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25–513 PDF 2005

REVIEW AND OVERSIGHT OF THE

NATIONAL FLOOD INSURANCE PROGRAM

HEARING

BEFORE THE

SUBCOMMITTEE ON 

HOUSING AND COMMUNITY OPPORTUNITY

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

APRIL 14, 2005

Printed for the use of the Committee on Financial Services

Serial No. 109–17

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin, 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY

ROBERT W. NEY, Ohio, Chairman

GARY G. MILLER, California, Vice Chairman 

RICHARD H. BAKER, Louisiana 

PETER T. KING, New York 

WALTER B. JONES, JR., North Carolina 

CHRISTOPHER SHAYS, Connecticut 

PATRICK J. TIBERI, Ohio 

GINNY BROWN-WAITE, Florida 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

STEVAN, PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

MICHAEL G. OXLEY, Ohio 

MAXINE WATERS, California 

NYDIA M. VELA ́ ZQUEZ, New York 

JULIA CARSON, Indiana 

BARBARA LEE, California 

MICHAEL E. CAPUANO, Massachusetts 

BERNARD SANDERS, Vermont 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

EMANUEL CLEAVER, Missouri 

AL GREEN, Texas 

BARNEY FRANK, Massachusetts 

(V)

C O N T E N T S 

Page 

Hearing held on: 

April 14, 2005 ................................................................................................... 1

Appendix: 

April 14, 2005 ................................................................................................... 55

WITNESSES 

THURSDAY, APRIL 14, 2005

Beam, Beth, Ellwood City, Pennsylvania .............................................................. 30

Bearekman, Larry, Poquoson, Virginia .................................................................. 32

Berginnis, Chad, CFM, Association of State Floodplain Managers, Inc., Chair, 

State of Ohio ......................................................................................................... 21

Griffin, Donald L., Vice President, Personal Lines for the Property Casualty 

Insurers Association of America ......................................................................... 28

Jenkins, William O. Jr., Director, Homeland Security and Justice Issues, 

United States Government Accountability Office .............................................. 24

Kanstoroom, Steven J., Oxford, Maryland ............................................................ 34

Maurstad, David I., Acting Director and Federal Insurance Administrator, 

Mitigation Division, Federal Emergency Management Agency, Emergency 

Preparedness and Response Directorate, Department of Homeland Security 11

Redmer, Alfred W. Jr., Maryland Insurance Commissioner, Maryland Insurance Administration ............................................................................................. 26

Stelyn, Georgette J., Seaford, Virginia .................................................................. 36

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 56

Davis, Hon. Jo Ann .......................................................................................... 58

Hoyer, Hon. Steny H. ....................................................................................... 59

Kelly, Hon. Sue W. ........................................................................................... 61

Ney, Hon. Robert W. ........................................................................................ 62

Beam, Beth ........................................................................................................ 64

Bearekman, Larry ............................................................................................ 69

Berginnis, Chad ................................................................................................ 114

Griffin, Donald L. ............................................................................................. 125

Jenkins, William O. Jr. .................................................................................... 131

Kanstoroom, Steven J. ..................................................................................... 150

Maurstad, David I. ........................................................................................... 174

Redmer, Alfred W. Jr. ...................................................................................... 181

Stelyn, Georgette J. .......................................................................................... 244

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Davis, Hon. Jo Ann: 

‘‘Flood Insurance Offers Peace of Mind’’, press release, FEMA, October 

16, 2003 .......................................................................................................... 255

Maurstad, David I.: 

Response to written questions from Hon. Jo Ann Davis ............................... 256

Response to written questions from Hon. Michael G. Fitzpatrick ............... 261

Response to written questions from Hon. C.A. Dutch Ruppersberger ......... 266

Response to written questions from Hon. Earl Blumenauer ........................ 269

Bartlett, Griffin and Vermilye, Inc., prepared statement .................................... 282

Craftsman Book Company, prepared statement ................................................... 287

Page

VI

Independent Insurance Agents & Brokers of America, prepared statement ...... 295

(1)

REVIEW AND OVERSIGHT OF THE 

NATIONAL FLOOD INSURANCE PROGRAM 

Thursday, April 14, 2005

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HOUSING AND COMMUNITY

OPPORTUNITY, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 11:08 a.m., in 

Room 2128, Rayburn Office Building, Hon. Robert W. Ney [chairman of the subcommittee] presiding. 

Present: Representatives Ney, Waters, Frank, Scott, Fitzpatrick, 

Ruppersberger, Hart, Neugebauer, Cleaver, and Green. 

Also Present: Representatives Blumenauer, Davis, and Kelly. 

Chairman NEY. I am going to bring the subcommittee to order. 

Today, the Subcommittee on Housing and Community Opportunity meets to conduct review and oversight of the National Flood 

Insurance Program. Specifically, the hearing will focus on the administrative problems facing the National Flood Insurance Program and the steps currently being taken by FEMA and the private insurance industry to resolve those problems that are out 

there. Also, it is my hope to discuss the current funding difficulties 

affecting the implementation of the Flood Insurance Reform Act. 

Last year, this committee spent considerable time and effort on 

legislation to reauthorize and reform the National Flood Insurance 

Program, and on June 30, 2004, President Bush signed into law the 

Flood Insurance Reform Act. This legislation re-authorizes the National Flood Insurance Program through September of 2008. It includes provisions to strengthen the operational and financial aspects of the National Flood Insurance Program by providing States 

and local communities with an additional 40 million a year for 

flood mitigation efforts for repeatedly flooded properties and allows 

for increases of flood insurance premiums on properties that refuse 

government mitigation offers. 

In addition to repetitive loss and re-authorization, the legislation 

requires FEMA and insurance companies to provide better information to flood insurance policyholders to ensure they are fully aware 

of the details of their policies so they will know the rights that they 

have. During the deliberations on the re-authorization legislation, 

however, many concerns were raised regarding the administration 

of the program and these concerns were brought to the attention 

of FEMA. Policyholders often did not have a clear understanding 

of their policy. Insurance agents often did not understand what 

they were selling or how to process claims correctly. Many policyVerDate 0ct 09 2002 13:33 Feb 02, 2006 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 G:\DOCS\109.17 RODNEY
2

holders did not know of or understand the appeals process and 

many questioned the adequacy of payments and the adjustment of 

the system. 

Of course, you can imagine the trauma people go through. We 

had three floods, major flood incidents, in my district. People are 

going through a lot of trauma, and there are members here today 

that are concerned about what is going on with people, and to add 

problems to it, the confusion I think further, obviously, made 

things so difficult for so many people. 

The lack of coordination between private insurers, NFIP, and 

FEMA and inadequate training were listed as possible sources for 

some of the administrative problems affecting the program. 

The goal of today’s hearing is to focus on which administrative 

problems face the program and what steps are currently being 

taken by FEMA and the private insurance industry to resolve those 

problems. Floods have been and continue to be one of the most destructive and costly hazards to our Nation. During this past year, 

as I stated earlier, there have been three floods in the district I 

represent. All three of these incidents qualified for Federal relief 

granted by the President. Recent flooding in January of this year 

resulted in historic levels in several local dams, and in Tuscarawas 

County, three communities that I represent were forced to evacuate 

and displaced 7,000 people. I was able to witness this devastation 

firsthand when I toured those properties with people that were affected in many of the counties. 

The National Flood Insurance Program is a very valuable tool in 

addressing the losses incurred throughout this country due to 

floods and ensures that businesses and families have access to affordable flood insurance that would not be available on the open 

market. 

And I would want to get approval for members who are not on 

this committee to sit here today. 

Without objection, we have Mrs. Kelly and Mrs. Davis and Mr. 

Blumenauer. Is there anybody else that is not regular? Mr. Frank 

is always an officio member and our ranking member. And they 

have concerns, so without objection, they will be participating 

members of this today. 

The gentleman from Massachusetts. 

[The prepared statement of Hon. Robert W. Ney can be found on 

page 62 in the appendix.] 

Mr. FRANK. Thank you, Mr. Chairman. This is a very important 

hearing. Some issues that we deal with are very controversial. 

They are weighted with ideology, and they attract a lot of attention. They are important, but there are also some important things 

that we do that are more technical in nature, but less ideological. 

One of the main accomplishments for which this committee in particular obtained credit in the last Congress was the substantial 

amendment to the Flood Insurance Program. It was thoroughly bipartisan. The gentleman from Oregon, not a member of our committee who is with us now, Mr. Blumenauer, and the gentleman 

from Nebraska, formally a member of this committee, a very distinguished one, Mr. Bereuter, took a very important lead. We did a 

very good job, and I note that the director and administrator said 

that what we did was give a vote of confidence in the program. 

3

That is partially true, but it was, frankly, not a vote of confidence 

in the existing program, and one of the things that the chairman 

of the full committee, my colleague from Ohio, and I had made 

clear, people will remember, is that we were prepared to block an 

extension of the program as it then existed. 

There were serious concerns from groups that don’t always work 

together, but major taxpayer groups, groups concerned with inefficient government spending, environmental groups, united to be 

critical of the old program, and it was a condition made very clear 

by the chairman of the full committee and myself, speaking on behalf of the great majority of members of this committee that re-authorizing the program was conditional on our getting these kinds 

of improvements, and that is why I and some others are disappointed that we have not seen nearly as much progress that we 

had hoped for this much after the bill passed last June in getting 

those improvements implemented, both financially and otherwise. 

We are not talking about huge amounts of money, but the lack of 

money, the lack of attention to the pilot program, the fact that we 

don’t have the rules and regulations. I worry that this will jeopardize not just the amendments of last year, but the whole program, because it should be very clear had there not been the effort 

by the gentleman from Nebraska, the gentleman from Oregon, and 

others which the chairman and I were able to support, this program would not have had the support to get through the House of 

Representatives. This program would have ended. 

I believe that what we did last year was not just to improve the 

program, but to rescue it and to greatly improve it, and if that is 

not fully implemented, we are going to be back in that sort of crisis. So I hope that we are going to hear today and that when I read 

the testimony of the acting director, I don’t to my disappointment 

see a lot about, the commitment to these newer approaches, and 

they are essential. 

So I hope that we will come out of today with a commitment that 

we are going to see this both funded to the extent possible, and we 

are talking about millions of dollars, not even tens of millions in 

some cases with the pilot program, and that we will get the rules 

and regulations passed. Let me say if there is anything in the legislation that causes problems—I haven’t heard that there is—but if 

anybody feels charged with the responsibility for this, the legislation needs to be clarified or whatever, we are here to do that. In 

fact, previously I think we have already acted and reacted, and I 

hope the other body will soon to make clear that the compensation 

would be tax exempt. Obviously you don’t always legislate perfectly. So as things come forward, we are ready to straighten them 

out. 

But this really is essential to the program. A broad coalition of 

groups put this package together last year. I think it deserves a 

more energetic effort at implementation than it has been getting, 

and I hope that that is what we will see today. 

Chairman NEY. I thank the gentleman for his comments. 

The gentlelady from New York. 

Mrs. KELLY. Thank you, Mr. Chairman. I appreciate the opportunity to sit with the subcommittee today to represent the needs 

of my constituents in Deer Park and Port Jervis, New York. They 

4

are coping with an aftermath of massive flooding which has damaged homes, businesses, and public property in our area. FEMA 

and the local officials have been assessing the extensive damage together over the past week, and about an hour ago, Governor Pataki 

of New York requested Federal disaster aid for Orange County and 

13 other counties in New York. 

We are counting on FEMA to review and to approve this Federal 

disaster request immediately. Hundreds of people have been displaced from their homes. Small businesses and livelihoods have 

been shut down indefinitely. Time is so critical in this rebuilding 

process, and there is no time to waste. The damage I viewed in 

Deer Park, Port Jervis, Warwick, and Washingtonville is among 

the worst I have ever seen from a natural disaster in the Hudson 

River Valley. Washed out roads in towns and villages throughout 

Orange County are further compounding public and individual 

damage totals. The flooding in the Black Dirt Agricultural Section 

is likely to cause serious problems for our local farmers during 

their upcoming growing season and has already done so. 

Nevertheless, local residents and local leaders have very impressively shared a valiant and very positive spirit toward recovery and 

the selfless efforts of our emergency volunteers, and they have been 

nothing short of remarkable. 

I will be back there again frequently in the days ahead as well 

as another in other areas like Warwick and Washingtonville to 

help in any way that I can. I have been working with local officials 

and the FEMA, the Federal Emergency Management Agency, to facilitate prompt and effective Federal response in order to provide 

the assistance my constituents need in the most immediate manner 

possible. 

FEMA needs to have public meetings throughout our region in 

the days ahead to help our affected residents and get their questions answered and the Federal support that they are relying on. 

A vital part of the recovery from this disaster and earlier floods 

along the Delaware River is the National Flood Insurance Program. 

The NFIP has been vital in relieving the costs to my constituents 

and making coverage available to those who rebound and who want 

to rebuild their homes and their small businesses, but we have got 

to work together to ensure that this program is as well managed 

as possible and that my constituents and the program administrators, adjusters, and the sales people have the best information 

about their opinions and their resources from my people. 

I am really hopeful that this hearing will help ensure that the 

people in Deer Park, Port Jervis, and throughout Orange County 

who have suffered extreme damage to their homes and their businesses and their farms will receive the best possible assistance 

from the NFIP and have the means to rebuild, and I look forward 

to the testimony today, but I also look forward to your working 

with us immediately, consistently, and straightforwardly with the 

people of Orange County. 

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

Chairman NEY. I want to thank the gentlelady also for prompting us to have this hearing and supporting this hearing. 

The gentleman from Georgia, Mr. Scott. 

Mr. SCOTT. Thank you very much, Mr. Chairman. 

5

I too want to congratulate you on having this important hearing. 

Our Nation has suffered drastically from flooding and other natural 

disasters. In my home State of Georgia, we have had numerous examples of that same tragedy with the overflowing of our Flint 

River down in southwest Georgia. Farms have been affected. Small 

businesses have been affected, even in our metro area with constant flooding in the Nassie Creek area. 

I think it is very important that we are holding this important 

hearing today regarding the future of the National Flood Insurance 

Program. I think it is very important that the committee continue 

to monitor implementation of the program which Congress reauthorized that last year. I support the National Flood Insurance Program because I believe that it provides an important service to people who have had property hit by natural disaster. 

With the budget battles that are currently being waged in the 

house, we need to find the best ways to target scarce Federal dollars, including flood assistance; however, Congress must also ensure that consumers are protected and given adequate compensation for their losses. 

I certainly want to thank the distinguished panel of witnesses 

today before our committee, and I certainly look forward to the testimony. I do believe the central question that we are faced with 

today is this, that in view of the fact that this Administration did 

not authorize funding for the flood insurance program in the Fiscal 

Year 2006 budget, the question is, where do we go from here? How 

do we maintain the program? How has the Administration’s budget 

decisions affected the effectiveness of the program? And what will 

the Appropriations Committee do? And what level of funding will 

this program receive? 

I think the American people are very anxious to get some answers to these questions, and so am I. Mr. Chairman, I look forward to the testimony. 

[The prepared statement of Hon. Sue W. Kelly can be found on 

page 61 in the appendix.] 

Chairman NEY. Thank you. 

The gentleman from Pennsylvania, Mr. Fitzpatrick. 

Mr. FITZPATRICK. Thank you, Chairman Ney. I have seen firsthand the devastation that flooding can create. I was up to my 

knees in water helping the residents of Pennsylvania’s Eighth District when we thought we had experienced the worst flood possible 

last September after Hurricane Ivan hit; however, flooding the 

weekend before last was even worse. It forced more than 6,000 of 

my constituents to evacuate. The district suffered damage in the 

tens of millions of dollars. More than 500 houses sustained major 

damage. Another 500 sustained minor damage, and 100 businesses 

felt the affects of the worst flooding in the region over half a century. 

As a former Bucks County commissioner, now as a Member of 

Congress, I have heard from my constituents about the administrative problems plaguing the National Flood Insurance Program like 

the claim processing and inconsistencies and interpretations about 

the standard used to determine claim amounts. 

I want to know what the Federal Emergency Management Agency is doing to educate policyholders on their coverage under the 

6

policy to see that insurance agents clearly articulate the terms and 

conditions of the policy at the time of sale and know how to process 

claims correctly and inform policyholders of the appeals process. 

Mr. Chairman, we must ensure that we are protecting families that 

have to endure the destruction of a flood. The families in the 

Eighth Congressional District in Pennsylvania will continue to be 

discouraged until we resolve these problems which are facing the 

program. 

I yield back my time. 

Chairman NEY. I want to thank the gentleman. 

Mr. Blumenauer. 

Mr. BLUMENAUER. Thank you, Mr. Chairman, for your courtesy 

in permitting me to join with you again. I appreciate your leadership personally and that of this subcommittee in fashioning important reform for this program. 

Chairman NEY. Thank you. 

Mr. BLUMENAUER. One is sympathetic to the problems that we 

have already heard you and other members reference in terms of 

the devastation that flooding can have. It is the most common and 

most damaging natural disaster that is afflicted upon our citizens. 

That is why we were able to work with you in crafting some specific provisions to make the tragic stories that have been witnessed 

by these members less frequent. In particular, dealing with repetitive flood loss, something that we had focused on, understanding 

that for the last 25 years, 38 percent of all flood insurance claims 

have dealt with one percent of the properties, and I salute you for 

designating that there would be an additional $70 million set aside 

that potentially in the pilot project could have helped 7,500 severely repetitive loss properties from being put in harm’s way. 

When we think of 10,000 properties in this country that have 

suffered repetitive loss four times or more or have received payments in excess of the value of the property, the benefit for accelerating our efforts is clear, and I have appreciated over the course 

of the last 6 years we have been working with FEMA with our administrator and his predecessors to try and craft a way to make it 

work better, but I too am concerned, as Mr. Frank, about the pace 

with which we are moving forward, in part, because this was crafted in consultation with the committee and with people from FEMA 

for the last two administrations. 

We thought that we had targeted this, but as yet we haven’t yet 

promulgated the regulations to implement the pilot project, nor 

have we seen funding requested for the full authorized level. 

Now, it may have been understandable because we passed it late 

last year after the budget had been submitted, but this year, it is 

troubling. It is troubling that there is only $8 million, the potential 

new money that has been authorized. As Mr. Frank says, yesterday 

we were talking about trillions and hundreds of billions of dollars. 

To be talking about less than a hundred billion dollars sounds like 

small change around here, but for the people in harm’s way, some 

of whom I suspect are here today, being able to adequately fund 

the program and help move them out of harm’s way can make a 

huge difference in terms of their lives and livelihood, and every 

person that we move out of harm’s way is less pressure on millions 

of people to not pay higher premiums and it means that we will 

7

save millions of dollars every month in the future from future 

losses. 

So Mr. Chairman, I do appreciate your courtesy, the leadership 

of this subcommittee, of Ranking Member Frank and Chairman 

Oxley in providing a united front to help improve this vital program for our constituents, and I look forward to an interesting and 

productive hearing today. Thank you. 

Chairman NEY. I want to thank the gentleman and I appreciate 

his comments. 

The gentlelady, Ms. Davis. 

Mrs. DAVIS. Thank you, Mr. Chairman, and I want to first thank 

you for holding this, what I think to be a very important hearing, 

and also thank your staff. They have been absolutely wonderful in 

helping us put this all together, and thank you for the hospitality 

of inviting me and allowing me to sit in on it. 

In September of 2003, Hurricane Isabel struck the eastern 

United States, doing so much damage it was actually one of the 

worst disasters in Virginia’s history. There was damage exceeding 

$1.5 billion. Strong winds knocked out power lines. Trees were 

downed everywhere, and storm surges flooded many homes. The 

First District of Virginia was devastated in many of its areas. 

Today, two of my constituents, Larry Bearekman and Ginger 

Stelyn both had their homes flooded, and they are here. You will 

hear their stories. I want to thank them both for coming today to 

testify and to share their difficult times that they have had. Both 

faced tremendous strain and difficulty attempting to rebuild their 

homes and their lives, and unfortunately they are not alone. Many 

residents from my district and across the country continue to face 

challenges in rebuilding their lives from many of these disasters. 

Many of these challenges, in my opinion, are because of the National Flood Insurance Program. My office received many, many 

calls from constituents that they felt they were unfairly treated, 

that the process was inadequate and that they were just totally 

misled, and I felt it my responsibility as their representative to do 

all that I can to help them. 

I have concerns with the administration and oversight policies of 

the National Flood Insurance Program. Thousands trust and rely 

on their flood insurance to restore their property that was destroyed by flood waters, but many, many, have been disappointed 

to find that their claims adjustment process has, as I said, been unfair and inadequate. 

Today, I hope that we will be able to get to the bottom of it, that 

we will be able to find out why my constituents and many folks’ 

here constituents felt they were told one thing and then another 

thing was done. I just hope that the committee can get to the bottom of it and come up with regulations, find out what the real 

truth of the matter is, and make sure that our National Flood Insurance Program is being run adequately and correctly and operating as we in Congress intended. 

I want to thank you again, Mr. Chairman, for holding this important hearing and for allowing me to join you today. 

Chairman NEY. I thank the gentlelady. 

The gentleman from Maryland, Mr. Ruppersberger. 

8

Mr. RUPPERSBERGER. Chairman Ney, thank you very much for 

allowing me to participate in this hearing, also Ranking Member 

Frank. This is a very important hearing, as we all know, concerning the National Flood Insurance Program and the problems 

that we face concerning this program. 

Before I get started, I would like to recognize the Maryland Insurance Commissioner, Al Redmer, who is going to be on one of the 

panels. I also would like to recognize over 50-plus victims from my 

district of Hurricane Isabel and who have come down to participate 

in this hearing and also Steven Kanstoroom from Ashton, Maryland, who I believe is one of the panelists. I know what you have 

gone through, and we are going to try to help you out. 

As we discuss these proposed policy changes concerning the National Flood Insurance Program, I hope that we will all remember 

that ultimately what we are talking about is families. In my State 

of Maryland, we still have families that have not received a settlement and some that are, sadly, still in FEMA trailer housing, and 

this is wrong. 

We are here today to talk about the National Flood Insurance 

Program. In September 2003, Hurricane Isabel tore through the 

east coast and devastated Maryland’s Second Congressional District. This storm did well over $200 million in damage and devastated the lives of thousands of Marylanders. In my district, the 

Bowleys Quarters Fire Department became Hurricane Central. 

During the storm, these firefighters pulled people from homes that 

were quickly overcome by storm waters. The Bowleys Quarters Fire 

Department distributed rations, supplies, and helped provide hot 

meals, and I want to thank them for their involvement as the other 

fire departments that were involved throughout the Second Congressional District. 

Thousands of Marylanders banded together to help each other rebuild and get back on their feet, and they should all be applauded 

for their actions. After Hurricane Isabel, there was a lot of misinformation. There was a lot of confusion and a lot of education that 

had to occur. Thousands of Marylanders were shocked to learn that 

flood insurance coverage they purchased was inadequate and would 

barely restore any of the life that they had built. It was truly 

heartbreaking to hear some of these stories. 

The most frustrating part from my perspective was that thousands of Marylanders were run around in circles to only come into 

dead ends. It was very frustrating for them. Some people had their 

claims processed while others had claims denied or their settlements were remarkably low. We had to keep fighting to get these 

people the money they deserved. 

The biggest problem was that many of my constituents dealt 

with untrained agents and adjusters that provided at times inaccurate information and data. The biggest problem was that pricing 

guidelines literally varied from one agent to another, from one adjustor to another. For example, an adjustor would tell someone that 

dry wall would be repaired at $10 per sheet, only to get a settlement for the dry wall which was $3 per sheet. The obvious affect 

is the victim does not get as much money to rebuild, which is frustrating and confusing and wrong, and they couldn’t afford it. 

9

This confusion coupled with losing a home and all of one’s belongings created an angry and frustrated community. We cannot 

allow this to happen again. We have a chance here to make strides 

in changing the program to make it workable in the future. 

What is the solution? We need plain English description of a 

homeowner’s flood insurance coverage with what is and is not covered. We need to have timely training for adjusters and agents and 

not crisis training. We need to have the insurance companies at the 

NFIP work together to develop standards and procedures so that 

everyone is on the same page, and, finally, I hope that we will all 

get a better understanding of where there are deficiencies in the 

program. We need to understand this so that we can fix it and not 

have the problems that have arisen in the past. 

I look forward to hearing from the witnesses so that we have a 

complete understanding of the situation and find out what we need 

to do to fix the problem for our constituents. Thank you, Mr. Chairman. 

Chairman NEY. I thank the gentleman. 

The gentlelady from Pennsylvania, Ms. Hart. 

Ms. HART. Thank you, Mr. Chairman. I especially appreciate the 

opportunity to be here today as a former member of your subcommittee and somebody I think like the other Members who have 

joined us today that have unfortunately similar situations to report. 

I am not sure how many of us have actually seen the commercial 

on television for the National Flood Insurance Program. Some of 

you may not even notice that is what it was for, but there was a 

nice pretty frame house that you see and then you see all these bad 

things happen to the house except one thing, a flood, and at the 

end of the commercial, they say your homeowner’s insurance covers 

all these things except one thing, and then the waters come and 

they surround the home, and on the screen comes a little logo for 

the NFIP, and it says if you are in a flood zone, you need to get 

national flood insurance because it will help you if you have this 

incident happen. 

Well, unfortunately, I think for folks who are going to testify 

here today, that ad is a pretty cruel joke. You know, we have made 

this program, I think the Members of Congress, believing that it 

would provide assistance to people who face that very situation of 

the waters and flooding. Everybody knows that when you get a 

mortgage and you are in a flood zone, you are required to get this 

flood insurance. It is something that people expect will help them 

in the occurrence of a flood. 

Well, the opportunity for this committee to work on improving 

this policy is one that I really find after what I know our constituents experienced is a very important one. 

Following the September 2004 in Western Pennsylvania with 

Hurricane Francis and then Hurricane Ivan, my staff worked long 

hours to coordinate with Federal agencies to help assisting victims 

in securing relief. The damage was vast, covered a vast area. The 

damage in several areas was quite intense. The response of Federal 

agencies for the most part was immediate. Officials were on the 

ground. They worked with my staff and others to help clean up the 

10

neighborhoods, to get people moved back into their homes, back 

into their businesses. 

We knew it wasn’t going to be an easy process. Hundreds of 

homes and businesses suffered severe damage, and we expected 

that it was going to take some hard work to get folks back on their 

feet. In many instances, they are back on their feet. We were able 

to help Federal agencies provide necessary assistance. Neighborhoods removed debris. Communities got involved. Other Federal 

programs certainly were utilized to help people put their lives back 

together. 

Unfortunately, this hasn’t always been the case, and in February 

of 2005, we really began to face the underlying problem. Months 

after the flooding, local citizens were organizing to ask for relief. 

We had town meetings. There were a number of different opportunities to sit down and talk with different agencies to figure out how 

they could move forward. Many still had not had their insurance 

claims settled. Their properties continued in that form that they 

were in right after the flooding. They were still damaged. Families 

were forced to live out of their homes, imposing on family and 

friends, using their savings to pay for hotels. 

My office worked with other local officials to try to resolve these 

problems, and as we talked with our constituents, a pattern became clear. In addition, we also heard similar stories that we have 

heard from my colleagues today in Maryland and Virginia and 

North Carolina, and as the picture became more clear, many of 

these cases remained unresolved. We contacted the Financial Services Committee to raise the concerns, and I am very pleased that 

the committee is focusing on it with this hearing. 

They fall into three categories really: Improper insurance coverage, inaccurate information about the insurance programs, about 

adjustments, concerns about what happened after the properties 

were assessed, low estimates, that sort of thing, and then after 

those low estimates were given, an impossible situation in trying 

to challenge those estimates and get the real damage assessment, 

the appropriate damage assessment. 

I don’t fault anyone in particular for these problems that my constituents have had with these programs, and I didn’t write the 

committee about these issues to place blame on an individual or individuals. I contacted the Committee in order to address some of 

these concerns to make these programs operate better and more 

appropriately for the people that they are expected to serve. 

I will wind up, I promise. 

The failures of the Federal program are clear. The only way for 

us to address them is to discuss it in an open forum. I asked the 

Committee and they have offered the opportunity for one of my 

constituents, Beth Beam of Ellwood City, to come here and testify 

about the issues that she faced. 

I see this as a starting point. These people have suffered not only 

devastating losses, but they have also suffered a lack of appropriate assistance through the National Flood Insurance Program. I 

thank Mrs. Beam for making the trip here, her husband, Mike, and 

her children who continue to live with their parents as a result of 

this problem. 

11

And I thank you, Chairman Ney, for giving me the opportunity 

to be here today. 

Chairman NEY. I want to thank the gentlelady. 

Again, I want to thank members of both sides of the aisle for the 

amount of interest you have had in this and the true concern you 

have for your districts and constituents. I would ask to be included 

in the record, without objection, testimony of the Independent Insurance Agents and Brokers of America, the statement of William 

Griffin, Jr., the testimony of Gary Mosell, the statement of Congressman Steney Hoyer. Without objection, they will be made part 

of the record. 

Panel one, we will move to David Maurstad, who is appointed 

Acting Director of FEMA’s Mitigation Division and Acting Federal 

Insurance Administrator in June 2004. His areas of oversight include the National Flood Insurance Program, the National Earthquake Hazards Reduction Program, the National Dam Safety Program, and the National Hurricane Program. Previously, Mr. 

Maurstad served as Regional Director of FEMA’s Region 8 where 

he coordinated FEMA activities six western States, including the 

State of Nebraska where he has served as Lieutenant Governor. 

I would also note that our Ranking Member, the gentlelady from 

California, Congresswoman Waters had to speak on the rule and 

will be here later. 

Thank you. 

STATEMENT OF DAVID I. MAURSTAD, ACTING DIRECTOR AND 

FEDERAL INSURANCE ADMINISTRATOR, MITIGATION DIVISION, FEDERAL EMERGENCY MANAGEMENT AGENCY, EMERGENCY PREPAREDNESS AND RESPONSE DIRECTORATE, DEPARTMENT OF HOMELAND SECURITY 

Mr. MAURSTAD. Good morning, Chairman Ney and members of 

the subcommittee. I appreciate this opportunity to appear here this 

morning. First, let me thank this subcommittee and Congressman 

Blumenauer for the work that it accomplished last year by re-authorizing the National Flood Insurance Program through Fiscal 

year 2008. I appreciate the priority that Congress and the President demonstrated through the re-authorization and the stability 

gained through a multi-year re-authorization. 

The Flood Insurance Reform Act of 2004 enhanced the existing 

flood mitigation assistance programs and authorized a pilot and individual grant program for reducing severe repetitive loss properties. The President’s Fiscal Year 2006 budget request includes an 

additional $8 million for the enhanced Flood Mitigation Assistance 

Program, and we are working on options that may allow us to implement the pilot program. 

Since starting in this position last June, I found that the NFIP 

has been successful through its 37-year history, in part, because 

this program has integrated 95 of the country’s property insurance 

companies and their agents that sell and service approximately 95 

percent of the 4.7 million policies in force. Under our arrangement 

with the insurance companies, it is our responsibility to ensure 

their performance. To that end, FEMA conducts regular audits to 

assure each company is meeting its financial requirements, performance objectives, and adhering to program policies. 

12

One of my goals is to ensure that flood insurance claims are handled fairly, equitably, and expeditiously. Based on my experience, 

I have found that the NFIP meets or exceeds industry standards 

in this regard. Even so, I want this subcommittee to know that I 

strive to challenge myself, my staff, and our partners to continuously improve. 

Last year, the NFIP experienced a catastrophic loss year due primarily to an historic hurricane season. The NFIP received approximately 59,000 flood insurance claims in 2004, and we anticipate 

paying $1.6 billion to resolve these claims. This level of claim activity represents the single largest loss year in the history of the 

NFIP. As a result, the program has exercised its borrowing authority in the amount of $200 million to date. This is the fourth time 

since 1990 that the program has been in a position of borrowing, 

and as with previous times, we anticipate repaying the current 

Treasury borrowing with interest by the end of the year. 

The claims adjustment process associated with flood loss has not 

ben without appropriate scrutiny. As you are aware, after Hurricane Isabel in September of 2003, there were a number of concerns 

raised. These concerns received a significant level of attention from 

policyholders, local and State officials and Congress. As a means of 

addressing these concerns, FEMA created a task force that undertook an unprecedented review of the Hurricane Isabel claims for 

every policyholder that requested a review. To ensure that policyholders were aware of the review option, FEMA implemented an 

outreach strategy that consisted of a targeted series of community 

meetings, newspaper ads, press releases, and a toll-free number to 

field policyholder questions as well as initiate a request for a review. FEMA mailed approximately 24,000 letters, received over 

4,300 calls, and held over 40 outreach sessions in three States. 

As a result of this effort, nearly 2,250 policyholders requested 

and received an additional review of their claim of which 1,101 received an additional payment. The amounts paid represents less 

than two percent of the over $453 million paid in claims for Hurricane Isabel. 

It is my assessment that there is a fundamental misunderstanding of the intent of the NFIP. For example, some policyholders believe that if they paid premiums for a hundred thousand 

dollar limit of coverage on their dwelling, they were entitled to a 

$100,000 claims payment regardless of the actual flood damages 

sustained. Another common misconception is that the original intent was to restore homes or property to what has been referred 

to as a pre-flood condition which FEMA may have inadvertently 

contributed. It has come to my attention that there is a press release dated October 16, 2003, on the FEMA web site that states 

flood insurance can make you whole again. This statement is inaccurate. The press release has been removed from the FEMA web 

site. 

This is the only instance that I am aware of that supports this 

misconception. In fact, my review of the legislative history, committee reports, the statute, the standard flood insurance policy, and 

how the program has been administered since its inception clearly 

indicates that the NFIP was never intended to restore policyholders to pre-flood condition. It was designed to help them recover. 

13

There is a high risk associated with flood losses. In fact, prior to 

the establishment of the NFIP, a flood insurance policy was expensive and generally unavailable. In response, Congress created the 

NFIP in 1968. The design of the program as cited in Section 1302 

of the National Flood Insurance Act of 1968 was to provide, and I 

quote, a reasonable method of sharing the risk of flood loss. The 

1968 Act created a flood insurance mechanism that tied the availability of this insurance to a community’s management of its flood 

risk. 

This policy has been successful. The NFIP standards for new con- struction are now saving an estimated $1.1 billion annually in 

avoided flood damage. Additionally, it should be recognized that 

since 1968, the NFIP paid out from policyholder premiums approximately $14 billion in insurance claims, which in addition to helping 

homeowners, renters, and business owners recover financially from 

a flooding event, otherwise would have greatly increased taxpayer 

funded disaster relief. 

The standard insurance policy has specific limitations and coverage for high-risk areas such as basements and areas below elevated buildings. The policy also does not provide for additional living expenses unlike a typical homeowner’s policy and only allows 

replacement cost coverage in certain circumstances, and there is a 

statutory limit on coverage for residential buildings and commercial buildings. 

Even more significant, FEMA regulations specify that communities require flood-prone properties be brought into compliance 

when a structure is substantially damaged; however, the program 

only provides partial funding for the cost of complying with that requirement. 

[The prepared statement of David I. Maurstad can be found on 

page 174 in the appendix.] 

Chairman NEY. If we could, because we have a vote, I want to 

ask one question because I have another commitment and Mr. 

Fitzpatrick will be chairing the committee. So if I could, and I am 

sorry to interrupt you, but I want to get my one question in that 

I have got and I will be, again, back later. 

There is some type of huge disconnect that has occurred, some 

type of huge disconnect. Now, I know you had that up on the web 

site, and that was an error, and people might have assumed from 

that that in every single situation they were made whole. Beyond 

that, there still is a disconnect between what the citizen thinks 

that they are getting. So the question I want to ask is, what is 

FEMA doing to find out or work with what the agents think they 

are selling to people and what agents are telling people and what 

people think they are getting? Because there is some huge disconnect. 

Mr. MAURSTAD. Sir, we continue to work with the 95 insurance 

companies that we rely on to service and sell the standard flood insurance policy. It is a part of the arrangement that they are required to make sure that their agents are trained appropriately to 

sell the flood insurance product. In addition, it is the agent’s responsibility from a professional point of view, regardless of what, 

whether it is homeowner policy, an auto policy, or a flood insurance 

policy, for them to be adequately trained and have the necessary 

14

education and knowledge to be able to provide what their policyholders deserve. 

Chairman NEY. Do you think it has been effective, or how long 

has the Government been embarking on this? Because I really 

don’t know the answer to that question. 

Mr. MAURSTAD. Well, I would contend that those provisions that 

I spoke about have always existed, and, for example, 2 years ago, 

there were about 47,000 claims handled by the NFIP program, last 

year about 74,000 claims. The vast majority of those were settled 

to the satisfaction of the policyholder. 

Chairman NEY. One thing I wanted to ask you, we have been 

doing this for years—and I am just going to tell you my personal 

experience because I have been in office 24 years, 10 out here and 

then 14 in the State legislature. Over the period of years, of course, 

you will get some people that will misunderstand something, but 

I have got to tell you honestly, in the last few years, it has just 

swelled in the amount of people that said I thought I was getting 

this and I didn’t get it versus my entire time I have been in office. 

I can judge over the last 24 years. You know, things have peaks 

and valleys, but it has just went way up the charts of what I am 

hearing around my district, and I am hearing that from other 

members of both sides of the aisle. So I wonder why it is happening 

in the last, I don’t know, 4 or 5 years. 

Mr. MAURSTAD. I think we need to address it, sir, and I think 

that the companies are working with us. The agent associations are 

working with us to re-emphasize the need for agents to have the 

knowledge that their policyholders, their customers, expect from 

them. Anecdotally, just my opinion as I look at this, one factor that 

tends to stick out is if an area has not had a major flooding event 

within a relatively short period of time, there tends to be more misunderstanding by the policyholders and the agents in that particular area than areas that have frequent flooding events. 

Chairman NEY. Unfortunately, we tend to flood all the time 

down the Ohio River and areas we are in. We really have had fairly consistent flooding over the years. So I just wanted to add that. 

Again, I used to not hear a lot, just a few occasional things. It has 

just grown by leaps and bounds. So there is something out there 

or something is not working, and that is going to be the purpose 

of why we will continue, of course, with the questions, and I want 

to work with you to help people. 

With that, we are going to take a recess and we will return. 

Thank you. 

[Recess.] 

Mr. FITZPATRICK. [Presiding] The committee is now in order. We 

have a little bit of time between votes, and we would like to accommodate Mr. Maurstad’s schedule. 

Mr. Maurstad, as a new member and a Representative of a district that has experienced significant flooding, I really do appreciate your time and your testimony here today and your willingness 

to answer the questions. I just have one question for you. 

About a year ago, in March of 2004, the Senate Subcommittee on 

Economic Policy held a hearing on flood insurance losses, and at 

that hearing, a variety of problems were outlined, such as policyholders who often do not have a clear understanding of their policy, 

15

the limits, and what is covered. Insurance agents often do not understand what they are selling and how to process claims in an effective, quick, and efficient way. Many policyholders do not know 

or understand the appeals process. Many question the adequacy or 

the inadequacy of the payments they received. 

At that hearing, Anthony Lowe testified in his capacity as the 

Federal Insurance Administrator, Mitigation Division Director, and 

at that hearing, he acknowledged many of these problems. Mr. 

Lowe indicated that FEMA was conducting a comprehensive review 

of what he called top to bottom. Furthermore, he indicated that the 

agency was taking steps to, quote, address these concerns on the 

front end by stepping up outreach efforts to explain the National 

Flood Insurance Program policy provisions and simplifying the 

claims procedure. 

Mr. Maurstad, I was wondering if you could explain for the committee what steps have been taken since that hearing a year ago 

to address these concerns. 

Mr. MAURSTAD. To specifically address the concerns from Isabel, 

the outreach effort that I talked about in my opening is the manner 

in which we, I believe, successfully attempted to provide that type 

of information during that process. Since then and since the re-authorization last June and the direction provided in the re-authorization to NFIP to institutionalize a number of those, we have been 

working actively with our stakeholders in trying to develop those 

various products and are in the rule-making process for establishing those and hope to have that completed by fall. 

Mr. FITZPATRICK. Thank you, Mr. Maurstad. 

At this time, I recognize Ms. Kelly for 5 minutes. 

Mrs. KELLY. Thank you very much. 

Mr. Maurstad, the names Francis, Ivan, Isabel, Hugo, Floyd, 

they are names given to tropical storms. They are names given to 

hurricanes. We in New York, as I mentioned in my opening statement, have just had our governor declare a disaster area for 13 

counties on an unnamed storm. There are lots of storms that don’t 

have those names. This storm has hit my people very hard. 

You mention in your testimony the extensive outreach campaign 

that the flood insurance program conducted after Hurricane Isabel, 

that you sent out 24,000 letters, 40 outreach sessions for policyholders. I want to know what you have planned for my constituents 

in Orange County. Are they going to receive some intensive outreach from you? 

Mr. MAURSTAD. What we have done and what we would certainly 

do to help is continue to participate in community meetings to try 

to share the information that is needed for policyholders to assist 

them in that claims handling process. Of course, we need to while 

we certainly work together distinguish between the efforts, the recovery efforts, that will go on and the meetings that will be held 

there with the communities on available assistance through the recovery, public assistance, and individual assistance. We will specifically assist in those cases where we can provide your constituents 

information that they need to have their claims adjusted appropriately if they are having difficulties with their agent or with the 

adjusters that are responsible for making sure that they are paid 

16

appropriately and fairly within the provisions of the standard flood 

insurance policy. 

Mrs. KELLY. You said that your flood insurance program, in your 

testimony, you say that it paid it two percent more because of the 

extensive outreach that you did on Hurricane Isabel. Frankly, I believe that FEMA ought to be paying out 100 percent of eligible 

claims, not 98, not two percent more. There shouldn’t be two percent more. You have got a hundred percent record that I am looking for, and I expect FEMA to take additional outreach steps that 

you described in your testimony in New York because of this terrible flooding that we have just experienced. 

I have walked in those fields with my people. I have watched 

them. I have been with them when they have opened the doors in 

their housing returning after the flood. It breaks my heart. We 

need you to get the outreach out there. We need you to do it rapidly. People can’t wait, sir. The mold begins to attack the house. 

The problems are my farmers are having to re-dig the ditches in 

the fields. My sod farmers have had flooding that has covered over 

the sod, and now is the time when they need to sell that product. 

We need your help and we need it now. Part of what I hear from 

my constituents and part of what you are hearing in the passion 

in my voice, sir, is a frustration with what appears to be just a bureaucracy that is hung up and not producing rapidly and producing 

for the needs of the people that we represent here. I think you have 

heard that from the members this morning. 

I would ask you, Mr. Maurstad, to go back and tell your people, 

those people who are in those offices working for you that we here 

on Capitol Hill expect prompt response, and we expect it yesterday. 

We are the Federal Government. We should be helping these people. You are being paid by tax dollars. We expect these people to 

have their support, and we expect it immediately. 

I am not blaming you, sir, but I am blaming the bureaucracy. 

You are in charge. The buck is stopping on your desk right now. 

Please get back there. Please get back to me. Don’t let two weeks 

go by. Don’t let four weeks go by. People need to reclaim their lives. 

I have got a whole lot of people along the Delaware River and 

Western Orange County who need your help and they need it now. 

Mr. FITZPATRICK. The chair recognizes Mr. Ruppersberger of 

Maryland. 

Mr. RUPPERSBERGER. Yes. Thank you, Mr. Chairman. 

First, you can see how passionate people are because you disrupt 

families and their everyday life, and I know that FEMA and our 

engagement with FEMA and people involved are saying, Look, we 

can only do what we can do pursuant to the law, pursuant to our 

statute. I will say in the beginning, I was very impressed with the 

way FEMA came in in support for people who were dislocated and 

helped them, but then the problems started to rebuild and where 

are we going to go, and we still have people in trailers today. 

So it is important that we get to the core of the problem, we 

learn from what has happened, and then try to fix it because there 

will be other floods. 

There are a couple of issues I want to get into. The first thing, 

the issue of FEMA generally, and I am not sure—because you are 

a part of the large bureaucracy of Homeland Security, I am conVerDate 0ct 09 2002 13:33 Feb 02, 2006 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 G:\DOCS\109.17 RODNEY
17

cerned with the fact this FEMA is in Homeland Security. When we 

have a national disaster in our country, we are the best country in 

the world. It is a high priority to help people as soon as we can. 

And the fact that we are in such a large agency, it seems to me 

that FEMA should have a direct line to the President so that when 

we need to move, we can move quickly, and when we have problems, even though it might not be pursuant to the law, we can adjust what we have to do to help our people. 

So my first question, do you feel that FEMA being in Homeland 

Security, you have your hands tied, you are not able to get the 

money quickly enough, you are not able to move through that bureaucracy, and would it be better when we have national disasters 

to go directly to the President and not be a part of a large bureaucracy whose real goal is to protect homeland security in areas such 

as ports and airports and all those other areas? 

Mr. MAURSTAD. Well, sir, I believe that becoming a part of the 

Department of Homeland Security has actually been a benefit to 

FEMA in the way that we have been able to respond to the hurricanes of last year. I think we have demonstrated that a number of 

times. Because of the other entities that we are now partners with 

within the department, we are able to utilize what they bring to 

the table. The Coast Guard comes to mind, for example, in the assistance that they are able to provide FEMA in the response and 

the recovery associated with major disasters. 

So I think that it certainly has not crippled our ability in being 

able to respond. 

Mr. RUPPERSBERGER. I think that is something that we are really 

going to have to keep looking at because we need to produce in this 

area, and when there is a national disaster, our concern in Maryland is that all of a sudden there were hurricanes in Florida and 

then the people who were involved in Maryland were not getting 

service because people had to move to Florida. So I think that is 

something we have to look at. 

You have standards in FEMA, evaluation goals. Do you have 

those same evaluation goals for the adjusters in the insurance program? A lot of what we saw and our staff personally saw and the 

people at least in my district, you had all sorts of inconsistencies. 

You had adjusters that seemed not to be trained. You had different 

price evaluations, different estimates, no standards. 

Two questions: First, do we require the insurance companies to 

have that standard? And if we do, I think that we have not held 

them accountable for performance. I think that is something we 

have to look at, and basically we need a standard, to develop a 

standard, in natural disasters and the fact that FEMA is coming 

in and saying pursuant to the law we can only do this, then we 

need to change the law and we need to evaluate that and we need 

recommendations from you all and talking to our constituents and 

our people in the different States and our insurance commissioners 

from the States to find out what we need to do so that if this happens again, we can do it better. 

Mr. MAURSTAD. Well, we do have a process by which we evaluate 

adjusters’ performance with re-inspections and we also, of course, 

hold the insurance companies accountable for the work of their adjusters. We audit the claims process. We audit the work of those. 

18

When we are able to identify that there are areas where a particular company or a particular adjustor within a company is not 

meeting the standards, then we take action with that company in 

correcting them. 

Mr. RUPPERSBERGER. My experience has been that we had inconsistency all over the map. We didn’t have people that were qualified, didn’t know what they were doing. So let me ask you this: 

When was the last performance standard done? 

Mr. MAURSTAD. Well, with adjusters, we do it routinely while the 

losses are occurring, and so it is an ongoing process with the adjusters. Now, companies, we do the large audit, performance audits, on a rotating basis. 

Mr. RUPPERSBERGER. My time is almost up. Are we going to have 

another round, Mr. Chairman, of questions? 

Mr. FITZPATRICK. We will not. 

Mr. RUPPERSBERGER. Well, then let me go quick. I know the light 

is on. 

I really want to get to the bottom of this. I think right now—you 

talk about standards and training—we don’t have, really, the 

standards. I want to make sure that we take what we have now—

you can take my district. You can take other districts and that we 

look at what the problems were and then re-evaluate those problems and the people involved, and sometimes the people, such as 

the adjusters, don’t have the tools and resources either. This is 

something that has to be fixed and we have to learn from what has 

happened now and we have to take care of these people that are 

still out there. 

Now, you have certain laws you have to abide by. There is no 

question, but we have to go further. We are the finest country in 

the world and it is not appropriate or fair that we cannot help people in need in our country. 

So I really have more questions. I will submit those questions to 

you, and I would like you to get back. We have a long way to go 

here. I know that you are representing your agency. You have to 

take certain positions, but let us keep an open mind. It is about 

the families. 

Thank you. 

Mr. MAURSTAD. Yes, sir. 

Mr. FITZPATRICK. We will make those questions part of the 

record as well if you submit them to the committee. Thank you. 

The chair recognizes Ms. Davis of Virginia for 5 minutes. 

Mrs. DAVIS. Thank you, Mr. Chairman. 

Mr. Maurstad, I hope you took note. Representative Kelly said 

that she hoped two weeks, four weeks, wouldn’t go by, and I hope 

you will recall that 19 months has gone by, and I still have constituents in little trailers. 

Please don’t take my time to clap. Let me get my questions in 

here, but I appreciate it. 

You stated in your statement that you were aware of a release 

dated October 16, 2003, and I just want to know for the record, you 

were made aware of that release on the FEMA web site dated October 16, 2003, that stated flood insurance can make you whole 

again, because you were in my office the day before yesterday and 

19

I asked you did you know it was on there, and you were not aware 

of it. I ask you now when was it taken off? 

Mr. MAURSTAD. It was taken off as soon as I got back to the office. 

Mrs. DAVIS. So this release that, Mr. Chairman, I would like to 

put in as part of the record, dated October 2003, one month after 

Hurricane Isabel hit my district has been on your web site from 

October 2003 until April 2005. It is no wonder constituents think 

that flood insurance can make you whole again. 

I would like to submit this for the record, Mr. Chairman. 

Mr. FITZPATRICK. Without objection, it will be made part of the 

record. 

Mrs. DAVIS. You also talked about the flood insurance program 

being established back in 1968. You quoted from it, but let me 

quote from the program. It says the program was established to, 

in quotes, provide the necessary funds promptly to assure rehabilitation or restoration of damaged property to pre-flood status or to 

permit comparable investment elsewhere. It sounds to me like the 

program was started to restore it to pre-flood status. What do you 

think? 

Mr. MAURSTAD. Well, in my looking at that, that is actually, I believe, from a Senate and House report in 1967 on a previous attempt to establish a flood insurance program. 

Mrs. DAVIS. But it sort of says the intent of Congress, does it 

not? 

Mr. MAURSTAD. In 1968, when the bill was actually put in place, 

that language was not a part of the legislation, nor was it a part 

of the Senate and House comments, and so my conclusion is that 

there was a conscious reason for having that language in a report 

that was not adopted versus a report on a bill that was adopted. 

Mrs. DAVIS. But it seems clear to me if it was a Senate report, 

it was the intent of Congress. Here we are 19 months later since 

Hurricane Isabel, and as I said, I have constituents that still are 

not taken care of. What are you doing to address the length of time 

that it takes to process the claims? As you know, I have two constituents who will be testifying after you. One just has moved back 

into her home. The other gentleman is still in a rental place. 

Mr. MAURSTAD. Well, at the end of the review process, we had 

either settled with all of the individuals that asked for their claim 

to be reviewed or we provided them with what was a final offer 

based on the coverages that are provided by their standard flood 

insurance policy. 

Mrs. DAVIS. Do you think that your insurance providers believe 

that their insurance is there to make people whole? 

Mr. MAURSTAD. No, I do not. 

Mrs. DAVIS. I have a web site here from Travellers Insurance 

that says in their advertisement, and I quote: The Mitchells were 

very fortunate to have flood insurance, and then on and on and, 

‘‘the cost to repair or replace the building was covered less the minimum $500 deductible. Wall to wall carpeting was replaced. Floors 

were dried and refinished. The walls were painted and cabinets 

and appliances were replaced.’’

If the everyday folk pull up something like this on the web site, 

and I am sure there are plenty more of these, they have to assume 

20

that they are going to get replacement cost or that they are going 

to be restored, and that is wherein I think we have the problem. 

And you and I had this discussion the day before yesterday, and 

I understand you are reading from the book and, you know, the 

rules are what they are, but the perception is reality in the United 

States of America, sir. If I have constituents that are sitting in 

trailers and they, because they looked at your web site one month 

after Hurricane Isabel hit, plus not to mention what they were told 

by people when they came into my district—how do I go back to 

my constituents and say sorry, the Government is not going to help 

you even though we have this on your web site? You said yourself 

in your statement it was an error. It is a mighty big error, sir. 

What do I tell my constituents? 

Mr. MAURSTAD. What I indicated, it was inadvertently included 

in a press release. 

Mrs. DAVIS. For almost two years. 

Mr. MAURSTAD. I want to make sure that there is a distinction 

in that the benefit associated with folks having trailers provided 

under the individual assistance program in the recovery division of 

our agency and the benefits that are provided that are not a part 

of the standard flood insurance policy. And I do take very seriously 

my responsibility to balance the needs of the fund and the charge 

of Congress to make sure that flood insurance is affordable, and I 

also take a great deal of responsibility in making sure that the policy is followed because it is law and that is my responsibility to enforce it. 

I don’t have the discretion to be able to authorize claims to be 

paid that are not provided for under the standard flood insurance 

policy. 

Mrs. DAVIS. My time is up. I wish we had more time, but I would 

say that it is your interpretation of the program versus my interpretation of the program, sir, and I think that is probably the problem throughout the agency. 

Thank you, Mr. Chairman. 

Mr. FITZPATRICK. Thank you, Mr. Maurstad, for your testimony. 

Clearly, we have a lot of work to do. I know that the committee 

looks forward to working with the Federal Emergency Management 

Agency and the National Flood Insurance Program, but we have to 

do a better job reaching more flood victims, repetitive flood victims, 

to be quicker, to be fairer, and I am sure that we are going to be 

working together toward that. 

Before I dismiss panel one, the chair notes that some members 

may have additional questions for this panel which they may wish 

to submit in writing. Without objection, the hearing record will remain open for 30 days for members to submit written questions to 

these witnesses and to place their responses in the record. 

The first panel is dismissed. 

Mr. FITZPATRICK. We would ask the second panel to please take 

their seats at the table, Mr Berginnis, Mr. Jenkins, Mr. Redmer, 

Jr., Mr. Griffin, Ms. Beam, Mr. Bearekman, Mr. Kanstoroom, and 

Ms. Stelyn. Please take your seats at the table. The subcommittee 

does need to recess until we conclude the votes of early this afternoon. The members will be back to conclude the subcommittee 

hearing. 

21

The subcommittee is in recess until the sound of the gavel. 

[Recess.] 

Mr. FITZPATRICK. I would like to thank the individuals, the distinguished panelists who are here in the Nation’s capital to testify 

as part of panel two. 

First, I would like to recognize Ms. Davis of Virginia who wants 

to introduce two of her constituents who are here with us today. 

Mrs. DAVIS. Thank you, Mr. Chairman. I appreciate the opportunity. As I told the chairman, unfortunately I am going to have 

to leave here at 1:30. So I hope I can get back, but I wanted to 

have the opportunity to introduce two of my constituents who have 

had to bear the brunt of some very unfortunate situations, and 

they are Mr. Larry Bearekman from Poquoson, and Mr. 

Bearekman, just for the record, is still in temporary quarters; and 

the other is Ms. Georgette, otherwise known as Ginger, Stelyn, and 

she lives in Seaford, York County, Virginia, and she has just recently gone back in her home. 

I appreciate you both so much for taking the time to travel here 

to tell your stories that are so similar to so many other stories with 

the district. 

Thank you. 

Mr. FITZPATRICK. Thank you, Ms. Davis. The first witness on 

panel two is Chad Berginnis. Mr. Berginnis is the Flood Plain 

Management Program supervisor in the Division of Water with the 

Ohio Department of Natural Resources. He has co-authored a comprehensive revision of the Model State Flood Plain Regulations, 

drawing in part on his previous experience as the planning director 

of the Perry County Planning Commission. 

Without objection, Mr. Berginnis, your written statements will be 

made part of the record. You will each be recognized for a 5-minute 

summary of your testimony, and it will go for each of those who 

are here today to testify. 

Mr. Berginnis, you have 5 minutes. 

STATEMENT OF CHAD BERGINNIS, CFM, ASSOCIATION OF 

STATE FLOODPLAIN MANAGERS, INC., CHAIR, STATE OF OHIO 

Mr. BERGINNIS. Good morning and thank you, Mr. Chairman and 

the subcommittee, for giving the Association of State Flood Plain 

Managers the opportunity to testify. 

I currently serve as chair for the ASFPM and I also work in the 

State of Ohio’s Flood Plain Management Program which implements the National Flood Insurance Program at the State level. I 

and most of the 7,000 members of the ASFPM work as jack of all 

trades in the NFIP on a daily basis. We are the State and local officials that are involved in implementing the NFIP. 

The 2004 Reform Act holds great promise. From our standpoint, 

it contains three significant elements: The creation of aggressive 

mitigation programs to address the repetitive loss program, 

changes to existing NFIP and mitigation programs to improve effectiveness, and the final two provisions which make positive 

changes to the insurance side of the program. 

Repetitive flood losses are a significant threat to the NFIP, 

whether it be perception such as the black eye the NFIP receives 

when a homeowner who has made repetitive flood insurance claims 

22

totalling several times the value of the home is profiled on programs like ‘‘Fleecing of America’’ or the reality that in the average 

year, claims for repetitive loss properties are $200 million. Repetitive flood losses threaten the financial stability of the NFIP. Furthermore, everybody pays for them. Policyholders in Ohio, where 

relatively few repetitive loss properties exist, bear the cost of increased flood insurance premiums which are at least partially due 

to the excessive repetitive loss claims. 

The 2004 Reform Act repetitive loss mitigation programs should 

make in-roads into this problem, but they are meaningless until 

they are funded. This is why we are perplexed that the Fiscal Year 

2006 budget requested only $8 million of the $70 million authorized. None of these funds authorized are new taxpayer dollars. 

They are a transfer from the National Flood Insurance Fund. 

Acting quickly is critical. Over half of the newly authorized funds 

are for a pilot program that will fund 2009, and funds for this program were not even requested in 2006. The Reform Act doubled the 

funding for the basic Flood Mitigation Assistant Program, $20 million in new authorization, but only $8 million was requested. Why 

is that? 

The FMA program already exists. While it is true that rule-making must occur, especially for the Repetitive Loss Mitigation Programs created in the Reform Act, we understand that part of the 

delay is debate over whether these funds should come out of premium dollars or fee dollars associated with the flood insurance policies. We submit that it can come out of either and should come out 

of both. 

Some may argue that to take funds out of premiums opens the 

door for other programs to be similarly funded. That is nonsense. 

These programs were created specifically to mitigate properties 

that most impact the flood insurance fund. It is a literal investment in the fund to help protect the fund. Our written testimony 

also identifies other issues related to the implementation of the 

new mitigation programs. 

Another important aspect of the Reform Act was to improve existing NFIP and mitigation programs. One such improvement is 

with increased costs of compliance benefits. The new mitigation 

tool created under the 1994 Reform Act, ICC, helps offset the cost 

to the property owner for making their buildings more flood resistant, as required by local and State codes. The maximum benefit 

under the ICC is $30,000. The surcharge on flood insurance policies 

to pay for this benefit yields over $80 million annually. Unfortunately, as implemented, ICC is not well utilized. The average ICC 

claim is well below the maximum limit, and data as of 2 years ago 

showed that less than $2 million was being spent nationwide; thus, 

nearly all ICC surcharge dollars are not being utilized for their intended purposes and, instead, likely cross-subsidizing the general 

flood insurance policy. 

The Reform Act changes will help, but we also need FEMA’s help 

to create a framework that meets the intent of the statute and not 

be so conservative in its interpretation that ICC is overly burdensome. 

We would also like to highlight one of the new mitigation options 

that the Reform Act officially recognized, the demolish, rebuild, or 

23

modify elevation option. For several years, FEMA has piloted this 

option as an alternative to existing mitigation. For some reason, 

the pilot use has stopped. We are unclear as to why and we are 

hopeful that FEMA will take quick action to again allow the use 

of this option. 

Although our members are less affected by Title II provisions of 

the Reform Act, we would like to say one thing about flood insurance policies. The single largest complaint flood managers get 

across the Nation are that flood insurance policies are too expensive. We realize that there is a legitimate question made about 

what policy coverages should or should not be, but we also hope the 

committee recognizes that it will affect the cost of policies. 

In conclusion, what I have highlighted are just some of the problems, but there is one problem in particular I would like to mention, and that is FEMA has several critical missions vital to nearly 

every community and State in the Nation. Its legacy missions, 

those that pre-date becoming part of the Department of Homeland 

Security, were to prepare for, respond to, recover from, and mitigate against flooding. FEMA’s focus tended to be on natural hazards. Now that FEMA is part of the Department of Homeland Security, we are witnessing a systematic dismantling of some of their 

functions. Funds are being transferred or under constant threat of 

transfer. Staff positions are being lost, and FEMA has borne a 

large share of the DHS organizational and administrative costs. 

I would, finally, like to thank both on behalf of the State of Ohio 

and the ASFPM for the good work that FEMA does with Under 

Secretary Brown and the folks that have helped us through the 

years. In Ohio, we have had seven Presidential flood declarations 

in the last 2 years, and recovery is always a very, very difficult 

thing, but we are doing the best we can, and I think FEMA folks 

do deserve some of the credit for that. 

Thank you. 

[The prepared statement of Chad Berginnis can be found on page 

114 in the appendix.] 

Mr. FITZPATRICK. Mr. Berginnis, thank you for your testimony. 

There will be questions for the witnesses after all the witnesses 

have testified. Mr. Jenkins will testify next, but before Mr. Jenkins 

testifies, the members have been called for another vote. So we are 

going to recess this committee hearing for 15 minutes, and we will 

be back together at approximately 1:23 this afternoon. 

Thank you. 

[Recess.] 

Mr. FITZGERALD. The committee will be in order. 

Mr. Jenkins serves as director of homeland security and justice 

issues in the United States Government Accountability Office. His 

areas of responsibility include emergency preparedness and response, elections, the Federal judiciary, sentencing and corrections, 

and bankruptcy. 

Mr. Jenkins, you have 5 minutes. 

24

STATEMENT OF WILLIAM O. JENKINS, JR., DIRECTOR, HOMELAND SECURITY AND JUSTICE ISSUES, UNITED STATES GOVERNMENT ACCOUNTABILITY OFFICE 

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

subcommittee. I appreciate the opportunity to be here today to discuss some preliminary results of our ongoing work on the National 

Flood Insurance Program. We plan to report to Congress later this 

year on the final results of that work. 

Today, we provide some preliminary information on policy coverage and limitations, the structure of the program, the views of 

some insurance company managers on the program’s operation, 

and FEMA’s progress in implementing mandates on the 2004 Flood 

Reform Act. 

Under the National Flood Insurance Act of 1968, Congress established the NFIP to provide an insurance alternative to disaster assistance in response to the escalating cost of repairing flood damage. The NFIP was designed to be self-supporting and actuarially 

sound. Thus a challenge for FEMA is to strike a balance between 

coverage and premiums that are sufficiently affordable to encourage participation in the program. 

Policyholders may choose to insure their home and the personal 

property inside their home or the home only. The NFIP is not designed to cover all flood losses. For example, the policy does not 

cover the replacement costs of personal property, and the coverage 

of basements excludes finished walls, floors, furniture, and other 

personal property. In addition, preexisting damage not caused by 

the flood is not covered. 

Replacement coverage for damage to a primary residence is limited to those homeowners who have purchased coverage equal to 80 

percent of the home’s full placement cost or the maximum available 

coverage of $250,000. The work of selling, servicing, and adjusting 

claims on NFIP policies is carried out by thousands of private insurance agents, and adjusters who work independently are employed by insurance companies or vendors who are under contract 

to insurance companies to handle their flood business. According to 

FEMA, about 95 percent of all policies are underwritten by 95 private insurance companies who are paid about one-third of the policy premiums for their service. About 40 FEMA employees assisted 

by about 170 contract employees are responsible for regulating, 

managing, and overseeing the program, which is expected to include about 4.7 million policies by the end of this year. 

Independent insurance agents are the main points of contact for 

policyholders and those who wish to purchase flood insurance. 

Other than requiring that agents meet basic State insurance licensing requirements, neither FEMA nor the four insurance companies 

we visited have historically required that agents complete training 

or demonstrate a basic level of knowledge of the NFIP to sell policies. When losses occur, flood claims adjusters employed by the insurance companies or independent contractors become the eyes and 

ears of the NFIP. The adjusters are assigned to policyholders after 

they have notified their insurance agents of a flood loss and the 

agent has written a loss report. 

Adjustors are responsible for evaluating the damage and submitting claims to the insurance company which reviews the claim and 

25

processes payment. Unlike agents who sell the policies, adjusters 

must be certified by FEMA to work on NFIP claims. 

FEMA’s primary method of overseeing the work of the insurance 

companies who write the policies and process claims is to conduct 

an operational review of each company once every 3 years, more 

frequently if problems are found during the review. FEMA also 

uses about 10 general adjusters to check the work of claims adjusters through re-inspections of a sample of about 4 percent of claims 

done after ever flood event. 

We interviewed four insurance managers in the larger insurance 

companies who write flood insurance. According to these managers, 

the knowledge of the agents who sell NFIP policies varies, in part 

depending on the frequency with which they write policies. Three 

of the four managers thought FEMA staff who conducted operational reviews were knowledgeable and that such reviews were an 

effective way for FEMA to ensure that the NFIP is administered 

in accordance with the established legislation and regulation. All 

four managers also said that FEMA should examine ways to make 

the program less complex and less document intensive. 

FEMA noted that some documentation, such as elevation certificates, are required because the NFIP is part of FEMA’s broader 

flood plain management strategy that combines insurance with 

hazard mitigation to reduce future flood damage to homes. 

The Flood Insurance Reform Act of last year had three major 

mandates for FEMA related to policy sales and service. FEMA is 

working to implement all three, but none are complete. Working 

with State insurance commissions and commissioners, FEMA is 

still in the planning stages of how to establish and implement insurance agent education and training requirements. FEMA has 

drafted new materials to be provided to policyholders at the time 

of purchase or renewal for flood insurance which it expects to have 

finalized by October of this year. 

FEMA is developing a formal appeals process for policyholders in 

the event of a grievance about a claim. That also is expected to be 

completed by October of this year. 

That concludes my statement, Mr. Chairman. I would be pleased 

to answer questions you or other members of the committee may 

have. 

[The prepared statement of William O. Jenkins Jr. can be found 

on page 131 in the appendix.] 

Mr. FITZPATRICK. Thank you, Mr. Jenkins. 

The next witness is Mr. Alfred W. Redmer, Jr. Mr. Redmer was 

appointed insurance commissioner for the Maryland Insurance Administration in June 2003 by Governor Robert Erhlich. Prior to his 

appointment, Mr. Redmer had served as the House minority leader 

in the Maryland General Assembly where he had represented the 

Eighth District in Baltimore County. Mr. Redmer is a licensed insurance and stock broker. 

Mr. Redmer, you have 5 minutes. 

26

STATEMENT OF ALFRED W. REDMER, JR., MARYLAND INSURANCE COMMISSIONER, MARYLAND INSURANCE ADMINISTRATION 

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

committee. It is a pleasure to be here. I would like to first thank 

you for your work and the changes you have made to the flood program during the re-authorization of last year. With me today is 

Jeff Getek, our director of external affairs, and Joy Hatchette, who 

is associate commissioner of consumer education and advocacy, and 

it is my pleasure to be here to testify on behalf of the citizens of 

Maryland about their experiences with the National Flood Insurance Program following Hurricane Isabel in September of 2003. 

At your request, my testimony will focus on the problems with 

the program; however, I do need to recognize the efforts and our 

appreciation of the those hardworking dedicated employees at 

FEMA and the flood program that responded to the citizens of 

Maryland in the aftermath of Hurricane Isabel. The devastating effect Isabel had on property along the Chesapeake Bay was unprecedented. Eighteen months after Isabel, we still have 100 families 

still living in FEMA trailers. On a related note, as recently as this 

week, some are being threatened with the loss of those trailers and 

being left literally homeless, which is unconscionable. 

A few statistics: Under the direction of Governor Robert Erhlich, 

we staffed 15 disaster recovery centers, held dozens of community 

meetings, collaborated with our Congressional delegation, and handled over 1400 intakes, 500 formal complaints, and we generally 

assisted and advocated for the citizens in coordinating and communicating with carriers, adjusters, and the flood program, which resulted in hundreds of thousands if not over a million dollars of additional funds. Many of these residents have made the trip to 

Washington today, and if the citizens of Maryland would just wave 

their hands, and I know we have numerous people in an overflow 

room as well. 

First, what you have with you today is a report that we did in 

2004 and another report that we just recently completed. We would 

appreciate it if you would look at that. We have also worked with 

citizen groups led by Bernice Myer, who is here today as well as 

consumer advocate Steve Kanstoroom, who will speak a little bit 

later. Steve has spent thousands of hours and thousands of dollars 

of his own money traveling the country inspecting losses, advocating for consumers, and has developed an incredible level of expertise. Additionally, the National Association of Insurance Commissioners has a Catastrophe Working Group and a new work 

group dedicated to advocating for an additional review of the flood 

insurance program. 

At your question request, I am going to address four areas of concern in my limited time. I have pretty detailed testimony in writing. 

First, the delays in assistance and the lack of trained agents and 

adjusters. Some agents were not familiar with the claims process 

or the coverages available under the program. We also have a 

shortage of trained experienced adjusters. Some took weeks to contact the claimants. The program has a lack of an official claim or 

an appeal process. Folks also had to deal with multiple adjusters. 

27

They had to deal with the adjustor from the flood program, a different adjustor from the homeowners company, a different adjustor 

from FEMA, another adjustor from the Small Business Administration, a very burdensome and complicated process. 

Some of the adjusters didn’t know what the standard policy covered. They either did not get or they ignored important directives 

that came from the National Flood Insurance Program. We also 

had issues where adjusters inappropriately pressured citizens to 

sign proof of loss statements in spite of inadequate reimbursements. 

Number two, the lack of uniformity in claim estimates and confusion with the pricing guidelines, a lot of instances of conflicting information from carriers, the flood program, and adjusters. Everybody had a different answer as to what was covered, incorrect 

usage of the pricing guidelines by the adjusters as well as adjusters 

using old outdated pricing guides. There were coverage questions 

and conflicts regarding outside heating oil tanks, the removal of 

contaminated soil underneath the homes, mold and mildew remediation. There were questions regarding direct physical versus direct 

physical contact. This is just to name a few. 

In some instances, the flood program actually reversed its own 

decisions, but that information was slow to reach the adjusters. 

Some adjusters went out with the pricing guideline, period. Instead 

of price hikes due to supply, demand, and shortages, they are stuck 

with only the pricing guidelines with no modifications. 

I was asked to comment on lender requirements. In short, lenders require you buy an amount of coverage to cover the loan. As 

we all know, particularly with waterfront property, the structure is 

a small part of the total value. In these instances, the consumer 

is forced to buy an amount of coverage they could never, ever collect, even in the event of a total loss. 

Number four, failure of NFIP to implement the program as Congress intended, Congresswoman Davis did an excellent job of articulating that. I will move on. 

We have a significant number of conclusions and recommendations in our written report. Many factors caused these problems: 

Inadequate consumer, producer, and adjustor information; inconsistencies and errors in pricing guidelines and claim estimates; a 

confusing and complicated bureaucracy, the result, citizens with inadequate settlements and their only option is to go to Federal 

Court. We have people living in trailers. We would appreciate another review. 

For future disasters, please consider the thorough recommendations that we have made and that will come out of the GAO. We 

would appreciate Congress looking at it again. I know others, including Mr. Kanstoroom, have significant recommendations on consumer education, the comprehensive claim and appeal process. We 

need assurances that payments are adequate. We need to strengthen the relationship and coordination between private insurers, the 

flood program, and FEMA, enhanced agent and adjustor training. 

We need to add a meaningful role for State regulation regulators. 

And in closing, on behalf of the citizens of Maryland, thank you 

for your willingness to listen to our experiences. We would appreciate an additional review of the entire program, and on behalf of 

28

the National Association of Insurance Commissioners, we collectively stand willing to assist and provide expertise through our Catastrophe Working Group and the Government Affairs Task Force 

in any review, Congressional review, of this program. 

[The prepared statement of Alfred W. Redmer Jr. can be found 

on page 181 in the appendix.] 

Mr. FITZPATRICK. Thank you, Mr. Redmer, for your testimony. I 

appreciate that. 

Next we recognize Mr. Donald L. Griffin. Mr. Griffin is vice 

president, Personal Lines at the Property Casualty Insurers Association of America, which is a trade association representing over 

1,000 property and casualty insurers who write almost 40 percent 

of all insurance policies sold in the United States. 

You have 5 minutes. 

STATEMENT OF DONALD L. GRIFFIN, VICE PRESIDENT, PERSONAL LINES FOR THE PROPERTY CASUALTY INSURERS ASSOCIATION OF AMERICA 

Mr. GRIFFIN. Thank you. I appreciate the opportunity to appear 

before you today and present information to the committee regarding the effectiveness of the National Flood Insurance Program. We 

have heard testimony from a lot of the individuals, and you will 

hear some shortly from some victims. 

While there are certainly problems maybe that are associated 

with the National Flood Insurance Program, I want to say that 

overall the program works very well. The program was established 

in 1968, and I would reiterate the comments of Director Maurstad 

in that it was not established to put people back into pre-loss condition. That is not the policy wording. That is not the program. The 

idea that Mr. Jenkins talked about from the GAO was that there 

is a balance that has to be maintained between what is provided 

and keeping it affordable, and they have struck that balance, and 

it may need to be changed, but that is the current system we have 

now. 

We would also say that the insurance industry has no particular 

say over the wording in the contract, but that it is a legal contract, 

and when we are called upon to adjust all the thousands of losses 

that you have heard about recently, we are called upon to do that 

based on the rules and regulations out by FEMA. So that is how 

we adjust those losses. 

It is a very complex program. The insurance industry finds it 

complex. The agents find it complex. The adjusters find it complex. 

I would say that that is one particular area where we would be 

very happy to work with this committee, Congress, FEMA, and policyholders to try and make it better and easier to understand. 

The claims and appeals process is very difficult. There wasn’t a 

formal process set in place. The Title II provisions of the bill passed 

last year along with many of the other reforms actually will do lots 

of good things, hopefully, to make this process better going forward. 

While I can’t focus and I can’t address individual claim situations 

that you may hear about today, what I can tell you as an industry 

is we are committed. As you know, we write 95 percent of the business through the National Flood Insurance Program through the 

write-your-own programs with insurers, and our company repVerDate 0ct 09 2002 13:33 Feb 02, 2006 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 G:\DOCS\109.17 RODNEY
29

resents probably 40 percent of that market. What we can tell you 

is we are very committed to making the program work better. 

We believe that there are ways to do that, and many of the ways 

include doing things like simplifying the determination of where 

the flood property actually is on a flood map. That is probably one 

of the most difficult things for an agent to do. It is also difficult 

to try and figure out what coverage is actually there. 

On the process of the purchaser, one of the other things that they 

are typically required to do is buy flood insurance to meet the demands of the mortgagee. As you heard from Mr. Redmer, there is 

a problem with mortgagees requiring the amount of insurance to 

be too high and not cover just the structure, but to cover the entire 

mortgage. There are State laws in many States that prevent that 

from occurring, but probably not in Maryland. 

There could be many improvements to the program. We find it, 

as we said, very complex. PCI and the IBHS, which is the Institute 

for Business and Home Safety Flood Committee, are very willing 

to work with everyone to try and come up with solutions to fix 

these problems as well as implement the provisions of Title II. We 

have actually been working and have had several meetings with 

FEMA and the NFIP on the implementation process of Title II 

based on the public law passed last year. 

There is one particular provision of that Act, though, that causes 

us grave concern with the insurance industry, and that is a requirement that you have to have a signature saying the insured 

understands what they bought. Because of the way the process is 

administered, as you know, there is a 30-day waiting period for 

people before their coverage becomes effective. So signing a form 

that is saying that they got all of these documents at the time they 

actually purchased the policy is not practical. That means that policy form and that document requiring the signature must be mailed 

later. The return or the compliance with that return could be very 

problematic for both the industry as well as FEMA, and it could 

be problematic later at claim settlement time. 

The other thing that we would support is you very wisely put in 

some very helpful mitigation issues, the ability to deal with repetitive losses. We would hope and we would work with you and Congress to fund those mitigation repetitive losses. We think that is 

very important for both the program as well as the industry as well 

as policyholders. 

As I mentioned before, but it should be reinforced, the program 

works. There may be ways to improve it, some of which were discussed in my testimony and in the written testimony I submitted, 

but overall, it provides a very important catastrophic protection for 

the policyholders, for the Nation, and for our members. 

Thank you. 

[The prepared statement of Donald L. Griffin can be found on 

page 125 in the appendix.] 

Mr. FITZPATRICK. Thank you, Mr. Griffin. 

Our next witness is an American who is on the other side of the 

contract process, the person who paid the premium faithfully year 

in and year out, who expected to be covered, who is harmed, and 

still has a loss yet to be reimbursed for. And for introduction of our 

30

next witness, I call on the gentlelady from Pennsylvania, Ms. Hart, 

to introduce her constituent. 

Ms. HART. Thank you, Mr. Chairman. I appreciate the opportunity to be here again and the opportunity to introduce my constituent, Beth Beam. I want to thank Beth. She has taken a lot of 

time with my staff and with me to have us understand the gravity 

of the situation that she and her family face, which, unfortunately, 

is more common than we would like to think as a result of some 

of this miscommunication and really misinformation surrounding 

the National Flood Insurance Program. 

Beth and her husband, Mike, live in Ellwood City, Pennsylvania, 

which is a lovely town where I actually have one of my district offices, and Ellwood City was hit very hard by, unfortunately, two of 

the hurricanes of last fall or last late summer. 

Mrs. Beam is a credit analyst, and she took off some time to be 

home with her kids and fully intended to return to work, but hasn’t 

been able to do so, basically, because of the challenges that her 

family faces as a result of basically their homelessness as a result 

of the flooding and ineffectiveness of the programs that she and her 

husband have been trying to navigate. The promises made, the contracts, again, as the chairman referred to, have really placed them 

in a difficult situation. 

They were flooded twice, as I mentioned, last September and 

have still not been able to move back in their home. She is going 

to give testimony about the details. 

But I just want to thank you, Beth, for being here. I want to 

thank you for bringing your information to us and your patience, 

really, for dealing with this. 

And I yield back, Mr. Chair. 

STATEMENT OF BETH BEAM, ELLWOOD CITY, PENNSYLVANIA 

Ms. BEAM. Chairman Ney, Ranking Member Waters, members of 

the committee, thank you for providing me the opportunity to discuss my experience with the NFIP. 

My husband and I purchased a house in Ellwood City along the 

Connoquenessing Creek. We spent 8 years remodeling the entire 

house ourselves. We purchased over $93,000 in flood insurance, 

being told it would cover any damages in the event of a flood. Instead, the insurance industry has taken our premiums and gave 

nothing in return. 

During this nightmare, we have been left to fend for ourselves. 

Our first floor was flooded with 1 foot of water on September 9, 

2004 by Hurricane Francis and then with 5 feet from Ivan just 

days later. Although we suffered such a catastrophic loss, that experience pales in comparison to the nightmare we have endured 

fighting for our settlement with FEMA, its contractor, Computer 

Sciences Corporation, Liberty Mutual, and Countrywide. Watching 

the destruction of my family through the settlement process has 

been far more painful than the flood. 

Because FEMA failed to honor its contract with us, we were 

forced to live with my parents. Our 19-month-old toddler is a light 

sleeper. To accommodate her, my 4-year-old sleeps on the floor in 

the family room, my husband on the couch, and me in a chair, for 

7 months. 

31

It breaks my heart to see how this is affecting my 4-year-old 

daughter. She cries because she has been separated from her 

friends at home for so long. She misses her bedroom and her toys. 

She wants to sell lemonade to make money to fix our home. She 

calls it the flood house. 

The endless stress has left me physically and emotionally exhausted. As a result, I have been constantly ill. 

After the flood, I immediately filed an insurance claim. Bellmon 

Adjustors, a third-party firm, informed me that their records indicated we only had $5,800 in coverage, not the $93,000 we paid for. 

We were shocked. This was the first we learned of this problem. 

I immediately contacted Liberty Mutual’s flood processing center 

and was told, unbeknownst to me, FEMA redesignated our flood 

zone. Liberty Mutual confirmed that a notice regarding the policy 

change had not been sent to me. Likewise, my agent stated he 

never received a notice, nor did my lender, as required by law. 

Liberty Mutual’s vendor told me not to worry; the policy would 

be reinstated with proper coverage, and we would receive a retroactive bill. The next day, Liberty Mutual’s vendor left a message 

stating they discovered an unsigned computer-generated copy of 

the letter regarding the redesignation that I should have received. 

I learned Federal law required my lender to maintain adequate 

coverage on the loan. I next contacted a FEMA underwriter, Mr. 

Van Dyke, who denied the existence of the Federal requirement imposed upon the lender. After many calls, FEMA’s Van Dyke reluctantly admitted the law existed and questioned why I wasn’t suing 

my lender and insurance company for errors. 

Despite our 8 years of faithfully paying premiums, neither Countrywide, Liberty Mutual, nor FEMA would accept responsibility for 

the failed notification process. Clearly, one or more of these entities 

is at fault, and FEMA has oversight of Countrywide and Liberty 

Mutual. 

It is common knowledge the NFIP is virtually suit-proof in that 

unless fraud is proven, attorney’s fees and punitive damages are 

not recoverable. We will be fortunate to receive 60 percent of what 

we are owed years from now. In the meantime, FEMA and our insurance company are taunting us to sue them. 

I eventually went round and round with FEMA. First, they said 

they would reform my policy to provide the coverage that appeared 

on the original declarations page. Then they reneged. Then they 

lost my case and said my case was closed. All the while, my 4-yearold sleeps on the floor and my husband and I sleep on the couch 

and a chair. 

From the beginning, we should have received clear information 

rather than four-way finger-pointing between FEMA, CSC, Liberty 

Mutual, and Countrywide. Had it not been for the victims web site, 

femainfo.us, we never would have known that history repeats itself 

in regard to the NFIP, its contractors, and business partners. 

A Federal program should be capable of handling the American 

public. Instead, a citizens group is carrying FEMA’s load. Something is terribly wrong here. I cannot believe that Congress ever intended to set up a premium-funded program where the policyholders have no rights, a program that has no oversight and no accountability to the very people that fund it—the policyholders. 

32

Liberty Mutual reluctantly filed an E and O claim and offered us 

50 cents on the dollar. Just like the Isabel victims, we are now 

trapped in limbo 7 months later along with many of my neighbors. 

They too are flood insurance victims, each with their own claims 

adjusting horror story. 

We want our lives back. We want to go home. We want to be 

happy again. Isabel is being replayed in Pennsylvania. Clearly, 

FEMA’s NFIP is broken. 

Please use your power to right this dreadful situation. The information is now readily available, and I urge you to set aside the 

several days of testimony it will take to expose the NFIP disaster. 

Thousands of us are desperately depending on each of you to help 

us regain our homes and our lives. 

Again, thank you for the opportunity to testify today, and I look 

forward to answering questions. 

[The prepared statement of Beth Beam can be found on page 64 

in the appendix.] 

Mr. FITZPATRICK. Thank you, Ms. Beam, for bringing your family’s story to Congress. 

Our next witness is Larry Bearekman, and, Larry, you have already been introduced by Congresswoman Davis. You have 5 minutes. 

STATEMENT OF LARRY BEAREKMAN, POQUOSON, VIRGINIA 

Mr. BEAREKMAN. Thank you, Chairman and subcommittee members. I want to especially thank Joanne Davis for giving me the opportunity to come up here and witness to what has happened to us. 

I live in the City of Poquoson. It is a small, quaint city on the 

Chesapeake Bay near Hampton, Virginia, about 11,000 people. It 

has good schools. It is a great place to raise your children. Unfortunately, the highest ground in the whole city is about 11 and a half 

feet. 

September 18, 2003, my wife and youngest son went to Richmond to stay with my parents. I stayed at the house with my two 

teenage sons, and Hurricane Isabel arrives. We were able to stay 

in the house until 10 a.m. That morning, we grabbed what keepsakes and things we valued and hit the road. 

September 19th, I can see it like it was yesterday. Myself and 

my two teenage sons tried to get back to the house. It took us 3 

hours to get within a couple of miles of the house because of all 

the rubbish, debris, trees, telephone poles that were all over the 

roads. It looked like a war zone. We had to abandon the car. It was 

just unbelievable, the amount of debris. 

We were walking down the road and we were walking on 12 

inches of seaweed, lawn chairs, buoys, everything you can think of. 

The smell, the smell of fuel oil, sewage, swamp mud, and on top 

of that, when we got to the house, my door is wide open. I didn’t 

realize what the force of the water could do. 

We went into the house. The furniture, all of our belongings are 

all over the place. I went back outside, and you could see the mud 

packed on the side of the house, how high the water got to. It got 

to the bottom of the window sills. The fuel oil tank in the back of 

my yard actually was dislodged, and I know that it was half-filled 

and probably weighed in the proximity of about a thousand pounds. 

33

That evening, my wife came back from Richmond, and all we 

could do was hug and cry. After a minute, I just had to take deep 

breath, and I told her, I said, Honey everything will be fine. I said 

we are insured. If I would have known then what I know now, I 

couldn’t have said that statement. 

I have a lot to say, a lot of things to cover, and not enough time, 

but I would like to point out that I am one person, we are one family, we are five victims. There are thousands and thousands of 

other victims who have been damaged, taken advantage of, and not 

given their rights. Of all my neighbors, there is not a one that has 

told me that they had everything paid for. Just recently, I talked 

to and was aware of two of my neighbors that did finally settle for 

the full amount of damage to their houses. They were paid the 

same damages that I had put a claim in for through the outreach 

program and they got fully covered, and then my file was ready to 

be reviewed about August 13th, as in my written statement. At 

that time, Charley hit the next day and you could not find a FEMA 

representative up in their offices. I think it is up in New Jersey. 

At that time, I had been put off, run around, and I hired a consultant, insurance consultant, licensed insurance consultant, who 

was trying to help me with my situation. 

Mr. Griffin says that it is their intent to follow the rules and regulations. Well, if you look explicitly at my written testimony, which 

I cannot cover everything, you will see that there are a lot of discrepancies. One that I would like to place emphasis on is on the 

next day. On March 1st, I basically had gotten an engineering company to do a report on some damage of the house. The insurance 

agent said we cannot use your engineering consultant, which he 

told me that I needed, and it ended up costing me $400. 

So they hired their own engineering company, Rimkus Group. If 

you will notice on Exhibit P, this is a letter that was written from 

David Maurstad to Governor George Allen. He took this copy and 

sent it to Joanne Davis. That was her reply from him on the same 

issue. In the third paragraph, he basically misrepresents the language and creates an untrue statement in reference to my engineering report. 

He says a report from Norman Davis, architect, a firm hired by 

Mr. Bearekman, was submitted to the engineer for review in conjunction with this inspection. He says, ‘‘It identified a construction 

defect of undersized foundations.’’ If you look at that exhibit in the 

written testimony, you will see that there was no mention of a defect. It basically said that the foundation would not meet today’s 

codes and that is why it would have to be upgraded. When the 

house was built in 1970, it met code. 

So what he has done is, also if you look at the next day, March 

1st, they had my engineering report and said that they could not 

use it. They had to go to and do their own engineering report. And 

now he is trying to use my engineering report to substantiate his 

denial of my insurance when, in fact, through the outreach program, he paid other homeowners for this exact same damage, same 

type of construction, and then turns around and denies everybody 

else from August 13th on. 

34

I know I have run over my time. I appreciate the slight extension, if you have got any questions, and I really do appreciate this 

opportunity. 

Thank you. 

[The prepared statement of Larry Bearekman can be found on 

page 69 in the appendix.] 

Mr. FITZPATRICK. Thank you, Mr. Bearekman, and you should 

know that your testimony and the testimony Ms. Beam and others, 

the written testimony, are all made part of the record. We appreciate that. 

Our next witness is Steve Kanstoroom, who is a resident of Ashton, Maryland. He began examining the National Flood Insurance 

Program 2 years ago in response to a neighbor’s problems following 

a flood event. 

Steve, you have 5 minutes. 

STATEMENT OF STEVEN J. KANSTOROOM, OXFORD, 

MARYLAND 

Mr. KANSTOROOM. Thank you, Mr. Chairman, for inviting me 

here to testify today. 

My home is in Oxford, Maryland. It is on Maryland’s eastern 

shore, and over the past 15 months, I have spent more than 6,000 

hours investigating the National Flood Insurance Program and its 

problems. Prior to Isabel, I retired as a pattern recognition and 

fraud detection expert. I was responsible for programs with millions of customers, billions of dollars, and making certain that 

those programs operated consistently with Federal regulations. 

That was my job. 

I gained my experience in processing these multibillion dollar 

bank portfolios and corporate portfolios from leading experts in 

some of the largest banks in the country, MasterCard International, Visa USA, U.S. Secret Service, Postal Inspectors. Prior to 

that, I processed for the Department of Justice and others. 

I have got solutions. I’m so troubled to sit here. I heard what 

Congressman Ney said. I heard Congresswoman Melissa Hart. I 

have got the answers. I have got all the answers. I can’t explain 

something larger than Enron in 5 minutes. I have got them. I can 

do it in 15. I can’t do it in 5. 

But what I would ask, is ask me questions. I will give the answers, and I will just do the best that I can to speak to these 

points. What I would ask is, ask me about the prior administrations. I lined up the appointees to testify here today, the Presidential appointees, the folks who ran the program for Mr. 

Maurstad. What they will tell you and if you look at the record, of 

course, the program is to restore people to their pre-loss condition. 

This nonsense about it never did is just that. It is total poppycock. 

The fact of the matter is what they are doing is spinning this 

and saying, Well, we are talking contents. We are not talking contents. We are talking the four corners of your home and, of course, 

replacement cost value means you restore it to the pre-loss condition. The industry knows what replacement cost value means. 

Well, regardless of what Congress said, it is how they trained 

these people. The fact is I received very significant press when I 

learned of the pricing disparity, this wrong set of numbers that was 

35

being used. I took it to the Senate. The Senate hearing largely 

turned on that finding. Look at my testimony. You will see the published data says it is a fraudulent use of that data. That is what 

he is saying to the insurance industry. That is what he’s saying to 

Florida officials. That is what he said to Jeb Bush. That is what 

he said to Charley Crist. That is what he said to Tom Gallager, 

fraudulent use of the numbers. Look in the testimony. 

The fact of the matter is the four corners of your house, if it is 

properly insured, of course it is replacement cost value. Look in the 

policy. It just pains me to see these people sleeping on the floor and 

to have officials come in here and try to spin this into something 

that it is not. 

Once I received the positive press, I started having whistle-blowers call late at night. I had them from FEMA. I had them from 

Computer Sciences Corporation. I had them from insurance industry officials. 

I shared that information with former fellow insurance administrator Robert Hunter, and what he said was history seems to be 

repeating itself. The fact of the matter is these problems are coming from the industry’s desire to hold their claims payments down. 

FEMA will say and then the industry will say, well, but it is not 

coming of our pocket; it is not coming out of the carrier’s pocket; 

there should be no problem here. Well, but there is. The same adjustor adjusts that the flood loss is upstairs, and that adjustor is 

working for the carrier, and the carrier doesn’t want to pay $2 a 

square foot for sheet rock on the first floor coming out of the NFIP 

budget. They want to pay $1.46, for example. When the tree falls 

through the roof upstairs from the same storm, that is what they 

want to pay. Clearly, if one pays $2 on the flood, another pays $1.46, it is 

going to jump off the page. That is a big part of the problem. That 

is where it is coming from. 

Another place that it is coming from is Computer Sciences Corporation. I found the training problem disparity whereby FEMA 

trains its sales agents to tell customers that they will be restored 

to the pre-loss condition. I was there. An industry person was with 

me. He wanted to testify today. He is sitting right over there. He 

will tell you this is how they train us. This is what FEMA says. 

That is what Bill Griffin’s testimony says. We pay for the unbroken 

chain of events flowing from the loss; that is what they say. 

CSC then turns around and trains the claims adjusters very differently, narrowly defined coverage, in limited amounts. That is a 

problem. It is not a question of the agents don’t know what they 

are doing. It is a question of the same companies training the 

agents that you have coverage and turning around and training the 

adjusters that you don’t. I have got the adjustor training on video 

tape. We have got the witnesses in the room that can attest to the 

agent training. 

Regarding Mr. Maurstad’s surprise that the marketing materials 

say that it is restored to the pre-loss condition, it is not just that 

one piece that I sent to Congresswoman Davis. I have got numerous examples where the industry says they will restore people to 

their pre-loss condition. Again, I can’t go through that in a couple 

of minutes. 

36

Lastly, the publisher of the data cites WINK TV’s videos in Florida. You need to look at those. They are available on the web site. 

You need to look at those. 

What I would ask is, ask me the questions. Ask me about the 

training disparity, how I know. Ask me about the underlying reasons for low-balling. Ask me about what CSC’s private contractor 

knew and when they knew it. It is not just words. I have got the 

documents. We have got the witnesses, and they very much wanted 

to testify here today. 

I appreciate the opportunity to be here. I appreciate the opportunity to answer any questions. 

[The prepared statement of Steven J. Kanstoroom can be found 

on page 150 in the appendix.] 

Mr. FITZPATRICK. Thank you, Mr. Kanstoroom. 

Our final witness is Ms. Georgette Stelyn, who has been introduced by Congresswoman Davis previously. 

Georgette, you have 5 minutes. 

STATEMENT OF GEORGETTE J. STELYN, SEAFORD, VIRGINIA 

Ms. STELYN. First, I would like to thank you, the subcommittee 

and chairman, for my letting me testify today. 

I would like to start by telling you what I was doing actually on 

September 17th, the day before the storm. I had called my insurance agent to make sure that all of my insurance papers were in 

order. He reassured me that I was plenty insured. I had $225,000 

on my dwelling and $52,000 on my contents. He said you should 

be fine with what you own and where you are. 

So I started to prepare for the storm. I lifted everything in my 

house off the floor 2 to 3 feet in hopes not to lose as much, and 

then we had a mandatory evacuation. So I packed up my minivan 

with my four children and my dog, everything that I felt was important, which was my home videos and my photo albums, and said 

happy anniversary to my husband. 

Then I woke up on September 18th. There was a phone call from 

two friends of mine. They had just cut through the trees and gotten 

to my house. They told me everything I own is gone, two walls of 

my house are missing, and the roof collapsed. I dropped to my 

knees crying. I didn’t know what to say to my four kids. I didn’t 

know where to go or even what to do. 

So I packed my minivan back up from the hotel that we stayed 

in that night and headed back home to I don’t know what. On the 

way home, I called my insurance agent and told him my situation 

and to please immediately put my claim in, which he did so. Then 

it was September 22nd. I had an insurance adjustor come out to 

my house. He was at my house for about 30 minutes, took a few 

measurements and I would say approximately 12 photos. I never 

saw the man again. He never came out to my residence again, and 

he is going to tell me what my house is worth. 

So before he left, I had asked him what do I do; what do I need 

to do? He asked if I needed any money. He gave me a check for 

$5,000, and then he just told me to start itemizing everything that 

is damaged. I said I will do that, which I did. I itemized 2,603 

things that were damaged. There was a lot more, but that is as far 

37

as I itemized, which came to a total of $193,968, which he depreciated 71 percent of. 

After several weeks going by, I had numerous conversations with 

my insurance adjustor from Travellers asking when I can receive 

more money. He had said my claim is actually a very large claim; 

it is going to take some time to get to. I immediately started construction. I went through my savings, I cashed out stocks, and I 

had borrowed money. I was now 40,000 out of my pocket waiting 

for my settlement. 

Then my adjustor came to me with a copy of a settlement and 

the grand total of $49,200. I had asked him, no one can build a 

house on this price, not me or anyone else. So I am looking over 

the papers with him, and I started pointing out things that were 

missing in my settlement, doors, walls fixtures, numerous things, 

and then I questioned his prices, why am I paying this much for 

2 by 4s and sheet rock when my builder is charging me this much 

for 2 by 4s and sheet rock; why are your prices so much lower than 

what the store is charging me? 

So he had said this is a rough draft. What I will do is we will 

go over it, and if you can get me any receipts on any of your newly 

renovations I have done on the house, do so. So I started hunting 

down receipts, a receipt for my new carpet, a receipt that my refrigerator was 2 months old, all the receipts I can receive. He went 

over it and he gave me his new revised draft, which was $124,923, 

which the house was only going to cost me 210,000 to replace. So 

I am still being cheated by the adjustor and still short. 

Within this process, I had to stop my construction and wait 2 

months, stopped construction waiting for my settlement from the 

adjustor. 

Every year, I am forced by law to pay my insurance and I have 

to pay it on time. I am not allowed to be late, and when it came 

time for the NFIP and FEMA to help me, they instead cheated me. 

They stalled my claim, drug it out as long as they could; it was 

such a big claim. They used a software program which did not pay 

for the materials that I was paying for down at the store, and when 

it comes to taxes, I never saw any taxes. My 2 by 4s, I had to pay 

taxes on. My contents, I had to pay taxes on them. There was nothing in there with the taxes. 

So where am I today, you may ask. I am now a year and a half 

down the road. I have moved into my house. I don’t own a couch 

yet. Contents money went structure. ICC money, they were 4,000 

short. So I am now single, actually getting a divorce, with my four 

children. I have thousands of dollars in debt. My builders are putting a mechanical lien against my house for $38,000 because I don’t 

have the money to pay. 

The sad part is what has happened to me has happened to thousands and thousands of families. I have eight neighbors. Three of 

us are back. Five are not even there yet. This has happened to 

thousands, and all I can say is I plead, I beg, I ask for someone 

to please get the NFIP, FEMA; everyone needs to get everything 

straight and stop cheating us who are the people that are paying 

on their policies. 

And I thank you. 

38

[The prepared statement of Georgette J. Stelyn can be found on 

page 244 in the appendix.] 

Mr. FITZPATRICK. Thank you, Ms. Stelyn. 

The committee appreciates the personal testimony of everybody, 

especially those who have been victimized by flooding in your individual communities and those who stand in the position of administration of the flood insurance program. 

Mr. Jenkins, I was wondering if you could from the industry’s 

point of view address a couple of things. One is regular everyday 

citizens who purchase flood insurance and believe mistakenly or 

otherwise that—you have heard the testimony here that they have 

been told pretty clearly that the four corners of their structure, just 

talk about the structure itself, their home, is covered in the event 

of a flood, and then they find out while they are faithfully and dutifully paying those premiums each and every year that there is no 

coverage, or if there is coverage, there is inadequate coverage, or 

even if there is inadequate coverage, that you have got to fight 

with your own insurance company for months subsequent to a flood 

with no place to live unless you are fortunate enough to have family in the area. 

What is the industry doing to address that concern, first, and 

also 7 months since Ms. Beam has had her incident in Ellwood 

City, Pennsylvania, you know, while I am sure companies are 

watching and companies wanting to address that particular situation, what are the companies doing to rectify the situation, to 

change industry standards so that families like the Stelyns and the 

Beams who are here today are not going to have to endure the 

problems that they have endured in the past? 

Mr. JENKINS. I think that question might be better directed to 

Mr. Griffin who represents the insurance companies because we 

have not done any work looking specifically at that. 

Mr. GRIFFIN. I would be happy to try and address that issue. 

Certainly in any program with the thousands of claims that are 

going on, there are problems that arise. No system is perfect. We 

understand that there are people that have been and still are out 

of their homes and have problems. 

I will tell you that the industry works very hard to try and settle 

all the claims they can as fairly as possible. I will also say that you 

heard testimony from Director Maurstad. Of the 24,000 claims that 

were given the opportunity to be reviewed, in the end there were 

2,000, a little over 2,000 that requested a review and a little over 

a thousand of them that ended up with a different settlement. Certainly, that is not an entirely acceptable amount, but as far as percentage concern, that still means that roughly 96 percent of the 

people got the amount of insurance under the program that is paid 

for by the contract or called for by the contract. 

With regard to going forward, we are hoping that many of the 

provisions that were put in under Title II will help and do things 

that will make things better for people to better understand what 

they are actually purchasing, for us to be better able to help them 

with the claims process, and we are working very closely or more 

closely than we have with FEMA in the past to try and rectify 

some of these problems. 

39

I will say that prior administrations and prior directors at FEMA 

were not as supportive of the public-private partnership that needs 

to exist for this program to work, and we certainly are happy to 

see Director Maurstad in this position because he does seem to understand the importance, but it is a public-private partnership. It 

involves the government. It involves the policyholders. It involves 

the insurers. 

We certainly want to do anything we can to make it better. 

Again, I can’t say that—no system is perfect. We can’t always make 

everyone happy, but we are trying to do our best to improve it. 

Mr. FITZPATRICK. We have heard testimony here today that victims were forced to negotiate with, deal with, a whole line of adjusters. FEMA has an adjustor. The insurance company has an adjustor. I heard someone say the Small Business Administration, if 

you are going for a low-interest loan, they have an adjustor. The 

adjusters may or may not communicate with each other, probably 

don’t, may or may not agree with or be talking about the same programs. 

When you talk about a public-private partnership between the 

government and the industry, what steps are you taking to agree 

to a single point of contact, a single adjustor, they can deal with 

so they can get an answer? They can live with an answer. What 

they can’t live with is no answer or conflicting answers. 

Mr. GRIFFIN. Very much understood. Many of our larger companies and many of the write-your-own companies that are involved 

in this have gone to a single adjustor process. So that means they 

would have the same adjustor for both the wind storm or the flood 

or the regular home damage. Now, what we can’t do is change the 

way that FEMA works, and sometimes when you get involved with 

something that is to be done on an appeals process, there is a 

FEMA adjustor that needs to get involved secondarily. 

So that process has to be streamlined, and there is some way 

that we can work that better. I will say that based on what we saw 

in Isabel and what we are seeing coming out of Florida, there has 

been improvement in the program and how that works. It isn’t 

flawless, but there has been improvement. 

Mr. FITZPATRICK. I would like to recognize Mr. Scott of Georgia. 

Mr. SCOTT. Thank you very much, Mr. Chairman. 

I would just first to like to say to Mrs. Stelyn, is it? 

Ms. STELYN. Yes, sir. 

Mr. SCOTT. That I certainly was moved by your testimony and 

my heart certainly goes out for what you and others have gone 

through, and we hope that with this hearing today as a result of 

your testimony and others that we can make sure that this program runs much smoother. 

Can I ask you just for a moment if you could describe your interaction with FEMA’s review task force? I represent in my district 

FEMA relocated at Fort Gill for their operations in this whole 

southeastern United States. 

Ms. STELYN. You are talking about the form they sent and they 

had mailed it back with all the information that they wanted, and 

they called me and they asked me a few more questions, which I 

had spoke to them maybe a little later than that, and I don’t know 

who I spoke to, but I will never forget my response: I am sorry, I 

40

probably could get you a few thousand dollars more, but we will 

be leaving this office, wherever they were, in 2 weeks to go down 

to Florida for that hurricane that was just hit. 

Mr. SCOTT. Okay. 

Ms. STELYN. So, basically, he could not help me. They were going 

to Florida in 2 weeks. So that is how the review process worked 

for me. 

Mr. SCOTT. So you really don’t think you got the professional 

quality that you desired? 

Ms. STELYN. I was basically told, sorry, you know, we are leaving 

in 2 weeks; there is another hurricane. I am now on the back burner. 

Mr. SCOTT. Okay. 

Ms. STELYN. I mean, I remember Ms. Hart there saying she is 

hoping her review process goes quickly, and I was thinking to the 

back of myself, good luck. 

Mr. SCOTT. Okay. Thank you. 

Mr. Kanstoroom, you are a medical doctor; is that correct? 

Mr. KANSTOROOM. No. Pattern recognition and fraud detection 

expert. 

Mr. SCOTT. Okay. What do you recommend that FEMA do to better educate and monitor insurance agents? 

Mr. KANSTOROOM. Actually, what I saw in large part was not a 

problem with the education of the agents. It is the problem with 

the education of adjusters. If the claimants, the policyholders, had 

the same materials that the sales agents have and if the adjusters 

had the same materials that the sales agents have, then we 

wouldn’t be here today, I believe. It is just that simple. 

I mean, as far as the review process goes, it was a sham. What 

first got these folks calling me was it was people on the review 

team who called me. My phone rang at 10 o’clock one night. It was 

someone from inside of CSC. It was a victim just like Ms. Stelyn 

who had sent a letter, heart-felt letter—I know you are busy, a big 

hurricane; I am desperate; I have got a little granddaughter; I take 

care of my granddaughter—and signs it, please do what you can, 

including Sammy the kitten. Well, that turned into the office joke 

at the task force. That is what pushed the person over the edge at 

the task force to reach out and call me at 10 o’clock at night. 

The task force wasn’t independent as the Senate directed. One 

of the early documents they gave me was the roster. Darned if it 

wasn’t the same adjusters and adjusting firms in large part that 

low-balled the people in the first place in all of the management, 

identical management. So this review was a farce. There was no review. 

As far as the numbers that they cite, good grief. One of the 

things that they say is less than half the notices went. I have got 

victims telling me I never received a notice, and when they call, 

you know what they would say? Well, you know if we review it, you 

might end up with less; you are going to have to pay some money 

back. 

Now, in this woman’s case, there is no way she is going to ask 

for a review. More over, when the reviewer would come out, they 

would just misinterpret the policy once again. So it is really one 

of—I mean this works. It works for the industry for the reason I 

41

said before. It is an education issue for the adjusters, not the 

agents. Sure, some agents didn’t tell the victims that they have to 

elect contents coverage, but buy and large, that is not what we are 

here for, contents coverage. Sure, that is a problem, but they need 

to be speaking from the same book, not one training manual for adjusters, what it covers, and a different disparate manual for agents. 

Mr. SCOTT. So your response is it is not a matter of a number 

of adjusters; it is a matter of adequate training and education for 

the adjusters? You don’t sense any purposefulness here, do you? 

Mr. KANSTOROOM. Absolutely there is purposefulness. Yes, absolutely. Absolutely without a doubt. 

Let me give you an example. We have got—let me think. I think 

the man’s name is Jeff Akin. A letter went to the Senate, to the 

Senate Banking Committee. Two primary issues turned that hearing. Number one was this wrong set of prices; number two, this letter, and I remember it. It says—actually, I may have a copy. It 

says the man has, let us say, $107,000 loss. His adjustor comes out 

and says he covered. CSC’s Rodney Cross comes out and out, the 

letter says, and he told the man he is not covered, zero. FEMA 

made a mistake; you don’t really have coverage although you have 

been paying all these years. 

The man enlisted the help of Senator Dole. Anthony Lowee sends 

a letter, of course, you have coverage. The victim calls the adjustor 

back, gee, Mr. Valentine, I thought you would like to know I really 

do have coverage so the same thing doesn’t happen to my neighbor, 

to which the letter reads, well, I knew that, but CSC’s Rodney 

Cross told me not to tell you. 

Of course, it is purposeful. I could give you a thousand such examples. The problem is this purposefulness is destroying these people’s lives. It is not a matter of it hurts them. They can’t recover. 

It is no different than somebody getting evicted. They cannot recover from the situation. Look at her. They are separated. She says 

she is going to be divorced. This is a disaster and so easily fixed. 

I have got the recommendations. I have worked with the folks inside FEMA. I have worked with the people inside CSC. We have 

got the recommendations right now. We don’t need another audit, 

with all due respect. What we need is to look at what I have got. 

I have got 6,000 hours here. 

Mr. SCOTT. Let me just ask it generally. I am sure you have got 

them here, but could you share with us specifically what the priority of your recommendations would be to fix this problem? 

Mr. KANSTOROOM. I do. There are 20 areas of low-balling and 

they are in any written. I can flip to it. I can give you some right 

off the top of my head, actually all of them, most likely. 

The number one issue is somehow somebody put into the FEMA 

training manual that direct physical loss equates with direct physical contact. That is incorrect. I brought that to FEMA’s attention 

last year. They issued a claims guidance memo on May 7th, and 

the point was what the adjusters were saying was unless water 

touched it, there is no coverage. Well, it makes perfect sense to the 

layperson, but wait a minute. What if it wicks up your wall? What 

if your insulation gets wet and it goes up your wall and now you 

have mold on your ceiling? Of course, that is covered, but what 

42

these adjusters were saying is water didn’t touch the inside of your 

ceiling; there is no coverage. 

That one mistake that FEMA has since removed from their manual after I brought it to their attention, just like I brought to their 

attention about the press release on Monday, that one mistake easily accounts for a 50 percent difference in these claims payments, 

and there are 20 of them. That is one, and they are in my testimony. 

Mr. SCOTT. Okay. I don’t want to take up much more time on 

that. 

Mr. FITZPATRICK. The gentleman’s time has expired. 

Mr. SCOTT. Thank you. 

Mr. FITZPATRICK. Thank you, Mr. Scott. 

I recognize Chairman Ney. 

Chairman NEY. Thank you, Mr. Chairman. 

Ironically, two of our caseworkers from Ohio happen to be here, 

Joy Dillon and Jody Treadway. They are here for another reason. 

If we knew they would have gotten finished earlier, I would have 

probably put them up here on the witness table because they have 

dealt for a decade with issues. And I was saying earlier I am seeing 

more complaints in the last few years than I saw in previous years. 

So therefore, you know, I know something is amiss. 

There is not enough time, Mr. Chairman, today for all the questions I could ask, but I would actually like at some point in time 

to make some time, Mr. Kanstoroom, to take time to look over everything you have, you know, to take the hour or two or whatever 

to be able to do that. 

I did have a question I wanted to ask Ms. Stelyn. Do you have 

a copy of your original policy? Do you? 

Ms. STELYN. Not on me. 

Chairman NEY. But you do have a copy? 

Ms. STELYN. Yes. In my car. 

Chairman NEY. Okay. Because I would like to also look at that 

policy, and when you countered back, I assume to the agent, and 

you said, look, my policy says replacement—and I saw the pictures 

of, obviously, the damage that occurred, did it occur above the 

basement level? 

Ms. STELYN. This house is on a slab. 

Chairman NEY. Oh. 

Ms. STELYN. I am on the Chesapeake Bay. I had 5 feet of water. 

Chairman NEY. Okay. The way I looked at it, I am sorry. I guess 

I was looking at the picture wrong. 

So it was on a slab. So it came in through one floor and got everything? 

Ms. STELYN. I lost two walls and the roof collapsed. 

Chairman NEY. So, obviously, it was definite replacement value 

because the house is gone. 

Ms. STELYN. I don’t think I would say I got replacement value. 

Chairman NEY. No, no, no. I mean it was to be replacement 

value because it is gone. 

Ms. STELYN. Yes. It should have been, yes. 

Chairman NEY. Not 10 percent damage or 20 percent damage, it 

is gone. 

Ms. STELYN. Yes. 

43

Chairman NEY. Now, when you confronted them, what year was 

this? 

Ms. STELYN. When I confronted them what? 

Chairman NEY. What year? 

Ms. STELYN. This is Isabel’s storm, which was September 18, 

2003. 

Chairman NEY. And when you confronted them about why aren’t 

you getting the replacement value, what was then their answer to 

that? Because if it is in the policy, it is in that policy. 

Ms. STELYN. I was told by him this is the most I can get you; 

I am, in fact, giving you more than what I probably should be writing. I thought I was getting a gift, you know, and he kept pushing 

to me this computer program. He plugged in the number, whatever 

came out is what I got unless I could provide a receipt, and that 

is how the whole thing went down. I could not get a receipt. I got 

whatever that computer told him. 

Chairman NEY. Could someone, anybody, on the panel answer 

me one thing? I have heard this twice today. What is this issue 

where for sheet rock, it has got to be a certain price? I mean, if 

my house, you know—I am lucky. I have never had damage, but 

if something is damaged, let us say my kitchen, by a fire or something, I would assume I would be paid a certain price for the worth 

of the appliances, and then it would be up to me to go shopping 

if I want to by a used refrigerator or I want to buy a new refrigerator. I don’t understand how the policy is coming back and saying the bedrock has got to be ‘‘X’’ dollars and 46 cents. 

If they cut you a check to say, here, this is for your damage, you 

should be free, then, I assume, to just buy what you would want 

to buy whether it is cheaper or more expensive. Let us say they did 

the perfect thing and gave you replacement value and said here, 

$200,000, it is yours. Why do you have to start, from what I am 

hearing, messing around with here is how much sheet rock costs? 

Mr. KANSTOROOM. I can explain that. 

Chairman NEY. Okay. 

Mr. KANSTOROOM. They started with what they deemed a price 

guide, they FEMA, and as it was explained to me, Computer 

Sciences Corporation developed the price guide, and on the price 

guide, which I have copies of, it clearly states the source is the National Construction Estimator. The publisher of the data of the National Construction Estimator who wished to be here today, but 

due to the constraints the committee wouldn’t permit, he submitted 

written testimony. 

What he says is quote, leading the consumer to believe that new 

construction pricing represents a fair and complete valuation of 

their damages is, in my expert opinion, fraudulent. 

And so the problem was CSC had these price guides and clearly 

printed on the bottom on some States—I believe I have Maryland, 

North Carolina, and Virginia. Some States, it said only to be used 

as a guide or words to that effect. Others, it didn’t, and that led 

to these claims adjusters coming out and saying, believe it or not, 

Federal law requires that I do not exceed these guidelines. 

Now, I brought that to FEMA’s attention several days before the 

Senate hearing. It took them 2 months to issue a bulletin, and, 

again, that is a May 7th claims guidance memo, where they say 

44

that is not how it needs to run and they can use contractor bids 

and estimates, words to that effect; however, they never told anybody. When you talk to the people on the task force, they said I 

am not aware of such a memo. 

Chairman NEY. Now, let us assume——

Mr. REDMER. Mr. Chairman, if I could interrupt, the issue is not 

if the claim reimbursement should be a thousand dollars and they 

actually give you a thousand dollars, at that point, you can go out 

and take that thousand dollars and buy whatever you want, whether it is $800 or whether it is $1200. The issue is, based on the system, instead of the claim reimbursement being a thousand dollars, 

you are getting a check for $400, $500 or $600 at best, and that 

is where the friction is. 

The adjudication of the claim typically is for pennies on the dollar so that you don’t get the amount that you could get to go out 

and buy what you need to buy. 

Chairman NEY. As commissioner, do you get people that obviously are coming to the Department of Insurance and saying, wait 

a minute, this isn’t fair, and they file with you? 

Mr. REDMER. Yes. 

Chairman NEY. Do you have the ability under how we have 

things set up to intervene at all? 

Mr. REDMER. Before Hurricane Isabel, if you presented yourself 

to Maryland, you received a letter and the letter said we can’t help 

you; it is a Federal program; here is the 800 number. Under Joy 

Hatchette, we set up a program where they came to us and we facilitated communication and information and we got inspections 

and those kinds of things, but we do not have the ability as State 

regulators to regulate the claim adjudication process like we do 

with a homeowner’s claim. It is completely pre-empted by Federal 

law. 

And I need to stress that we have heard from victims this afternoon that are young, educated, and articulate consumers. Go to 

eastern Baltimore County in Congressman Ruppersberger’s district 

where you are dealing with folks that are in their seventies or their 

eighties and older, and the frustration and the bureaucracy is such 

that they don’t call because they can’t navigate that bureaucratic 

system. 

Chairman NEY. I am out of time. I apologize. I just think—I understand. I am trying to estimate if it is partial damage. You know, 

you can start to debate some of this, the prices. For example, the 

total damage, I know with the homeowner’s insurance it says the 

replacement value for my home is blank. It is already preset today. 

Now, if I upgrade my house, I tell my agent. So that, in my mind, 

is the replacement value if it burns down to the ground and there 

is no walls left or it is 95 percent gone. That is why in her case, 

if she has the policy, it is puzzling. 

Mr. KANSTOROOM. I don’t agree. What that is, that gives you a 

right to sue. 

Chairman NEY. What is that? 

Mr. KANSTOROOM. That policy. That is not a guarantee you are 

going to paid. 

Chairman NEY. It is in my mind. 

Mr. KANSTOROOM. No. 

45

Chairman NEY. Before we get into a debate here, hear me out. 

I think you will agree with me. In my mind, which as I am sure 

was in her mind or his, this gentleman’s mind, that is what you 

get if it was gone. That is what I would think. 

Mr. KANSTOROOM. That is what they sell you, but that is not 

what you get. What you get is a difficult negotiation with people 

that are told these are the prices I can’t deviate from, and the 

question is, well, why would that be, and my answer is, because 

it works for the property insurance side of their business. 

When Allstate sells you the flood policy, in most cases, Allstate 

is selling you the wind policy. Allstate does not want to pay, and 

this is from their adjusters and the documents. I am not saying 

anything that is not easily verifiable. They don’t want to pay at $2 

a foot for sheet rock upstairs. They want to pay $1.46 upstairs, and 

so when their flood adjustor comes out, he is going to tell you my 

book says it is $1.46. 

Chairman NEY. And I will conclude. I am just saying this needs 

cleared up because this goes beyond a misunderstanding. This is 

going into turning someone’s world upside down. 

Now, if it says to you or to me in my policy, you know, by the 

way, here is your replacement value, but we might have to talk 

about this, then I go into it knowing, okay, there might be a problem. But I, myself, when I read my policy, I assume replacement 

means replacement. So we have got to clarify that because it is a 

terrible problem for people. 

I am sorry for running over. 

Mr. KANSTOROOM. When you read it, it says replacement cost 

value. It is not a defined term in the policy. It is the industry 

standard, and that is the meaning people take out of it, and unfortunately that is not what they mean. 

Chairman NEY. We want to work with you. I appreciate it. 

Mr. Chairman, I appreciate it. I am sorry for running over. I 

don’t normally do that. I apologize to the other members. 

Mr. FITZPATRICK. Thank you, Mr. Chairman. 

The chair recognizes Mr. Ruppersberger. 

Mr. RUPPERSBERGER. Thank you. 

We only have a short period of time, and I am going to ask Mr. 

Redmer a question and Mr. Kanstoroom a question. What I am 

really interested in, we have been working on this issue for a long 

time with your office, Mr. Redmer, and, Mr. Kanstoroom, you have 

been working with us and have done a lot of research. What I am 

interested in and my questions are going to be to results and recommendations that you have for this committee on how we can try 

to fix the problem. 

We have identified some of the issues, the industry standards, 

and I think that is very relevant, because just because it is the insurance industry standard doesn’t mean that their clients who they 

are selling policies to are being served correctly. If we have another 

incident, we are going to have the same problem again. 

So, Mr. Redmer, we worked closely together when you were a 

member of the House of Delegates. You did a great job there. You 

know what constituent service is about. You also now as insurance 

commissioner know what these issues are. 

46

Based on what you have seen from the time we had Isabel until 

now, from those two perspectives, what do you think needs to be 

done as far as fixing the problem? I mean, a different type of standard in the industry? A law by Congress to force that we do something differently? FEMA being more responsive about changing 

laws so they have the authority to do what they need to do? 

Remember, we don’t have a lot of time. I have asked the chairman to give me some more time if we could. 

Mr. REDMER. And I appreciate that. In the spirit of time, we 

have two reports that literally have dozens of recommendations, 

and I could rattle on forever, but there needs to be a clear claim 

adjudication process. There needs to be an appeal process. 

Mr. RUPPERSBERGER. An appeal process where? 

Mr. REDMER. With the Federal program. There is not a clear——

Mr. RUPPERSBERGER. How would you recommend it work so we 

don’t get caught up in a bureaucracy? 

Mr. REDMER. Well, the easiest way to do it is to make it consistent with what happens with other forms of insurance. One of 

the problems that we have is that the Federal flood program is different than homeowners insurance. The expectations are that they 

are the same. Clearly, they are not. So the more that we can make 

them similar, the more that we reduce the gaps that are in the program. 

Mr. RUPPERSBERGER. How about a requirement or a system that 

will require the people selling the insurance that part of that requirement to sell is an education and then a verification so that the 

person who might not have the sophistication feels that they know 

what they are getting? That way, the expectations are there. 

Mr. REDMER. Certainly having enhanced education, training, and 

disclosure is good. 

Mr. RUPPERSBERGER. That is part of the sale of the policy? 

Mr. REDMER. Absolutely, but the problem is even with adequate 

disclosure, you have gaps in the program. So you are still only 

going to get 50 cents on the dollar. 

Mr. RUPPERSBERGER. So then what would you recommend to get 

to the next level to get what the appropriate compensation is? 

Money? 

Mr. REDMER. Well, certainly there needs to be money, but one of 

the things we have to do is make sure, number one, that we close 

the gaps where we don’t have coverage that we should have coverage. We need to do a better job of training and educating the adjusters so that they use the software correctly. 

There is an ability, and we have investigated the software packages. You can take the plywood and throw in a modifier because 

it is a renovation instead of new construction, but either the adjusters are not trained how to do it or there are financial incentives 

for them not to do it. 

But again, there are dozens of recommendations. 

Mr. RUPPERSBERGER. Well, that is something that really is important because we are talking about end gain, and I know this is 

not my committee, but I would like you to get that. 

Mr. Kanstoroom, you have done a lot of work. You have worked 

with our office. You have represented or you have advocated for a 

lot of people in my district as far as your research and expertise. 

47

We have had conversations. I am interested to know what you feel 

and if you have some specifics—again, we have time issues—about 

the problems that exist. Again, I am more interested in your recommendation on what we need to do with respect to either do we 

need Congress to pass a law. What do we need to do to deal with 

the issue of insurance standards? 

It shouldn’t be industry standards. It should be standards that 

we—because the Federal Government is involved and State and 

local issues, it should be a system that works, and give me your 

recommendations about problems that you see that are very blatant. And is it an issue of problems or symptoms? I mean where 

are we going here to solve it? I would really like to hear recommendations because, in the end, this committee is going to take 

what we do here today and attempt to resolve it either through a 

law or whatever. So this is your chance, if you can, to give me what 

you know. 

Mr. KANSTOROOM. Number one, these are symptoms that you are 

hearing about today. There are much greater problems here that 

have not even come out on the table. These are the symptoms. 

As far as what you do in the short term, in my testimony, written, there is a proposed bulletin to the industry that details the 20 

points of low-balling; here is the problem; here is solution. I will 

gladly sit with whoever you want me to sit with. After talking a 

couple of days, everyone is going to say, oh, wow. 

Mr. RUPPERSBERGER. Well, we will talk to the chairman who is 

very interested that we talk to the staff here and who will meet 

with you and do the research. 

Mr. KANSTOROOM. The point is these people need help today. So 

the short term is this bulletin goes today with instructions that 

these claims have to be looked at to be in compliance with what 

should have been done in the first place. That will get people like 

Georgette back on her feet quickly because she doesn’t have time. 

She doesn’t have time for hearings or investigations. She doesn’t 

have time. So if I could explain that and show people how that 

works, that is number one. 

As far as going forward in the medium term, there needs to be 

oversight. The States, as you heard, really have very, very little 

they can do other than bring this to people’s attention. In fact, in 

the Federal Government, there is no oversight either. 

The oversight comes from FEMA and that is really where the 

problem is at. If there was an independent body not affiliated with 

FEMA that had authority to approve these claims that come up for 

review, that would be a giant step. 

Mr. RUPPERSBERGER. You are talking about an appeal process. 

Mr. KANSTOROOM. An appeal process. That is right, but not affiliated with FEMA, not affiliated with these adjusting firms, and 

there are plenty of independent experts that have no affiliation, but 

that is a medium term solution that is easily managed if people 

want to get it done. Longer term, quite frankly, the regulations in 

large part are there. It is the business of the way FEMA is interpreting them, and someone has got to clunk them on the head to 

say here is really what is supposed to happen. 

Mr. RUPPERSBERGER. There is also a problem with the policies 

where people think they have flood insurance and they don’t. Is it 

48

the homeowners policy? How would you recommend that we make 

sure that everyone understands what they have? I mean what type 

of system would you put into effect? 

Mr. KANSTOROOM. It is quite simple. I actually drafted one for 

FEMA a year ago. It is not that complicated. They have to have 

the same play book. That is what it is. The victims have one. The 

adjusters have another one. The agents have another one. If they 

all have the same play book, they are all going to see what they 

get. It is not that complicated. 

Mr. RUPPERSBERGER. By the way, I mean, you do a lot of work. 

Why don’t you tell the staff and the committee some of your background, how you have had past experience in the area of insurance 

adjusting. 

Mr. KANSTOROOM. Twenty-two years experience of pattern recognition and fraud detection for some of the largest corporations in 

the world, and what my job was to do was to spot patterns of fraud, 

quite frankly. While it was on a much larger scale than this is, that 

is my background. 

Mr. RUPPERSBERGER. Are you alleging that there has been fraud 

here? 

Mr. KANSTOROOM. Absolutely. 

Mr. RUPPERSBERGER. Where? You don’t have to name names because we are a Congressional committee, not a grand jury, but 

where have you seen fraud that we can look at to see where there 

are problems? 

Mr. KANSTOROOM. I have seen fraud in the adjusting practice. I 

have seen fraud where——

Mr. RUPPERSBERGER. What kind of fraud? 

Mr. KANSTOROOM. Flat-out wrongful denial of a claim. 

Mr. RUPPERSBERGER. I am talking about actual fraud. 

Mr. KANSTOROOM. Fraud in using the wrong set of prices that 

the publisher said is fraudulent. 

Mr. RUPPERSBERGER. In order to help the company? 

Mr. KANSTOROOM. Absolutely. In order to lower their costs, in 

order to tell these people that these are the prices that you are entitled to. That is wrong. It is wrong. They are entitled to replacement cost value, not a synthetic new construction price. 

Mr. RUPPERSBERGER. Are you saying that maybe there is a policy 

within certain insurance companies to attempt to——

Mr. KANSTOROOM. The whistle-blowers that wanted to testify 

here today would tell you the way they keep their claims adjusting 

practice is to keep the payments low. That is what they would tell 

you. 

Mr. RUPPERSBERGER. You mean there is an incentive for adjusters to—I want to hear it from you—an incentive for adjusters to 

have a lower cost and that would be to their benefit? 

Mr. KANSTOROOM. Absolutely. They make it up in volume. In 

other words, when you look at a hundred adjusters—this is a risk 

management perspective—it is who has got the lowest payout and 

who has got the highest payout. You can have a hundred adjusters 

you can invite to the storm. All things being equal, one of them is 

going to have the lowest payout. 

Mr. RUPPERSBERGER. But isn’t a part of being an adjustor having 

certain independence to evaluate a claim and make adjustments? 

49

Mr. KANSTOROOM. Absolutely, but not to knowingly use a wrong 

set of numbers. 

Mr. RUPPERSBERGER. Well, that is what I want to get to, because 

fraud is a very strong allegation. If it is there, we want to deal with 

it, and I would really like to know more about allegations of specifics, but because this is a Congressional hearing, our rules don’t 

allow us to do it publicly, but we can talk to you about it. 

Mr. KANSTOROOM. Maybe if I could hit a high note here, I 

worked with WINK TV in Fort Myers on putting a story together. 

I had a phone call from Homeland Security, the Inspector General’s 

Office, counsel, and the bottom line was the documents that I had 

uncovered, they told me, that incriminated both FEMA and Homeland Security, the Inspector General’s Office, they told me and CBS 

recorded it—they actually aired part of the story—it is unlawful for 

me to have anything that incriminates FEMA or DHS, give them 

what I have got, destroy my copies. And notwithstanding Senator 

Mikulski’s request for an IG investigation, they have no interest in 

investigating. They said they have a small staff. They only have 

450 people. 

So there is a lot here. It is not going to go away. It is going to 

get bigger. 

Mr. RUPPERSBERGER. Well, the reason we are having the hearing 

is to try to look at a new system and we are trying to get information to make sure that we take these victims here today and to 

make sure that we understand what their problems were so we can 

set up a new system. If there are issues of fraud, we need to deal 

with it. I mean right away. Remember, you have to prove it. So let 

us just not use the word loosely. 

Mr. KANSTOROOM. Of course not. The best way to prove it I know 

is have the people that allege it sit here. Bob Hunter, what he says 

is if the training disparity exists, as Mr. Griffin will testify to and 

I will testify to it right now, fraud has likely occurred on a massive 

scale, I think is the quote. It is in my testimony, written. 

You have got the former Presidential appointee Joanne Howard. 

Her document is in my testimony. She says it is not the way the 

program worked under her administration, or her tenure, or was 

intended to. What she says is of course you restore the people to 

the pre-loss condition. Again, it is in the written. You can go with 

what it says. 

As far as the publisher of the data, he wanted to be here today. 

He had reservations to be here today. He will sit here and tell you 

just as it is written this is a fraudulent use of his data to tell this 

woman that this is a fair valuation based on a number that they 

know is not right. 

Mr. RUPPERSBERGER. Well, let us get to this. The time is almost 

up. Give me some basic recommendations on the system itself, the 

industry standard, how you would from a legislative point of view, 

how we would change this system that does not seem to work, very 

quickly because we are way over my time. We are supposed to only 

have 5 minutes. I don’t know how we do this, but that is our rules. 

Mr. KANSTOROOM. God is working. Number one, there is no oversight. 

Mr. RUPPERSBERGER. Thank you, Mr. Chairman, for allowing 

him to go over. 

50

Mr. KANSTOROOM. Thank you very much. 

I don’t contend that the system is that broken as much as there 

is no management of it. 

Mr. RUPPERSBERGER. Accountability at the top. 

Mr. KANSTOROOM. That is right. And so there is an incentive for 

the carriers to not overpay a claim. There is a penalty that the carrier will pay if they overpay a claim. There is not a penalty if they 

underpay. They could care less. 

Mr. RUPPERSBERGER. Mr. Redmer, do you basically agree with 

some of the statements being made by Mr. Kanstoroom? 

Mr. REDMER. As I mentioned, we have got two reports of observations and recommendations and certainly accountability, consistency of information, communication. I mean, we can go down the 

list. As I mentioned earlier, there is no formal claim process, no 

formal appeal process. 

Mr. RUPPERSBERGER. Okay. I would like to work on that, and 

would I suggest that maybe you two get together. If there are some 

allegations of fraud in our State, I would hope that you can at least 

look at that and get the facts and data. 

Mr. REDMER. We have been. Thank you. 

Mr. RUPPERSBERGER. Thank you. 

Mr. FITZPATRICK. Thank you. The chair recognizes the ranking 

member, Ms. Waters from California. 

Ms. WATERS. Thank you very much, Mr. Chairman and members. I am sorry that I could not be here earlier for this most important hearing. Our committees are overlapping and we have a 

big important bankruptcy bill that is on the House floor today. 

Again, we have very important legislation that is winding its way 

through Congress this session, and we want to make sure that we 

pay attention to all of it, but I have been briefed about the hearing 

that has taken place today, and I am more than concerned about 

policyholders who have been misled, who have been cheated, who 

have been disrespected, who have not been paid attention to, who 

have been left holding the bag, and I tell you I am sick and tired 

of consumers who are being exploited in America by too many entities. 

Even as we work on the bankruptcy bill, there are problems 

where the average American working family is just being done in, 

and I want to tell you I am always having problems with insurance, because we get too many complaints in our office about folks 

who have been paying policies for years, and at the point that they 

have a claim, then all of a sudden they are told what was not covered and how they cannot be made whole, and I think that if the 

Congress of the United States does not act very aggressively to protect the consumers, then none of us should be re-elected and sent 

back to office. This is outrageous. 

I take seriously that you have indicated, some of you, that there 

are some recommendations that can easily be adopted by the Congress of the United States. I am going to work with my colleagues 

to see what those recommendations are, but I want to ask one 

question that my staff as has directed me to, and it has been identified that Mr. Kanstoroom may be able to explain to us that very 

task force that was formed to re-examine the Hurricane Isabel 

51

claims consisted of the very same adjusters who denied the claims 

of policyholders in the first place. Is that true? 

Mr. KANSTOROOM. Yes, it is true. Yes, it is true in that the identical management was in charge of that task force, not some of it, 

not most of it. All of it was identical. As far as the adjusters, if you 

have a third-party adjusting firm that worked the storm, while 

maybe Fred and Mary worked the storm, that same firm had different people sitting on that task force, and as it was explained to 

me, they literally turned around in their chair and said, wait a 

minute; I have got Georgette’s claim here; you worked on this one, 

didn’t you; oh, yeah, she is, isn’t due any more money. Okay. Boom, 

case closed. That was the task force. 

As far as this review business, the insider’s report was stacks of 

returned mail. Realize, her mailbox was gone. Where is the mail 

going to go? So many of these people didn’t get a notice. 

As far as the numbers that they are citing, when FEMA first 

published the numbers of claims, and I want to say it was a couple 

million dollars, the point was North Carolina Advocate Beth Midget and myself, between the two of us, had claims that we had 

worked that totaled the numbers of dollars that FEMA was saying 

they had already approved on the task force. In other words, just 

two people working had their numbers. The numbers are garbage. 

Ms. WATERS. Well, again, my attention is being drawn to the fact 

that Federal preemption may be causing some of the problems that 

we are experiencing here, that one of the byproducts of this Federal 

preemption is that if you have a disinterested or hostile Federal 

regulator, the States are powerless to act, that the insurance Commissioner Redmer should be revisiting the issue of preemption and 

giving States a role if they want to protect consumers. 

Is that kind of the consensus here? 

Mr. KANSTOROOM. Yes. 

Ms. WATERS. Yes. All right. I will just promise you I will do everything that I possibly can to correct what is wrong. Again, what 

has been described here today causes me to feel even stronger in 

my views about the problems of the insurance. 

So thank you very much for coming. I do appreciate it. 

Mr. FITZPATRICK. Thank you, Ms. Waters. 

I just have one final question before we adjourn this hearing for 

Commissioner Redmer and/or Mr. Griffin for the industry. I think 

it was testified that the Beam family of Pennsylvania purchased a 

home; I think it was about 8 years ago. Like most young families, 

they had to get a mortgage. The mortgage company required a 

flood insurance policy. The flood insurance policy is probably paid 

for at settlement. The policy itself is put in the settlement package 

in a lock box somewhere, and for 8 years, this policy was paid on. 

And then the first nightmare for the Beam family was they were 

flooded twice in a week, and the second nightmare came in the 

phone call that the flood coverage that the family thought they had 

had been reduced from a number down to about 10 percent of what 

was originally sold, and I think that the testimony was that the 

Federal Emergency Management Agency had reworked, perhaps, 

the flood plain. Nobody told the Beam family. Nobody told the 

mortgage company. As a result of that reworking of the flood plain, 

the insurance company reduced the amount of flood insurance covVerDate 0ct 09 2002 13:33 Feb 02, 2006 Jkt 000000 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 G:\DOCS\109.17 RODNEY
52

erage that that family would have and would need not too distant 

in the future. Nobody notified the Beam family and nobody notified 

the mortgage company. 

Then after two floods in a week, somebody finds an unsigned 

computer-generated letter in a file saying your coverage was reduced from, I think it was 80-some thousand to about $8,000. 

I am wondering what the industry standard is before you change, 

a company changes, an industry changes, the insurance that a family needs and relies on. What kind of notification is required of this 

family before that happens so that what happened to the Beam 

family of Pennsylvania does not happen to another family? 

Mr. REDMER. I can tell you the standard in Maryland as it relates to insurance other than the flood insurance program because, 

again, we don’t regulate that, but in the instance of an individual 

in Maryland filing a complaint, as a routine, we go back to the carrier and we make them document to us that their action complied 

with Maryland law, and we make them prove to us that they 

mailed certain things and what have you. Failing their ability to 

prove that their actions were justified, we have the ability to make 

them pay the claim. We don’t have that ability with respect to the 

flood insurance program. 

Mr. GRIFFIN. Let me, if I could, make a couple of responses. First 

of all, I would not agree, with all due respect, Ms. Waters, that we 

want this regulated at the State level. This should stay a Federal 

program that is more commonly administered that way. Just to go back, I think, as I recall, it was $93,000 was the 

amount that she originally had, and it was reduced to somewhere 

around $7,800. 

Ms. BEAM. $5,800. 

Mr. GRIFFIN. Thank you. Typically, hopefully, the policy that you 

get doesn’t go in a lock box somewhere. Hopefully, a copy of it may 

go in a lock box, but, hopefully, a policy you get for a flood insurance policy, just like a homeowners policy, just like an automobile 

policy, finds its way into a file somewhere in your home so you can 

reference it when you need it. 

Every year, a policy, probably on flood insurance as well as many 

other policies, probably 60 days ahead of when that policy renews, 

a new declarations page is mailed out, and it says on it how much 

coverage is provided and how much the premium is. Now, that 

doesn’t mean in this particular case that there weren’t problems 

with the system, but what it does tell me is that there was a notice 

sent, not a notice that there was a change, which maybe should 

have occurred. It probably should have occurred based on what we 

saw and what has been reported, but there was a declarations page 

sent out that showed the difference and a lower number prior to 

the policy being renewed. 

Mr. REDMER. Mr. Chairman, I can tell you that there were also 

too many instances in Maryland where somebody was living in 

their home. They had their mortgage. They bought their flood insurance. The flood insurance was paid through the escrow account. 

And as the mortgage got sold from lender to lender to lender, at 

some point in the process, it fell through the cracks. The lender did 

not pay the premium. The policy terminated because of a lapse of 

premium. The individual, for whatever reason, didn’t get notified, 

53

and there was no coverage in force because of it falling through the 

cracks. 

Ms. WATERS. Mr. Chairman. 

Mr. FITZPATRICK. Ms. Waters. 

Ms. WATERS. To the gentleman whose name I can’t see on his 

card because you are too far away, I understand that you are the 

casualty insurance trade rep? 

Mr. GRIFFIN. Yes, ma’am. 

Ms. WATERS. And I respect that you disagree with me on Federal 

preemption; however, let me take issue with you in your explanation which basically says if people get their notices, they ought 

to read them and it is not our fault that they don’t. Let me submit 

to you that when you purchase flood insurance and you agree to 

pay a certain premium, the average person believes that that is 

how much the premium is, and they don’t know about changes in 

the flood plain and other kinds of things, and if the notice comes 

even a year or two later, they trust the person who came out and 

sold them that this was the best thing since popcorn, that it is 

going to be all right. 

And no, we don’t always read the notices because we think we 

have been paying our premiums. We paid them on time, and we 

expect that we have a relationship with the insurance company 

that continues unless somehow somebody is going to make it 

known in a very, very understandable way that we either cancelled 

or there is going to be a big increase or premium or something, and 

God knows even a reduction, which we never get. 

So let me just say this, that no average working Americans who 

are dealing with a lot of issues, don’t always read the fine print, 

but that is unacceptable when you have your biggest life investment at stake. It just seems to me that there would be a little bit 

more respect for the American homeowner and taxpayer from our 

insurance companies that would engage us in ways that we understand what it is they are doing to us, and I don’t think that is too 

much to ask. 

Mr. GRIFFIN. I don’t think it is too much to ask that you read 

the dec page when the bill comes. You read your bill when your 

MasterCard bill comes. You look it over. You look at the charges. 

You want to make sure that nothing in there that you are charged 

is erroneous. It is not too much, to use your words, to protect the 

largest investment you have to ask you to look at the amount on 

there and make sure that it is the same as it was previously or 

more or at least when you check the premium to see if it has gone 

up or done down, and then that will give you some indication of 

whether there has been a change in the amount insurance. 

Ms. WATERS. Well, if I may, Mr. Chairman, yeah, we do usually 

notice the numbers. What we don’t always notice is the fine print. 

We don’t know when you sell us that policy that should there be 

some change in government policy or work that is going on to deal 

with the flood plain, that somehow the policy that we agreed to is 

no longer in effect. We don’t know that, and we don’t always read 

that fine print, and sometimes we don’t really know what people 

are saying to us, and the agents never explain that. 

I want to tell you I will just stand up for the average person in 

that because I know it happens in too many families over and over 

54

again, and I defend American families who don’t always read the 

fine print because I find that most of it is constructed in ways that 

you don’t want us to read it. The print is fine. It is worded in ways 

that the average American person reading it doesn’t always understand. 

So there are a lot of tricks to the trade, and if I can close by telling you it is kind of like the ads that we see on television that are 

selling you prescription drugs. They tell you how wonderful the 

drug is and then they bring on flowers and somebody running 

through the meadows looking very beautiful when they tell you all 

of the side effects so that you are distracted, looking at this beautiful person running through the meadows, and you forget to concentrate on the side effects because that is the tricks of the trade. 

Insurance companies have a lot of them. 

Thank you, sir. 

Mr. FITZPATRICK. Thank you, Ms. Waters. 

The chair notes that some members may have additional questions for this panel which they may wish to submit in writing. 

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

for members to submit written questions to these witnesses and to 

place their responses in the record. 

We appreciate the attendance of all those who gave testimony 

today. 

This hearing is adjourned. Thank you. 

[Whereupon, at 3:04 p.m., the subcommittee was adjourned.] 

(55)

A P P E N D I X

April 14, 2005

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