U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

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

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

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

99–798 PDF 2017

OPPORTUNITIES AND CHALLENGES 

FACING THE NATIONAL FLOOD 

INSURANCE PROGRAM 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

HOUSING AND INSURANCE 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

JANUARY 12, 2016 

Printed for the use of the Committee on Financial Services 

Serial No. 114–67 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

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 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

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 

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 

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 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

SUBCOMMITTEE ON HOUSING AND INSURANCE

BLAINE LUETKEMEYER, Missouri, Chairman 

LYNN A. WESTMORELAND, Georgia, Vice 

Chairman 

EDWARD R. ROYCE, California 

SCOTT GARRETT, New Jersey 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

DENNIS A. ROSS, Florida 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

ROGER WILLIAMS, Texas 

EMANUEL CLEAVER, Missouri, Ranking 

Member 

NYDIA M. VELA ́ ZQUEZ, New York 

MICHAEL E. CAPUANO, Massachusetts 

WM. LACY CLAY, Missouri 

AL GREEN, Texas 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

JOYCE BEATTY, Ohio 

DANIEL T. KILDEE, Michigan 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

January 12, 2016 .............................................................................................. 1 

Appendix: 

January 12, 2016 .............................................................................................. 35 

WITNESSES 

TUESDAY, JANUARY 12, 2016 

Ellis, Steve, Vice President, Taxpayers for Common Sense ................................. 4 

Heidrick, Christopher, Principal, Heidrick & Company Insurance and Risk 

Management Services, LLC, on behalf of the Independent Insurance Agents 

and Brokers of America ....................................................................................... 6 

Templeton-Jones, Patty, Executive Vice President and Chief Program Advocate, Wright National Flood Insurance Company, on behalf of the Property 

Casualty Insurers Association of America ......................................................... 8 

Woods, Tom, 2015 Chairman of the Board, National Association of Home 

Builders ................................................................................................................. 10 

APPENDIX 

Prepared statements: 

Ellis, Steve ........................................................................................................ 36 

Heidrick, Christopher ....................................................................................... 43 

Templeton-Jones, Patty .................................................................................... 48 

Woods, Tom ....................................................................................................... 60 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Luetkemeyer, Hon. Blaine: 

Written statement of the National Multifamily Housing Council and the 

National Apartment Association .................................................................. 66 

Written statement of the American Insurance Association .......................... 69 

Written statement of the National Association of Professional Insurance 

Agents ............................................................................................................ 71 

Written statement of the National Association of REALTORS® ................. 76 

(1) 

OPPORTUNITIES AND CHALLENGES 

FACING THE NATIONAL FLOOD 

INSURANCE PROGRAM 

Tuesday, January 12, 2016 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HOUSING

AND INSURANCE, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10 a.m., in room 

2128, Rayburn House Office Building, Hon. Blaine Luetkemeyer 

[chairman of the subcommittee] presiding. 

Members present: Representatives Luetkemeyer, Royce, Pearce, 

Posey, Stivers, Ross, Barr, Rothfus; Cleaver, Clay, Green, Moore, 

Beatty, and Kildee. 

Ex officio present: Representatives Hensarling and Waters. 

Chairman LUETKEMEYER. The Subcommittee on Housing and Insurance will come to order. Without objection, the Chair is authorized to declare a recess of the subcommittee at any time. 

Today’s hearing is entitled, ‘‘Opportunities and Challenges Facing the National Flood Insurance Program.’’ 

I would like to thank the witnesses for appearing today. We look 

forward to your testimony. 

I now recognize myself for 3 minutes to give an opening statement. 

My district is home to many communities that lie in flood plains 

near major rivers, streams, and lakes. Many of the towns I represent, like so many communities across the Nation, are suffering 

from some of the most destructive flood scenes in years. 

While the long-term repercussions are yet to be fully known, previous experience has continually brought to light many issues surrounding the National Flood Insurance Program (NFIP). Within 

the past 5 years, nearly every one of the 50 States has experienced 

flooding. In the past decade, insurance claims stemming from flood 

damage have averaged $3.5 billion a year. It is not surprising, 

then, that flooding is the number one natural disaster in the 

United States. As a result, the NFIP today has an outstanding debt 

of approximately $23 billion borrowed from the Treasury, with 

$7.45 billion remaining of its total temporary borrowing authority. 

I have previously voiced concerns about the administration, operation, and suitability of the NFIP. Time and time again, we see 

Americans suffer because of governmental failure and inaction in 

times of greatest need. Authorization of the NFIP will expire on 

2 

September 30, 2017. Unlike in previous years, it is my hope that 

Congress can avoid coverage lapses that leave economies along the 

Missouri and Mississippi Rivers and local economies in every congressional district in a lurch. At the same time, we all recognize, 

regardless of political affiliation, that the status quo isn’t acceptable. 

Throughout this year, this committee will aim to garner more information on the NFIP, examine whether or not changes to flood 

insurance are likely to solve longstanding issues, and develop ways 

to fix a broken system in order to ensure it does more to benefit 

all parties involved. 

I look forward to today’s testimony and to the start of what I 

hope is a productive conversation on the future of flood insurance 

in America. My hope is that, at some point over the course of this 

year, we will be able to get enough information so that we can put 

together the reauthorization bill by the end of the year and that 

we will take next year, 2017, to be able to then authorize that bill, 

fine-tune it, and get it to the point where we can pass it and avoid 

the management by crisis that we do around here on a regular 

basis. 

However, that being said, I look forward to today’s testimony. 

With that, the Chair now recognizes the ranking member of the 

subcommittee, the gentleman from Missouri, my good friend Mr. 

Cleaver, for 5 minutes for an opening statement. 

Mr. CLEAVER. Thank you, Mr. Chairman, and members of the 

subcommittee, as well as the witnesses today, especially Tom 

Woods. Woods Custom Homes is one of the most significant and 

successful builders in my area. And Tom Woods, of course, served 

as a mayor of Blue Springs probably 10 years before I served as 

mayor of Kansas City. And I am so pleased that he is here. And 

he knows, as well as people in the State of Missouri, as you have 

already indicated, Mr. Chairman, this is a significant issue with 

which we are dealing. 

And this hearing is particularly appropriate. In the last few 

weeks, flooding from the Mississippi River has damaged homes and 

businesses in Missouri. Now, my congressional district was spared 

much of the damage to homes and businesses that hit the western 

and southwestern part of our State. Closer to home, I do often hear 

from farmers in my district who remain extremely concerned over 

flooding risks in their fields. 

As we all know, the National Flood Insurance Program was created in 1968 through the passage of the National Flood Insurance 

Act in response to a limited number of available companies—private companies—which were interested in providing flood insurance. 

The NFIP provides flood insurance to many property owners in 

designated areas as well as develops the flood insurance rate maps 

and promotes mitigation activities. 

Since 1968, the act of NFIP has been amended many times, more 

recently through what we all affectionately call the Biggert-Waters 

Act of 2012, and the Homeowner Flood Insurance Affordability Act 

of 2014. 

With the need for authorization around the corner, today we 

have the opportunity to fully discuss this issue, and more specifiVerDate Nov 24 2008 14:33 Feb 16, 2017 Jkt 099798 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\99798.TXT TERI
3 

cally, it gives us a chance to consider the importance of retaining 

flood insurance as well as how we can improve this program. 

I am going to be the last person to ever say that the issues we 

deal with in Federal agencies are perfect. They are imperfect. The 

only thing perfect is the 11 consecutive games won by the Kansas 

City Chiefs. 

I look forward, Mr. Chairman, to this hearing. 

And now I will ask if the ranking member, Ms. Waters, would 

like the remainder of my time? 

Chairman LUETKEMEYER. Very good. 

Good morning, Ranking Member, whenever you are ready. 

Ms. WATERS. I’m ready. 

Chairman LUETKEMEYER. Okay. The ranking member of the full 

Financial Services Committee, Ms. Waters from California, is recognized for 2 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

I am pleased to see that this committee has chosen to prioritize 

the National Flood Insurance Program this year. At the end of last 

year, I requested that the committee hold this hearing because I 

believe that it is absolutely critical that we start thinking about the 

program and how we can improve it for the long term. 

Now, let me briefly discuss the beginning before we discuss the 

future. 

When I agreed to work with Ms. Biggert on what ultimately became the Biggert-Waters Act, our goal was to create a bipartisan 

solution to repair our ailing Flood Insurance Program. There was 

a broad consensus around the need for the program because it is 

essential to our housing market and to our disaster recovery. For 

years, instability and insolvency issues threatened the effectiveness 

of NFIP. 

And since 2008, Congress has been extending the program a few 

months at a time. Twice, this led to shutdowns, including one that 

stalled more than 40,000 home sales in June 2010 alone. Shortterm extensions cause lapses in the program that place communities at risk and undermine our housing market. In 2010, the National Association of REALTORS® estimated that approximately 

1,400 home closings were adversely affected each day the program 

sat expired. For this reason, and to address the NFIP’s then-$24 billion debt, 

we attempted to fix the program through a 5-year extension and 

a 10-year repayment plan. But it soon became clear that our best 

intentions fell victim to circumstances that led to rate increases too 

severe for any family’s budget. Together, we worked tirelessly to 

enact reform that provided much needed rate relief for thousands 

of homeowners and put FEMA back on the path to addressing affordability issues on a broader scale. 

In 2013, when this committee refused to hold hearings, I convened a bipartisan meeting which led to the creation of a bipartisan and bicameral coalition. Ultimately, we were successful in 

passing legislation that addressed the unintended consequences of 

the Biggert-Waters Act. I stand ready to take these next 2 years 

to continue in that spirit and work across the aisle to ensure that 

the NFIP remains able to provide affordable flood insurance so that 

our Nation is resilient in the event of a disaster. 

4 

So I thank you, Mr. Chairman, and I yield back the balance of 

my time. And I hope that we can work together in a bipartisan effort in the way that we did to pass the bill that corrected the unintended consequences of Biggert-Waters. I enjoy doing that. 

I yield back. 

Chairman LUETKEMEYER. Thank you, Ms. Waters. 

With that, we will open with our testimony for the day. 

We have Mr. Stephen Ellis, vice president, Taxpayers for Common Sense; Mr. Christopher Heidrick, principal of Heidrick & Company Insurance and Risk Management Services, on behalf of the 

Independent Insurance Agents and Brokers of America; Ms. Patty 

Templeton-Jones, executive vice president and chief program advocate for Wright National Flood Insurance Company, on behalf of 

the Property Casualty Insurers Association of America; and Mr. 

Tom Woods, 2015 chairman of the board, National Association of 

Home Builders. 

We had a roundtable last week, which was great from the standpoint that we were looking at the mapping problem, believing that 

we need to start there. In today’s hearing, we hope to build on that 

with a more broad look at flood insurance as a whole and then on— 

in fact, tomorrow, we will look at a private sector solution with a 

bill that is out there to also take that into consideration. So we are 

starting off the year with a lot of research and looking into the aspect, different aspects of flood insurance, and we look forward to 

your testimony here today. 

Just to give you a brief tutorial on the lighting system, you get 

5 minutes to speak, and give us your testimony. At the 1-minute 

mark, a yellow light will come on. And when you hit red, that 

means my gavel is close behind. 

With that, Mr. Ellis, welcome to the committee, and I look forward to your testimony. You have 5 minutes. 

STATEMENT OF STEVE ELLIS, VICE PRESIDENT, TAXPAYERS 

FOR COMMON SENSE 

Mr. ELLIS. Thank you. 

Good morning, Chairman Luetkemeyer, Ranking Member 

Cleaver, Chairman Hensarling, Ranking Member Waters, and 

members of the subcommittee. I am Steve Ellis, vice president of 

Taxpayers for Common Sense, a national nonpartisan budget 

watchdog. Thank you for inviting us to testify on opportunities and 

challenges facing the National Flood Insurance Program. Taxpayers for Common Sense is aligned with Smarter Safer, a coalition that is 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 market and taxpayer groups to consumer and housing advocates to environmental and insurance industry groups. All 

of the groups agree that NFIP should be made more responsible 

and greater reforms are needed. 

I have a more extensive discussion of the opportunities and challenges facing NFIP in my written testimony, but in my short time 

now, I would like to address four of the points the committee raised 

in the letter inviting me to testify. 

5 

The committee asked, is the NFIP the ideal model for effective 

protection of residential and commercial property owners? No. And 

not just because it is $23 billion in debt to taxpayers. As was mentioned, the NFIP was created nearly 50 years ago because of a market failure. Today, the insurance industry is hungry for this risk 

and can provide it. To be clear, I am not suggesting eliminating 

NFIP tomorrow or anything close to that. The community rating 

system encourages mitigation, and there are properties that would 

see significantly higher premiums in the private marketplace. 

But a primarily private sector program is where flood insurance 

is heading and should head, and FEMA has indicated as such, that 

it is heading this way. This is already happening, and in the coming decades, NFIP will likely become a residual market for policyholders who cannot obtain private flood insurance. This would be 

a limited set of policies, and it is not unlike residual homeowners’ 

insurance programs at the State level. But Congress should be intentional about this development and ensure mitigation benefits 

achieved by NFIP are retained and funds for mapping maintained. 

The committee asked about FEMA’s efforts to accurately predict 

flood risks, price flood risk, and create an effective administrative 

mechanism to serve policyholders. I know FEMA is working hard 

to update the maps and has the new Technical Mapping Advisory 

Council to help guide them in their work. I also know that mapping 

efforts have not received full funding in the last several years, 

which inhibits their progress. 

That said, more needs to be done for the public to have a greater 

understanding of their flood risk. FEMA is tasked with mapping 

this special flood hazard area for the mandatory purchase requirement. That is a Federal mandate that isn’t likely to change. However, these maps are static; lines on a map designating various 

flood risk areas and charging various rates based on those risks. 

If a homeowner has an elevation certificate that proves they are 

elevated out of the flood plain, they can have those rates adjusted. 

But the creation of the rates as a sort of black box is not entirely 

clear that even full risk rates are actuarially sound. In some cases, 

there are significant cross subsidies where lower risk properties 

pay more to maintain subsidies for higher risk properties. 

The committee also asked how NFIP in the private sector could 

better serve high-impacted communities and modernized mapping 

systems while incorporating local community mitigation efforts. 

There is no way around it. The maps have to be more accurate and 

smarter. There is a whole industry that has very accurate data. 

FEMA should explore data sharing and further contracting with 

them. There are also many different Federal agencies that engage 

in mapping. This should be better coordinated and shared among 

agencies to avoid duplication. 

This is also where—and I know this is outside the committee’s 

jurisdiction—the Nation’s mitigation and pre-disaster programs 

have to dovetail with NFIP and post-disaster response. 

Finally, the committee asked about the issue of affordability for 

families without the resources to pay actuarial flood rates. The affordability issue has to be addressed, but it must be done in a 

means-tested, targeted, and time-limited manner. Current subsidies are effectively hidden from the homeowner, which eliminates 

6 

any price signal of risk or incentive to mitigate to reduce the risk 

and thereby the premium. Masking subsidies with lower rates prevents policyholders from understanding the true level of their risk. 

As was noted in the privatization report mandated by BiggertWaters, subsidized rates ‘‘can promote and have promoted poor decisions on the part of property owners and political representatives. 

They also create a moral hazard, especially when the subsidies are 

not well targeted.’’ The report continues, that the presence of subsidies ‘‘removes the incentive to undertake mitigation efforts, thereby encouraging ever-increasing societal costs.’’ A far better approach is to encourage and fund mitigation measures that could 

serve to reduce rates by reducing risk. 

In conclusion, private insurers are ready to write flood insurance, 

and as NFIP rates rise in the program to be more in line with 

risks, this will become even more so. With more insurers writing 

flood insurance, there should be a growth in overall coverage in the 

United States while the Federal program develops into a residual 

market. This will take a decade or maybe 2 decades or more, but 

Congress should work with the Executive Branch to manage the 

transition and use targeted mitigation tactics that make these remaining policies more commercially insurable. 

There is no need for the Federal Government to further extend 

into the catastrophe insurance market through reinsurance or 

other means. 

Thank you for the opportunity to testify. I am happy to answer 

any questions you may have. 

[The prepared statement of Mr. Ellis can be found on page 36 of 

the appendix.] 

Chairman LUETKEMEYER. Thank you, Mr. Ellis. 

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

STATEMENT OF CHRISTOPHER HEIDRICK, PRINCIPAL, 

HEIDRICK & COMPANY INSURANCE AND RISK MANAGEMENT SERVICES, LLC, ON BEHALF OF THE INDEPENDENT 

INSURANCE AGENTS AND BROKERS OF AMERICA 

Mr. HEIDRICK. Thank you. 

Good morning, Chairman Luetkemeyer, Ranking Member 

Cleaver, Chairman Hensarling, Ranking Member Waters, and 

members of the subcommittee. My name is Chris Heidrick, and I 

am pleased to be here today on behalf of the Independent Insurance Agents and Brokers of America, or the Big ‘‘I,’’ to present the 

Association’s perspective on flood insurance and the National Flood 

Insurance Program. We commend the subcommittee for looking at 

this very important issue. 

I am the principal of an independent insurance agency located in 

Sanibel, Florida. I regulate and counsel clients of all sizes regarding flood insurance. I also hold the designation of associate in national flood insurance. I currently serve as the chairman of the Big 

‘‘I’’ Flood Insurance Task Force and represent the Big ‘‘I’’ on the 

Flood Insurance Producers’ National Committee. 

The Big ‘‘I’’ is the Nation’s largest and oldest trade association 

of independent insurance agents and brokers, and we represent a 

nationwide network of approximately a quarter of a million agents, 

brokers, and employees. Working with Write Your Own companies, 

7 

many of these agents serve as the sales force for the NFIP. It is 

from this vantage point that Big ‘‘I’’ members understand the capabilities and challenges of the insurance market when it comes to 

ensuring against flood risks. The Big ‘‘I’’ believes the NFIP provides a vital service for the people and places that have been hit 

by a natural disaster. Recent severe flooding in Missouri and across 

the central United States has provided an unsettling reminder of 

the terrible damage that flooding can cause, and the NFIP is virtually the only way for many people to protect against the loss of 

their home and business due to flood damage. 

Despite our support of the NFIP, the Big ‘‘I’’ also recognizes that 

the program is far from perfect. The program has recently faced 

scrutiny for its handling of Superstorm Sandy claims and has a 

debt of approximately $23 billion. But it is important to note that 

for more than 2 decades, up until the 2005 hurricane season, no 

taxpayer money had been used to support the NFIP. The NFIP was 

able to support itself using funds from the insurance premiums it 

collected. 

In order for the NFIP to move forward toward financial solvency, 

rate adequacy should be examined. However, it must be done with 

careful consideration to avoid market disruption and other unintended consequences. For the NFIP to regain any sort of solid financial footing, the number of policies needs to increase, not decrease. As Congress considers possible reforms to the program, 

careful analysis of their potential impact on policy take-up rates 

and retention should be paramount. 

Now, I would like to talk about the role of the insurance agent 

in the delivery of flood insurance, which is considerably more complex than most traditional property and casualty lines. Independent agents are an essential part of the consumer experience 

when purchasing a flood policy. Placing a new policy on a property 

located in a special flood hazard area where the government requires flood insurance for any home with a federally-backed mortgage is an intensive process that can take multiple days, if not 

weeks, to complete. 

Furthermore, when consumers are ‘‘not in a flood zone,’’ they 

often believe they don’t need flood insurance when, in fact, this is 

not the case. Properties outside of this special flood hazard area 

comprise over 20 percent of all NFIP flood insurance claims and receive one-third of Federal disaster assistance for flooding. It is my 

job to explain the flood insurance options available to consumers 

and to make sure they understand the consequences of their purchase decision. 

As you know, the NFIP is a congressionally authorized program 

that requires periodic extensions. The NFIP is currently scheduled 

to expire on September 30, 2017, and the Big ‘‘I’’ strongly urges 

Congress to pass a long-term extension as soon as possible. Instability and uncertainty created by short-term and sometimes retroactive or last-minute extensions can lead to concrete damages in 

the real estate and development market as well as the country’s 

economy overall. 

Briefly, regarding the private market, which I know the subcommittee is exploring in a separate hearing tomorrow, the Big ‘‘I’’ 

supports H.R. 2901, the Flood Insurance Market Parity and ModVerDate Nov 24 2008 14:33 Feb 16, 2017 Jkt 099798 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\99798.TXT TERI
8 

ernization Act, as introduced. I would like to thank Representatives 

Ross and Murphy for taking the lead on this bipartisan legislation. 

This bill ensures that policyholders can move seamlessly between 

the private market and the NFIP. The Big ‘‘I’’ believes that the private flood insurance market can play a valuable but limited role as 

a complement to the NFIP in protecting homes and businesses but 

lacks the capability to underwrite flood insurance on a pervasive 

basis to meet customer needs. 

In conclusion, the Big ‘‘I’’ strongly supports the NFIP and the 

continued role of our members as the distribution force for the program. The NFIP is essential for millions of Americans, and ensuring the long-term stability of the program is of vital importance. I 

thank the subcommittee for holding this hearing and I look forward 

to answering any questions you may have. 

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

43 of the appendix.] 

Chairman LUETKEMEYER. Thank you, Mr. Heidrick. Well done, 

you wound up within the time limit there. Good job. 

Mr. HEIDRICK. Thank you. 

Chairman LUETKEMEYER. Ms. Templeton-Jones, you are recognized for 5 minutes. 

STATEMENT OF PATTY TEMPLETON-JONES, EXECUTIVE VICE 

PRESIDENT AND CHIEF PROGRAM ADVOCATE, WRIGHT NATIONAL FLOOD INSURANCE COMPANY, ON BEHALF OF THE 

PROPERTY CASUALTY INSURERS ASSOCIATION OF AMERICA 

Ms. TEMPLETON-JONES. Good morning, Chairman Luetkemeyer, 

Ranking Member Cleaver, and members of the subcommittee. My 

name is Patty Templeton-Jones. I am executive vice president and 

chief program advocate of Wright National Flood Insurance Company, which is based in Florida and domiciled in Texas. Thank you 

for the opportunity to testify. 

Wright National Flood Insurance Company is a Write Your Own 

flood insurance partner with the NFIP for the Write Your Own 

Program. WNFIC is the largest writer of flood insurance in the Nation. Wright National Flood Insurance Services, our processing center, is also active in the private flood insurance market growing 

outside of the NFIP. Wright National Flood is a member of the 

Property Casualty Insurers Association of America, which is composed of nearly 1,000 member companies, including two-thirds of 

the Write Your Own insurers that partner with the NFIP to administer the National Flood Insurance Program. 

My testimony today is provided on behalf of PCI and its nearly 

1,000 member companies. Today, I would like to: first, draw your 

attention to the dramatic increase in private capital available to 

underwrite flood coverage outside the NFIP; second, underscore the 

importance of consensus for the long-term reforms needed to provide stability in the NFIP throughout the lengthy transition period 

necessary for significant market for flood coverage to develop outside the NFIP; third, highlight several key issues policymakers 

need to consider before any period of transition begins; and finally, 

suggest several broad categories on which such long-term consensus reforms should focus. 

9 

Without question, the biggest change in the flood insurance landscape since Congress last authorized the NFIP is that now, for the 

first time in a generation, substantial sources of private capital are 

available and actively interested in writing primary flood insurance 

coverage. Today, an increasing number of private insurers are 

planning on entering into the private flood market. 

In response, State insurance regulators, like those from Florida 

and Pennsylvania, are engaging insurers with the intention of fully 

incorporating flood insurance into the U.S. State system of insurance regulation. 

The 48-year-old NFIP has experienced significant turmoil over its 

history. Program uncertainty and confusion peaked between 2008 

and 2012 as the NFIP suffered through a period of more than a 

dozen short-term program lapses and extensions. Unfortunately, a 

decade of program uncertainty, lapses, and midstream operational 

changes have not only caused numerous insurers to leave the Write 

Your Own Program but have repeatedly disrupted the housing 

market and caused ripple effects throughout the larger economy. 

Developing consensus on long-term reforms, and restructuring 

and reauthorizing the NFIP well before the September 2017 expiration, is the single most important thing Congress can do to foster 

certainty in the flood insurance marketplace and encourage the 

continued development of market-oriented solutions in flood risk 

management. 

The availability and interests of significant sources of private 

capital to provide primary flood insurance coverage outside the 

NFIP represents a paradigm shift. It presents the opportunity for 

a gradual transition toward a flood insurance marketplace in which 

an increasing share of risk is borne by private capital. 

However, the growth of a private primary flood insurance market 

does not mean the elimination of the need for the NFIP, particularly, as the private market will not be willing to assume all flood 

risk or be acceptable to all buyers. In advance of any significant 

transition into the flood insurance market, topics policyholders 

need to consider are: first, should the NFIP become a national residual market or market of last resort for the substantial number 

of properties the private market will be unable or unwilling to insure; second, how is the NFIP’s mission to encourage the purchase 

of flood insurance by providing affordable coverage impacted by the 

growth of the private insurance market; and lastly, how will the 

NFIP’s mapping and flood mitigation functions be funded if policyholders leave the NFIP and purchase private flood insurance? 

Detailed in my written testimony are a number of immediate 

operational reforms that FEMA can take up on its own that the 

subcommittee may wish to consider in an oversight role. In the immediate term, Congress could and should bolster the development 

of a robust private flood insurance market by passing the bipartisan and bicameral Ross-Murphy-Heller-Tester Flood Insurance 

Market Parity and Modernization Act of 2015, H.R. 2901. This 

straightforward legislation addresses post-Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) regulatory confusion and provides homeowners greater coverage options in pricing. 

In conclusion, PCI and Wright National supports the committee’s 

review of NFIP in consideration of how to encourage additional priVerDate Nov 24 2008 14:33 Feb 16, 2017 Jkt 099798 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\99798.TXT TERI
10 

vate participation in flood underwriting and accordingly limit taxpayer risk. We would also suggest that even if the subcommittee 

and Congress ultimately reshape the marketplace, there will be a 

necessary long-term transition. Given the NFIP’s important role in 

the lives of so many Americans, it is critical to develop a strong, 

bipartisan consensus for a stable, long-term reform in advance of 

the program’s 2014 expiration. 

I thank the members of the subcommittee for this timely subject: 

reimagining flood risk management in advance of the November 

2017 reauthorization of the NFIP. I am happy to address any questions, and I look forward to working with the subcommittee 

throughout this process. 

[The prepared statement of Ms. Templeton-Jones can be found on 

page 48 of the appendix.] 

Chairman LUETKEMEYER. Thank you, Ms. Templeton-Jones. 

And finally, we will go to Mr. Woods. 

Mr. Woods, I want to thank you, again, for your participation 

last week in our flood mapping roundtable. I realize this is your 

second visit to D.C. in 2 weeks, so we appreciate your willingness 

to work with us, to enlighten us, and to represent your association, 

which you do very well. 

So, again, as a fellow Missourian, welcome to our committee, Mr. 

Woods. 

And you are recognized for 5 minutes. 

STATEMENT OF TOM WOODS, 2015 CHAIRMAN OF THE BOARD, 

NATIONAL ASSOCIATION OF HOME BUILDERS 

Mr. WOODS. Chairman Luetkemeyer, Ranking Member Cleaver, 

and members of the subcommittee, thank you for the opportunity 

to testify today. My name is Tom Woods, and I am a builder from 

Blue Springs, Missouri, and the National Association of Home 

Builders (NAHB) chairman of the board. NAHB has a long history 

of supporting NFIP, and we are committed to ensuring that it remains a viable and affordable program to its policyholders while 

being mindful of the costs to the American taxpayer. 

NAHB commends the subcommittee on addressing this critical 

issue early in the year, and we look forward to working with you 

and your colleagues as you contemplate changes to the NFIP to ensure that federally-backed flood insurance remains available, affordable, and financially stable. 

The unprecedented losses suffered in 2005 and in 2012, including 

the devastation brought on by Hurricanes Katrina and Sandy, have 

severely taxed and threatened the solvency of the NFIP. 

While these events have been tragic and sobering, resulting reforms must not be overreaction to exceptional circumstances. 

Instead, reforms should take the form of thoughtful, deliberate, 

and reasoned solutions. A key step in this process is to take stock 

of where we are today, what has worked, and what has not. 

While the NAHB supports the passage of BW-12 to ensure the 

continuation of the NFIP, the legislation created unintended consequences that resulted in dramatic flood insurance premium hikes 

that hurt the sale, construction, and remodeling of homes. The 

combination of inaccurate mapping into higher risk flood zones, 

and the immediate shift to full actuarial rates for many homeVerDate Nov 24 2008 14:33 Feb 16, 2017 Jkt 099798 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 K:\DOCS\99798.TXT TERI
11 

owners resulted in increases that priced prospective buyers out of 

their developments and forced the cancellation of sales, harming 

communities. 

HFIAA fixed many of the problems associated with BW-12. It 

provided that those who were charged higher rates should be refunded for excess premiums, specified that properties should and 

would continue to pay their grandfathered rates, and repealed the 

requirement that flood insurance premium increase immediately to 

full actuarial rates upon the sale of a home. The return to grandfathered rates provided a more affordable rate structure for policyholders. NAHB has estimated that in 2014, because of HFIAA, 

there was $755 million more in new construction and $361 million 

a year in additional remodeling. 

Any reform efforts need to address the accuracy of the flood insurance rate maps. For flood maps to be fair and accurate, they 

have to take into account all flood-control structures. Consequently, 

many properties are incorrectly mapped into flood plains, which results in homeowners being forced to purchase unneeded flood insurance. It typically takes years for those mistakes to be fixed, 

often requiring a lengthy and costly appeals process for the community, the builder, and the homeowner. 

There is an opportunity for home builders or landowners to elevate plots of land out of the flood plain through the letter of map 

change process. For example, I engaged in a CLOMR-F process in 

a subdivision I built in Independence, Missouri. It took over 8 

months and a quarter of a million dollars for FEMA to approve the 

map change. In States with short construction seasons, going 

through the letter of map change process could create devastating 

costs and delays. 

I would like to thank the subcommittee for the opportunity to 

share NAHB’s views. Home builders have long supported commonsense changes to the NFIP, and we urge Congress to continue to 

support and protect small business owners and homeowners from 

the exorbitant rate hikes and inaccurate mapping we have seen in 

the past. 

Thank you. 

[The prepared statement of Mr. Woods can be found on page 60 

of the appendix.] 

Chairman LUETKEMEYER. Thank you, Mr. Woods. 

I want to thank each of the individuals testifying today for your 

testimony. 

And, without objection, your written statements will be made a 

part of the record. 

With that, I want to recognize myself for 5 minutes and begin 

the questioning. 

Mr. Ellis, you make a lot of different statements, a lot of interesting conjectures as to how things could be, should be. You are 

looking at private insurance, to go that direction. How do we get 

there? And what do we do with mapping if it is still necessary, if 

you go to a private insurance market? 

Mr. ELLIS. Sure. Thank you, Mr. Chairman. 

Chairman LUETKEMEYER. You still need the NFIP, I think, I 

guess also. 

12 

Mr. ELLIS. Right. So there is currently built into the rate structure a certain charge that goes to every policyholder under NFIP 

that is supposed to go for mapping. And then, there are also appropriations that augment that go for mapping. We believe that as you 

develop the private marketplace, there should be explicitly a similar fee, a matching fee, for mapping that is done on the private sector policies. It would be exactly the same as what somebody is do 

if paying an NFIP as they would paying the private sector, as this 

sort of a sur fee, if you would. And that way, one is we are still 

going to have the mapping required by the Federal Government to 

do the mandatory purchase requirement, unless you all decide to 

change that. And so we need to make sure that is retained. And 

so that would be how we would envision that would be addressed, 

Mr. Chairman. 

Chairman LUETKEMEYER. Mr. Heidrick, one of the things that 

you were talking about was the low take-up rate. What is your solution for that, or do you have a solution, or do you believe that 

is just an inherent problem with the nature of flood insurance? 

Mr. HEIDRICK. Thank you, Mr. Chairman. 

I believe the inherent problem is the catastrophic nature of flood 

risk. As I am talking to clients, you think of homeowners’ insurance, auto insurance, these are products they typically buy every 

day that can experience higher frequency, sometimes lower severity 

losses. Flood insurance doesn’t work like that. Flood insurance is 

catastrophic in nature and often hits the people who least expect 

it. 

And one of the largest challenges we have in communicating 

flood risk right now is the binary nature of the existing maps. 

When you look at frequency, there are only 3 categories the National Flood Insurance Program specifies: less than a 0.2 percent 

chance of flooding in a given year; 0.2 to 0.99 percent; or 1 percent 

or greater. So imagine you have two houses that are on either side 

of the line, whether that line is inside or outside of the SFHA or 

in between two flood zones. And consumers are led to believe that 

because they are on the safe side of that line, they don’t need to 

purchase flood insurance. The rest of that statement is actually, 

they don’t need to purchase flood insurance to satisfy their lender, 

but there certainly is still a risk. And the relative risk between 

those two homes that I just gave in that example is much closer 

than in or out. 

Chairman LUETKEMEYER. Along those lines, if it is more difficult 

for people to ascertain they need it, and if you would go to a more 

private market, how would you market the insurance? Are you 

going to market like you do car insurance and homeowners insurance, or life insurance, where you would market it as one of those 

risks that is out there? Do you see a marketing program that would 

help do this, to show people the need for this, or is this something 

that the government is going to have to do, or the local communities who live in the flood plain areas are going have to do? How 

would you market the product if it is a private sector product? 

Mr. HEIDRICK. I don’t know that I would market it any differently than I market any other product. When I am meeting with 

a client, I am assessing their overall personal risk, whether that 

is wind or flood or auto or life or health, where each individual may 

13 

have a different set of risks or those risks may be more severe or 

less severe from individual to individual. 

One of the things that I believe the private market may be able 

to do better than the NFIP today is price in a more granular level. 

So the example I gave before, where there are 2 homes on either 

side of a line, and sometimes 10 feet can make several thousand 

dollars of difference in the cost of flood insurance for an individual, 

that is going to weigh heavily on their cost-benefit analysis. But if 

the private market is able to make it more granular, it would be 

a different outcome. 

Chairman LUETKEMEYER. Mr. Woods, you deal with this every 

day. With the fact that you build homes and hopefully you can sell 

them, financiers are supposed to be required to have in their files 

a document that says this either is or is not subject to flood insurance. How do you see this playing out with the private market? 

How do we solve this problem of participation? 

Mr. WOODS. I think, number one, again, and not to beat it to 

death, but the flood maps have to be accurate. Without that, you 

are at a loss. You can’t make that judgment. 

The second thing is simply an educational process. Right now, we 

are working where the only person having to have flood insurance 

is that person who is within the 1-percent area. And there are a 

number of answers to that question. Right now, with new construction in those areas or significant remodeling, you are required to 

move the base elevation of that house above the flood plain by 

whatever means. And then as you go down through the list, there 

are others. So I think you do it through education. But I think you 

have to have the confidence, and the home builder, the city, and 

the homeowner have to have the confidence that those maps are 

correct. 

Chairman LUETKEMEYER. Okay. Very good. My time has expired. 

With that, I will recognize the ranking member of the full Financial Services Committee, Ms. Waters, for 5 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

I would like to thank all of our panelists who are here today. And 

I am especially listening to Mr. Woods from Missouri. I am from 

Missouri, and you have three members on this committee who represent Missouri. And the recent floods, all of the flooding that has 

taken place in Missouri and in that St. Louis area where rivers 

converge have caused me great concern as I have been concerned 

about other areas of this country. And I spent a lot of time after 

Hurricane Katrina working down there with the residents who 

were just so harmed by Katrina. 

I was part of a problem. Biggert-Waters was not right, and it increased those premiums for homeowners, but I was part of a temporary solution also to fix that. And now, I am interested in a permanent solution. 

And I agree with you. If we can’t get the mapping right, we won’t 

be able to do the reform that is absolutely needed in this program. 

I guess you have already said it, but would you just reiterate 

how important it is for us to get the maps right? I don’t know what 

it is going to take. I know it is going to take some more resources 

to do that. It is going to take expertise that should be both public 

14 

and private, but would you reiterate for us the importance of mapping? 

Mr. WOODS. Certainly. Without a correct map, all that we do, 

other than that is really wasted. None of us can guarantee what 

the outcome will be. But I want you to understand also about the 

mapping and why it is so important. The map is only good if the 

local community follows the map. And I will give you an example 

back to the Independence example. I could move all of my property, 

in fact, above the 500-year flood plain, simply by constructing some 

lakes in the area and elevating the rest of the ground. I could contain all of my water onsite. However, the one thing I could not address is waters that were coming to me from other areas. 

So it can’t be a piecemeal, one-spot area. It has to have the hydraulics in the entire flood plain within it. 

The second thing is, I believe there are some tremendous cost 

savings to be realized. Two points. I, in fact, mapped the flood 

plain. I, in fact, knew where there were some errors in the flood 

plain that have existed for years, and yet we have not been able 

to get them addressed. All right? So I believe that we ought to rely 

on that data. If accurate, it wouldn’t then require a second set of 

mapping; it would require a review. 

And the second thing is—and this may be a novel approach for 

here, but we need to stop spending all our money suing each other 

to prove who is right. And, ultimately, I was a winner, but the bottom line is that money could have been well spent to have improved both the mapping and the area if we were working together. 

Ms. WATERS. If I may just continue, there are some people who 

believe it is impossible to get this remapping done and that it is 

going to cost too much money. Some people even question the expertise. But you believe that it can be done, is that right? 

Mr. WOODS. I believe it can be done if we all work together. I 

don’t think you have to go with where is it important to remap. It 

is not all that important to, perhaps, remap many areas of the 

country where there isn’t that much exposure. Those areas that 

have the most population, the most economic drought, those are 

certainly the ones that should come first. But those are also the 

areas where you are going to have the help of the home builders, 

the developers, and perhaps the cities. I think they are all interested in this. 

Ms. WATERS. So you do believe that the private sector could really help us in getting this remapping done? 

Mr. WOODS. It could help you, but they are going to have to 

know that there is an effort from the regulator side to—I am not 

asking to accept anything that is not right, but I am asking to stop 

being adversarial throughout this whole process. 

Ms. WATERS. I do believe that the chairman of this subcommittee, Mr. Luetkemeyer, who is from Missouri, is headed in 

the right direction. And I do believe that he can get all of the forces 

together so that we can get this right. So I am very optimistic. 

And I thank you for your testimony. 

Chairman LUETKEMEYER. I thank the ranking member. The time 

has expired. 

With that, we recognize the gentleman from New Mexico, Mr. 

Pearce, for 5 minutes. 

15 

Mr. PEARCE. Thank you, Mr. Chairman. 

Mr. Woods, could you give us a little bit more explanation? You 

said, ‘‘if the regulators would stop being adversarial,’’ I think was 

your last statement. Could you give us a little bit more insight into 

that adversarial relationship? 

Mr. WOODS. Just recently, a flood map was adopted in the Little 

Blue River Basin in Independence, Kansas City; it runs through 

both cities. And, in fact, we knew there were errors in that map. 

The cities knew there were errors in that map. The two cities’ 

maps did not match. And the bottom line was I was told, when I 

asked a question of some people, to FEMA, basically told, ‘‘Why 

didn’t you step up and provide it?’’ Number one, in the economic 

conditions that we are in, I wasn’t able to do that. It wasn’t worth 

my time. 

But they had that information. In fact, one of the major changes 

in that flood map was a realignment, a regrading of the Little Blue 

River, which is the river that would be flooding those grounds for 

the most part. And that was done by the Corps of Engineers 10, 

12 years ago. The changes the Corps made were not reflected in 

the map, readily available, I would believe. 

Second, there was a Federal road project in that area, and during 

that road project, they took two of the bigger bottlenecks out of the 

flood plain with some bridges and that kind of thing that they did. 

Those significantly changed the way that flood plain operated. And 

that information was readily available from the highway department. But they were still not included because they simply are not 

playing team ball. And so, those are all very important. 

And the last thing was just the way, when we submitted for our 

Conditional Letter of Map Revision Based on Fill (CLOMR-F), we 

went out—we did it a little differently. Before we submitted and 

before we even did the plan, we invited all of the parties to the site, 

which is about 500 acres, and physically wanted to walk the site 

with them and show that we could be good stewards; we could improve wetlands; we could stop the flooding; we could enhance the 

property. And the result wasn’t what I expected. We, quite frankly, 

became a guinea pig instead of— 

Mr. PEARCE. We have undertaken two rewrites of flood plains 

ourselves as an office, and it is much more difficult than it should 

be. You have the facts, they have the facts, but they refuse to rewrite it. So, I just want to get your insights on that. 

If a builder knows that an area is not being described in the 

flood plain, is he allowed to go in and make the changes with his 

knowledge that it is actually on the flood plain, or does the agency 

stop him from doing that? 

Mr. WOODS. The agency stops him from doing that. 

Mr. PEARCE. Yes, this is the craziness that is called the U.S. 

Government today. 

Mr. Heidrick, basically, it is my understanding that the insurance program, the Flood Insurance Program, was solvent up until 

maybe 10 years ago, just as whatever flood it was before Katrina, 

so it was about a billion in and a billion out. Then we had a several 

billion dollar problem, and then Katrina followed up with about a 

$13 billion problem, and so now we are underwater in the program. 

Is the program basically back to being solvent, about the same 

16 

amount in, same amount out, except for these catastrophic events, 

or is it not even close to solvent these days? 

Mr. HEIDRICK. It is my understanding—excuse me, thank you for recognizing me—that the $23 billion in debt really represent those 

two extraordinarily rare catastrophic events, which are Katrina 

and Sandy. Outside of those events, the program would be operating just as it was originally designed, which is without surplus— 

instead of surplus, a line of credit to the U.S. Treasury where it 

would borrow during years of need and pay back during other 

years, which— 

Mr. PEARCE. Yes. Mr. Ellis, do you know if anyone has done extensive studies on the fraud? I know that I was in New Orleans 

maybe a year or 2 years after the bailout and the money that was 

sent down there, and billions of dollars sent, and just story after 

story in the short time I was there about people collecting the 

money and never fixing the houses. Has anyone done an extensive 

study on that to determine the amount of fraud in these programs? 

Mr. ELLIS. The lead inspector general after Katrina was the Department of Homeland Security’s Inspector General, and they kind 

of led all the other agencies. And they did a lot of investigation into 

that area. And there has been some documentation on that. GAO 

also did a report on missed payments a couple of years ago as well. 

Mr. PEARCE. Is it extensive? 

Mr. ELLIS. It is present. I think any time you have a Federal program, you are going to have some waste, fraud, and abuse, unfortunately, which keeps people like me in business. And so, I think 

that is still going to be an issue. 

One other thing, Mr. Pearce, I just want to point out, is that we 

knew these kinds of catastrophic events were going to happen. So 

even if it was on the margins that the program was actually solvent, in large scale, we knew that there would be some event. We 

didn’t know it would be Katrina, and Rita and Wilma in 2005, and 

we didn’t know it was going to be Sandy in 2012, but we knew 

something was going to happen to make this program insolvent. 

Mr. PEARCE. Thank you. 

I yield back, Mr. Chairman. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

With that, we go to the gentleman from Missouri, Mr. Cleaver, 

the ranking member of the subcommittee. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

And let me preface my questions to the panel by thanking you, 

again, for this hearing. There is a lot of criticism thrown at Congress for waiting till the last minute and so forth, and the fact that 

we are starting on this right after the New Year, giving us almost 

a year to do this, I think is commendable. So thank you very much. 

I want to find out if any of you on the panel believe that Congress should completely eliminate the NFIP? Is there anyone? 

[no response] 

Mr. CLEAVER. I am glad. Because we tried that a couple of times, 

and it didn’t work, which I understand. Most of the private carriers 

have suggested previously in hearings before us, not during this 

session of Congress, but previously, that the private insurers could 

not diversify their losses, and so it made it practically impossible. 

And if you pay $130 premiums, if you put all the premiums toVerDate Nov 24 2008 14:33 Feb 16, 2017 Jkt 099798 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\99798.TXT TERI
17 

gether, they are not sufficient to cover the cost of the damage of 

a flood. 

So is there anything that you think we could do to further encourage private insurers to participate in this program? Anyone? 

Mr. Ellis? 

Mr. ELLIS. Ranking Member Cleaver, absolutely. Tomorrow, you 

are going to have a hearing on Mr. Ross’ bill along with Mr. Murphy, that would actually fix, adjust the definition of what is or 

what would represent insurance that met the mandatory purchase 

requirement. There are insurers in other States, even after BiggertWaters was enacted, before the subsequent legislation, that we are 

starting to—in West Virginia and in Florida—that wanted to write 

insurance. So there is definitely an appetite and effort there. Some 

of it is just making it easier for that program to develop. 

And then, actually, also, I think that which will also bring the 

private sector in is some of the consumer demand, because flood insurance, as was indicated by Mr. Heidrick, is a pretty limited product. I mean, you can’t insure your basements. You have a limited 

$250,000, plus $100,000 for contents. There are other things they 

can do with the products they can make that are going to attract 

new ratepayers—or new policyholders on a product basis. 

Mr. CLEAVER. So how many of you would have thought or believe 

the revolving loan fund that actually at one time started was the 

right direction to go? There was a revolving loan fund up until, I 

think, maybe in the 1980s, sometime in the 1980s. And eventually 

the private sector was then—with FEMA, and they ended up in 

some kind of conflict and the both sides mutually agreed to discontinue the revolving loan fund. 

Mr. ELLIS. My understanding, Ranking Member Cleaver, in the 

1980s, was that also that was when they changed to actually having borrowing from the Treasury, and before that, there were appropriations that would backfill and dealt with that, and they forgave about a billion dollars of debt and then went to borrowing 

from the Treasury. That is my major recollection at that time. 

Mr. CLEAVER. What would you suggest, any of you, that this 

committee look at in terms of trying to put together the best piece 

of legislation we can when the renewal time is closer to us? 

Ms. TEMPLETON-JONES. I would like to also support Mr. Ellis’ 

comment about H.R. 2901. I think H.R. 2901 is the first very important piece of legislation that would enable the private sector to 

start moving into the marketplace. We are starting to see, because 

of private capital, private markets are moving in, slowly but surely. 

We are seeing them move in with some better coverage, many 

times less expensive premiums. But in order to clarify the BiggertWaters definition of what private flood insurance is acceptable, I 

think it is essential that H.R. 2901 be passed as well as we need 

to eliminate the noncompete clause in the program. 

Mr. CLEAVER. Thank you. 

Mr. Woods mentioned the 500-year floods. I served as mayor for 

8 years in Kansas City. We had two 500-year floods in 8 years. 

And, also, let me just conclude, Mr. Chairman, by saying that I 

think the mapping is a critical issue which has to be resolved. 

Thank you. 

18 

Chairman LUETKEMEYER. I thank the gentleman. The time has 

expired. 

With that, we go to the gentleman from Florida, Mr. Ross, for 5 

minutes. 

Mr. ROSS. Thank you, Mr. Chairman. 

And I thank the panel for being here. 

In 1973, it seemed like a good idea that we would carve out from 

an all-perils policy flood insurance. It just seemed like the thing to 

do at the time on behalf of consumers. As we fast forward to today, 

it is somewhat akin to carved-out cardiology coverage under a 

health insurance policy and led to terrible results and not to the 

benefit of the consumer. So trying to put these back together, I 

think, is not necessarily a function of the Federal Government, but 

more a function of those who are willing to put at risk their capital 

to make sure that they can not only manage that risk but to do 

so at the benefit of the consumer. 

Mr. Ellis, you talk in your testimony about an all-perils policy, 

that including flood into an all-perils policy may, quite frankly, not 

only engage the consumer into wanting to buy flood insurance at 

a cheaper price because they will have limited risk, but, yet, the 

price of it would be so much cheaper that we in fact may cover 

more people through the privatization of flood insurance than putting it into an all-perils policy. Would you expound on that? 

Mr. ELLIS. Absolutely. Right now, there is about—it changes, and 

it has been going down. There are about 5.3 million national flood 

insurance policies in the country. To put that in perspective, leaving aside multi-unit housing, there are about 100 million housing 

units in this country. So we already have an adverse selection and 

not very many people buying flood insurance, and even though 

FEMA says that a lot of their payouts are to people who are outside the mandatory purchase requirement area. 

And so if this becomes a product that insurance companies can 

sell to their clients, then all of a sudden, it becomes less expensive. 

More people will be covered. We know these floods happen in these 

areas that are not in the 100-year flood plain, as has been indicated. So, actually, we can see an expansion in coverage in this 

country, which is certainly what we would like to see happen. 

Mr. ROSS. And more sharing or pooling of the risk across? 

Mr. ELLIS. Absolutely. We also would like to see a lot of that risk 

removed from the taxpayer onto the private sector where it belongs. Absolutely. 

Mr. ROSS. Right. In August of 2015, FEMA stated in their reinsurance study that, ‘‘Reinsuring a portion of the NFIP’s insurance 

risk would be a logical step toward privatization and could provide 

an additional lever in the financial management of the NFIP.’’ 

To your knowledge, has the NFIP or FEMA attempted to broaden or cede their exposure to the reinsurance markets? 

Mr. ELLIS. I don’t know that they have actually gone further 

from that study, and that was—the reinsurance study was done by 

Guy Carpenter, and then that was their opinion on top of it. So we 

would like to see the committee prod FEMA to go in that direction 

and to explore that more. 

Mr. ROSS. And if I might, Ms. Templeton-Jones? 

19 

Ms. TEMPLETON-JONES. I would just like to advise you that I 

have been made aware that FEMA has reached out to some reinsurers. Reinsurers have met with FEMA. So I do think the process 

is beginning. 

Mr. ROSS. Good. And is it your understanding that there is capacity in the reinsurance markets to take a significant portion of 

this risk? 

Ms. TEMPLETON-JONES. Yes, there is. Absolutely, there is. 

Mr. ROSS. Let’s talk, Ms. Templeton-Jones, about the process 

that was alluded to earlier. Let’s assume, because I have a good 

friend of mine who is a registered land surveyor, site work contractor, back home, who lives in a house on a hill, that the base 

of the hill is in a flood plain; there is this structures, but he is 20 

feet above. He has all the documentation because he can do it himself, but it is not worth his time and effort to challenge FEMA 

about his flood map, and so he is buying flood insurance. Do you 

believe that if you were to put capital in the market from private 

companies, a consumer would have a better opportunity, a better 

due process, and a better result if they were able to prove their 

home was no longer in a flood zone? 

Ms. TEMPLETON-JONES. Absolutely. And I would like to take that 

just one step further than that. I think as the private market 

evolves—and, again, I want to clarify that this is going to be a 

long-term process. 

Mr. ROSS. It is. 

Ms. TEMPLETON-JONES. It is not going to be something overnight. 

But as the private market evolves, they will utilize more and more 

tools. Modeling will become more efficient. We will see better riskanalysis tools to enable that company to take that insurance and 

properly price it better with better coverage. 

Mr. ROSS. And manage that risk better. In other words, to be 

able to help the consumer mitigate their exposure. 

Mr. Woods, you talked about how you would build a home, the 

site you would build above the flood zone, and you could contour 

the land. For every $1 that we spend in mitigation pre-events funding, we save $4 in disaster relief. What this big parcel is—not getting rid of NFIP. That is not our goal. Our goal, as Mr. Ellis pointed out, is to make it residual market. We did this in Florida to a 

great degree as a bad example for several years in windstorm, but 

what we have done is we have been able to create a residual market and create a competitive market so that consumers can get the 

best product at the best price. That entails the private market. 

Mapping is not an exclusive function of FEMA. If we put private 

capital into the market, I submit to you, you would see so much 

technology come into the game to be able to map not only better 

but more granularly because the capital that is put at risk wants 

to be managed better. Would anybody disagree with that? 

[no response] 

Mr. ROSS. Thank you. 

My time is up. I yield back. 

Chairman LUETKEMEYER. I thank the gentleman. Time has expired. With that, we go to another gentleman from Missouri, Mr. 

Clay, for 5 minutes. 

20 

Mr. CLAY. Thank you, Mr. Chairman, and I thank you and the 

ranking member for conducting this hearing. 

Mr. Ellis, the question of how to balance the goals of affordability 

and risk-based rates has been a key question for Congress in seeking to improve the National Flood Insurance Program over the 

years. Do you believe that these goals are fundamentally opposed, 

or do you believe that there is a way to appropriately balance these 

goals? 

Mr. ELLIS. I believe there is a way, and we have to find a way, 

Congressman Clay. What we have said is that right now when you 

have the subsidies that are built into the program, they are relatively hidden from the consumer. There isn’t an explicit knowledge of what the subsidy is, and then also they are not means-tested. That means it is basically if you owned the house that was before the flood insurance rate map, you get the subsidy. And so we 

think that as rates increase—and we think they do need to increase, if there are cases—we need to do a means-tested, and we 

need have very targeted assistance that is outside the rate structure. We are open to talking about ways to do that. The Wharton 

Risk Center has talked about vouchers. There have been other 

ways of looking at how to address that for that core. 

And then also the other thing is that reducing the rate or making people pay less, doesn’t reduce their risk at all. It doesn’t encourage them to reduce their risk at all. And so to some extent, one 

of the things that we have talked about is also looking at even 

prefunding some of that subsidy so that people can actually use 

that to mitigate and reduce their rate by reducing their risk. And 

that way, we are not putting people in harm’s way, encouraging 

and subsidizing people to be in harm’s way, but we are actually 

helping them out of the flood plain. 

Mr. CLAY. Thank you for that response. Mr. Woods, an example 

of Missourians rebuilding just recently, is that over the holidays, 

we experienced flooding in and around the St. Louis region. One 

community allowed for the homes to be elevated after the last 

flood. I guess they put some of the houses on stilts, I will say. 

Do you think that is smart, as far as allowing them to remain 

there and raise the elevation? This time, they still had to evacuate 

the community because the water rose too high. What do you think 

about them elevating and raising the level of the house? 

Mr. WOODS. I think that— 

Chairman LUETKEMEYER. Your microphone is off, sir. 

Mr. WOODS. I’m sorry. I think that there are all kinds of economic issues that start to play into this, and elevating may be the 

solution, but there are other solutions to look at. Would it have 

been less expensive, less catastrophic, to have moved those houses 

someplace else, out of the flood plain; and, again, where would that 

be? And what you really get into is many of those people are probably close to their jobs. That may be the only house they can afford. 

All kinds of things. 

So it is not an easy question, and I think it is greatly driven by 

just the demographics of the area. But at the same time, I think 

you have to have a comprehensive solution that includes the city 

and the county, and the State, so that we are making good decisions based on good science. 

21 

Mr. CLAY. Another question: Can you explain why the removal 

of grandfathered and subsidized rates on existing homes is a concern to your organization, which represents the interests of builders of newly constructed homes? 

Mr. WOODS. If you do that—basically for home builders, nearly 

50 percent of all prospective home buyers are what are called 

move-up buyers, your person with a house on stilts or four stilts. 

Okay? These individuals must be able to sell their current home. 

And if you took away that subsidy or the grandfathering of the 

rates, you are going to devastate the price of that home, and they 

are no longer going to be move-up buyers. They will simply be 

trapped in that residence until the rest home. Again, we rely on 

the ability of homeowners to move up, and owners to buy newly 

constructed homes. Many home builders and many homeowners 

have lost the ability to buy or the ability to sell simply because of 

that rate structure. 

Mr. CLAY. Thank you for your response. Mr. Chairman, I yield 

back. 

Chairman LUETKEMEYER. The gentleman yields back. And with 

that, we go to the gentleman from Kentucky, Mr. Barr, for 5 minutes. 

Mr. BARR. Thank you, Mr. Chairman. We will start with Mr. 

Ellis, and the question I have is, can you describe how the National 

Flood Insurance Program discourages private insurance, if at all? 

Mr. ELLIS. We talked a little bit about Mr. Ross’ bill, and one of 

the issues has been what exactly constitutes a private policy that 

would meet the mandatory purchase requirement, and his bill 

would clear that up in allowing the State insurance regulators to 

designate that. But that is just dealing with the mandatory purchase requirement. Obviously, there are people who do purchase 

flood insurance that are outside the flood plain. And part of it is 

that if the Federal Government is undercutting the rate, it is actually selling at a subsidized rate, both because either the rate is explicitly subsidized or because they can borrow from the Treasury, 

then you are really undercutting and crowding out the private marketplace. We believe that as rates increase, which they have been, 

that will become more competitive and actually allow the private 

sector to step in. 

Mr. BARR. Thank you. For those who are at risk, who are presently not mandated to have flood insurance, how do we do a better 

job encouraging those individuals to go ahead and get the coverage? Is it the all perils policy? Is it more capacity in reinsurance, 

inviting more reinsurance in there? What is the best way to do 

that? 

Mr. ELLIS. Congressman Barr, I think that it is all perils, and 

as the private sector gets more engaged in the flood insurance market, and some of that will be because of clearing up some of the 

issues in the hundred year flood plain or the Special Flood Hazard 

Area, then there will be more companies writing policies. There 

will be more experience with writing policies, and that should actually attract consumers and actually more policyholders. That is certainly what we believe and think that will happen. 

Mr. BARR. The reason I ask is in flood-prone areas without the 

mandate to purchase flood insurance, I think the statistic is that 

22 

only 1 percent of those structures are insured. So, developing that 

marketplace is very critical. 

To Mr. Woods, though, my question to you all would be, is moving toward actuarially sound rates and risk-based pricing a real 

impediment to real estate transactions? And I would like to hear 

your thoughts on that. 

Mr. WOODS. I don’t know that it is. I don’t have any information, 

and we don’t have any policy. We are going to be discussing this 

very thing next week in depth at our meeting. I tend to lean on 

the side of open competition usually. It gets you the best answer. 

Mr. BARR. We have seen, in my area in central and eastern Kentucky, real problems with the accuracy of the maps. And Mr. 

Woods, I couldn’t agree with you more. We have to get to more accuracy in maps as part of that process of inviting more coverage. 

Can any of you all elaborate a little bit more on some of the issues 

that the members of your associations have had with these maps, 

and what are some of the ways that we can improve the mapping? 

Mr. HEIDRICK. If I may? 

Mr. BARR. Sure, yes. Go ahead. 

Mr. HEIDRICK. Thank you, Mr. Barr. As I stated earlier, having 

a more granular view of flood risk is, I think, of paramount importance to consumers who live outside of the Special Flood Hazard 

Area. Twenty percent of all flood insurance claims occur outside of 

the Special Flood Hazard Area. 

In Columbia, South Carolina, from what I understand about 792 

people had flood insurance policies. These are examples where if 

you had a way to measure risk maybe on a scale of zero to 100 for 

instance, and I know that the NFIP is currently working on some 

way to articulate risk in this way, to help customers understand 

that they are not immune from flooding simply because they live 

on one side of a line or another, we would have much more recognition, it would improve the takeup rate. 

Mr. BARR. Mr. Ellis? 

Mr. ELLIS. Yes. Congressman Barr, also there is a lot of mapping 

that is being done and modeling that is being done by the private 

sector, companies like CoreLogic, that have some of this data, and 

I think it is important—I believe as Mr. Heidrick mentioned before—the maps that FEMA does are really a snapshot, and they 

are looking backwards. 

The risk modeling is looking forward, recognizing there are 

changes in development and other patterns, and that can help inform consumers more that they have this risk. It is not this binary 

situation where you either have to buy it or you don’t have to buy 

it, and if you don’t have to buy it, then you think you are not at 

risk, when in reality you are at some risk and it could be quite considerable. 

Mr. BARR. Yes, ma’am? 

Ms. TEMPLETON-JONES. I would just like to elaborate one piece. 

I absolutely support flood modeling. I think we are seeing it, but 

I do want to make sure the committee realizes it is in its infancy. 

It is going to get better. Mapping needs to be the starting point, 

and then we need to build upon that with the modeling and so 

forth. 

23 

Mr. BARR. Thank you. I think my time has expired. Thank you 

for your testimony. I yield back. 

Chairman LUETKEMEYER. The gentleman’s time has expired. We 

now go to the gentleman from Texas. Mr. Green is recognized for 

5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. And thank you, Mr. 

Ranking Member. And I thank the witnesses for appearing as well. 

Let’s for just a moment look at the markets in terms of how they 

impact affordability, more specifically, the residual market juxtaposed to the voluntary market. 

For our purposes, I think it is fair to say that the residual market is a market of last resort. The voluntary market is a competitive market. And the way we structure the residual market is going 

to have a lot to do with affordability. So I would like, Mr. Ellis, to 

visit with you, because I have read your testimony in its entirety, 

and the last paragraph of it where you give your conclusion, I 

think, is quite revealing. You indicate that the Federal Government 

will develop the residual market. How will that market be developed such that we will still have competition in the voluntary market, and not have the taxpayers assume all of the high-risk persons 

that the voluntary competitive market does not find beneficial in 

the sense of profits and loss, market demands? 

And I mention this to you because, as you know, with the health 

insurance we find ourselves with insurance companies assuming a 

lot of clients, if you will, who are not over age 62 to 65. When you 

get above that, insurance companies are not enthralled with the 

notion of having you as a client, customer. And given that I am 

above that age, I kind of look into these things, as you can well understand. I see you smiling, so you understand what I am talking 

about. 

So what I am interested in is finding out how do we have a residual market that will have a positive impact on affordability given 

that the voluntary market is where everybody wants to be, and getting insurance companies to go residual can be exceedingly difficult? 

Mr. ELLIS. Thank you very much, Congressman Green, for the 

question. Part of what we are observing, which was actually observed in the reports that came out after Biggert-Waters, the 

FEMA reports that came out, is that the residual market is where 

it is actually going. Unintentionally or intentionally, that is what 

is developing as the rates increase in the flood insurance program 

and as competition is going to come in. And so our point has been 

that it needs to be—and I think you are spot on, Congressman— 

an intentional decision by Congress on how to develop that and 

how to protect those consumers. 

Also, as it becomes a more concentrated market, then it becomes 

something where Congress and the Executive Branch can target 

mitigation to help those people out. So it is not just about affordability because we are giving them subsidies or we are giving them 

a cheaper product, but we are actually reducing their risk so there 

becomes an appetite in the private sector to write policies for them 

as well. Because unlike your example in health care, and I am not 

an expert in that area at all, but it isn’t that there is a 60-yearold house—it’s not that houses get to being over 60 years—obviVerDate Nov 24 2008 14:33 Feb 16, 2017 Jkt 099798 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\99798.TXT TERI
24 

ously there are houses that are 100 years old, but that same characteristic isn’t analogous. We could actually make that 60-year-old 

house, at least in a risk standpoint, be a 30-year-old house if we 

do the right mitigation tactics. 

Mr. GREEN. Given that I have about a minute and 18 seconds 

left, permit me to ask this. Help me to flesh it out. Help me to understand, and others who are listening at home to understand, 

what you would do specifically to make sure that the residual market is affordable for persons who are going to live along the Gulf 

Coast. I am from Texas. I went through Katrina, Rita, and those 

who are on the East Coast where we had Sandy, how do they have 

affordability? Give me some examples of how it can be done? 

Mr. ELLIS. One of the things that came out of Wharton was this 

idea of vouchers to help people purchase their insurance. But I also 

think, and I know I am kind of going back to this, I think we 

should be trying to mitigate their risk and providing them assistance to mitigate their risk to reduce their rate rather than just giving them subsidies. But we already have certain affordability provisions built into flood insurance with the Pre-FIRM structures that 

have explicitly grandfathered and subsidized rates. 

Mr. GREEN. And by mitigation, you mean cost to replace or repair? 

Mr. ELLIS. Well, no, not to repair or replace. It could be to relocate. But it also could be to elevate or other mitigation tactics. I 

think that what we want to do is reduce the risk. It was brought 

up earlier that for every dollar we spend on mitigation, it is $4 less 

in disaster costs, and we think that would be the way to target it. 

Mr. GREEN. Thank you, Mr. Chairman. I yield back. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

With that we go to the gentleman from Pennsylvania. Mr. Rothfus 

is recognized for 5 minutes. 

Mr. ROTHFUS. Thank you, Mr. Chairman. Mr. Heidrick, in your 

written testimony you assert that ‘‘private insurance industry lacks 

the capability to underwrite flood insurance on a pervasive basis to 

meet customer needs.’’ Could you elaborate on how you and the Big 

‘‘I’’ arrived at that assessment? 

Mr. HEIDRICK. Sure. It is a market that is in its infancy. In the 

United States, there are not a lot of insurers who have a lot of expertise. There is a dearth of claim data, and as the claim data is 

lacking. Without having loss experience and the ability to price accurately based on that experience, those are impediments that will, 

we believe, the Big ‘‘I’’ believes, will be overcome over time and 

modeling will get better over time. But as we sit here today, we 

don’t believe that the private market is capable of fully replacing 

the NFIP. 

Mr. ROTHFUS. Are there reforms outside of the Ross-Murphy legislation that the committee should consider to remove barriers preventing the private sector from contributing to the flood insurance 

market? 

Mr. HEIDRICK. I believe there are a number of reforms that are 

already existing that will play out over time, will manifest themselves over time. The changes that were made in 2012 and 2014 

were aimed to bring rates up to something that is more reflective 

of a market level. There is actually a flip side to that coin as well, 

25 

though. It also resulted in a number of policies, and according to 

the NFIP, 80 percent of the NFIP policies had actuarially correct 

ratings before those measures were put in place. 

So now there are additional surcharges and assessments that are 

outside of the true cost of risk that actually are going to give the 

private market an ability to come in, and they don’t need to charge 

those for those costs, so it is going to make some risks more attractive to the private market. 

Mr. ROTHFUS. Ms. Templeton-Jones, Biggert-Waters attempted to 

address the issue of those properties with multiple damage claims 

that have been a serious financial drain for the NFIP. Do you believe that FEMA and the NFIP have the tools necessary to address 

high-risk repetitive loss properties? 

Ms. TEMPLETON-JONES. I think Biggert-Waters 2012 was absolutely the beginning of heading in the right direction. I think the 

challenge still is the biggest drain on the NFIP, is the severe repetitive loss properties, and I believe targeted mitigation efforts 

should be addressed at those properties. 

Mr. ROTHFUS. Beyond the targeted mitigation efforts, would 

there be other reforms that you might propose? 

Ms. TEMPLETON-JONES. I think targeted mitigation on those severe repetitive loss properties is the key on that. 

Mr. ROTHFUS. Mr. Woods, with the NFIP being $23 billion in 

debt, GAO has classified the program as high-risk, citing NFIP’s 

artificially low rates which are insufficient to cover obligations and 

projected losses. I worry, and many of us on both sides of the aisle 

are deeply concerned, that another catastrophic event could push 

the NFIP’s debt level above the $30 billion mark. 

In your testimony, you write about the importance of ensuring 

that this taxpayer-backed program is financially stable so that it 

can continue to meet the needs of its participants. I think we can 

both agree that the current situation is unacceptable to the taxpayer. What are some ways that we can improve the financial sustainability of the NFIP and reduce taxpayer exposure to significant 

losses? 

Mr. WOODS. Again, I think from what Ms. Templetone-Jones 

said, I think also from the fact that if you got the private sector 

involved and the competition that would take place there, and, 

again, we go back to the mapping. But the reality of the mapping 

is there are many things, and I happen to think if we were all on 

the same side—the insurance company wanted to sell insurance. 

The home builder and developer wanted to develop ground—that 

we would work together to find a solution that gave each of us the 

best chance of success. That is not happening today in the system. 

We are spending all of our money on people who are almost guaranteed—well, we are not spending all of our money there, but we 

are really spending the money on people who are guaranteed to 

have a flood. We have insured property, and if the ones we are insuring are pretty well guaranteed to have the loss, that is fine, but 

I think you could do these other things that would help us all in 

the free enterprise system. They won’t do it in one afternoon, and 

unfortunately we might get that disaster in one afternoon. But the 

reality is that over a period of time, I believe they could. 

26 

Mr. ROTHFUS. There remains a concern with affordability in my 

district in Western Pennsylvania. Mr. Ellis, you touched on affordability. Can you elaborate on some of your ideas on how NFIP can 

address this affordability issue? 

Mr. ELLIS. Congressman, as the rates increase, and one of the 

issues we talked about and I mentioned earlier was the Wharton 

study looking at vouchers and sort of something outside the rate 

structure. Our biggest thing is making sure that people know their 

risk by knowing their actual rate, and then whatever we do as a 

country to help those people purchase insurance, that it be outside 

the rate structure so that they can actually inform them of their 

risk and then help them mitigate that. 

Mr. ROTHFUS. Mr. Heidrick or Ms. Templeton-Jones, do you have 

any thoughts? I guess I am over my time. I yield back. Thank you, 

Mr. Chairman. 

Chairman LUETKEMEYER. Darn that clock, right? The gentleman’s time has expired. With that, we go to the gentlelady from 

Wisconsin, Ms. Moore, for 5 minutes. 

Ms. MOORE. Thank you so much, Mr. Chairman, and let me join 

the chairman and the ranking member in thanking and welcoming 

this distinguished panel. 

It is hard to know who to ask questions of because all of your 

testimony has been very compelling. But I want to ask a question, 

and I want to prioritize getting answers from Mr. Ellis, Mr. Woods, 

and Mr. Heidrick. 

And I just want to reference the fact that Ms. Templeton-Jones, 

in your testimony you talked about the number of insurers that are 

just leaving the program because of the lapses and so on. So with 

that in mind, my question relates to a provision that I was able to 

get into the Biggert-Waters legislation, just a simple study of community-based insurance, and I was just wondering how some of the 

challenges, I believe it was Mr. Ellis, you mentioned, you laid it out 

very clearly, the debt, adverse selection, subsidies, the accuracy or 

lack thereof of the mapping. 

How would a community-based flood program fit in with some of 

the solutions that you all have suggested, giving incentives for cities and States to do mitigation, really bringing more re-insurance 

and money and private sector dollars into a program, maybe mitigating the adverse selection by having a community-wide effort? 

I’m just wondering what your thoughts were on that? 

Mr. ELLIS. Thank you, Congresswoman Moore. So, that study did 

result in a National Academy of Sciences report that came out recently. Separately, there was also one done by Resources for the 

Future that was very interesting. I think the challenge is that in 

1968, we went with an individual policyholder perspective, and 

having it house by house. You can see in certain ways that maybe 

even layering it on—you think about the fact that people will have 

lower homeowners’ insurance rates if the community puts in fire 

hydrants and such a regular pattern. And so, there are certainly 

things that a community insurance could try to overall reduce the 

individual homeowners rates in that perspective. 

And then also, that was part of what I think that when they created the community rating system and required communities to actually opt into the flood insurance program, agree to operate under 

27 

certain restrictions, and then also gave them benefit to their homeowners if they actually did community-wide mitigation measures or 

whatever, that actually is trying to replicate that, but I would recommend the Resources for the Future analysis on that. 

Ms. MOORE. Okay. Mr. Heidrick? 

Mr. HEIDRICK. Thank you, Ms. Moore. The Big ‘‘I’’ doesn’t have 

a formal position on community-based insurance in general. It is an 

organization that supports choice for consumers to make their own 

decisions based on their own individual risk, and of course as we 

discussed earlier, there is gradation of risk. There are some people 

who are at more risk than others when it comes to flood insurance. 

So we think that those are factors that would have to weigh into 

a proposal. 

Ms. MOORE. Mr. Woods? 

Mr. WOODS. This is a very technical place. I think there are, with 

the community’s involvement, ways to allow people to have a 

choice, and I think that choice is always important, but I think it 

does take the involvement of many of us, the insurers, as well as 

the communities, as well as the builders, and remodelers, and the 

homeowners. 

Ms. MOORE. You don’t think this would help with the cost, some 

of the challenges that were mentioned, to have a community-wide 

plan? If I don’t particularly live in a flood plain, but I find myself 

paying 15 cents per thousand dollars of value on my property for 

a community plan where maybe somebody else pays more because 

they actually live in a flood plain, just say, New Orleans if I am 

in the Garden District, but I pay a very small premium to sort of 

mitigate, as a community plan, you can’t see a place for that? 

Mr. WOODS. I guess I would say, yes, there is possibly a place 

for that, and that kind of falls to that answer I had about being 

able to control my own piece of property, but I can’t do it without 

the community working with the others, so I think it is the same 

thing. 

I would also offer that we are already paying those rates. We are 

paying them in our taxes to the United States Government, and we 

are paying them in our taxes to the communities right now, because when it happens, we step up. That is what we do in the 

United States. And when we step up, we are spending that money. 

Ms. MOORE. Thank you. I yield back. 

Chairman LUETKEMEYER. The gentlelady’s time has expired. 

With that, the gentleman from California, Mr. Royce, is recognized 

for 5 minutes. 

Mr. ROYCE. Thank you, Mr. Chairman. I just would build on a 

conversation that Mr. Clay had, and this was, Mr. Ellis, in your 

testimony you said that masking subsidies with lower rates prevents policyholders from understanding their true level of risk. Is 

my understanding correct that under the current program, policyholders just see the premium payment that they need to make. 

Right? 

Mr. ELLIS. That is my understanding, yes. 

Mr. ROYCE. That is what they can see. How difficult would it be 

to break out the subsidy? How difficult would it be to make transparent the amount that the government or that the other taxpayers 

are covering on behalf of the homeowner? 

28 

Mr. ELLIS. One of the challenges would be for many of the policies that get the grandfathered or the subsidized rate, the preflood 

insurance rate map policies, they don’t actually know the elevation 

of the actual policy, and so then there are some of the challenges 

in dealing with that. But I think that is something that would be 

worth doing, especially considering as we recommended that anything going forward as we are trying to do affordability issues, that 

the subsidy or whatever, the support be means-tested and be tested 

outside the rate structure. And so I think it would be a valuable 

effort, Congressman Royce. 

Mr. ROYCE. It seems to me that if you can capture the information, that the increased transparency there would have a positive 

impact on future decision-making because it would probably decrease moral hazard. It would increase mitigation efforts, perhaps, 

but letting the policyholder understand that up front would be 

helpful. 

My other point was that the Flood Insurance Program Act of 

2012 attempted to address the issue of repetitive loss priorities, 

and this is where multiple claims have been made on the same 

property. So the GAO found that while these properties amount to 

1 percent of policies, they account for 40 percent of all of the program claim losses. Do you think that 2012 reform bill gave the 

NFIP the tools necessary to address high-risk, repetitive loss properties, and what else could be done there? 

Mr. ELLIS. Sure, Congressman Royce. Certainly in BiggertWaters 2012, they had the provision there about increasing rates 

for severe repetitive loss properties. That did not get changed in 

the subsequent legislation, so that is still going on, and so we think 

that is a positive step. 

But I think that also looking at some of the programs that FEMA 

already has to actually, they have the ICC program which is like 

a $30,000 cap and you could possibly increase that cap in trying 

to help people elevate or mitigate or relocate. And so I think there 

are things we should be targeting our resources because as you 

pointed out, Congressman, it is such a drain on the program that 

those are the most likely, the most beneficial, the best investment 

to try to mitigate or relocate them out of the flood plain. 

Mr. ROYCE. And I think if people understand the risks they were 

taking or the likelihood, and if all of that data—well, let’s hear 

some of the other perspectives on that issue, if I could just open 

it up. 

Ms. TEMPLETON-JONES. I agree. I think we need to indicate what 

the actual rate is. We need to be actual rated policies. The challenge is, like Mr. Ellis has said, unless we have the elevation certificate, and not all properties, your PreFIRM properties, your older 

structures, your properties that are in the B, C, and X zones, which 

again we need to remember that 25 percent of all claims come out 

of your low- to moderate-risk properties, the B, C, and X areas, we 

don’t have elevation data. Without that elevation data, we can get 

an idea, and come April 2016, FEMA is implementing clear, concise 

information to the policyholder; but again not having the elevation, 

is an impediment. 

29 

Mr. ROYCE. But it is not that many claims, there are not that 

many areas that we are discussing in the general scheme of things. 

How difficult would it be to try to obtain that information? 

Mr. HEIDRICK. Mr. Royce, today it is house by house by house, 

and it requires a surveyor to go out, and the cost of that work is— 

it ranges by State, but somewhere between $200 and $1,000 per 

house. There probably are more efficient ways that it can be done— 

Mr. ROYCE. There must be. Is there any way, with GPS or something, that would be cheaper in today’s world? 

Mr. HEIDRICK. There is a technology referred to as LIDAR which 

actually could be used, and I believe that the State of North Carolina has used LIDAR extensively in generating their own maps. 

North Carolina is a little bit different because North Carolina actually takes the lead on developing their flood maps. 

Mr. ROYCE. Yes. We should probably ask the GAO to see if we 

can find a very inexpensive way in order to create a template here 

where we can get access to that information, and share it with the 

policyholders as well so that they understand in terms of the elevation, if you are in a flood plain. Anyway, my time has expired. 

Thank you very much. 

Chairman LUETKEMEYER. The gentleman’s time has expired. We 

have a few additional questions that we would like to ask. A few 

Members are still here. We will begin our second round with the 

ranking member, Mr. Cleaver from Missouri. He is recognized for 

5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. I want to direct this to 

Mr. Wood, but when we had the flood of 1993, one of the farmers 

famously said that to determine the 100-year flood mark, you put 

99 white marbles in a jar, put in one blue marble, and shake it. 

And every time you pull the blue marble is the percentage of 

chances of having a 100-year flood. But you keep putting it back 

every time and shaking it again, so there is some unpredictability 

no matter what we do, but I think we ought to be intelligent about 

it. 

Most people who are not familiar with Kansas City probably 

can’t understand this, that in 1977 in the Country Club Plaza, the 

world’s first shopping center, 25 people drowned in the middle of 

Kansas City, Missouri. I am not sure—I think we have fixed that 

with Brush Creek, as you know this, Mr. Wood. But I am pointing 

out, I think, to the best of our ability to also follow up with Mr. 

Royce, we have to use the highest level of technology possible and 

do this remapping. 

But I am also concerned, and I would like to ask you, Mr. Wood, 

we have incurred a lot of debt. The NFIP has incurred a lot of debt 

over the past few years with all of the recent events. And then the 

opponents are always saying that the reason that the debt is so 

high is because of the subsidized policies in these exotic areas, 

these environmentally sensitive areas. Do you think that we ought 

to deal with trying to force people out of environmentally sensitive 

areas, the exotic places, building the house at the foot of a hill 

where you have annual mudslides, or do you think that we ought 

to just realize that is the way things are and try to build that into 

whatever program we put together? 

30 

Mr. WOODS. I will put it in the perspective, I guess, of the home 

builder, and talk about it from a new-construction perspective. 

That is the one I probably know the most about. 

First, I don’t believe that new construction within the flood 

plains is the reason why the NFIP is experiencing a shortfall in 

funding. It is quite the opposite. First, in order for a builder to construct a new home within a flood plain, the builder must ensure 

that the structure is compliant with all building standards within 

the flood plain. Second, all new homes, when purchased using a 

federally-regulated mortgage, are required under Federal law to obtain flood insurance under the NFIP. And third, as FEMA has already publicly acknowledged several times, new construction always pays a full-risk rate for that insurance, meaning newly constructed homes within the flood plains do not received subsidized 

insurance. 

Additionally, NAHB has been told that in commonly flooded 

areas, new construction that is built today with current building 

codes routinely outperforms the existing housing stock that is 

there. So I think it is a process and the decisions need to be made 

based upon, again, we beat it to death, but the correct flood maps 

and the correct flow designs. And I would point out one other thing 

that I might add to it that goes back to our conversation, the elevation of a home, at least with new construction, is a very simple 

thing to gather. And that is a fact that we have to put that elevation on our building permit at the city, so a whole subdivision— 

and that is where most of the construction goes on—you could have 

those elevations immediately. They are part of the public record. 

Mr. CLEAVER. Thank you. 

Chairman LUETKEMEYER. The gentleman yields back. With that, 

we go to the gentleman from New Mexico, Mr. Pearce. He is recognized for 5 minutes. 

Mr. PEARCE. Thank you, Mr. Chairman. Mr. Ellis, you mentioned 

here that 5.4 percent of the houses in the country have flood insurance. Have you broken that down also for the number of people in 

high-risk areas? Is that equally 5.4 percent? 

Mr. ELLIS. I have not, Congressman. Basically, that number is 

realized by looking at the census data of how many housing units 

are in the country and then how many— 

Mr. PEARCE. Would your guess be that it is a similar amount, 

that 5.4 percent in the high-risk areas have flood insurance, or do 

you think there are a little bit more? 

Mr. ELLIS. There is a problem with the fact that there are properties in the mandatory purchases in the Special Flood Hazard 

Area that are not purchasing flood insurance, and GAO has done 

some analysis of that. 

Mr. PEARCE. Mr. Heidrick, we get 9 inches of rain a year in New 

Mexico, in my district. Do we pay a higher insurance premium because of the events on the coastal areas? 

Mr. HEIDRICK. Thank you, Congressman, no. The flood insurance 

rates are set by flood zone. An ‘‘A’’ zone is an ‘‘A’’ zone regardless 

of what State it is in. So if you are in a preferred-risk area, regardless of what State you are in, that is the rate you are going to pay. 

Mr. PEARCE. If I could interrupt, several years ago we were paying hundred-year flood rates. Now, we are up to thousand-year 

31 

flood rates. Doesn’t that stick us with a higher premium? People 

would be more apt to have to pay flood insurance when we define 

it as a thousand year to get into the program, isn’t that correct? 

That definition has not changed. 

Mr. HEIDRICK. The mandatory purchase requirement is only to a 

1 percent chance or greater of flooding. If your chance of flooding 

is less than 1 percent in any given year, then there is no mandatory purchase requirement. Did I understand your question correctly? 

Mr. PEARCE. That doesn’t gel with what banks and real estate 

people in New Mexico tell me. They tell me that previously they 

did not have to buy flood insurance, and after the great losses in 

Sandy and Katrina, they are having to buy flood insurance. And 

they said it is because of the redefinition of who has to buy flood 

insurance, who is required or encouraged to buy flood insurance. I 

will sort through that. 

Ms. Templeton-Jones, are there areas that we absolutely should 

not rebuild in after they have been flooded and destroyed once or 

twice or 10 times, or should we have such a definition? 

Ms. TEMPLETON-JONES. I think we need to mitigate losses. We 

need to take a property, if it is subject to having been flooded more 

than once or twice, the cost of that is to mitigate the property, 

raise the property, move the property outside of it. I think we need 

to also recognize that it is not just people who are wealthy who are 

living on the coast or at the bottom of this hill who will have these 

big, huge wonderful houses. Many times it is people who are just— 

I am originally from New Orleans. Granted, in New Orleans, 

Katrina was a huge disaster. But the vast majority of people are 

not wealthy people. These people live there because it is a major 

port. People have to live near where they work. So we have to find 

a way to protect these individuals, help them mitigate their properties, raise them, move them to a safer ground so that they don’t 

experience the losses. 

Mr. PEARCE. Would you go so far as to say that when it is within 

people’s capability, or when a city has been told that they should 

mitigate and they don’t mitigate, that they won’t be covered under 

the program? Is that too extreme, that you would be somewhat responsible for your own actions? 

Ms. TEMPLETON-JONES. I have my own personal opinions, but at 

the end of the day, people have to have a place to live. 

Mr. PEARCE. I understand that, but there is no national tornado 

program. In other words, we don’t have floods in New Mexico. We 

have tornados, and there is no national program to help us rebuild. 

We have forest fires that are created by whatever reasons, and 

there is no national program to help us rebuild from the forest 

fires. So where is the moral responsibility to people like us? We 

have to pay a higher program, and with all respect, Mr. Heidrick, 

I believe that we do pay higher rates. We pay rates because of people out there who suffer the problem, but they don’t pay rates higher to help us suffer from our problems, so where is the moral component of that? If you would like to address that, or if you don’t, 

it is okay, Ms. Templeton-Jones. 

Ms. TEMPLETON-JONES. I think, and I have to agree with Mr. 

Heidrick, the rates are the rates across-the-board, and we see this 

32 

every day. If you are in A zone, you pay A zone rates. If you are 

in a V zone or an X zone, you pay V or X zone rates. As far as 

the, there are some ‘‘gotchas’’ in it. If you don’t have flood insurance and you experience a loss and you receive Federal funding, 

you have to carry flood insurance from that point forward. But I 

think we need to also recognize the fact that it floods everywhere. 

It is not just a coastal situation. Where it rains, it can flood. And 

unfortunately, people who experience flooding in coastal areas recognize it and do have a better uptake on the flood insurance policies. But it is areas that don’t experience the floods often and we 

don’t see the amount of flood insurance available. 

Mr. PEARCE. We will leave the moral question hanging for another time. Thank you, Mr. Chairman. I yield back. 

Chairman LUETKEMEYER. The gentleman’s time has expired. I 

just want to kind of wrap it up. I have a question or two here myself. One of the things that was brought up was with regard to the 

debt of the NFIP. The gentleman from New Mexico makes a great 

point here about the different tragedies and catastrophes that we 

go through as a country. 

Mr. Ellis, I am curious about your position on the debt that the 

NFIP has accumulated. Is that something that we should—whenever we did Hurricane Sandy, we found other monies in the budget 

and paid for it by doing that rather than extending the debt. Some 

of it is still there. And I guess the question becomes, actuarially, 

do you figure in those extreme events, or do you actuarially figure 

in the normal things that happen, like in my area here it just happened this last couple of weeks? What would your opinion be on 

that. 

Mr. ELLIS. A couple of things, Mr. Chairman. So it is true that 

the debt was largely driven by the storms of 2005 and then by 

Sandy. One of the things, and just kind of getting to the point 

about people paying full-risk rates and not the subsidy, I would 

argue that the fact that the program can carry a $23 billion debt 

and still operate is a subsidy inherently. Subsidies are inherently 

baked into the program because no private sector, there is no profit 

that needs to be taken. You can operate with a $23 billion debt. 

And so I think that is actually already built into the program. 

As far as the debt, it is pretty clear that it is very unlikely that 

it will ever be repaid under the program. They repaid a billion dollars 2 years ago. They hadn’t repaid anything over several years. 

It is very unlikely that it is going to be repaid. But it does concentrate the minds of lawmakers and of the public about some of 

the challenges in this program and the need to reform it. So certainly we see that as an important symbol for actually continuing 

to reform and improve the program. 

Chairman LUETKEMEYER. My second question, I guess, is, do you 

believe that we need to structure the program actuarially for the 

average losses per year, which are several billion dollars, versus 

the catastrophe that happens once every 10 years? 

Mr. ELLIS. The way that FEMA had set rates before was that 

they looked at the average historical loss year over the previous 

decade, throwing out the highest loss and the lowest loss. You have 

to discount it, but you have to take into account these extremely 

large events, because we already know they can occur and they do 

33 

occur. If you look at 2005 and the number of named hurricanes, we 

got into the Greek alphabet. We ran out of names. Clearly these 

are issues—and then there were a lot of people who said, well, that 

was a one-off. That was Katrina and it was a one year, but then 

not even a decade later, you had Sandy, which not only increased 

the borrowing authority for the Flood Insurance Program by $10 

billion; it also required a $50 billion outlay from the Federal Government on dealing with that issue. 

So I think you have to, Mr. Chairman, take that into account 

when you are setting the actuarial rates that there are these black 

swan events, there are these fat tail losses, but you have to discount it appropriately, and that is what actuaries are all about. 

Chairman LUETKEMEYER. I guess the question becomes then, do 

you believe that when you structure the program, you need to 

structure in a governmental component as a reinsurance as a backstop on this? Because it appears that historically when these things 

occur, the government is going to be there as a backstop. Do you 

believe that should continue and, if not, how to do that? 

Mr. ELLIS. We have testified before this committee in the past, 

and have been opposed to creating a national catastrophe reinsurance fund. We don’t think that is necessary. There is a vibrant, 

very well-functioning reinsurance market. We can lay off debt on 

the worldwide marketplace, and so we don’t think that is necessarily the route. Obviously, Uncle Sam is serving as a lender for 

this program to keep it afloat while it is underwater. We want to 

see further reforms in the program. We want to see more of the 

risk laid off on to the private sector through the primary insurers 

and reinsurers and deal with that issue that way, rather than creating some sort of Federal reinsurance. 

Chairman LUETKEMEYER. Mr. Heidrick, what do you believe? 

What do you think about that? Can you actuarially make this thing 

work and have the private sector take all the risk on all the properties, just what Mr. Ellis is advocating? 

Mr. HEIDRICK. I wouldn’t have the expertise to say that they 

could take on all the risk, but what I can say is, and as we have 

proposed, that there is room for the private market to participate 

in this and to develop the expertise and to take on more and more 

risk over time in many markets, even auto insurance. States have 

residual markets, and that is a normal part of the insurance industry. I couldn’t tell you whether or not I think the NFIP should become a residual market. It all depends on what the ultimate design 

would be. In terms of the debt, one of the things to keep in mind 

is, yes, the program is $23 billion in debt to the U.S. Treasury, but 

it has paid out over $50 billion in claims over its lifetime, so that 

is about $27 billion that otherwise would have been paid through 

disaster assistance that was actually paid by policyholders through 

premiums. 

Chairman LUETKEMEYER. Very good. Well, my time has expired, 

and I think we have had a great discussion this afternoon. Our intention is to, with our discussion yesterday or last week with regards to mapping, begin the discussion of how we get the basics 

down and get the maps correct so we can begin to have some intelligent discussion about the rest of the program. 

34 

Today we want to discuss the important strengths and weaknesses of the NFIP, alternatives to the NFIP, if there are some, improvements to NFIP, whatever we can make, and I think mitigation is an important part of this. There is some action along that 

road. I can tell you from personal experience with this last flood 

we had in Missouri this last 2, 3 weeks—we had a historic flood 

back in 1993 along the Missouri River. A lot of the properties were 

mitigated. In fact, entire small towns were bought out and moved 

up on top of the ridges away from the lowlands. Levees were built 

up and improved and reinforced. As a result of that, even though 

we had a historic flood along the Missouri, on my half of the Missouri anyway, this past couple of weeks, the damage was not as 

great as it would have been. It actually worked. Mitigation worked. 

So I think there are a lot of things we need to talk about, 

anddiscuss along those lines. 

We talked today a little bit about the affordability, of people 

being able to afford the rates, as well as the take-up rate, how you 

balance those things. And then we looked at the debt a minute ago. 

How do we look at the debt that we incur? Do we need to have a 

government component of this? Can we do it without the government component? Where do we need to go? All of these things are 

things that over the next several months, we want to ferret out. I 

want to try and get your input. 

I know we have a lot of folks in the audience who are very interested in this. We want to continue to have a dialogue with all of 

you as we go through the process of trying to find a way to improve 

the situation. And the testimony is pretty general in agreement 

that at some point, part of it, if not all of it, will transition into 

the private market. So if that is the case, how do we facilitate that 

and not hinder it? So we have a lot of work to do and a lot of things 

to discuss. 

We certainly appreciate all of the witnesses today. You did a 

great job. We appreciate all of what you did. 

Without objection, I would like to submit the following statements for the record: the National Association of REALTORS®; the 

National Association of Professional Insurance Agents; the National Multifamily Housing Council and the National Apartment 

Association; and the American Insurance Association. 

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. 

The hearing is adjourned. 

[Whereupon, at 11:52 a.m., the hearing was adjourned.] 

(35) 

A P P E N D I X 

January 12, 2016 

36 


99798.001
37 


99798.002
38 


99798.003
39 


99798.004
40 


99798.005
41 


99798.006
42 


99798.007
43 


99798.008
44 


99798.009
45 


99798.010
46 


99798.011
47 


99798.012
48 


99798.013
49 


99798.014
50 


99798.015
51 


99798.016
52 


99798.017
53 


99798.018
54 


99798.019
55 


99798.020
56 


99798.021
57 


99798.022
58 


99798.023
59 


99798.024
60 


99798.025
61 


99798.026
62 


99798.027
63 


99798.028
64 


99798.029
65 


99798.030
66 


99798.031
67 


99798.032
68 


99798.033
69 


99798.034
70 


99798.035
71 


99798.036
72 


99798.037
73 


99798.038
74 


99798.039
75 


99798.040
76 


99798.041
77 


99798.042
78 


99798.043