States that have 

looked at this issue. New York has led the pack. But even their efforts have focused largely on hazard force-placed insurance. Other 

States have not taken any action to force cuts in these inflated 

force-placed insurance rates. Federal agencies have addressed some 

of the issue with force-placed, but nothing to address the excessive 

costs or the affordability issues. 

There is one opportunity, and that is with the Federal Housing 

Finance Authority. In March of this year, Fannie Mae was about 

to embark on a direct purchase program of force-placed insurance 

and insurance tracking, and by purchasing it directly, Fannie was 

able to use its market power to actually reduce the cost of forceplaced insurance they estimated by hundreds of millions of dollars 

a year. Just as they were about to award that and implement that 

program, their conservator, FHFA, directed them not to go ahead 

with that. Instead, FHFA kept the status quo in place of Fannie 

reimbursing mortgage servicers for the inflated premiums and has 

embarked on a program of looking at ways to stop some of the kickbacks. But to date, FHFA has not taken any action on that. 

So, consequently, FHFA is in a singular position to address problems with FPI flood by allowing Fannie and Freddie to implement 

this direct purchase program and also to stop some of the other 

abuses that are going on. 

Thank you. 

Chairman MERKLEY. I thank all of you for your testimony, and 

we will go 5 minutes and go back and forth as long as everyone 

would like to continue. 

Senator HELLER. Sure. 

Chairman MERKLEY. I want to start with the last testimony on 

force-placed insurance. Was there any indication by the Director of 

FHFA as to why he was blocking Fannie from providing this much 

more economical solution to homeowners? 

Mr. BIRNBAUM. Well, the public information about why FHFA 

did not want Fannie to go ahead with that was that they said that 

Fannie did not have enough data. Basically the reasons were, in 

the view of the consumer groups, fairly weak. We thought that 

Fannie had studied the issue for over a year. They had gone 

through a request for proposal process. They had provided a very 

detailed set of requirements that clearly indicated they understood 

38 

what was going on. So we and other consumer groups were dismayed when FHFA pulled the plug on that. 

Chairman MERKLEY. And is there anything at all in BiggertWaters that would provide authority to fend off this sort of predatory forced-placement insurance? 

Mr. BIRNBAUM. There is one provision that will come into effect 

in mid-2014. In its mortgage servicing rules, at the beginning of 

this year, the Consumer Financial Protection agency basically 

made a requirement for mortgage servicers to pay the premium on 

voluntary insurance to keep that insurance in place if the borrower 

had an escrow account and if the payment of the premium would 

keep the policy in place. In other words, if the policy was canceled 

for some other reason other than nonpayment of premium, the rule 

would not apply. So keep the policy, voluntary policy, in place if it 

is a loan with an escrow account. 

Biggert-Waters requires that all loans that have flood insurance 

have an escrow account for flood. So when you combine those two, 

the requirement in Biggert-Waters and the rule under the Consumer Financial Protection agency, it will ensure that voluntary 

NFIP policies remain in place. However, that does nothing to address the affordability issues of the NFIP, and it also does not address excessive retroactive billing. It is a small step, but it is not 

addressing what the concerns of this Committee are. 

Chairman MERKLEY. Absolutely. I really appreciate your testimony on that topic when you talked about the 25-percent loss ratio. 

I just want to be absolutely clear what we are talking about is that 

for every $4 in premiums you bring in, you are paying out $1 in 

damages, and that is a pretty extraordinary situation. 

Mr. BIRNBAUM. Yes. And just to be clear, that is for all forceplaced insurance, so that would include force-placed flood and 

force-placed hazard. But, yes, there is no question that force-placed 

insurance, because of the noncompetitive market and the kickbacks 

to mortgage servicers, the prices have been highly inflated. 

Chairman MERKLEY. Thank you very much, and I wanted to ask 

you one question that is related to your expertise, and that is the 

discussion that many of us have had up here about the affordability study that was required under the law to be done within 

270 days. Is there any real reason that FEMA could not have completed that in 270 days? 

Mr. BIRNBAUM. Well, I have done a number of insurance availability and affordability studies. I was chief economist at the Texas 

Department of Insurance. Before that I was chief economist at a 

Texas agency dedicated to representing consumers on insurance 

issues. So I have done many studies on insurance availability and 

affordability. And when I heard that FEMA needed to do such a 

study, I outlined what was needed for that, and it did not approach 

3 years and $750,000. 

There are data that are available today from the NFIP, from 

lender-placed insurers, from voluntary insurers, from the Census 

Bureau, that you could do an order-of-magnitude analysis of availability and affordability of flood insurance. So I think that can be 

done in a far shorter time frame. 

Chairman MERKLEY. Thank you very much. 

39 

Senator HELLER. Mr. Chairman, thank you, and I want to thank 

the panelists for taking time today to be with us. I really do appreciate your testimony, what you have to say, and all those that have 

sat through the last couple of hours and listened to some of these 

comments and questions that we have raised. 

Mr. Ellis, I have a couple of questions for you, if you do not mind, 

having specifically to do with private flood insurance. Obviously, 

we want to make sure that everybody has proper and affordability 

flood insurance, but the concern is obviously the viability and the 

fiscal solvency of NFIP. What is the viability today of private flood 

insurance? 

Mr. ELLIS. There is some private flood insurance available. A lot 

of it is supplemental since it only—under NFIP you can only insure 

$250,000 for your property, so somebody who has more valuable 

property can get the supplemental onto that. 

There is also some private insurers—there are certain parts of 

the country that are not eligible for flood insurance—the coastal 

barriers that are designated that way since 1982—and so they are 

serviced as well by a private market. I mean, it is more expensive 

than what you can get through NFIP, which is why generally it has 

not really developed. But one of the things—there are other countries that actually—many other countries that actually insure privately that do not have a national or a Government program. And 

so part of our hope would be that eventually when we move toward 

more actuarial rates that we will actually develop a real insurance 

system. We are not in 1968 anymore. We can actually map and 

price risk much more effectively than we could before, and so these 

are actually underwriteable events that in the 1960s we just did 

not have the modeling and the technology. 

Senator HELLER. Ms. Landrieu brought up the Netherlands; half 

the population lives below sea level. Do they have a national flood 

insurance program or is it mostly done through private entities? 

Mr. ELLIS. I would have to get back to you on that for the record, 

but I often hear about the Netherlands in the whole context of 

flood protection, and I would say that the ocean presents an existential threat to the existence of the Netherlands. And so they devote a significant amount of GDP to maintaining their flood protection structures. 

And the other thing I would point out is that under the Flood 

Insurance Program—and I do not necessarily agree with this, but 

this is the rule—if you have 100-year protection, if you have protection from the 1-percent event, you do not have to buy it. So, I 

mean, really in a lot of places where—so in the case of the Netherlands, there probably are parts where under our rules they would 

not even have to buy flood insurance because they have that adequate—or that level of protection that we have deemed to be adequate. 

Senator HELLER. Let me change for a little bit over here to some 

means testing. What are your thoughts on means testing the NFIP 

policies? 

Mr. ELLIS. I think that is going to be one of the ways to go forward on affordability, and the fact is that, you know, you have millionaire homeowners that would be—that under the approaches 

that legislators have put forward about delaying the maps or delayVerDate Nov 24 2008 12:32 Oct 17, 2014 Jkt 046629 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\09-18 ZPM DISTILLER\USE THIS HEARING\91813PM.TXT JASON
40 

ing the rate increases, it kind of repeats the same problem that we 

had initially in the Flood Insurance Program in that everybody 

gets subsidized whether they really need the subsidies or they do 

not. And so any issue dealing with affordability we really believe— 

one is people should still know their real rates; we should not do 

it within the rate structure. It should be money that comes in on 

the side of that. 

Two is that it should be done potentially through a surcharge on 

everybody’s flood insurance policy so that we keep it within the 

program, we are not burdening the taxpayer anymore. 

And it needs to be means-tested so that we are really only helping those that need the help and not a lot of these second-home 

owners that have been getting these subsidies for decades. 

Senator HELLER. Thank you. 

Chairman MERKLEY. Thank you. I want to turn first, Ms. Shirley, to a note that you put in your testimony about those folks who 

are buying homes between July 2012 and October 2013, and they 

are getting a subsidized rate. I understand upon renewal—and I 

want you to clarify this. Is it upon a 1-year renewal, they get a 1- 

year policy, then upon renewal of that policy, their rates will go to 

the unsubsidized? 

Ms. SHIRLEY. Yes, as soon as—the first renewal after October 1st 

they will lose their subsidy and go to an unsubsidized rate. So 

some of those folks that bought very early may get one more year 

out of it, but most people who purchased after September would 

renew at full-risk rates after 1 year. 

Chairman MERKLEY. After 1 year. 

Ms. SHIRLEY. Right. 

Chairman MERKLEY. And so when folks bought homes with this 

subsidized flood insurance, was there kind of a big red page in the 

closing package that says when you renew in a year, your—and, by 

the way, if you can give us a few examples of what kind of rate 

increases we are talking about, I think I have heard tenfold, and 

I do not know if that is legitimate or not. But, anyway, a big red 

warning that says, hey, your $500-a-year flood insurance will go to 

$5,000 and so forth? Is there a warning system? And what kind of 

rate increases are we talking about? 

Ms. SHIRLEY. There was absolutely no way that a buyer could 

have known that those rates would increase until March 29, 2013, 

when FEMA announced how they were going to implement the program. So between July 2012 and March 2013, nobody knew that 

this was going to happen. After March 29th, I suppose you could 

make the argument that you should have known, but most people 

did not because there was no outreach. 

Chairman MERKLEY. So basically a 9-month period, no way of 

knowing, and then an additional 7-month period, virtually no notification about these rules. So there was no big red sheet in the closing package saying this is going to happen. 

Ms. SHIRLEY. Correct. 

Chairman MERKLEY. So are you basically saying we are going to 

have perhaps hundreds of thousands of new homeowners who are 

going to have deep shock when they receive a notice saying that 

their insurance is going to go up? And if we talk about a family 

41 

that has a $250,000 house in a 100-year flood zone, what type of 

increase are we talking about? 

Ms. SHIRLEY. Well, it depends on the nature of the house. You 

need an elevation certificate to ascertain that. But it could easily 

be three times and could be as much as 10 times more expensive. 

And in the coastal zones, it could exceed that. 

Chairman MERKLEY. So it is not unreasonable to say a house could go from $500 to $2,500 or $500 to $5,000? 

Ms. SHIRLEY. That is correct. Not unreasonable. 

Chairman MERKLEY. Am I correct in believing that if a family has to pay $1,000 more a year in flood insurance, one of the costs, 

if you will, that is essentially equivalent to dropping the value of 

the home $20,000 since $1,000 at 5 percent pays for a $20,000 

mortgage? 

Ms. SHIRLEY. I do not know the exact ratio, but I can tell you 

that homes are not selling in some particularly flood-prone areas. 

The market is frozen, partly because of uncertainty and partly because of affordability. 

Chairman MERKLEY. Now, I think you spoke to basically all-cash 

buyers coming in to basically take advantage of the fact that the 

seller has suddenly lost the value in their home because the new 

buyer has to buy this really expensive policy. 

Ms. SHIRLEY. Correct. 

Chairman MERKLEY. And so we are creating something where 

homeowners who have built up equity over their lifetimes, maybe 

they have owned the home 30 years, are seeing that equity devastated and essentially given away to the advantage of those who 

are well off enough to pay full cash for the house. 

Ms. SHIRLEY. That is right. And those well-off buyers do not buy 

flood insurance, making us more vulnerable and less resilient as a 

State. 

Chairman MERKLEY. Which brings me to a different question, 

but I am going to come back to it. 

Senator HELLER. Let me, Ms. Shirley, continue with you on disputes. Based on your testimony that you gave earlier, you mentioned that NFIP policyholders with rating issues have limited access to the dispute resolution process? 

Ms. SHIRLEY. Correct. 

Senator HELLER. You also mentioned that these FEMA regional 

offices do have insurance specialists that are on staff, but at times 

are not easily accessible. Can you expand on that? And what do 

you mean by that? Are they not returning phone calls, emails? 

What is the concern that you have there? And is it a publicity 

issue? I mean, do they not publicize to citizens how they can get 

access? 

Ms. SHIRLEY. OK. So the general way that FEMA wants homeowners to dispute their policy is to go through the insurance writers who go through their underwriters, and generally—well, often 

that does not work. They cannot resolve it. And when the insured 

get to that point, it is not well known who they should call. So they 

end up calling their Senators or their Congress people, and they 

end up calling me, and then we refer them to an insurance specialist up at FEMA Region 10. So the insurance specialists—the existence of the insurance specialist is not well publicized, and by the 

42 

time they call me, they are very, very frustrated because they have 

been everywhere else first. 

So I want to have it more visible where people should call when 

they have gone through their insurance companies and they cannot 

resolve their problem. 

Senator HELLER. I mentioned early on in my discussions with the 

Administrator about my concerns about this communication, and 

you heard his answer. And I think you raised the same concerns 

about their communications with real estate agents, Government 

officials, frankly, the public at large, about the changes in the 

Biggert-Waters bill. 

After hearing what the Administrator said and answering my 

question on this frenzy that we have out there right now, did the 

Administrator answer any of your concerns? 

Ms. SHIRLEY. No. There is not enough information out there. And 

it is so full of jargon and it is difficult to understand. Unless you 

understand flood insurance, it is just not useful information. And 

FEMA does have a Web site that has two or three brochures on it, 

but it is not sufficient information, and it does not talk about—it 

does not address those who are not insured now and who will be 

asked to purchase flood insurance in the future. And it really does 

not talk about the renewals of these policies purchased after July 

6, 2012. 

Senator HELLER. Very good. Thank you, Mr. Chairman. I am 

done. 

Chairman MERKLEY. Mr. Ellis, I hear your argument for policies 

that are based on a full and fair assessment of the risk, but I want 

to ask you about a couple of anomalies that we have heard about. 

For example, you buy a house, you are not in a flood zone. You are 

10 years into the mortgage, and then you get a notice saying, well, 

we have remapped—we, the community or the FEMA officials or 

whomever, have remapped, and you know what? We had it wrong. 

You have never seen a flood. Nobody in 50 years has seen a flood, 

but by our calculations, by our modeling, you are in a 100-year 

flood zone, and now you are going to be required to buy this unsubsidized insurance that may be several multiples of your mortgage. 

Is there a fundamental unfairness to that? And if there is—I say 

‘‘unfairness’’ in the sense that you made a deal based on the public 

information you were given at the time of purchase. And the public 

has turned around and changed that information in a way that has 

huge financial consequences for you. If there is a fundamental unfairness, how should we address it? 

Mr. ELLIS. Well, I certainly think that the individual will feel 

that it is very unfair to them, and I do not necessarily disagree in 

that respect, although geography changes and, you know, to some 

extent, the idea that everything is static from the day you bought 

your home to the end of your 30-year mortgage kind of loses perspective when you think about this. And I think that when people 

keep talking about the rates, they forget to think about the fact 

that we are telling these people they are at risk, they should purchase flood insurance, because they are in the 1-percent chance of 

flooding every year if they are in the 100-year floodplain. And so 

we are doing them a disservice if we say, ‘‘You do not need to purchase flood insurance because you were not in the floodplain before 

43 

and we will just keep ignoring that,’’ and you are going to end up 

being flooded, and you are going to get five grand, ten grand from 

FEMA in a Small Business Administration loan, which is not what 

people need when they are flooded. 

And so I think there has to be—there is a balancing that needs 

to be done here, Mr. Chairman, and so it is something where we 

need to address, if it is an affordability issue. If it is not an affordability issue, then I think that people need to be paying the full 

freight. We are doing the rest of the country a disservice if we are 

not doing this. And we are doing this person a disservice because 

they can do things to mitigate their risk, to actually make them 

less vulnerable in the future. And so that way, when the flood does 

come, because, as Administrator Fugate mentioned, you know—I 

think I wrote down he has been to too many places that have never 

flooded before until there was a disaster. And so these are places 

that are at risk or we have determined to be at risk, and so I would 

hope that they would purchase their flood insurance, and if it is an 

affordability issue, then we need to deal with it. 

Chairman MERKLEY. So a family says to you, you know, this policy which is going to cost $5,000, that was never anticipated because I was not in a flood zone when I bought the house, this was 

the difference between whether or not my son or daughter attends, 

can afford to attend college; it is a difference on whether my kids 

in grade school can pay the activity fees to be involved in sports 

or my children in high school can join the debate team or whatever 

fees, says, you know, this is America, I should be able to decide for 

myself whether I want to spend that $5,000. If I want to bear that 

risk, shouldn’t I be able to bear that risk? This was not part of the 

contract when I bought this house. Shouldn’t it be up to me whether I want to buy flood insurance? Now being fully informed that I 

am being told there is a higher risk than anybody thought, 

shouldn’t it be up to me to decide whether or not to buy that insurance or to buy other valuable things for the success of my family? 

Mr. ELLIS. Certainly I am sympathetic to the individual. I mean, 

this is the way the program has been structured. But, you know, 

the problem is that, as Americans, we are often—we are very bighearted, and so instead of—you know, part of the reason why the 

Flood Insurance Program was created was because there was so 

much ad hoc disaster assistance going out there to help people out 

after disasters, and so they wanted to create a program like this. 

My concern would be that when that property does eventually 

flood, and my sympathy would go to that family, then they would 

be trying to get more disaster assistance because we are a bighearted country, and we are kind of soft-headed when it comes to 

that sort of thing. We are not tough on it. 

So I think that there is a challenge, and I am concerned in this 

debate, Mr. Chairman, in that we are seeing a lot of the tail wagging the dog. We are seeing a lot of these extreme circumstances 

that are trying to dictate the overall policy. You have people talking about, lawmakers talking about $30,000 policies or $28,000 

policies, and so then they want to delay all the maps across the 

country. That does not—you know, that is the exception making 

the rule to me, Mr. Chairman, and I am concerned about that, especially because some people will benefit from their new maps, at 

44 

least as far as in 2010—and I think that Administrator Fugate was 

addressing this to Senator Warren. He said it goes both ways, and 

he did not get to finish his comment, but I know in 2010 he said 

that they were mapping as many properties out of the floodplain 

as they were mapping in. I do not know if that is still the case, 

but I do know he said that then. And so some of these are broad 

solutions trying to deal with a very narrow instance. 

Chairman MERKLEY. Mr. Birnbaum. 

Mr. BIRNBAUM. Yes, a couple of comments. First, it is patently 

unfair. Yes, it is really important that consumers see the true price 

of protection. Risk-based pricing is important so consumers can 

make investment decisions that are rational. You do not want to 

do a bait-and-switch where you come in, you think that it is a 

$500-a-year cost to protect yourself from flood, and it turns out to 

be a $6,000-a-year thing. But that is exactly what happened. 

You know, if that had happened with a mortgage, if a mortgage company gave you a mortgage that was $1,000 a month and then 

all of a sudden said now it is going to be $1,800 a month or $1,600 

a month, with barely notice, the Consumer Financial Protection 

Bureau would be all over that. 

You know, there are millions of people in California who are at 

risk of earthquake damage, and yet they have the ability to sort 

of opt out of buying earthquake insurance. 

So, you know, the issues that you raise are important; however, 

you know, the things that Steve says are also valid. It is vitally important that consumers see what the cost is of protection, because 

without that you cannot make a rational, long-term decision about 

whether that is a good investment for you, whether you can afford 

it. 

More importantly, if you do not have the risk-based price, you do 

not have the proper incentives for loss mitigation. That is just critical. If there should be one overriding goal of Federal policy, it 

should be—for natural disaster policy, it should be to promote sustainable and resilient communities. And what that means is that 

when the Government makes money, it should not be subsidies. If 

somebody is having a problem with affordability, then that money 

should go in as an investment in loss mitigation to enable that consumer to pay the affordable amount of insurance. But continuing 

to do subsidies is the Government sort of spending money without 

any return. Making those investments in loss mitigation is the 

Government making investments that have a very positive return 

for that consumer and for society at large. 

Chairman MERKLEY. I have one more question to throw out to 

you all, and it really stems from what Senator Landrieu said. She 

said up until we had—and I am not sure which storm it was. 

Mr. ELLIS. Katrina. 

Chairman MERKLEY. It was Katrina. Up until we had this big 

natural disaster, Katrina, essentially the rates were sufficient to 

keep the fund solvent, and she waived that sheet in the air. And 

it made me start thinking about what it is we are insuring against. 

Are we insuring about garden variety flooding or the really big exceptional hurricanes? And are we in the course—and should there 

be a difference between those two things? And if, in fact, what we 

are insuring against is the hurricanes, then are the costs of the inVerDate Nov 24 2008 12:32 Oct 17, 2014 Jkt 046629 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\09-18 ZPM DISTILLER\USE THIS HEARING\91813PM.TXT JASON
45 

surance as distributed around the country actually fair to those 

who do not live in hurricane zones? In other words, are we essentially charging the entire country on these policies more than 

should be there to cover the river coming up and so forth to cover 

these great national disasters? 

And so I will just throw those two thoughts out to all of you. Do 

we really have two different kinds of things embedded in these insurance policies? And are the costs of the insurance policies actually fair to folks who are in different parts of the country in terms 

of the risk being reflected accurately by the premium? Does anyone 

want to take on those questions? Mr. Ellis. 

Mr. ELLIS. Yes, Mr. Chairman. Well, one, it is instructive to look 

at how the total—the way the system is set up is that they have 

the average historical loss year, and that is before Biggert-Waters 

was—every year except for what FEMA decided were extraordinary 

years, so they left out 2005, which had three of the largest storms, 

natural disasters, three of the top 10 in our country’s history as far 

as loss, and then 2011, because of the Midwest flooding, and so 

they basically threw those out or discounted them very, very heavily. And then that set the total amount of premium that the program was supposed to achieve to then basically offset a year, and 

then that trickles down to everybody’s individual premiums to aggregate. You know, it is like algebra, basically. 

After Biggert-Waters, everything had to be included, including 

the 2005 loss year and the 2011 loss year. I think there is an argument to be made that that should be discounted at least somewhat, 

but clearly, if Sandy has any lesson, it is that 2005 is not as big 

of an anomaly as we all wish it was. And so that has to be priced 

into there somewhere. 

And then, also, Mr. Chairman, where I think you are absolutely 

on the merit is that obviously now that is being dispersed to everybody, and that is part of the reason why I say if you delay the rate 

increases for one group of properties, everybody else’s rates are 

going to go up because the total amount that they are trying to 

achieve is exactly the same. So that side of the equation, that side 

of the equals sign, is not changing. And so that is going to end up 

increasing everybody’s flood insurance premiums in other places, 

and I would argue that is not fair. 

And then, last, where it is a little bit different, though, is obviously people are paying the risk of their particular property. So if 

you live in a hurricane zone, if you live in a storm surge area, you 

are going to pay a lot more, even at a base flood elevation, than 

somebody who lives in Bend, Oregon. You know, and so there is 

that issue as well, so there is a bit more concentrating on the risk 

associated with a particular property. 

Chairman MERKLEY. So, in short, the folks who live on a stream 

in Oregon are not subsidizing a hurricane zone on the Atlantic 

coat. 

Mr. ELLIS. Probably to some extent there is. There is cross-subsidies in the program. There are less cross-subsidies post BiggertWaters than there were before. 

Chairman MERKLEY. Does anyone else want to jump into this 

conversation? Ms. Cackley. 

46 

Ms. CACKLEY. Well, I think Mr. Ellis is correct in terms of the 

changes in Biggert-Waters did change the cross-subsidies. But 

there still are some because of the way the premium is set. It is 

not exactly—and especially because FEMA does not have the information they need for elevation certificates for every property, you 

cannot—you do not have a true risk, true actuarial fair rate for 

each property that needs one. 

Chairman MERKLEY. Thank you. 

Mr. Birnbaum. 

Mr. BIRNBAUM. I guess what I would add to this is that if you 

want to make sure that rates are truly accurate, then what you 

want to do is privatize the Flood Insurance Program. You want to 

sort of utilize the ability of the insurance industry to do the risk 

modeling and to do the pricing that they do for other types of perils. And there would be some real advantages to privatizing the 

Flood Insurance Program. It would provide flood coverage at a 

much more efficient and cost-effective level. You would not have a 

second administrative layer. You would not have that 30 percent 

Write-Your-Own commission. You would not have all of the stuff 

going on between whether it is a wind loss or a flood loss and all 

of the costs associated with trying to figure out whether it is covered by the wind policy or the flood policy. 

So there are some real advantages to sort of looking at 

privatizing the Flood Insurance Program, both in terms of accuracy 

of pricing but also in getting the insurance industry more involved 

in loss mitigation. They do not have any skin in the game. If they 

are on the hook, then all of a sudden you will see them doing what 

European insurers are doing, which is getting extremely active in 

all sorts of flood loss mitigation and entering into partnerships 

with policyholders to invest in loss mitigation. So I just throw that 

out as something to consider. 

Mr. ELLIS. We support that. 

Chairman MERKLEY. Yes, Ms. Cackley. 

Ms. CACKLEY. I just wanted to point out that GAO is in the process of doing a study on the possibilities of privatizing the system. 

It was one of our mandates under Biggert-Waters. FEMA was also 

mandated to do a similar study. So you will be getting that information by the end of the year. 

Chairman MERKLEY. Great. Well, I am going to wrap this up. Everyone has been very patient in staying here a long time, and 

thank you very much. I am struck by the fact that we started the 

hearing, hearing about how essentially a private system broke 

down because the policies were too high and people were not buying them. And now we essentially are trying to create risk-based 

policies that kind of reflect what the market should do, and the 

prices are so high that it is breaking down. And we started to hear 

some of the stories about that today, and then the recommendation 

here at the close that maybe we should go back to the private side. 

So we have got a lot to wrestle with. I thank very much my Vice 

Chair, Senator Heller, for being very supportive of holding this 

hearing and all the colleagues who came to weigh in today. I think 

we are going to hear a tremendous amount from our constituents. 

As Ms. Shirley pointed out, we are going to hear a lot of constituents screaming when they go to renew and find out that the deal 

47 

that they thought they made when they bought that new property 

during that 9-month period turns out to be a deal that is very different than they anticipated with no warning. And so I think we 

have got a lot to address. 

With that, I adjourn the hearing. Thank you. 

[Whereupon, at 5:05 p.m., the hearing was adjourned.] 

[Prepared statements, responses to written questions, and additional material supplied for the record follow:] 

48 

PREPARED STATEMENT OF W. CRAIG FUGATE 

ADMINISTRATOR, FEDERAL EMERGENCY MANAGEMENT AGENCY, DEPARTMENT OF

HOMELAND SECURITY

SEPTEMBER 18, 2013 

Introduction 

Good afternoon Chairman Merkley, Ranking Member Heller and distinguished 

Members of the Subcommittee. My name is Craig Fugate, and I am the Administrator at the U.S. Department of Homeland Security’s (DHS) 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) and our efforts 

to implement the Biggert-Waters Flood Insurance Reform Act of 2012. 

In my testimony today, I will discuss the NFIP; the changes FEMA is making as 

a result of the Act; the role of flood maps and levees; and steps property owners 

can take to mitigate against flood damage. 

Flooding and the Need for a National Program 

Flooding has been, and continues to be, a serious risk in the United States. Most 

insurance companies have historically excluded flood damage from homeowners insurance because of adverse selection—only those most susceptible to flooding will 

purchase coverage. To address this need, Congress established the NFIP in 1968 to 

make flood insurance available, identify flood risks and encourage sound local flood 

risk management. The NFIP is administered by FEMA. 

The NFIP was broadened and modified with the passage of the Flood Disaster 

Protection Act of 1973 and other legislative measures. It was further modified by 

the National Flood Insurance Reform Act of 1994 and the Flood Insurance Reform 

Act of 2004. The most recent reforms have come after numerous short-term reauthorizations and lapses in Program authority over the past several years. 

About 40 percent of the U.S. population lives in counties that border the ocean 

or Great Lakes and are directly or indirectly affected by flood risk, and most U.S. 

counties contain rivers and streams that present flood hazards. Moreover 5.6 percent of the U.S. population lives in the highest risk coastal and riverine flood hazard 

areas, making flooding the most costly and prevalent natural risk in the United 

States. Additionally, sea level rise, climate change, urbanization, and other factors 

may lead to even more Americans living in high flood risk areas in coming years. 

The NFIP serves as the foundation for national efforts to reduce the loss of life 

and property from flood disasters that may occur. The Program is designed to insure 

against, as well as minimize or mitigate, the long-term risks to people and property 

from the effects of flooding, and to reduce the escalating cost of flooding to taxpayers. The NFIP works closely in partnership with Write Your Own (WYO) insurance companies to market, sell, administer, and adjust claims for policyholders. By 

encouraging and supporting mitigation and floodplain management efforts, the 

NFIP is estimated to save the Nation $1.6 billion annually in avoided flood losses. 

Today, almost 22,000 communities in all States and territories participate in the 

NFIP, with 5.6 million NFIP policies providing over $1.2 trillion in coverage. 

The NFIP was, by statute and design, not actuarially sound. Specifically, 20 percent of policyholders, including many of the NFIP’s highest risk structures, paid premiums that were less than actuarially sound and the Government was subsidizing 

on average 60 percent of the loss. The debt resulting from Hurricanes Katrina and 

Sandy, the two costliest storms in NFIP history, illustrate the financial challenges 

for the NFIP that the Biggert-Waters Flood Insurance Reform Act of 2012 aimed 

to address. Significant concentrated losses in high policy coverage areas could set 

the program up for future losses beyond the authorized borrowing authority. In addition, the financial challenges are heightened due to subsidies and grandfathering 

that were established to encourage older structures to participate in the Program 

and make premiums affordable for these policyholders in high risk areas. 

Pursuant to the statute before the Biggert-Waters Flood Insurance Reform Act of 

2012, FEMA established subsidies for owners of existing homes and businesses built 

prior to the initial Flood Insurance Rate Map (FIRM) and made them eligible to 

purchase insurance at subsidized rates. In other words, a building built before flood 

risk was known, and at an elevation below the 1-percent annual chance flood, could 

be insured at a rate substantially less than their real risk rate. 

The NFIP collects more than $3.5 billion in annual premium revenue, and FEMA 

estimates that an additional $1.5 billion annually is needed from subsidized policyholders. 

FEMA also established grandfathered rates to address rates for structures built 

in compliance with existing FIRMs that experienced subsequent increases in flood 

49 

risk. FEMA allowed those structures to grandfather according to the risk identified 

on the earlier FIRM, and did not adjust premiums to reflect the current risk. Grandfathered properties are not subsidized by the Program, and FEMA establishes cross 

subsidies within classes of structures to maintain the actuarial integrity of the rate 

structure. 

This annual premium shortfall during catastrophic flooding events, such as Hurricanes Katrina and Sandy, required FEMA to use its statutory authority to borrow 

funds from the U.S. Department of Treasury. These funds were used to pay covered 

flood damage claims to policyholders. Although payments have been made to reduce 

this obligation, $24 billion in debt remains. 

Biggert-Waters Flood Insurance Reform Act of 2012 

Congress determined that further reforms were needed to make sure the NFIP 

was financially sustainable. 

To execute these reforms, Congress passed the Biggert-Waters Act. The law required changes to all of the major components of the program, including flood insurance, flood hazard mapping, grants, and the management of floodplains. Many of 

the changes are designed to strengthen the fiscal soundness of the NFIP by ensuring that flood insurance rates more accurately reflect the real risk of flooding. The 

changes are being phased in over time, beginning this year. Biggert-Waters also reauthorized the NFIP for 5 years, which injected confidence and stability into the 

real estate and mortgage markets. 

Removal of Subsidies and Grandfathered Rates 

Biggert-Waters ushered in changes that will lead to premium rate increases for 

some—but not all—policyholders over time. 

Today, I would like to focus on the sections of the Act that remove subsidies and 

grandfathered rates. 

Currently, approximately 20 percent of policyholders, representing approximately 

1.1 million of the 5.6 million NFIP policies, now pay subsidized rates. As FEMA implements the changes stipulated in the Biggert-Waters legislation, these policyholders will eventually pay rates that reflect actual risk to their properties. The remaining 80 percent of policyholders will not see increases as a result of this change, 

although it is possible that their rates will increase if, in the future, new maps reveal higher risk under the phase-out of grandfathered rates required by the legislation. 

Specifically, the following changes for subsidized policyholders will be or have already been implemented due to the legislation: 

• Beginning January 1, 2013, owners of properties previously eligible for subsidized rates on nonprimary/secondary residences in a Special Flood Hazard 

Area (SFHA), saw a 25 percent increase annually in their rates, as required by 

the law, which will continue until rates reflect true risk. 

• We anticipate that under a final rulemaking, owners of substantially damaged 

or improved properties previously eligible for subsidized rates will see a 25 percent rate increase annually, as required by the law, until rates reflect true risk. 

• Beginning October 1, 2013, owners of subsidized policies on business/nonresidential properties and severe or repetitive loss properties in a Special Flood 

Hazard Area will see a 25 percent rate increase annually, as required by the 

law, until rates reflect true flood risk. 

All subsidized properties, including primary residences, will move immediately to 

actuarial rates if: 

• The policy lapses; 

• The property suffers severe, repeated, flood losses; or 

• The property is purchased. 

Each property’s risk is different. Some policyholders may reach their true risk 

rate after less than 5 years of increases, while other policyholder increases may go 

beyond 5 years to get to the full risk rate required by the new law. 

With regard to grandfathered rates, additional changes to premium rates may 

also occur upon remapping. We are evaluating when it is administratively feasible 

to implement these rate changes. 

When a map is revised or updated, grandfathering will no longer be available. 

Grandfathering is applied in two situations: to allow policyholders in a Special Flood 

Hazard Area built in accordance with flood maps to keep rates that reflected that 

compliance even if a later map would increase their premium; and to enable structures built outside of the Special Flood Hazard Area and later remapped into the 

50 

Area to purchase insurance based on an average cross-subsidized rate. The Act replaces the policy of offering grandfathered rates with a 5 year phase-in to rates that 

reflect the current risk when a FIRM is revised or updated. 

The Role of Flood Maps and Levees 

Mapping and identifying flood hazards enables informed, smart development and 

encourages communities to adopt and enforce minimum floodplain management regulations. These efforts minimize the financial impact of flooding on individuals and 

businesses, and mitigate the effects of flooding on new and improved structures. 

FEMA consistently releases new flood maps and data, giving communities across 

America access to helpful, authoritative data that they can use to make decisions 

about flood risk, enabling safer development and rebuilding following disasters. 

FEMA is required to review community flood maps every 5 years and assess whether to revise or update them based on current conditions. 

Flood hazard conditions are more accurately captured now as a result of FEMA’s 

Risk Mapping, Assessment, and Planning (Risk MAP) program. 

FEMA began implementing the Risk MAP program at the start of Fiscal Year 

(FY) 2009. Risk MAP 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 local, State, 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. 

FEMA has initiated 600 Risk MAP projects affecting 3,800 communities and addressed their highest priority engineering data needs, including coastal and levee 

areas. Regarding levees, FEMA has also reviewed its approach to mapping flood hazards 

with respect to nonaccredited levees. FEMA recognizes that levee systems that do 

not fully meet the requirements for accreditation may still provide some measure 

of flood risk reduction. 

As a result, FEMA is introducing a new approach of targeted modeling procedures 

to replace the previous ‘‘without levee’’ approach, that did not recognize a nonaccredited levee as providing any level of protection to communities behind the levees during the base (1-percent-annual-chance) flood. These procedures better characterize 

actual conditions that a community may encounter when addressing nonaccredited 

levees or levee systems. 

FEMA devised this new approach by leading a multidisciplinary project team comprised of representatives from FEMA, the U.S. Army Corps of Engineers, and experts from the academic and engineering communities to evaluate technical options 

for nonaccredited levees. The FEMA-led team explored a broad spectrum of levee 

analysis and mapping procedures. Based on the results of the development, testing, 

review and public comment efforts, FEMA created and is implementing a levee analysis and mapping approach that is flexible and will produce more precise flood hazard maps and supporting data where levee systems are involved. 

FEMA will use these new procedures to produce Flood Insurance Rate Maps 

(FIRMs), Flood Insurance Study reports, and related products for communities and 

Tribes impacted by nonaccredited levee systems. A core goal of the new procedures 

includes identifying more precisely the flood hazard associated with levee systems 

and reflecting the results in the mapping. An important outcome of the effort is also 

increasing the credibility of FIRMs where nonaccredited levee systems exist. 

The new approach, accompanied by operating guidance, will be applied to a limited number of projects during FY2013, and other future mapping projects will be 

prioritized as additional funding is available. 

FEMA Regional Offices will be in contact with communities to identify participants for a discussion about their local levee system and to facilitate a Local Levee 

Partnership Team as needed. 

This team will be comprised of FEMA and community representatives to provide 

input and guide the implementation of the approach. 

Educating Stakeholders and Implementing the Provisions of BiggertWaters 

FEMA has undertaken significant steps to inform its policyholders and stakeholders about these changes to the NFIP, including educating: 

• Insurance agents selling flood insurance; 

51 

• Realtors, the banking community, floodplain managers, insurance executives, 

and others; 

• Political leadership at local, State, tribal, and Federal levels; 

• Disaster survivors so they can be informed should they choose to rebuild; and 

• Affected policyholders, who will receive notification from their insurance company in their bills explaining changes. 

The Act has also necessitated programmatic changes to the NFIP itself, including 

its processes and regulations. Areas specifically impacted by Biggert-Waters include 

actuarial sciences, insurance underwriting, floodplain management, and floodplain 

mapping. 

FEMA is actively meeting with affected communities throughout the country to 

discuss these changes. This summer, Associate Administrator for Federal Insurance 

and Mitigation David Miller traveled to Louisiana and Mississippi to see and hear 

first-hand the potential impacts of the law on policyholders. Additionally, many 

FEMA staff participated in outreach meetings with national and regional associations and communities to provide information on the new law. While in the Gulf 

Coast region, it was very clear that there are challenges to implementing the law 

when premiums may exceed $10,000 or in more high risk areas where homes are 

not easily elevated or bought out. In the Gulf Coast, many policyholders are required to have insurance and live near the industry jobs that support our national 

economy. In States with recent disasters like New Jersey and New York, communities are going through the process of adopting new maps as a result of increased 

risks found in mapping completed both pre- and post-disaster. 

The Role of Mitigation in Affordability 

As the NFIP transitions toward full risk rates, there will be significant increases 

in premiums for some subsidized and grandfathered structures. Individuals whose 

properties are at risk of flooding may lack the resources to make prudent risk management and mitigation decisions, including the decision to relocate, mitigate, or 

purchase adequate insurance. 

Pursuant to the provisions in Biggert-Waters, FEMA is charged with completing 

a study with the National Academy of Sciences to explore ways to: encourage/maintain participation in the NFIP, methods to educate consumers about the NFIP and 

flood risk, and methods for establishing an affordability framework for the NFIP, 

including implications of affordability programs for the NFIP and the Federal budget. The Academy estimates that it will likely take at least 2 years to complete the 

study due to the need to obtain data on policyholders and their incomes. 

There are steps the public can take to minimize their risk of damage should a 

flood occur, as well as to reduce premiums. FEMA’s Hazard Mitigation Assistance 

(HMA) programs provide funds for projects that reduce the risk to individuals and 

property from natural hazards. These programs enable mitigation measures to be 

implemented before, during and after disaster recovery. Local jurisdictions develop 

projects that reduce property damage from future disasters and submit grant applications to the State. The States submit applications to FEMA based on State criteria and available funding. The HMA programs include: 

• Hazard Mitigation Grant Program (HMGP)—The Hazard Mitigation Grant Program provides grants to implement long-term hazard mitigation measures after 

a major disaster declaration. The purpose of HMGP is to reduce the loss of life 

and property due to natural disasters and to enable mitigation measures to be 

implemented during recovery from a disaster. 

• Mitigation Assistance Grants—The Mitigation Assistance Grants program provides funds from the National Flood Insurance Fund on an annual basis so that 

measures can be taken to reduce or eliminate risk of flood damage to buildings 

insured under the NFIP. 

FEMA encourages property and business owners concerned about potential rate 

increases as a result of Biggert-Waters to contact their local community planning, 

emergency management, or State Hazard Mitigation Officer to learn more about implementing these mitigation efforts. 

Conclusion 

FEMA administers the NFIP to help communities increase their resilience to disaster through risk analysis, risk reduction, and risk insurance. The NFIP helps individual citizens recover 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. 

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FEMA looks forward to working with the Congress as Biggert-Waters is implemented. 

Thank you again for the opportunity to appear before you today. I am happy to 

answer any questions you may have. 

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PREPARED STATEMENT OF ALICIA P. CACKLEY 

DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENT, GOVERNMENT

ACCOUNTABILITY OFFICE

SEPTEMBER 18, 2013 

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PREPARED STATEMENT OF CHRISTINE SHIRLEY 

NATIONAL FLOOD INSURANCE PROGRAM COORDINATOR, PLANNING SERVICES DIVISION, 

OREGON DEPARTMENT OF LAND CONSERVATION AND DEVELOPMENT

SEPTEMBER 18, 2013 

Good morning Chairman Johnson, Ranking Member Crapo, and Members of the 

Committee. I am Christine Shirley, National Flood Insurance Program Coordinator 

for the State of Oregon. I am pleased to offer testimony on behalf of Oregon’s 34,700 

NFIP policyholders, and the estimated additional 150,000 buildings owners in Oregon who do not have flood insurance, but probably should because their buildings 

are located in the Special Flood Hazard Area. 

Since April 2, 2013, soon after the National Flood Insurance Program (NFIP) announced implementation of section 100205 of the Biggert-Waters Flood Insurance 

Act of 2012 (Reform Act), we have made over two dozen presentations to land use 

planners, real estate agents, surveyors, and the public about NFIP premium rate 

and rule changes brought about by the Reform Act. I am here today to give you a 

field report. I will touch on outreach, affordability and mitigation. Let me say right 

away fear and confusion about the reforms are prevalent among professionals and 

the public alike. I will speak more about that later. First I want to explain a little 

about how Oregon implements the National Flood Insurance Program. 

The NFIP Supports Oregon’s Planning Principles and Goals 

The Department of Land Conservation and Development (DLCD), the State’s land 

use planning agency, is also Oregon’s NFIP coordinating agency. DLCD’s guiding 

principles are to: 

• Provide a healthy environment; 

• Sustain a prosperous economy; 

• Ensure a desirable quality of life; and 

• Provide fairness and equity to all Oregonians. 

Since the mid 1970s the National Flood Insurance Program has played an important role in support of these principles. For those unfamiliar Oregon’s statewide 

land use planning program, it originated in 1973 to provide protection of farm and 

forest lands, conservation of natural resources, orderly and efficient development, 

coordination among local governments, and citizen involvement. This is accomplished by requiring city and county governments to adopt comprehensive plans that 

address each of 19 statewide planning goals. Goal 7 directs counties and cities to 

adopt comprehensive plans that reduce risk to people and property from natural 

hazards. Participation in the NFIP satisfies Goal 7’s requirement to address flood 

hazards. As a result, virtually all of Oregon’s residents have access to NFIP flood 

insurance (only 2 very small cities newly mapped and with minimal flood risk have 

yet to participate in the NFIP). 

Development of Accurate Flood Insurance Rate Maps Requires Sufficient 

Funding 

The NFIP’s Flood Insurance Rate Maps (FIRMs) provide the basis for Oregon cities and counties to identify and manager development in flood prone areas. By and 

large, over the years, we have found the FIRMs to reasonably depict where flooding 

is most likely to occur. We are confident that refined modeling, cartographic, and 

analysis techniques implemented through the RiskMAP program, and by Oregon’s 

own Department of Geology and Mineral Industries as a Cooperating Technical 

Partner with FEMA, will result in even more accurate and informative FIRMs and 

derivative risk analysis products. 

Such map accuracy requires sufficient funding. Appropriations for mapping have 

been reduced by more than half from the 2010 level of $220 million. The Administration’s budget request for FY2014 was $84 million. The Homeland Security Appropriations bills (one passed by the House; the other reported out of committee in the 

Senate) both provide $95 million. While this reflects Congressional recognition of 

the importance of accurate flood maps, it is, nevertheless, still a major reduction. 

We urge Congress to increase appropriations for flood mapping back to 2010 levels 

as soon as possible. 

Poor Risk Communication and Outreach Undermines Trust 

Our problem is not so much with the quality of FIRMs, but rather with risk communication. Many people who reside in Special Flood Hazard Areas have never experienced flooding at their location and they simply don’t believe it’s possible, so 

they question the veracity of the FIRMs. Sometimes they’re right. DLCD regularly 

71 

counsels landowners on how to use FEMA’s Letter of Map Change process to refine 

Special Flood Hazard Area boundaries on their properties. 

One year after enactment of the Reform Act of 2012 our risk communication challenge has increased, not only because of changes brought about by the Act, but also 

by how the NFIP has explained and implemented section 100205: Reform of Premium Rate Structure. It appears to us that NFIP intends to rely on flood insurance 

agents to disseminate information about changes brought about by the Reform Act. 

We find this communication model flawed for several reasons: 

• Training for NFIP Write-Your-Own flood insurance agents is woefully inadequate; 

• Too many Oregonians with buildings located in Special Flood Hazard Areas are 

not insured by the NFIP and therefore lack a means to obtain information 

about the consequences of the Reform Act; 

• Important professional groups, particularly surveyors and real estate agents, 

have not been informed by the NFIP of impending changes; 

• Likewise, local Government officials and staff have not been provided with digestible and sufficient information to address their citizens’ concerns or assess 

their own vulnerabilities; 

• NFIP has not provided information to the public that allows building owners 

to make informed decisions about their individual situations. 

As a result, building owners and the general public are receiving contradictory 

and confusing information, which has had the effect of undermining the credibility 

of the NFIP. This unfortunate side effect has made it even more difficult for NFIP 

Coordinators like myself to communicate the benefits of carrying flood insurance. 

Let me address each of these bullet points in turn: 

NFIP Agent Training 

Training for agents that sell NFIP flood insurance is woefully inadequate. Many 

agents are not able to explain to their customers how the NFIP works and most 

are not able to advise clients on how to reduce flood insurance premiums by making 

simple building modifications. 

NFIP sponsored exactly one instructor-led flood insurance agent training in Oregon in 2013. Unfortunately I heard from insurance agents who attended the class 

that this general training did not address Reform Act section 100205 changes in sufficient detail to allow them to effectively advise clients on its consequences. 

Outreach about availability of instructor-led classes and webinars also is lacking. 

DLCD learned just days before that the above mentioned training was about to be 

canceled due to lack of participation. Fortunately, we convinced our Insurance Division to announce the class to their mailing list, filling the class. Likewise, H2O Partners, NFIP’s flood insurance training contractor, has offered webinars that cover 

section 100205 changes but these have not attracted enough agent participation in 

Oregon. 

NFIP must be provided with sufficient resources to develop a comprehensive outreach and training program; one that does not passively rely on Web sites to notify 

Write-Your-Own agents of training opportunities. More training opportunities must 

be provided because well trained agents bolster the credibility of the NFIP. 

Reliance on Agents To Inform Their Clients 

It is an unfortunate truth that flood insurance take-up rates in Oregon, and nationwide, are too low. Relying on insurance agents to get the word out about 

changes brought about by the Reform Act ignores a large segment of the affected 

population. NFIP needs to develop public service announcements and printed material suitable for wide distribution to traditional and nontraditional media outlets. 

Outreach to Surveyors, Real Estate Agents, and Other Professionals 

Real estate agents and surveyors are on the front line of implementing Reform 

Act changes. These professionals speak directly with building owners, often before 

an insurance agent does. DLCD has found these professionals to be interested and 

receptive to information about the Reform Act. So much so that our technical support to NFIP communities has suffered as a result of numerous requests to speak 

at their professional gatherings. Word of mouth has kept us busy since April 2, 

2013, during which time we have addressed 15 real estate associations and 3 surveyor chapter meetings. We have started coordinating with statewide professional 

organizations to take over this training function so that we can get back to our regular NFIP job duties. NFIP needs to reach out to professional groups with literature 

72 

suitable for distribution to their clients as well as with training materials and opportunities. 

Outreach to Government Officials and Staff 

While it might not be obvious why Government officials and staff need to know 

about flood insurance reform, in fact, because they manage floodplain development 

per the NFIP, they are often the first people building owners call to explain why 

flood insurance costs are increasing and what can be done to reduce them. In addition, any loss of property values brought about by the Reform Act will be felt directly via decreased property tax revenue, and even increased foreclosure rates. Oregon’s assessors offices have expressed interest in learning more about the NFIP reforms, as have city and county land use and planning offices. NFIP Coordinators 

are the best conduit to local government, however, we have had to spend an inordinate amount of time deciphering the Write-Your-Own Bulletins intended for insurance agents to explain the consequences of the Reform Act to local government. 

While these Bulletins are the most reliable source of information they are also full 

of jargon. Read out of context they can be confusing and misleading. NFIP needs 

to develop easy to understand educational material specifically targeted to local government officials and staff. 

Public Outreach 

Much of the specific material NFIP has prepared for the public about consequences of the Reform Act has been directed to those affected by Superstorm 

Sandy. This and other material produced by NFIP has taken a worst-case-scenario 

approach to explaining the consequences of not elevating flood-damaged buildings. 

For example, in a widely circulated fact sheet NFIP estimated future flood insurance costs using the maximum amount of building plus contents insurance available 

for residential structures, even though most building owners will not purchase this 

much insurance. We find this material to be unnecessarily alarming. People stop 

reading as soon as they see that flood insurance costs could exceed $10,000 per year. 

Until recently, with public release of NFIP’s Specific Rating Guidelines on September 5, it was virtually impossible for even an experienced flood insurance agent 

to provide more realistic information about potential flood insurance costs under the 

Reform Act when a building owner’s lowest floor was 2 or more feet below base flood 

elevation. We applaud release of these Guidelines as this information will help us 

develop realistic cost ranges for the types of flood risks and building values typical 

for Oregon. The Guidelines also help us better understand what drives costs up and 

what building owners might do to reduce these costs. DLCD understands how difficult it is to present information about costs in the absence of specific information 

about a building’s characteristics and how easy it is to create false expectations. 

Nonetheless, we recommend that NFIP develop public outreach material that more 

accurately reflects the range of costs typical of certain classes of buildings—or at 

least work with States to help us develop such material tailored to our demographics and building values. 

Flood Resilient Oregon 

Problems with the Reform Act go beyond those associated with education and outreach. The Reform Act does not sufficiently address affordability or mitigation of 

flood risk. We fear that, together, these deficiencies will cause Oregon to be less resilient to flooding than before the Reform Act was passed. 

Oregon is committed to being a flood resilient State; a strong National Flood Insurance Program helps us achieve our resiliency goal because insured residents 

don’t require Federal disaster declarations to begin recovery. Even in the event of 

a Federally declared disaster, we’ve learned that well insured communities recover 

faster. As such we support efforts to move the NFIP to sound financial footing. We 

are concerned, however, that the rate increases required by section 100205 will not 

help Oregon become more flood resilient unless they are accompanied by programs 

to assist low- and moderate-income families afford adequate coverage and more attention is paid to mitigation. 

New Construction in the Special Flood Hazard Area Does Not Support Resiliency 

Oregon’s mitigation strategy emphasizes acquisition. Acquired buildings are demolished and the land maintained as permanent open space, eliminating the potential for future flood damage and displaced families. It is discouraging to find a couple years later a new building being constructed in the Special Flood Hazard Area 

only a few hundred feet away from an acquired property. We urge Congress to pass 

legislation that limits the availability of flood insurance to existing buildings. NFIP 

flood insurance should not be offered to new development in the Special Flood Hazard Area. 

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Unaffordable Flood Insurance Does Not Support Resiliency 

Architects of the Reform Act picked what looked like low-hanging fruit—phasing 

out and removing subsidies to increase revenue on a class of properties that suffer 

disproportionate losses. This strategy alone may not result in anticipated revenue 

growth because phasing out subsidies for pre-FIRM buildings could actually discourage purchase of NFIP flood insurance. We’ve already had inquiries from buyers 

about where to buy private insurance. At least one jurisdiction in Oregon is contemplating offering a private community-based flood insurance program. 

Furthermore, in some areas of Oregon, those characterized by a high concentration of older buildings located in the Special Flood Hazard Area, the resale real estate market is frozen. Buildings are not selling until asking prices are dramatically 

lowered, attracting all-cash buyers who purchase flood prone property at fire-sale 

prices and then don’t purchase flood insurance. Sadly, not all of these cash buyers 

have the resources to self-insure against potential losses, leaving Oregon less flood 

resilient. 

Affordability is not only a problem for approximately 2,500 insured nonprimary 

residences, commercial buildings, and severe repetitive loss buildings in Oregon. 

Nor is it only an issue at the approximate 5,700 insured pre-FIRM buildings expected to be sold in the near future. An estimated 35,000 pre-FIRM buildings in Oregon located in the Special Flood Hazard Area do not carry NFIP flood insurance. 

Owners of these buildings are already receiving notices from their lenders demanding that they purchase flood insurance within 45 days at full risk rates. Elevation 

Certificates also are needed from licensed surveyors at a cost of $500 to $1,000 each 

to properly rate the flood insurance policy. Many of these pre-FIRM buildings’ lowest floors will be below base flood elevation resulting in expensive flood insurance. 

These unexpected costs have the potential to force families from their homes and 

businesses to close. This scenario is the result of the Reform Act’s increased penalties for lender noncompliance with mandatory purchase requirements, but without 

sufficient attention paid to the consequences of unaffordability. 

As these examples illustrate, the complex issues surrounding affordability were 

not taken into account by the Reform Act. Section 100236 only requires a study on 

affordability. We urge the NFIP and National Academy of Sciences to complete the 

affordability study mandated by the Reform Act as quickly as possible. In the meantime we urge Congress and the NFIP to consider implementation of a temporary 

means-tested voucher program for low- and moderate-income households such as 

that described in the recent Wharton School, University of Pennsylvania report ‘‘Addressing Affordability in the National Flood Insurance Program: Means-Tested 

Vouchers Coupled with Mitigation Loans’’. Congress also should consider acting on 

House passed bill providing for study of the feasibility of community based group 

flood insurance policies (H.R. 1135). 

Mitigation Reduces Flood Losses and Increases Resiliency 

As important as affordability is, the ability to purchase flood insurance does not 

reduce flood losses. An insurance settlement to repair flood damage only ensures future losses. NFIP and FEMA must focus attention on mitigation. 

Oregon’s experience suggests that it takes too long and consumes inordinate staff 

time to complete mitigation projects using FEMA grant programs. We recognize that 

this is not exclusively an NFIP issue, however, NFIP needs to think creatively about 

how to encourage mitigation before floods occur. For example: NFIP could encourage 

building owner to undertake building elevation projects on their own by refunding 

premiums back 5 years upon completion of the project. Without such incentives it 

could be difficult for building owners to both pay for flood insurance and mitigation. 

Loan or grant programs to provide up-front costs could be provided to low- and moderate-income families in lieu of premium refunds. NFIP would benefit by reducing 

risk exposure. 

Flood mitigation grants offered by the NFIP have traditionally focused on 100 percent solutions: elevate the lowest floor above the base flood elevation, or acquire and 

demolish flood-damaged buildings. Oregon has completed hundreds of such projects 

over the years. They work, but elevations and acquisitions are expensive, time consuming, and are difficult for States and local government to administer. We can only 

accomplish a handful of such projects each year. 

NFIP should promote innovations such as partial mitigation. Flood vent retrofits, 

moving utilities out of basements, or filling below grade crawlspaces can save the 

insured hundreds if not thousands of dollars per year and also reduce NFIP risk 

exposure. Oregon has calculated that partial mitigation is cost effective for many 

pre-FIRM buildings, even if these mitigation projects do not result in the lowest 

floor being elevated above the base flood elevation. Partial mitigation is inexpensive 

and is cost effective even if a building is fully mitigated later on. NFIP should deVerDate Nov 24 2008 12:32 Oct 17, 2014 Jkt 046629 PO 00000 Frm 00077 Fmt 6621 Sfmt 6621 L:\HEARINGS 2013\09-18 ZPM DISTILLER\USE THIS HEARING\91813PM.TXT JASON
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velop a means-tested grant program to facilitate such partial mitigations, perhaps 

tied to a voucher program that assists with annual flood insurance costs. 

Unfair Renewals at Full-Risk Rates on Policies Purchased Between July 6, 

2012, and September 30, 2013 

It’s bad enough not being able to sell a building because of buyer’s fear of high 

flood insurance costs. What’s worse is having purchased a pre-FIRM building between the time the Reform Act was signed on July 6, 2012, and when new rates 

go into effect on October 1, 2013. According to NFIP Write-Your-Own Bulletin W13016, published March 29, 2013, purchasers of pre-FIRM buildings located in the 

Special Flood Hazard Area were able to buy (and will continue to be able to buy 

until October 1) subsidized flood insurance policies, but these will renew at full risk 

rates, with premium increases amounting to possibly thousands of dollars per year. 

This implementation strategy denied those who purchased pre-FIRM buildings in 

the Special Flood Hazard Area between July 6, 2012, and March 29, 2013, any ability to make an informed decision about the long-term financial consequences of their 

purchase. No party in the deal could have known that these subsidized policies 

would renew at possibly very expensive full-risk rates. Even those who purchased 

pre-FIRM buildings after publication of NFIP’s March 29, 2013, Bulletin can make 

the case that they were denied the ability to make an informed decision because 

of the NFIP’s limited outreach to insurance agents and real estate professionals. 

DLCD has already received tearful phone calls from buyers who purchase preFIRM buildings last summer and are now facing unaffordable flood insurance renewal costs. The Palmer family in Eugene summed it up like this, ‘‘It’s one thing 

to buy a home knowing what you are in for. It’s another to have an act of god cause 

a change that no one could have anticipated. But it’s simply wrong to change the 

terms of an insurance contract at renewal in a manner that could force us out of 

our home when no flood event has taken place.’’ We are generally not in favor of 

delaying implementation of section 100205 the Reform Act, except for on renewals 

of new policies purchased as a result of a real estate transaction made on or after 

July 6, 2012, and before October 1, 2013. These policyholders should, as a matter 

of fairness, be allowed to keep their subsidy unless and until they suffer a flood loss. 

Aggrieved NFIP Customers Lack a Venue To Resolve Problems 

NFIP policyholders with rating issues have limited access to a dispute resolution 

process. Although each FEMA regional office has an insurance specialist on staff, 

this person is not easily accessible to the insured. We urge NFIP to establish a visible ombudsman office to field rating disputes. Congress should fund FEMA to create 

such an office if NFIP lacks the authority or resources. 

Thank you for this opportunity testify. 

PREPARED STATEMENT OF STEVE ELLIS 

VICE PRESIDENT, TAXPAYERS FOR COMMON SENSE

SEPTEMBER 18, 2013 

Good afternoon, Chairman Merkley, Ranking Member Heller, Members of the 

Subcommittee. I am Steve Ellis, Vice President of Taxpayers for Common Sense, a 

national nonpartisan budget watchdog. Thank you for inviting me here today to testify on the National Flood Insurance Program (NFIP). 

Taxpayers for Common Sense has advocated for reform of the National Flood Insurance Program since our inception 18 years ago. The need to remove the subsidies, shift toward risk-based rates, and develop a reserve fund became even clearer 

after the devastating hurricane season of 2005 left the program nearly $18 billion 

in debt to the taxpayer. The point became moot after Superstorm Sandy upped the 

debt load to roughly $25 billion and counting. 

Taxpayers for Common Sense appreciates the hard work done by this Committee 

to pass the flood insurance reform bill last summer. While we would have argued 

for even stiffer medicine, the bill represented a good step forward to make the program more responsible for all Americans. It is important that the reforms proceed 

as enacted and that any efforts to deal with affordability and map modernization 

be supplemental and not impede the effort to put the flood insurance program on 

sounder financial footing. There is an increasing fatigue with the cost of the program among taxpayers. 

TCS is allied with SmarterSafer.org, a coalition in favor of promoting public safety 

through fiscally sound, environmentally responsible approaches to natural catastrophe policy. The groups involved represent a broad set of interests, from free marVerDate Nov 24 2008 12:32 Oct 17, 2014 Jkt 046629 PO 00000 Frm 00078 Fmt 6621 Sfmt 6621 L:\HEARINGS 2013\09-18 ZPM DISTILLER\USE THIS HEARING\91813PM.TXT JASON
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1Full list is available at www.smartersafer.org. 2P.L. 90-448. 

3 U.S. Task Force on Federal Flood Control Policy, ‘‘A Unified National Program for Managing 

Flood Losses’’, August 1966. P. 17. Available at: http://www.loc.gov/law/find/hearings/floods/ 

floods89-465.pdf. 4 Hayes, Thomas L., and Neal, D. Andrew, ‘‘Actuarial Rate Review’’, Federal Emergency Management Agency. October 1, 2011. P. 5. Available at: http://www.fema.gov/media-library-data/ 

20130726-1809-25045-6893/actuariallratelreview2011.pdf. 5 Congressional Budget Office, ‘‘Factors Affecting Actuarial Soundness’’, November 2009. P. 6. 

Available at: http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/106xx/doc10620/11-04- 

floodinsurance.pdf. 6Government Accountability Office, ‘‘Flood Insurance: More Information Needed on Subsidized Policies’’, July 2013. P. 14. Available at: http://www.gao.gov/products/GAO-13-607. 7 Hayes and Neal. Supra Note 4 at 22. 

8Statement of Orice Williams Brown, Director Financial Markets and Community Investment, Government Accountability Office before the Senate Committee on Banking, Housing, and 

Urban Affairs. P. 7. http://www.gao.gov/new.items/d11670t.pdf 

ket and taxpayer groups to environmental and insurance industry groups. 1 The 

depth and breadth of the coalition underscores the importance of making NFIP responsible. 

Unintended Consequences 

It is important to understand how we came to this place: a Federal flood insurance program of 5.5 million policies that takes in $3.6 billion in premiums and owes 

the Treasury roughly $25 billion. 

After years of ad hoc disaster aid being meted out by Congress, the National 

Flood Insurance Program was established in 1968 to create ‘‘a reasonable method 

of sharing the risk of flood losses through a program of flood insurance which can 

complement and encourage preventative and protective measures.’’ 2 The program 

was to make up for a perceived lack of available private flood insurance. But even 

at the time Congress was warned that it was playing with fire. The Presidential 

Task Force on Federal Flood Control Policy wrote in 1966: 

A flood insurance program is a tool that should be used expertly or not at 

all. Correctly applied it could promote wise use of flood plains. Incorrectly 

applied, it could exacerbate the whole problem of flood losses. For the Federal Government to subsidize low premium disaster insurance or provide 

insurance in which premiums are not proportionate to risk would be to invite economic waste of great magnitude. 3

Well, we know which way that story unfolded. Although subsidies were largely 

envisioned to be limited and short-term, they weren’t. And while the program has 

encouraged standards and construction that help reduce flood risks for participating 

communities, the availability of taxpayer-subsidized Federal flood insurance over 

the last several decades made it financially attractive to develop in high risk areas. 

Along with other factors, NFIP helped fuel the coastal development boom that increased the program’s risk exposure and losses. 

To foster increased participation, the NFIP did not charge truly actuarially sound 

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. 4 FEMA’s average largely discounted catastrophic loss years in the equation, something a private insurer would have to take 

into account. 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. 

NFIP’s fiscal solvency was further challenged because properties that pre-date a 

community’s involvement in the NFIP or the applicable flood insurance rate map 

(whichever is later) charitably enjoyed significantly subsidized rates, paying only 

35–45 percent of their actual full-risk level premium, depending on certain assumptions. 5 While the initial thought may be that because of their vulnerability these 

pre-FIRM (Flood Insurance Rate Map) properties would diminish over time, the 

Government Accountability Office estimates that 1,153,193 subsidized policies remain. 6 In 2011, FEMA put the percentage of properties in the NFIP that were receiving explicitly subsidized rates at more than 20 percent. 7

Furthermore, properties that experienced repetitive losses have made up a demonstrable and disproportionate amount of the program costs. A repetitive loss property 

is one that has had two or more claims of $1,000 over 10 years. These properties 

represent only 1 percent of the total number of policies, yet account for 25 to 30 

percent of the cost of claims. 8 Properties like one in Wilkinson, MS, that has flooded 

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9Frank, Thomas, ‘‘Huge Losses Put Federal Flood Insurance Program in the Red’’, USA 

Today. August 26, 2010. Available at: http://usatoday30.usatoday.com/news/nation/2010-08- 

25-flood-insurancelN.htm. 10Government Accountability Office. Supra Note 6 at 14. 

34 times since 1978 and received payments worth nearly 10 times the home’s 

$70,000 value. Or another property owner in Houston, TX, that has received $1.6 

million worth of claims for a house worth $116,000. 9 We need to help these people 

out—out of harm’s way—and at the same time help the taxpayer who is stuck with 

the tab. 

Biggert-Waters and Beyond 

The Biggert-Waters Flood Insurance Reform Act of 2012 made many significant 

changes to the NFIP to help it become less fiscally reckless and to better inform 

policyholders of their flood risk. 

In Biggert-Waters, Congress helped address the long-term sustainability of the 

NFIP. As a consequence, several types of properties that had received pre-FIRM 

subsidies would have their rates increased by 25 percent a year until they met the 

full risk based rate. While this may be financially painful in some cases, the subsidies had served to disincentivize behavior and practices that would reduce risk 

and in the long-run be good for the individual and good for the country. The properties included: 

• Nonprimary residences 

• Severe repetitive loss property (four or more claims exceeding $5,000) 

• Properties that have received flood payments that in aggregate exceed the fair 

market value of the property 

• Business properties 

• Property that since July 6, 2012, has sustained damage exceeding 50 percent 

of the fair market value; or had substantial improvements that exceed 30 percent of the fair market value of the property 

• New or lapsed policies 

• Policies where the insured refuses mitigation assistance (including relocation) 

It is important to recognize that policyholders are not being denied the ability to 

purchase flood insurance. This provision of the law simply eliminates the subsidized 

rates. Furthermore, while it may sound like a lot of affected properties, because preFIRM primary residences that maintain coverage are not included, 62 percent of 

policyholders (715,259 policies) with subsidized premiums would be unaffected by 

these changes. In reality, the biggest shift will be that second homes and businesses 

that used to claim 38 percent of the subsidized policies will now represent only 1.5 

percent of the total. 10

In addition, when flood maps are updated with any changes that increase rates, 

all properties will be subject to the new rates that will be phased in at 20 percent 

a year for 5 years. This effectively ends the previous grandfathering process where 

some properties retained the highly subsidized premiums for decades. 

Biggert-Waters also included several other reform provisions, including: 

• Increased lender penalties from $350 to $2,000 per violation, for failing to enforce mandatory purchase requirements for properties in the Special Flood Hazard Areas (SFHA—the 100 year, or 1 percent chance or more, floodplain). 

• Dictates that FEMA set premium rates in aggregate that would generate 

enough revenue to offset the true average historical loss year (not discounting 

catastrophic years like 2005). 

• Charge premiums that would generate revenue to create a reserve fund to reduce borrowing from the Treasury. FEMA has adopted a 5 percent surcharge 

on all premiums to develop the fund. 

Other notable provisions regarded mapping: Biggert-Waters established a Technical Mapping Advisory Council to help FEMA improve accuracy, develop standards, 

and make recommendations on future conditions mapping to more accurately estimate risk. FEMA must incorporate any recommendations from this Council. There 

is also a Scientific Resolution Panel to arbitrate community appeals of maps using 

technical or scientific data. 

Accurate Maps Are Critical 

The NFIP is driven by maps because geography ultimately determines flood risk. 

They determine the veritable alphabet soup of what flood zone your structure is in: 

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11 Hughes, Siobahn, ‘‘Flood Insurance Prices Surge’’, Wall Street Journal. August 12, 2013. P. 

A3. Available at: http://online.wsj.com/article/ 

SB10001424127887323446404579008922222799170.html. 12http://www.city-data.com/county/PlaquemineslParish-LA.html 13 Barnett, Kyle, ‘‘FEMA Insurance Rates Not as High as Projected, But Still Unaffordable’’, 

St. Charles Herald Guide. September 12, 2013. Available at http://www.heraldguide.com/details.php?id=13049. 

A, V, X, or variants within each category. Your property could be in the 100-year 

floodplain or the 500-year floodplain; high-risk storm surge zone or special flood 

hazard areas. The maps are key to the program’s success or failure because they 

define the Nation’s flood risk and the policyholder responsibility. They must be up 

to date, accurate, and based on the best available science to be effective. This is why 

FEMA’s map modernization program is critical to the appropriateness of Federal 

Government participation in the program and should not be delayed or side-tracked 

in any way. 

The Nation’s floodplains are dynamic and fundamentally risky. Not just from natural forces, but also the impacts of development, weather patterns, and topographical changes. Areas that were previously less likely to flood could now be more 

likely. Levees that were adequate to provide 100-year protection a decade ago may 

provide far less due to poor maintenance or increased flood elevations due to increased runoff or new development. 

Not surprisingly, the map modernization effort has been met with some controversy. In some cases, homeowners are facing steep increases in premiums after 

years, even decades, of paying the same grandfathered pre-FIRM subsidized rate. 

While the uproar is understandable, it doesn’t change the underlying circumstances 

or the risk or the need to manage the program responsibly. In some cases property 

owners that didn’t have to purchase flood insurance under existing law now find 

themselves required to do so; others have been mapped out of the floodplain. 

Help Those Who Need It 

It may be politically expedient and popular locally to delay map modernization or 

delay rate increases. But what may make good local politics generally makes bad 

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 taxpayers deserve 

to have those who choose to live in harm’s way pick up their share of the tab. 

In communities affected by possible rate increases there have been a lot of rumors 

about enormous rate increases. One insurance agent in Plaquemines Parish, LA, estimated that under new maps, his flood insurance rate would go from $633 to 

$28,000. 11 That would certainly give anyone sticker shock, but it is hard to square 

that rate with what the data to justify it would mean. The median home sales price 

in Plaquemines Parish fluctuated in 2012 but it is roughly between $200,000 and 

$250,000. 12 Considering the maximum amount of flood insurance a homeowner can 

obtain under NFIP is $250,000 (and an additional $100,000 for contents) that would 

basically mean that FEMA expects this property to be a total loss every decade. If 

true, this individual and his property are at incredible risk, in which case delaying 

the rate increase sends absolutely the wrong signal. Or the possible rate increase 

is inflated, which seems to be the case in St. Charles Parish, where homeowners 

had been concerned about new $30,000 rates. However as a recent newspaper story 

noted, the maximum rate was down to $15,000, although the only actual instances 

cited in the story are of $2,000 and $7,300. 13 These rates are the result of new 

maps and the ending of grandfathering. The parish has indicated their interest in 

appealing the maps, which is their right and is an import part of the reformed program. Some technical changes may need to be made to the maps, which is something for FEMA and the Scientific Resolution Panel established by Biggert-Waters 

to consider. Defining the actuarially accurate rates and associated maps are critical 

to the long-term viability of a Federal flood insurance program. That is, the concern 

is not a matter of local frustration, but of the long term existence of a fiscally fragile 

program. 

In Congress, there has been a series of efforts to delay map implementation and 

rate increases. In both the House and Senate reported versions of the Fiscal Year 

2014 Department of Homeland Security Appropriations bills there are provisions to 

deny funds ‘‘to implement, carry out, administer, or enforce section 1308(h) of the 

National Flood Insurance Act.’’ That section deals with premium adjustments that 

would result from updated maps. Depending on how it is interpreted, this provision 

could lead to at least a 1 year delay. Or even worse, by allowing new maps to be 

finalized but not allowing rates to be adjusted on the implementation dates—subsidized rates being grandfathered again until the next map update years from now. 

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14GAO selected 351 counties nationwide, this included every county with more than 500 subsidized single unit primary residence policies and five counties in every State with the most remaining subsidized policies for single-unit primary residences. 

Conversely, this would deny any policyholder who would see their rate decrease in 

new maps from enjoying that rate reduction. 

There is other legislation that would delay map implementation or rate increases 

through a variety of means. 

None of these delay proposals deal with affordability or efficiency issues or recognize the very real challenges facing Government participation and continued national support for the National Flood Insurance Program. Furthermore the broad 

nature of the proposals means that millionaire homeowners get the same break that 

is being championed on the backs of those less well off. It also means that policyholders who were going to see their rates decrease with the new maps will be forced 

to continue to pay more. And lastly, because the total premium target, which is set 

by the average historical loss year, is unchanged by these individual delay proposals, every policyholder will have to pay more premium than they would otherwise to make up for continuing decades old subsidies. This is about fundamental 

fairness within the flood insurance program and eliminating the cross subsidies that 

have a few properties paying full freight while picking up the tab for properties that 

have enjoyed subsidized premiums for decades. 

While the argument to derail reforms centers on the issue of affordability, the 

data reveals the flood insurance program subsidies substantially benefit the well off. 

A GAO analysis found that the NFIP program is particularly generous to those in 

the top deciles of median household income and home value. The GAO reviewed the 

distribution of subsidized premiums by median home value and median income. It 

targeted 351 counties 14 that represented more than 70 percent of the remaining 

subsidized policies and 41 percent of total primary residence policies. 

Its analysis found that more than a quarter of the remaining subsidized policies 

were in counties in the top decile for both median home value and median home 

income. Only 7 percent of the nonsubsidized policies were in those same counties. 

Furthermore, 43 percent of subsidized policies were in counties in the top decile of 

median home value and 69 percent were in the top two deciles. Overall, 76 percent 

of the subsidized and nonsubsidized policies were in counties in the top two deciles. 

The counties in the bottom two deciles had 0.4 percent of the subsidized policies and 

0.2 percent of the total policies. 

A Responsible Approach 

A critical role of a Federal flood insurance program is to inform people of their 

flood risk so they can take steps to financially protect their own investments. Rates 

provide an important price signal of risk. 

If Congress wants to deal with the issue of affordability, there are responsible and 

well-understood ways to accomplish this. The Wharton Risk Management and Decision Processes Center outlines one strategy. The Association of State Floodplain 

Managers details another. For Taxpayers for Common Sense, any responsible approach to affordability would be: 

• Self-contained—the taxpayer should not be asked to take on a further burden 

to support this program. If an affordability policy is undertaken, a small surcharge should be placed on all flood insurance policies to prefund the account. 

• Targeted—One of the underlying problems of subsidized flood insurance is that 

the subsidies flow to wealthy vacation beach house owners as well as those of 

modest means. The affordability measures must be available only on a meanstested basis. 

• Temporary—This should be a short term program to help policyholders deal 

with sticker shock. A long-term program will undercut the important risk information provided by the price signals. 

• Independent—The aid should be vouchers or some other assistance that is outside the NFIP rate structure so that it doesn’t undercut the price signals of risk. 

• Helpful—Obviously aid is helpful, but the funding should allow the policyholder 

to use it for mitigation as well as rate relief. 

• Logical—Properties should get premium credit for the level of protection that 

they currently have, even if the flood protection isn’t greater than 100-year protection. Last minute maneuvering stripped a provision from Biggert-Waters 

that would have allowed this. 

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15http://quickfacts.census.gov/qfd/states/00000.html 

Conclusion 

The National Flood Insurance Program is a narrow program. There are 5.5 million policies, 3.6 million of which are for primary residences and another 1.7 million 

for second homes. But there are 132.3 million housing units in the United States. 15

This means that while only 4 percent of housing units nationwide have flood insurance, those policyholders are roughly $25 billion in debt to American taxpayers. 

It took extraordinary amount of effort in Congress to increase the NFIP borrowing 

authority by $9.7 billion after Superstorm Sandy, and that was to enable the program to pay off claims to policyholders. This demonstrates there is fatigue and impatience with this program that is $25 billion in debt. To delay or derail the reforms 

enacted a year ago would put this program on perilous footing, fiscally, politically, 

and existentially. 

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PREPARED STATEMENT OF BIRNY BIRNBAUM 

EXECUTIVE DIRECTOR, CENTER FOR ECONOMIC JUSTICE

SEPTEMBER 18, 2013 

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RESPONSES TO WRITTEN QUESTIONS OF SENATOR HELLER 

FROM W. CRAIG FUGATE 

Q.1. We are trying to ensure that everyone has proper and affordable flood insurance coverage while also ensuring the fiscal solvency of the overall National Flood Insurance Program. The further 

development of the private flood insurance market could be a reasonable option for some Americans. Biggert-Waters specifically requires lenders to accept private flood insurance. 

With the National Flood Insurance Program in such debt; would 

it be beneficial to have more private flood insurance policy options 

available to take some of the burden off of the NFIP? 

With some NFIP rates increasing do you view private flood insurance as a viable tool for some consumers to find lower cost options? 

How has FEMA been encouraging other regulators such as the 

Federal Reserve, FDIC, and OCC to issue guidance to industry 

lenders to accept private flood insurance policies as proper flood insurance coverage? 

A.1. In regard to the current NFIP debt of $24 billion, private flood 

insurance could be both a benefit and a detriment. It could be a 

benefit in that private flood insurance could take on much of the 

current NFIP policyholder base and thus greatly lessen the amount 

of additional future debt that the Program might incur from future 

flood catastrophes. However, it could also be a detriment to the 

NFIP’s ability to ever payoff its current $24 billion debt—fewer policyholders would reduce the amount of free cash flow the Program 

would experience during light loss years—it could be that in light 

loss years, the Program still wouldn’t have enough cash remaining 

after paying claims and operating expenses to service the interest 

on the debt. 

Private flood insurance would create competition. It is possible 

some homeowners could find lower cost options for flood insurance 

as a result of private market competition. Some homeowners may 

also find that private market rates are higher than the rates currently offered by the NFIP. At this point, we cannot anticipate how 

many could see lower rates due to private market competition. 

FEMA has been meeting regularly with regulators discussing the 

implementation of the Biggert-Waters Flood Insurance Act of 2012 

and other topics. On October 11, the Federal Reserve and other 

regulators released a proposed rule requiring the acceptance of private flood insurance policies. However, it is important to note that 

FEMA does not regulate mortgage companies and is not responsible for enforcing mandatory purchase guidelines for the NFIP. 

FEMA does not influence the actions that other Federal agencies 

are required to implement in the law. 

Q.2. Starting in 2008, Douglas County in Nevada raised questions 

about FEMA’s revised flood study and maps used in the Carson 

Valley after discovering improper hydrology methods were used. 

Douglas County tried to work with FEMA Region 9 during the formal appeal period, before any final decisions were made. FEMA’s 

unwillingness to form a partnership with the County throughout 

the appeal process to address the inaccuracies left the County with 

no choice but to restudy the watersheds in question, with their own 

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funds. Now for over the past 3 years, the County has undertaken 

a new substantial effort to collect more detailed and advanced scientific analysis. Due to the lengthy review process many property 

owners may be paying flood insurance premiums that are not 

based on accurate information. 

If FEMA should find an entity like Douglas County was correct 

in their appeal—Can FEMA develop a formal protocol and set aside 

funds and provide financial reimbursement to affected property 

owners who unnecessarily paid higher rates and reimburse entities 

that individually funded restudying data? 

If so—when will FEMA implement the program to make reimbursements? 

How can FEMA improve and develop a more fair and unbiased 

technical appeal process where FEMA partners with communities 

toward the mutual goal of accurate floodplain mapping? 

A.2. Section 100246 of the Flood Insurance Reform Act of 2012 authorizes FEMA to reimburse appellants (as defined under 42 U.S.C. 

§4104 (b) or (c)) in certain circumstances, but the law does not 

allow implementation of Section 100246 to occur until regulations 

are established. FEMA is prioritizing rulemaking activities in response to the Flood Insurance Reform Act of 2012 and other Congressional direction, but FEMA cannot begin reimbursing under 

this provision until regulations are completed. Therefore, there are 

no specific procedures applicable to Section 100246 and reimbursements currently in place. 

FEMA’s flood hazard mapping mission is to identify flood hazards, assesses flood risks, and partner with States and communities to provide accurate flood hazard and risk data to guide them 

to mitigation actions. FEMA strives to achieve these objectives via 

the Risk MAP program. For Risk MAP projects, an emphasis is 

placed on collaboration with local communities to leverage locally 

available data and identify the areas of greatest need for improved 

and updated floodplain mapping. Community and stakeholder involvement is an important component of the flood hazard mapping 

process. FEMA involves community officials and other stakeholders, including Federal agencies, in the planning stages of the 

mapping process and offers stakeholders and the public the opportunity to review and provide comments on mapping products. Also, 

in an effort to obtain all relevant information and ensure accurate 

study results, FEMA routinely holds public meetings for community officials and interested parties. The appeals process is available to communities who are not satisfied with the results of the 

subsequent mapping effort and who have scientific or technical 

data to support changes to the proposed map. FEMA has taken two 

critical steps in recent years to improve and enhance this appeal 

process. 

First, FEMA expanded the appeals process to include appeals 

based on new or modified flood hazard information shown on a 

Flood Insurance Rate Map (FIRM). The appealable flood hazard information now includes additions or modifications of any floodplain 

boundary, flood zone designation, or regulatory floodway. Thus, 

more communities and individuals now have access to the appeal 

process. 

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Also, the use of a Scientific Resolution Panel (SRP) has been 

made available to communities in support of the appeal resolution 

process when conflicting scientific or technical data is submitted 

during the appeal process, and a mutual resolution has not been 

achieved. SRPs are panels composed of independent and unbiased 

panels of experts in hydrology, hydraulics, and other pertinent 

sciences established to review conflicting scientific and technical 

data and provide recommendations for resolution. 

Q.3. Recently FEMA has been changing flood zones on U.S. Forest 

Service property or near foothill areas to Zone D. Zone D is used 

where flood hazards are ‘‘undetermined.’’ Zone D can lead to the 

worst rate for homeowners who may want to purchase flood insurance. 

How can FEMA improve its work with the U.S. Forest Service 

in understanding and evaluating U.S. Forest Service property 

areas around cities before Zone D is used? 

A.3. Community and stakeholder involvement is an important component of the flood hazard mapping process. FEMA involves community officials and other stakeholders, including Federal agencies, 

in the planning stages of the mapping process and offers stakeholders and the public the opportunity to review and provide comments on mapping products. Also, in an effort to obtain all relevant 

information and ensure accurate study results, FEMA routinely 

holds public meetings for community officials and interested parties. 

The initial coordination activities for a mapping study include an 

evaluation and prioritization of the community’s mapping needs 

and the available funding, to establish the level of study undertaken in each area and options for mapping the areas. After these 

discussions, study efforts may need to focus on certain high-risk or 

high-population locations and delay the analysis of areas deemed 

less critical. This may result in areas of the FIRM being designated 

Zone D. A Zone D designation is used for areas where there are 

possible but undetermined flood hazards, as no analysis of flood 

hazards has been conducted. Flood insurance is not federally required by lenders for structures in Zone D because it is not a Special Flood Hazard Area. Although these areas are often undeveloped and sparsely populated at the time they are designated as 

Zone D, lenders may subsequently become aware that new development has increased the possibility of property damage from flooding and may require coverage as a condition of their loans. Flood 

insurance rates for properties in Zone D are commensurate with 

the uncertainty of the flood risk. 

At any time, community officials can submit scientific or technical data to FEMA to support a flood zone revision. All requests 

for map revisions should be submitted through the Chief Executive 

Officer of the community, because the community must adopt any 

changes to the FIRM. To help communities compile the data required to support map revision requests, FEMA has developed a 

package of step-by-step instructions and forms. These forms and 

cost information for map revisions are available on the FEMA Web 

site at www.fema.gov/mt-2-application-forms-and-instructions. 

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In addition, there is a statutory 90-day appeal period whenever 

new or modified flood hazard information is shown on a preliminary Flood Insurance Rate Map and Flood Insurance Study report. 

When conflicting scientific or technical data is submitted during 

the appeal process, and a mutual resolution has not been achieved, 

the use of a Scientific Resolution Panel (SRP) has been made available to communities in support of the appeal resolution process. 

SRPs are panels composed of independent and unbiased panels of 

experts in hydrology, hydraulics, and other pertinent sciences established to review conflicting scientific and technical data and provide recommendations for resolution. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHUMER 

FROM W. CRAIG FUGATE 

Q.1. Please provide a detailed timeline for implementing Sections 

100205 and 100207 of the Biggert-Waters Act. 

A.1. Below is a timeline of FEMA’s plans for implement Sections 

100205 and 100207 of the Biggert-Waters Act. 

Section 100205 

January 1, 2013: 

At the time of policy renewal, Pre-FIRM rates increase 25 percent above the rates in effect for nonprimary pre-FIRM subsidized 

residences. FEMA will continue phasing out the Pre-FIRM subsidies for Pre-FIRM nonprimary residences by 25 percent every 

year until the property reaches full risk rates. 

October 1, 2013: 

Premium Increases: Pre-FIRM rates increase (including the reserve fund assessment) 25 percent above the rates in effect when 

the Biggert-Waters Act was enacted for policies issued on: 

• Severe Repetitive Loss (SRL) properties 

• Properties that have incurred flood-related damages in which 

the cumulative amount of NFIP claim payments exceeded the 

fair market value of the property (as a subset of SRL properties) 

• Business properties 

No Extension of Subsidy to New Policies or Lapsed Policies for 

Pre-FIRM Subsidized Properties in SFHAs and Zone D (New Business): FEMA is prohibited from offering Pre-FIRM subsidized rates 

for certain properties. As such, NFIP will no longer provide any extension of Pre-FIRM subsidized rates to new or lapsed Pre-FIRM 

properties/policies, or Pre-FIRM properties purchased after the 

date BW was enacted. These properties will be charged the full-risk 

premium rate. Unless eligible for Post-FIRM rating grandfathering, 

to determine the full risk premium rates for these properties, the 

policyholder must submit to his agent an Elevation Certificate (EC) 

and photos showing the elevation of the lowest floor compared to 

the base flood elevation. For the first year of implementation only, 

FEMA will use tentative or provisional rates while the policyholder 

obtains an EC. New business Pre-FIRM application submissions 

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will use Post-FIRM rating procedures. The following Pre-FIRM 

properties/policies are impacted: 

• Properties not insured by the NFIP as of the date of enactment 

of BW12. 

• Policies under the NFIP that have lapsed in coverage as a result of the deliberate choice of the policyholder. 

• Properties purchased after the date of enactment of the 

Biggert-Waters Act. 

June 1, 2014: 

For purposes of determining pre-FIRM subsidized nonprimary 

residences subject to 25 percent increases, the NFIP will revise the 

threshold for determining nonprimary residence from living in the 

residence less than 80 percent to 50 percent or less of the 365 days 

following the policy effective date. 

January 1, 2015: 

Rulemaking for Installment Plans: FEMA currently does not 

have authority to cancel a policy if a payment is missed; this authority is required before FEMA can offer installment plans. FEMA 

will initiate Rulemaking to change the flood insurance policy to 

allow cancellations for nonpayment of premium under Section 

100205(d). 

Substantial Improvement: FEMA will initiate Rulemaking to 

deny subsidized premiums to any property which, since the date of 

enactment of the Biggert-Waters Act, has experienced or sustained 

substantial improvement exceeding 30 percent of the fair market 

value of the property. 

Section 100207 

FEMA plans to implement section 100207 on October 1, 2014. 

Guidance about the change will be released to stakeholders at least 

6 months prior to October 1, 2014. 

Q.2 What outreach efforts, if any, has FEMA taken to inform property owners and other stakeholders about the implementation timeframe referenced in Question 1, and the associated premium increases resulting from those reforms? What outreach efforts, if any, 

has FEMA taken to inform property owners and stakeholders about 

the phase-out of grandfathered rates? 

A.2. FEMA has undertaken a broad strategy to educate consumers, 

stakeholders, elected and appointed officials, and the media. 

Because of the multiple audiences and multiple channels through 

which policyholders receive information, FEMA launched a comprehensive and aggressive strategy to educate lenders, realtors, insurance agents, local officials, elected officials and the news media. 

While FEMA depends on Write-Your-Own (WYO) insurance companies and others to communicate to policyholders about changes to 

the NFIP, FEMA is also using several BW12 specific Web sites, 

partner social media sites, FEMA social media, and 

FloodSmart.gov educational tools to reach out directly to policyholders and the public. 

FEMA has worked closely with: 

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• Partners in the Insurance Industry, including Write-Your-Own 

companies and others, ensure agents have the tools needed to 

have important discussions. In many, if not most cases, an individual’s insurance agent is their only link with the NFIP and 

it is critical that agents are fully educated on the changes and 

impacts of BW12. 

• FEMA has worked through our agent training programs, 

through our WYO partners, through industry associations 

and directly to agents via in-person conferences and distance 

learning to ensure our partner agents have the information 

and tools they need to properly communicate with policyholders. 

• FEMA developed materials that each policyholder will get in 

their annual insurance renewal information package describing the rate changes and encouraging them to talk more 

with their insurance agents. 

• FEMA developed a new suite of materials designed for 

agents to have the BW12 conversation when appropriate 

with their customers and a specialized tool kit with input 

from former agents on the tools needed to talk with customers. 

• Since May 2013, FEMA has trained more than 6,400 agents 

and 11,500 total insurance professionals (lenders, adjusters, 

realtors, others) on BW12 changes. FEMA is very near the 

goal of training 19,100 insurance professionals including 

8,000 agents by the end of the calendar year. FEMA has also 

developed a new series of six training videos for agents specifically on BW12 which will are available online. 

• FEMA has held conference calls and webinar training for staffs 

of more than 40 State insurance commissioners. 

• FEMA conducted more than 10 in-person briefings for the National Association of Realtors at the national and State levels, 

and plan to conduct more training with them in the future. 

• In May 2013, FEMA dedicated most of the educational portions 

of the annual Flood Insurance Conference to the implementation of Section 205. 

• FEMA has conducted more than 50 visits to Capitol Hill to 

educate Members of Congress and staffs on BW12. 

• FEMA has worked—through the Association of State Floodplain Managers—to reach out to local officials to educate them 

on BW12. 

• FEMA met with nearly 1,000 Local floodplain managers at the 

ASFPM National Conference this year, providing them tools 

and resources to communicate changes to their communities. 

FEMA is also developing a suite of BW12 materials specifically 

for use by local officials. 

• FEMA has met with disaster survivors in Colorado, in Sandyaffected areas in the Northeast, and Isaac-affected areas on the 

Gulf Coast to ensure that as they rebuild, they have the information they need to make the best rebuilding decisions for 

them. 

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• FEMA has conducted scores of in-person briefings and 

webinars through our HQ and regional offices to inform the 

public about Section 205 changes. 

Q.3. How does FEMA plan to assess the ‘‘current risk of flood’’ as 

required under Section 100207 of Biggert-Waters for properties 

where FEMA does not have risk information in the form of an elevation certificate? What additional measures, other than an elevation certificate, if any, has FEMA considered in using to determine risk? If none, why? 

A.3. Properties that currently do not have an elevation certificate 

documenting the necessary risk information to determine the current risk of flood, primarily elevation of the structure and the Base 

Flood Elevation will be required to obtain an elevation certificate. 

WYO companies are required to give notice that an Elevation Certificate is needed a minimum of 45 days prior to policy expiration, 

and WYO companies typically give notice 60–90 days prior to expiration. 

FEMA is exploring other remote sensing options for determining 

the elevation of structures and Base Flood Elevations, but so far 

no methods have been tested and proven to sufficiently replace an 

Elevation Certificate completed by a licensed surveyor or engineer. 

Q.4. What plans, if any, does FEMA have to work with localities 

to address unique housing stocks, such as those in dense urban 

areas? 

A.4. Following major declared disasters FEMA puts in place plans 

to work with State and local officials on their recovery needs. While 

hurricane and flood disasters in dense urban areas are not new, 

the impacts of Hurricane Sandy on New York and New Jersey were 

large and significant to a variety of housing stocks from detached 

single family homes to high rise apartments, condominiums, and 

mixed use buildings. In support of its mission to create safer communities, enable individuals to recover more rapidly, and lessen 

the financial impact of disasters on the Nation, the Federal Insurance and Mitigation Administration (FIMA) implemented plans to 

assess the performance of damaged buildings, produce Recovery 

Advisories of recommended mitigation solutions to common observed damage trends, and roll out comprehensive training, education, and outreach to stakeholders of various housing stocks. 

From early on in the disaster, FEMA put up a Web site with 

available Building Science Resources http://www.fema.gov/building-science/hurricane-sandy-building-science-activities-resources 

and added new resources as they became available. There are Recovery Advisories and Fact Sheets on residential building design 

and construction, foundation requirements, mechanical, electrical 

and plumbing systems, designing for higher flood levels, reducing 

interruptions to mid- and high-rise buildings and protecting building fuel systems. There are links to the extensive library of relevant free Building Science publications such as Technical Bulletins on the minimum building performance requirements of the 

National Flood Insurance Program (NFIP), Coastal Construction 

guides and fact sheets, Flood Retrofit and Utility Protection guides, 

building code requirements in flood hazard areas, and many other 

resources. 

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FEMA also collaborated with State and local official for specific 

activities focused on stakeholders of various housing stocks that 

were impacted. Examples include the Hurricane Sandy Road to Recovery: A New Jersey Homeowner’s Guide (March 2013) http:// 

184.72.33.183/Public/PubliclDocuments/ 

NewlYorklHomeownerlGuide.pdf and the Housing Recovery Forums conducted throughout New York City where the public had 

access to mitigation and insurance specialists from FEMA and 

other Government agencies. 

For technical audiences of builders, designers, and local officials, 

FEMA delivered numerous training classes in New York, New Jersey, and online covering housing related topics such as mitigation 

best practices, coastal construction and foundation design, 

floodproofing, flood codes and standards, retrofitting flood-prone 

buildings, and others. Thousands of attendees were reached 

through these efforts. 

FEMA has also delivered presentations at several State realtor 

association functions, legal bar associations, civic groups, town hall 

meetings and Governor Cabinet meetings educating and informing 

citizens, elected and appointed officials and real estate professionals on an overall comprehensive mitigation strategy. This includes awareness of Hazard Mitigation grants for elevations, acquisitions, flood proofing, etc., and sound floodplain management principles that emphasize planning, risk assessment, and mitigation actions. Those plans continue with aggressive and comprehensive 

outreach campaigns to assist State Partners and the local floodplain mangers with technical assistance. 

FEMA continues collaboration with HUD, State and local elected 

and appointed officials with disaster grant assistance programs including CDBG, 404 and 406 Hazard Mitigation for vulnerable housing stocks. 

Q.5. What alternative mitigation measures, if any, has FEMA considered, evaluated, or adopted for premium credits other than home 

elevation or filling-in of basements for urban areas? If none, why? 

A.5. Under the NFIP, all new and substantially improved/damaged 

residential structures must have the lowest floor elevated to or 

above the Base Flood Elevation (BFE). Any space below the BFE 

may be used only for parking, access, and storage. We have consistently found in our post-disaster assessments and flood insurance 

experience, that properly elevated residential buildings successfully 

minimize flood damages. Structures built to NFIP floodplain management requirements experience 80 percent less damage through 

reduced frequency and severity of losses. 

FEMA is in the process of finalizing Post-Sandy Recovery 

Advisory No. 7 (Reducing Flood Risk and Flood Insurance 

Premiums for Existing Residential Buildings) to provide 

guidance for providing protection to single-family homes 

and for a row house and town house to the BFE by modifying and strengthening their foundation to an open foundation or with foundation walls and converting the ground 

floor living area to an enclosure used only for parking, assess, and storage. The living area would be moved above 

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the BFE. If the building meets other NFIP requirements, 

the building can qualify for reduced flood insurance rates. 

Since the NFIP’s inception, all residential structures are required 

to be elevated above the BFE. Allowing people to sleep, recreate, 

or otherwise occupy the space, and place utilities and mechanical 

equipment below the BFE of a residential building of any type, 

places not only the building, but also lives at significant risk. From 

time to time, we have been asked to allow residential structures to 

be dry floodproofed. FEMA has not allowed residential structures 

to be dry floodproofed because of the concern for people living 

below the BFE, and because of the technically complex methods 

that dry floodproof nonresidential structures require. 

Dry Floodproofing: Dry floodproofing requires an architect or engineer to certify that the building design, specifications, and plans 

meet the NFIP requirements. Under the NFIP, a dry floodproofed 

nonresidential structure in A Zones must be designed so that below 

the BFE, the structure and associated utilities and sanitary facilities are watertight with walls substantially impermeable to the 

passage of water. Making the structures watertight requires sealing the walls with waterproof coatings, using impermeable membranes, and/or a supplemental layer of masonry or concrete. Dry 

floodproofed buildings must be capable of resisting hydrostatic, hydrodynamic, and debris impact loads. An emergency operation plan 

must be in place, and there must be an inspection and maintenance plan to ensure that all elements of the dry floodproofing 

measures are in good condition. 

The International Building Code and the International Residential Code do not allow dry floodproofed residential structures of any 

type. The American Society of Civil Engineers national consensus 

standard for Flood Resistant Design and Construction (SEI/ASCE 

24-5) does not allow dry floodproofing for residential structures, 

and for nonresidential structures it is only permitted outside of 

‘‘high risk’’ flood hazard areas that are subject to high velocity 

flows and wave action. State adopted building codes are also consistent with the International Codes with respect to elevation of 

residential buildings. In addition, the elevation requirements for 

residential buildings of any type are consistent with the mandates 

of Executive Order 11988—Floodplain Management that Federal 

agencies must follow for actions in the floodplain. 

• Dry Floodproofing Mixed Use Buildings: In A zones, professionally designed buildings that have both commercial (nonresidential) and residential uses may be designed with 

floodproofing measures. However, all residential-use areas of 

the building must be above the BFE and the nonresidential 

portion of the building below the BFE must be floodproofed. 

While the NFIP regulations state that dry floodproofing of 

below-grade parking garages is allowed only for nonresidential 

buildings, FEMA generally applies the mixed use guidance to 

situations where the parking garage is below grade on all four 

sides with the next higher floor dedicated to nonresidential 

uses. 

• Insuring Dry Floodproofed Buildings: The minimum requirement for floodproofing a nonresidential structure is to the BFE; 

110 

however, when a floodproofed nonresidential structure is rated 

for flood insurance, one foot is subtracted from the floodproof 

elevation. Therefore, the floodproofed nonresidential structure 

has to be floodproofed to one foot above the BFE to receive the 

same favorable insurances rates as a nonresidential building 

elevated to the BFE. 

Options for Protecting Existing Residential Structures That 

Are Not Substantially Improved or Have Been Substantially Damaged 

There are a variety of simple low-cost measures that can be implemented to minimize the effects of flooding. Although these measures are designed to reduce flood damages, they may not eliminate 

flooding altogether, and would not result in reduced flood insurance 

premiums. Examples of mitigation measures include: 

• Relocate contents to a safer location, preferably above the BFE. 

• Protect mechanical and utility equipment. Elevate as much of 

the utilities and mechanical equipment as possible to protect 

them from flood damage. 

• Remove modern finished materials from basements or other 

areas below the BFE. Replace the finished materials with flood 

resistant materials. 

• Install ‘‘mini’’ floodwalls to protect openings, such as window 

wells. 

FEMA Grant Programs 

FEMA Flood Mitigation Assistance (FMA) grants and Hazard 

Mitigation Grant Program (HMGP) funds may be available to acquire high risk structures as an alternative to elevation or other 

mitigation actions. These grant programs may also be available for 

mitigation activities for existing buildings that were not substantially damaged or not being substantially improved. 

Q.6. What outreach efforts, if any, has FEMA taken to educate 

property owners in floodplains about the need for flood insurance? 

What outreach efforts, if any, has FEMA undertaken to inform 

property owners in floodplains about new flood map development 

and the effects of such new maps on insurance rates? What plans, 

if any, does FEMA have to work with localities, like New York 

City, in evaluating new flood maps and educating property owners 

about rate increases? 

A.6. In response to your questions concerning FEMA’s outreach efforts in response to the implementation of the Biggert-Waters 

Flood Insurance Reform Act of 2012, we offer the following information and examples of how FEMA has educated local officials and 

property owners in areas experiencing flood map revisions, as well 

as the effects of flood hazard changes on insurance costs. We also 

outline steps FEMA has taken, and will continue to take, to work 

with local officials to inform communities about the effects of flood 

map updates. 

111 

Promotion of Flood Insurance on a National Basis 

• Alerting homeowners of the need for flood insurance is a multipronged effort accomplished through a number of channels and 

touch points with property owners. FEMA actively engages 

with property owners and insurance agents through its 

Floodsmart (floodsmart.gov) public awareness campaign. 

Through television spots, billboard advertisements, an active 

Internet presence, direct mail, and numerous other channels, 

FEMA encourages ALL property owners to consider protecting 

themselves against the financially devastating effects of flooding by purchasing a National Flood Insurance Program (NFIP) 

policy. Floodsmart’s integrated marketing campaign includes: 

• Web site: On FloodSmart.gov, the public can access information about the NFIP and flood insurance, types of flood risk, 

preparation and recovery, and mapping activities. Various 

interactive tools also connect users to local insurance agents 

to learn more about the user’s unique situation and to obtain 

a flood insurance quote. 

• Direct Mail: FloodSmart sends more than 10 million direct 

mail pieces per year to homeowners, renters, and business 

owners across the Nation to increase public awareness of 

flood risk and the availability of flood insurance. The audiences include consumers without policies, consumers with 

policies that are about to expire, consumers who did not 

renew their policies, and small business owners. 

• Direct Response Television, Print, and Radio Ads: 

FloodSmart uses these mediums to inform consumers about 

the risks of flooding and to encourage them to learn more 

about their flood risk. 

• Online Digital Banners: FloodSmart creates digital banners 

that engage consumers and direct them to interact with additional tools and information on FloodSmart.gov. 

• Industry Outreach: FloodSmart engages insurance agents, 

insurance companies, and insurance trade associations and 

provides informational and marketing materials to help 

them explain flood risk and flood insurance requirements to 

all residents. 

• Stakeholder Outreach: FloodSmart engages with various 

stakeholder groups to share materials that will help them 

educate their communities about flood risk and flood insurance. 

• Local officials in NFIP participating communities are often a 

primary source of information to residents about flood risk, 

flood insurance, and flood map changes. Nearly 22,000 communities have joined the NFIP. Each one has made a commitment 

to maintain Flood Insurance Rate Maps (FIRMs) developed by 

FEMA for public inspection. These flood maps form the basis 

of locally adopted floodplain management ordinances and are 

a catalyst to promote flood insurance. The map is adopted by 

the community, and the community has a responsibility to 

alert residents of proposed and adopted changes. When a new 

map is prepared or an existing map is revised, FEMA, with the 

112 

assistance of the local community, conducts a series of meetings to share that information with the public. The new map’s 

effect on flood insurance is among the primary topics discussed 

during these meetings. 

Some communities have chosen to join the NFIP Community 

Rating System (CRS) and can receive flood insurance premium discount credits for promoting flood insurance. 1,273 communities 

have joined the CRS and implement floodplain management programs that exceed the Federal NFIP minimum standards. As a 

CRS participant, these communities commit to implementing specific practices which the NFIP recognizes by giving credit points. 

Ninety percent, or 1,143 CRS communities, receive specific credit 

for public outreach activities that include reference to the importance of flood insurance. 

By offering CRS credit, the NFIP has created an incentive for 

communities to promote the importance of purchasing of flood insurance. New York City does not currently participate in the CRS, 

but since Hurricane Sandy, is actively researching the possibility 

of joining. 

• FEMA has worked closely with partners in the Insurance Industry, including Write-Your-Own companies and others, to ensure agents have the tools needed to have important discussion 

with property owners. In many, if not most cases, an individual’s insurance agent is their only link with the NFIP and it 

is critical that agents are fully educated on the changes and 

impacts of BW12. 

• FEMA has worked through our agent training programs, 

through our WYO partners, through industry associations 

and directly to agents via in-person conferences and distance 

learning to ensure our partner agents have the information 

and tools they need to properly communicate with policyholders. 

• FEMA developed materials that each policyholder will get in 

their annual insurance renewal information package describing the rate changes and encouraging them to talk more 

with their insurance agents. 

• FEMA developed a new suite of materials designed for 

agents to have the BW12 conversation when appropriate 

with their customers and a specialized tool kit with input 

from former agents on the tools needed to talk with customers. 

• Since May 2013, FEMA has trained more than 6,400 agents 

and 11,500 total insurance professionals (lenders, adjusters, 

realtors, others) on BW12 changes. FEMA is very near the 

goal of training 19,100 insurance professionals including 

8,000 agents by the end of the calendar year. 

• FEMA has also developed a new series of six training videos 

for agents specifically on BW12 which will are available online. 

• Realtors and lenders are another key source of floodplain information for a property owner. The Flood Disaster Protection Act 

of 1973 and the National Flood Insurance Reform Act of 1994 

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made the purchase of flood insurance mandatory for federally 

backed mortgages on buildings located in Special Flood Hazard 

Areas (SFHAs). It also affects all forms of Federal or federally 

related financial assistance for buildings located in SFHAs. 

Following Hurricane Sandy, FEMA representatives met with 

and presented information on the updated flood hazards in 

New York and New Jersey to area realtors. 

• The flood insurance requirement applies to secured mortgage 

loans from key financial institutions. These include organizations such as commercial lenders, savings and loan associations, savings banks, and credit unions that are regulated, supervised, or insured by Federal agencies such as the Federal 

Deposit Insurance Corporation and the Office of Thrift Supervision. It also applies to all mortgage loans purchased by 

Fannie Mae or Freddie Mac in the secondary mortgage market. 

Federal financial assistance programs affected by the laws include loans and grants from agencies such as the Department 

of Veterans Affairs, Farmers Home Administration, Federal 

Housing Administration, and the Small Business Administration, as well as FEMA, in the case of some disaster assistance 

programs. Therefore, communicating the mandatory purchase 

requirement to property owners is the obligation of a number 

of agencies and businesses. 

• FEMA offers additional vehicles for communicating about flood 

insurance. FEMA’s Citizen Corps program promotes a holistic 

approach to preparedness, and recommends that individuals 

who live in areas of flood risk contact an insurance agent to 

learn more about flood insurance. The Government Delivery 

broadcast email subscriber service reaches more than 

1,000,000 subscribers with information on flood insurance. 

Promotion of Flood Insurance on a Regional Basis 

• Examples of FEMA’s latest outreach efforts can be seen in those 

communities most affected by Hurricane Sandy in New York 

and New Jersey. In the storm’s aftermath, FEMA immediately 

began creating advisory mapping products to assist communities in the rebuilding process, and to ensure that new and repaired structures would be significantly stronger in the face of 

future storms. FEMA explained to officials and residents of the 

affected communities that building or repairing structures to 

be stronger and above flood levels will help minimize flood insurance costs. The advisory products, most recently the preliminary work maps, will be incorporated into new FIRMs for 

the communities. FEMA also attended numerous Housing Recovery Forums around New York City to provide residents with 

recovery information and give participants an opportunity for 

one-on-one discussions with experts on rebuilding and flood insurance. 

• FEMA presented the new flood hazard information through 

community meetings, Webex trainings, and the 

region2coastal.com Web site. Along with explaining the science 

behind the advisory products, the region2coastal.com Web site 

also provides a searchable mapping tool that allows property 

114 

owners to determine how the revised maps will affect their 

property’s flood hazard designation once the maps are finalized. The region2coastal Web site provides multiple ways for 

residents to ask additional questions. FEMA also established a 

flood insurance hotline for residents to call and speak directly 

with flood insurance experts about any questions or concerns 

they may have. Through each of these tools, FEMA shares information and recommendations on how to reduce flood insurance rates by incorporating safer building standards into new 

and repaired buildings. 

• As communities proceed from preliminary FIRM to final FIRM, 

FEMA will first host meetings with community officials to review the preliminary FIRMs, and then coordinate with community officials to conduct separate public open house meetings. 

During these open house meetings, the general public and 

other interested parties may view the preliminary FIRMs and 

ask questions about the effects the flood maps will have on 

flood insurance rates, the flood hazard mapping process, and 

opportunities to mitigate flood risk. 

FEMA’s Outreach Efforts With New York City 

New York City, as a participant in FEMA’s Cooperating Technical Partner program, is pursuing a public information campaign 

on flood risk and flood insurance, and a consumer education program to assist residents with flood preparation/planning, mitigation, and insurance. 

New York City and FEMA Region II representatives are working 

together to: 

• improve targeted outreach strategies to those communities 

most affected by the new maps; and 

• inform public decision makers of the importance of the maps 

for planning, emergency management, guiding development toward safer areas, ensuring compliance with building codes and 

floodplain management requirements, and helping residents 

and businesses make sound development decisions. 

Q.7. What is the status of FEMA’s mandated study on evaluating 

negatively elevated buildings? 

A.7. FEMA has awarded two studies to the National Academy of 

Sciences to evaluate negatively elevated buildings. 

The first is the affordability study mandated by the BiggertWaters Flood Insurance Act of 2012 under section 100236. This 

study is being conducted in two phases. The first phase is to scope 

the study and determine the appropriate methodology given the 

lack of risk information referenced in your question 997198. This 

first phase has been awarded with a period of performance ending 

March 31, 2015. 

The second study is a voluntary study by FEMA to determine 

what improvements can be made to the rating criteria and methods 

used for negatively elevated buildings. This study has also been 

awarded and has a period of performance ending February 28, 

2015. 

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RESPONSES TO WRITTEN QUESTIONS OF SENATOR TESTER 

FROM W. CRAIG FUGATE 

Q.1. There’s been some concern at the State level over whether 

Montana will be able to compete with some of the larger States for 

mitigation grants, which is going to affect people making adjustments to their structures. How can we ensure that Montanans and 

other folks from less populated States are given their fair shake in 

this process? 

A.1. Prior to the passage of the Biggert-Waters Flood Insurance Reform Act of 2012 (BW12), the Flood Mitigation Assistance (FMA) 

program allocated funds to each State or Territory based on the 

total number of National Flood Insurance Program (NFIP) insurance policies and the total number of repetitive loss properties 

within the State or Territory. With the exception of a $100,000 allocation per State or Territory for the Planning portion of a Hazard 

Mitigation Plan, BW12 removed this allocation process. Therefore, 

each State and Territory, regardless of size or population, has the 

ability to apply for a grant during an open Hazard Mitigation Assistance application cycle. 

The FMA program will continue to fund discretionary mitigation 

activities in States and local communities. BW12 eliminates the Severe Repetitive Loss (SRL) and Repetitive Flood Claims (RFC) programs and adds funding for the mitigation of SRL properties to 

FMA. FEMA prioritizes FMA applications based on the percentage 

of SRL structures that are mitigated by the proposed project. Properties included in a FMA projects must be NFIP-insured at the 

time of the application submittal. Flood insurance must be maintained through completion of the mitigation activity and for the life 

of the structure. 

States may also submit projects under the disaster Hazard Mitigation Grant Program that address flood risk or other all hazard 

risks. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR TESTER 

FROM ALICIA P. CACKLEY 

Q.1. I know you’ve done a lot of work analyzing this legislation and 

figuring out where there are still issues, as outlined in your testimony. FEMA has publicly shared its specific rating guidelines on 

how it calculates risk. In your testimony, you cited an October 2008 

study conducted by GAO that concluded that FEMA’s rate-setting 

process excluded ongoing and planned development, climate 

change, and long-term erosion trends. Do you think FEMA has actively worked to incorporate these changing conditions into its rate 

formulas, as mandated under Biggert-Waters? How can they stay 

on top of these highly unpredictable factors? 

A.1. As of June 2013 the Federal Emergency Management Agency 

(FEMA) was making changes to its rate-setting process as a result 

of the Biggert-Waters Flood Insurance Reform Act of 2012 (BiggertWaters Act). Among other things, the act requires FEMA to set 

premium rates that fully reflect the risk of losses from flooding and 

to include many of the elements we recommended in our October 

2008 report (GAO-09-12). More specifically, we recommended that 

FEMA take steps to ensure that its rate-setting methods and data 

116 

would result in full-risk premiums rates that accurately reflect the 

risk of losses from flooding. We noted that these steps should include verifying the accuracy of flood probabilities, damage estimates, and flood maps; ensuring that the effects of long-term 

planned and ongoing development and climate change were reflected in the flood probabilities used; and reevaluating the practice 

of aggregating risks across zones. 

According to FEMA officials, the agency revised damage calculations for flooding events that only reach the foundation of a structure, reassessed and decided to continue the practice of nationwide 

average premiums, and performed a study to assess the long-term 

impacts of climate change. FEMA’s ongoing efforts include analyzing water-depth probability curves for the various zones, analyzing the extent of zone grandfathering, and piloting studies to determine structure elevation and flood depths for various periods. 

We have not conducted the work necessary to answer how or if 

FEMA plans to periodically reassess ongoing and planned development, climate change, and long-term erosion trends. 

Q.2. Flood insurance has populated the GAO’s High Risk List now 

for 7 years. Based on your research, do you think the reforms in 

Biggert-Waters will be enough to get the NFIP off that list? As currently drafted, how many years do you think that would take? 

A.2. We placed the National Flood Insurance Program (NFIP) on 

our High-Risk list in 2006 due to the program’s financial instability 

and FEMA’s operating and management challenges. FEMA has 

begun implementing some of the changes included in the BiggertWaters Act, such as the creation of a reserve fund for catastrophic 

losses and elimination of subsidies for some properties. These are 

important first steps for addressing NFIP’s financial challenges. 

FEMA also has begun to address some of the management challenges we identified, such as strategic planning. 

However, we do not yet know the extent to which the changes 

FEMA has been making in response to Biggert-Waters will improve 

the long-term financial stability of NFIP. As you know, many of the 

premium rate increases resulting from the act are set to be phased 

in over several years. We understand the financial challenges property owners can face, and note that delaying rate increases will add 

to the time it takes to reduce the financial exposure NFIP presents 

to the Federal Government. 

In order for NFIP to be removed from the High-Risk List, it will 

be important to place the program on a sound footing, both financially and operationally. For example, FEMA will need to fully establish the reserve fund and implement the premium rate changes 

begun in response to Biggert-Waters and continue to address management challenges, such as updating NFIP policy and claims information systems and improving oversight of contractors. 

Finally, we cannot estimate how long it will take FEMA to address the management and operational challenges that we have 

identified that also contribute to NFIP remaining on the high-risk 

list. However, we are in periodic contact with FEMA about the status of open GAO recommendations. 

117 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

STATEMENT OF THE INDEPENDENT COMMUNITY BANKERS OF 

AMERICA, SUBMITTED BY SENATOR MERKLEY 

118 

119 

STATEMENT OF REPRESENTATIVE C.W. BILL YOUNG OF FLORIDA, 

SUBMITTED BY SENATOR HELLER 

120 

121 

122 

123 

124 

125 

126 

127 

128 

NATIONAL FLOOD INSURANCE FUND OPERATING RESULTS SUMMARY 

SUBMITTED BY SENATOR LANDRIEU 

129 

130 

STATEMENT SUBMITTED BY THE NATIONAL ASSOCIATION OF 

REALTORS 

131 

132 

133 

134 

135 

STATEMENT SUBMITTED BY THE NATIONAL ASSOCIATION OF HOME 

BUILDERS 

136 

137 

138 

139 

140 

LETTER SUBMITTED BY BRAD THALER, VICE PRESIDENT OF LEGISLATIVE AFFAIRS, NATIONAL ASSOCIATION OF FEDERAL CREDIT 

UNIONS