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THE HOMEOWNERS’ INSURANCE CRISIS

AND ITS IMPACT ON COMMUNITIES,

HOMEOWNERS, AND THE ECONOMY

FIELD HEARING

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

FEBRUARY 11, 2008

Printed for the use of the Committee on Financial Services

Serial No. 110–88

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman

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 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

SPENCER BACHUS, Alabama 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

DEAN HELLER, Nevada

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

MELVIN L. WATT, North Carolina, Chairman

LUIS V. GUTIERREZ, Illinois 

MAXINE WATERS, California 

STEPHEN F. LYNCH, Massachusetts 

NYDIA M. VELA ́ ZQUEZ, New York 

MICHAEL E. CAPUANO, Massachusetts 

CAROLYN MCCARTHY, New York 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

ROBERT WEXLER, Florida 

GARY G. MILLER, California 

PATRICK T. MCHENRY, North Carolina 

EDWARD R. ROYCE, California 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

J. GRESHAM BARRETT, South Carolina 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KEVIN McCARTHY, California 

(V)

C O N T E N T S 

Page 

Hearing held on: 

February 11, 2008 ............................................................................................ 1

Appendix: 

February 11, 2008 ............................................................................................ 49

WITNESSES 

MONDAY, FEBRUARY 11, 2008

Bonfiglio, Charles, President, Florida Association of Realtors ............................ 32

Jesse, Roger, Resident, Hobe Sound, Florida ........................................................ 37

McCarty, Hon. Kevin, Insurance Commissioner, State of Florida ...................... 13

Soto, Alex, Past President, Independent Insurance Agents and Brokers of 

America ................................................................................................................. 35

Wenham, Hon. Thomas, Mayor, Wellington, Florida ........................................... 10

APPENDIX 

Prepared statements: 

Watt, Hon. Melvin L. ....................................................................................... 50

Brown-Waite, Hon. Ginny ................................................................................ 53

Bonfiglio, Charles ............................................................................................. 54

Jesse, Roger ...................................................................................................... 64

McCarty, Hon. Kevin ........................................................................................ 65

Soto, Alex .......................................................................................................... 79

Wenham, Hon. Thomas .................................................................................... 86

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Watt, Hon. Melvin L.: 

Written responses to questions submitted to Hon. Kevin McCarty ............. 91

Written responses to questions submitted to Alex Soto ................................ 92

(1)

THE HOMEOWNERS’ INSURANCE CRISIS 

AND ITS IMPACT ON COMMUNITIES, 

HOMEOWNERS, AND THE ECONOMY 

Monday, February 11, 2008

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 1 p.m., in the Palm 

Beach County Commission Chambers, North Olive Avenue, West 

Palm Beach, Florida, Hon. Melvin L. Watt [chairman of the subcommittee] presiding. 

Present: Representatives Watt, Klein, Mahoney, and Wexler. 

Mr. KLEIN. [presiding] The Oversight and Investigations Subcommittee of the Financial Services Committee of the United 

States House of Representatives will come to order. 

The purpose of the hearing today is to discuss the homeowners’ 

insurance crisis and its impact on communities, homeowners, and 

the economy, and we thank all of you for joining us today. We are 

going to be welcoming some members from the committee. Our 

chairman is going to be here in a few minutes; his flight was slightly delayed. 

Before we get to anything else, the Congress would like to extend 

its appreciation to the Palm Beach County Commission for making 

your facilities available to us and for all the wonderful work you 

do on behalf of our community, and I would like to turn the meeting over to the board chair of the county commissioners, Commissioner Addie Green. 

Ms. GREEN. Thank you very much. It gives me an honor and on 

behalf of Palm Beach County Board of County Commissioners, I 

would like to extend our welcome to Chairman Watt and the members of the Financial Services Committee, Oversight and Investigations Subcommittee. 

I would also like to thank our local congressional delegation 

members for their support over the past year, not only in working 

on important insurance legislation, but also in securing resources 

for many of our local appropriations and legislative priorities. 

Congressman Wexler, you have for many years been the champion of securing the dollars necessary for Palm Beach International 

Airport’s new air traffic control tower. We thank you and our staff 

for securing $7.4 million this year towards the cost of that construction. 

2

Congressman Mahoney, many thanks to you for $735,000 for our 

Palm Tran buses and for your leadership on Everglades funding 

and last year’s Water Resource Development Act. 

Congressman Klein, thank you for your assistance in authorizing $4.5 million in funds for the restoration of Peanut Island and your 

efforts in securing almost $2 million for the County Sands Transfer 

Plant at the Lake Worth Inlet. We look forward to working with 

you again this year on our local priorities. 

We appreciate the subcommittee’s selection of Palm Beach County for your meeting today. As you all know, Florida, and particularly Palm Beach County, has been no stranger to rising homeowners’ insurance costs associated with recent hurricane events 

over the past several years. 

While our State leaders have tried to control the rising cost of 

homeowners’ insurance, we have still seen rising premiums. In 

many cases in our community, there has been the complete cancellation of property insurance policies. These actions should not be 

considered acceptable and the Federal Government should continue 

to work with the State and with insurance providers to reverse this 

trend. 

We thank Congressmen Klein and Mahoney for their leadership 

in passing the Homeowners’ Defense Act, which will help create a 

national solution for providing affordable homeowners’ insurance to 

residents in Florida, Louisiana, California, North Carolina, and 

every other State in the country that is susceptible to natural disasters. 

We appreciate Senator Nelson sponsoring the Companion Bill 

and hope it will pass this year in the Senate. Your deliberation and 

testimony here today are important. Please take our words with 

you to Washington and share them with your colleagues. 

You are lucky because today is a beautiful day in Palm Beach 

County, however, sometimes the seas swell up to 20 feet, the wind 

gusts over 100 miles per hour, and the rainfall measurements are 

in feet and not inches. 

These kinds of conditions, and we have seen more than our fair 

share of them over the last 5 years, require assistance to our government that the private sector must help provide. 

Please help us to assist and protect the many full-time and parttime residents of our State who call this area home and who need 

and demand affordable property insurance. 

Again, thank you. 

Mr. KLEIN. Thank you very much, Commissioner, and thank you 

again to the whole County Commission and your staff for making 

this facility available to us, and of course for welcoming our colleagues in from around the country for this event. 

Before we go any further, we actually have some very sad news 

today. A colleague of ours, a longstanding Member of the Congress, 

one of the great champions of human rights, a Holocaust survivor, 

chairman of the Foreign Affairs Committee—of which Congressman 

Wexler is a member—and I know Congressman Wexler is particularly close with him, because he is a subcommittee chairman, Tom 

Lantos, passed away this morning, and it is a great loss to our 

whole country, and if I could just ask for a moment of silence. 

Thank you. 

3

We would first like to acknowledge a number of folks who are 

here today in addition to our local residents and business leaders 

who have come to talk to us, as some of our elected officials. 

I see Representative Booker, State Representative Booker, and 

Commissioner Gottlieb. Let’s see, I know there are a couple of 

other county commissioners who are going to stop by. I know there 

are some staff from various offices who are here, so we thank all 

of you for participating with us and representing your offices. 

The job of Member of Congress is only one that works very well 

with all of our State and municipal and county officials, so we 

thank all of them for their service. 

I would also, of course, like to acknowledge my colleagues sitting 

here. Congressman Mahoney has been, as a new member, he and 

I came together, and this has just been an incredible privilege and 

honor to serve in Washington, but it has really been a wonderful 

opportunity to serve with Congressman Mahoney. With his background and my background we have just been blessed with a lot 

of great people in Washington who helped us work on the insurance issue. And this man sitting next to me has been an absolute 

stalwart, has used his business skills and capacity to help guide 

the legislation through to make sure it makes sense, and I want 

to acknowledge that. 

And Congressman Wexler has not only been doing that this year, 

but has been doing this in previous years as a Member of Congress 

and has been a long standing member working actively on this 

issue, and also Congresswoman Wasserman Schultz, who is not 

here today, has been very active as well. 

I also would like to acknowledge Congresswoman Brown-Waite; 

Ginny Brown-Waite is a Member of Congress from the west coast 

of Florida. She submitted a written statement which we will make 

a part of the record, without objection, and she has been a very active person, coming up with some solutions and working with all 

of us in a bipartisan way to get this bill passed out of the House 

this year. 

So I think we are very blessed to have a group of Florida Members on both sides of the aisle who have worked very actively in 

leading other parts of the country on this issue. 

And with that, I think what we are going to do now is just get 

to some opening remarks, and as I said, the chairman will be here 

in a matter of a few minutes and then he will take over the meeting, but as part of the opening of the meeting, we would like to get 

some local remarks from our Members of Congress. 

So I am going to start with Congressman Tim Mahoney. 

Mr. MAHONEY. Thank you, Congressman Klein. And I would like 

to say thank you to the County Commission and Commissioner 

Green for being here today, and you are right, it is a beautiful day, 

and I am thrilled to death that it is a Monday, a work day, and 

I am here in South Florida so that is a good thing. 

I would also like to thank Congressman Klein, and we do make 

a good team. Congressman Klein’s many years of service to the 

State, his knowledge of the issues, and his ability to keep telling 

me to calm down, it is going to be okay, we are going to get there, 

has been a real inspiration. I have been very blessed. 

4

As well as having the gentleman on my left, Congressman 

Wexler; Congressman Wexler is a great leader in the House of Representatives and he has certainly been a great leader for the Florida Delegation. And on this legislation and all issues, he is somebody that we go to for help and advice and he has never let us 

want for good actions to take, so I want to thank Congressman 

Wexler. 

I would like to begin by thanking you, and the people on the subcommittee, and Chairman Watt for taking leadership on this issue. 

And I just want everybody to know that this is not the first hearing 

of the committee; it has been one of several that we have had in 

the 110th Congress. 

The commitment of Congress to investigating this issue so that 

the Members of Congress and the American public can better understand this crisis gripping Florida and the rest of the Nation is 

noteworthy and was very, very key this past November in the successful passage of H.R. 3355, the Homeowners’ Defense Act. 

In addition, again, I would like to thank Congressmen Klein and 

Wexler. I would also like to recognize Commissioner McCarty and 

thank him for coming in, I believe, from California where he was 

attending an insurance commissioners conference today, and he 

has worked tirelessly on behalf of the people of the State of Florida 

to break this spiral of rising homeowners’ insurance rates. 

I would also like to recognize a special witness joining us today, 

Mr. Roger Jesse. Mr. Jesse is a retired homeowner from Hobe 

Sound, Florida, and he, like many other seniors and families in the 

State of Florida, was notified last year that his homeowners’ insurance was not going to be renewed. Fortunately for Mr. Jesse, he 

was able to find another insurance company. Unfortunately, his 

premiums doubled. 

Finally I would like to thank Mayor Tom Wenham, from the Village of Wellington, for participating in today’s hearing. And it is a 

real honor, Mr. Mayor, to have you, and I think that Wellington 

is very typical of the types of communities across the country that 

are seeing the negative impact that this homeowners’ insurance 

crisis is having on our communities. 

Before I begin summarizing the national catastrophe insurance 

crisis affecting my district, the 16th Congressional District of Florida, I want to reiterate that it is a national problem. 

In 2004 and 2005, natural disasters resulted in approximately 

$89 billion in privately insured catastrophic losses. It is estimated 

that over 60 percent of homeowners in America have seen sharp increases in their premiums. The incidence of natural disasters is increasing, as well as their severity. Just this past week, we witnessed a brutal chain of devastating tornadoes that hit half-a-dozen 

States and killed 58 citizens in Arkansas, Tennessee, Alabama, and 

Kentucky. 

This rare midwinter storm was the worst tornadic activity to hit 

America in over 20 years. When one factors in the increase and the 

severity of the storms with an increase in population growth and 

the higher cost of construction and labor materials, the homeowners’ insurance industry, which has the responsibility to their 

employees and shareholders, has been left no other option but to 

5

adjust their models, increase their premiums, and reduce their liability by canceling policies. 

Ladies and gentlemen, the private homeowners’ market has 

failed, and certainly it has failed in States like Florida and Louisiana. 

The problem is clear—private insurers do not have enough capital to cover potential losses a mega disaster would incur. As a result, their only option is to reduce exposure by increasing premiums and looking at exiting markets. 

As a member of the Blue Dogs, a conservative group of Democrats in Congress, there is nobody who believes more in the free enterprise system than I do. However, I believe that there is a proper 

role for government when markets fail and both citizens and industry need help. And that is why we pass legislation and it is precisely why we are here having this hearing today. 

Here in Florida, the State has acted responsibly. And even with 

the $28 billion catastrophe fund, insurers still continue to increase 

premiums and cancellations because they cannot cover exposure. 

To the homeowner with a mortgage, homeowners’ insurance is 

not an option; the lender requires it. When rates go up, the homeowner has no choice but to pay. The toxic cocktail of rising gas 

prices, housing, healthcare costs, property taxes, and homeowners’ 

insurance has created a vicious cycle of terror for our seniors living 

on fixed incomes while robbing families of their dreams of homeownership. In Florida, the market has deteriorated so dramatically 

that homeowners can’t even get insurance regardless of price. And 

in an effort to address this growing problem, Florida had to step 

in to avert an economic disaster by creating Citizens Property Insurance. 

I am sorry to report that Citizens of Florida, the owners of the 

biggest homeowners’ insurance company that covers over 30 percent of the market—I have received hundreds of letters from my 

constituents detailing the difficult choices they have had to make 

in order to pay their homeowners insurance bills. 

For example, I got a letter from a single mother of two who was 

dropped by her insurance in 2006. She eventually found another 

company, which charged her more than 3 times what she had been 

paying for similar coverage. As a result, she has been forced to 

work overtime on Saturdays, give away one of the family pets, and 

reduce her weekly grocery budget. And sadly, her story is not 

unique. Thousands of families across Florida have been forced to 

make these similar difficult decisions. 

I want to point out though, that the efforts of Commissioner 

McCarty and Governor Crist have resulted in improvement this 

year. But let’s be clear, battling for rate reductions from premiums 

that are already too high and getting premiums from companies or 

subsidiaries of firms with questionable financial reserves, does not 

constitute a solution. 

In response to this crisis, I joined with Congressman Klein in introducing H.R. 3355, the Homeowners’ Defense Act of 2007. I am 

proud to say that our bill passed with bipartisan support in the 

House this past November. This legislation creates a national catastrophic program designed to stabilize the homeowners insurance 

6

market by expanding private industry’s capacity to cover natural 

disasters while helping States better manage risk. 

Our bill recognizes that in the days following a disaster, it is imperative to get people back in their homes. As we saw on the Gulf 

Coast, a failure to do so ends up killing local businesses and communities. 

H.R. 3355 recognizes that nobody got into the business to insure 

an act of God, and today the insurance companies have to plan and 

pay for the cost of a 1-in-200-year event each and every year. 

Finally, H.R. 3355 will lower rates by capping the homeowners’ 

insurance companies’ liabilities, ensures that each State that voluntarily—let me repeat that—voluntarily participates, have a catastrophe program that is actuarially sound and in the final analysis when that 1-in-200-year event happens, money is there to 

quickly get people back in their homes, and save businesses and 

communities. 

What makes this legislation historic is that never again will the 

farmer in Nebraska or the accountant in Arizona have to write a 

check in the form of a government disaster bail-out and not get 

paid back. 

Our bill loans the States the money at low interest rates and 

gets paid back over 30 years, ensuring that rates stay stable and 

the American taxpayer does not get left holding the bill. 

We appreciate Senators Clinton and Nelson for taking leadership 

on this issue in the Senate. As a former insurance commissioner, 

Senator Nelson was one of the first to recognize that our Nation 

was facing a crisis and called for Federal action. Congressman 

Klein and I, along with Congressman Wexler, are working with the 

Senate to make sure that this legislation becomes law. 

Again, I want to thank the County Commission for allowing us 

to be here. I thank my colleagues for holding these hearings today. 

And I look forward to hearing the testimony from our distinguished 

guests. I yield back the balance of my time. 

Mr. KLEIN. Thank you very much, Congressman Mahoney. 

Congressman Wexler. 

Mr. WEXLER. Thank you very much. I, too, want to thank Commissioner Green and the entire County Commission for availing us 

the opportunity to meet here today and meet and hear and learn 

from constituents. 

Commissioner Green has been serving the people of Palm Beach 

County for the better part of 2 decades. She and I had the privilege 

of being plaintiffs together in, I think, a historic lawsuit to protect 

the rights of our citizens to vote and have their votes counted. We 

still have work to do. 

I would be remiss if I didn’t maybe just add, and we very much 

appreciate your comments at the beginning, but Congressman 

Alcee Hastings has been an enormous asset to this community and 

has played an instrumental role in obtaining resources for both 

Palm Beach and Broward Counties at the Federal level and his assistance and leadership has been extraordinary for a period of time 

longer than any of us have actually served in Washington. 

The issue of property insurance and homeowners’ insurance rates 

is obviously the single most important economic issue affecting our 

communities. The insurance rates of all of our constituents in many 

7

instances has doubled, and in the worst instances has actually tripled, even when they haven’t made claims in several years. 

Insurance companies are dropping homeowners right and left 

and these responsible working families cannot, in many instances, 

find an insurance company willing to write a new policy at any 

price. This is obviously unacceptable. 

The problems in Florida are terrible and they are now causing 

significant problems in other States as well. From hurricanes to 

floods, ice storms, earthquakes, wildfires, and tornadoes, every 

State has some risk of catastrophic natural disaster. Pooling these 

risks together will mean that when a catastrophic disaster does 

occur, the combined resources of the participating States are ready 

to respond. This provides a more stable pool of resources and reduces the overall risk to investors for any one natural disaster. 

The Homeowners Defense’ Act, which Mr. Mahoney and Mr. 

Klein have talked about, encourages States to prepare well in advance of a disaster, buying into a national pool through State-sponsored insurance funds and lowers homeowner insurance rates. 

Insurance experts agree that solving this homeowners’ insurance 

crisis requires first stabilizing the private insurance market, not 

supplanting it. And under Mr. Klein and Mr. Mahoney’s plan, private investors can make market-based determinations of the financial risks while the Federal Government spreads the risk of natural 

disaster. And let me speak to this one point quickly, if I could. 

There are many people who have historically said that the Federal Government has no role when it comes to insurance. Well, 

Florida is the perfect example of why the Federal Government 

needs to get involved and get involved now. As Mr. Mahoney said, 

the Florida legislature, Governor Crist and the legislature, acted 

responsibly. They did what the State could do, but it wasn’t 

enough. And what we have proven in Florida is that even when a 

State legislature acts responsibly and in fact attempts to solve the 

problem, that the resources of one State, even a State as large as 

our own, is not significant enough to provide the relief that homeowners need. That is why the Federal Government needs to be involved. 

This isn’t a Republican issue or a Democratic issue; it is not liberals or conservatives. This is a people issue. And this is, in the 

context of the Homeowners’ Defense Act, a response on behalf of 

all people, all residents. We in Florida have struggled too long with 

astronomical homeowners’ insurance rates. The problem now is 

spreading across the country to homeowners in many different 

States. And this committee meeting today, this effort today, is a 

part of a growing strategic effort to persuade our colleagues in 

other States that, before this last season or before this last year, 

said, ‘‘No, no, I don’t have worry about catastrophic concerns in my 

area,’’ this is our ongoing attempt to create a coalition of Democrats 

and Republicans alike to address this issue. 

In closing, if I could just offer one observation. I have never before, in my 161⁄2 years of public service, seen two people take on 

an issue so aggressively as have Mr. Klein and Mr. Mahoney, and 

together along with the help of many other colleagues, have pushed 

the issue of property insurance to the forefront of the agenda of 

Congress. 

8

It was not an easy task, but these two gentlemen came to Washington last year after winning election and went to the Democratic 

leadership, to Speaker Pelosi, to Mr. Hoyer, and to others, and 

said, ‘‘We were sent here to fix the problem of property insurance, 

because homeowners are struggling in Florida, and we cannot go 

home until we achieve something.’’ It is unheard of in Washington, 

for two freshmen, in a body of 435, to come forth with a bill of this 

magnitude and actually pass it. This is an extraordinary achievement, and I thank both gentlemen for all of their efforts. 

Mr. KLEIN. I think, with that, we will just close right here. That 

was very nice. 

Actually, to comment on Congressman Wexler’s comments, Mr. 

Mahoney and I would probably agree when someone says it takes 

an act of Congress, I now know what that means. I mean, it is a 

pretty substantial ordeal to move the Members of Congress. 

And, again, something like this has been out there for many 

years. Those of us who have lived in Florida for many years and 

certainly those who have lived here since Hurricane Andrew have 

seen the deterioration of the market. 

As a matter of fact, those of you who know Citizens today, it was 

originally called the JUA, and the Joint Underwriting Association 

was a response by the legislature in back in 1992, after Hurricane 

Andrew, to what was thought to be a very short-term window before the market would reestablish itself and it was a State government back-up to the fact that people couldn’t buy insurance from 

other companies. 

And that JUA, which probably should have been gone, at least 

under the theory, after a few years is now the Citizens Insurance 

Group, which is the largest insurance underwriter in the State of 

Florida. That is the exact opposite of what we want as consumers. 

You don’t want the government standing behind this; you want private underwriters, successful competition for price, for service, and 

all of those things. 

So it really has been quite an ordeal for all of us from Florida. 

And what has made the difference, as mentioned by my colleagues, 

is two things. 

Number one, the leadership in Washington has been responsive 

to some type of solution, different ideas, but we came up with 

something with a lot of support from experts in the field. Tim and 

I might be nice guys but we really did rely on a lot of people out 

there who helped us to come up with some new models here. 

And number two, the fact that as you now watch the news every 

day, there are new natural disasters occurring constantly and 

things that in some cases are covered by insurance, and in other 

cases, arenot covered. Whether it is wildfires or major storms or 

tornados—and it goes on and on and on. So natural disasters are 

not limited solely to areas like Florida. 

I guess in my opening remarks before the chairman gets here, I 

would of course like to again thank the chairman of this subcommittee, Mr. Watt. I would like to also acknowledge the chairman of our Financial Services Committee—which is a large overall 

committee that this bill went through—Chairman Barney Frank, 

and, of course, the leadership of the House, both Democrat and Republican, for allowing us to bring this bill forward. 

9

The issue of available and affordable homeowners’ insurance is 

something that everyone in this room and everyone in our community deals with on a regular basis. But the problem is with displaced homeowners desperate for relief; we all know that we have 

to continue to find a solution. 

Even with holding this hearing today, I think we understand 

that although the House has moved on this bill, it is now in the 

Senate. And with Senator Nelson and others, in a bipartisan way, 

we are asking those Members of the Senate to consider this bill. 

If they have to make some refinements to it, we welcome and are 

looking forward to those opportunities to make the bill even better 

and then to get together with the House and present it to the 

President for consideration. 

Hundreds of thousands of homeowners, not only in Florida but 

around the country, have been dropped, and the treatment by some 

insurance companies to do what has happened in Florida, between 

cancellations and the elevations and the tripling of premiums in 

some cases, has now become very relevant in other parts of the 

country as well, places like New York, New Jersey, and all the way 

down the eastern seaboard. We know about the Gulf Coast. In California—over 85 percent of the homes in California have no earthquake insurance. Think about that. 

If we have a Northridge or San Francisco San Andreas Fault 

type of earthquake of any kind of magnitude, we are talking about 

a situation that is not insured, and you can only imagine that the 

California delegation will be coming to the United States, people, 

all of us in Congress, to say help us, help us like you helped with 

Hurricane Andrew, help us like you helped with Hurricane 

Katrina. 

So the more we can do as a policy, as a private-sector group of 

people to more proactively plan for and underwrite these expenses 

and these possible reconstruction efforts, we can reduce the exposure of the Federal taxpayer. 

As we know, as it was explained, this bill has taken a more creative approach. It is voluntary and it only says that the States that 

want to participate will, so the States that don’t feel like they have 

a need to, don’t have to, which is good. And it is just a creative way 

of letting the private sector transfer the risk over to Wall Street, 

so private investor bonds can take care of this. 

So we believe that using an innovative capital strategy and these 

new ideas will allow investors to take on this risk in a voluntary 

way and at the same time will allow us to reduce the overall risk. 

We understand that the total economic impact of natural disasters exceeds $100 billion in any number of given years. Yet, we 

know that at the same time, there has been a failure of the insurance market to be able to take care of us as individual homeowners. 

So we believe that this piece of legislation and possibly other 

ideas that come forward are ways of planning for the future, not 

waiting for the natural disaster to hit and then responding afterwards and we plan to work with all of you and continue to work 

with the Congress and the President until this legislation is signed 

into law. 

10

The status quo is no longer an option and we know that this is 

the time and this is the place for us to pass this legislation and 

with that we look forward to hearing the testimony that is presented today to help us continue to build and refine this bill and 

make sure that it gets passed as soon as possible. 

So we thank you for allowing us to share some opening thoughts 

with you. What we would like to do is now ask the first panel to 

come forward. 

Mayor Wenham and Commissioner McCarty, if you would step to 

the microphones, and we will get you started here. 

Mayor Wenham, if you would begin, introduce yourself, if you 

would, and give us your observations and your suggestions on this 

issue, please. 

STATEMENT OF THE HONORABLE THOMAS WENHAM, MAYOR, 

WELLINGTON, FLORIDA 

Mr. WENHAM. I am Mayor Tom Wenham of the Village of Wellington, which has a population of about 57,000. We are about 12 

miles west of here, where State Road 7 and Forest Hill meet, and 

Congressman Mahoney is our Congressman. 

Good afternoon, Mr. Chairman, and members of the subcommittee. I want to thank you for the opportunity to address you 

on behalf of the community of Wellington in what I believe is an 

issue of national importance. And I thank all of you for your comments because I am going to get into some things here just how 

it affected the Village of Wellington. 

As far as homeowners insurance and its impact on communities, 

homeowners, and the economy, I am going to speak to you with the 

specifics of my community. 

I would also like to thank my fellow panel members for their insight into what they had presented. 

I can only speak to the experience of my own community, a community that in most respects is better prepared to deal with disaster than most. We have what we call a hurricane fund as part 

of our overall budget, and we have $2 million sitting in there right 

now. We were very fortunate through the hurricanes of 2004 and 

2005, that we had a very large reserve. 

When I am writing a check to a group that came in to pick up all our debris, our vegetative debris, for $2.1 million, that gives you 

an idea of just what the Village of Wellington, which is probably 

very representative of the other communities. 

We actively plan for catastrophes and we have created the reserve funds to help, but there are things that no community is ever 

prepared to deal with completely on its own and that is what I 

think you gentlemen are trying to present and we support it. In 2004, it cost Wellington $6.2 million to clean up after Hurri- canes Francis and Jean. We also suffered nearly $2.3 million worth 

of damage to our public facilities out there, all of our Village buildings. Residential damage to the community was $6.7 million and 

commercial damage was $1.1 million. 

In 2005, the numbers for Hurricane Wilma were $5.8 million in 

recovery costs. So if you look at where we had $6.2 million in 2004, 

and $5.8 million in 2005, there is $12 million in recovery costs that 

the Village of Wellington had to pick up. 

11

I will say, and Congressman Mahoney knows, we have been to 

Washington any number of times speaking to FEMA about trying 

to get some relief, and I will address that in a few minutes. With $5.8 million, $3.75 million in loss in public property again, after 2004, now we get hit in 2005 with our public buildings, $50.4 

million to Wellington residents on their properties, and $7.75 million in losses to the businesses in the community of Wellington. 

We are a new community in which most of the structures have 

been built under more stringent windstorm codes. Wellington became a community in 1996, 4 years after Hurricane Andrew hit. So 

we were fortunate that all the homes that were built after the hurricane, were built to the Miami-Dade Code, which is very fortunate 

for us. 

During the recent period of increased hurricane activity, the cost 

of property insurance for our community has increased over 400 

percent. The cost in 2003 to 2004 was $175,000. That is what the 

Village paid for its insurance. This past year, we spent $719,000 

for insurance, just on our buildings. That is an increase of over 

$540 million just to the Village of Wellington. Thank goodness we 

have a reserve that can help us get through some of these areas. 

I don’t know how some of the other communities in Palm Beach 

County are doing. Personally, I have spent over $11,000 in adding storm shutters 

and a wind-rated garage door. Even with these improvements designed to limit damage, my insurance rates have gone up 248 percent, from $1,381 in 2002, as my wife and I went through these 

numbers over the weekend, to over $3,400 this past year. 

Annually these increases—and you can see it all in front of you when you lay it out: 2002, $1,381; 2003, $1,409; 2004, $1,810; 2005, 

$2,289; 2006, $3,154; and this past year, $3,428. So that is just 

what my personal insurance costs, and I will bet you anybody else 

in back of me could get up and probably say about the same thing. 

I am talking about a 3,200 square foot house under roof, 2,200 

under air, which is the common denominators, the benchmarks, 

that we all use. And it has gone up $2,000, a little over $2,000 

since 2002. 

We understand that natural disasters are not the fault of the insurance industry, but neither are they unpredictable. I mean, everybody knows 3 days in advance when a storm is going to come, 

so the insurance companies—we hear it, they hear it. 

When the hurricanes are over, I have been on channel 5, 12, and 

25; I have been on the radio with all of them saying how do we 

stand in the community of Wellington, as I am sure the other mayors in their communities have to do. 

The cost of homeowners’ insurance is rising to the point where 

it is pushing the cost of homeownership beyond the reach of our average resident, if you can even find a company, as has been said 

by you gentlemen, to write a policy. 

Even the availability of insurance is not a certainty. In the face 

of all the problems associated with homeowners insurance, perhaps 

it is time to develop a national policy and I hope that you certainly 

do it. 

One final point, if I am allowed the time, and then I will pass 

on. 

12

Mr. Chairman, we as local officials here in the community are 

the ones who are on the firing line when the residents, immediately after a storm, start calling. They may call you gentlemen 

and ladies up in Washington, but it is us elected officials here in 

the community who get the brunt of it. 

We have to make sure, and these are some of the things that I 

have been faced with, and I am sure you have been too—we have 

to make sure that the water is safe to drink. At least people, if it 

is safe to drink and they can take a shower, whether it is cold because they don’t have any electricity, at least they will be satisfied 

there. 

The roads are clear of vegetative debris so that the people who 

have been cooped up can get out to see how the rest of the community is looking. Now, that is—you may laugh at that, but how many 

times, when the manager and I have gone out and there are people 

just sightseeing and riding around. 

‘‘When am I going to get my power? I need to get a roofer tomorrow before another storm hits. When will schools be open?’’ These 

are some of the questions that we get hit with and I am sure that 

you Congressmen who live here know what I am saying because 

you have probably been hit with them too. 

We are called upon to answer after the storm. After Wilma, as 

Mayor, I personally answered, with my aide, 61 phone calls in one 

day relative to the storm about these kinds of questions, what is 

the Village of Wellington—not the Congressmen, not our Senators, 

not our State legislative delegation—what are you as the Mayor 

and the village council going to do to help me through this. And 

that is the truth, gentlemen. 

Helping to resolve this issue, this insurance problem issue, would 

certainly make life easier for all of us. 

I would like to thank you, Mr. Chairman and the members of the 

delegation, for allowing us to present our views, thoughts, and information relative to this situation that affects all property owners, 

not only in Wellington but certainly in Palm Beach County. 

What is it I have to say now, Mr. Mahoney, I yield my time? 

Mr. MAHONEY. You yield back the balance of your time. 

Mr. WENHAM. Oh, the balance of my time. Thank you. 

[The prepared statement of Mayor Wenham can be found on page 

86 of the appendix.] 

Mr. KLEIN. Before we get to Mr. Mahoney, I just want to take 

care of a couple of housekeeping things. 

I just want to say that, without objection, all members’ opening 

statements will be made a part of the record. And, without objection, the written statements of our witnesses today will be also 

made a part of the record. 

I have a couple of other people to recognize—Commissioner 

Santa Maria, thank you for joining us, and a couple of local people 

who were very involved for many years in helping us with some 

early insurance tasks for us, Barbara Zee and Fran Fisher. Thank 

you for both being here today and being part of this. 

Congressman Mahoney. 

Mr. MAHONEY. Are we going to go to the next testimony and then 

we will ask questions? 

13

Mr. KLEIN. Yes, why don’t we do that. I just wanted to say that 

Mr. Mayor, it is only—what took you less than 45 minutes to figure 

out took me a year to learn how to say. I yield back my time. 

Mr. WENHAM. Well, I just learned it from you, sir, so it only took 

me about 10 minutes. 

Mr. KLEIN. There you go. 

I think what we will do, if it is okay with the committee, is we 

will move on to Commissioner McCarty for his comments. And before we do that, I see that our chairman has arrived, and we would 

like to extend our appreciation for a long travel day. 

Congressman Watt, our chairman, is from North Carolina and 

has a long history of being a leader on our committee, but also has 

a great deal of understanding in terms of oversight and investigation, which is what the focus is of this particular subcommittee 

that is holding this hearing today. 

And being from North Carolina, and certainly those of us from 

Florida, share a lot of common interests in dealing with natural 

disasters. I think, until the last few years, North Carolina actually 

had more experiences with hurricanes than Florida had for many 

years. 

But we appreciate you coming down and holding this congressional hearing and being able to take some of the testimony and 

some of the comments from the people who are presenting today 

back to Washington. As we continue to work through this legislation of which you have been such a great mentor to all of us on, 

that you can continue to make sure that we pass something that 

will work, and that will help all of us, in all 50 States, work 

through this issue. 

Where we are at right now is we have taken testimony in this 

first panel from the Mayor of Wellington. And with your permission, Mr. Chairman, the next presenter is Commissioner McCarty, 

who is the insurance commissioner of the State of Florida, and has 

been for many years. I will turn it over to the chairman before we 

get to him. 

Chairman WATT. Thank you so much. 

Am I on? I am on. Okay. 

Let me first express my apologies for being late getting here. We 

actually got off the ground reasonably on time in Charlotte, North 

Carolina, this morning, and we flew for about a half hour, and then 

the plane made a U-turn and went back to Charlotte because we 

had an ill passenger on the plane. We landed back in Charlotte 

about 11 a.m., and we were back off the ground by 11:45 a.m. or 

so, and here I am. 

Commissioner McCarty, go right ahead, and then we will proceed 

from there. 

STATEMENT OF THE HONORABLE KEVIN MCCARTY, 

INSURANCE COMMISSIONER, STATE OF FLORIDA 

Mr. MCCARTY. Thank you, Mr. Chairman, and welcome to the 

Sunshine State. I would like to take this opportunity to thank you 

for your leadership on this issue as well as the other members of 

the Financial Services Committee’s Subcommittee on Oversight 

and Investigations. 

14

I feel that to a certain degree, I am preaching to the choir, by 

hearing the testimony and the opening remarks are much of what 

I have been saying the last several years. But I do welcome the opportunity to be here to testify on this very important issue and the 

affordability and availability of homeowners, the emergency insurance crisis, its impact on our communities, but moreover its impact 

on our national economy. 

My name is Kevin McCarty and I am the insurance commissioner for the State of Florida. I also serve as the chair of the Property and Casualty Committee of the National Association of Insurance Commissioners and chair of its Catastrophe Working Group. 

While Florida is historically known for its hurricane risks, it is the State of Louisiana where Katrina made landfall with $38 billion of insured losses. 

This event created shortages in the construction industry, created mass human migration, and affected the Nation’s oil prices 

and its overall inflation rate. 

Hurricane Katrina quickly emerged beyond a State issue, but a 

national issue. Not only did the Federal Government appropriate 

over $100 million for recovery, this affected homeowners’ rates 

across the country. The most critical point I think it is important 

to make today is that catastrophic events are not a State problem. 

It is not a Florida problem; it is a national problem that cries out 

for a national solution. 

To accurately price insurance products, insurance companies 

must be able to predict future storm damage. In order to do this, 

you have to look at the frequency and severity of storms and then 

estimate the impact on damages to homes and businesses. Predicting both of these elements has created a problem for the insurance industry and for regulators across the country. 

During the 2004/2005 hurricane season, eight named storms 

made landfall in the State of Florida, a scenario certainly not anticipated by any of the hurricane predictors or any of the hurricane 

models, most of which had focused on mega catastrophes like Hurricane Andrew in 1992. There is also a general consensus by many 

in our scientific community that we are in a period of more active 

storms for the Gulf of Mexico as well as the Atlantic Basin. 

Predicting storm damage is very challenging. Recent demographic shifts in our population have enticed people to move to 

warm-weather States like Florida, the increased building along our 

coastline; now nearly half of our residents live near or close to a 

coastline. 

All of these elements combined create uncertainty which continues to impact the availability and the affordability of homeowners’ insurance. This uncertainty has led many of our national 

carriers to limit their writing from Texas to Maine. I personally 

have spoken with representatives of the global reinsurance industry in Bermuda and Europe to encourage them to invest in the Gulf 

Region, particularly in Florida. 

Given the current situation as I have already outlined, there is 

little interest in expanding investment, in large part because of the 

exposure of Florida, and this is at any price. This creates a critical 

problem for coastal States like Florida. Homeowners must have insurance as a term and condition of their mortgage. If the private 

15

insurers will not insure homes, the State must intervene to provide 

the capacity or our economy in the State of Florida would grind to 

a halt. 

States like Florida had to create alternative markets like Citizens. Despite record catastrophe loss in 2004 and 2005, the U.S. 

property and casualty market companies have made record profits. 

Some coastal markets have experienced a mild recovery in a relatively healthy property market. 

By example in Alabama, only 2 of its 67 counties experience 

problems with contraction in the marketplace, while in Mississippi, 

6 of the 82 counties are directly experiencing insurance problems. 

Louisiana, which felt the brunt of Katrina, is experiencing difficulties in 24 of its parishes. 

States with longer coastlines have experienced more dramatic 

problems: In North Carolina, the State’s residual market has increased its policy count by 32 percent; South Carolina increased by 

38 percent; and in Massachusetts, one-third of the policies in the 

Cape are written by its residual market. Some insurers have even 

recognized a potential problem in New York, even though the State 

has not had substantial tropical activity in many decades. 

In Florida, the State’s residual market, Citizens Property Insurance, experienced an increase of about 500,000 policies from 2005 

to 2006, becoming the State’s largest insurer. 

During 2007, the Florida legislature passed comprehensive legislation to address the availability and affordability of its homeowners’ coverage. It changed Citizens Insurance Corporations so 

that its rates were more affordable for its policyholders. It expanded the CAT fund to give the industry up to $12 billion 

of low-cost, inexpensive reinsurance to recognize the cost of global 

reinsurance. 

It provides Floridians with incentives to mitigate against future 

damage and mitigating future storms. Prior legislation created 

$250 million in a capital build-up company to encourage reinvestment in the State of Florida. 

More recently, the Florida Building Commission adopted a codeplus standard allowing buildings 2,500 feet from the coast to withstand a 1-in-500-year event, the most stringent building code in the 

country. 

Insuring catastrophes is beyond the State’s resources. The 

United States is one of the only industrialized nations in the world 

without a comprehensive national catastrophe plan. While Hurricanes Andrew and Katrina caused tremendous loss, these pale in 

comparison of other potential natural disasters. 

Merely a repeat of the 1906 earthquake would cause $400 billion 

in damage, and as Representative Klein has already alluded to, 

most of that would be uninsured. 

A 1938 hurricane in New York would cost $300 billion in damage. Even last week featured tornadoes that ripped through four 

southern States causing loss of life and millions of dollars in damage, highlighting once again that all parts of the country are exposed to catastrophic loss. 

The solution is not a large Federal program, but the United 

States does need to think proactively and to think strategically 

about how it deals with natural disasters. I am a supporter of H.R. 

16

3355, the Homeowners Defense Act passed by Congress last year. 

This bill recognizes the importance of preparation, of prompt response, of mitigation, and the limitation of State resources. 

I want to thank the leadership of Representatives Mahoney and 

Klein on this very important issue, and I will be happy to answer 

any questions. 

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

65 of the appendix.] 

Chairman WATT. Thank you very much, Commissioner McCarty 

and Mayor Wenham. I am sure you welcomed everybody to your 

fine city. I got a birds-eye view of it coming in. It is beautiful, and 

I am delighted to be here. 

I think I will defer my questions until last, and I will do my 

opening statement later too. It is almost redundant at this point. 

Why don’t we go—which direction do you all want me to go in? 

They keep passing the buck, everybody is doing that. I will recognize Representative Klein for 5 minutes. 

Mr. KLEIN. Thank you, Mr. Chairman. 

Commissioner, this is something that we have been trying to, as 

you were pointing out, it is—I think most people are aware, this 

is no longer a Florida-versus-49-other-States approach. 

In your meetings at the NAIC, where you are taking a leadership 

role in this, part of what we are trying to do in a way of encouraging the Senate to move forward is to reach out to the Senators. 

And what we found so far is a very similar reaction to what we had 

in the House, which was everybody seems to think the old model 

of a national risk catastrophe pool is some big Federal program 

where every small piece of every policy in the United States goes 

into some big pool and there is a back-up. That is not the case. We 

have come up with a totally different way of looking at and approaching this, and it doesn’t obligate any State that doesn’t want 

to be involved to be involved. 

However, the perception is different still in the Senate. And I 

know our Members, Senator Nelson and others, are spending some 

time. 

Can you give us some thoughts or some suggestions in approaching through your colleagues, State-to-State, a way of working with 

us to educate the Members of the Senate so that they realize 

whether they come from a State that is prone to have large-scale 

natural disasters or no natural disasters, that this is a very attractive solution that can provide great relief to the taxpayers and stabilize a very significant problem in the United States? Some suggestions and an approach for us, please? 

Mr. MCCARTY. Thank you very much. 

First of all, I would like to express my appreciation for Representative Mahoney, who took time out of his busy schedule and 

briefed the National Association Committee meeting when they 

met in Washington, D.C. I think that gave a unique opportunity 

for, first of all, us to debunk some of the myths that are out there 

exactly what the homeowners, most of them thought of it as a national bailout program, when in fact it is a reasonable, appropriate, 

voluntary approach which deals with a myriad of issues from mitigation to funding solutions including maximizing capital markets. 

17

So I think part of it is an educational issue and I—this was the 

first Federal legislation property insurance that the NAIC has endorsed in my tenure there, so I think that is very important. And 

remember, that is made up of the 50 States and six other territories, so we have the same challenge of having to convince people 

in the central part of the United States that they are in fact paying 

for Katrina today, and it is estimated between $850 to $1,000 per 

taxpayer is being spent because we have a national catastrophe 

plan. It is just inefficient and ineffective, and it pays money after 

the fact instead of before, instead of maximizing the efficiencies of 

the insurance market and getting money—as you testified in your 

opening remarks—back into the hands of people so the communities are built. 

It is an education process. It is an evolutionary process. And I 

will continue to, you know, certainly work with my colleagues to 

build a necessary consensus. 

I also think that it is important to educate folks today or in 2004, 

it was Florida and then it was Louisiana. The fact of the matter 

is that 49 of 50 States have a moderate to severe risk of a natural 

disaster other than floods. We have been in the business of that. 

When Floridians pay into the flood program, we pay 41 percent of 

the flood premium in this country. So we need to continue to work 

with our colleagues around the country to understand that it is a 

national problem that demands a national solution, which means 

that we all may chip in at the beginning but in the long run it is 

beneficial to the national economy. 

And then to follow up, Mr. Chairman, you know, I think that 

people don’t understand that there is a major earthquake risk to 

the Midwest. There is a major fault line in the Midwest which 

doesn’t pop up very often in terms of activity, but it has the potential of creating as much of a problem as the San Andreas Fault in 

California. 

But if I could just follow up—and the Commissioner, I think for 

all of our purposes, as you are helping educate your colleagues and 

if you could ask your colleagues and maybe survey them and they 

only have two Senators for each State. So if they could sort of give 

us intelligence or perspective on which Senators, if they have a 

meeting with the Senators or communicating with them as to why 

they think it is important, and get the reaction back, if they are 

taking some of that educational opportunity to work with them and 

then get that information back to us and we will obviously—Senator Nelson and others are taking a lead on this, but it is a team 

effort here. 

So any information you have about the reaction or perspective, 

you know, favorable five to one where they stand on this or where 

they need more information, we can reach out to them from the 

Washington side as well, so appreciate that benefit as well. 

Mr. MCCARTY. It would be my pleasure. 

Chairman WATT. I thank the gentleman for his questions and for 

the responses. And I will now recognize Representative Mahoney 

for 5 minutes. 

Mr. MAHONEY. Thank you, Chairman Watt, and I am glad you 

had the opportunity to fly over Wellington. I will be enlisting you 

with a bunch of other projects that we are going to be working on. 

18

Chairman WATT. Thank you, Congressman. 

Mr. MAHONEY. Mr. Mayor, thank you very much for being here, 

and thank you for sharing your personal story with regards to your 

family’s homeowners’ insurance problem. 

You know, Wellington is kind of an interesting town. When I 

moved here in 1988, it was an area and it was fast-growing, and 

it was known for being a place for young families to be able to get 

affordable housing, and as a result the community prospered. It 

also prospered because my wife and daughter spent a lot of money 

doing horse shows down in Wellington. 

But my question for you is that, you know, the big concern—one 

of the concerns that I have with regards to this issue, and it continues to pose as the top issue here in Florida, is the impact of affordable housing and maintaining Wellington’s profile as being a 

place where young families can continue to move and have a very 

desirable lifestyle. 

Over the last 5 or 6 years, as we have seen these premiums go 

up and property taxes and other things, what has been the impact, 

or has there been an impact, in terms of what you are seeing in 

terms of people being able to move in and afford to live in the community? 

Mr. WENHAM. Well, I could say this because the question has 

come up many times and with the value of houses dropping, the 

real estate market, we do have, and some neighborhoods have told 

me this, we know do have affordable housing, whether it is workforce housing, senior housing or whatever, that there is that type 

of housing now in the community. 

There are still some properties selling out there for well over a 

million dollars. And I was talking to a real estate broker this past 

weekend, and land in the equestrian area that you are referring to 

is well over a million dollars an acre, as you know. So it is there 

but—and that doesn’t make for very affordable housing. 

Mr. MAHONEY. But have you seen an increase—I mean, one of 

the other things that we are having to deal with in the subprime 

crisis is people defaulting on their homes? 

Mr. WENHAM. Yes, we—yes, we have seen some of that happening in the community also. 

Mr. MAHONEY. And has the cost of homeowners’ insurance, do 

you think, been a contributing factor to that? 

Mr. WENHAM. There is no—well, there are two things, Congressman. There is the insurance and of course the taxes. And I think 

that the State of Florida is trying to address that situation, but 

both of them, many of our residents and my constituents have 

come up to me and expressed the insurance and the taxes, yes. 

Mr. MAHONEY. Thank you. 

Commissioner McCarty, great to have you here fighting this battle with you. 

Now as a businessperson, at the end of the day, all I care about 

is lower homeowners insurance rates. I mean, that is what it is all 

about. And one of the things that we are trying to do is trying to 

figure out how we can create a system that enables the insurance 

companies to come back in. People don’t want Citizens Insurance; 

that is the insurer of last resort. The industry doesn’t want Citizens Insurance to become an all-perils company which it found by 

19

necessity to do in order to generate additional revenue so that it 

wasn’t continually to be just a sieve of money on the taxpayers. 

But the question for you is that, in H.R. 3355, one of the things 

that we are doing is in order to stabilize the market; we are doing 

three things. We are trying to expand reinsurance by allowing investors to invest in CAT programs where there is a consolidation 

of risks amongst States that have these programs. The second 

thing that we do is we make sure that in that 1-in-200-year event, 

that the Federal Government comes in and provides a loan to 

States that participate to make sure that there is enough capital. 

And then the third thing that we do is in those events is we cap 

the liability of the insurance industry to 11⁄2 times annual premiums. 

My first question to you is, as an insurance commissioner, if presented with that program that the State of Florida was in at a 1-

in-200-year situation, when you sit down and take a look at what 

homeowners’ insurance rates are, given that scenario, would you be 

able to easily ascertain what the risk is, what the cost of the risk 

is, and what the fair insurance premium should be for a company? 

Mr. MCCARTY. Now that certainly is going to vary by a number 

of factors. First of all, how successful we are in providing incentives 

for greater capital in part of that program. I think one of the things 

your bill recognizes is we measure reinsurance in terms of billions 

of dollars but capital markets we measure in trillions of dollars. 

So any way that we can provide lessening burdens and obstacles 

of getting capital—and it really does depend on how much new capital we can bring in to bring competition to the reinsurance marketplace. 

But the key aspect of this is for most insurance companies and 

why they are retreating, is the risk of ruin. And to the extent that 

you are able to provide a backstop so that companies are able to 

on an individual basis calculate their tolerance for risk and eliminate the risk of ruin aspect, I think, brings that stability in the 

marketplace, which in combination with the other factors we have 

discussed and are in the bill will, hopefully, bring a return and 

challenge Citizens. 

Citizens, we don’t want the government to be—that is not what 

we do well. On the other hand, insurance companies have done a 

fairly good job of getting money quickly in the hands or their policyholders in the aftermath of an event. Not in all cases, but in 

most cases, which is critical as we have heard before about getting 

kids back to school, people back to work, back to paying taxes because that is what the effect is in the local economy, which ultimately affects the national economy. 

Mr. MAHONEY. Another question I have for you is that in addressing this issue of having to deal with rising premiums, our research has shown when we have—investigating this bill, is that 

there are two other elements that perhaps we should be looking at; 

the modeling companies that the insurers use to determine what 

the right level of risk could be and the rating agencies. And I would 

be interested in your thoughts on whether or not you think that 

Congress should be looking at the role that the modeling companies 

and the rating agencies play in this crisis? 

20

Mr. MCCARTY. Well, these have certainly been contentious issues 

in the State of Florida. As you know they have been the subject of 

some subpoenas issued by the Office of Insurance Regulation. We, 

too, are interested in the relationships of the modeling companies, 

the re-insurers, the brokers, and the rating agencies to ensure that 

the comprehensive reforms that were adopted by the Florida legislature were in fact passed on to the policyholders of Florida. 

I think it certainly has been a lot of information that has come 

to our office, which we certainly think it is a legitimate area of inquiry. 

With regard to the computer models, we, in Florida, have been 

addressing this issue for a number of years. As you know, we have 

established the modeling commission to review models. Some companies have used what is called the short-term models, which generate 35 to 40 percent higher losses than the approved models. We, 

in cooperation, the Office of Insurance Regulation, with FIU, have 

created our own computer models, State-run computer model to 

check the—you know, do as a reality check. 

So looking at modeling companies, I think, is of critical importance, because I think the variations on how they generate rates 

are huge, on a statewide basis, but then when you get down to 

towns like Wellington and Miami Beach, and those areas, you 

might see swings that are over 100 percent. 

Mr. MAHONEY. Would you be supportive of a role for the Federal 

Government in terms of taking responsibility through, for instance, 

the National Oceanic and Atmospheric Administration or FEMA or 

somebody that would have the responsibility for running the models, that there would be some agreement as to what the right level 

of risk would be? 

Mr. MCCARTY. You know, I think that is appropriate—I think 

there needs to be a national model similar to the FIU model. I 

think we have to continue to encourage the proposition of modeling 

companies, because I think through that competition we should 

have a national modeling check, our check on the commercial models. 

Chairman WATT. Thank you for your insightful questions and for 

the responses. And I will now recognize Representative Wexler for 

approximately 5 minutes. 

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

It has been said before, but we are privileged to have Mr. Watt 

here. He has an extraordinary amount of knowledge on this issue 

and many others and to have Chairman Watt on our team is an 

enormous advantage for those of us who are so committed to seeing 

this to a successful resolution. We really do thank you for being 

here. 

Commissioner McCarty, I also want to applaud your testimony, 

and your answers to some of the early questions. 

Your unequivocal support for H.R. 3355 quite candidly is a 

breath of fresh air. And I hope people appreciate, I am sure they 

do, that the positions you have taken, have been taken without regard to partisanship. You are just saying what you think needs to 

be said, and I really do applaud your effort and applaud what is 

an exceptionally intellectually honest approach to this problem. 

21

In that regard, if I could just share with you some of my experience, and I think the experience of Mr. Mahoney and Mr. Klein, 

when we go out and we talk to our colleagues about supporting this 

bill and supporting a national catastrophic response, often what we 

will hear is, well, speaking for myself, what I often hear is, ‘‘Hey, 

Wexler is from Florida; Florida could do this; Florida is a big 

State.’’ Or, ‘‘Just get together, get your people from Florida to get 

together with people in California and do something or, you know, 

Florida, Mississippi, Alabama, and Texas, you guys do something 

together.’’ 

Tell us why that is not sufficient, in your experience. Tell us why 

Florida, working with two States, three States, whatever it may be, 

isn’t going to be the answer that we need. 

Mr. MCCARTY. Well, first of all, thank you for your kind remarks. 

I appreciate that comment. 

There are a couple of reasons. One is a matter of global reinsurance. In order for it to work, you need to spread the risk, not concentrate the risk. When you take the risk of hurricane and put it 

with a hurricane in the Gulf of Mexico, you are actually 

compounding the problem instead of spreading the risk globally. So 

if you were to counterbalance with Florida’s risk for catastrophes 

with California, you are spreading the peril, but the only way to 

do that is spread it in the global reinsurance market, which is what 

reinsurance is all about. 

The problem is that there are limitations on the global reinsurance market capacity. Like I said in my testimony, my test in Bermuda Lloyd mitigation programs and it is mitigation programs and 

it is building code and building enforcement. All this is well and 

good but there is a finite amount of reinsurance that Florida can—

Florida is considered a super peak and really needs to counterbalance that with earthquakes in Japan, etc., and the problem is 

that there is a finite amount of capacity. 

What the Mahoney-Klein bill attempts to address, in a very important way, and I think that this is something we need to continue to look at both at the State level and the national level, is 

breaking down the barriers and bringing more capital to the marketplace. And regionalizing and concentrating it is counterintuitive 

to the principles of insurance. 

Mr. WEXLER. If I understood your original testimony correctly, 

you said 49 of the 50 States have some risk of national catastrophic 

problems happening. What is the one State that doesn’t? 

Mr. MCCARTY. It is a relatively unpopulated State; it is the State 

of North Dakota. But if you throw in the risk of flood, then all 50 

States are exposed. And as you know, many of the States will say, 

well, listen, this is a Florida problem, you know, but we have 

solved their problem to a certain extent by addressing the standard 

of the Federal Flood Program. In a large way, we subsidize that in 

Florida, because we pay 41 percent of the premium, we get about 

16 percent back over the years. So again, one of the things that we 

have to remember that is that it is not a single peril; it is all perils. 

Mr. WEXLER. It is minus-39 degrees today in North Dakota. They 

have a freezing issue there, I am sure. 

Chairman WATT. Thank you. And let me thank this panel for 

being here. And before I release the panel, I want to ask some 

22

questions, but now that I have gotten settled in a little bit, I just 

want to make a couple of comments, and not an official opening 

statement, because I think I will just ask unanimous consent of my 

colleagues to put my opening statement, a formal written opening 

statement into the record and just kind of make a couple of general 

comments. 

First of all, I am not sure if my colleagues even know this, but 

we need to pause for at least a moment of silence, because we lost 

one of our Members this morning, Tom Lantos, who was very recently diagnosed with cancer and had announced that he was not 

planning to run again. Because of that diagnosis, he didn’t last 

long at all after the diagnosis. 

So if you all would, just indulge us for a moment, for a moment 

of silence in memory of our wonderful colleague and one of our 

leading international experts in our body, the chairman of the 

International Relations Committee in the House of Representatives, Representative Tom Lantos. 

Second, I would be remiss if I did not comment on how much I 

am pleased to be here with my colleagues, Representative Klein, 

who represents this congressional district, and Representative 

Mahoney, who is in the adjoining congressional district. 

Mr. MAHONEY. We are all adjoining, but it is the—it is the better 

district to the north. 

Chairman WATT. I didn’t want to get into that now. 

Both of these new Members of Congress, freshman Members of 

Congress, have come into the Congress and made an immediate impact by not only by becoming cosponsors of this legislation that has 

been testified about some this morning and taking ownership of 

this issue of flood insurance, catastrophe insurance, but on a number of other issues that we won’t be addressing today, they have 

taken leadership roles. 

I have had the pleasure of getting to know both of them as members of the House Financial Services Committee. And I think, without getting partisan or political about this, I just want to express 

my thanks to this area of Florida for sending us these outstanding 

representatives and tell you that they are doing an outstanding job 

on your behalf. 

I haven’t spoken about Representative Wexler— 

Mr. WEXLER. We apologize for sending me there. 

Chairman WATT. He is holding his breath, because I have known 

him much, much, much longer than I have known either Representative Mahoney or Representative Klein. You came to Congress in the same class with me, didn’t you? 

Mr. WEXLER. You are a little older than I am. No, I came during 

the impeachment year. 

Chairman WATT. Oh, the impeachment year. Okay, okay, okay. 

Well, it seems like he has been there as long as I have, maybe that 

is what it is. 

But I have had the honor of serving on the House Judiciary Committee with Representative Wexler, and I know the passion that he 

brings to our body and the commitment that he has, not only on 

this catastrophe issue and hurricane issue, but on Constitutional 

issues and a whole range of other issues that we have had the opportunity to address. 

23

And I am delighted to be here in the State of Florida and convening this hearing, although I wasn’t here to convene formally. 

It has been our Oversight and Investigations Subcommittee that 

has been directly involved in a number of these issues; I kind of 

got involved in the aftermath of Hurricane Katrina. It was our 

Oversight Subcommittee that held hearings and is continuing to 

hold hearings, in fact, about the non-payment of claims in the 

aftermath of Katrina. 

Most people saw the visible lack of response that the Federal 

Government made in New Orleans and Mississippi, but there was 

a massive public failure, there was a massive private failure, because what happened after Hurricane Katrina exposed some really 

serious problems in the interface between public insurance, which 

our Federal flood insurance is, and private insurance. 

In effect, what was happening is they started pointing fingers at 

each other. The private carriers said that the damage was caused 

by water and to some extent the public carrier, the flood insurance 

naturally was saying that the bulk of the damage was caused by 

wind. So the consequence of that for a long, long period of time was 

that, neither the public insurance nor the private insurance market 

was responding to the needs of the people. 

Finally the Flood Insurance Program kicked in and paid probably 

some claims that they should not have paid and went substantially 

into debt borrowing substantial money that we have not modeled 

for under the Flood Insurance Program. And then over time, the 

private insurers went through litigation or settlement or through 

their own undertakings have stepped in and started to pay the 

claims. 

But during that period of time there was just massive non-payment of claims, and it exposed some really serious problems in the 

hurricane, flood, wind, and homeowners area that Representatives 

Klein and Mahoney kind of stepped into and said, we have experienced in the private sector. We have our own hometown experiences to bring to bear on this, and they have been invaluable in 

their contributions in this area. 

I say that not because I had it in my prepared comments, my 

prepared comments actually went in a completely different direction, but I think that we are just blessed. 

And I should say, so that nobody walks away from thinking this 

a partisan issue, it is not. It is neither a partisan issue because 

Representative Brown-Waite, from Florida, also has a piece of this 

bill that was passed by the House and made an important contribution to the discussion and to the solution that we are trying to pursue. 

So it is not a Democratic issue, it is not a Republican issue, it 

is not an upper-income issue nor is it a lower-income issue. It affects all of us. And we saw it all in the aftermath of Katrina because the lowest of the lowest income people in Louisiana were hit 

and the highest of the highest income people along the coast of 

Mississippi were hit and everybody between those two economic extremes was hit. So hurricanes didn’t come in and select Republicans or Democrats to impact, didn’t come in and select rich people 

or poor people or black people or white people to hit. This was 

24

something that showed us how vulnerable we are in every possible 

respect that you can imagine. 

And I think if we can find a good solution and I think we have, 

at least a part of a good solution that has been put forth by the 

wonderful Representatives here in Florida, if that solution or other 

solutions emerge as effective solutions, we will have benefited from 

the experiences and benefited from the knowledge that this is not 

a partisan issue or a class issue; it impacts the whole country. 

So having said that, let me ask a couple of questions, particularly 

of Commissioner McCarty. One of the issues we always face, I 

think, is that well, I think that there are two really serious dilemmas that we have here. 

Number one is that the private market has always been resistant 

to either a State government or the Federal Government or a local 

government playing a role in the insurance area. In fact, we had 

some problems even finding somebody who would come and testify 

about it because I suspect they knew I was going to ask them the 

question I am getting ready to ask Commissioner McCarty. 

They don’t want the public sector to be involved in this because 

they say it is intensely and uniquely a private enterprise issue, but 

as far as I know they haven’t come up with a good solution to catastrophic losses. 

Commissioner, you are closer to the private sector. You deal with 

private insurance companies on a regular basis, are they suggesting anything as an alternative to this, because they just don’t 

seem to have bought in as readily as you as an insurance commissioner have bought into the prospect that the Federal Government 

has a role here? 

Mr. MCCARTY. Well, I think the answer to your question, Mr. 

Chairman, really depends in large part on what company you are 

talking with. It is not a monolith by any means. 

Your large carriers have been very active in getting a national 

exclusion in a Federal backstop, a reinsurance program because 

that really fits in with their strategy in terms of their particular 

exposure, in many ways they are overexposed natural catastrophes. 

Some are smaller and national companies who don’t have a lot of 

risk have a different view. Far be it for me to testify on their behalf, but the first thing they need to do is to eliminate the State 

impediments to the rate law. 

In essence what they would like to do is a free and unfettered 

market to sell their insurance product. The problem with that is 

you have to assume axiomatic to a free market system is willing 

buyers and willing sellers. In the instant case, it is a term and condition of a mortgage, so people have to buy insurance in order to 

have the mortgage, and you almost have to have a mortgage to buy 

a home. So you don’t have the unfettered willing buyers and willing 

sellers. 

But their first contention, is let’s see what we can do in terms 

of bringing in free capital initially before we look at any other Federal programs. Some of the various associations have evidenced 

some interest in some Federal backstops; I think there is a whole 

range of opinions on this issue. But I think first and foremost they 

would like to see the market free up deregulation of State regulation. 

25

Chairman WATT. Talk to us a little bit about this seeming irreconcilable to me. I can’t quite figure it out; maybe you can explain it to me, how on the one hand insurance companies can be 

experiencing severe losses and going out of the market and fleeing 

the market and yet on the other hand, at least on a global basis, 

have had record profits. You alluded to that in your testimony. 

How do you reconcile those two things? 

Mr. MCCARTY. Well, I think that, again, this is a company’s purpose, to make profits. The regulators like to see some balance 

struck between investors and their policyholders. We think that 

there is some responsibility, corporate responsibility, not only to 

the stockholders, but to your policyholders, and I think the companies have reconciled their issue by recognizing that their immediate concern is the quarterly profit statements and their need to 

generate a profit in order to continue to satisfy their stockholders. 

That is not terribly uncommon with most businesses in America. 

What makes insurance strikingly different is the risk of ruin. 

Their capital is at stake everyday in a hurricane season, to lose all 

of their capital. So their strategic plan is, in order to make—continue to make profits is to retrench from those areas. They have 

historically underestimated their risk of ruin. They have historically underestimated their potential exposure and as they get better science, they are of the mind that they need to reduce their interest. Well, the reduction exposure is not just a Florida issue, as 

I testified earlier, this is occurring from Maine to Texas. The retrenchments particularly escalated to hurricanes in coastal prone 

areas. 

By reducing that exposure, you can also increase your profits. 

Chairman WATT. Now, some people have suggested that allowing 

insurance companies to kind of create subsidiaries and do this 

State by State, have a Florida subsidiary in another State, contributes to this problem that I have described as one that I don’t understand how you can have both record losses and record profits at 

the same time. That is one peg, I will put it. 

The second peg I will put is that I saw a statistic, in preparation 

for this hearing in fact, that indicated that about half of the U.S. 

population lives near the coast. That is the second peg. 

The third peg is there is now before Congress, and it will come 

actually before our Financial Services Committee for consideration, 

a proposal to create an optional Federal insurance charter. I know 

that is something that State insurance commissioners, my own 

State insurance commissioner in North Carolina kills me or threatens to shoot me even if I mention it publicly, but it is—the legislation has been introduced and in the course of having this discussion, I think it is worthwhile to have a full-blown discussion. 

Insurance is about spreading risk, and if half of our population 

lives along a coastal area, 49 of our 50 States have some kind of 

catastrophic risk of being exposed to catastrophes of some kind or 

another, what—give me your perspective, Commissioner McCarty, 

on whether that, plus the propensity of insurance companies to go 

State by State by State because they are regulated State by State 

by State, whether that might create a case for at least considering 

the prospect of an optional Federal charter. 

26

And I want to make it clear that I am not on record as being 

supportive of an optional charter. In fact, I think if you look at the 

comments I have made about it, my comments have not been all 

that favorable toward it because I know that insurance is something that has been historically regulated and done at the State 

level and I am patently aware of that. 

But I just think we shouldn’t come to Florida and not get the 

Florida insurance commissioner’s comments about this, if he is 

willing to allow me to put him on the spot. 

Mr. MCCARTY. My pleasure, Mr. Chairman. 

The three issues to consider as they are oftentimes referred to, 

in the aftermath of Hurricane Andrew, State Farm, Allstate, and 

Nationwide, to mention three of the major companies that are Florida-specific companies, certainly part of the reason you set up a 

corporate entity is limit your liability. There is certainly going back 

to the issue before, being driven by the capital—the rating organizations that they would be downgraded once they did set up pup 

companies, so they have, but I think it is quick to point out they 

have capitalized them and have recapitilized those companies in 

the aftermath of our storms since there were back-to-back eight 

named storms that hit Florida. So they have evidenced their commitment to Florida. 

Rates are really State-based anyway. They file with each individual State jurisdiction to do that. So setting up the pup company, 

in and of itself, does not necessarily raise rates, but if that pup 

company buys all of its reinsurance in that one region, that could 

affect the cost of the reinsurance component. 

In terms of changing demographics, I think you are right on 

point, Mr. Chairman, there is a significant change in the demographics of the United States since the 1950’s. More and more 

Americans are gravitating towards and relocating towards highrisk areas, whether that risk is the risk of hurricanes in the Gulf 

of Mexico or the risk of earthquake exposure in California and 

other places in the west, we are certainly much greater at risk of 

catastrophic loss, just merely by the change of demographics. 

As I alluded to before, if we were just to repeat historic events, 

these events would be many, many, many times more cataclysmic 

today merely because of the changing demographics. 

And lastly, with regard to the issue of the optional Federal charter, I think that the insurance industry marshals a very compelling 

argument for having a national Federal charter. Because of the inefficiencies of dealing with 50 States many times it is easier to deal 

with foreign countries than it is to get 50 licenses in the United 

States and appointment of agents, etc. 

Having said that however, I think if any of the bills you have 

seen out there for an optional Federal charter do not complement 

the regimen as we have seen in many States in the United States, 

including the State of Florida, which by that I mean, having a complete consumer protection regulation framework put in as well, I 

think when you start talking about consumer protection by an optional Federal charter, support for it will not be as strong as it is 

for many members in the insurance industry. 

I think the better solution is a solution that would create greater 

efficiencies among the States through compacts, as we have seen 

27

with the interstate compacts that have been done in the past and 

creative work then among the States to the National Association of 

Insurance Commissioners, as opposed to creating an optional Federal charter. 

The fear by most regulators is the mask of the optional Federal 

charter is effectively to get around State regulations and State consumer protections. If you were to build in a firewall and still have 

State consumer protections, but you can just get a license easier, 

I think the real issue is companies would like to see much of the 

apparatus for consumer protection dismantled. 

Chairman WATT. I think I have long since exceeded my time, and 

I will go another round if you all care to go another round. I now 

recognize Representative Klein. 

Mr. KLEIN. Thank you, Mr. Chairman, and just a few observations. 

First on the deregulation issue which you asked about, and your 

questions were extremely insightful, having been in the Florida legislature 14 years before this and been involved with these issues, 

these are the issues that are the crux of what is going on in Florida 

and other States where these same symptoms have manifested 

themselves in terms of risk reduction, reduction of the portfolio and 

also acceleration of the rates. 

On deregulation, the argument that I have heard in Florida over 

the years is, you know; let the market establish its equilibrium. If 

you do that, you will be bringing in lots of capital, lots of competition and things like that. 

The problem is, if you have a $2,500 policy, and the market is 

at $8,000, all of a sudden you have 10 competitors come in, that 

is a wonderful thing on the competition side, but you have now 

priced it out of the realm of homeownership in Florida or other 

States. 

So this is a question where I think there is sort of an acknowledgement of market failure at a certain point. We all know you 

have to have insurance if you have a mortgage and this is obviously something, even if you didn’t have a mortgage, I would certainly think it is the proper way to prepare to protect your own values, and your estate, and your home and things like that. 

The second issue is the separation of the risk and Mr. Mahoney 

has been very outspoken about this. This was presented in the 

Florida legislature early on after Hurricane Andrew with separating and taking apart one side of the risk, and up to this point 

the companies have capitalized when necessary when there was a 

problem after the hurricanes. 

But, if that is the case, why shouldn’t there be one company? 

And more importantly it is this notion of the evaluation of the risk. 

I mean, if you are just separating out—it is almost like saying 

Palm Beach County should have its own little lines—of let’s evaluate what Palm Beach County looks like; here are the lines. A joke 

here in Florida—they have what they call the I–95 mountain 

range—I–95 is a road in a flat State that has no topographical differences on one side or the other, yet you pay more on the ocean 

side than you do on the west, yet, in the event of hurricanes, if I 

ask people here who live here, anybody here live west of I–95? How 

much more damage occurs, more west or more east? A rhetorical 

28

question, it is because the storms came in from the west, no storm 

surge, so it was you could argue it is a fiction of the east side 

versus the west side. And again, these are things that have been 

used to drive up rates and justify rates. 

And lastly on the optional Federal charter, that is obviously 

being discussed on many levels in Washington. My biggest thing is, 

as the Commissioner is pointing out, that to the extent that those 

kinds of things are considered, if we were to look at the entire 

United States as a risk area, and we do what insurance is supposed to do, spread the risk and if somebody gets a national charter for offering homeowners’ insurance, that is wonderful and that, 

you know, different rate, different areas, involve different risk and 

that is fine, but you are blending the entire United States together 

into one category with reinsurance, but if they are not prepared to 

do that and it is a national charter but still each State does their 

own thing, I don’t see any benefit to the consumer and I think 

what we are trying to figure out here are ways to balance the right 

of a reasonable profit for a for-profit business for what we all know 

is a necessity and that is to have homeowners’ insurance at a reasonable rate that many people in this room have paid in for 15 or 

20 years, and they have that one claim, they are afraid to make 

a claim because they are going to get cancelled or the insurance 

company won’t be there to back them up. 

So those are the things that we are all trying to address nationally and I appreciate you honing in very directly on the questions 

that are really the operative questions in resolving this. 

Thank you, Mr. Chairman. 

Chairman WATT. Representative Mahoney. 

Mr. MAHONEY. Thank you, Mr. Chairman, for giving us this second round. This is very stimulating. 

First thing I just wanted to make sure I understood from Commissioner McCarty and that is is that this concept of a regional approach to catastrophes is something that you say increases risks, 

doesn’t reduce risks, and is not a good solution. Did I understand 

that to be correct? 

Mr. MCCARTY. Obviously pooling together in a regional CAT fund 

is better than doing nothing at all. My problem with the concept, 

however, is that you are not spreading it in a wide enough manner. 

To make it most effective, certainly a small State like Louisiana 

isn’t large enough to create a Louisiana CAT fund like Florida. But 

if you pooled it together with a number of States in the Southeast, 

they would be able to be able to do that. 

Mr. MAHONEY. But not to interrupt you, but three States that all 

have the same risk which is catastrophic hurricanes, does that increase, you know, does that share the risk or does that heighten 

the risk for that region? I mean there are people that are saying 

that that is what we need to do, we need to have regional catastrophic strategies and I just want to make sure I understand that 

what the—whether or not you think that that is accurate or not or 

should we be doing, saying no, that is the wrong thing, we should 

be going to a national approach. 

Mr. MCCARTY. I think a national approach spreads the peril and 

the geography— 

Mr. MAHONEY. Right. 

29

Mr. MCCARTY. —which I think are the two most critical issues. 

But short of a national plan, a regional plan makes some sense because of the cost of lowering insurance. A CAT fund can have actuarially rates at one-third the cost of the private sector. 

Mr. MAHONEY. Well, I think the problem with global reinsurance, 

hearing your testimony, sir, is the fact that there is just not enough 

of it. And so when something is scarce, the cost is high. Is that—

am I understanding that, is that a simple understanding? 

So my question is, let’s just run through the math. You know, 

somewhere along the lines somebody said that two category fours 

hitting Florida in a year would generate $79 billion worth of damage, is that—does that sound familiar to you? 

Mr. MCCARTY. That is certainly within the realm. 

Mr. MAHONEY. And if you take a look at all the insurance premiums we got for wind that come in the State, what would you say 

annual premiums are in the State? 

Mr. MCCARTY. I don’t have that figure, but it is substantially less 

than that. 

Mr. MAHONEY. The number I think I am working with is somewhere in the $9 to $10 billion level? 

Mr. MCCARTY. That is about right. 

Mr. MAHONEY. And a fully funded CAT fund is how much in the 

State of Florida right now, if we had the fund fully funded now, 

right now, the CAT program? 

Mr. MCCARTY. The CAT—we have a CAT capacity of about $36 

billion, but that is mostly through debt instruments. 

Mr. MAHONEY. Okay, let’s say we have $36 billion in that, $10 billion in premium. That gets us to $46 billion. You know, the point 

I am trying to make here is that we still have between $30 and 

$40 billion of unfunded liability. And everybody needs to understand that is what is causing the instability in the market, because 

when the Commissioner goes out and we borrow money or we tax 

people by adding a premium to their policy to build a State CAT 

fund in order to provide lower cost reinsurance, what the insurance 

companies are doing, as Commissioner McCarty is saying, is that 

they are taking advantage of it, they are buying the lower reinsurance through the market, but at the end of the day, with the savings that they have, they still have unfounded liability. So they 

still are going back to that expensive reinsurance, which is costing 

anywhere between $200- to $300 million per billion to cover. 

I will tell you just anecdotally, one thing we have a great chief 

operating officer, just goes to show you here, Mr. Chairman, that 

Democrats do know how to manage, we have Alex Sink, who is 

chief operation officer for the State, and I met with Alex in Washington D.C., and she was trying to figure out how to finance that 

shortfall in the State of Florida— 

Chairman WATT. That is the same Alex Sink who came out of my 

congressional district in North Carolina; I just wanted you to know 

that. 

Mr. MAHONEY. So Alex Sink met with us and she showed me a 

letter from a company that will remain nameless to what they call 

a commitment letter, and that commitment letter was a commitment to raise the money, it wasn’t having raised the money, it was 

to raise the money to fund the CAT fund so that in the event the 

30

money would be there. And they wanted, I think it was $600 million for the letter—$600 million for the letter. 

So the point I am trying to make here is we can’t solve the problem in the State of Florida, because if you add up all the nickels 

and dimes, we are still about $40 million dollars short and there 

isn’t a reinsurance industry although they are fighting us tooth and 

nail to try to keep us from regulating. There is not a reinsurance 

industry that has enough capital, A; and B, if they had the capital 

they wouldn’t put it all into disasters in North America, let alone 

the United States, let alone the Gulf Coast, and that is what is creating the problem. 

And that is the reason why the Federal Government has to step in and say look, we will be the lender of last resort for that $40 

million, the State of Florida and the State of North Carolina respectively have to take on their responsibility and the insurers 

have to do the same. Because until you solve that instability in the 

market, there is no relief. 

Would you agree with that? 

Mr. MCCARTY. Absolutely. 

Mr. MAHONEY. Thank you very much, I appreciate it. 

Chairman WATT. Representative Wexler. 

Mr. WEXLER. Out of deference to the second panel, I will be very 

quick, but if I could just ask the Commissioner for his assistance. 

We have a political problem in that when we had the hearings regarding this bill in the House of Representatives, the Administration, meaning the President of the United States, the Administration came and testified vehemently against this legislation and essentially made the argument, not the argument that you make, but 

the argument that you alluded to, that it was improper to create 

what in effect was a Federal regulatory role and that what was 

really necessary was that the private market was being inhibited 

by State insurance commissioners such as yourself. And I and others asked well, what are you saying is that Commissioner McCarty 

is not letting the prices go high enough and to a degree, that is in 

effect what they said. 

But my point is this, you are the chairman of what is, I suppose, 

the most relevant organization in the Nation with respect to this 

issue in terms of expertise. 

Would it be possible in the context of dealing with the Administration if an organized effort could occur where a majority of likeminded people such as yourself could communicate informally to 

the Administration the principles and to support the principles that 

are at a minimum enunciated in the bill to better enable us to convince our colleagues in the Senate and other of our cronies in the 

House to push forward with this. 

Mr. MCCARTY. Yes, I am aware of the Administration’s position 

with regard to any Federal action with regard to intervention in 

what they consider the private marketplace. I also believe we can 

probably play a role, hopefully, in educating the Administration on 

some of the limitations. I am a free market guy and bringing Governor Bush to meet with them and bringing macroeconomics in and 

bring in more capital, and be very clear that there is a finite 

amount there and again, the unregulated surplus line market 

which is not regulated rates, are not regulated, there is a limitation 

31

on how much capacity they can take. So it is a matter of the capacity and the exposure in different parts of the country particularly 

Florida. 

But I certainly would do my best to—I don’t know how effective 

I would be, but I certainly would make those efforts. 

Mr. WEXLER. Thank you very much, Commissioner. 

Chairman WATT. We have found that free markets really can’t do 

effectively or as effectively as government, and it strikes me as that 

this is one of those areas where regardless of how we model or how 

effective we are, I can look at the historical risk patterns and I can 

tell you generally who is going to have an accident, or who is going 

to have a fire or who is going to have a theft, but I don’t know anybody who is going to be able to contemplate and figure out the likelihood of Acts of God. And government’s prime role is to step into 

the breach for the common benefit of its citizens and so I don’t 

want to get on, you know, this is not government versus private enterprise; it is about the common welfare of the people that we all 

serve. 

And so, with that, let me thank you, Mr. Mayor, for being here. 

Thank you, Commissioner McCarty for being here. I am extremely 

apologetic for being late, but you know, it was not in my control. 

I am glad to hear Representative Mahoney praising Alex Sink, who 

came out of North Carolina to work for Bank of America and came 

down and became a success, even more successful in Florida than 

she was in North Carolina. She is a good friend of mine too, a wonderful, wonderful person. 

So thank you all being here and we will now call up the second 

panel. 

Just for information purposes, there was somebody in the room 

who raised their hand, and it is not traditional in congressional 

hearings, either in the field or in Washington, to take questions 

from the audience. In a lot of cases, we have townhall meetings 

where questions are appropriate to the Members of Congress, but 

I am afraid I won’t be able to take any questions from the audience 

today, sir. 

Mr. OSER. Let me say this, I am so proud of our Congressman 

up there and I have lived in three States. 

Chairman WATT. He might recognize you for that purpose of— 

Mr. WEXLER. Mr. Oser, please speak up. 

Mr. OSER. I spent a little time in Cherry Point, North Carolina, 

before you were born. 

Chairman WATT. We might all ask you to come to the mike if you 

are going to—no, no, we thank you for the praise, but unfortunately we have to honor the protocols and rules of Congress in 

—thank you. 

We would now like to welcome up our second panel and therefore 

CVs have been put into the record or will be put into the record. 

I guess I will ask unanimous consent to put your full resumes or 

CVs into the record and I will make a brief introduction. 

Our first witness on the second panel is Mr. Charles Bonfiglio. 

Did I come close? 

Mr. BONFIGLIO. Very good. 

Chairman WATT. —president of the Florida Association of Realtors. Our second witness on the second panel is Mr. Alex Soto, past 

32

president of the Independent Insurance Agents and Brokers of 

America. And our third witness on the second panel is Mr. Roger 

Jesse, a resident of Hobe Sound, Florida. And that is in keeping 

with our tradition when we go into the community of having some 

residents come and testify. We did that when we were in Mississippi too, so we thank you so much for being here. 

Just so you know the rules of the road, without objection, your 

entire written statements will be made a part of the record, and 

each of you will be recognized for 5 minutes or thereabouts. I am 

not as rigorous about that as some Chairs, but you will be recognized for 5 minutes. Do they have a lighting system over there? 

He will raise up a hand when you have 1 minute left in your 5 

minutes. Don’t stop though in the middle of a sentence just because 

you have run out of 5 minutes. Please finish up your thoughts because we are here to get as complete a record as we can. 

And with that, Mr. Bonfiglio, we will recognize you for 5 minutes. 

STATEMENT OF CHARLES BONFIGLIO, PRESIDENT, FLORIDA 

ASSOCIATION OF REALTORS 

Mr. BONFIGLIO. I have a great Alex Sink story, but we will save 

that for another time. 

Thank you, Chairman Watt, Congressman Wexler, Congressman 

Mahoney, and Congressman Klein for the opportunity to be here to 

speak to you on behalf of the Florida Association of Realtors, on the 

homeowners’ insurance crisis and its impact on communities, 

homeowners and the economy. 

My name is Chuck Bonfiglio, and I am broker/owner of Century 

21 Triple A Realty in Cooper City, Florida, and also president of 

the Florida Association of Realtors. The Florida Association of Realtors is the largest trade association in the State, with more than 

150,000 members. 

I must begin with a public thank you to Congressman Klein and 

Congressman Mahoney for their efforts to address the problem of 

availability and affordability of property insurance. 

The bill that that they led through the United States House of 

Representatives, the Homeowners’ Defense Act of 2007, defines a 

process for supporting reinsurance markets nationwide and as such 

marks a solid first step in ensuring the availability and affordability of homeowners insurance in at-risk markets. On behalf of 

all Realtors and homeowners in Florida, we thank you. 

Mr. Chairman, as you know, the availability and affordability of 

property insurance is at its core a consumer issue. The importance 

of this insurance to homeowners, commercial property owners and 

those who would like to own their own home or place of business 

cannot be overstated. 

Unfortunately, it is also something that consumers nationwide, 

even those who are not in what have traditionally been considered 

disaster-prone areas, now know all too well. 

The Florida Association of Realtors strongly encourages Congress 

to enact a comprehensive natural disaster policy to help property 

owners prepare for and protect against losses from future catastrophic events. Such a policy would recognize the respective responsibilities of property owners, private insurance markets and all 

33

levels of government in preparing for and recovering from future 

catastrophic events. 

An unprecedented number of strong hurricanes, including the 

most powerful hurricane ever measured, Hurricane Wilma, caused 

extraordinary devastation in 2004 and 2005. As you all know, eight 

hurricanes rated category three or higher, blew through Florida in 

just 2 years. 

My Association commissioned a study on the impact of hurricanes on housing and economic activity which was completed in 

April 2006. I would just briefly mention some of the findings of this 

study, but I would like to submit the full study for the record. 

Chairman WATT. Without objection, we have a copy of it, I believe, the Affordability and Availability of Homeowners Insurance 

in Florida, and without objection, it will be submitted in its entirety for the record. 

Mr. BONFIGLIO. Thank you. 

After the devastation of 2004 and 2005, private insurance companies sharply raised insurance premiums and/or drastically lowered 

their insurance coverage in Florida. 

The limited availability of property insurance in turn forced 

many homeowners to seek coverage through Florida’s public insurance system. But Florida Citizens Property Insurance Corporation, 

specifically set up to provide insurance in high-risk areas where 

private market insurance options are limited, has also come under 

great financial strain and been forced to significantly raise insurance premiums. 

The current high cost and limited coverage of property insurance 

appears to be impacting the housing market. Unfortunately, declining housing activity is often the precursor to a larger economic 

slowdown. Without a doubt, the 2004 and 2005 hurricane seasons 

were catastrophic and unpredictable. 

Hurricanes of such strength and frequency could not have been 

anticipated through normal historical analysis, and hence, cannot 

be considered as normal insurable losses. I believe that Federal 

catastrophic insurance coverage would permit insurance companies 

to better manage risk and widen insurance availability at reasonable costs. 

Just as with Federal terrorism insurance, coverage on unknown 

events allows the private insurance market to continue its presence. A Federal catastrophic insurance program will not only benefit Floridians, but also residents living near the Mississippi River 

who experienced flooding, families in Kansas and Oklahoma who 

will see more than their fair share of tornados, west coast residents 

from San Diego to Alaska with earthquakes, Texans and Coloradoans with wild fires, and numerous other people in cases of unforeseen and unpredictable natural disasters. 

As you all know, a strong real estate market is central to a 

healthy economy by generating jobs, wages, tax revenues, and a demand for goods and services. In order to maintain a strong economy, the vitality of residential and commercial real estate must be 

safeguarded. 

Homeowners’ insurance is a necessary component in securing a 

mortgage and buying and selling a home. If a potential homeowner 

34

is unable to obtain or afford the required insurance, the sale will 

not be completed. 

In addition, many of our commercial Realtors have reported problems with commercial insurance. Our members have experienced 

large increases in premiums, in some cases more than fourfold with 

concurrent increases in deductibles and decreases in coverage, and 

in other cases a complete lack of availability. 

While most agree that States are the appropriate regulators of 

property insurance markets, I believe that there is a proper role for 

the Federal Government in addressing mega catastrophes. Some 

disasters are just too large or unpredictable for the private market 

to manage alone. As such, it is appropriate for the Federal Government to intervene in insurance markets and prevent market disruption and insolvency among insurance companies. 

I must admit that we all have a duty to ensure that there is confidence that our homes and businesses will survive future catastrophic events. I just met with the president of the Florida Homebuilders, Bob Parrish, on Friday, and we agreed that appropriate 

mitigation measures can also create the confidence. 

Federal and State governments can provide incentives through 

tax credits. We know that a dollar spent on mitigation saves society an average of nearly $4. Florida has the ‘‘My Safe Florida 

Home’’ mitigation program that provides matching grants to homeowners to harden or strengthen their homes, and it is working. We 

would encourage Congress to look at tax credits to encourage mitigation as well. 

There is no guarantee that 2008 or any future years will be as 

benign for natural catastrophes as 2006 and 2007. The question is 

not whether there will be another Katrina-like event in size and 

scope of destruction, but when. 

As we learned, it is far less costly to prepare ahead of time than 

to fund recovery efforts. We also encourage Congress to consider 

proposals that will provide incentives for property owners to undertake mitigations measures, allow individuals to establish catastrophe savings accounts to pay for losses resulting from catastrophe 

events, strengthen the Nation’s infrastructure, and ensure the long 

term viability of the National Flood Insurance Program. 

Thank you again for inviting me to present the views of the Florida Association of Realtors. We certainly hope the United States 

Senate will have a similar hearing, and we stand ready to help 

you, Chairman Watt, and others in Congress to develop a responsible natural disaster policy that addresses the needs of consumers, 

the economy, and the Nation. 

Thank you. 

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

54 of the appendix.] 

Chairman WATT. Thank you for your testimony and thank you 

for the role the Realtors are playing on this issue and in providing 

housing around the country. Certainly some of the most thoughtful 

ideas for dealing with the crisis of foreclosures and lending and 

other lending issues that we have been facing in my community 

have come from my local Realtors and from your national association, so we thank you so much. 

Mr. Soto, you are recognized for 5 minutes also. 

35

STATEMENT OF ALEX SOTO, PAST PRESIDENT, INDEPENDENT 

INSURANCE AGENTS AND BROKERS OF AMERICA 

Mr. SOTO. Thank you, Chairman Watt, and Congressmen Klein, 

Mahoney, and Wexler. 

I appreciate very much the opportunity to be with you. As you 

have indicated, my name is Alex Soto. I am the immediate past 

president and the immediate past chairman of the Independent Insurance Agents and Brokers of America. 

We are 300,000 men and women working in 25,000 independent 

agencies, which are small businesses throughout our entire Nation. 

We are not employees of the insurance companies and we are not 

representatives of the insurance companies, nor the reinsurers. 

The big ‘‘I’’ likes to think of itself as being a group of small business owners, and we have contractual relationships with many insurance companies and serve our clients by placing their risk with 

the best possible solutions within the companies that we represent. 

I am also the president and the CEO of InSource, Inc., which is 

one of the largest privately owned insurance agencies in the State 

of Florida. We are based in Miami, Florida. We also have offices 

in Broward County. And I had the dubious distinction of having 

lived through Hurricanes Andrew, Katrina, and Wilma, and Congressman Klein alluded to the former JUA, which was the predecessor of Citizens, I was for a period of time, vice chairman of that 

organization. 

Let me make the following comments. The insurance industry is 

neither monolithic or monopolistic. The fact of the matter is that 

if you go to A.M. Best, and A.M. Best is an organization, the largest and the oldest that rates and ranks insurance companies, you 

will see on their Web site that they have financial information on 

over 7,500 insurance companies. And these insurance companies 

sell all types of insurance and A.M. Best does not keep financial 

information on the entire universe of insurance companies. So if we 

are generous, and say that they do it for 75 percent of the marketplace, then that universe is about 10,000 insurance companies. 

If you go to the Department of Insurance of the State of Florida, 

you will note that 118 insurance companies are licensed to sell 

homeowners’ insurance in the State of Florida, a small proportion 

of the total universe. 

That number of 118 is very misleading because the reality of the 

fact is that a number of these 118 companies are not writing any 

new business, or worse yet they are not only not writing new business, they are actually canceling and non-renewing a number of insurers. 

These 10,000 insurance companies everyday, their CEOs make a 

decision on where they are going to invest their capital, in terms 

of the lines of insurance they are going to offer, coverage, and the 

geographic areas. 

And so in effect, every State in the Nation competes everyday 

with every other State for the attention of these insurance companies in order to bring capital to their State and as Commissioner 

McCarty already indicated to us, the fact of matter is that the marketplace does not have confidence that they can risk a substantial 

portion of their capital, and I am talking about the individual comVerDate 0ct 09 2002 13:54 Apr 22, 2008 Jkt 041179 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 K:\DOCS\41179.TXT TERRIE
36

panies, in coming to an area such as South Florida or coastal areas 

or other catastrophe prone areas of the United States. 

So, we are unfortunately left with pup companies, as he alluded 

to, emerging companies, and the residual Citizens marketplace. 

Not a sufficient amount of competition, and when insurance companies compete for the attention of my clients, my clients win. It happens all the time. 

I will give you a very quick example. We were working on the 

renewal of a large architectural firm. We contacted eight insurance 

companies. There is no crisis in professional liability. We indicated 

to them that we were going through a bid process on behalf of our 

client and they were delighted to participate. As we moved through 

the process, what happened was the premiums came down, the limits went up, the deductibles went down, and the language of coverage expanded. There was competition, there is competition, and 

that is what we would like to return in Florida. 

Perhaps unlike other segments of my industry, I will tell you 

that my Association is four square in favor of your bill and we salute you for what you are doing. We have been the independent 

agents in favor of a backstop solution because there is a place for 

the Federal Government. While we ultimately believe that some 

deregulation of rates would be a good idea, it would be irresponsible where there is no competition in an area such as Florida to 

do it precipitously so we don’t believe that is an important or a 

proper solution so we salute you for what you are doing and we 

support it and we will work in order to try to get it passed through 

the Congress. 

We support any other measure that would create more competition and more market being brought to our areas, the coastal areas 

of the United States. 

There are two other components to this that I think are important in romancing, if you would, capital to come to our areas. 

Quite frankly, I would like to see our elected officials in our 

State, our Governor and members of the legislature, speak with a 

little softer voice when condemning our industry. When you use a 

blanket brush to attack the industry, what you will never know is 

that certain companies in certain parts of the Nation will simply 

not come and invest in your area, among other things, because they 

believe there is a hostile environment. 

Finally, I like the comments that Mr. Bonfiglio just made in 

terms of retrofitting and hardening homes. It is probably one of the 

most important magic bullets that we have. 

It works this way: If you think of premiums as innies and payments of claims as outies, every one of us have to keep, in our private lives, in our businesses, even in State government, the innies 

ahead of the outies. Insurance companies need to do that. If you 

don’t like the innies, the premiums that we are paying, we have 

to reduce the losses. 

If you look by example at Hurricane Charlie that came in from 

the southwest coast and cut across a swath, it went out Daytona 

Beach, there was an analysis done recently by the Institute for 

Business and Home Safety, that looked at the losses of the homes 

that were in that area and were affected, in the ones that were 

built prior to 1996, when a better building code went into effect, 

37

had fully 60 percent more claims than the ones that were built 

afterwards. 

And when you compared the total number of claims, law of large 

numbers, the severity of the ones that were better built after the 

improvement of the code was actually 42 percent less severe. There 

is nothing as dramatic as hardening of our homes that we can do 

in order to improve our market condition. 

I salute you for what you are doing and we will work with you 

in order to get it passed. At some point in the question and answer 

session, I would love to get into optional Federal charter or deregulation of insurance or any of the other topics. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Soto can be found on page 79 of 

the appendix.] 

Chairman WATT. Thank you for your outstanding testimony, and 

I will now recognize Mr. Jesse for 5 minutes or thereabouts. 

STATEMENT OF ROGER JESSE, RESIDENT, HOBE SOUND, 

FLORIDA 

Mr. JESSE. Thank you, Mr. Chairman. And I am glad to be here 

with Mr. Klein, Mr. Mahoney, and Mr. Wexler. 

I am just a plain retired guy, okay? I retired in 1999 and I had 

experience in general management, marketing, sales, and engineering. I purchased my Florida home in 2002 and became a Florida 

resident; I homesteaded in 2004. I am a widower, I am on a fixed 

income, and I am 73 years old. 

I have resided and owned 9 homes in over 48 years, from coast 

to coast. I have been in some earthquakes and a few things like 

that and that experience level. I have a Bachelor of Science degree 

from the University of Wisconsin and Chemical Engineering and 

Naval Science, in that area and I am very active in volunteering 

in Martin County, specifically in this area. 

As I said my current home was purchased in—I said August of 

2002, but I made a mistake—it was July, so I stand corrected. 

I purchased homeowners’ insurance through a local agent from 

Allstate Floridian in 2004 and was informed in the spring of 2007 

that my insurance was not being renewed. Although my residence 

had been through three hurricanes and had not had a claim made 

with Allstate Floridian in this case. 

As the crow flies, my home is 5 miles from the ocean, in that 

area. It is still on the east side of I–95, in that area. The home is 

rather unique in its construction, in that the exterior walls are actually poured reinforced concrete. It is a fortress, in that area, it 

really is. My total hurricane damage from those three hurricanes 

was $280 for the screening of my lanai, and just a part of the 

screen of the lanai, in that area. 

Being of relatively new construction, it has shutters, hurricane 

shutters and all the improvements that are called for in all the 

codes in that area. 

I am currently insured by a company called Royal Palm Insurance and my insurance rates have not, you know, they are nothing 

incredibly dramatic, but since 2004, it has doubled in that area. 

In addition, there is some—I guess my concern is about the capabilities of a company that I haven’t really heard about before, as 

38

opposed to a company that is national and certainly more visible 

in the area. And there was a recent article in the local Stuart News 

that this insurance company was doing drive-by appraisals and increasing the premiums on the policy in the area. That did not happen to me in that area. 

I guess the increasing cost and availability of good, reliable 

homeowners’ insurance is a major concern, but it doesn’t impact me 

that heavily in terms of my current lifestyle. I have reasonable 

computer skills and frequent the Internet regularly. I am very concerned that for many seniors or disadvantaged who are on the edge 

and have a difficult time communicating in this electronic world. 

Thank you. 

[The prepared statement of Mr. Jesse can be found on page 64 

of the appendix.] 

Chairman WATT. Thank you so much for your cogent reminder 

that we can put all the statistics and models and whatever, but in 

the final analysis this is still about the citizens that we serve, and 

I thank you so much for being here. 

Mr. Klein, you are recognized for 5 minutes. Do you want to go—

Mr. Mahoney for 5 minutes. 

Mr. MAHONEY. You can see, Chairman Watt, the pecking order 

here of a Florida delegation, how it works, and I am at the low end 

of this pecking order, so I am happy to go first. 

Chairman WATT. You look like you are in the middle there to me. 

Mr. MAHONEY. Well, that is the only concession that I got, sir, 

was having my colleagues on either side of me. 

Mr. Bonfiglio and Mr. Soto, thank you very much for being here 

today and having the Florida Association of Realtors and the Independent Insurance Agents supporting this bill has been an enormous asset. 

I don’t think I have to remind you that operating businesses, 

whether they be insurance agencies or real estate firms, that 

things have been kind of rough for your constituents these past 

several years. 

And we have seen here, Chairman Watt, the perfect storm of 

what can happen when you have out of control insurance rates, 

premiums for insurance—homeowners’ insurance, property taxes 

and that here in the State of Florida, whether you like it or not, 

the real estate industry and construction and all of the things that 

affect it are still the major industry in the State and we are, I 

would say, fair to say, in a recession and having to figure out how 

to dig ourselves out. 

But the first question I have, and it is just from the perspective 

of your constituents Mr. Bonfiglio and Mr. Soto, is that when you 

take a look at all the things that are impacting sales right now for 

your members—property taxes, homeowners’ insurance, and housing costs—could you just kind of lay out what is happening in the 

State of Florida and how each is impacting. I know they are all 

negative but, you know, could you give us a little relative, you 

know, discussion as to how—which is bigger, lesser, how things impact the market. 

Why don’t we start with you, Mr. Bonfiglio? 

Mr. BONFIGLIO. Yes, thank you for the question. 

39

You know, when you look at it, our number of sales in 2007 in 

the State of Florida were down by 29 percent from 2006. And that 

was after being down about 30 percent in 2006 from 2005. And I 

did some quick numbers and resales, existing homes in the State 

of Florida for 2007, totaled about $130,000. There are a 160,000 

Realtors, and there are probably another 160,000 non-Realtor licensees, so you do the math. It equates to less than one-half of a 

sale per licensee. 

We have foreign investors who love the State of Florida; the Canadians, the people from Great Britain, and with the dollar being 

what it is, those folks ought to be coming here in droves and buying up our property. But unfortunately the reason that they are not 

and that has gone down as well, 2 years ago, foreign investors did 

about 15 percent of our sales and that was over 80,000 sales. Last 

year in 2007 that dropped to 7.3, so you say well, with all the 

things that are positive for the investor, for the foreign investor, 

then why aren’t they buying and the answer is simple; taxes and 

insurance. 

Until we can fix that, these folks aren’t going to be purchasing 

as they should be and that should be a tremendous market for our 

State. 

Mr. MAHONEY. Mr. Soto, do you have a comment on that? 

Mr. SOTO. Yes, two or three very quick points. 

Number one; there has been a theme of concern about the rising 

cost of insurance. We have a small but growing segment that are 

making decisions to go bare, by that, meaning not to buy windstorm insurance. And some people are doing it in a thoughtful 

manner and they are putting some money away, they are doing the 

reserve. Others will be bankrupt the moment that they are hit by 

a catastrophe because they are going bare without the wherewithal 

to create another plan. 

Some are going to be bankrupt because of the size of the 

deductibles. Deductibles have increased. There has been a premium 

stabilization in the last year or so where the increases have been 

more modest, but there is a tremendous danger as to the quality 

of the paper and the insurance that stands behind it. 

There is a tremendous concern—I used to worry about my home 

and my clients’ homes. Now I have to worry about everybody in the 

State of Florida because of the exposure of the catastrophe fund, 

which I believe is sorely underfunded and also Citizens Insurance. 

And that is why we really, I think the analysis that you all went 

through in terms of the size of the exposure, it is well beyond our 

borders and our State, what it can handle. 

Mr. MAHONEY. I appreciate that, Mr. Soto, because I was going 

to address another question to both you and Mr. Jesse. 

By the way, Mr. Jesse, I am glad to see that you came in your 

official uniform of a successful retiree today. 

Mr. JESSE. Thank you. 

Mr. MAHONEY. Okay, and I think it is very, very valuable what 

you are doing here, talking about your experience. 

And the thing that struck me is the fact that who are living in 

this hardened shelter and a little piece of paradise called Hobe 

Sound, that has not lost its beach charm and the small town community feel. 

40

But, you know, you were talking about having been insured by 

a subsidiary of Allstate, Allstate Floridian, and then you are now 

to another company and my question to you is, as a homeowner 

being rejected by a national name, Allstate, even though it is a 

Florida pup company, which has its ramifications, and going to another company that doesn’t have a national reputation, can you 

just explain to me, I mean, how confident are you that you are really insured at this point in time? 

Mr. JESSE. Not terribly confident. I would say being advised that, 

you know, they are not going to renew is, you know, as you get on 

and older, as I said, it gets more difficult, okay, and I am pretty 

good, I have my senior moments, but I am there and I can find new 

stuff and everything like that if it is available, if it is any good, 

okay. And how, again, I have heard so much about, you know, 

shortfalls and everything like that today. I mean it really makes 

you think, you know, where—what have I really got here. 

Mr. MAHONEY. Well, the other thing you pointed out too is that 

you are fairly computer savvy and, you know, one of the things 

that you have been able to do that I know a lot of our seniors have 

had difficulty doing, because they haven’t used the Internet and so 

and so forth, is be able to take advantage of some the services that 

are out there that might be able to help them find lower cost insurance, which is a different problem. 

But Mr. Soto, getting back to you, you know this whole issue of 

pup companies and these new companies. I mean, I remember having a conversation with the Governor and Commissioner McCarty, 

unfortunately I think he had to leave already, and there is coming 

back to us and saying don’t worry because we have more competitors in the market, we have new companies coming into the market, and being an old financial services guy myself, I mean, I am 

always concerned about the strength of one’s balance sheet frankly, 

in terms of being able to handle the event. 

We had a situation in the last Hurricane Wilma where we had 

a fairly significant company insure, I will say, not a company, end 

up going bankrupt and putting additional stress. 

As an independent, representing independent agents, I mean, 

one of the great values that you bring to the marketplace is your 

independence, your ability to take a look at what is out there in 

the marketplace and be able to assess and evaluate companies and 

their product offerings. 

I would be interested in your perspective in terms of whether or 

not the programs instituted by the State, our inability to stop the 

exodus of what I would call A-tier companies from the State, could 

you give us an assessment of, you know, what you think the current situation is of the balance sheet of the insurance industry is 

in the State of Florida right now? 

Mr. SOTO. Sure. Well, very quickly, thank God for the emerging 

companies because we have practically nothing else. We would be 

left with Citizens. They have stepped into a gap. 

But I will tell you and I review—one of my corporate responsibilities is to review and read carefully every contract that my organization signs with every company. 

My standard used to be, you had to be an A rated company and 

you had to have a financial size of eight or larger. A.M. Best gives 

41

you a letter rating and a Roman numeral rating and we have basic 

standards. We have to throw that out the window. 

I was facetiously telling one of my partners the other day that 

I just signed a contract, with a company that was just organized 

last week and that they have five chickens in their treasury, three 

of which I thought had the Avian Flu, and it is very scary, it is 

very scary in the position that we are in. 

The second part is that you have to realize and I will tell you 

that I helped organize one of those insurance companies. We are 

doing business exclusively in the State of Florida, we are writing 

homeowners business, with wind, but there is no spreading of the 

risk in terms of going to Nebraska and Ohio and other places, so 

that is a concern. 

We cannot rest on the basis of the creation of those companies, 

we have to—and I believe that your plan will give a certain amount 

of confidence to other companies to get involved, the larger ones, 

because at the end of the day we have to in effect, get them back 

to the coastal areas. 

Mr. MAHONEY. Just to finish up, Mr. Chairman, if you indulge 

me for a few more seconds. 

I mean one of the things that our bill does is it recognizes that 

the goal here is to bring A-tier companies back into the market and 

that, you know, the goal would be from my perspective, that a well 

crafted plan like our bill will not only encourage companies to come 

back in, because the key to it is is that there is stability, again, 

remind everybody that there is stability because in that big event 

that, you know, in that 1-in-200-year event, the Federal Government will provide the loans, it is capped and we have done everything we can possibly do to expand the market for reinsurance. 

So we are, you know, this is a very much a pro business, pro 

market approach where we are trying to get companies to come 

back in, because frankly I haven’t met anybody who wants to be 

insured by Citizens. 

So, I just, again, want to thank both of you for coming, because 

between the subprime crisis, homeowners’ insurance, and the property amendment, it has been a perfect storm of epic proportions. 

And I hope you all recognize that Congress, in the Stimulus Package and with the interest rate cuts working with the President and 

the Federal Reserve, are doing everything that we can do to resuscitate the real estate market and so that we can protect our local 

economies. 

With that, I will yield back my time. 

Chairman WATT. Thank you so much. 

Representative Wexler. 

Mr. WEXLER. Thank you again. Thank you to all the gentlemen 

for giving us the opportunity to learn from you. 

Representative Mahoney talked about the Stimulus Package. To 

me, ultimately the most important part of that package, if I understand it correctly, from now until the end of the year will enable 

conforming loans, the amount of a conforming loan to go from 

whatever it is—$417,000 to almost $300,000 more than that depending on the cost of the average price of a home in a particular 

area and so forth. 

42

I would be curious just to hear your reaction in terms of what 

kind of an impact you think that actually will have here in Palm 

Beach and in Broward and the Treasure Coast. And also beyond 

the provisions of H.R. 3355, specifically as it relates to hardening 

homes, as you described, Mr. Soto, and mitigation of risk, what tax 

provisions in your idea would be the most meaningful in terms of 

incentivizing people to take on the financial cost of doing that type 

of mitigation. 

Mr. SOTO. Would you like me to take that part first? 

Mr. WEXLER. Please. 

Mr. SOTO. We ought to make this, in my opinion, a Marshall 

Plan program and there are a number of steps and I will hit the 

facts very quickly. 

We ought to do at the Federal, at the State, and even local level, 

everything we can to support first, the research. There is wonderful 

work being done in a number of universities in our State. In my 

area, FIU is creating the wall of wind. They are going to take fans 

and blow up to 170-mile-an-hour winds on fully built homes that 

they are going to put on Lazy Susans, and they are going to spin 

them around and they are going to blow it at the doors, at the 

roofs, at the windows, at the cornices, at everything possible in 

order to garner the knowledge as to when these elements will fail. 

And they are going to build homes according to the code in the 

past, the code today, and over the years the historical number of 

codes. They are also going to test all sorts of hardening and retro 

fitting. So we need to support that vigorously. 

Number two; we need to make sure that all that information gets 

to our citizens. I look forward to the day that I can go on the computer, as Mr. Jesse can do today, and type in that I live in zip code 

33143, my home is built in 1990 and answer a few questions and 

I will be told what will happen to my home at certain wind speeds, 

the different elements, and what I need to do in order to improve 

it, and then a list of licensed contractors that will help me harden 

the home. 

Then after that we need to have inspectors that are trained in 

order to come out and look at it and see the work that I have done 

and demand that my insurance company give me a sufficiently 

strong actuarially sound credit commiserate with what I have done. 

I did that in my house and I did it, but as a private citizen, and 

I got a reduction in my premium of $1,200. 

A property tax credit or an income tax credit or some sort of 

credit that I can see a direct link between the dollars spent and 

what I am getting back, that in combination with the credit from 

my insurance company will be significant. We still have a very 

large segment of inventory that was built, more than 80 percent, 

was built prior to 1996. 

Mr. WEXLER. If you don’t mind me asking, what did it cost you 

to get the $1,200 credit, understanding that is a recurring credit, 

I assume, I hope. 

Mr. SOTO. Yes, it is. And a number of other things that I have done but I will tell you the inspection cost me a $105 in order to 

get that. I found that some elements of my home were built better, 

also simple little things. You know, we have learned that if you use 

ring shank nails to secure the roof of your home, it takes the roof—

43

and ring shank nail is nothing more than a nail that has rings on 

it—it takes it from a category 1 to a category 4. Well, I am not 

going to undo my entire house but part of the research that they 

said it, if you put a commercial grade ribbon of glue where your 

plywood and your trusses come together, that you can now increase 

a holding power to a category 4-plus. It cost me $100 from Home Depot of commercial grade glue and 

a skinny, wiry young guy, in the winter, I didn’t want to kill him, 

to go up in my attic and do it and then I got up there and tapped 

it and it is like concrete. My roof is not flying off in pieces. It may 

do like Dorothy and go in one piece, but it is now—so it is that type 

of thing that you can do. And I found that in the Web at the Institute for Business and Home Safety, out of the research that some 

of our universities did. 

So there has to be a connecting bouncing ball all the way across 

and it ought to be done, in my opinion, as almost a Marshall Plan. 

It is—when you take the reduction of the losses of 60 percent fewer 

claims and 42 percent less severe, there is nothing that we are putting in place in terms of reinsurance, in terms of savings that is 

that dramatic as reducing losses. 

Mr. WEXLER. With the exception of, and I will stop with this, Mr. 

Chairman, with the exception of the investment and the research 

which is obviously critical to the whole thing, those other matters 

seem to me to be matters more appropriately regulated to the State 

or local governments, would you agree? 

Mr. SOTO. Yes, to a great extent they are. 

Mr. WEXLER. Okay. Thanks. 

Chairman WATT. I think I will let Mr. Klein, since he is in his 

home turf go last and because I will pick up on just one thing. 

Mr. Jesse testified that he lives in a fortress, had a hundred and 

some dollars worth of damage in a major hurricane. You testified 

you upgraded and got a big credit. He says his insurance rate went 

up about double. How do you reconcile that? I mean is there something now that will allow somebody who lives in a fortress who 

really has stable well-built hurricane proof, whatever that is, home 

to get—to really get insurance savings and tax savings similar to 

what we are proposing for the greening of homes? That is one of 

the things that is in our energy bill. So it wouldn’t be too much of 

a step to go one step further and talk about tax credits for the 

strengthening of homes. 

But if Mr. Jesse is not going to get the benefit of that because 

the system doesn’t have enough flexibility in it to give him the benefit of the hardening of his home, what good is it to him? Is that 

flexibility in the system now? 

Mr. SOTO. In a number of insurance companies they do, in others 

it is pathetically poor and that is that the credits that they give 

for the differential and the construction of homes, is in my mind, 

not sufficient and when I mean sufficient, I mean sufficient to meet 

actuarial standards. The fact of the matter is there is a huge significant of the amount of damage that a home can suffer. 

Now he has poured concrete—poured reinforced concrete walls. I 

don’t know whether he has the same in terms of his roof or his roof 

is a joist and masonry type roof which is another aspect there, but 

the short answer is I would encourage him to get in touch with his 

44

insurance company or his agent and inquire as to every possible 

credit that they make available and the size and significance, and 

then get them to do a thorough inspection or he can hire a private 

inspector that will complete a form that will indicate as to what 

standards his house meets and I suspect that he may get some 

pretty good credits. 

Chairman WATT. Well, I think if nothing else comes out of this, 

I am going to get Mr. Jesse and Mr. Soto paired up today so he 

can, he can help you get your insurance rate down. It sounds like, 

I mean, if you are living in a fortress and everybody else around 

you is having his house blown away and yours is still standing 

there with a hundred and some dollars worth of damage, we want 

you rewarded for that, I think. 

And if you are not rewarded, then other people will see that you 

are not rewarded, and they won’t have the incentive to follow your 

lead, to build those fortress kind of hardened homes that have been 

talked about. 

So I think I will go with that to the hometown guy, Representative Klein, thank him once again for hosting us, and yield him as 

much time as he may consume. 

Mr. KLEIN. Thank you, Mr. Chairman, and I share our hometown 

in our gerrymandered South Florida area and to having this hearing and appreciate your support. 

Chairman WATT. I support the notion of the tax. We don’t use 

the term gerrymandering in North Carolina. I don’t use it since it 

was my congressional district that went to the Supreme Court 3 or 

4 times and got reformed 3 or 4 times in the last round of redistricting, so those beautiful, carefully constructed congressional districts, we love them. 

Mr. KLEIN. Look at the map of mine and get a beauty— 

Chairman WATT. Yes, it can’t get be anymore beautiful than 

mine. I just—I didn’t mean to get you off track, but I just always 

have to send up the red flag when somebody uses that term. 

Mr. MAHONEY. Just to show you how bad it is here between 

where I parked across the street and coming in, I went through 

three congressional districts. 

Mr. KLEIN. I support incentives. And those incentives that are 

actually in the bill, H.R. 3355, are a few type. 

Number one; I think that we have and consider legislation and 

we may want to continue to push on this to encourage tax incentives, whether they be credits, deductions, something to encourage 

fortifying of homes. And obviously it is not just hurricanes. It is 

earthquakes. There is lots of different engineering, I am not an expert and we rely on the building experts to tell us. 

Florida really has moved farther than other States because of 

Hurricane Andrew and I know that in the legislature, we passed 

these a number of years ago, but on a nationwide basis, the more 

we can do to incentivize people to better protect their homes, it is 

good for them, in terms of their own deductible, if they don’t have 

the damage in the first place, they don’t have that huge deductible, 

they don’t create the exposure of the insurance industry or to the 

State risk catastrophe pool or anything else. So a good thing. 

Secondly, and your point about it being somewhat disparate and 

different insurance companies, our experience in Florida is the 

45

same, in that some insurance companies offer $25 credit which is 

worthless. 

You know, this is a big investment. When you start putting in 

the type of glass or the types of, you know, fortifying the roof trusses or doing the shutters, in many homes it is tens of thousands of 

dollars before you turn around. And you have to be able to have 

that cash available to you or be prepared to make that investment 

and in order to do that, for many people, it is a question of how 

quickly can I recover that or what incentives. If my insurance policy is going down $1,500, and this whole thing is going to cost me 

$10,000, well maybe that is something I can justify over some time. 

But again, I think that the experience we have had is it hasn’t 

been enough to create that and we all agree from a public policy 

point of view, it is the right thing to do so I want to encourage us 

all to continue to talk about that and put that forward as an idea, 

I think it is justified. 

Plus, on the Federal level, in terms of the Federal bailouts, once 

again, if we can reduce that national exposure, less damage, less 

exposure and less bailout of the treasury. 

The only other thing I would like to add and it is along the same 

lines that I asked the Commissioner, and if I could ask the two 

gentlemen also, as you are working with your colleagues around 

the United States and if you wouldn’t mind continuing to pursue 

those conversations with the U.S. Senators, and as you get information back to feed that to Senator Nelson or Martinez, us, as to 

how we can best educate, because this is still an education process 

of which the chairman has come down to help us continue this education process within the House, but in the Senate we need to continue to do that. 

We can be successful with this because we have a very logical 

commonsense approach, but there are still a lot of people who are 

operating with the information that is not up-to-date. So I would 

just ask then on behalf of us up here if you could reach out to your 

colleagues in other parts of the country and find friends and those 

are not friends or are not of understanding, give us that information so we can begin the process of meeting with their staff, meeting with them and making sure they understand why this is a valuable and appropriate approach to dealing with this. 

So, Mr. Chairman, from my point of my view, I appreciate again 

your ability to come down here and spend some time in this area 

recognizing this is a nationwide problem, then we had heard from 

Mr. Jesse, as representative of our whole community as a consumer 

and we are all consumers and we appreciate you expressing what 

has happened to you and because it is something that has happened to all us. My insurance was cancelled recently so we are all 

in the same plane here and appreciate your support and your interest. 

Chairman WATT. Any other comments from Mr. Wexler? 

Mr. WEXLER. Just real quickly. A gentleman just walked in, Mr. 

Goldstein, who is a prominent professional in our real estate industry, but more importantly at his ripe old age, if my understanding 

is correct, he and his wife just had a baby boy 2 or 3 days ago, and 

I just wanted to congratulate him. 

46

Chairman WATT. He is probably glad to be out of the house 

today, instead of changing diapers. 

Final comments. First of all let me sure that I made a unanimous consent request to enter the full content of my opening statement in the record; we will do that without objection. 

I asked unanimous consent to submit for the record the full 

statement of Representative Ginny Brown-Waite, who was not able 

to be with us today, but sent a statement and we will make that 

a part of the record. 

Just a comment. I suspect those along in Florida most likely 

heard of the hurricane prone sections of North Carolina, Wilmington, Carolina Beach, the Outer Banks. 

I live in Charlotte, 3 hours probably from Wilmington, about the 

same amount from Carolina Beach. The Outer Banks is actually 

closer, much, much closer to Washington D.C., than it is to where 

I live in Charlotte. 

And I never thought that I would experience a hurricane, but in 

the middle of the night Hurricane Hugo came 3 hours inland to 

strike Charlotte some years ago. I heard on the television the 

warnings that it could occur, I went to bed on the highest level of 

my house which was the worst thing I could possibly do because 

I always thought that hurricanes were fed by the ocean and that 

it was impossible for a hurricane to come that far inland, and I 

woke up the next morning and saw just an absolutely devastated 

city around me. 

I make that point, because I think there is nothing better than 

personal experiences, the personal experiences that we bring to our 

positions as Members of Congress, the personal experiences that 

the two insurance representatives and real estate representatives, 

the personal experiences of Mr. Jesse, and the personal experiences 

that the Members of Congress bring to their jobs to understand the 

ins and outs of the problem and the potential range of solutions 

that exist to those problems. 

You have sent us three wonderful Representatives who are here 

with us today—and I don’t mean to suggest that the Representatives who are not here are not wonderful Representatives—who 

have a wealth of personal experience in this area. And they have 

immediately rolled up their sleeves and set about solving and finding a solution to this problem, which is really what we owe to our 

constituents and to the citizens of this country. 

I am grateful to each of you being there today to enlighten us 

more because that is what these hearings are about. If we understand the problem, and we understand the potential range of solutions, then we are more likely to find the right balance and the 

right solution, if we are going to find the solution at all. 

So, I thank you for being here. The Chair notes that some members may have additional questions for this panel and for the first 

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 would also welcome a statement from the 

gentleman who wished to say something nice about his Representative, if he wanted to submit something for the record. 

Mr. OSER. (Inaudible) 

47

Chairman WATT. I am sure they will. I have some constituents 

who are kind of like you in my congressional district. 

Mr. WEXLER. No, you don’t. 

Chairman WATT. I don’t. All right. With that having been said, 

all hearts and minds are gathered to a solution for this problem 

and this hearing is adjourned. 

Thank you so much for entertaining us here. 

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

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A P P E N D I X

February 11, 2008

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