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THE HOMEOWNERS’ INSURANCE CRISIS: 

SOLUTIONS FOR HOMEOWNERS, 

COMMUNITIES, AND TAXPAYERS 

FIELD HEARING 

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

JULY 2, 2009 

Printed for the use of the Committee on Financial Services 

Serial No. 111–52 

( 

(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 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

DENNIS MOORE, Kansas, Chairman 

STEPHEN F. LYNCH, Massachusetts 

RON KLEIN, Florida 

JACKIE SPEIER, California 

GWEN MOORE, Wisconsin 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

ALAN GRAYSON, Florida 

JUDY BIGGERT, Illinois 

PATRICK T. MCHENRY, North Carolina 

RON PAUL, Texas 

MICHELE BACHMANN, Minnesota 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

July 2, 2009 ....................................................................................................... 1 

Appendix: 

July 2, 2009 ....................................................................................................... 33 

WITNESSES 

THURSDAY, JULY 2, 2009 

Detlefsen, Dr. Robert, Vice President of Public Policy, National Association 

of Mutual Insurance Companies (NAMIC) ........................................................ 11 

Geller, Hon. Steven, former Florida State Senator, and former President, 

National Conference of Insurance Legislators ................................................... 18 

Grillo, Joseph A., CIC, Senior Vice President, Weekes & Callaway, Inc. ........... 9 

Itkin, Ivan, resident of Fort Lauderdale, Florida ................................................. 6 

Loy, Admiral James M., USCG (Ret.), former Commandant of the U.S. Coast 

Guard; former Deputy Secretary of the U.S. Department of Homeland Security; and National Co-Chairman, ProtectingAmerica.Org ................................ 25 

Repetto, S. Colleen, Executive Director, Fair Insurance Rates in Monroe 

(FIRM) ................................................................................................................... 12 

Shelton, Cynthia C., President, Florida Association of Realtors ......................... 7 

Spudeck, Dr. Raymond, Chief Economist, Florida Office of Insurance Regulation ........................................................................................................................ 20

Williams, Vicki, Outreach Coordinator, The My Safe Florida Home Program .. 27 

APPENDIX 

Prepared statements: 

Moore, Hon. Dennis .......................................................................................... 34 

Detlefsen, Dr. Robert ........................................................................................ 36 

Geller, Hon. Steven .......................................................................................... 66 

Grillo, Joseph A. ............................................................................................... 73 

Itkin, Ivan ......................................................................................................... 76 

Loy, Admiral James M. .................................................................................... 77 

Repetto, S. Colleen ........................................................................................... 82 

Shelton, Cynthia C. .......................................................................................... 98 

Spudeck, Dr. Ray .............................................................................................. 103 

Williams, Vicki .................................................................................................. 116 

(1) 

THE HOMEOWNERS’ INSURANCE CRISIS: 

SOLUTIONS FOR HOMEOWNERS, 

COMMUNITIES, AND TAXPAYERS 

Thursday, July 2, 2009 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

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

Commission Chambers, City Center, 401 Clematis Street, West 

Palm Beach, Florida, Hon. Dennis Moore [chairman of the subcommittee] presiding. 

Members present: Representatives Moore and Klein. 

Chairman MOORE OF KANSAS. Good morning. This field hearing 

of the Subcommittee on Oversight and Investigations of the House 

Financial Services Committee will come to order. 

Our hearing this morning is entitled, ‘‘The Homeowners’ Insurance Crisis: Solutions for Homeowners, Communities, and Taxpayers.’’ 

Before we get started, I want to say a word of thanks to the residents of West Palm Beach, Florida, for welcoming us here, as well 

as the people here at the City Center for letting us use your new 

facility for this field hearing today. 

I would also like to thank Congressman Klein and his staff for 

their work in organizing this important field hearing. 

At our last O&I Subcommittee hearing, we were forced to rush 

the proceedings because 28 roll call votes were called on the House 

Floor 5 minutes into the start of our hearing. The 28 votes actually 

turned into a day-long record of 53 roll call votes, but we had to 

wrap up the hearing very quickly, and the witnesses were kind of 

rushed to get their testimony in, with 2-minute statements each instead of the usual 5 minutes. 

So to have a more robust discussion of the issues today, I decided 

to have our next hearing as far away from the Capitol as we could 

get during a work period so we wouldn’t be interrupted by votes, 

but Congressman Klein should be forewarned that it won’t preclude me from limiting him to 2 minutes. No, I’m teasing. I’m teasing. 

In all seriousness, we will begin this morning’s subcommittee 

hearing with members’ opening statements up to 5 minutes per 

member, and there are two of us. And then we will hear testimony 

from our first panel of witnesses. 

2 

After that, members will have up to 5 minutes to question our 

witnesses and, if time permits, we may have a second round of 

questioning. We will then hear testimony from our second panel, 

have time for questions, and conclude with our third panel of witnesses testifying, with more time for questions. 

Without objection, the opening statements of the members 

present will be made a part of the record. Without objection, I ask 

that written testimony from the Independent Insurance Agents and 

Brokers of America be entered into the record. 

I now recognize myself for up to 5 minutes for an opening statement. 

On May 4, 2007, at 9:45 p.m., Greensburg, Kansas, was hit by 

a Category 5 tornado. The tornado was estimated to be nearly 2 

miles in width, and traveled for nearly 22 miles; 95 percent of that 

City was destroyed, with the other 5 percent severely damaged. 

The National Weather Service estimated winds of the tornado 

reached 205 miles per hour. I was invited by the Governor to go 

out and view the tornado just a couple of days after it happened. 

It was just unbelievable. 

Thankfully, tornado sirens sounded in the City 20 minutes before 

the tornado struck, and a tornado emergency was issued, which undoubtedly saved many lives. This was the first tornado to be rated 

a Category 5 tornado since 1999. Former Kansas Governor Kathleen Sebelius, the HHS Secretary, as I said, took several of us out 

to view that disaster area. 

Shortly after the storm, I joined my colleagues Congressman 

Jerry Moran and former Congresswoman Nancy Boyd on a visit 

there to meet with residents. We talked to people and heard what 

had happened. 

During that visit, we attended local church services, had a meeting with local officials to discuss the successes and the problems 

with current relief efforts, toured the town to see firsthand the 

damage caused by the tornado, and participated in a USDA World 

Development Housing Rededication for the first facility to be rebuilt. 

While the amount of damage was staggering, progress was already being made. In fact, I have been very impressed by how 

many people opened up their hearts and their wallets to help the 

people of Greensburg. That generosity has made a big difference in 

this little town in Kansas, and they were able to put their community and their lives back together. 

It is a fact of life that catastrophic natural disasters will happen 

from time to time, and we need to be fully prepared. After the unacceptable response by FEMA to Hurricane Katrina, for example, 

we must ensure that our Federal Government is prepared to help 

in a time of need. 

Hurricane Katrina caused $45.3 billion in insured losses. And, of 

the top 10 most costly insured catastrophes in the United States 

since 1989, 8 of the 10 were caused by hurricanes. 

Today, we focus on how catastrophic natural disasters impact the 

affordability and the availability of homeowners’ insurance, especially in places like here in West Palm Beach, Florida. This is a 

tough problem with no easy answers, but hopefully today’s hearing 

will shed more light. 

3 

I appreciate the hard work of your Congressman Klein, who has 

put his thoughts and efforts into these issues. His work in carefully 

drafting the Homeowners’ Defense Act is exhibited by the strong 

bi-partisan support the measure has received. I look forward to 

working with him in moving this legislature through this session 

of Congress. 

I also look forward to hearing from our witnesses today, and the 

perspectives they bring to the table. We will hear from several different viewpoints of what these issues mean to real homeowners 

and to taxpayers. 

We will also examine insurance industry coverage of catastrophic 

natural disasters, the withdrawal of insurance companies from offering policies in coastal areas, rising homeowners’ insurance rates, 

premiums, and the resulting economic impact on State and local 

governments. 

I will conclude by noting this is not just a Florida problem, by 

any means. California has had earthquakes; a number of States 

have been devastated by wildfires. 

How these devastating tragedies impact the affordability and 

availability of homeowners’ insurance is a national problem that 

demands a national response, in coordination with States that are 

most affected by these disasters. 

I now recognize for 5 minutes a senior member of the subcommittee, and a leader in Congress on many financial issues, 

service issues, including the homeowners’ insurance issues we are 

examining today, my colleague, representing the 22nd District of 

Florida, Representative Ron Klein. 

Mr. KLEIN. I thank the chairman for your leadership, and thank 

you for taking time out of your schedule in Kansas to be with us 

during this week. 

This is a great opportunity for those of us in our community to 

enter information into the record for Congress, for us to take back 

to Washington and give to our colleagues on the Committee on Financial Services and all the other committees, to give them the full 

balance of what is going on in the marketplace here in Florida. 

But before I get into a couple of specifics, I would like to acknowledge and thank West Palm Beach Mayor Frankel and the 

City Commission for allowing us to use the building today, the 

chambers. I would also like to thank a whole number of people out 

in the audience, because many of you have been involved in the 

homeowners’ insurance issue for many, many years now. 

This is a great example of when people say, oh, things are developed in Washington with lobbyists and everything else. I will tell 

you the people who have been the biggest resource to me, and it 

is many of you in the audience here, as individuals, as individual 

homeowners, business owners, people who have had their own experiences. 

We have come together with a whole lot of different meetings 

and task forces and study groups, and come up with a number of 

ideas which we have now taken to Tallahassee, and we are now 

taking up to Washington to try to solve a problem that, as the 

chairman said, is not just a Florida issue; it is a national issue in 

many capacities. 

4 

I just would like to do a little bit of overview. Many of us who 

are in the room today and live in our community did not live in 

West Palm Beach or Palm Beach County during Hurricane Andrew. Many people have moved here since then or have come from 

other places. 

But—and surprising to say, for many people, that they are not 

aware that Hurricane Andrew was nowhere near West Palm 

Beach. It was in Florida City and Homestead. I live in Boca Raton; 

it was nowhere near us. And we had more damage from an 

unnamed storm after Hurricane Andrew came through than we did 

from Hurricane Andrew. 

But the reality was, since that point in time, the insurance market in Florida has unfortunately become less and less stable. More 

and more companies have withdrawn, and we find ourselves in the 

position where the market is not what it should be, if at all available to the average consumer. 

And one more note of history is after I was elected to the Florida 

Legislature right after Hurricane Andrew, so, I see Steve Geller 

here is someone I served with in the Legislature at the time, but 

we know that one of the first things we had to do was we had to 

come back in a special session and create something called the 

Joint Underwriting Association, the JUA, which was supposed to 

be a last resort agency, a government-backed agency for people who 

couldn’t get private market insurance. Hopefully, it would go away 

in 2 or 3 years when the private market restored itself. 

And yet, we find ourselves today in a place where the successor 

to the JUA, which is now called Citizens, which everyone knows 

what Citizens is, it is the largest underwriter of insurance in Florida. So it is supposed to have gone away, but it hasn’t gone away. 

Unfortunately, we now have public-backed insurance as the largest 

scenario. 

And that is exactly the opposite of where we want to be. We 

want private sector insurance coming in here. 

Yet, at the same time, when I hear from consumers, I hear over 

and over and over again that if—I know that I paid my premium 

for the last 25 years to a particular insurance company, on time 

every single month, and yet when Hurricane Wilma came through, 

I had a $2,500 claim, and I had to call my insurance agent—and 

I appreciate the agents; they are the ones on the front lines. They 

are not making the decisions. But I had to call my agent so say 

if I file this, are they going to cancel me? 

After paying tens of thousands of dollars in, a $2,500 claim, am 

I going to be canceled? 

And in many cases, some of them were. Or some were canceled 

in the next insurance cycle. This is wrong. I think we all understand, you know, insurance companies are for-profit businesses, but 

we, as consumers, want to know that if we are doing our part on 

our side, that the insurance companies will stand behind us. 

So I think there are a whole lot of issues out there that we can 

all hopefully work together and try to restore a market. What we 

have come up with in Washington, with a whole lot of input from 

many of you in this room here, and throughout the State and the 

country, is an idea which allows insurance to do what it is supposed to do—and, Mr. Chairman, I am hopeful that we are going 

5 

to get a hearing on this as soon as we get back in the fall, after 

the August break—to literally pool insurance risk. But only among 

the States that want to do it. We are not going to obligate places 

in the United States where they feel like their insurance rates are 

just fine, the insurance markets are stable. 

But there are 20-some States right now that have serious concerns, because insurance companies have pulled back. And I am 

just going to give quick examples. It is hurricanes, it is earthquakes—88 percent of the homes in California have no earthquake 

insurance. The California Earthquake Authority, which is a special 

group there, it is just too pricey, or they can’t get it. It is just a 

very bad place, because when—it is not if, but when—the earthquake hits, we are talking about possibly $100 billion of recovery 

in that area. 

Earthquakes, mudslides, firestorms, major ice storms, tornadoes, 

and it goes on and on. These are all areas where many insurance 

companies have withdrawn their coverage. So what we find is a lot 

of people going bare at a time when they need that coverage, their 

mortgage says they have to have that coverage. 

So, Mr. Chairman, what we have tried to do is, in a bipartisan 

way, we put together a plan where we transfer that risk, for States 

that want to participate, over to an institutional bond arrangement 

where private investors fill that fund with their taking the risk on 

whether they will be repaid or not. They get interest, they get premium. We have tested this, and we believe that it is a viable solution to helping provide coverage on the upper highest end of catastrophe. 

And, you know, for that, again, I appreciate the opportunity for 

us to take some testimony today, and to learn more about what 

people are saying so we can take this up to Washington, get it 

passed in the House, get it passed in the Senate, and present it to 

the President so we can get some relief around the United States. 

Thank you, Mr. Chairman. 

Chairman MOORE OF KANSAS. Thank you, Congressman Klein. 

I am pleased to introduce our first panel of witnesses for this 

morning’s hearing. First, we will hear from Dr. Ivan Itkin, a local 

resident from Fort Lauderdale. 

Next, we will hear from Ms. Cynthia Shelton, president of the 

Florida Association of Realtors. Testifying next will be Mr. Joe 

Grillo—and please correct me if I mispronounce the name—senior 

vice president of Weekes & Callaway. 

We also have Dr. Robert Detlefsen, vice president of public policy 

for the National Association of Mutual Insurance Companies. 

And lastly, we will hear from Ms. Coleen Repetto, executive director of the Fair Insurance Rates in Monroe. 

Without objection, your written statements will be made a part 

of the record, and you will each be recognized for a 5-minute statement summarizing your written testimony. 

Mr. Itkin, you are recognized for 5 minutes, and please give us 

your testimony, sir. 

6 

STATEMENT OF IVAN ITKIN, RESIDENT OF FORT 

LAUDERDALE, FLORIDA 

Mr. ITKIN. Thank you very much, Chairman Moore. And I would 

like to welcome you to south Florida. 

Chairman MOORE OF KANSAS. Thank you. 

Mr. ITKIN. We appreciate your coming and— 

Chairman MOORE OF KANSAS. I am glad to be here. 

Mr. ITKIN. —your concern that you have on this particular issue, 

which is a major concern for us. And I also want to thank Congressman Ronald Klein for his willingness to take on this issue, because it is extremely important for his constituents and for the 

other residents of Florida. 

Having said that, I want to say good morning to you. I want to 

say good morning to you and to Congressman Klein, and hope that 

the House Financial Services Oversight and Investigations Subcommittee will be positive toward this issue as it bring this to the 

attention of our Members of Congress in Washington. 

My name is Ivan Itkin. I live in a beachfront high-rise condominium building located at 3200 North Ocean Boulevard in the 

City of Fort Lauderdale. The building is 29 stories tall, with 220 

residential units, and shares the 10-acre property with a similarlysized building. The residents of the complex, like others in Florida, 

have great concerns over the availability of windstorm insurance. 

With respect to my particular building, the condominium association has had great difficulty getting private hurricane insurance. 

Because of the possibility of hurricanes in our area, and the potential for causing significant and a widespread damage, private insurance companies are unwilling to insure against such outcomes. 

Prior to the current policy year, we were able to obtain insurance 

from one carrier, QBE, which now refuses to insure our building 

unless impact glass is installed in all our windows and doors. Even 

installing hurricane shutters will not suffice, although the building 

was built to the code established just a few years ago. 

As a consequence, we are forced to get insurance from the Statecreated insurer of last resort, Citizens Property Insurance Corporation, which is severely underfunded, and which will require large 

annual premium increases over a number of years from its policyholders. 

The deductibles are so high that even if there is a major loss, 

there will be no recovery. For our building, the deductible is 5 percent of the building’s appraised value of $85,243,600, which requires a loss to exceed $4.26 million before a single dollar can be 

recovered, even though our annual premium is $339,000. 

It is quite obvious to us that we are not adequately protected. We 

need another solution. We need a catastrophic insurance program 

like National Flood Insurance, a program that will provide protection against all naturally occurring catastrophes. 

I believe Congress needs to pass Federal NATCAT legislation. 

Thank you for your attention, and I appreciate your taking the 

ball from here. 

[The prepared statement of Mr. Itkin can be found on page 76 

of the appendix.] 

Chairman MOORE OF KANSAS. Thank you, Mr. Itkin, and I will 

say again to the witnesses, each of your written statements will be 

7 

made a part of the record, and will be available to other Members 

of Congress as well. Ms. Shelton, you are next, please. Thank you. 

STATEMENT OF CYNTHIA C. SHELTON, PRESIDENT, FLORIDA 

ASSOCIATION OF REALTORS 

Ms. SHELTON. Thank you, Chairman Moore and Congressman 

Klein, for inviting me here today to speak before the Oversight and 

Investigations Subcommittee. 

I am pleased to present the views of the Florida Association of 

Realtors on the issue of natural disaster insurance. 

My name is Cynthia Shelton, and I am a Realtor from Lake 

Mary, Florida, which is the Orlando area. And I am current president of the Florida Association of Realtors. With me is our vice 

president and president for 2011, Pat Fitzgerald, from Jupiter, 

Florida. 

The Florida Association of Realtors is the largest trade association in Florida. We represent more than 120,000 Realtor members—many of them are here in the room today—who are nvolved 

in all aspects of real estate including residential leasing, commercial investment property management, homeownership, appraisals, 

auctions, and much, much more, so we understand what our clients 

and customers and homeowners are going through. 

The availability and affordability of property insurance is, at its 

core, a consumer issue. The importance of available and affordable 

insurance to homeowners, to commercial properties, to businesses, 

and to those who would like to own their home, investments, or 

place of business cannot be overstated. This is something that your 

constituents have long understood, since Floridians have dealt with 

the problem of insurance availability and affordability for many 

years. 

Unfortunately, it is also something that is known to consumers 

nationwide, even those who are not in what we traditionally called 

disaster-prone areas. A strong real estate market is the linchpin of 

a healthy economy, one that generates jobs, wages, tax revenues, 

and the demand for goods and services. 

In order to maintain a strong economy, the vitality of residential 

and commercial real estate must be safeguarded. Insurance availability and affordability concerns are not limited to Florida, or even 

to the Gulf Coast area. We have heard from Realtor colleagues 

from coast to coast, just like yourself, Chairman Moore, representing concerns about the availability and affordability of property insurance. 

Like ours, their insurance concerns extend beyond homeowners’ 

insurance, and include multi-family housing, businesses, and commercial property casualty insurance. It is no secret that insurance 

is a key component to the financing and purchasing of real estate. 

Without property casualty insurance, lenders will not lend. And 

when a policy is canceled or not renewed, property owners are typically in default of their mortgage terms. 

The limited availability and high cost of insurance, therefore, not 

only threatens the ability of current property owners to hold onto 

their properties, but it also slows the rate of housing and commercial investment in these communities, and thus the economy. The 

inability to obtain affordable insurance is a serious threat to the 

8 

real estate market, one we don’t need any more than we have 

today. New home purchases, resale transactions, and housing affordability are affected in many of the following ways. 

Homeowners’ insurance is a necessary component in securing a 

mortgage and buying or selling a home. If a potential home buyer 

is unable to obtain or afford the required insurance, the sale will 

not be completed. As a result, potential home buyers are excluded 

from the market. 

A home’s value is another way. A home’s value is directly tied 

to insurance cost. Homeowners are required by their mortgage 

lenders to not only pay for a full year in advance of closing on a 

home, but to maintain that homeownership regardless of what the 

ongoing costs are. And insurance that is expensive or unavailable 

devalues properties. Insurance costs impact renters and rent levels. 

Insurance costs incurred by multi-family property owners are ultimately passed on to their tenants through higher rents. This impacts housing affordability, particularly for low-income renters. 

Our commercial members, of which I am one, have also experienced problems with commercial insurance, and availability and affordability of that insurance. Commercial property owners have experienced large increases in premiums, in some cases more than 

fourfold from the prior year, dramatically increasing the 

deductibles, as well, and, on top of that, less coverage. 

Chairman MOORE OF KANSAS. Ms. Shelton, I will have to ask you 

to wind up your statement. 

Ms. SHELTON. Yes. 

Chairman MOORE OF KANSAS. Your time has expired, and your 

written statement will be made a part of the entire record— 

Ms. SHELTON. Thank you. 

Chairman MOORE OF KANSAS. —as well. 

Ms. SHELTON. The glimmer of hope, we as Florida Realtors believe that it is time for Congress to consider a national natural disaster policy. 

I cannot continue without acknowledging Congressman Klein 

and his support of prior bills, and of the one that is being introduced today. 

Florida Realtors would like to see a healthy economy, and by 

having natural disaster insurance, I am sure that House Bill 2555 

can address other issues that we will discuss, I am sure, at this 

hearing, such as mitigation and some other items that I think will 

help. 

And we thank you, and the Florida Realtors and national Realtors are in support of this bill. 

[The prepared statement of Ms. Shelton can be found on page 98 

of the appendix.] 

Chairman MOORE OF KANSAS. Thank you, Ms. Shelton. We will 

remind each of the witnesses, your statements will be received, obviously, for the record, but your written statements will also be a 

part of the record. 

Mr. Grillo, you are next recognized for 5 minutes, sir. 

9 

STATEMENT OF JOSEPH A. GRILLO, CIC, SENIOR VICE 

PRESIDENT, WEEKES & CALLAWAY, INC. 

Mr. GRILLO. I would like to also add my thanks for being invited 

to express my views today. I am representing that of a regional insurance agency. I am a senior vice president and sales manager, 

and part of the management team for Weekes & Callaway, which 

is a private agency. It has been in business since 1954, and is situated in Delray Beach. We have over 50 employees, and underwrite 

approximately $100 million in insurance premiums. 

I have been a licensed agent in this State for 31 of the past 36 

years, having only left it for a 5-year tour of duty in the State of 

Virginia. I did return, Congressman, before—just before Andrew, 2 

weeks before Andrew occurred. So I have been here for most of the 

major events that have taken place. 

Not that I should create panic, there are some small spots of 

bright news in that we have seen insurance rates, largely due to 

the mitigation credits, come down significantly over the past 2 

years. However, this primarily takes care of the newer homes, and 

leaves out the older homes, which, obviously, need to be retrofitted. 

This is an area where I think the Federal or State Government can 

offer some relief and support in terms of grants, tax credits, and 

the like, to help other homeowners improve the risk. Improved risk 

will lead to better underwriting results, which should help to increase the affordability and availability of insurance. 

The number of companies which have been underwriting in this 

State have actually increased in number, the private companies, although Citizens, as has already been pointed out, is by far the largest insurer in the State. 

Well, that is just the good news. But the bad news is really more 

important. Our population growth has slowed significantly, and 

two of the main reasons have been property taxes and insurance. 

Florida is an area where a lot of retirees seek their final homes. 

And many have turned away, you know, for these very reasons. 

And we are now seeing the term half-back as a common reference, 

especially in the realty community. 

Not that I am opposed to that. I am a vacation property owner 

in South Carolina myself. 

However, having said that, insurance rates still remain at historical high levels. And the pressure is felt even more today with our 

problems with our economy on individuals and families as to affordability. Other than a handful of national insurers who will underwrite high-valued homes, we basically are void of all brand 

names in our marketplace. By brand names, I am talking about the 

State Farms, the Allstates, Hartfords, Travelers, and so forth. 

We are left with a market consisting of start-up companies, most 

of whom have not been in business for more than 5 years, and who 

it might be questionable as to how well they could withstand a substantial hurricane, or perhaps even a less than substantial hurricane. We had seen, by benefit of our storms in 2004 and 2005, a 

number of those companies that couldn’t make it financially as a 

result. 

Obviously, this puts enormous pressure on our State catastrophe 

and guarantee funds, which ultimately leads back to the consumer. 

The few rated companies not Demotech rated, which is the rating 

10 

given to those in business less than 5 years, who have been writing, are getting saturated with business. And this could very well 

threaten their future viability. 

The good news of decreasing costs also carries some bad news, 

in that these companies, who are, in my opinion, marginally funded, will have less premium dollars to pay losses should a catastrophe occur. 

There also remains severe restrictive underwriting in the V flood 

zones, and most of the companies that are writing are underwriting 

so on the basis of zip code saturation. So if you are fortunate 

enough to get into the company while there is open, you will get 

homeowners’ insurance. Not speaking to the price, but availability. 

If they get saturated, they close it out, leaving a lot of people on 

the sideline. 

In conclusion, we have availability and somewhat improved 

rates, but are sitting on a time bomb reliant on the weather; when 

and where will the wind blow. We do not have a long-term solution, 

and one can only imagine what would have happened here in Florida if Hurricane Ike had hit here instead of Texas. 

Our key to the future, I think, is expanding our underwriting capacity, which must be done by having our brand names return to 

provide homeowners’ coverage in our State. A free market competition economy will follow its own course, and lower costs over time, 

based upon underwriting results. This will only happen if they perceive they can control risk and have a reasonable expectation to 

earn a profit. This is where the Federal and State Government can 

and must provide vital support. As large as the insurance industry 

is, it is not sufficient to bear the entire risk. Catastrophic exposures due to population concentrations have become too significant. 

If insurers are better able to measure risk with some caps on 

their exposure, through more affordable reinsurance, whether private or publicly sourced, they can assess their ability to put a portion of their assets at risk in such—in our catastrophic area, as 

well as others. 

I do caveat, however, that regulation would be required, that the 

benefit of such a reinsurance plan is passed to the consumer and 

not retained in the profit coffers of the company. 

Chairman MOORE OF KANSAS. Mr. Grillo, I am going to have to 

ask you to wind up— 

Mr. GRILLO. Okay. 

Chairman MOORE OF KANSAS. —your statement, sir. 

Mr. GRILLO. Essentially, I am an open market person, but at the 

same time can see where the proposed legislation would have the 

Federal Government act as the conduit to better reinsurance costs. 

With proper integration of the plan into the insurance mechanism, it is logical to believe that it would result in a better purchasing environment for the homeowner, which is what we all desire. 

[The prepared statement of Mr. Grillo can be found on page 73 

of the appendix.] 

Chairman MOORE OF KANSAS. Thank you, sir. Dr. Detlefsen, you 

are recognized for 5 minutes, sir. 

11 

STATEMENT OF DR. ROBERT DETLEFSEN, VICE PRESIDENT 

OF PUBLIC POLICY, NATIONAL ASSOCIATION OF MUTUAL 

INSURANCE COMPANIES (NAMIC) 

Mr. DETLEFSEN. Thank you, and good morning, Chairman Moore 

and Representative Klein. 

I represent the National Association of Mutual Insurance Companies, a property casualty insurance association whose 1,400 members underwrite more than 40 percent of the property casualty insurance premium written in the United States. 

Property insurance has, indeed, become more expensive and 

somewhat less available in the coastal regions of the United States. 

The reason for this is quite simple. The exposure of densely concentrated high-value property in certain geographic regions to relatively high levels of catastrophe risk means that property insurance in these regions will be expensive compared to regions that 

have lower levels of catastrophe risk. 

Attempting to make property insurance in catastrophe-prone regions more affordable in high-risk areas, many States in hurricaneprone coastal regions, including Florida, impose rating and underwriting restrictions on property insurers that act as price ceilings 

on coverage. 

While this rate suppression lowers the cost of insurance in the 

short term, it has long-term consequences that are far worse for insurance consumers. Government-mandated rate suppression lowers 

prices for people living in high-risk regions by requiring insurance 

buyers in low-risk regions to pay more, robbing Peter to pay Paul. 

Further, inasmuch as higher insurance premiums serve as a 

powerful disincentive to further population growth and economic 

development in disaster-prone areas, insurance rate suppression 

perversely removes this disincentive. By distorting the public’s perception of risk, rate suppression encourages the very phenomenon 

that created the problem in the first place, the growing concentration of people and wealth in high-risk regions. 

Moreover, as the Wall Street Journal noted in an editorial published earlier this week, Florida’s approach to insurance regulation 

‘‘isn’t even within a coastal mile of being actuarially sound. The 

State government acknowledges that in many high storm risk 

areas, the premiums are from 35 percent to 65 percent below what 

is needed to cover potential claims. That subsidy has made Governor Crist popular with many coastal residents, even as the State 

plays Russian roulette with the weather.’’ 

Rate suppression and underwriting restrictions are also largely 

responsible for the insurance availability problem in coastal areas. 

When government rate regulation prevents insurers from covering 

their costs, they may have no choice but to exit the market, as has 

happened here in Florida recently. 

If the Florida approach is not the right way to solve the problem, 

what is? To answer that question, NAMIC has been working with 

a team of insurance experts at the Wharton School, as well as with 

a task force of its own members. 

The Wharton team identified two key principles that should 

guide insurers and policymakers as they grapple with national disaster insurance issues. First, insurance premiums should be based 

on risk, to provide signals to individuals as to the hazards they 

12 

face, and to encourage them to engage in cost-effective mitigation 

measures to reduce their vulnerability to catastrophes. 

Second, any special treatment given to lower-income residents in 

hazard-prone areas who cannot afford the cost of living in those locations should come from general public funding, and not through 

insurance premium cost subsidies. 

NAMIC’s own statement of principles reflects these two key 

points, and identifies building codes and mitigation measures as 

two important additional ways to address disaster risk management issues. Thus, NAMIC supports two congressional bills, H.R. 

2246 and H.R. 2592, that would encourage the use of strict building codes. We also support the mitigation grant provisions of Representative Klein’s bill, the Homeowners’ Defense Act. In fact, we 

would support more generous mitigation grants, because mitigation 

is one of the most effective ways both to reduce the individual’s exposure to catastrophes, and to reduce his or her insurance costs. 

While NAMIC appreciates the work done by Representative Klein 

on this subject, we do not support the portions of the Homeowners’ 

Defense Act that would build on State catastrophe funds, because 

such mechanisms invariably underprice the true risk-based cost of 

insurance. 

We believe a better path would be to let the private market set 

risk-based insurance prices in order to create incentives for people 

to engage in risk mitigation and risk avoidance strategies. This 

leads to an important point. NAMIC recognizes that there are lowincome people living in high-risk areas who simply could not afford 

risk-based premiums. Rather than distorting insurance markets to 

address this problem through rate suppression, NAMIC supports 

direct means-tested Federal subsidies to low-income residents of 

such areas, modeled on the Federal social welfare programs that 

provide Food Stamps and housing vouchers. 

In conclusion, NAMIC realizes that property owners and insurers, mortgage lenders, Realtors, and home builders who live and do 

business in coastal areas will face serious challenges in the years 

ahead. 

Congress can play a constructive role by reforming the National 

Flood Insurance Program, creating incentives for States to enact 

and enforce effective State-wide building codes, offering mitigation 

grants, and providing targeted subsidies that would enable low-income property owners to pay risk-based property insurance premiums. 

Thank you for your kind attention— 

Chairman MOORE OF KANSAS. Thank you. 

Mr. DETLEFSEN. —and I would be happy to answer any questions 

you might have. 

[The prepared statement of Dr. Detlefsen can be found on page 

36 of the appendix.] 

Chairman MOORE OF KANSAS. Thank you, sir. Ms. Repetto, 

please. 

STATEMENT OF S. COLLEEN REPETTO, EXECUTIVE DIRECTOR, 

FAIR INSURANCE RATES IN MONROE (FIRM) 

Ms. REPETTO. Thank you, Chairman Moore and Congressman 

Klein, for this opportunity. 

13 

My name is Colleen Repetto, and I am the executive director of 

FIRM, Fair Insurance Rates in Monroe, also known as the Florida 

Keys. We are a 501(c)(4) grassroots organization that began at a 

backyard barbecue in 2006, and has grown to more than 5,000 

members countywide. We are run by volunteers, and we are funded 

by donations. 

FIRM brought attention to the State-wide windstorm insurance 

prices by successfully challenging Citizens Property Insurance 2006 

Monroe County rate filings. In 2004, a 1,900 square foot home, 

built to withstand 150-mile-an-hour winds, with hurricane protection, was paying $3,000 a year in windstorm premiums. By 2006, 

the same home was billed $15,900 for a 1-year premium, and had 

never had a wind claim. 

As a result of our engineering, meteorological, geographical, statistical, and historical verified facts, which proved that our county 

had been charged excessive windstorm rates, the Office of Insurance Regulation rolled back our rates by 32 percent. 

The rate was not the only issue. A Florida law allowing insurance companies to bill, and then file them for approval, was devastating to our policyholders. At the extremely high rates, people 

were receiving invoices from $9,000 to $25,000 for 1 year’s premium on an insurance policy that, in the Keys, because we build 

to the highest, strongest building codes in the State, it was highly 

unlikely that the majority of our insureds would ever have damage 

greater than their deductible, and therefore, have no claim against 

the policy. 

FIRM lobbied our State legislators to help repeal, although temporarily, the Use and File Law. Insurance companies currently 

must file their rates with the OIR before billing their policyholders. 

We continue to press to make File and Use a permanent law. 

Contrary to popular perception, Monroe County is not a wealthy 

county. We have many low- and middle-income residents who could 

not afford this insurance, and were in distress at how they would 

provide the coverage that was required by their mortgages. 

Currently, risk models used in setting rates do not separate wind 

and flood, and, therefore, do not accurately reflect probable maximum loss for each peril. There is no all-risk hurricane insurance. 

Wind is provided by State or private insurers, and flood is a Federal program. Claims can be delayed for years, until the damage 

is proportionately assessed, which cause additional financial burdens for property owners trying to get their lives back on track 

after a devastating storm. 

We feel strongly that Federal funds, which are really all taxpayer 

dollars, should not be the first line of financial relief for natural 

disasters. 

The National Climatic Data Center, a division of NOAA, tracks 

and evaluates natural catastrophic events that have great economic 

and societal impacts. In 2008 alone, $58,000,000,000 for insured 

and uninsured properties was spent in 44 States before the ice 

storms in the Northeast in December. 

FIRM believes in personal responsibility, especially in high-risk 

areas. Property owners should strengthen their buildings to meet 

or exceed their regional perils, and buy insurance. All-risk policies 

could be provided by private insurance companies, capping their 

14 

losses, followed by State catastrophe funds paying all-risk claims to 

their cap loss, with a Federal financial obligation guaranteed to 

kick in as a backstop. 

Consumers need to be educated on the cost-savings benefits of 

strong building and mitigation, and offered low-interest loans or 

grants to better withstand the high risk. 

Local governments have a responsibility to properly and appropriately develop land use regulations, and enforce building codes. 

Windfall tax dollars generated by rebuilding and repairs after a 

storm should be used to build State CAT funds—fund reserves, 

fund mitigation programs, and/or reduce premiums in the areas 

where they are collected. These unanticipated sales tax revenues 

should not be allowed to be deposited into general funds for use in 

any other way. 

All in all, a comprehensive, multi-level, all-risk catastrophic insurance program needs to be implemented to preserve assets, protect the lives of our citizens, and maintain stable communities. 

And we are very grateful to you to allow us to participate and 

tell our story. 

Thank you. 

[The prepared statement of Ms. Repetto can be found on page 82 

of the appendix.] 

Chairman MOORE OF KANSAS. Thank you, Ms. Repetto. 

We would like to begin our questioning now. And, again, we are 

going to have limits here, because we have a couple of other panels 

who need to testify. 

But, Mr. Itkin, I want to thank you for testifying, sir, and ask 

you a question. From your perspective, sir, who should bear the 

cost of disaster assistance after a natural catastrophe? Should it be 

the local residents, the insurance industry, the government, or 

some combination of the three? 

Mr. ITKIN. Well, I think it has to deal with—that we have to pool 

our responsibilities for this particular situation, like a catastrophe, 

if it occurs. 

You know, there are a lot of places around this country where 

they do have naturally occurring damages from tornadoes and from 

hurricanes. We tried to address at least people who had flood problems by enacting national flood insurance. 

I think what is required is a national program which then can 

take control and provide for adequate premiums nationwide that 

will cover the costs of, you know, occasional damages that come in 

various locales. 

I think it is just important. Like that is what basically insurance 

is. It is spreading the risk. And I think it is—in our situation, we 

don’t have a—much yet, much tornado damage, and so—but there 

are people who do have tornado damage, and they suffer huge 

losses. So there has to be some way of combining people with their 

risk, having risk. 

Chairman MOORE OF KANSAS. Thank you, sir. Ms. Repetto, do 

you have any additional comments on that question? 

Ms. REPETTO. Well, we believe in a four-tiered approach. First of 

all, I think, because we are a consumer group, we always feel left 

out of the—when people talk about this. 

15 

The four-tiered approach is basically policyholders pay insurance 

companies for a product and a service. Before anyone else pays, 

when there is damage, we have to pay our deductible. So we kind 

of pay twice. We pay a premium for something we hope we never 

have to use, and I am sure the insurance companies feel the same 

way, but we, in our case, we had a homeowner who had her property insured, her building insured for $850,000. Now, that is a significant property. She had a 10 percent deductible with windstorm. 

Her premium, after she took the 10 percent deductible, was 

$18,000. 

When you add the premium of $18,000, which is out-of-pocket, to 

a 10 percent deductible should she have a catastrophic loss, you are 

talking about this family having $103,000 out-of-pocket before they 

had ever filed. 

So the four-tier approach is the policyholders, I absolutely believe 

everyone should buy insurance. You pay your deductible, you would 

pay—you would then go to the insurance company to pay the claim. 

Beyond that, I think the insurance companies could have an allrisk policy that they cap the losses; then it could be a State catastrophe fund, cap loss; and then the Federal guarantee on top of 

that as a backstop. 

Thank you. 

Chairman MOORE OF KANSAS. Thank you very much. 

Ms. Shelton, does the cost or availability of homeowners’ insurance have an impact on home prices in your community across 

Florida? 

Ms. SHELTON. Yes, sir, it does in many ways. And I will use an 

example right now. My daughter just bought a home in Tallahassee. The insurance policy on an 1,100 square foot home is—I had 

three quotes: one was $900; one was $1,200; and one was $1,500. 

The $900 is fairly less insurance, but if you look at that, that is 

over $100 a month on the average, if you use the middle ground 

there, that affects, on a $550 house payment, an additional $100 

is going to go to insurance, not counting the tax base. So I would 

tell you that it affects probably the affordability of not only the average or affordable home price range, that is where it seems to get 

hit the hardest, but it also affects all across. Like we are still paying for Katrina right now. And so at some point, we have to realize, 

whether we are paying it for through taxes, through Congress in 

other ways, or, here in Florida, as an individual homeowner, I 

would tell you it is affecting the pricing of homes, as well as commercial properties across our State. 

Chairman MOORE OF KANSAS. Thank you. And my time is about 

up. I am going to now yield to Congressman Klein for 5 minutes 

of questions. 

Mr. KLEIN. Thank you, Mr. Chairman. And I thank all of you for 

coming today and taking time out of your busy lives to share with 

us your experience. As I was listening, Mr. Chairman, to the conversations here, if we were anywhere in the United States that has 

had insurance problems, it would probably be the Realtors, the insurance agents, the homeowners coming together—the home builders, all talking about building codes, and mitigation, and costs, and 

spreading the risk; it would be the same conversation. So I think 

this is somewhat representative of a problem that we see all over 

16 

the United States, even though this particular meeting is taking 

place here in West Palm. I think we all share, and, Doctor, I think 

you had mentioned where we share the interest in mitigation and 

exposure. 

As a Realtor, if you could just start out with telling me the kinds 

of impacts you think that mitigation—and that responsibility for 

mitigation. Do you think homeowners take that certainly? And, certainly, if insurance was incentivizing, taking responsibility, whether it is window issues, securing the trusses, all those kinds of 

things. Can you just share with us what your thinking is on how 

mitigation plays into stabilizing our insurance system? 

Ms. SHELTON. Well, first of all, the mitigation plans that we are 

looking at right now, including the one that you are building, we 

believe you have to build strong homes. If you are going to build 

on the coast, you need to build a strong home on the coast, whether 

it is the shutters, or whatever it is going to take to protect, to prevent against loss. That is a cost, if you know up front, Congressman Klein, that you know is going to be an issue, you can plan. 

You know, I can’t afford this property if the cost to build it to codes 

or mitigate it to be stronger is too expensive. I will look at other 

alternatives in other areas. What happens, though, is, currently, 

mitigation isn’t really given credit on anything other than homes. 

If you start looking at the commercial properties, it doesn’t matter 

how well you build it; you do not get a break on commercial properties. 

Mr. KLEIN. Have we incentivized enough, I mean, from the insurance point of view, as— 

Ms. SHELTON. No. 

Mr. KLEIN. —a consumer, the investing? They are expensive 

propositions— 

Ms. SHELTON. They are very— 

Mr. KLEIN. —for retrofitting. 

Ms. SHELTON. They are very expensive. And if you think about 

the average homeowner, just getting into a home in today’s economy, to tell them—not new construction. I sincerely believe new 

construction, we have to build to better standards. 

Mr. KLEIN. Okay. 

Ms. SHELTON. Without a doubt. I do think some areas of the 

State have done that. Some have not. I think around the country, 

there are different things. If your house floods, why would you continue to build it in the same area? So I think there are things we 

have to take responsibility for individually. I do think the cost of 

mitigation for existing properties is astronomical. It is sometimes 

not worth taking that funds and put into it. You might as well set 

it aside and wait for the catastrophe to hit, and use it then, because it is just not practical to do so. I do think some of the credits 

have helped. 

Mr. KLEIN. Can we—Mr. Grillo, can we, and should we, be doing 

more as a government, as a private sector, as an insurance underwriter, do more to incentivize investing in mitigation? 

Mr. GRILLO. Absolutely. And that was part of my opening statements. The problem we have is those who are moderate- to higherincome can afford to take these steps in terms of the new construction, and also in terms of retrofitting of their homes. But we have 

17 

people who are not necessarily low income. Take my daughter, for 

example. She is a teacher, and her husband, until a year-and-a-half 

ago, earned his living in the construction business, which is, of 

course, really underwater right now, so to speak. But if you look 

at just her salary as a teacher, she earned too much to gain much 

assistance from many of the programs currently available. Yet, 

when you take her salary and you net it down to what the net income is, it doesn’t leave a lot left over to pay for major renovations 

of a home, of a retrofit of a roof; if it is an older home and didn’t 

have the benefit of shutters, to invest in shutters. These are expensive propositions when people are trying to put food on the table. 

Mr. KLEIN. Mr. Chairman, one more question? 

Chairman MOORE OF KANSAS. Certainly. 

Mr. KLEIN. Dr. Detlefsen, I share with you your—and I think 

most of us share the view on mitigation and reducing exposure. 

That is good for everyone. It is good for whomever is involved in 

this process: Homeowners, in terms of deductibles, and the insurance underwriters, as well as any government involvement. Where 

I differ, respectfully, with your view on the risk side is I would 

agree with your statement that we want to assess this based on 

risk. There have been proposals in Florida, if you follow the Florida 

Legislature, about deregulating insurance and letting the market 

go wherever it needs to go. There are a lot of problems with that, 

and certainly that doesn’t provide, necessarily, the fact that insurance companies will sell in areas where we need insurance. And I 

think, as a public policy, we all understand the necessity for mortgages, and for people’s peace of mind, you know, they can get insurance at a reasonable price, based on risk. 

Here is my problem with just the comment about risk. Florida, 

a number of years ago, the Florida Legislature allowed I–95 to be 

an east/west point of demarcation for windstorm. If I could just finish this. 

Chairman MOORE OF KANSAS. Certainly. 

Mr. KLEIN. I appreciate that opportunity. I like to call that the 

I–95 Mountain Range. Now, the I–95 Mountain Range is not a real 

mountain range; it is a road that was constructed wherever they 

had the land to do it. But on the east side, there is presumably a 

higher risk on one side, and on the west side, there is a different 

risk. And yet, in the last four hurricanes we had in Florida, a lot 

more damage, because the hurricanes came from the west, than 

any kind of storm surge or anything on the east side. And it is not 

a question of more—higher property values or lower property values. It is an artificial designation. Now, risk is—how will we define 

it, you know? And most of the damage in Florida has been more 

inland. So just share with me, you know, how we get our arms 

around the risk. Because I think we agree on the assumption, but 

we are—you know, it is how you define it, and how you get to that 

point that people understand that you pay more if it truly is a 

higher risk. 

Chairman MOORE OF KANSAS. And, Dr. Detlefsen, our time is up. 

So I am going to ask you to respond, if you can, within 30 seconds, 

and then submit whatever written statements you would like for 

the record. It will be part of the record. 

18 

Mr. DETLEFSEN. Representative Klein, I would agree with you 

that the I–95 divide is irrational and not an actuarially valid basis 

for distinguishing high-risk and low-risk regions. But, as you pointed out, that was an artificial construct that was created by the legislature. 

Mr. KLEIN. Requested by the insurance industry. It was not—the 

Florida Legislature didn’t come up with this on its own. It was the 

insurance industry that came and said we need this, that is the divide. I was there at the time. 

Mr. DETLEFSEN. Well, but that is because they are not allowed 

to charge based on risk, and so with—in regard to individual areas 

that have high risk relative to other areas, and so they needed 

some way of being able to recoup the cost of insuring in the higher 

risk regions by charging more in other regions. And this apparently 

was what the legislature was willing to allow them to do. It is certainly not an ideal situation from the standpoint of the insurance 

industry. 

Chairman MOORE OF KANSAS. I am going to have to close this 

panel down. I would invite each of you, if you have additional information you would like to provide to the members here, to submit 

written statements. They will be made a part of the record and 

considered. And I thank you very, very much for testifying. I excuse you, and I would like to invite the second panel to come up 

to testify. Please take your seats, and, again, thanks for testifying. 

Ray Spudeck, if you would, please. I am pleased to introduce our 

second panel of witnesses for this morning’s hearing. For this 

panel, we will hear from former Florida State Senator of the 31st 

District, and the former president of the National Conference of Insurance Legislators, the Honorable Steven Geller. 

I am also pleased to introduce Dr. Ray Spudeck, chief economist 

in the Florida Office of Insurance Regulation. 

Without objection, gentlemen, your written statements will be 

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

minute statement summarizing your written statements. And, Senator Geller, you are recognized for 5 minutes, sir. 

STATEMENT OF THE HONORABLE STEVEN GELLER, FORMER 

FLORIDA STATE SENATOR, AND FORMER PRESIDENT, NATIONAL CONFERENCE OF INSURANCE LEGISLATORS 

Mr. GELLER. Thank you, Mr. Chairman. And I would love to 

spend an hour debating the gentleman from NAMIC. 

Congressman Klein, I was the Chair of the Property and Casualty Subcommittee when Hurricane Andrew struck, so I am happy 

to go over that with you. 

Good morning. I am Senator Steve Geller. Until I retired in November, I was the minority leader of the Florida Senate. I am past 

national president of the National Conference of Insurance Legislators, and chaired the Natural Disaster Subcommittee. I believe that 

a national natural disaster program of some type is absolutely critical. Some type of Federal backstop, such as the Terrorism Risk Insurance Act, is necessary for natural disasters. Expanding the National Flood Insurance Program to cover all natural disasters 

would also work. 

19 

I know from my days at NCOIL that many of my legislative colleagues asked why their constituents should pay so that a few 

wealthy people can live on the coast. It is not an issue of a few 

wealthy people living on the coast. Many of my former constituents 

in Century Village, Pembroke Pines, a senior community located 

much closer to the Everglades than to the ocean, will tell you that 

they can’t make ends meet because of the high cost of windstorm 

insurance. Close to 80 percent of the population of the State of 

Florida lives in our 35 coastal counties. And no part of the State 

is more than 80 miles from the coast. And it is not just a Florida 

issue. 

Mr. Chairman, I have a DVD that I would like to enter as a supplement to my remarks. 

Chairman MOORE OF KANSAS. That will be received in the record. 

Mr. GELLER. Thank you, sir. It is the introductions to 20 episodes 

of the Weather Channel television series, ‘‘It Could Happen Tomorrow.’’ Each of the 20 episodes deals with natural disasters that 

could occur tomorrow, causing anywhere from hundreds of deaths 

to hundreds of thousands of deaths, from billions of dollars in damages to hundreds of billions of damage. And they are all over the 

country. They include wildfires, floods, earthquakes, hurricanes, a 

volcano, and tornadoes. 

Mr. Chairman, it is a national issue. If any of the natural disasters that I mentioned occur, Congress will have to step in, or else 

face a collapse of the financial system. If a natural disaster costing 

$100 billion or more occurs, and Congress does nothing, the insurance industry will become insolvent. If the insurance industry can’t 

pay off homeowners’ policies on homes that have been destroyed, 

the banks that loaned money on those homes without insurance 

will fail. Is this starting to sound familiar? 

The insurance industry is dealing with both actuarial risk and 

time risk. If there is a 1-in-100-year event that would cost $100 billion, the industry could charge $1,000,000 a year—I apologize. That 

would cost $100,000,000, the industry could charge $1,000,000 a 

year for 100 years for reserves, and that number will be actuarially 

sound. However, because of time risk, the insurance industry is 

trying to raise that hundred billion dollars as soon as possible, 

which raises rates to an impossible amount. And I don’t blame the 

industry for trying to do this. Only the Federal Government can 

absorb the time risk while charging actuarially sound rates. 

Let me give you some concrete examples of how great these savings could be if Congress steps in and eliminates the time risk. 

In Florida, the State CAT fund charges rates approximately 78 

percent to 90 percent less than private reinsurers. Because they 

have post-claim funding, they can eliminate the time risk. In Florida, over 50 percent of all windstorm dollars go directly to pay for 

reinsurance. In south Florida and other coastal areas, this number 

is much higher, up to 80 percent or 90 percent. Using simple math, 

we see that the total windstorm rates in south Florida could be reduced by 60 to 65 percent with an appropriate Federal program. I 

believe that the high cost of windstorm insurance is the single biggest issue in the State of Florida today. Many people pay more in 

homeowners’ insurance than they do on their mortgage or property 

20 

taxes. Businesses have to raise their prices to pay for the high cost 

of windstorm insurance. 

The root of our current financial mess is the housing crisis. Congress has been working on ways to keep people in their homes. 

When people pay as much for homeowners’ insurance as they do 

for their mortgage, a large reduction in their insurance rates helps 

far more than a cut in their mortgage payments. Let me repeat 

this. In many areas of the country, the single best thing that Congress can do to keep people in their homes is to pass a natural disaster bill. The best stimulus package that we can pass is not sending everybody $200. It is reducing their insurance premiums by 

hundreds or thousands of dollars a year. Let the consumer spend 

those savings in restaurants and stores, and we will have a much 

greater stimulus package than what Congress passed. 

Chairman MOORE OF KANSAS. I am going to have to ask you to 

wind up, sir. 

Mr. GELLER. Yes, sir, I will. And let’s improve our balance of 

trade. The majority of the reinsurers are in foreign countries. Swiss 

Re, Hanover Re, Munich Re, Bermuda Lloyd’s. Let’s keep our 

American dollars in the American economy, instead of sending 

them overseas. No State can handle this alone. We have done our 

part. 

Mr. Chairman, we thank you, and we hope that the Federal Government will help us out here. 

[The prepared statement of Mr. Geller can be found on page 66 

of the appendix.] 

Chairman MOORE OF KANSAS. Thank you, Senator. Dr. Spudeck, 

you are recognized for 5 minutes, sir. 

STATEMENT OF DR. RAYMOND SPUDECK, CHIEF ECONOMIST, 

FLORIDA OFFICE OF INSURANCE REGULATION 

Mr. SPUDECK. Chairman Moore, Congressman Klein, on behalf of 

the Florida Insurance Commissioner, Kevin McCarty, I thank you 

for the opportunity to have the Office of Insurance Regulation testify before you today on what is probably the single most important 

issue to the Florida economy. My name is Ray Spudeck. I am the 

chief economist for the Florida Office of Insurance Regulation. 

In addition to dealing with this issue on an ongoing basis for 

Florida, which is why I think I look pretty good for a 20-year-old 

man, I also have worked very closely in the national debate on this 

issue, both within the Federal Government and with agencies of 

the Federal Government, and with the National Association of Insurance Commissioners. 

If I could, I think there are some things, as we talk about this 

issue, that we could agree on. First and foremost, we can’t stop the 

ground from shaking, we can’t stop the hurricanes from making 

landfall, and we can’t stop the rivers from breaching. What we can 

do is ensure that we are prepared before that happens, that we are 

there, boots on the ground, ready to solve the problem immediately 

after it happens, and that we have a system that will speed the 

economic recovery. 

Along those lines, it is Florida’s loss, but I do believe it is the 

country’s gain with Craig Fugate now moving to manage FEMA 

and direct FEMA. He is responsible for, I think, what we have as 

21 

one of the best first responder systems that is available. And we 

have shared that with other States as they have needed it for natural disasters. That is first and foremost, and I think we can all 

agree on that. 

Secondly, I would think most would agree that the economic recovery and the single most important thing that speeds an economic recovery is, in fact, the insurance mechanism. If people can’t 

get their homes repaired, they can’t come home, and they can’t go 

to work. They also can’t go to work if the building—if the place 

where they work hasn’t been repaired, or if the schools are not repaired and being opened. Insurance is the engine that drives that, 

however that insurance is financed. So, critically, that is important, 

because there is a direct link between the risk of loss and repair 

of a specific building. It is much easier to talk about repairing your 

office building or repairing your home than it is saying, here is a 

bunch of money, here is a city; now, how do we want to repair it. 

We have seen signs of that economic recovery, both good and bad, 

in different cities around the country, around the Nation, over the 

last decade, and we will continue to see that. 

Now, the question of how that is financed and the framework in 

which that insurance is provided leads to some discrepancies. As 

noted obliquely, we have entirely different systems for how we do 

this risk, and how we insure this risk, and how we create this insurance mechanism, depending on the type of risk. That, in turn, 

leads to how we recover for this type of risk. If the catastrophe is 

a hurricane, we insure that right now in the private sector, in some 

cases with help from the States, and what we notice is that claims 

do get paid, by and large, and economies can and communities do 

get recovered. 

We do see some issues I will talk about with that market as I 

move forward, but that does seem to happen. If the next event, or 

if the major catastrophe is an earthquake, well, we are going to 

have an entirely different story. The good news is there won’t be 

much insured loss, because, as Congressman Klein noted, since it 

is an optional cover in most insurance contracts, including those 

that, by the way, are guaranteed by the Federal mortgage agencies, 

there is not going to be much of an insurance loss. There is going 

to be economic devastation. 

A modeling firm recently estimated that a repeat of the 1906 San 

Francisco earthquake would create—and the headlines all read— 

between $50- and $80,000,000,000 worth of insured losses. The 

next line of that report did not make the headlines, but suggested 

there would have been, actually, about $250,000,000,000 worth of 

insured losses. And I am pretty sure we know how that is going 

to be recovered and that is going to get paid. It is going to get paid 

for by the American taxpayer. 

In the case of flood insurance, every time the flood breaks, it 

costs somebody money. And, generally, it doesn’t cost the people 

who have the floods themselves. And we see that different ways. 

I mean, we have a system currently; we are familiar with that in 

Florida. According to the Government Accountability Office, over 

the last 30 years, Floridians have paid in $10,000,000,000 more 

than they have taken out in losses. We could have used that 

$330,000,000 a year to do a lot of other things for our own markets. 

22 

Again, a huge limit on—a huge bill, and a huge bill for the American taxpayer. 

So, in contrast to a lot of the critics of the work that you are trying to do, Congressman Klein, or the work that is trying to be done 

in the House this year, I would argue that the only publicly subsidized system that we have for dealing with catastrophic insurance risk is the one we currently have in place. Now, I think the 

private market works. I think there are issues, and I think there 

are areas where the government could get involved. And I will try 

and be brief. What we notice following a severe event is that there 

are disruptions to the marketplace. There is a volatility in the 

availability and pricing of insurance that in many cases makes it 

impossible. People are certainly saying that now. 

In Florida, we were probably, most would argue, getting close to 

an equilibrium before the 2004–2005 hurricanes. That is completely gone now. In 2006, we saw, and this obliquely contradicts 

Dr. Detlefsen’s question, surplus line companies, companies that 

are unregulated as to form and rate, actually canceling policies in 

mid-term, because they could no longer take the cover. 

Nationally, as noted, the national insurance companies, the large 

insurance companies, have retreated from the coast. Not only the 

coast, they have retreated from catastrophic risk in all areas. Since 

2000, the amount of insured exposure that has gone into residual 

markets nationwide has risen from $113,000,000,000 in 2000 to 

$670,000,000,000 in 2007. I am somewhat happy to report that, actually, Florida is reversing that trend. We are actually taking policies out of Citizens, and moving them in. What can the Federal 

Government do, I think, to try and close up— 

Chairman MOORE OF KANSAS. Dr. Spudeck, I am going to have 

to ask you to wind up, and you can submit your written statement 

for the record, please, sir. 

Mr. SPUDECK. I will do that. 

Chairman MOORE OF KANSAS. Thank you. 

Mr. SPUDECK. If I can just—to finish up, there are things the 

Federal Government can do. Mitigation is important. We all agree 

on that. Federal—you guys—Federal Government guarantees a lot 

of mortgages. Why insurance isn’t covered, why homes aren’t built 

is not clear to me at all. Catastrophe reserves, the Internal Revenue Tax Code, you guys control that, not us. I think that can build 

reserves. And back up plans moving forward that don’t disrupt the 

private market I think are important. 

We look forward to working with you, and I am happy to answer 

any questions. 

[The prepared statement of Dr. Spudeck can be found on page 

103 of the appendix.] 

Chairman MOORE OF KANSAS. Thank you. And I will recognize 

myself for 5 minutes for questions. And, again, each of you will 

have an opportunity to submit any additional comments you would 

like to make for the record. We would appreciate that. 

What kind of impact, in terms of—well, what kind of impact is 

the present system going to have on property values in Florida if 

nothing is done by the Federal Government about what the Congressman and I are talking about here, something in that area? 

And I will direct first to you, Dr. Spudeck. 

23 

Mr. SPUDECK. Well, there are two things that are going to happen. First of all, as it becomes increasingly difficult to insure unmitigated homes, we recognize that if it continues the way it goes 

there are going to—there will likely be properties that are just: A, 

uninsurable; and B, unsalable. The average age of a home in Florida is between 24 and 25 years old. That predates most of the modern building codes. We tried to develop a mitigation program and 

a My Safe Florida Home Program. That has been very successful. 

The current economic situation has limited the amount of budget 

to that program from the State level. I think that is—otherwise, 

yes, I mean, we have an awful lot of older homes that aren’t mitigated. These are interior homes, you know. 

Chairman MOORE OF KANSAS. Do you agree, Senator, or have 

any additional comments, sir? 

Mr. GELLER. Yes, Congressman. The current system is just devastating for home values, as you heard the Realtors talk. You are 

required to have insurance to purchase a home. If insurance is unavailable or unaffordable, then it devalues the home. Today, if you 

are—not even if you are on the water, if you are close to the water, 

if you are blocks and blocks away, you can be paying more, far 

more for your insurance than you are for your mortgage or your 

taxes. If you are close to the water, you could pay more for insurance than the two of them combined. People can’t afford that. If 

they can’t afford the home, they won’t buy the home. That drives 

the value down. 

And, again, we are not asking Congress to assume actuarial risk. 

Just assuming the time risk will solve much of this problem. 

Chairman MOORE OF KANSAS. I am going to yield now to my colleague for 5 minutes for questions. Congressman? 

Mr. KLEIN. Thank you, Mr. Chairman. And thank you, gentlemen, for being here today and sharing with us your experience. 

Let’s start with Senator Geller. 

One of the things that we are talking about is the whole risk assessment and whether doing something which helps to stabilize the 

insurance market encourages bad behavior. You know, people 

building in coastal areas. We know in Florida, and many parts of 

the United States, a large percent of our population, in the entire 

country, lives close to water. 

Mr. GELLER. Yes, sir. 

Mr. KLEIN. On the coast, and other places. So we have an existing issue. It is not like you can just wipe that away and pretend 

like it is not there and say, well, all those people just have to fend 

for themselves. We are trying to—we have a public policy that says 

that insurance is good, and we want to do that. 

Can you just share with us whether your view of this is that 

there is a crowd-out issue here if we do something like create a national risk catastrophe pool. 

Mr. GELLER. Not at all, Congressman. The problem here, as you 

pointed out, what some people say, oh, don’t build near the water. 

All right. So let’s eliminate Miami Beach, let’s eliminate Fort Lauderdale, let’s eliminate Palm Beach. That is not going to happen. 

And 80 percent of our population in Florida lives in the coastal 

counties. People living near the water today pay more. They should 

pay more. According to actuarial models, it is higher risk. Our 

24 

problem isn’t most hurricanes. Our problem is the unpredictable, 1- 

in-100-, 1-in-150-, 1-in-200-year disaster. That is the same reason 

you passed TRIA. You can’t model for something that you can’t predict. And you just can’t predict the damages for a 1-in-200-year 

earthquake. You can’t model for what is going to happen when the 

New Madrid Fault goes. And that is in the State right next to 

yours, Mr. Chairman. And so what’s going to happen when all of 

these occur, it is impossible to model damages. We think that if 

you—the State and the private market can deal with the predictable 1-in-10-, 1-in-20-, 1-in-50-year events. All we are asking for is 

the unpredictable mega disaster, because right now, the insurance 

industry is trying to charge for an event that probably will not 

occur in the lifetime of anyone in this room. 

Mr. KLEIN. Mr. Chairman, if I can just share with you a conversation I had with Steve Israel? 

Chairman MOORE OF KANSAS. Certainly. 

Mr. KLEIN. Steve Israel is a colleague of ours from Long Island 

in New York. And he got involved in our legislation because he 

started hearing from a lot of his constituents who were getting letters from a national insurance underwriter saying something to the 

effect of we are overdue for the big one, and—meaning a hurricane 

that sort of travels up the coast and hits Long Island—and, as a 

result of that, we are non-renewing, we are just canceling or not 

issuing new policies, and canceling old policies as they come up for 

renewal, in large scale in that area. So he all of a sudden was getting the same phone calls that we get here in Florida and other 

places where they couldn’t get policies and national underwriters 

would come in. And here was just the speculation that maybe over 

time there is going to be a very bad storm. 

Yes, and I think that is very helpful in understanding the question of crowd-out. Again, it is a matter of understanding risk. Everyone understands there are certain places in the country that are 

going to pay more. We get it. We are looking for stability, that 

there is a predictability and stability. We need to know that there 

is mitigation responsibility in homeowners, so the Category 1, 2, or 

3, in the form of a storm like ours is probably not as damaging, 

other than trees falling over, maybe some minor damage. In California, if homes are built to earthquake standards, that many of 

the homes can be fortified and built to new standards. I am all for 

the building codes. And I think that is probably the right thing. 

Mr. Chairman, if I can also, very briefly— 

Chairman MOORE OF KANSAS. Certainly. 

Mr. KLEIN. —acknowledge, there are a number of people in the 

audience who are elected officials and others. I just want to—since 

they are here, I want to acknowledge them. State Representative 

Kelly Skidmore is here. We also have Commissioner Mack Bernard 

from Delray Beach. 

Chairman MOORE OF KANSAS. Yes. 

Mr. KLEIN. And we have a representative from State Representative Joe Abruzzo’s Office here. Barbara Zee and Ken Lassiter are 

here from COBRA. Long time friends, and people who have been 

very involved from the very beginning of these issues. I just wanted 

to acknowledge and thank them for their involvement and their interest. 

25 

Mr. GELLER. Mr. Chairman? 

Chairman MOORE OF KANSAS. Yes, sir? 

Mr. GELLER. May I briefly comment, 30 seconds or less, on what 

Congressman Klein— 

Chairman MOORE OF KANSAS. 30 second or less, yes, sir. 

Mr. GELLER. Congressman Klein, we found from COIL the most 

expensive natural—the most expensive hurricane won’t hit Florida. 

It will hit New Jersey on its way up to New York. The same problems we are having here right now, Houston, coastal Texas, the entire Gulf Coast, as you mentioned, New York, New England. It is 

not a Florida issue. These same issues are occurring everywhere 

around the country. Not in California, simply because they are not 

buying insurance. But the most expensive natural disaster is clearly not in Florida. 

Thank you, Mr. Chairman. 

Chairman MOORE OF KANSAS. I thank the witnesses for their 

statements, and this panel is now excused. And I will invite our 

third and final panel to take their seats, please. 

Good afternoon. I am very pleased to introduce our final panel 

of witnesses for this morning’s hearing. For this panel, we will hear 

from retired Admiral James M. Loy, former Commandant of the 

United States Coast Guard, and former Deputy Secretary of the 

U.S. Department of Homeland Security. 

And second, but certainly not least, we will hear from Ms. Vicki 

Williams, outreach coordinator for the My Safe Florida Home Program. 

Without objection, I will state to the witnesses that your written 

statements will be made a part of the record, and you will each be 

recognized for a 5-minute statement summarizing your written 

statements. 

Admiral Loy, you are recognized, sir, for 5 minutes. I appreciate 

your being here today. 

STATEMENT OF ADMIRAL JAMES M. LOY, USCG (RET.), 

FORMER COMMANDANT OF THE U.S. COAST GUARD; 

FORMER DEPUTY SECRETARY OF THE U.S. DEPARTMENT OF 

HOMELAND SECURITY; AND NATIONAL CO-CHAIRMAN, 

PROTECTINGAMERICA.ORG 

Admiral LOY. Thank you, Mr. Chairman, and thank you for your 

long service of effort focused on your constituents, and specifically 

your work on national preparedness. 

Chairman MOORE OF KANSAS. Thank you. 

Admiral LOY. Mr. Klein, your thoughtful and constant leadership 

on this legislation is important to all of us. With my 5 minutes, I 

am going to try to just do two things. 

Chairman MOORE OF KANSAS. One moment. Can you just move 

the microphone a little closer, sir? Thank you. 

Admiral LOY. Sketch quickly the ProtectingAmerica.org agenda, 

and then perhaps a couple comments on H.R. 2555, the Homeland 

Defense Act of 2009. PA.org is a national campaign co-chaired by 

my colleague, James Lee Witt, and myself. Our coalition now numbers about 300-plus organizations and over 20,000 individual members. We count the American Red Cross, the International Association of Fire Chiefs, insurance companies, emergency managers, 

26 

small businesses, and Fortune 100 companies among our members, 

and we represent every State in the Nation. We came together in 

2005 to raise the national awareness concerning our collective responsibility to prepare and protect American, and specifically 

American homeowners, from natural catastrophes. And especially, 

as, Senator Geller, on your last panel, focused in on mega natural 

catastrophes. We have discussed these issues with thousands of 

Americans, and have come to focus on two fundamental ideas. 

First, we need a comprehensive and integrated public/private 

partnership to prepare and protect homeowners. It is not just about 

insurance, it is not just about mitigation, it is not just about public 

education, but all of those things, integrated together. 

Second, we need affordable and available homeowners’ insurance 

across our country. As to the first, the comprehensive solution, in 

my mind, needs to have four parts: A modified insurance construct 

along the lines that we have spoken about already this morning 

with your other panel members, that includes State and national 

level catastrophe funds; a strong mitigation effort that includes 

meaningful building codes, meaningful land use policies, and the 

strong enforcement of both; impactful public education programs 

that convince homeowners and convince families, and businesses, 

and communities to act decisively on these preparedness opportunities that are provided to them; and then first responder support, 

knowing full well that in any of these instances, first responders 

are our first challenge to deal with constructively. And I am happy 

to expand on any of those four program elements during our Q and 

A. 

Second, recognizing that we are focused on catastrophic events, 

it is important to document that our domestic P&C insurance system has served us as a nation very well for over 200 years. What 

should simply be unacceptable is this build, destroy, rebuild, and 

hope cycle that we seem to have found ourselves in associated with 

catastrophic natural disasters. This is even truer today in these 

very difficult economic times when such an event actually threatens the wellbeing of our housing and lending sectors, as well as our 

insurance sector. The American people have simply lost their appetites for bailouts. Imagine their frustration in the wake of another 

1906 San Francisco earthquake when the losses are estimated to 

be in excess of $450,000,000,000. Or another 1938 Long Island Express, as just discussed in the previous panel, which, if it should 

happen just 20 miles west of where it happened in 1938, would result in inestimable damage to New York City. 

The key to better financial preparedness is a national CAT fund 

backing up those States which voluntarily establish State level 

funds keyed to their individual and unique exposures. This would 

create a privately financed and federally administrated layer of reinsurance to complement and stabilize private market reinsurance 

alternatives, and ensure our goal of greater availability and affordability of residential property insurance. 

In the interest of time, I would like to comment on several ongoing discussions concerning H.R. 2555. First, some critics, and it has 

already been brought up this morning, suggest that the PA.org 

agenda would only encourage people to own homes in high exposure areas. I think such arguments, frankly, are the stuff of red 

27 

herrings and straw men. The fact is, 57 percent of American citizens already live there. And if we never built another stick of housing on the East, West, or Gulf Coasts, or in America’s heartland, 

6 of 10 families would still be at risk, and we would owe them a 

better construct than they have today. 

The PA.org agenda is instead a reasonable and actuarially sound 

approach that recognizes today’s threat and sets private money 

aside to deal with it. 

Second, regarding prevention and mitigation, we support the hybrid approach which keeps the mitigation program centered in 

HUD, but we have to connect it in some fashion to the privately 

financed CAT funds, which can spin off significant investment income to groups like the Red Cross and first responders, to strengthen their ability to deal with after those storms go by. 

And, third, we look forward to further discussions with both of 

you regarding attachment points for State and national CAT funds, 

and the guarantee of loan concepts. The latter should be designed 

to be complementary, not substitutional, to the reinsurance fund. 

The lender or guarantor of last sort, that concept contained in last 

year’s H.R. 3355 may very well be worth reconsidering. 

Mr. Chairman, Mr. Klein, thank you again for the opportunity to 

discuss the PA.org agenda, and we look forward to working with 

you as you pass this important legislation for our country. 

[The prepared statement of Admiral Loy can be found on page 

77 of the appendix.] 

Chairman MOORE OF KANSAS. Thank you, Admiral Loy. And I 

will now recognize Ms. Williams for 5 minutes, ma’am. 

STATEMENT OF VICKI WILLIAMS, OUTREACH COORDINATOR, 

THE MY SAFE FLORIDA HOME PROGRAM 

Ms. WILLIAMS. Chairman Moore, thank you. I am grateful to be 

here to discuss the success of the My Safe Florida Home Program. 

First, let me explain the catalyst for the program, the creation 

in 2004 and 2005. The windstorms that blew over Florida inflicted 

$33,000,000,000 in insured losses on 2.8 million Floridian homeowners. There are approximately 41⁄2 million single-family site 

built homes. The amount of insurance exposure is about $2.3 trillion. The average age of the homes that I am talking about, site 

built single-family homes, is about 24 years old in Florida. 

In 2005, the National Institute for Building Sciences concluded 

that for every dollar invested in mitigation, there is a savings of 

$4. The legislature created the My Safe Florida Home Program to 

help protect property of Floridians and save money on insurance 

premiums. The goals that were set were to use $250,000,000 and 

provide free home inspections to 400,000 Floridians. This excluded 

manufactured housing, multi-family housing; all openings must be 

covered for the value to be there in the mitigation. And I can say 

that the values certainly are affected of these type of homes. The 

mobile home insurance is very difficult to obtain. Replacement 

value declines on those type of properties. And, frankly, there are 

no SHIP funds for those risky structures, as well. That is the First 

Time Homebuyer Grant funds. The providing matching grants part 

of the $250,000,000 was to give homesteaded Floridians up to 

28 

$5,000. And we thought there would be 35,000 Floridians that 

could be served. 

I have provided a PowerPoint, of which you may have a copy in 

front of you; I am not certain. There is a map that shows a snapshot of the 400,176 inspections that were completed. It was based 

along the coastline. The results on the map are showing geographically where the inspections were done. As you can imagine, in the 

middle of the State, there weren’t quite as many inspections; there 

are not as many people living there. The surveys of inspection customers after our services were provided, we asked for their feedback. They were motivated to get safety information. Tell me how 

I can protect my house the best way. And, also, of course, the insurance savings. About 40 percent of the people wanted safety info; 

about 30 percent of the people—39 percent of the people wanted 

that savings on their insurance. We found about a quarter of those 

people pursued getting their houses strengthened without using 

any grant funds, And 91 percent of the people who used the program found that they rated it as being an excellent or good program. The majority were willing to pay about $3,200 to match the 

grant that they received. 

There is another map showing you geographically where the dollars went. A snapshot of 31,593 homes that used the grant money 

and hardened their house. I can tell you that number would be 

higher. I know many people that, as the economy turned, were unable to fund their part of the matching grant program. About 46 

percent of the people who got the grants were from south Florida; 

22 percent from the West Coast; 16 percent from the East Coast; 

and 15 percent from the Panhandle. Of the homes that were 

awarded grant funds to protect all the openings, the average increase in strength to the house went up 36 percent. As you are 

probably aware, there is a scale of zero to 100 on this inspection 

report, and the average hurricane rating was 44. On average, 

homeowners are seeing 27 percent reduction in premiums. That is 

an average. On our coastline in south Florida, I can tell you that 

amount went well over a third of the premium for most people in 

savings. 

Here is the results. Jobs were created. The return on investment 

for this State of Florida program, retrofitting an average of 320 

homes every week. This created about 1,000 jobs in every week. 

That is with an earmark of $160,000,000 for grants to perform retrofits. Of $120,000,000 that was paid out in grants to buy the materials and pay to get them installed, there was sales tax, 6 percent, that is $7.5 million in sales tax revenue. 

More than 900 inspectors were trained to help perform 

$58,000,000 worth of inspections over a 2-year period of time. This 

inspection is valid for 5 years, and can be used again when the 

homeowner is shopping for renewal policies. One risk modeler suggested this program reduces catastrophic exposure by as much as 

26 percent in Florida, and that Florida gets $1.50 return for every 

dollar invested. Intangibly, the peace of mind that people get knowing how they hardened their home, and the monetary relief to the 

family’s budget, is priceless. 

Thank you. 

29 

[The prepared statement of Ms. Williams can be found on page 

116 of the appendix.] 

Chairman MOORE OF KANSAS. Thank you, Ms. Williams. I am 

going to recognize myself for 5 minutes for questions. 

As a former Deputy Secretary of DHS, Admiral Loy, I am interested in your views. Is there a role for the Federal Government, not 

just in the clean-up, but going one step further in dealing with 

these issues and how they impact the availability and affordability 

of homeowners’ insurance? 

Admiral LOY. There absolutely is, sir. As I think a number of 

your witnesses have already testified, the harsh reality is that this 

is a national problem and deserves national attention and a national solution. The notion of a national CAT fund as a backstop 

to those States which voluntarily put together their State level catastrophe funds is, in my mind, the right answer to this adjusted 

insurance construct. Beyond that, the existence of such funds, 

where one can mandate in the legislation that the invested income, 

in part, can be donated towards mitigation strategies, public education programs, and even equipment and training support for first 

responders where appropriate, allows a national solution to find its 

way towards these local challenges that are, as Senator Geller has 

already testified, a national reality, not just something that happens in the State of Florida. 

Chairman MOORE OF KANSAS. Thank you, sir. Ms. Williams, the 

My Safe Florida Home Program sounds like a very effective one 

that is having a real impact. Other than participating directly in 

the insurance market, are there other steps the Federal Government can take or should take to reduce the cost and increase the 

availability of homeowners’ insurance in disaster-prone areas? 

Ms. WILLIAMS. The vision in our State agency would be that 

grant program partnerships could work the best, where our State 

matches Federal dollars. And insurance, as it gets harder to obtain, 

as groups such as Citizens Property Insurance are requiring roof 

inspections for renewals, tightening the guidelines for having a 

structure that is not risky, the impact will continue to assist homeowners in Florida. In 2005, the new building codes created a less 

risky structure and a significantly less premium for the same type 

of home. 

Chairman MOORE OF KANSAS. Admiral Loy— 

Admiral LOY. If I might add— 

Chairman MOORE OF KANSAS. —do you have any thoughts on 

that? 

Admiral LOY. —some thoughts. 

Chairman MOORE OF KANSAS. Yes, sir, please. 

Admiral LOY. One of the ideal strengths of the National Catastrophe Fund matched up with the State funds would be that the 

monies needed for the program you just described and were chatting with Ms. Williams about could very well be either a combination of grants on the Federal level and invested income yields from 

those State level catastrophe funds to be part of that matching system. 

In other words, if we are dealing with an actuarially sound system to begin with, that is actually breeding dollars to do the good 

things that we want to do in the other areas of interest, mitigation, 

30 

public education, first responders, that is what I mean by a comprehensive, integrated system, not just focusing on one element of 

it. 

Chairman MOORE OF KANSAS. I see. I am going to recognize my 

colleague, Congressman Klein, for 5 minutes of questions, sir. 

Mr. KLEIN. Thank you, Mr. Chairman. Thank you both for being 

here. Admiral Loy, thank you for your service to our country as a 

Commandant of the Coast Guard and our homeland security efforts. I think most people understand homeland security is not just 

about military security; it is about presenting also for the civil side 

of things. And we know that natural disasters, or man-made disasters, require planning in advance, and, of course, FEMA on the 

back side. And we are all pretty excited about having Craig Fugate 

as our new FEMA Director, who is a product of Florida, and many 

of us worked with him. And he really understands Florida’s issues. 

Admiral, let me just, if I can, one of the things that we have been 

talking about is whether the idea that we are presenting in this 

legislation really sort of distorts the public perception of risk, and 

will be adverse to people making decisions about whether they 

should live a certain place, live—build on the coast, live on the 

coast. I mean, again, I think you started out with your comment 

that a big percent of the people, if they didn’t build another stick, 

you know, anywhere— 

Admiral LOY. They are already there. 

Mr. KLEIN. —on the coast or anywhere else, and also the recognition that a lot of the natural disaster damage occurs inland. It has 

nothing to do with the coast of the United States. 

Can you just share with me whether you think this legislation 

helps or hurts that good public policy initiative. 

Admiral LOY. Well, I think the key there is your last phrase, sir. 

This is about good public policy. And good public policy has to not 

only deal with what might be, but what is. And the harsh reality 

and the facts of the moment are that 6 out of 10 families already 

live in those exposed areas, with a dramatically higher exposure 

than elsewhere. If you match up that harsh reality with a system 

that is designed around actuarially sound premiums, then you are 

serving the national well-being, not trying to focus on whether or 

not somebody is going to make an individual decision to pick up 

and move to the West Coast of Florida just because they imagine 

there are affordable and available insurance rates there. The 60 

percent of us all who are already there, or in the New Madrid 

Fault zone, or in the California earthquake zones, already exposed, 

deserve as much of our national attention as do anyone making an 

individual decision. 

Mr. KLEIN. And then, too, that would argue that, particularly because we are asking them to shoulder the burden— 

Admiral LOY. Absolutely. 

Mr. KLEIN. —something that is actuarially sound— 

Admiral LOY. That is the actuarially sound side of this whole 

equation, yes, sir. 

Chairman MOORE OF KANSAS. Yes. 

Mr. KLEIN. Ms. Williams, also, I am very much in favor of the 

My Safe Florida Home Program. I am a little disturbed that the 

money wasn’t put into the last legislative session. But it has been 

31 

very successful. And, again, one of the things we have in this proposed piece of legislation is to learn from that experience in Florida. Florida has been a little ahead of the curve because of some 

of the experiences we have had. But the idea of leveraging matching dollars or things like—just share with us, meaning for the 

chairman and for our record, why you think it is so important for 

us to have these kinds of programs, which of course will hopefully 

reduce the exposure. 

Ms. WILLIAMS. Well, as you are aware, with the population, they 

have to go where the jobs are. And our urban site in Florida is 

coastline. Since there has been automation, there are not as many 

farming jobs, and that is what the middle of the State is primarily 

all about. But the matching grant program works so well with 

homeowners in the State of Florida. I believe that we are seeing 

the possibility, with the discussion of national catastrophe funds 

and how to allocate—every State has its own peril in disaster—but 

this would allow a State to effectively and creatively utilize a partnership based on the standards that we have used to train, have 

an infrastructure, to be certain that these reports were accepted. 

To me, there was a lot of work done to create and build that program. That is part of where some of this funding had to go, to create it. So incorporating some Federal dollars into it would seem as 

if it is just the most advantageous to everyone, so you don’t recreate a new program, spend new money on something that you have 

to start all over again. 

Mr. KLEIN. And the last thing I would like to ask you is at a national level, I am constantly asked this as a sponsor of the bill, 

along with many co-sponsors around the area, why is this something that—is this being accepted? Are people around the country 

receptive to this, as opposed to previously this has been a Florida 

experience. You have been traveling. 

Admiral LOY. Absolutely. 

Mr. KLEIN. Can you share with us what sort of—what interior— 

what concerns the interior and other places? 

Admiral LOY. Yes, sir, indeed. And I think there are a couple of 

just sort of metrics that you can look at real quickly, sir. First of 

all, your 50-plus cosponsors of the legislation represent 22 or 23 

States at this point. It is not just a set of Representatives from the 

constituencies back home who are only in Florida. This is a very, 

very national reflection. 

Second, we have spoken, I have gone and done editorial boards 

across the country, and the reality is that Americans are quite willing to pay that actuarially sound rate, and recognize that the system is designed to be there where the payment is attendant to the 

risk that you are willing to take for yourself and for your family. 

That is the notion of actuarial soundness, which has been an underpinning of our insurance industry for a long time. What is unpredictable, to use, again, Senator Geller’s words, is these mega catastrophes that come by, where the—the pinning of predictability 

is an attempt to associate with the kind of damages that are going 

to occur. 

This extraordinary program that Ms. Williams is talking about, 

the My Safe Florida Home Program, is just one of those examples. 

And if you talk to Craig Fugate, if you talk to my counterpart and 

32 

Co-Chair, James Lee Witt, who was the FEMA Director during 

President Clinton’s Administration, and if you talk to folks who 

have just left that particular position, they understand the national 

quest to do the right thing at the end of the day. James Lee Witt 

will talk about not only focusing on an individual homeowner and 

his home, which is a mitigation strategy attendant to building 

codes and the enforcement thereof, but also perhaps land use adjustments that are seeking national support for local solutions. And 

when you gain the national support for a local solution, you have 

in fact found yourself in the realm of serving the American public 

the way it needs to be served. 

Chairman MOORE OF KANSAS. Thank you, sir. And I want to 

thank our witnesses in this panel and the other panels who have 

testified today. You have been very, very helpful, I think, in our 

understanding of some of the issues facing our country, and what 

we need to do, and maybe can address these. 

Also, I am going to say by enacting creative solutions like Congressman Klein’s Homeowners’ Defense Act, we will begin to take 

steps to provide real solutions that will benefit homeowners, communities, and taxpayers. 

I look forward to working with our witnesses and my Republican 

and Democratic colleagues in Congress on these important issues. 

The Chair notes that—and I want to thank Congressman Klein for 

being a host down here, number one, and number two, for his excellent questions and participation in this panel today. 

If you have additional questions for this panel, you may submit 

those questions in writing, Congressman Klein. Without objection, 

the hearing record will remain open for 30 days for Congressman 

Klein and myself to submit additional questions, and we would ask 

that witnesses provide their written responses to those questions. 

This hearing is adjourned, and I thank everybody for your participation. 

[Whereupon, the hearing was adjourned.] 

(33) 

A P P E N D I X 

July 2, 2009 

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