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OPPORTUNITIES FOR A PRIVATE AND 

COMPETITIVE SUSTAINABLE FLOOD 

INSURANCE MARKET 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

HOUSING AND INSURANCE 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

NOVEMBER 19, 2014 

Printed for the use of the Committee on Financial Services 

Serial No. 113–101 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

GARY G. MILLER, California, Vice Chairman 

SPENCER BACHUS, Alabama, Chairman 

Emeritus 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

TOM COTTON, Arkansas 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

STEVEN HORSFORD, Nevada 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

SUBCOMMITTEE ON HOUSING AND INSURANCE

RANDY NEUGEBAUER, Texas, Chairman 

BLAINE LUETKEMEYER, Missouri, Vice 

Chairman 

EDWARD R. ROYCE, California 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

LYNN A. WESTMORELAND, Georgia 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

DENNIS A. ROSS, Florida 

MICHAEL E. CAPUANO, Massachusetts, 

Ranking Member 

NYDIA M. VELA ́ ZQUEZ, New York 

EMANUEL CLEAVER, Missouri 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

BRAD SHERMAN, California 

GWEN MOORE, Wisconsin 

JOYCE BEATTY, Ohio 

STEVEN HORSFORD, Nevada 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

November 19, 2014 ........................................................................................... 1 

Appendix: 

November 19, 2014 ........................................................................................... 23 

WITNESSES 

WEDNESDAY, NOVEMBER 19, 2014 

Brown, Don, Florida Property Insurance Expert .................................................. 10 

Ellis, Steve, Vice President, Taxpayers for Common Sense ................................. 6 

Gray, Jordan N., Senior Vice President and General Counsel, WNC Insurance 

Services, Inc. ......................................................................................................... 8 

APPENDIX 

Prepared statements: 

Brown, Don ....................................................................................................... 24 

Ellis, Steve ........................................................................................................ 28 

Gray, Jordan N. ................................................................................................ 31 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Neugebauer, Hon. Randy: 

Written statement of the American Bankers Association and American 

Bankers Insurance Association .................................................................... 37 

Written statement of the Big ‘‘I’’ ..................................................................... 47 

Written statement of the National Association of Mutual Insurance Companies (NAMIC) ............................................................................................ 51 

Written statement of the National Association of Professional Surplus 

Lines Offices (NAPSLO) ............................................................................... 56 

Written statement of the Property Casualty Insurers Association of 

America (PCI) ................................................................................................ 60 

Written statement of the Reinsurance Association of America (RAA) ......... 61 

Written statement of SmarterSafer.org .......................................................... 62 

Ross, Hon. Dennis: 

Letter from Kevin McCarty, Florida Insurance Commissioner, dated July 

11, 2014 .......................................................................................................... 63 

(1) 

OPPORTUNITIES FOR A PRIVATE AND 

COMPETITIVE SUSTAINABLE FLOOD 

INSURANCE MARKET 

Wednesday, November 19, 2014 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HOUSING AND INSURANCE, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:01 p.m., in room 

2123, Rayburn House Office Building, Hon. Randy Neugebauer 

[chairman of the subcommittee] presiding. 

Members present: Representatives Neugebauer, Luetkemeyer, 

Garrett, Westmoreland, Hurt, Ross; and Capuano. 

Also present: Representative Murphy. 

Chairman NEUGEBAUER. Good afternoon. This hearing of the 

Subcommittee on Housing and Insurance will come to order. The 

title of today’s hearing is, ‘‘Opportunities for a Private and Competitive Sustainable Flood Insurance Market.’’ We will have opening statements limited to 10 minutes on each side. I also ask unanimous consent that members of the full Financial Services Committee who are not members of the subcommittee, and who have 

joined us today, will be entitled to participate. Without objection, 

it is so ordered. 

One of the things that is going to happen is probably right after 

we do the opening statements—and I don’t know if we will get 

through the testimony of the panel before the next round of votes 

is called—but the plan is, is when they call votes we will briefly 

adjourn. We will go over, vote, and get back as quickly as we can 

and continue with this very important hearing. 

As I mentioned, the title of today’s hearing is, ‘‘Opportunities for 

a Private and Competitive Sustainable Flood Insurance Market.’’ 

One of the things that this Congress has done in the past is, it initiated a flood insurance program. Because what they found was, 

there was not a ready market for that at that particular time. 

Along the way, the Congress also decided that we needed to provide for private companies to participate in the market. And then, 

this Congress also decided that in the future, the taxpayers 

shouldn’t have to subsidize people who live in areas that are higher-prone to flooding. And we said that they should start to pay actuarial rates. 

I think one of the reasons that this hearing is so important is 

that if we are going to move towards a private participation in the 

marketplace, we have to get the government out of the way, and 

2 

we need to facilitate the ability for the private sector to be a part 

of this. 

I am very pleased that today we are going to be examining H.R. 

4558, which is the Flood Insurance Market Parity and Modernization Act of 2014. And I would like to thank the cosponsors, Mr. 

Ross and Mr. Murphy, for their work on this. 

Why is this important? One of the things that choice brings is 

competitive pricing. And if you have the government dominating an 

area, it doesn’t really allow for a lot of private participation. So, 

one of the things we want to see is for consumers to have choices. 

The other reason this is important is that it would be good to 

transition out of the taxpayers backing up the flood insurance market and letting private capital back that up. Why that is important 

to the taxpayers is, we have seen that when the government is involved in the insurance business it prices risk politically rather 

than actuarially. We think it is a novel idea to let the marketplace 

price the rules risk, and we want to provide a pathway to do that. 

As you probably know, currently the flood insurance program is in 

the hole and the taxpayers have had to ante up about $24 billion 

to subsidize people who, unfortunately, were not paying an actuarial rate for their insurance. 

What we will learn today about H.R. 4558 is that it has some 

common-sense approaches to providing for private participation in 

the flood insurance market. One of the things we don’t need to do 

is send a signal to lenders, for example, that there is only really 

one source for flood insurance. There are multiple sources for flood 

insurance. And one of the things we have heard from the industry, 

the people in the insurance business, is we have seen in some areas 

where the people in the insurance business don’t want to go and 

participate in those markets. But particularly, the flood insurance 

market is, quite honestly, a part of the market where we have seen 

an interest in that participation. 

So I thank the witnesses for being here. And, again, I want to 

thank Mr. Ross and Mr. Murphy for their thoughtful bill. With 

that, I will turn to my ranking member, and my good friend, Mr. 

Capuano, for his opening statement. 

Mr. CAPUANO. Thank you, Mr. Chairman. I will be brief. I came 

to learn because, like with many things, I don’t know much about 

this. But I know a couple of things. And the one thing I know is 

that we have flood insurance because we haven’t found a better 

way to do it. That is why we have government-backed flood insurance. We have a better way to do it if we want to have—make sure 

that no one can afford it. That kind of defeats the purpose of flood 

insurance. 

So I am open to any education on how we can have private enterprise do this and keep it affordable. Now, it is kind of funny. Over 

the last year or so, it turns out that apparently as a liberal Democrat, I have now become the poster child, or one of the many poster 

children for corporate welfare because I support TRIA and I supported the flood insurance bill and other such things. 

But that is one way to put it. To me, the other way to put it is, 

how do I get necessary insurance coverage to people who need it, 

that is affordable? And if it is not affordable, it doesn’t matter how 

good the coverage is; nobody will buy it. So, for me, that is what 

3 

I am open to learn. I would love to hear how the numbers work 

and why it would not be corporate welfare for us to change the system we have. 

And I look forward to the testimony, thank you. 

Chairman NEUGEBAUER. I haven’t seen that poster. I would like 

to. 

Mr. CAPUANO. I thought you had one. 

Chairman NEUGEBAUER. No. Now, I turn to the vice chairman of 

our Housing and Insurance Subcommittee, Mr. Luetkemeyer from 

Missouri, for 1 minute. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

My district includes many communities that sit in the floodplains 

along major rivers, streams, and lakes. In fact, one lake in my district has more miles of shoreline than the State of California. So 

you can see how big a problem this is to me. I hear from my constituents about the National Flood Insurance Program (NFIP) 

nearly every day, and it is clear that the NFIP is broken. 

I owe it to the families and business owners living in those communities, and we owe it to all Americans, to create a flood insurance program that is stable, fair, accessible, and cost-effective. It 

cannot continue to be a program that exposes taxpayers to endless 

risk, and it doesn’t have to be. 

To create a more stable and cost-effective program, we need to 

allow the private market to enter the space instead of inhibiting its 

ability to do so. The bill introduced by my colleagues from Florida 

does just that. 

Today, we will hear from experts whom I expect will tell us that 

there is room for the private market in the flood insurance space. 

And we need to encourage this market so we can deliver a better 

product to our constituents. I look forward to hearing from our panelists. 

And I yield back, Mr. Chairman. 

Chairman NEUGEBAUER. I thank the gentleman. 

And now, the chairman of our Capital Markets Subcommittee, 

Mr. Garrett from New Jersey, is recognized for 2 minutes. 

Mr. GARRETT. Thank you. And I thank the chairman for holding 

this hearing on how we can improve the market for flood insurance 

across this country. And I would also like to thank all of the witnesses who are here, as well. 

Speaking as someone who is literally on the ground, who has 

viewed the devastation and helped do some of the hands-on cleanup of our last storm in the State of New Jersey, I know the importance of a well-functioning flood insurance market. Unfortunately, 

we have a government-backed flood insurance program that simply 

is not working. In fact, we know that in the wake of Hurricane 

Sandy, Congress had to bail out the National Flood Insurance Program to the tune of nearly $10 billion to make good on the promises the Federal Government made to the flood-ravaged homeowners here. 

The facts seem to suggest that Uncle Sam makes for a terrible 

risk manager, let alone an insurance executive with a monopoly on 

the marketplace. Congress must do what we can to encourage 

Uncle Sam to step aside and let the private market assume some 

of the risk rather than let the risk fall on the U.S. taxpayer? 

4 

I am interested to hear what changes Congress can make to the 

current law to remove obstacles that discourage private participation in the flood insurance marketplace. 

My initial sense is that an abundance of red tape, future regulatory uncertainty, and the shadow of the current National Flood 

Insurance Program all combine to continue to make private capital 

stay on the sidelines. So at the end of the day, we need to make 

some changes. 

The NFIP isn’t fair to homeowners who rely on a bankrupt system in time of catastrophe. Nor is the current system fair to taxpayers, who ensure the program remains on a dry financial footing. 

And with that, I yield back. 

Chairman NEUGEBAUER. I thank the gentleman. 

The gentleman from Virginia, Mr. Hurt, is recognized for 2 minutes. 

Mr. HURT. Thank you, Mr. Chairman. Thank you for holding today’s hearing to consider legislative reforms to the National Flood 

Insurance Program. 

Our current government-provided flood insurance system has 

proven ineffective, inefficient, and costly to taxpayers. While Congress has previously been successful in implementing modest reforms to the NFIP, we still face a situation where Congress has 

chosen to solidify the NFIP’s broken balance sheet with little hope 

for returning it from the red. 

With $24 billion in debt, and the potential for moral hazard created by the program as it is currently structured, it is critical that 

this subcommittee work to pursue significant reforms. These reforms will allow us to chart a new course for the NFIP, and put 

the program on a more sound financial footing. Hardworking taxpayers deserve a Federal flood insurance program that is fiscally 

responsible. 

We must enhance the program’s integrity, make it self-sustaining, increase private market coverage, and reduce the risk to 

taxpayers across this country. We can no longer settle for the status quo of a flood insurance program that crowds out the private 

sector in order to subsidize insurance premiums for a few Americans at the expense of the rest of the country. 

Going forward, this subcommittee must be a leader in the effort 

to reform the NFIP to a private, competitive, and sustainable flood 

insurance market. I would like to thank our distinguished witnesses for appearing before the subcommittee today, and I look forward to your testimony on the concepts for NFIP reform. 

Thank you, Mr. Chairman, and I yield back the balance of my 

time. 

Chairman NEUGEBAUER. I thank the gentleman. 

And now the gentleman from Florida, Mr. Ross, one of the lead 

sponsors of this piece of legislation, is recognized for 2 minutes. 

Mr. ROSS. Thank you, Mr. Chairman, and thank you for holding 

this important hearing about an issue to which I am deeply committed. And that is providing Florida and American homeowners 

more affordable consumer options in the flood insurance marketplace. 

I would also like to thank our distinguished panelists today for 

their testimony. And I would especially like to thank RepresentaVerDate Nov 24 2008 13:19 Feb 10, 2015 Jkt 092876 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\92876.TXT TERRI
5 

tive Patrick Murphy for joining me in introducing this Flood Insurance Market Parity and Modernization Act of 2014, which we will 

be discussing this afternoon. 

Mr. Chairman, the implementation of the Biggert-Waters Flood 

Insurance Reform Act of 2012, or BW–12, has proven to be problematic. Before Congress acted earlier this year to provide relief for 

homeowners with National Flood Insurance Program policies, I was 

hearing reports from my constituents of $15,000-a-year increases in 

premiums. 

The intent of BW–12 was to give consumers additional insurance 

policy options beyond the National Flood Insurance Program. However, today homeowners are trapped in a system that forces them 

to purchase the taxpayer-backed Federal insurance product from a 

program that was already $24 billion in debt at the end of 2013. 

So why is the Flood Insurance Market Parity and Modernization 

Act of 2014 necessary? Section 239 of BW–12 made clear that the 

intent of Congress was to allow homeowners the option to pursue 

private flood insurance. Unfortunately, BW–12 narrowly defined 

acceptable flood insurance programs, thereby limiting the flexibility 

of State regulators to license private flood insurance products. 

These restrictions prevent innovation and consumer choice. 

With Florida homeowners in mind, Representative Murphy and 

I introduced legislation that redefines private flood insurance to remove Federal restrictions and requirements on coverage. In doing 

so, we would return the full authority of determining acceptable 

coverage of insurance policies to State regulators. 

Florida’s insurance commissioner, Kevin McCarty, has offered his 

support of this common-sense legislation. At this point, I would ask 

unanimous consent to submit his letter dated July 11, 2014, for the 

record. 

Chairman NEUGEBAUER. Without objection, it is so ordered. 

Mr. ROSS. Mr. Chairman, allowing more consumer choice in the 

government-dominated flood insurance market creates competition 

and results in better policies and pricing that will benefit homeowners. 

With that in mind, I look forward to this hearing, and I yield 

back my time. 

Chairman NEUGEBAUER. I thank the gentleman. 

And now the other lead sponsor of this important piece of legislation, the other gentleman from Florida, Mr. Murphy, is recognized 

for 2 minutes. 

Mr. MURPHY. Thank you, Mr. Chairman. I want to thank Chairman Neugebauer and Ranking Member Capuano for today’s hearing on how we can make flood insurance more affordable for middle-class families. I would also like to thank the witnesses for their 

testimony and their time, and my good friend and fellow Floridian, 

Mr. Dennis Ross, for his in-depth understanding of insurance 

issues and his commitment to giving Floridians a choice. 

The National Flood Insurance Program has served as a critical 

lifeline for many families in my district, enabling them to have 

peace of mind and protect their homes which, for most middle-class 

families, is their most valuable asset. 

Stepping in and creating a market where there is none for affordable options for middle-class families I believe is an appropriate 

6 

use of government. I believe that together we can and should protect our homes and our housing market. 

However, what happens when government is the only game in 

town and stands in the way of what promises to be a viable private 

market? We saw these results on full display: families waiting on 

FEMA to decide what is affordable; entire neighborhoods waiting 

on Congress to act to shield them from impossible rate hikes; no 

customer service hotline and no ability to switch carriers. I don’t 

believe that any of us, especially those of us who defend the NFIP 

and support the goals of this program, want to do this to our constituents. 

Excessively prescriptive, top-down statutory Federal requirements are crowding innovation and consumer choice out of the 

market. Biggert-Waters correctly intended to foster the creation of 

a private market. Sadly, in this area, the law has fallen short. 

I could not be happier to work with Mr. Ross and my colleagues 

on both sides of the aisle to explore and improve the bill before us 

to protect consumers, foster innovation and choice, and ultimately 

do what is right for middle-class families. 

I yield the balance of my time. 

Chairman NEUGEBAUER. I thank the gentleman. 

We will go to our panelists. And I would just remind our panelists that your oral testimony will be limited to 5 minutes, but your 

complete written testimony will be made a part of the record. 

Our panel today consists of: Mr. Stephen Ellis, vice president of 

Taxpayers for Common Sense; Mr. Jordan Gray, senior vice president and general counsel of WNC Insurance Services; and I will 

turn to Mr. Ross to introduce our third panelist. 

Mr. ROSS. Thank you, Mr. Chairman. It is a distinct honor for 

me to introduce our third panelist, with whom I had the honor of 

serving as a legislator in the Florida House of Representatives. A 

former independent insurance agent and past chairman of several 

House insurance committees in the Florida legislature, Mr. Don 

Brown. 

Chairman NEUGEBAUER. I thank the gentleman. 

And Mr. Ellis, you are now recognized for 5 minutes. 

STATEMENT OF STEVE ELLIS, VICE PRESIDENT, TAXPAYERS 

FOR COMMON SENSE 

Mr. ELLIS. Thank you, Mr. Chairman. Good afternoon, Chairman 

Neugebauer, Ranking Member Capuano, and members of the subcommittee. I am Steve Ellis, vice president of Taxpayers for Common Sense (TCS), a national nonpartisan budget watchdog. Thank 

you for inviting me here today to testify on H.R. 4558, the Flood 

Insurance Market Parity and Modernization Act of 2014, and 

issues involving the private flood insurance market. 

A little bit of background. Since the late 1980s, the National 

Flood Insurance Program teetered on either side of solvency, covering shortfalls with Treasury borrowing and repaying the loans in 

years of surplus. Then in 2005, the inevitable happened, a catastrophic loss year, and the program was roughly $18 billion in debt 

to the Treasury. That was followed by the Super Storm Sandy 

losses in 2012, and now the program is more than $24 billion in 

debt to taxpayers. To put that into perspective, FEMA data indiVerDate Nov 24 2008 13:19 Feb 10, 2015 Jkt 092876 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\92876.TXT TERRI
7 

cates that in 2013, the 5.6 million policies in the program resulted 

in $3.5 billion in premium to insure $1.3 trillion worth of property. 

The U.S. Government Accountability Office has estimated that 

approximately 20 percent of policies are explicitly subsidized and 

paying only 35 to 40 percent—45 percent of their actual full-risk 

premiums. As this subcommittee well knows, reforms to the NFIP 

were enacted in 2012 to increase premiums to more risk-based 

rates which would not only help program solvency, but also help 

policyholders better understand their risks and to take measures to 

mitigate that risk. Despite some concerns, TCS supported the 2012 

legislation, while also favoring additional efforts to help address affordability issues. 

Unfortunately, earlier this year Congress reacted to a vocal minority and largely rolled back the 2012 reforms that could have led 

to more actuarial rates. To obtain a mortgage, property owners in 

special—in designated special flood hazard areas, typically those 

with a 1 percent chance of flooding in any given year, are required 

to purchase flood insurance. As long as it met NFIP coverage 

standards, private flood insurance could be an alternative to Federal flood insurance to meet the mandatory purchase requirement. 

As the shift to more risk-based rates under reform neared, the private markets started to strengthen. States like West Virginia and 

Florida enacted legislation to regulate new private flood insurance 

alternatives in their States. 

However, the 2012 flood insurance bill went further than before 

and attempted to quasi-regulate what exactly constituted private 

flood insurance by including a proviso that private flood insurance 

be ‘‘at least as broad’’ and essentially mirror NFIP policy. This resulted in lenders rejecting some private policies as not meeting 

legal requirements. For example, a homeowner may want to purchase a higher coverage limit with a higher deductible than is 

available under NFIP. Current law would result in that policy 

being rejected by the lender as not meeting the legislative private 

flood insurance definition. 

The whole point of allowing private flood insurance alternative is 

to create competition and choice in the marketplace and reduce the 

possible burden on the taxpayer. Furthermore, insurance is regulated at the State level. The Federal Government leaves decisions 

on homeowners insurance and car insurance to the States. They 

should do the same for private flood insurance alternatives. 

This is why Taxpayers for Common Sense supports the aforementioned H.R. 4558. This legislation would remove the restrictive 

and confusing language, and define private flood insurance as an 

insurance policy that is issued by an insurance company that is licensed or approved in the State where the property is located. 

This does not remove the mandatory purchase requirement in 

minimum coverage level. This just allows insurance commissioners 

to regulate the product in their State the way it is done for other 

insurance lines. 

One recommendation that TCS has would be to clarify that if a 

homeowner opts for uninterrupted coverage through a private policy, the homeowner should not be treated as having a lapse in coverage under NFIP. This would allow the homeowner to return to 

NFIP if they desire, without penalty. The only reason a policyVerDate Nov 24 2008 13:19 Feb 10, 2015 Jkt 092876 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\92876.TXT TERRI
8 

holder will opt for private insurance over NFIP is because the private insurance offers a better product, a better price, or both. 

To stifle the private market would be akin to the Federal Government forcing policyholders to pay more for their insurance. In 

addition to the definitional issue, the existence of subsidized Federal flood insurance is a barrier to the development of a robust private market. Simply put, NFIP occupies the space where the private sector would operate. It is true that the NFIP was created because there wasn’t a functioning private insurance marketplace. 

But that was nearly 50 years ago. It almost goes without saying 

that technology and modeling have advanced dramatically. 

Imagery and mapping technology have similarly developed. The 

reinsurance and financial instruments to manage risk are much 

larger and more diversified. Many countries in the world have private flood insurance either bundled into property insurance or as 

a separate, or add-on, coverage. These are typically backed by reinsurance. In fact, the United States is one of the only countries with 

a State-backed separate policy of flood insurance. 

The development of a private flood insurance market in the 

United States would serve to shift some of the post-disaster recovery and rebuilding burden from taxpayers to the private sector and 

those who choose to live in high-risk areas. 

It could also be a powerful tool to encourage mitigation in the 

face of increased disasters and sea level rise. The National Flood 

Insurance Program is $24 billion in debt to the taxpayer. While the 

decision to repeal many of the 2012 reforms was a setback, Congress could enact H.R. 4558 to at least let private flood insurance 

have a chance. 

Thank you very much. 

[The prepared statement of Mr. Ellis can be found on page 28 of 

the appendix.] 

Chairman NEUGEBAUER. I thank the gentleman. 

Mr. Gray, you are now recognized for 5 minutes. 

STATEMENT OF JORDAN N. GRAY, SENIOR VICE PRESIDENT 

AND GENERAL COUNSEL, WNC INSURANCE SERVICES, INC. 

Mr. GRAY. Chairman Neugebauer and members of the subcommittee, thank you for the opportunity to testify today. My name 

is Jordan Gray. I am senior vice president and general counsel of 

WNC Insurance Services. My testimony today is on behalf of my 

company, WNC, and my full testimony has been submitted to the 

subcommittee in writing. 

Founded in 1962, WNC is an independent managing general 

agency and surplus lines broker representing several A-rated private flood insurance carriers. Today, WNC serves nearly 3,000 

small and mid-market community banks and credit unions, hundreds of independent agents and brokers, and thousands of homeowners and businesses, providing insurance products and services, 

including private flood insurance. 

WNC is grateful for the National Flood Insurance Program. The 

NFIP is the entrepreneurial catalyst that created an important industry. The industry is now ready for the next phase of its growth 

and evolution: privatization. 

9 

WNC is also grateful for the Biggert-Waters Flood Insurance Reform Act of 2012. Biggert-Waters is evidence that both sides of the 

aisle can work together to— 

[Audio drop.] 

Was my testimony that bad? 

[laughter] 

Chairman NEUGEBAUER. It does that to me, too. 

Mr. GRAY. —both sides of the aisle. We are pleased with this 

idea. We support H.R. 4558. It is a simple bill that provides an appropriate fix to an unintended consequence of Biggert-Waters. One 

unintended consequence of Biggert-Waters is that it makes it more 

difficult for lenders to accept private flood insurance in satisfaction 

of the mandatory purchase of flood insurance requirement, thereby 

impeding the long-established public policy goal of private market 

involvement in flood insurance cited in Biggert-Waters. 

What was intended to liberate both borrower and lender alike 

has now placed them in a straitjacket of regulatory compliance, 

mandating that bankers become insurance professionals and insurance professionals become bankers, leaving these industries in confusion. 

So what does this confusion look like? Here is an example. When 

a loan is about to close, there is a mandatory purchase obligation 

if the property is located in a special flood hazard area. But the 

problem is that the Federal flood policy only provides $500,000 of 

coverage for the $5 million building at risk. 

So the borrower purchases a private policy. The carrier and the 

broker are certain that this private policy is exactly what the borrower needs. The borrower takes the policy to the lender to close 

the loan, but the compliance department tells the borrower that it 

cannot accept the private policy if it doesn’t follow the National 

Flood Insurance Program general property insurance form exactly 

as written. The lender is frustrated because it knows that it must 

comply with the regulations or face potential fines and penalties, 

but it doesn’t really have the expertise to tell what is truly a good 

policy. 

The borrower is frustrated because they cannot purchase the 

product they want, and cannot close the loan on time. The carrier 

and the agent are frustrated because they have a perfectly good 

product that fails to meet a perceived or actual technical definition 

of private flood insurance. But yet the policy will perform as good, 

or better than, the Federal policy when a loss occurs. 

The solution is simple. Give lenders and borrowers the same discretion to evaluate flood insurance as they have to evaluate all insurance products. H.R. 4558 does this. 

In conclusion, there is a private market waiting to provide flood 

insurance. There is a hopeful lending market looking for some regulatory relief. There are eager policyholders looking forward to 

quality coverage becoming widely available in the private market. 

H.R. 4558 is the next step. 

And I thank you for the opportunity to testify today. 

[The prepared statement of Mr. Gray can be found on page 31 

of the appendix.] 

Chairman NEUGEBAUER. I thank the gentleman, and apologize 

for the slight interruption there. 

10 

Mr. Brown, you are now recognized for 5 minutes. 

STATEMENT OF DON BROWN, FLORIDA PROPERTY 

INSURANCE EXPERT 

Mr. BROWN. Thank you, Mr. Chairman. It was my intention as 

I open my remarks to refer to you by your name. But, Mr. Chairman, because of my Southern accent I was really afraid to maybe— 

that I might mess it up. 

Chairman NEUGEBAUER. Mr. Brown, it is very easy. It is 

‘‘RAND–D.’’ 

Mr. BROWN. Mr. Chairman, Ranking Member Capuano, and 

members of the subcommittee, thank you for having me here today. 

My name is Don Brown and I currently work as a lobbyist representing insurance and reinsurance companies in the State of 

Florida. Previously, I served in the Florida House for 8 years, and 

was an insurance agency owner for 28 years. 

When the NFIP was established, of course, flood was generally 

considered an uninsured peril and few private companies were willing to write the risk. There was no history of loss, no models for 

flood, and generally the insured knew much more about their potential for loss than the insurance company. 

A flood is no longer an uninsurable risk, and the private market 

is no longer unwilling to write flood. There are several reasons for 

this development. In the last few years, commercial flood models 

have been developed that have given insurance companies a wealth 

of information regarding flood risk. Consequently, there has been 

an influx of capital into the reinsurance and insurance arena. And 

that capital is interested in underwriting flood risk. These developments provide new options for consumers when buying flood insurance. 

One additional consumer benefit to the development of a private 

flood market is that it is regulated by State insurance departments, 

which have a long history of consumer protection as their very 

foundation. 

I believe there will always be a need for a program like the 

NFIP, but there is plenty of flood risk out there that can be written 

by private companies. And I can tell you that many of my clients 

are eager to write flood policies. There are three obstacles that I 

believe the bill before you today addresses, but it is important that 

we recognize these. 

The first obstacle is that the law currently permits several different Federal agencies, as many as five, to regulate flood companies. These agencies could issue different requirements even years 

in the future that would throw the private market into disarray. 

This creates uncertainty and has a stifling effect on the private 

market. H.R. 4558 addresses this problem by removing some of 

that uncertainty. Please allow me to expand briefly on the notion 

that uncertainty can be an impediment to the formation of a 

healthy private insurance market. 

In his landmark book, ‘‘Risk, Uncertainty and Profit,’’ Dr. Frank 

H. Knight defined the difference between risk and uncertainty like 

this: Risk is present when future events occur with measurable 

probability. Uncertainty, on the other hand, is present when the 

likelihood of future events are indefinite or incalculable. Dr. Knight 

11 

goes on to explain in his book that in addition to uncertainty about 

our natural environment, in this case the weather, political and 

regulatory uncertainty can also impede private capital formation. 

Today the greatest impediment, in my opinion, to capital formation 

in the private flood market is political and regulatory uncertainty. 

The second obstacle that the law defines: coverage to include 

deductibles. Deductibles are not usually considered part of coverage 

when discussing a policy of insurance. As someone who sold insurance policies for decades, I can tell you that when I discuss coverage with a customer, I am usually talking about the exclusions 

and the conditions precedent, not the point at which the coverage 

actually attaches. 

The problem is this: It is unclear if private companies can offer 

additional options regarding deductibles and still have the policy 

considered to be comparable coverage to the NFIP. The term ‘‘deductible’’ should be removed from the law so that consumers have 

a wide variety of options. 

The third obstacle is what I will call ‘‘grandfathering’’—it has 

been referred to earlier in the testimony—of subsidized rates for 

NFIP consumers who go to a private carrier. Under current law, 

it is not clear how the NFIP would rate a policy when a property 

moves from the NFIP to the private carrier and then wishes to 

come back to the NFIP. Clarifying that a customer can return to 

the NFIP on the same glide path that they are currently on would 

make me, as an agent, feel more comfortable selling a private flood 

policy. 

Notwithstanding the unprecedented capital inflow to the global 

catastrophe market over the last several years, one other obstacle 

to the expansion of a private flood program would be to impose a 

new tax on the reinsurance market. In my written testimony, you 

can read further about my comments on that regard. 

In conclusion, I want to thank the committee for all your work, 

all the work you have done on flood insurance to date. Amazing 

progress has been made, and I do believe there is an opportunity 

for a vibrant private flood market. Thank you for your time and for 

inviting me to testify before you, and I would be happy to answer 

any questions. 

Thank you. 

[The prepared statement of Mr. Brown can be found on page 24 

of the appendix.] 

Chairman NEUGEBAUER. I thank the gentleman. And we now 

have three votes so we are going to recess until right after votes. 

The Chair intends to start the hearing back up ASAP, as soon as 

we get back. So I ask Members to continue to vote and hurry on 

back. And with that, we are in recess. 

[recess] 

Chairman NEUGEBAUER. The subcommittee will come to order. 

Thank you for your patience. What should have been a 30-minute 

exercise turned into nearly an hour exercise. I guess we are trying 

to stretch out this little bit of work that we were doing as to make 

it look like we are working a lot harder, or something. Each Member now will go into questions for the panel. Each Member will 

have 5 minutes. I will begin that questioning now. 

12 

The NFIP program was created in 1968. And at that particular 

time, as I think one of the witnesses mentioned, there wasn’t credible data and it was hard to predict, and it made it difficult to underwrite those risks. But things have changed today, and we have 

the data, the mapping has been done. Are there any other barriers 

that you see outstanding there that would keep us from moving 

back to a private system? Is there a missing piece here? I will start 

with Mr. Ellis. 

Mr. ELLIS. Yes, Mr. Chairman. I think one of the missing pieces 

is being addressed by this bill. And that is, actually, this clarification as to what is private flood insurance and how can it be implemented or how will it meet the mandatory purchase requirement. 

And I think that is one of the things that this really clarifies. Because even before Biggert-Waters—Biggert-Waters really codified 

some of the informal criteria that FEMA had that also was sort of 

limiting the acceptance of private insurance coverage as an alternative for the mandatory purchase requirement. 

So I think this is one of the big hurdles. And then, obviously, the 

other big hurdle will be the private sector has to make a profit. 

And, if you have a subsidized Federal program, particularly in the 

case of the pre-firm properties, it is going to always keep those people, those properties, in the program and inhibit the development 

of a private marketplace. 

Chairman NEUGEBAUER. Mr. Gray, Mr. Brown, anyone want to 

elaborate on that? 

Mr. BROWN. I would just simply concur that the uncertainty that 

I spoke about is really the greatest impediment to the private market coming in. I can assure you that interest has been expressed. 

In fact, just before I came today I got an e-mail from one of my 

clients. Let me just share it with you. I won’t attribute it, but they 

said the real private market really, really, really wants to cover 

risk in the United States. It is getting boring only paying flood 

claims in most of the rest of the world. 

The private market pays flood claims everywhere else, but not 

here. The impediment is that when there is enough certainty—I 

think of uncertainty in the context of Dr. Knight’s statement. If you 

think of it as a spectrum and, on the one hand, you have risk and 

on the one hand you have uncertainty, the extent to which you 

move across that spectrum from uncertainty to risk is the extent 

to which capital will come in and take the place of a government 

program. So the more certainty that Congress can provide about 

what coverage is going to be required, and provide some flexibility, 

is the extent to which the private sector will step in and take up 

this risk. 

Chairman NEUGEBAUER. One of the things that—unfortunately, 

we are in a situation right now where the Federal Government controls about 90 percent of the mortgage market. And obviously, in 

the mortgage finance area, in many cases, there are requirements 

that properties in certain flood areas are required to carry flood insurance. If you have an FHA loan, I guess you have to have the 

loan guaranteed by Freddie Mac and Fannie Mae—those have to. 

Have you detected any bias out there, where those agencies are, 

say, looking more favorably upon an NFIP policy versus a private 

policy? 

13 

Does that prejudice, do you think, exist in the marketplace? Do 

we need to address that? Does anybody have any data or thoughts 

on that? 

Mr. ELLIS. Mr. Chairman, it is true that even though there is 

this mandatory purchase requirement it is not incredibly well-enforced by the lenders. I think it is less than half of—estimated less 

than half of the properties that are required to have it actually do. 

And so, in some cases, it is that the person gets the insurance to 

get the loan and then drops coverage a few years later. The lender 

is not necessarily enforcing it, particularly if it has gone into the 

secondary market. So, the GSE is one of the things—if they were 

pushing the lenders more to require just flood insurance—whether 

it is Federal or private—that would actually help drive that marketplace, as well. 

Chairman NEUGEBAUER. So what you are saying is, enforcing the 

servicers to make sure that they are complying with that? 

Mr. ELLIS. Yes, Mr. Chairman. And they are actually—in the 

2012 bill, there were actually increased penalties for lenders that 

were not doing that. And it is just this question of whether there 

is actually this enforcement and oversight. 

Chairman NEUGEBAUER. And how do we—Mr. Brown, you have 

been in the insurance business and had an agency for a number 

of years. And what happens in a lot of business, is it just gets more 

comfortable. Would you say across the country that the agents are 

more comfortable selling an NFIP policy versus a private policy, because the NFIP has been a long-established program? And if so, 

how do we break that mold? 

Mr. BROWN. I think one of the most important ways to break 

that mold is what we are doing right here today. And that is, 

bringing clarity to the fact that coverages can be offered by admitted carriers in States where the State regulator has certified that 

the coverage being offered is something that would serve their constituency. And yes, there is, I believe, some built-in bias in favor 

of the program because it is a known quantity. And the extent to 

which we can make the private offer of flood coverage a known 

quantity is the extent to which we are going to have success moving this risk from the government to the private sector. 

Chairman NEUGEBAUER. When you look at where the insurance 

industry is spending its money they talk about we want to insure 

your house, your car, your life, your health insurance, your business, et cetera. Do you think if the industry felt like there was a 

better opportunity for expansion in that area that they would be 

more focused on promoting the fact that they offer private flood insurance? 

Mr. BROWN. I don’t think there is any question of that. And that 

goes hand-in-hand with the willingness of the reinsurance market 

to step in and take some of that risk. Yes, there are some uncertainties. They haven’t been doing flood. They don’t have access to 

as much data as they might have in the case of wind risk because 

they have been doing wind risk for a long time. But there has to 

be a starting place, and once companies get comfortable with— 

based upon the developments of the new models, I believe that they 

will—it won’t be a rapid move into this marketplace, but it has to 

14 

start somewhere. And I think the more certainty we can bring to 

it, the more likely we are going to see this develop. 

Chairman NEUGEBAUER. I thank the gentleman. My time has expired. 

And now the vice chairman of the subcommittee, Mr. Luetkemeyer, is recognized for 5 minutes. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. I want to quickly 

ask a question of Mr. Brown here. I recognize that there have been 

concerns expressed about the consumer protections in private flood 

insurance. However, I think it is important to bear in mind that 

even as an insurer becomes insolvent, a State-guaranteed fund system would step in to provide policyholders support. Do you think 

consumers are better protected through the provisions included in 

H.R. 4558 or by private flood insurance generally than they are 

through the NFIP? 

Mr. BROWN. Interesting question. I spoke with some folks back 

in Florida today to determine how we handle—how our Florida insurance guarantee fund would respond to flood claims. And what 

I have learned is, it confirmed what I thought I knew. But what 

I learned is that private offers of flood coverage, whether it is offered on an allied lines basis or as a part of a homeowners policy, 

is covered under our insurance guarantee fund in Florida if it is 

offered by an admitted carrier. 

Mr. LUETKEMEYER. And it is a State-approved plan? 

Mr. BROWN. It is a State-approved plan. 

Mr. LUETKEMEYER. Okay. I would assume so. My guess is that— 

or, really, my question is, that provides the backstop, really, the 

State guarantee fund provides the backstop for an insurance solvency problem that could arise with a catastrophe of some sort that 

causes an insurance company to go belly up as a result of paying 

all the claims. And— 

Mr. BROWN. That is correct. 

Mr. LUETKEMEYER. —as long as you have taxpayers on the hook 

for an NFIP policy, that probably is not a concern. But the fact that 

we have a guarantee fund there would allay that one fear. 

Mr. BROWN. That is correct. 

Mr. LUETKEMEYER. I think it is a point we need to make. Okay. 

I am kind of concerned about—I am interested. This sounds like 

really good stuff, and I am really excited about the gentlemen from 

Florida and their work on the bill here. But I am kind of concerned, curious anyway, with regards to adverse selection. It would 

seem to me that the private sector would be ready to take on some 

of the less risky parts of the business. And something that is sitting in the middle of a hurricane or tornado belt of some sort would 

be where they want to stay away from. Is that something that concerns you? Is the modeling that goes on with the private companies 

here—are they taking that into consideration? 

Are they just going to cherry-pick and then force all the worst 

pieces, or most exposed pieces of property into the government program. Which would mean those—they are going to—because of adverse selection have more risk there, and therefore more cost and 

raise the premiums accordingly? 

Mr. BROWN. I think that is a reality. And, in fact, if you think 

about, originally—as government moved into the space—in Florida 

15 

we have had a lot of experience with Citizens Property Insurance 

Carrier, a company which took risk when there was not enough capacity in the marketplace. But government programs are really intended to take those risks as a facility of last resort. So— 

Mr. LUETKEMEYER. So you are saying—excuse me for interrupting here. But you are saying, then, that you would see a continued need for the Federal Flood Program? That there wouldn’t be 

a way to wean them out of this space here, and take it over completely by the private sector? 

Mr. BROWN. I think in the foreseeable future, in the midterm, 

there is going to continue to be a need for some form of NFIP program until this transition can mature and develop. How long, I 

don’t know. But I do believe that there are going to be some properties which may just simply not be economically—it doesn’t make 

economic sense because they are receiving such a heavy subsidy 

now. We are probably trapped with some of those. 

Mr. LUETKEMEYER. Okay. This is a hypothetical question, but do 

you see that by doing this—if the private sector cherry-picks all of 

the less exposed properties, and the more exposed properties are 

underwritten by the Federal Government—the Federal Government is, by the very inference, then, incentivizing building, or expanding your real estate holdings or whatever, in areas that are 

more prone to flooding, which would mean that they are 

incentivizing people to be able to do things in areas for which eventually, we as taxpayers, are going to pick up the tab. 

Mr. BROWN. Unfortunately, that is a part of the original design 

of the NFIP program. Whether intended or not, when government 

creates a program, and they conspire if you will, to cloak the true 

cost of that program there are perverse incentives that are created. 

Price does far more than compensate a seller for his goods and 

services. It communicates valuable information about the appropriateness of human behavior. 

Mr. LUETKEMEYER. One quick question, if I could indulge the 

chairman for a second. You talked about the rest of the world. Was 

it Mr. Gray who talked about the rest of the world, or Mr. Ellis, 

that there are insurance companies that insure other places in the 

world. And so are they doing that, as well? Are they cherry-picking 

everything, or are they insuring everything across-the-board, and 

accepting all the risks and underwriting accordingly? 

Mr. ELLIS. At least in the studies that I have read, there are different models of how to do this. Whether it is a bundled policy, so 

it is within your homeowners insurance, and then it is laid-off risk 

to the private sector. Some of them have some government involvement. It is a whole bunch of different things. But there is enormous 

amount of appetite for risk in the catastrophe realm and for the reinsurance. And so, the marketplace is there. In the last 7 years, reinsurance rates, in an aggregate, have gone down. And so there is 

this amount of appetite for risk which is pushing some of this interest in getting into the marketplace. 

And then just to your earlier comment, Congressman, I just want 

to add that most States have service in insurer’s last resort, even 

on homeowners insurance. So there is always this sort of potential 

leftover that is going to be an issue. But I would also argue that 

would then concentrate the policymaker’s mind, Congress’ mind, on 

16 

dealing with some of these underlying issues and the subsidies because it isn’t being masked by a lot of these property owners who 

are paying more they actually should, more than a market price, 

to be a part of the flood insurance program. 

Mr. LUETKEMEYER. Very good. I appreciate the chairman’s indulgence. 

Thank you, my time is up. 

Chairman NEUGEBAUER. I thank the gentleman. 

And now the gentleman from Virginia, Mr. Hurt, is recognized 

for 5 minutes. 

Mr. HURT. Thank you, Mr. Chairman. 

Mr. Brown, I was intrigued by your last answers to the questions 

posed by Mr. Luetkemeyer, talking about the—what is built into 

the sort of structure of the National Flood Insurance Program to 

begin with, and how people are allowed to make decisions that may 

not make good economics. And I think at the heart of what we are 

talking about, really—that gets to the heart of it. And so I commend Representatives Ross and Murphy for putting this forward, 

and I am glad to hear your testimony today. 

I guess my question, though—my first question would be, okay, 

so we know what the economic realities are, and risks are. But 

there is also a very real moral hazard that translates into—if you 

are encouraging somebody to live in a place that is dangerous, it 

is not just dollars and cents, it is not just insurance policies, it is 

not just insurance companies, it is not policyholders. You are encouraging them to do something that is risky to their life. And to 

the property. And I wonder if you could talk about that. 

Mr. BROWN. Yes. Frederic Bastiat, in the middle 1800s, wrote a 

book entitled, ‘‘The Law.’’ And in that book, he says this: ‘‘There 

is this common tendency among all people, when they can they 

choose to live and prosper at the expense of others.’’ The essence 

of what he is getting at is that when you cloak the true cost of 

something you are depriving individuals of the signals that would 

otherwise cause them not to engage in that behavior. 

And when government does that, they actually—it can rise to the 

extent that it creates a life safety issue. Yes, when someone hears 

that they can insure their property for $1,000, and they move into 

a floodplain, they might make that decision a lot more cautiously 

if it were going to cost them $10,000. 

So there is no question that it has an effect on human behavior. 

In some cases, it is knowingly, and in some cases, the government 

is going to be blamed when there are life safety issues that arise 

and they said, well, I thought it was okay because the government 

subsidized my coverage. 

Mr. HURT. Thank you. My next question would be to Mr. Ellis 

and Mr. Gray. I was wondering if you could talk a little bit about— 

we are talking about, because of the bill that has been—considering 

today will be forward-looking and reform going forward, I guess my 

question would be, how do we deal with the shortfall, the problem 

that we currently have? Can you talk a little bit about what you 

think that we can do to accelerate getting the program into the 

black? And if you—maybe, Mr. Ellis, I will start with you. 

Mr. ELLIS. Thank you, Congressman. It is a big hole. You are 

talking right now—the last year, I think I mentioned in my testiVerDate Nov 24 2008 13:19 Feb 10, 2015 Jkt 092876 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\92876.TXT TERRI
17 

mony, the premiums that came in were $3.6 billion. You have a 

$24 billion hole. Obviously, there are claims that are being paid; 

that the program hasn’t actually reduced any of the debt since 

2010. And that is owed with interest. And so, you are looking at 

an enormous hole. The borrowing authority, I think, is about $30 

billion after the additional funding that went in through Sandy so 

that it has room to borrow more. There was a surcharge in the bill. 

I think it is—part of the reason that we opposed forgiving that 

debt, which was something that was being debated, is because it 

helps concentrate the mind. If you eliminated the debt, the program wouldn’t change that much at all. And I think it is important 

to keep that there, and I think it is a challenge that we all are 

going to have to—I don’t have any silver bullets in dealing with 

$24 billion, and I didn’t come here with $24 billion in my pocket. 

So I think that is going to be a real challenge, going forward. 

Mr. HURT. Thank you. Mr. Gray, quickly? In 30 seconds? 

Mr. GRAY. Sure. I think it is mitigation and risk spreading, and 

trying to get the private market involved. And the sooner you can 

do that, then the better off our society is in handling the monster 

debt that we have right now. 

Mr. HURT. Thank you, Mr. Chairman. I yield back the balance 

of my time. 

Chairman NEUGEBAUER. I thank the gentleman. 

And now the gentleman from Florida, Mr. Ross, one of the primary authors of this bill, is recognized for 5 minutes. 

Mr. ROSS. Thank you, Mr. Chairman. We talk about the $24 billion of debt that NFIP has. And it begs the question, if we are 

going to transition to a private market, is there sufficient capacity 

in the capital markets to do this? I will ask you, just going down 

the line, beginning with Mr. Ellis. 

Mr. ELLIS. As I indicated before, there is an appetite for risk, 

particularly in the reinsurance markets. And there is an interest 

of insurance, and we saw that—for instance, in your State, Mr. 

Ross—when they—when you—right after Biggert-Waters there was 

an interest in trying to write flood insurance and growth in that 

marketplace. And so, clearly, there is an appetite for risk. How 

great that appetite is, it is not entirely clear. But there is definitely 

a significant appetite for that risk. 

Mr. ROSS. Would you agree, Mr. Gray? As a broker, do you feel 

that there is sufficient capacity to meet the need at the NFIP? 

Mr. GRAY. There is capacity out there, and lots of it. Now, how 

long that stays and what the pricing looks like, who can say? But 

right now— 

Mr. ROSS. There definitely is. Would you concur, Mr. Brown? 

Mr. BROWN. Yes. 

Mr. ROSS. Now, Mr. Gray, you spoke on something just a second 

ago with regard to mitigation. And I think that is something that 

needs to really be addressed here. There are studies that have been 

done that for every one dollar of prevention in the mitigation, you 

save $3 or $4 from relief after the post-event relief. And I think 

that the NFIP has not been necessarily stellar in advocating mitigation. Let’s face it, you get discounts in homeowners for storm 

shutters, you get discounts for ABS if you—in your automobile. 

18 

There are discounts that you—that the consumer gets as a result 

of mitigating any risk. 

But that is more a function of not the private sector, would you 

not agree? And, I guess, Mr. Gray, what I want to ask you is, could 

you expound on how the private sector entering the market can impact the extent of greater mitigation in flood? 

Mr. GRAY. Sure. Remember, insurance is only one piece of this 

puzzle that we have been looking at. 

Mr. ROSS. Right. 

Mr. GRAY. And you have mentioned some of those other pieces. 

The private market coming into, and appropriately pricing the risk 

would hopefully encourage homeowners and others who are involved in this process to take a look at what they can do to actually 

save on their premium dollars. And certainly, if the program is 

functioning properly—where there is more than just reinsuring the 

same risk over and over again, and suffering repetitive losses over 

and over again—then I think you will see some improvement in the 

properties, where people will abandon what becomes economically 

unfeasible properties. 

Mr. ROSS. And economically, or actuarially speaking, would you 

say that there is more than one way to value risk? 

Mr. GRAY. Well, sure. 

Mr. ROSS. And, unfortunately, now you have only one valuation 

of risk that is being done, and that is by NFIP. 

Mr. GRAY. Yes, it is whatever the government says that valuation is. 

Mr. ROSS. Right. And then, supposedly, they are supposed to 

start sharing some of that with us. But we will see where that 

goes. 

Mr. Brown, you are very familiar with the State regulatory 

schemes. I think McCarran-Ferguson has been good for the insurance markets. It has been very good for the consumers. And one 

of the things that State regulatory environments provide is strong 

consumer protections. Would you have any comments as to what 

would be in the benefit of the consumer in terms of protections if 

we were able to pass a bill such as this that allowed for the licensing of private carriers into the market? 

Mr. BROWN. In particular with regard to claims paying, I think 

what happened in New Jersey is a lesson that we can learn. States 

have an extensive consumer protection in place. And they also have 

unfair claims practices in place which protect consumers for all coverages offered in that State except NFIP coverage. 

Mr. ROSS. So if a consumer has a problem with an NFIP policy, 

they can’t go to their State regulator. They have to go to NFIP and 

hope that they can get it resolved. 

Mr. BROWN. That is correct. And I would tell you, from my experience as an agent, as a legislator, and as a lobbyist, that in Florida, in particular, regulators are very interested in doing what is 

right for consumers. If I had a flood policy in a floodplain, I would 

much rather rely upon my State regulator than having to go to the 

NFIP. 

Mr. ROSS. I appreciate that. 

Mr. Ellis, you spoke just briefly about the consumer protections. 

You also spoke about the grandfathering in. And I think the situaVerDate Nov 24 2008 13:19 Feb 10, 2015 Jkt 092876 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\92876.TXT TERRI
19 

tion we are in is that if we were just starting fresh today, we would 

redesign how a private market should be able to cater to, and influence, behavior in terms of building and not building in high-risk 

areas. But since we are dealing with reality, and we are trying to 

wean people off of a government program, I agree with your assessment—in fact, I agree with Mr. Brown’s assessment—that there 

must be a safety net in there that allows for the consumer to go 

back if it doesn’t work out in the private market. 

And if you would just expound on that in the few seconds that 

I have left, if you could. 

Mr. ELLIS. Sure. It is just that—basically, just trying to clarify 

that if you went from the NFIP policy to what was deemed to be 

an equivalent private flood insurance policy, and then went back 

to NFIP or wanted to go back to NFIP, there wouldn’t be interpreted a lapse in coverage as long as it was continuous. And so in 

that respect, I think it has that protection for the policyholders. It 

envisions that we are not going to get rid of NFIP tomorrow nor 

maybe should we, at this point. 

Mr. ROSS. Right. 

Mr. ELLIS. And so, I think that is just a recognition that you 

have to have. 

Mr. ROSS. Thank you. 

I yield back. 

Chairman NEUGEBAUER. I thank the gentleman. 

And now the other gentleman from Florida—one of the major 

sponsors of this piece of legislation, Mr. Murphy—is recognized for 

5 minutes. 

Mr. MURPHY. Thank you, Mr. Chairman. 

Mr. Gray, just following up on Mr. Ross’ comments there, do you 

think there is any reason to believe that the State insurance regulators need any help from Congress when so many other types of 

insurance are based at the State level? Do you see this as any different? 

Mr. GRAY. No, I don’t. I think State regulators are well able to 

take a look at the carriers and license holders that are within their 

borders and manage audits, and control and regulate those folks. 

Make sure that the citizens of the State are protected. 

Mr. MURPHY. And can you tell me, in your opinion, how the mechanics of this would work at the State level in the context of private flood insurance? And whether you think State insurance regulators could assure that the private flood insurance policies provide 

no less coverage than that available through NFIP? 

Mr. GRAY. I think it is important to understand what the idea 

of no less coverage means. And trying to create a cookie-cutter approach to that is not really how State regulators work. They take 

a look at the policy forms and the rates that are being charged, and 

take a look at the justifications that the carrier provides for those 

rates, and then make a determination, or ask questions, for future 

determination on the nature of that risk. And then ultimately, they 

approve or deny the rate regulation or form regulation. 

Mr. MURPHY. And, I think, more to the point of each State being 

different, you have river flooding in Missouri and flash floods in 

Colorado and storm surges in Florida and sea level in Miami—we 

have a road, Alton Road, in Miami Beach, which is underwater all 

20 

the time now, I guess to the point here that the States are going 

to know best. 

Mr. GRAY. That is absolutely correct. Certainly, the local jurisdictions are going to understand the nature of their risks within their 

borders better than somebody who is trying to fit a single approach 

to 50-some jurisdictions. 

Mr. MURPHY. Okay. And, Mr. Brown, Biggert-Waters includes 

several provisions intended to encourage the development of the 

private flood insurance market. And the law also makes clear that 

private flood insurance should provide no less coverage than available through NFIP. In light of the sort of American system of insurance regulation, how do you make certain that the private insurance provides no less coverage—similar to what I asked Mr. 

Gray—than NFIP? And how does this process compare to what you 

do for homeowners policies and compliance? 

Mr. BROWN. Okay. And some of the same answers apply here. 

And that is that when State regulators are allowed to certify on 

this, at the State level that coverage being offered in their State 

complies with the requirement that the coverage be similar to, and 

no less than, I believe there is the answer. They have the most 

knowledgeable team to make a determination as to whether or not 

somebody is trying to offer a stripped-down policy. What I think 

you are going to find is that companies who come to this marketplace are going to offer coverages that are not even available now 

under the NFIP. 

For instance, if you have an above ground swimming pool at your 

home and the thing ruptures and water gets into your house, it is 

not covered under the NFIP policy. I think you will see enhanced 

coverages. And there is one exception to this, and I think—I want 

to be very clear. Coverages, in a traditional context, does not include deductibles. The ability to offer alternate deductibles is a 

management tool, a cost management tool, that has been used for 

decades by insureds and agents when recommending coverages. 

So I would encourage you, when you make a final determination 

of what you want to do here, is to not tie States’ hands on the ability of carriers in the private sector to offer alternate deductibles. 

Mr. MURPHY. Good point. 

Anybody can answer this. It relates to timing. One of my frustrations, especially with the Congress now, is that—the lack of clarity 

and certainty. If this were to be a logjam and nothing happens for 

5 years, Mr. Gray, I think in your comments you alluded maybe to 

the point that this may disappear if we don’t act soon. That this 

market, the private market may disappear. Is that what you were 

getting at, or do you think there is always going to be this market 

in the private sector? 

Mr. GRAY. I think that we need to keep it moving. There is an 

appetite for the risk and there are some at least view within the 

insurer world that this is something that is an opportunity that 

they would be interested in writing. I want to make clear, though, 

when I say that State regulators are able to take a look at these 

risks and regulate them locally, I wholeheartedly believe that. But 

I also believe that regulation should be according to the State’s 

purview of what is important rather than the Federal Government 

21 

telling the States you have to make this policy look like an NFIP 

policy. 

Mr. MURPHY. Thank you. 

Chairman NEUGEBAUER. If the gentleman has additional questions, I would yield him additional time. 

Mr. MURPHY. I’m good. 

Chairman NEUGEBAUER. Okay. I think Mr. Luetkemeyer had an 

additional question he wanted to ask. 

Mr. LUETKEMEYER. Yes. Thank you, Mr. Chairman. Just one follow up for Mr. Ellis. Maybe I misunderstood what you were saying 

awhile ago, but you said something about mandatorily being forced 

to purchase health—or flood insurance. Can you explain what you 

are talking about there? Because I— 

Mr. ELLIS. There is a—under existing law, there is a mandatory 

purchase requirement if you live in the special flood hazard area 

to purchase flood insurance. It is generally still what people call 

the 100-year floodplain or the 1 percent floodplain. 

Mr. LUETKEMEYER. Right. 

Mr. ELLIS. And so, that exists. It isn’t, as I was indicating to the 

chairman, forced as much as they are saying. I think the estimates 

from GAO is as little as 50 percent of the people who should be 

purchasing flood insurance under the law are actually purchasing 

flood insurance that their lender should be requiring. 

Mr. LUETKEMEYER. Okay. I understand what you are saying. But 

I would think that the regulators who look at the loans that the 

banks or credit unions or whoever are making would be the best 

judge of whether that actually needs to have flood insurance on it. 

Because you may just—you may have a half a million dollar home, 

but you may have a $10,000 mortgage against it, sits in a floodplain. The lot is worth more than the— 

Mr. ELLIS. I— 

Mr. LUETKEMEYER. So there is no need for the flood insurance. 

I am not sure that I agree with your premise, unless you are talking about— 

Mr. ELLIS. It is not my premise. It is just the law. I am just 

pointing out what the existing law is right now, which is there is 

a mandatory purchase requirement for high-hazard areas. 

Mr. LUETKEMEYER. Okay, I guess—do you—with the private insurance market trying to take over, do you support continuing to 

have mandatory purchases of it when you could live in a floodplain, 

or you leave that up to the individual— 

Mr. ELLIS. If you don’t have a mortgage, you don’t have to have 

it. The question is, are we protecting the—if you have a federallybacked mortgage, are we protecting the Federal Government in 

that context, as well. And so, I think it is an issue worth discussing 

about the mandatory purchase requirement. But at least in this 

context, I was just basically saying that if you purchase private 

flood insurance, that should meet your mandatory purchase requirement. Which has been one of the limitations in the past, is 

that it is not interpreted to actually meet that requirement. 

Mr. LUETKEMEYER. Okay, thanks for your clarification. 

Thank you, Mr. Chairman. 

Chairman NEUGEBAUER. I thank the gentleman. I think one of 

the observations about increasing the take-up rate for private inVerDate Nov 24 2008 13:19 Feb 10, 2015 Jkt 092876 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\92876.TXT TERRI
22 

surance is, if we get the Federal Government actually charging actuarial rates would help do that, bring some competition to that 

process. So, I am hopeful. 

I think we have had some great testimony here today. I want to 

thank the witnesses for their time and for their patience. I want 

to also thank Mr. Ross and Mr. Murphy for a very thoughtful piece 

of legislation. I think this is something that has bipartisan support, 

common sense. And while we may not be able to act on this in the 

113th Congress, I would hope that this is something that we will 

work on in the 114th Congress. 

I think there was—hopefully, there was not the thought that 

when we did that little adjustment to flood insurance, we had fixed 

flood insurance on a permanent basis. We have not, as the point— 

the fact that we still owe $24 billion and have a $30 billion line 

of credit. 

And so, certainly, these discussions need to continue. I would 

also like to ask unanimous consent, without objection, to submit 

statements for the record from the American Bankers Association, 

the National Association of Mutual Insurance Companies, the 

Property Casualty Insurers Association of America, the Independent Insurance Agents and Brokers of America (Big ‘‘I’’), the 

National Association of Professional Surplus Line Offices, and a 

letter from the Reinsurance Association of America. 

Without objection, it is so ordered. 

I would also like to thank the witnesses again. 

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

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

And with that, with no additional business, we are adjourned. 

[Whereupon, at 4:01 p.m., the hearing was adjourned.] 

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A P P E N D I X 

November 19, 2014 

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