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LEGISLATIVE PROPOSALS TO REFORM THE 

NATIONAL FLOOD INSURANCE PROGRAM, PART I 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

INSURANCE, HOUSING, AND 

COMMUNITY OPPORTUNITY 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

MARCH 11, 2011 

Printed for the use of the Committee on Financial Services 

Serial No. 112–16 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

BARNEY FRANK, Massachusetts, Ranking 

Member 

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 

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 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

LARRY C. LAVENDER, Chief of Staff 

(III) 

SUBCOMMITTEE ON INSURANCE, HOUSING, AND COMMUNITY OPPORTUNITY

JUDY BIGGERT, Illinois, Chairman 

ROBERT HURT, Virginia, Vice Chairman 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

PATRICK T. MCHENRY, North Carolina 

LYNN A. WESTMORELAND, Georgia 

SEAN P. DUFFY, Wisconsin 

ROBERT J. DOLD, Illinois 

STEVE STIVERS, Ohio 

LUIS V. GUTIERREZ, Illinois, Ranking 

Member 

MAXINE WATERS, California 

NYDIA M. VELA ́ ZQUEZ, New York 

EMANUEL CLEAVER, Missouri 

WM. LACY CLAY, Missouri 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

MICHAEL E. CAPUANO, Massachusetts 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

March 11, 2011 ................................................................................................. 1 

Appendix: 

March 11, 2011 ................................................................................................. 47 

WITNESSES 

FRIDAY, MARCH 11, 2011 

Brown, Orice Williams, Managing Director, Financial Markets and Community Investment, U.S. Government Accountability Office (GAO) ..................... 5 

Ellis, Stephen, on behalf of the SmarterSafer Coalition, and Vice President, 

Taxpayers for Common Sense ............................................................................. 18 

Houldin, Spencer, Chair, Government Affairs Committee, Independent Insurance Agents and Brokers of America (IIABA), and President, Ericson Insurance ....................................................................................................................... 22 

Jallick, Donna M., on behalf of the Property Casualty Insurers Association 

of America (PCI), and Vice President, Flood Operations, Harleysville Insurance ....................................................................................................................... 28 

McConkey, Sally, Vice Chair, Association of State Floodplain Managers, and 

Manager, Coordinated Hazard Assessment and Mapping Program, Illinois 

State Water Survey .............................................................................................. 6 

Nutter, Franklin W., President, Reinsurance Association of America (RAA) .... 24 

Parrillo, Sandra G., Chairman, the National Association of Mutual Insurance 

Companies (NAMIC), and President and CEO, the Providence Mutual Fire 

Insurance Company ............................................................................................. 26 

Rutenberg, Barry, First Vice Chairman, the National Association of Home 

Builders (NAHB) .................................................................................................. 29 

Sullivan, Terry, Chair, Committee on Flood Insurance, National Association 

of REALTORS®, and broker/owner, Sullivan Realty ........................................ 20 

APPENDIX 

Prepared statements: 

Brown, Orice Williams ..................................................................................... 48 

Ellis, Stephen .................................................................................................... 67 

Houldin, Spencer .............................................................................................. 74 

Jallick, Donna M. ............................................................................................. 80 

McConkey, Sally ............................................................................................... 83 

Nutter, Franklin W. ......................................................................................... 102 

Parrillo, Sandra G. ........................................................................................... 112 

Rutenberg, Barry .............................................................................................. 122 

Sullivan, Terry .................................................................................................. 137 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Biggert, Hon. Judy: 

Written statement of Allstate Insurance Company ....................................... 156 

Written statement of the International Code Council (ICC) ........................ 158 

Written statement of Lloyd’s of London ......................................................... 159 

Written statement of the National Multi Housing Council (NMHC) ........... 161 

Additional information provided for the record by Franklin Nutter ............ 163 

Written statement of the National Association of Professional Insurance 

Agents (PIA) .................................................................................................. 164 

Page

VI 

Gutierrez, Hon. Luis: 

Written statement of the American Insurance Association (AIA) ................ 166 

Written statement of the National Wildlife Federation (NWF) .................... 169 

Fugart, Hon. Craig, Administrator, the Federal Emergency Management 

Agency [Administrator Fugate was scheduled to testify but was unable 

to do so because of the emergency situation with the tsunami]: 

Written statement and attachments ............................................................... 174 

Sullivan, Terry: 

HUD’s Federal Register notice from 1977 providing the history of the 

NFIP ............................................................................................................... 194 

(1) 

LEGISLATIVE PROPOSALS TO REFORM 

THE NATIONAL FLOOD INSURANCE 

PROGRAM, PART I 

Friday, March 11, 2011 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON INSURANCE, HOUSING, 

AND COMMUNITY OPPORTUNITY, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:05 a.m., in room 

2128, Rayburn House Office Building, Hon. Judy Biggert [chairwoman of the subcommittee] presiding. 

Members present: Representatives Biggert, Hurt, Capito, Westmoreland, Duffy, Dold; Gutierrez, Waters, Cleaver, and Sherman. 

Also present: Representatives Palazzo and McCarthy of New 

York. 

Chairwoman BIGGERT. This hearing of the Subcommittee on Insurance, Housing, and Community Opportunity will come to order. 

Let me just say before we start that I would like to take a 

minute to express the deepest sympathy for the people of Japan as 

they cope with the aftermath of this terrible earthquake and tsunami. While reports of the damage continue to surface, it is clear 

this disastrous event will leave an indelible mark on the region. My 

thoughts and prayers—and I am sure all of us who are here 

agree—are with the people of Japan, not to mention our hopes that 

the effects on Hawaii and the West Coast will be minimal. 

And I would like to note that Administrator Fugate cannot join 

us today, given that he must remain at the FEMA headquarters to 

monitor the developments in Hawaii, Alaska, the West Coast, and 

the Pacific Territories and to coordinate possible Federal assistance 

to State and local governments. So, we understand his responsibilities, and we hope that we will meet with the Administrator within 

the next few weeks. 

With that, we are going to have opening statements. I will start, 

and welcome the witnesses to today’s hearing where we will examine legislative proposals to reform the National Flood Insurance 

Program, or NFIP. 

It is critical that, well in advance of NFIP’s September 30th expiration date, Congress begin a dialogue and shape a reform measure. Millions of homeowners and businesses in Illinois and across 

the country, not to mention our recovering housing market, can ill 

afford the turmoil caused by a program lapse, which occurred during the previous Congress. 

2 

That said, to the credit of my colleague, Ms. Waters, the former 

subcommittee chair, much progress was made on NFIP reform legislation, some of which is included in the draft bill that is under 

discussion today. 

There is no question that the program is in dire need of reform. 

For many years, the NFIP has been—for lack of a better phrase— 

underwater, with longstanding management and financial challenges, and was last reformed in 2004. The NFIP borrowed millions 

from taxpayers following the 2005 Gulf Coast hurricanes and continues to be financially unstable. 

Since 2006, the NFIP has been cited by the Government Accountability Office as a high-risk Federal program in need of fundamental reform. 

It is crucial that we work to restore the financial integrity of the 

NFIP so that homeowners and businesses in floodplain areas, like 

many in my State of Illinois, are not left without any protection, 

and taxpayers are not on the hook for the failure of the NFIP. 

We must work towards a long-term plan for flood insurance that 

eliminates taxpayer risk in the near-term. Important reforms to 

the NFIP must improve its financial stability, reduce the burden 

on taxpayers, and examine ways to increase private market participation. 

Today, I would like to welcome guest members to our committee, 

regulators, engineers, insurers and reinsurers, REALTORS®, home 

builders, and many other experts to examine near- and long-term 

strategies for a flood insurance program that our families, businesses, and local communities can count on. 

With that, I recognize Ranking Member Gutierrez for his opening 

statement. We have agreed to limit the opening statements to 5 

minutes. 

Mr. GUTIERREZ. Good morning, Chairwoman Biggert, and everyone here today. I want to thank our witnesses for taking the time 

to testify. We are here to discuss legislative proposals to reform the 

National Flood Insurance Program. 

As you may recall, we were successful in passing the Flood Insurance Reform Priorities Act of 2010 last summer, which was introduced by Congresswoman Waters. The bill received broad bipartisan support. But unfortunately, the Senate did not take it up, so 

here we are once again. 

Since the program is slated to expire at the end of September, 

I hope we can once again work together to pass this critical, necessary legislation and not allow the program to lapse, as it has 

done in the past. 

Finally, as we move forward, we need to make sure reauthorization adds stability to the National Flood Insurance Program and to 

our housing market. 

I look forward to all the testimonies. I would like to introduce 

two statements for the record. 

The first is from the American Insurance Association, Write Your 

Own Flood Insurance Coalition. AIA expresses the need for a 

meaningful and long-term extension and contributes to this ongoing discussion with their recommendations. 

3 

The second is from the National Wildlife Federation, a 

SmarterSafer Coalition, as it raises environmental concerns to keep 

in mind as we move forward with NFIP reform this year. 

Thank you, Madam Chairwoman. I would like to see who else on 

our side would like some time, as time permits. 

Chairwoman BIGGERT. Thank you. 

At this point, I would ask unanimous consent that our colleague, 

Mr. Palazzo, can join our subcommittee and participate in the hearing today. 

Without objection, it is so ordered. 

Welcome. 

And now, we recognize Representative Dold for 2 minutes. 

Mr. DOLD. Thank you, Madam Chairwoman. 

And I want to welcome you all here, as well, and thank you for 

being here. 

The Flood Insurance Program insures more than 5 million residential and commercial property owners in more than 20,000 

American communities. These millions of property owners and 

their communities depend on this program to provide some measure of security against inevitable flood risks. 

At the same time, with this program’s existing debt and with the 

persistence of federally-subsidized premiums, the program remains 

undercapitalized, and the program’s financial solvency is in jeopardy—all of which places the American taxpayer at an ongoing, 

substantial risk. 

Clearly, we need to minimize taxpayer risk by making this program more self-sufficient and by expanding the private sector’s role 

in protecting against flood disasters. The important question for us 

is how to accomplish these important objectives. 

One thing that also seems clear is that the strategy of short-term 

authorizations and the corresponding temporary program lapses 

have not worked to minimize taxpayer risk or to expand the private sector’s role. In fact, the short-term authorizations and temporary lapses have had the opposite effect, while also destabilizing 

an already fragile housing market. 

To properly reform and strengthen this program, we need to reauthorize this program on a long-term basis, and we need to do so 

promptly to avoid any additional lapses in the program. Long-term 

reauthorization will allow us to create stability and predictability 

for property owners, while moving towards meaningful and necessary reforms. 

We must also gradually reduce Federal subsidies that keep flood 

insurance premiums artificially low, that keep private insurers out 

of the market, and that keep taxpayers on the hook for most of the 

flood losses. We must also consider how to deal with repetitive loss 

properties to index coverage for limits for inflation and to expand 

available coverages. 

We need to consider policies that will limit adverse selection and 

better spread risks. We need to consider giving private market insurers some certainty and uniformity regarding applicable law 

when selling and administering policies under what is necessarily 

a national flood insurance market. 

4 

In the end, we need to create the conditions under which the taxpayer risk is minimized, private sector involvement is expanded, 

and policy owners are protected. 

I look forward to working with the chairwoman and my colleagues on both sides of the aisle to achieve these most important 

national objectives. 

I yield back. 

Chairwoman BIGGERT. Thank you. 

I would also like to ask for unanimous consent for Mrs. McCarthy, a member of the full committee, to participate in today’s hearing. 

Without objection, it is so ordered. 

I will now recognize Mr. Cleaver for 2 minutes. 

Mr. CLEAVER. Thank you, Madam Chairwoman, and Ranking 

Member Gutierrez. 

The tsunami hitting Japan yesterday, or last night, provides us 

with a reminder of the devastation that can be caused by flooding. 

And it also is appropriately getting the attention of the FEMA Administrator, which is why the Administrator is not with us this 

morning. 

Madam Chairwoman, I think that it is time that we do an overhaul of the NFIP, because, obviously, there are concerns. We attempted in the aftermath of Hurricane Katrina to provide some reform to the program, but we did not get very far. 

Something has to be done. We are about $18 billion underwater—pardon the pun—and the program simply cannot continue 

as it is now. 

We need to struggle with—and debate, if necessary—the issue of 

the wind damage coverage, which was one of the controversies 

when we tried to deal with this issue back in 2009. 

So, I am looking forward to raising those questions about reform 

to our panel this morning, and to actually find out from them 

whether or not they believe that we have time to do anything before the September expiration date, because I think, expeditiously, 

maybe we can address this issue. 

Thank you, Madam Chairwoman. I yield back. 

Chairwoman BIGGERT. Thank you. 

I would also like to submit for the record, by unanimous consent, 

written statements from Allstate, the National Association of Professional Insurance Agents, the International Code Council, Lloyds 

of London, and the National Multi Housing Council. 

We will now start with our witnesses. 

And I would also like to submit, without objection, the testimony 

of Administrator Fugate for the record. 

Without objection, it is so ordered. 

And we are happy to have with us: Orice Williams Brown, Managing Director of Financial Markets and Community Investment 

for the Government Accountability Office; and Sally McConkey, 

vice chair of the Association of State Floodplain Managers, and 

manager, Coordinated Hazard Assessment and Mapping Program, 

Illinois State Water Survey. 

As you may know, you can address the dais for 5 minutes, and 

then we will follow that with questions and answers. 

So, Ms. Brown, if you would like to be recognized for 5 minutes? 

5 

STATEMENT OF ORICE WILLIAMS BROWN, MANAGING DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENT, 

U.S. GOVERNMENT ACCOUNTABILITY OFFICE (GAO) 

Ms. BROWN. Thank you. 

Chairwoman Biggert, Ranking Member Gutierrez, and members 

of the subcommittee, I appreciate the opportunity to participate in 

today’s hearing on the National Flood Insurance Program. As you 

know, floods are the most frequent national disaster in the United 

States, causing billions of dollars of damage each year. 

This morning, I would like to share my thoughts on three areas: 

FEMA’s administration of NFIP; the proposed reforms put forth in 

the discussion draft; and other possible areas for reform. 

First, NFIP serves a vital role in providing protection against 

flooding to over 5.6 million policyholders nationwide. As you know, 

NFIP is one of 30 programs or areas on GAO’s 2011 high-risk list. 

It first appeared on this list in March 2006, after the 2005 hurricane season exposed the potential magnitude of longstanding structural issues on the financial solvency of the program, and brought 

to the forefront a variety of operational and management challenges that must also be addressed to help ensure the long-term 

stability of the program. 

In our ongoing work examining FEMA’s management of NFIP, 

our preliminary results reveal challenges in strategic planning, 

human capital planning, interagency collaboration, records management, acquisition management, and information technology. 

While FEMA continues to make some progress in addressing certain areas, fully addressing these fundamental issues will be vital 

to its long-term operational efficiency and stability. 

Second, using the broad public policy goals identified by GAO on 

the role of the Federal Government in providing natural catastrophe insurance, I will share some thoughts on reforming NFIP as 

outlined in the discussion draft. These broad goals include charging 

rates that reflect the risk of flooding, limiting costs to the taxpayer, 

encouraging broad property owner participation, and encouraging 

private sector involvement. 

Successfully reforming NFIP will require trade-offs among these 

often competing goals. For example, currently, nearly one in four 

policyholders does not pay a full risk rate, and others pay grandfathered rates. 

The discussion draft addresses this structural issue by phasing 

out these rates over time. This not only results in rates that reflect 

the risk of flooding, but also can help minimize the cost to taxpayers, and could help encourage private sector participation. 

The trade-off involves potentially losing policyholders who may 

opt to leave the program, potentially increasing post-disaster Federal assistance. However, these challenges can be overcome by a 

variety of options including targeted subsidies, tax credits, and 

mitigation. 

The goal of encouraging broad participation in the program could 

be achieved by increasing targeted outreach to help diversify the 

risk pool. One way for FEMA to do this is to make sure its incentive structure is consistent with its goals of expanding participation 

in low-risk zones and areas subject to repeated flooding, but have 

low penetration rates, among others. 

6 

Encouraging private markets is the most difficult challenge, because there is currently no broad-base private market for flood insurance for most residential and commercial properties. 

As originally envisioned, NFIP was established as a cooperative 

arrangement between the Federal Government and the private sector, with both assuming a share of the risk. The concepts in the 

discussion draft would begin to address this issue by giving FEMA 

greater authority to explore alternatives. For example, the discussion draft addresses the possibility of reinsurance. 

Finally, while the discussion draft begins to address many of the 

broad public policy goals, I would like to offer a few other areas for 

consideration as the reform discussion continues. For example, 

leveraging mitigation programs in ways to make them more effective including: clarifying FEMA’s authority to charge higher rates 

when property owners refuse or do not respond to mitigation offers, 

or allowing FEMA to apply a surcharge when mitigation offers are 

refused; actuarial rates and whether they should be sufficient to 

pay for catastrophic losses and any borrowing from Treasury; appropriating for any subsidies until the full-risk rates are fully 

phased in; and authorizing FEMA to map for all present flood 

risks, including erosion. 

Chairwoman Biggert, Ranking Member Gutierrez, and members 

of the subcommittee, this concludes my oral comments, and I would 

be happy to answer any questions at the appropriate time. Thank 

you. 

[The prepared statement of Ms. Brown can be found on page 48 

of the appendix.] 

Chairwoman BIGGERT. Thank you very much. 

I will now recognize Ms. McConkey for 5 minutes. 

STATEMENT OF SALLY MCCONKEY, VICE CHAIR, ASSOCIATION 

OF STATE FLOODPLAIN MANAGERS, AND MANAGER, COORDINATED HAZARD ASSESSMENT AND MAPPING PROGRAM, ILLINOIS STATE WATER SURVEY 

Ms. MCCONKEY. The Association of State Floodplain Managers 

(ASFPM) thanks this subcommittee, Chairwoman Biggert, and 

Ranking Member Gutierrez for your attention to the need to reauthorize the National Flood Insurance Program. 

We very much appreciate your holding this hearing, and appreciate the opportunity to comment on the discussion draft legislation 

and to share our thoughts on the current status of the NFIP, challenges the program confronts, and opportunities to improve our Nation’s efforts to reduce flood-related losses. 

The Association of State Floodplain Managers and its 29 chapters represent over 14,000 State and local officials and other professionals who are engaged in floodplain management and hazard 

mitigation. All ASFPM members are concerned with working to reduce our Nation’s flood-related losses. 

ASFPM believes that the NFIP has been a useful Federal program for addressing flood losses in the Nation and it should be reauthorized without lapse. A reauthorization of 2 to 3 years is important for the stability of the NFIP, and the associated predictability is important for the lenders, the housing industry, home 

7 

buyers, policyholders, and the Write Your Own insurance companies. 

While a longer period of authorization is important, it must be 

balanced with the need to fully consider many important reform 

ideas which will need further evaluation and consideration by the 

committee. 

There are fundamental issues that need to be thoroughly considered. For example, should the NFIP accommodate catastrophic 

losses rather than the average historical loss year? If so, are there 

realistic, affordable program adaptations that can achieve this objective? And if not, would it not be best to clarify that the program 

is not expected to cover catastrophic losses? 

The Nation must carefully balance the issue of who benefits and 

who pays for develop at risk. We believe that a 2- to 3-year reauthorization would provide the needed reliability, while allowing 

time for FEMA to complete its ‘‘rethink the NFIP’’ project, and for 

Congress and the committee to thoroughly review and consider the 

significant policy and legislative options and recommendations for 

management and operation of the NFIP. 

The report is expected out in June of 2011, and we think this 

project will identify, or does identify, the tensions and the tradeoffs of various options, and needs careful and deliberate consideration. 

ASFPM identifies, and has identified, a number of concepts 

which we feel should be part of any reform. First, a comprehensive 

national flood risk management framework is needed to actually 

reduce flood-related losses of life and property in the Nation. We 

must move beyond the current NFIP minimum approaches and 

achieve a fuller integration of Federal programs. 

Second, bold reforms should be considered to address current 

flood insurance issues. Flood insurance should gradually move towards being actuarially sound, to reflect actual risk and enable 

market-based financial decisions. 

Third, floodplain mapping has changed significantly over the life 

of the program. Better technology, improved methods, and the creation of risk assessment techniques allow for the identification of 

flood hazard areas and enable the creation and distribution of this 

information to decision-makers. 

Technological advances will continue, and a long-term authorization of the mapping program is needed so we can fully utilize those 

advances, continuing to improve and advance flood risk identification. 

Fourth, improvements in floodplain management and hazard 

mitigation elements of the NFIP should be continuously evaluated. 

With respect to the current discussion draft, we find that the 

draft developed by this subcommittee includes a number of important and helpful changes for the short term to the NFIP, compared 

to the bill passed by the House last summer. We note that these 

constitute revisions rather than the full reforms that we are discussing, and we would urge that the subcommittee plan on an indepth consideration of the significant policy and legislative recommendations for the NFIP during the 2- to 3-year reauthorization 

period. 

8 

ASFPM appreciates that the proposal attempts to modify and 

tighten previous proposals to delay the mandatory purchase requirement of properties in areas newly mapped as floodplains. 

However, as a matter of principle, if the risk is known and documented, it is not appropriate for the Federal Government to help 

people ignore their risk. Rather than delay mandatory purchase, 

we prefer the subcommittee consider other methods of addressing 

the affordability issue, such as the means-tested voucher system to 

be handled by the Department of Housing and Urban Development. 

I actually grew up in East St. Louis, Illinois, where my father 

owned a business. We lived and we worked in the floodplain with 

no real knowledge of the risk that we faced; we knew the levees 

were there, and we did count on them. 

And to be abruptly confronted with the significant expense of 

flood insurance would have been very, very hard on my family and 

my dad’s business. But to have had flood damages to our home and 

to the business that were uninsured, that we could not recover 

from, would have been devastating. 

There are a number of aspects in the discussion draft that 

ASFPM agrees with, such as the proposal to use differentiated 

deductibles for pre- and post-FIRM properties. 

The phase-in of actuarial rates for certain properties is a step 

forward, and we agree with most of the listed categories. 

ASFPM very much supports the establishment of the Technical 

Mapping Advisory Committee, which should be an advisory council 

to provide stakeholder input to the needs and uses of the map, and 

to assist FEMA in improving its processes. 

There are a number of issues that require further consideration. 

While ASFPM does support a more in-depth study of privatization, 

any such movement in this area must ensure that there are continued, strong incentives for comprehensive floodplain management, 

which is one of the great strengths of the current program. 

Further, we would like to suggest two other studies, which would 

be in order, in addition to the privatization initiatives already provided for in the draft: first, a study of the feasibility of group insurance for entire communities, for identified flood hazard areas, or 

for residual risk areas behind levees; and second, an economic analysis of the overall effect on taxpayer funds of providing flood insurance vouchers to low-income property owners. 

Also, the Severe Repetitive Loss Program is needed to assist in 

reducing the approximately $200 million drain on the National 

Flood Insurance Fund. And we urge the committee to work with 

FEMA to identify statutory-type changes to better implement this 

program and the use of demolish-and-rebuild as a mitigation option. 

ASFPM is grateful for the opportunity to share our thoughts 

with the subcommittee, and hope they will be helpful as you move 

forward with legislation. We will be glad to respond to any questions, and to assist the subcommittee in any way we can. Thank 

you. 

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

83 of the appendix.] 

Chairwoman BIGGERT. Thank you so much. 

9 

Now, we will begin the question-and-answer period, and I recognize myself for 5 minutes. Ms. Brown, over the past 5 years, FEMA has paid more than $2 billion in interest payments to service its debt, nearly $2 billion 

more to reduce it. But FEMA still owes $17.75 billion to U.S. taxpayers. Many have asserted that FEMA is unlikely to ever be able 

to repay its debt. 

Do you foresee any scenario in which the debt can be paid, repaid 

over time? And can you outline a range of public policy options for 

how Congress might enable FEMA to be able to address its debt 

to the U.S. Treasury? 

Ms. BROWN. We have looked at this issue. And the bottom line 

is, as it currently stands, FEMA has been able to make principal 

repayments, because they have experienced relatively low flood loss 

years. And that is how they have been able to do it. 

It is not clear that it is reasonable to expect that to continue to 

occur in the future in order for FEMA to be able to make those 

payments. So, there is a possibility that in certain years where 

FEMA experiences higher-than-normal flood years, that they actually could see their borrowing from Treasury go up, because they 

may actually have to borrow from the Treasury in order to make 

their interest payment. 

There are a range of scenarios that could be taken to address 

this. A decision could be made to forgive the debt in order to allow 

the program to start on a more sound financial footing, provided 

appropriate reforms are in place. 

Another way to do it would be to consider a surcharge that 

FEMA could add to existing premiums, to be used to pay down the 

debt. That raises questions of fairness. Is it fair for the current and 

future policyholders to have to pay a surcharge to repay the debt? 

So, there are many ways to think about it. 

This is not something that we have specifically studied, but we 

have looked at and read a number of possible alternatives. But this 

is a challenge that has to be addressed in order for the program 

to be put on a more stable financial footing going forward. 

Chairwoman BIGGERT. GAO has also suggested that operational 

and management issues may also limit efforts to address this, 

NFIP’s financial challenges, and meet the program goals. 

Can you highlight some of those issues for us? 

Ms. BROWN. Yes. In the last decade, we have identified and made 

recommendations to address issues surrounding the rate-setting 

process and how that is handled. We have raised issues with the 

quality of the data that FEMA uses to do some of its rate-setting. 

We have raised concerns about the financial management controls 

and the system in place. 

We have had findings surrounding the oversight of the Write 

Your Owns (WYOs). We have also looked at the incentive structure 

that FEMA uses to incent WYOs surrounding increasing the number of policyholders in the program and expanding the risk pool. 

We have also, in the work that we currently have underway, we 

have identified a number of challenges associated with their information technology, and investments that they have made in a program, a technology program, that failed, that cost FEMA substantial sums of money. 

10 

So, human capital management, identifying where they need people, and a mechanism to make sure that the program is being adequately managed during emergencies and outside of emergencies, 

a full range of issues to be fully addressed. 

Chairwoman BIGGERT. Thank you. 

And then, Ms. McConkey, given your experience in Illinois, can 

you provide the committee with your point of view on risk-based 

pricing and how it should work, and also, alternatives that communities could consider for mitigating flood damage—or risk, I should 

say? 

Ms. MCCONKEY. It is very important that the people who are living at risk, know the risk and share the—and be part of the paying 

for their risk. It is, we feel, inappropriate to externalize that risk 

to the rest of the taxpayers, the Federal taxpayers. 

But we also understand that you have to gradually move towards 

actual rates for flood insurance, and that we also need to look at 

a more holistic view of our at-risk communities, and not just consider flood insurance, or just a levee to be the ultimate answer. 

We need to look at really having more sustainable communities, 

which might include a strategic retreat from the floodplain, or buying flood easements, or other management techniques, mitigation 

techniques that will really, long term, reduce our flood risk in the 

Nation. 

Chairwoman BIGGERT. Thank you. My time has expired. 

I recognize Ranking Member Gutierrez for 5 minutes. 

Mr. GUTIERREZ. Thank you very much. 

I would like to yield my time to Congressman Cleaver. 

Mr. CLEAVER. Thank you, Ranking Member Gutierrez. I do have 

some questions. 

Ms. McConkey, you are a Midwesterner and grew up in the shadows of Missouri. We have had unusual snowfall this winter, which 

means that, very shortly, a mixture of the melting snow and the 

normal spring rain can and does often create flooding in Illinois 

and Missouri. 

We are also still in the throes of a recession, in spite of good 

news from time to time, but we are still in the throes of a recession. And a large number of unemployed folk are living in areas 

that are susceptible to flooding. 

Do you agree that it would be difficult for many of the people just 

struggling to exist, who did not purchase flood insurance, to have 

to go to a private insurer at a time like this? 

There is a great deal of talking about the privatization and what 

does privatization do to people who are vulnerable, like those—you 

probably know some of them. Is it unfair for us to think in terms 

of privatization as a way for them to protect their homes and property? 

Ms. MCCONKEY. Actually, what we believe is that, to deal with 

people with affordability issues, managed through a program like 

HUD, that has experience with means-tested systems, so that you 

could— 

[laughter] 

Actually, I can talk pretty loud. 

[laughter] 

11 

We really think that it should not be handled through the insurance mechanism to deal with the affordability, that it should be 

through a means-tested program, like handled by HUD, where you 

would get vouchers if you cannot afford the flood insurance. That 

way, you have the protection of the flood insurance without distorting the insurance aspect of the program, and you have protection for individuals irrespective of if it is FEMA flood insurance, or 

if it is private flood insurance. 

That is our solution. 

I do not know how the rates would change with the privatization. 

I cannot speculate on that. 

Mr. CLEAVER. No, it was not the rates as much as it is the fact 

that, I guess to some degree it is. But I am concerned about people 

who are just struggling right now to survive and are vulnerable. 

Ms. MCCONKEY. Exactly. 

Mr. CLEAVER. But before my time expires, I am from the Missouri side. My other concern, Mrs. Biggert—and I appreciate very 

much you moving ahead, trying to do something with regard to the 

flood insurance overhaul. 

It seems to me, though, that there ought to be—and Mrs. Biggert 

asked you the question—maybe, if this bill moves—and I hope 

something moves, because I think we are dealing with an $18 billion problem, and the fact that we have people who are out here 

vulnerable. 

And I would really hope that before September, we could come 

up with a bill, but that the legislation ought to address this $18 

billion problem we have. I listened carefully to the options. None 

of them are extremely attractive, I might add. 

But we have to do something, or we will continue to meet and 

talk about an $18 billion problem. And I think now is the time for 

us to attack the problem. I do not think we ought to wait. 

And so, I do not know whether FEMA should send options, 

maybe even more that you did not mention, or some way we need 

to begin that struggle now, instead of postponing it. 

I yield back the balance of my time. 

Chairwoman BIGGERT. Thank you. 

I think, Mr. Cleaver, that we really are having this hearing now, 

because we do need to move ahead. And we have expected having 

maybe another hearing, but at least a mark-up soon. This is a draft 

discussion right now, but we really wanted to proceed. 

I know that the study is supposed to come out in June. But I 

think we really want to be moving ahead before then. And I think 

maybe we will get an update on all of what is going on as far as 

the study, too. 

But it is very important that we do not let this slide. As you 

know, it is much harder to do it later on and get the Senate engaged, which has always been a problem. 

[laughter] 

You could say that. 

I now recognize Mr. Hurt from Virginia for 5 minutes. 

Mr. HURT. Thank you, Madam Chairwoman. 

Thank you all for being here. Welcome. And thank you for your 

obviously significant interest in this important issue. 

12 

The chairwoman spoke of the $18 billion debt that has accrued 

through this program. And I have read that the deficit, the builtin deficit for this program annually has been $1.3 billion. 

And Ms. Brown, I was wondering if you could talk about that 

deficit? Is that something that has been consistent post-Katrina, 

pre-Katrina? Are you able to comment on that? 

Ms. BROWN. I am not. This is not anything that we have specifically looked at. 

Mr. HURT. Okay. With respect to the proposal that we are evaluating, this draft bill, can you talk about what, in real terms, the 

taxpayer subsidy is for this program? Are you able to talk about 

that? 

Ms. BROWN. Yes. I can give a rough estimate based on the full 

risk rates currently charged and the estimate for the subsidized 

amount. And the current estimate is that the subsidy basically results in those subsidized properties paying about 40 to 45 percent 

of the full risk rate. 

We did a rough calculation based on the current policies in force, 

and estimate that somewhere around $1.8 billion a year is being 

subsidized. That is the amount that is lost in premiums, if there 

was a full risk rate— 

Mr. HURT. And has GAO, in looking at this draft bill, been able 

to determine what that might be reduced to, if you are able to encourage the private market to come into this business? 

Ms. BROWN. It depends on how that happened. The challenge 

with flood insurance has been, historically, there really was not a 

private market. And there was not a private market for a number 

of reasons. 

So, depending on how that was structured to bring the private 

market in, there are a number of things that would have to be 

dealt with. If you bring the private market in, and they are able 

to focus on the lowest-risk properties, that would leave the program 

with a very concentrated risk pool. And all of the riskiest properties will be in NFIP. That can potentially expose the program to 

greater losses, because there would be this concentrated risk. 

So, the impact that the private market would have is really unclear until there is a better sense of kind of how that would be 

structured and what role the NFIP would play in that particular 

scenario. 

Mr. HURT. Okay. Obviously, one of the issues, a fundamental 

issue, I think, that we all have to kind of deal with—and this issue 

to me is a new one—is the issue of moral hazard. And obviously, 

I would think we probably all agree that there are places that people should not live. 

Under the current proposal that we are looking at today, do you 

see that the moral hazard issue—that is, encouraging behavior, or 

encouraging people to do things that are not in their best interest— 

would that be minimized? Or could that be increased by the proposal that we are looking at today? 

I would like an answer maybe from you, Ms. Brown, as well as 

you, Ms. McConkey, if you feel like it. 

Ms. BROWN. The closer premiums come to fully reflecting risk is 

a clear signal to a property owner that they are living in harm’s 

way. So, to the extent that the discussion draft moves those preVerDate Nov 24 2008 18:31 Jun 14, 2011 Jkt 065676 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\65676.TXT TERRIE
13 

miums in that direction, it definitely would help elevate the risk 

that homeowners and property owners are exposed to currently. 

Mr. HURT. Ms. McConkey? 

Ms. MCCONKEY. I do not think I could say it any better. 

Mr. HURT. Okay. Thank you. 

I yield back my time. 

Thank you, Madam Chairwoman. 

Chairwoman BIGGERT. Thank you, Mr. Hurt. 

I now recognize Mr. Cleaver for his 5 minutes. 

Mr. CLEAVER. Thank you, Madam Chairwoman. 

I just have one question. Then I would like to yield the balance 

of my time to the gentlelady from New York, Mrs. McCarthy. I am still on the $18 billion. And there have been some suggestions that perhaps reinsurance could be a way to eliminate future 

debt. I would like to just get your response to that, both of you. 

Either of you? 

One of you? 

[laughter] 

Ms. BROWN. The issue of reinsurance, one of the things in the 

discussion draft that was interesting is that there is an opportunity 

for FEMA to do some study and pilots, and explore the option of 

reinsurance. 

This is something that we had looked at a couple of years ago. 

There did not appear to be an appetite at that time, but I think 

it is something that is definitely worth revisiting. 

Because the way it currently works is, NFIP, while it is an insurance program, it does not function, really, anything like private insurance, because private insurers would purchase reinsurance to 

cover that catastrophic level of risk. 

What happened—and we saw this happen in Katrina—because, 

to Representative Hurt’s point, prior to Katrina, the program was 

not running a deficit, and it was pretty much self-funding up until 

2005. And Treasury became the reinsurer, because any losses over 

and above the amount that could be covered through premiums, because there is no reserving mechanism, was borrowed from the 

Treasury. 

And what you are left with is Treasury—the program now has 

this outstanding debt to the Treasury, because there was not the 

opportunity for any type of reinsurance mechanism. 

Mr. CLEAVER. I yield to Mrs. McCarthy. 

Mrs. MCCARTHY OF NEW YORK. I thank my colleague. 

And may I also say thank you to the chairwoman for having this 

hearing. I think it is extremely important. 

I just want to give you a little background. I live on Long Island, 

and we certainly have an awful lot of shoreline. So, obviously, we 

have a lot of homes that need flood insurance in case of a hurricane. And so far, we have been blessed that we have not had that 

hurricane. 

But I represent center Nassau County. And I am sorry that Mr. 

Fugate is not here, because of questions that I had wanted to ask 

him. 

But apparently, what FEMA had done was go out to Suffolk 

County, which has a higher level of flooding, even on heavy rains, 

and took those maps, and put them into Nassau County, the center 

14 

of Nassau County, which they are saying that, on certain areas in 

this particular village were a little bit higher, even though we are 

not near any water. 

And I stress that. We are not near any water, nor have any of 

the families had any floods for over 25 years. 

Is there a possibility? Absolutely. Should we look at that? Absolutely. 

But I guess the question I want to ask is, the draft legislation, 

which I agree on, contains a provision to bring back the Technical 

Mapping Advisory Council to address mapping standards, made up 

of representations from many different agencies familiar with mapping. 

I am interested in getting your thoughts on having the mapping 

process in an entire independent entity in an effort to ensure that 

the most accurate data is used to update the maps. Nassau County 

and Long Island, we just had our maps updated. 

Just to give you a sidebar, I have a retirement home somewhere 

out in Suffolk County, very close to the water. I did not get an increase. I am not now in a flood zone. And I do not understand that 

at all, because when it rains heavily, the water from the bay comes 

up, basically on the lawn. 

So, something is wrong here. If I am living there, then I should 

be paying more, in my opinion. I shouldn’t say that, but right now, 

I am getting away with it. 

But the people in Nassau County, in the center, in my opinion, 

the maps are wrong. So, I would like your opinion on bringing back 

the Technical Mapping Advisory Council, so that we have more accurate maps. 

Ms. MCCONKEY. We very much endorse the idea, the concept of 

bringing back the Technical Mapping Advisory Committee. Actually, when it was instated in, I think it was 1994 or 1995, through 

their recommendations, they actually brought out the Map Modernization Program, which has really led to great progress in improving the quality and the accuracy of the maps—in most places. 

So, yes, we do believe that is an important body to have as an 

advisory council. 

Through FEMA’s Risk MAP Program, their next 5-year initiative, they have taken certain very strong steps to address quality 

issues with the mapping, and also to have greater engagement with 

the community, so that there is more ground truthing to what they 

are doing earlier on in the process. 

And so, I— 

Mrs. MCCARTHY OF NEW YORK. May I stop you right there? That 

was one of their biggest failures. They did not let the community 

know. They did not let even the counties know. They just asked 

them for their old maps, which is very upsetting. 

Ms. MCCONKEY. FEMA has addressed a lot of problems in that 

regard with their Risk MAP process, where it is very clearly prescribed to anyone who—and actually, the group that I manage, we 

do the digital flood insurance rate maps. We do the engineering 

studies for Illinois counties. We have done 78 of our 102 counties. 

So, we are actually—I am involved in that process. 

I read the rules, because that is what we are supposed to do. And 

through the Risk MAP process, there really is strong community 

15 

engagement, early on technical meetings, so that there is ground 

truthing of what you are doing. And then, FEMA has also set up— 

and I apologize, I may not have the right phrase—but sort of an 

arbitration, an independent arbitration panel, for when there are 

appeals to the maps. 

So, I think they have listened. They have heard about these 

problems, and that Risk MAP makes great strides in addressing 

the accuracy and the outreach issues. 

Mrs. MCCARTHY OF NEW YORK. Thank you. 

Ms. Brown, anything? 

Mr. Cleaver, would you like your time back? 

Chairwoman BIGGERT. I think his time has expired. 

Mrs. MCCARTHY OF NEW YORK. Oh, sorry. 

Chairwoman BIGGERT. I now recognize Mr. Dold from Illinois for 

5 minutes. 

Mr. DOLD. Thank you, Madam Chairwoman. 

Ms. McConkey, we are delighted that you are here from Illinois. 

Obviously, the chairwoman, ranking member, and myself were delighted to have another person from Illinois here on the panel. So, 

thank you so much. 

Ms. MCCONKEY. Thank you very much for the invitation. 

Mr. DOLD. Ms. Brown, in the past you have noticed that Congress has noted that repetitive loss properties constituted a significant drain on the NFIP. Do you have any suggestions on the repetitive loss properties and how to make them less of a liability? 

Ms. BROWN. Yes. This is also an issue that we have looked at 

over time. And while great strides were made with amendments 

that were made in the 2000s to address repetitive loss properties, 

the number of properties has continued to increase. And we looked 

at February numbers, and they are continuing to increase. 

There are a couple of things that we would propose be considered 

that deal with mitigation offers and what happens when those offers are refused or not responded to, and in terms of allowing 

FEMA, perhaps, the authority to apply a surcharge above a—rate 

for those properties, if the homeowner chooses to refuse or not respond to an offer. 

And also, really focusing some attention on the mitigation programs and determining if there are ways to make them more efficient and effective as a way to address the issue of the repetitive 

loss properties. 

Mr. DOLD. And just following up on my colleague on the other 

side who had talked about reinsurance, you currently are not using 

reinsurance right now. Is that correct? 

Ms. BROWN. In FEMA? No. 

Mr. DOLD. They are not using it. Is there any question that you 

are able, that FEMA is able to use it? 

Ms. BROWN. That I am not sure about, if they could if they wanted to. Right now, the mechanism is for them to rely on borrowings 

from Treasury. 

Mr. DOLD. Would, perhaps, additional insight or authority from 

Congress be necessary to let them do that? It is certainly a common 

practice out there in the insurance industry, in order to try to protect from catastrophic losses. 

16 

And certainly, when we look at those areas that are particularly 

hard-hit, or those that continue to be hit again and again, it would 

seem to me that, potentially, at least having the mechanism or vehicle available may be something that they might want. 

Is that something—what is your take on that? 

Ms. BROWN. My take on whether they could do it now, this is 

why I really wish Mr. Fugate was here to address that question 

specifically. 

But in terms of that being an option to be considered, I think 

that is definitely one of the options that needs to be on the table 

and discussed in terms of reforming the program going forward. 

Mr. DOLD. Okay. 

And, Ms. McConkey, a question for you on the vouchers. You had 

talked a little bit about vouchers before. Can you give me any sort 

of an idea on how you anticipate, or how you would like to see 

something like this, how it would be administered? And do you 

have any idea what the costs of that would be? 

Ms. MCCONKEY. To answer your last question first, no. The cost 

of it is a study that we recommend be initiated through this draft 

legislation. 

The voucher system we envision as something to be managed 

through the Department of Housing and Urban Development, because they have experience with means-tested voucher systems. 

FEMA does not. 

But this way, it would allow for people to get the message about 

the risk that they have with their home, and yet not be burdened 

in these times, or because families who really are just operating on 

the edge would not be burdened with the cost, that we would pick 

that cost up. 

It also provides them with fuller protection than no insurance at 

all. If you have insurance, then that means you have money to pay 

off your mortgage. But if you were relying on disaster assistance, 

you are still obligated for that mortgage. You really are not covered. 

So, it really provides lower-income people with greater coverage. 

The voucher system, as we said, we believe it should be meanstested. And that is the extent of my knowledge on that. We would 

have to do some more research to give you a more thorough answer. 

Mr. DOLD. Okay. And with just the short amount of time that I 

have left, you talk in your testimony before about—or at least in 

testimony in the past—about floodplain coverage going from the 

100-year to potentially expanding it beyond that in terms of a 250- 

or even a 500-year event. 

Do you have any idea how much of the country would be covered 

under those instances? 

Ms. MCCONKEY. That is something that I don’t think that anybody could just estimate without some research on it. 

Going beyond the 100-year, looking at the 500-year, would be 

something to consider as a residual risk area. Probably, you could 

estimate the amount of floods—the difference between 100-and 

500-year floodplain acreage, based on current FEMA mapping, if it 

was all digital. You might be able to get some estimate. 

Chairwoman BIGGERT. The gentleman’s time has expired. 

17 

Ms. Capito, do you have any— 

Mrs. CAPITO. Thank you, Madam Chairwoman. I think I will 

save my questions for the second panel. Thank you. 

Chairwoman BIGGERT. Mrs. McCarthy, would you like to claim 

your time? 

Okay. Then we will go to Mr. Palazzo from Mississippi. 

Thank you for joining us. 

Mr. PALAZZO. Thank you for having me. 

Good morning. I appreciate the courtesy provided by the House 

Financial Services Committee to allow me to participate in this 

morning’s very important hearing. 

Thank you, Chairwoman Biggert. I ask consent that my full 

statement be included in the record. 

Chairwoman BIGGERT. Without objection, it is so ordered. 

Mr. PALAZZO. I represent Mississippi’s 4th Congressional District, which is the only district representing the Mississippi Gulf 

Coast. 

FEMA has served as a partner to our State, and we applaud Administrator Fugate’s continued leadership to the agency. The National Flood Insurance Program is critically important to South 

Mississippi and any area exposed to flood risk. 

As floods continue to be among the most costly natural disasters 

in the United States, I urge the committee to closely consider reforms offered by Administrator Fugate to the NFIP, and to pass a 

long-term reauthorization of NFIP. 

Madam Chairwoman, in the absence of Administrator Fugate, I 

would like permission to submit my questions for the record to 

him. 

Chairwoman BIGGERT. Without objection. All members’ requests 

for questions will be put in the record. 

Mr. PALAZZO. Thank you. 

I would also be remiss if I did not mention that the high cost of 

wind insurance is a major factor preventing coastal residents from 

building homes and attracting new industry. I am committed to a 

bipartisan effort to resolve this with the goal of providing coastal 

residents with needed cost relief and comprehensive coverage. 

I look forward to working with the Financial Services Committee 

to find solutions to our problems. 

Thank you again, Chairwoman Biggert, for allowing me to be 

here today, and I yield back. 

Chairwoman BIGGERT. Thank you. 

Mr. Duffy, do you have any questions? Or we will move to the 

next panel. 

I would like to thank the witnesses. This has been very informative and very helpful to us. And thank you so much for being here. 

Ms. MCCONKEY. Thank you. 

Ms. BROWN. Thank you. 

Chairwoman BIGGERT. And I might—for those members who will 

have written questions, the record will be open for 30 days for submitting questions for written response. 

And we will now move to the next panel. 

If we can do this very quickly, I might mention that the Floor 

is estimating that we will have votes between 11:45 and 12:15, so, 

we do want to move as expeditiously as possible. 

18 

If the panel can take their seats, and they know where they are 

sitting? 

All right. I would like to introduce our second panel: 

We have Stephen Ellis on behalf of the SmarterSafer Coalition, 

and vice president, Taxpayers for Common Sense in Washington, 

D.C. 

Then, we have Terry Sullivan, chair of the Committee on Flood 

Insurance, National Association of REALTORS®, and owner of Sullivan Realty in Spokane, Washington. 

Spencer Houldin, chair, Government Affairs Committee, Independent Insurance Agents and Brokers of America; and president, 

Ericson Insurance Services in Washington Depot, Connecticut. 

Frank Nutter, president, Reinsurance Association of America, 

Washington, D.C. 

Sandra Parrillo, chair of the National Association of Mutual Insurance Companies and president and CEO of Providence Mutual 

Fire Insurance Company, Warwick, Rhode Island. 

Then Donna Jallick, on behalf of the Property Casualty Insurance Association of America and vice president, Flood Operations, 

Harleysville Insurance, Harleysville, Pennsylvania. 

And last but not least, Barry Rutenberg, first vice chairman, National Association of Home Builders, Washington, D.C. 

Welcome to you all. As you heard, I am sure, please limit your 

testimony to 5 minutes. And after that, we will have the questionand-answer period. 

So, Mr. Ellis, if you would like to begin for 5 minutes, you are 

recognized. 

STATEMENT OF STEPHEN ELLIS, ON BEHALF OF THE 

SMARTERSAFER COALITION, AND VICE PRESIDENT, TAXPAYERS FOR COMMON SENSE 

Mr. ELLIS. Thank you. Good morning, Chairwoman Biggert, 

Ranking Member Gutierrez, and members of the subcommittee. I 

am Steve Ellis, vice president of Taxpayers for Common Sense, a 

national, nonpartisan budget watchdog. 

Thank you for inviting me here today to testify. I would also like 

to recognize the people who are affected by the tsunami, and also 

how it accentuates the importance of both FEMA and the National 

Flood Insurance Program. 

Taxpayers for Common Sense has long advocated for reform of 

the National Flood Insurance Program. And with only $3 billion in 

annual revenues offsetting the $18 billion the program is in debt 

to Treasury, all have recognized NFIP is fundamentally flawed and 

must be reformed. The question is: How? 

Any reauthorization of the National Flood Insurance Program 

must make significant changes to put it on sounder financial footing with more actuarially sound rates and accurate maps. 

The discussion draft of the reform legislation being circulated by 

the committee is a good start. It responsibly tackles rate and subsidy issues, creates a mechanism to increase confidence and accuracy in flood mapping, and does not stick taxpayers with the tab 

of bailing out a failed program. 

However, we are concerned with concerned with provisions that 

could inhibit adoption of updated maps, add a new business line to 

19 

the program and mandate annual coverage limit increases that will 

ensure the program’s liabilities actually increase each year. We 

look forward to making this good start an even better final product. 

TCS is allied with SmarterSafer.org, a coalition of free market, 

consumer, environmental, insurance industry, and taxpayer groups 

in favor of environmentally responsible, fiscally sound approaches 

to natural catastrophe policies that promote public safety. The 

depth and breadth of the coalition, some of which are at this table, 

underscores the importance of reforming NFIP. 

I would like to submit for the record SmarterSafer.org’s principles for reform. 

Chairwoman BIGGERT. Without objection, it is so ordered. 

Mr. ELLIS. But to summarize quickly and clearly, those principles are: maps are accurate and up-to-date; there are risk-based 

rates; any subsidies should be explicit and targeted only to those 

who truly need them; and mitigation is encouraged as a tool to reduce risk. Taxpayers for Common Sense strongly endorses those 

basic principles to better protect people, property, the environment, 

and the taxpayer. 

I would now like to talk about flood insurance and the draft legislation from the taxpayer perspective. 

NFIP does not charge truly actuarially sound rates. The program’s goal of fiscal solvency is defined as charging premiums that 

will generate enough revenue to cover a historical average loss 

year. That means catastrophic loss years are largely left out of the 

equation. 

The program covers any fiscal shortfalls by borrowing from the 

U.S. Treasury, which is a significant subsidy in and of itself, especially since the loans are virtually interest-free. The program contains an enormous cross-subsidy as well. 

The draft legislation will provide a mechanism to move towards 

more actuarially sound rates for many properties. The graduated 

phase-in of rates for newly mapped areas are responsible both for 

the homeowner and the programs. The legislation also stipulates 

that most properties have their rates increase by 20 percent annually until they are paying the estimated risk premium rate. 

In addition, the draft legislation directs that subsidies not be 

available to lapsed policies. 

These changes move the program in the right direction. What appears to remain unchanged are subsidies to pre-FIRM and generally repetitive loss properties that do not meet any of the specific 

criteria. It is not clear how many properties or the potential loss 

that this represents, but it is an area that must be reformed. These 

properties have been subsidized for decades. 

The Nation’s floodplains are dynamic. Shifting from the impact 

of development, weather patterns, and topographical changes, flood 

maps must be up-to-date, accurate, and based on the best available 

science. 

We support the envisioned Flood Mapping Advisory Council to 

develop new standards for flood insurance rate maps that will incorporate true risk, be graduated, and reflect realities on the 

ground, both man-made and natural. 

The direction at FEMA that implements the new protocols is also 

critical. The council and the development of new mapping standVerDate Nov 24 2008 18:31 Jun 14, 2011 Jkt 065676 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\65676.TXT TERRIE
20 

ards should not, and will not, delay the ongoing FEMA map modernization efforts. That program is critical to the long-term fiscal 

viability of the program. 

We appreciate that, unlike previous legislation, the bill does not 

automatically delay the implementation of new maps or slow walk 

rate increases. However, the draft legislation could delay or undercut new maps by giving the administrator authority to suspend 

flood insurance purchase requirements for newly mapped Special 

Flood Hazard Areas. 

Insulating people from the changes related to the maps on paper 

does not change the geological realities. Their property is at risk. 

There are some troubling expansions in the draft. One is the creation of a new insurance product for business interruption, and another, the loss of use of a personal residence. Another would enable 

coverage limits to annually increase by some inflationary measure. 

With the flood insurance program so heavily in debt, it does not 

make sense to expand the coverage provided. 

TCS supports the privatization study called for in the legislation 

and encourages FEMA to pursue the private risk management initiatives. Also, FEMA should be authorized to develop a catastrophic 

reserve. 

Communities and individuals should be helped to reduce their 

flood vulnerability, including stronger standards for floodplain 

management and mitigation. 

On balance, the draft legislation is a good step forward to reform 

the troubled Flood Insurance Program. We look forward to working 

with the committee and Congress to move the program in the right 

direction and off the backs of taxpayers. 

Thank you. 

[The prepared statement of Mr. Ellis can be found on page 67 of 

the appendix.] 

Chairwoman BIGGERT. Thank you very much. 

Mr. Sullivan, you are recognized for 5 minutes. 

STATEMENT OF TERRY SULLIVAN, CHAIR, COMMITTEE ON 

FLOOD INSURANCE, THE NATIONAL ASSOCIATION OF REALTORS® (NAR), AND BROKER/OWNER, SULLIVAN REALTY 

Mr. SULLIVAN. Thank you. 

Good morning, Chairwoman Biggert, Ranking Member Gutierrez, 

and subcommittee members. Thank you for inviting me to testify 

today regarding legislation to reform the National Flood Insurance 

Program. 

My name is Terry Sullivan. I am the designated broker of Sullivan Realty in Spokane, Washington. I have been active with the 

National Association of REALTORS® for the last 17 years of my 

40-year career as a REALTOR®. 

Currently, I serve as chair of NAR’s Land Use Committee. I am 

honored to represent the views of more than 1.1 million REALTORS® engaged in all aspects of residential and commercial real 

estate. 

As you know, flooding claims more lives and property than any 

other natural disaster in the United States. It happens anywhere, 

along rivers where snow melts or rain falls, as well as the coastlines. Without the National Flood Insurance Program, 5.6 million 

21 

home and business owners across the United States would not have 

access to affordable flood insurance. 

Since the year 2000, the program has averted $16 billion in property loss in the 21,000 communities where flood insurance is required. In short, the program saves taxpayers money. 

Chairwoman Biggert, thank you for your leadership and for 

drafting the legislation to reauthorize the NFIP for 5 years. This 

would end the current stop-gap approach that has led to nine extensions and five lapses in the program since 2008. A 5-year reauthorization would provide needed certainty for the real estate markets to recover from the longest recession since the Great Depression. 

The many extensions and shut-downs have immeasurably undermined real estate and investor confidence. Just one of the lapses 

delayed or cancelled more than 47,000 home sales in June of 2010 

alone. 

We are pleased to see the bill would add coverage options for 

business interruption and loss of residential use. Coverage which 

has been updated since 1994 would be indexed for inflation. 

Finally, the bill would ensure that repetitive loss properties have 

an insurance rate that reflects their loss history, a provision we 

strongly support. 

All of these reforms will encourage participation, increase the 

funds for NFIP, help property owners recover from flooding, and 

decrease future Federal assistance when underinsured properties 

suffer flood loss. 

While we understand the need for tough reforms to strengthen 

the program long-term, we remain deeply concerned about provisions to return to a time when taxpayers relied on private insurers 

to administer the program. It did not work then, and it would not 

work now. 

Madam Chairwoman, this is HUD’s Federal Register notice from 

1977. It provides the history of NFIP and how we got to the government program we have today. With your permission, I would 

like to have it included in the record along with my written statement. 

NAR is strongly opposed to the private risk initiatives or bills, 

including H.R. 435, to end the NFIP. 

Chairwoman BIGGERT. Without objection, it is so ordered. 

Mr. SULLIVAN. Thank you. 

The bottom line is the private market will charge too much. 

Today, the 4 companies that write only 200,000 private policies 

would have to ramp up by 3,000 percent to the NFIP’s 5.6 million 

current policies. The private insurance markets simply cannot 

guarantee either affordability or availability of flood insurance. 

In conclusion, NAR believes that Congress should reform the program, not end it. 

Once again, on behalf of the entire membership of the National 

Association of REALTORS®, thank you for providing us this opportunity to share our views on a vital program, and I look forward 

to answering any questions you may have. 

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

137 of the appendix.] 

Chairwoman BIGGERT. Thank you very much. 

22 

And now, Mr. Houldin? 

STATEMENT OF SPENCER HOULDIN, CHAIR, GOVERNMENT 

AFFAIRS COMMITTEE, INDEPENDENT INSURANCE AGENTS 

AND BROKERS OF AMERICA (IIABA), AND PRESIDENT, ERICSON INSURANCE 

Mr. HOULDIN. Good morning, Chairwoman Biggert, Ranking 

Member Gutierrez, and members of the subcommittee. 

My name is Spencer Houldin, and I am pleased to be here today 

on behalf of the Independent Insurance Agents and Brokers of 

America, known as the Big ‘‘I,’’ to present our association’s perspective on extension and reform of NFIP. 

I am the president of Ericson Insurance, a second generation insurance agency with offices in Connecticut and New York. 

Since 2008, I have served as chairman of the Government Affairs 

Committee for the Big ‘‘I,’’ and have represented the State of Connecticut on the Big ‘‘I’s’’ board since 2006. 

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

An association of independent insurance agents and brokers, we 

represent a national network of more than 300,000 agents, brokers 

and employees. 

Many of these agents serve as a sales force for NFIP, working 

with the Write Your Own companies. It is from this unique vantage point that we understand the capabilities and challenges of 

the insurance market when it comes to insuring against flood risks. 

We think this hearing is especially timely, in light of severe 

storms and flooding that are currently occurring in the Northeast 

and this morning’s events on the West Coast. In fact, my firm fielded nearly 75 calls this week when clients experienced water in 

their homes up in Connecticut. 

We commend the subcommittee for looking at this very important issue. 

The Big ‘‘I’’ believes that the NFIP provides a vital service to people and places that have been hit hard by natural disaster. The private insurance industry has been and continues to be largely unable to underwrite flood insurance, because of the catastrophic nature of these losses. 

Therefore, the NFIP is virtually the only way for people to protect against the loss of their home or business due to flood damage. 

Prior to the introduction of this program in 1968, the only financial remedy available to consumers after flooding was Federal disaster assistance. Since then, the NFIP has filled the private market 

void and created a reliable safety net. 

It is also important to note that for 2 decades, up until the 2005 

hurricane season, the NFIP was self-supporting. 

With that said, we do recognize that the program is far from perfect, and calls for Congress to shore up its financial situation. 

For this reason, the Big ‘‘I’’ is very encouraged by Chairwoman 

Biggert’s draft legislation, the Flood Insurance Reform Act of 2011. 

In the past, the Big ‘‘I’’ has released a 12-point plan to modernize 

the flood program, and we are happy to see that a number of these 

recommendations have been incorporated in the proposed legislation. 

23 

The first of these is a long-term reauthorization, which we 

strongly support. As you know, in recent years Congress has relied 

on numerous short-term extensions. Last year alone, the NFIP expired on three separate occasions, only to be retroactively extended 

by Congress each time. 

While the Big ‘‘I’’ is grateful for this action, we strongly believe 

that long-term extension is critical to provide marketplace stability. 

Additionally, for many years the Big ‘‘I’’ has asked Congress to 

begin phasing out subsidies found in the program. We are pleased 

that Chairwoman Biggert’s draft legislation addresses this for 

many properties. 

The Big ‘‘I’’ welcomes and supports Chairwoman Biggert’s ideas 

on phasing out subsidies for commercial building, second and vacation homes, homes experiencing significant damage or improvements, repetitive loss properties, and homes sold to new owners. 

Additionally, the Big ‘‘I’’ welcomes the draft legislation’s proposal 

to increase the amount FEMA can raise premiums in any given 

year. Currently, FEMA can only increase a premium a maximum 

of 10 percent on a property. The draft legislation would propose to 

increase this to 20 percent, which would allow the program to move 

even more properties towards actuarial rates. 

The Big ‘‘I’’ is also pleased that the draft legislation has chosen 

to modernize NFIP by increasing maximum coverage limits by indexing them for inflation, and by allowing FEMA to offer the purchase of optional business interruption and additional living expense coverage. The inclusion of optional business interruption coverage is particularly important to Big ‘‘I’’ members and their commercial clients, because it reimburses them for lost income due to 

their inability to operate due to flood loss. 

As I speak, we have a popular rib restaurant in my town that 

has been shut down since Monday. Their property was flooded, as 

was the road in front of their business. They are losing thousands 

of dollars a day in revenue. But still, their normal expenses, including payroll and mortgage, continue. 

It is an uninsurable loss today, and one that is detrimental to a 

small business. With another 2 inches of rain last night, there is 

a good chance they will not be open for another week. 

The Big ‘‘I’’ also supports strongly the option for a consumer to 

purchase additional living expenses. If their home is not habitable 

due to a flood loss, they need funds to provide alternative living arrangements. 

In closing, the Big ‘‘I’’ is very pleased that the subcommittee is 

conducting today’s hearing, and appreciative of the opportunity to 

testify. Adopting the reforms found in the draft legislation would 

help make the NFIP more actuarially sound and more effective at 

serving both consumers and taxpayers. 

Thank you. 

[The prepared statement of Mr. Houldin can be found on page 74 

of the appendix.] 

Chairwoman BIGGERT. Thank you, Mr. Houldin. 

Mr. Nutter, you are recognized for 5 minutes. 

24 

STATEMENT OF FRANKLIN W. NUTTER, PRESIDENT, 

REINSURANCE ASSOCIATION OF AMERICA (RAA) 

Mr. NUTTER. Thank you, Madam Chairwoman. My name is 

Frank Nutter, and I am president of the Reinsurance Association 

of America. 

Reinsurance is critical to insurers and State-based property insurance programs to manage the cost of natural catastrophe risk. 

It is a risk management tool for insurance companies to improve 

their capacity and their financial performance, enhance financial 

security and reduce financial volatility. 

It can serve the same function for the National Flood Insurance 

Program. 

As it currently operates, the NFIP is not an insurance program. 

But it should be, and it can be. 

The fuller application of risk-based rates and an appropriate 

risk-bearing role for the private reinsurance sector would transform 

the program. By doing so, the NFIP could also achieve the goal of 

protecting taxpayers and the Treasury. 

It is a commonly held belief that a private sector risk-bearing 

role in the NFIP is unachievable. On behalf of our community, the 

reinsurance community, we would challenge that suggestion. 

We commend the Chair’s discussion draft regarding protecting 

taxpayers with risk-based rates. The subsidized rates were introduced early in the program as an inducement for communities to 

come into the program, and it was a successful strategy. But the 

number of subsidized properties has actually risen in recent years. 

In addition, the subsidized rates have facilitated the development 

of environmentally sensitive coastal areas, including those at high 

risk to flood loss, and compromised the use of the natural floodplain to mitigate damage. 

Repetitive loss properties, according to the GAO, account for only 

1 percent of the policies, but 25 to 30 percent of the losses. 

In addition, statutory caps on rates may be popular with beneficiaries, but the caps distort risk assessment by builders, local officials, property buyers, and policyholders. And they increase the 

cross-subsidy from low- or no-risk persons and taxpayers to those 

living in high-risk flood areas. And again, we commend the draft 

in this regard. 

The NFIP should plan for extreme events, but does not. FEMA 

represents that 75 percent of its policies are actuarially sound. 

Sound insurance pricing would reject this representation, because 

the NFIP does not incorporate a catastrophe factor for infrequent 

yet severe loss years, but relies on the average annual loss model 

for its pricing. 

This pricing model is ill-suited for natural catastrophe risk, 

whether it be in the private or public sector. Because of the pricing 

model, the NFIP has neither adequately planned for, nor priced for 

extreme event years. 

The GAO points out the program should operate like an insurance entity. If it did, it could reduce or eliminate taxpayer exposure 

to future debt by laying off risk to the private sector through reinsurance and catastrophe bonds. 

The private sector role in the program now is appropriate, and 

it relates to the Write Your Own program, which has provided the 

25 

NFIP with a valuable marketing arm and administrative capability. 

For a variety of reasons, a private insurance market for flood 

risk has not developed. We believe, however, that a private reinsurance risk-bearing role for the NFIP can be established, and that 

the NFIP can address its volatility and extreme event exposure and 

reduce the dependence on taxpayers and the Federal debt through 

risk transfer to reinsurance and private capital markets. 

Both financial sectors have significant capacity and believe flood 

risk can be reinsured or transferred. Such a transfer introduces a 

private sector rating verification model into the NFIP, thus providing an incentive and guidepost for risk-based rates. 

We have offered two approaches to do this. The first is a traditional, transactional reinsurance approach. As with most State 

property insurance plans, fair plans and windstorm pools, nearly 

all private insurers address their volatility through the purchase of 

reinsurance. 

As with these other governmental entities and private sector insurers, the NFIP would work with modelers, underwriters, and brokers to provide the market with an evaluation of its risk portfolio, 

determine what types of risk are amenable to risk transfer, and 

then seek coverage in the private sector. 

Should the NFIP find the bids unattractive on a price or coverage basis, it would not go forward with the placement. The NFIP, 

therefore, would be in the same place as it is now—dependent on 

public debt. If the placement were successful, the private sector 

would provide financial relief to taxpayers. 

As is reflected in the discussion draft, no study is necessary to 

evaluate this alternative, but it can be pursued at this time with 

a full opportunity to evaluate proposals. 

The second option that we have highlighted exists in the current 

draft, and that is the reauthorization of a reinsurance pool. 

Section 4011 of the NFIP legislation adopted in 1968 provides for 

the Director of FEMA to encourage and arrange for appropriate financial participation and risk-bearing by insurance companies, to 

assist insurers to form, associate or join a pool, on a voluntary 

basis, for the purpose of assuming, on such terms as may be agreed 

upon, financial responsibility as will enable such insurers, with 

Federal financial assistance, to assume a reasonable portion of responsibility for claims under the Flood Insurance Program. 

The provisions of the statute authorizing the pool have long been 

dormant, yet they remain a viable mechanism for the creation of 

another pool, this time to reinsure the National Flood Insurance 

Program, capitalized by those insurers that voluntarily wish to provide capacity. The Director and those participating insurers would 

enter into negotiations over the risk-sharing formula, and could individually subscribe capacity on an annual basis. 

This proposal does not change the Write Your Own program. 

FEMA remains the insurer of the flood risk at the consumer level. 

But it transfers flood risk from taxpayers to the private sector, and 

allows those insurers that wish to participate in the risk to do so 

through a standing facility. 

These two approaches—a traditional property catastrophe reinsurance program and/or the reauthorization of the standing facilVerDate Nov 24 2008 18:31 Jun 14, 2011 Jkt 065676 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 K:\DOCS\65676.TXT TERRIE
26 

ity—are both complementary and not exclusive to each other. The 

existing statutory authority may well be sufficient to move forward 

without delay. 

We look forward to working with the committee and the Congress on the reform to the Flood Insurance Program, and the reintroduction of a private sector reinsurance role in it. 

Thank you. 

[The prepared statement of Mr. Nutter can be found on page 102 

of the appendix.] 

Chairwoman BIGGERT. Thank you very much. 

Ms. Parrillo, you are recognized for 5 minutes. 

STATEMENT OF SANDRA G. PARRILLO, CHAIRMAN, NATIONAL 

ASSOCIATION OF MUTUAL INSURANCE COMPANIES (NAMIC), 

AND PRESIDENT AND CEO OF THE PROVIDENCE MUTUAL 

FIRE INSURANCE COMPANY 

Ms. PARRILLO. Thank you. Good morning, Chairwoman Biggert, 

Ranking Member Gutierrez, and members of the subcommittee. 

Thank you for the opportunity to speak here today. 

My name is Sandy Parrillo, and I am president and chief executive officer of the Providence Mutual Fire Insurance Company, one 

of our Nation’s oldest insurance companies. 

We began as a small fire insurance mutual in 1800, and today 

provide personal and commercial insurance protection to more than 

65,000 policyholders in New England, New York, and New Jersey. 

The Providence Mutual employs approximately 75 individuals, is 

represented by more than 300 independent agents, and is based in 

Warwick, Rhode Island. 

I am here today as chairman of the National Association of Mutual Insurance Companies to present our views on the National 

Flood Insurance Program. NAMIC represents more than 1,400 

property and casualty insurance companies ranging from small 

farm mutuals, to State and regional insurance carriers, to large national writers. 

NAMIC members serve the insurance needs of millions of consumers and businesses in every town and city across America. Collectively, NAMIC members cover more than 50 percent of all homes 

in the country. 

I would like to begin by thanking the committee for its hard 

work on producing a discussion draft of proposed reform legislation. 

We are encouraged that the draft reflects the input of many of the 

relevant stakeholders, and has the stated goal of protecting taxpayers and policyholders. 

It is our opinion that the NFIP is in serious need of reform. In 

order to achieve this goal, NAMIC believes that the best option is 

optimizing the current framework by implementing significant reforms that address the existing weaknesses. 

The program’s flaws are significant. Subsidized premiums have 

been charged on a non-actuarial basis. Some estimates of the subsidies are as high as 60 percent. 

This has been incentivized poor land use and over-development 

near desirable waterfront locations. In addition, the take-up rates 

for those in need of coverage remain extremely low. Under 30 percent of those who need flood insurance purchase it. 

27 

The NFIP was created in 1968, because of the absence of a viable 

private flood insurance market. The unconventional nature of flooding makes it virtually impossible to pool risk among a large enough 

population for private insurers to be able to offer a viable and affordable insurance product. 

The public-private partnership that eventually emerged between 

the Federal Government and the Write Your Own companies has 

the potential to offer an answer to a seemingly insoluble problem. 

We believe that, with the right mix of reforms, the program can 

begin to address the problems of adverse selection, moral hazard 

and financial instability that has plagued it in the past. 

We recommend a package of key reforms designed to achieve five 

essential objectives. 

First, to charge actuarially sound rates. The NFIP must begin 

charging risk-based rates, if it is to have any chance of being a solvent program. These rates should reflect the true cost of providing 

coverage. Under the current structure, there is no chance that the 

program will ever repay the sizable debt it accumulated in 2005. 

We recognize that the move to actuarially sound rates is likely 

to be painful, due to the higher premiums that will have to be 

charged in some instances. For those property owners who need assistance, flood vouchers might be offered on a means-tested basis 

to help mitigate the cost. 

However, any subsidies that the government believes are necessary must be independent of the NFIP and fully transparent. 

Subsidies cannot continue to be hidden within the insurance mechanism. And homeowners should be fully aware of the real risks and 

costs of where they live. 

Second, update and improve the accuracy of flood maps. Flood 

maps must be updated based on the best available science, with 

the goal of ensuring that NFIP flood maps accurately reflect the 

risks caused by flooding. Putting off the adoption of updated flood 

maps does a disservice to those citizens, property owners, rescue 

workers and land development officials living and working in floodprone areas, who, in the end, risk losing their homes and their 

lives. We recommend adopting a non-political, balanced and credible process for updating the maps. 

Third, to improve the take-up rates. Insurance is inherently dependent upon the law of large numbers. Thus, the insurance mechanism works best and is the most affordable when everyone participates in the program. 

Currently, only 20 to 30 percent of individuals exposed to flood 

hazards actually purchase insurance. The program must take steps 

to increase these numbers dramatically in order to properly pool 

the flood risk and achieve financial soundness. 

Fourth, discourage repetitive loss properties. According to the 

CBO, there are currently 71,000 NFIP-insured repetitive loss properties, which represent just 1.2 percent of the NFIP portfolio, but 

account for 25 to 30 percent of the total claims paid between 1978 

and 2008. 

Something must be done to deal with this issue. Quite simply, 

American taxpayers should not be forced to subsidize a small subset of NFIP policyholders who continue to rebuild in high-risk 

areas. 

28 

Finally, improve the management and correct operational inefficiencies. The NFIP must have quality information regarding its 

policyholders if it is to operate efficiently. We must develop and institute clear procedures for monitoring contracts and claims 

records, effectively communicating with lenders, and triggering enforcement actions for non-compliance with mandatory purchase requirements. 

We believe these reforms are necessary and achievable. I have 

included more detailed policy proposals for each of our five key objectives in my written testimony. And as the process moves forward, we stand ready to work with the subcommittee to address 

the insufficiencies in the current program. 

Again, thank you for the opportunity to speak here today. 

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

112 of the appendix.] 

Chairwoman BIGGERT. Thank you. 

And Ms. Jallick, you are recognized for 5 minutes. 

STATEMENT OF DONNA M. JALLICK, ON BEHALF OF THE 

PROPERTY CASUALTY INSURERS ASSOCIATION OF AMERICA 

(PCI), AND VICE PRESIDENT, FLOOD OPERATIONS, 

HARLEYSVILLE INSURANCE 

Ms. JALLICK. Thank you, Chairwoman Biggert, Ranking Member 

Gutierrez, and members of the subcommittee. 

Thank you for the excellent draft legislation on flood reform. The 

proposed changes address many of the major flaws in the current 

program. 

Thank you also for considering it in a timely fashion; 5.6 million 

people depend on this program to protect their homes and businesses. And thank you for the bipartisan leadership you have demonstrated on flood reform over the last several years. 

My name is Donna Jallick. I am the vice president of flood operations for Harleysville Insurance, one of the largest Write Your 

Own flood insurance private partners. Harleysville is also a member of the Property Casualty Insurers Association of America and 

the Write Your Own Flood Insurance Coalition. 

I have been working with the Federal flood program for 15 years. 

Last year, Congress allowed the NFIP to expire 4 times for a total 

of 53 days. And there have been 10 short-term extensions in less 

than 3 years. Lapses hurt consumers, millions of real estate professionals, and our business. 

Private Write Your Own insurers have been leaving the program 

in droves, in part because of the lack of stability in the program 

and the confusion for consumers. When the program lapses, insurers have to decide whether to keep collecting flood premiums and 

whether we can afford to put our name behind a program that may 

or may not be continued in the same form by Congress. It creates 

significant liability and vulnerabilities for all stakeholders. 

The lack of program stability also makes it difficult to administer 

the program and to explain it to consumers. Our disconcerting message must be: buy flood insurance, because we think the program 

will be renewed. And we have a guess as to what we think the 

rates might be when it gets extended retroactively. 

29 

We already require agents to spend months training to understand and explain the NFIP to consumers. Lapses and short-term 

extensions increase this expense. 

Five years is a good proposed extension. 

The available amount of protection for consumers under the flood 

program has not been increased for 17 years. The draft would 

index flood coverage for inflation. That is a good start. 

Federal flood rates, which are currently a fraction of what the 

private market would consider, even for low-risk properties, would 

be appropriately increased under the draft legislation. 

Rates for coverage in many high-loss and environmentally sensitive areas would particularly be increased closer to expected loss 

costs. This approach still leaves a government subsidy, but is a 

very good start toward reducing that subsidy, and it is a proposal 

that we strongly support. 

We also applaud the proposal to consumers by adding living expenses and business interruption to the available coverage. People 

forced from their homes need immediate cash for shelter. The proposal makes Federal flood coverage more closely near private coverages that protect individuals and business consumers, and helps 

them move forward quickly. 

Just as important as the good provisions in the bill is streamlined operations. The number of private insurance partners serving 

consumers in the flood program has dropped from 150 to 70 that 

are actively writing flood insurance over the last 6 years. 

While Harleysville has worked very hard to provide our policyholders with affordable protection, for many insurers, program revenues have been outweighed by growing administrative costs. They 

are leaving the NFIP. 

The draft does not add too many additional requirements to the 

NFIP. Please keep the bill streamlined to ensure the program will 

remain standing. 

Thank you for the bipartisan committee’s draft, which addresses 

the critical vulnerabilities in the NFIP, and will greatly strengthen 

flood protection for millions of consumers. The Write Your Own 

flood partners support you, and hope that you will be able to keep 

a straightforward bill with long-term extension and no further 

lapses. 

Harleysville and PCI stand ready to be of any assistance desired. 

[The prepared statement of Ms. Jallick can be found on page 80 

of the appendix.] 

Chairwoman BIGGERT. Thank you. 

And finally, Mr. Rutenberg for 5 minutes. 

STATEMENT OF BARRY RUTENBERG, FIRST VICE CHAIRMAN, 

THE NATIONAL ASSOCIATION OF HOME BUILDERS (NAHB) 

Mr. RUTENBERG. Chairwoman Biggert, Ranking Member Gutierrez, and members of the subcommittee, thank you for the opportunity to testify today. 

My name is Barry Rutenberg, and I am a home builder from 

Gainesville, Florida, and first vice chairman of the board of directors of the National Association of Home Builders. 

NAHB commends the subcommittee for addressing reform of the 

NFIP. Builders strongly support a 5-year program reauthorization 

30 

as the best way to provide a steady foundation on which to build 

program revisions and ensure that NFIP is efficient and effective. 

For several years, NFIP short-term extensions have created a 

high level of uncertainty in the program, causing severe problems 

in already troubled housing markets. During these periods, there 

were delays or canceled closings due to the inability to obtain flood 

insurance for mortgages. Often, new home construction was shut 

down or postponed due to the lack of flood insurance approval, adding unneeded delays and job losses. 

NAHB believes this reauthorization will ensure the Nation’s real 

estate markets operate smoothly and without delay. 

The availability and affordability of flood insurance gives local 

governments the ability to plan and zone their communities, including floodplains. These zoning standards allow homeowners the 

opportunity to live in a home and location of their choice, even 

when the home lies in or near a floodplain. 

Home builders depend on the NFIP to be annually predictable, 

universally available, and fiscally viable. The NFIP creates a 

strong partnership with States and localities by requiring them to 

enact and enforce floodplain management measures, including 

building requirements designed to ensure occupant safety and reduce future flood damage. 

The partnership depends upon the availability of up-to-date flood 

maps and a financially stable, Federal component, and allows local 

communities to direct development to the needs of constituents and 

consumers. 

Unfortunately, the losses and devastation suffered with the 2004 

and 2005 hurricanes and the 2008 Midwest floods have severely 

taxed and threatened the solvency of the NFIP. 

While these tragedies have exposed shortcomings in the NFIP, 

we believe that reforms to the program must not be an overreaction 

to these historic circumstances. The NFIP is not just about flood 

insurance premiums and pay-outs, but the broad program that 

guides future development and mitigates future losses. 

A financially stable NFIP is in all of our interests, and Congress’ 

efforts have the potential to greatly impact housing affordability 

and the ability of local communities to control their growth and development options. 

A key tool in the NFIP’s implementation, the right maps, or 

FIRMs, have been recognized by Congress to be inaccurate and outof-date. FEMA has been successful in digitizing most of the FIRMs, 

yet many are not using the updated data. Because of this, large 

discrepancies remain. 

We believe continued congressional oversight is necessary. We 

commend the proposal to establish the Technical Mapping Advisory 

Council, and hope it will foster more collaboration. 

Beyond fixing the maps, NAHB also supports increasing coverage 

limits to better reflect replacement costs and offering various insurance options for consumers, and even a possible minimum deductible increase. 

The NFIP must continue to allow State and local governments— 

not the Federal Government—to dictate local land use policies and 

make decisions on how private property may be used. FEMA must 

31 

also better coordinate its activities with other Federal agencies who 

have oversight of other Federal programs. 

In my written statement, I discuss FEMA’s recent requirements 

of ESA compliance for certain property owners. 

Additionally, before any reforms are enacted to change the numbers, location or types of structures required to be covered by flood 

insurance, FEMA should first demonstrate that the resulting impacts on property owners, communities, and local land use are 

more than offset by the increased premiums generated and the 

hazard mitigation steps taken. 

NAHB urges Congress to ensure construction requirements remain tied to the 100-year standard. Should Congress change the 

Special Flood Hazard Area from a 100-year standard to a 250-year 

standard, it would require more homeowners to purchase flood insurance and would impose mandatory construction requirements 

that increase costs and impact resale values significantly. 

This would also affect FEMA by requiring modifications to ordinances and policies, all at a time when FEMA has admitted its 

lack of resources to provide current services. 

I thank you for today. NAHB looks forward to working with the 

committee on this valuable program. 

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

122 of the appendix.] 

Chairwoman BIGGERT. Thank you so much. 

Unfortunately, if you look at the clock and you see those two 

white dots up there, that means that we have votes, and we have 

about 7 minutes left for voting. These Floor votes may take 45 minutes to an hour, but we do want to have the opportunity to ask 

questions. I hope all the members will come back, briefly. 

So, the subcommittee stands in recess and will convene immediately following the Floor votes. 

[recess] 

Chairwoman BIGGERT. The committee will reconvene. Now, we 

will get started, so that we do not delay you any longer than necessary. 

And I will recognize myself for 5 minutes. 

Mr. Nutter, first, do you believe that the private reinsurance 

market has a willingness to provide reinsurance of the NFIP’s flood 

risk? 

And second, to put together a reinsurance program for NFIP to 

place in the reinsurance market, what data would be appropriate 

for FEMA to provide? And is that really necessary? 

Mr. NUTTER. Madam Chairwoman, the reinsurance market is 

very interested in exploring this with the NFIP. The reinsurance 

market routinely provides reinsurance for insurance companies, 

but it also provides it for other government-related programs. The 

California Earthquake Authority buys something like $3 billion a 

year in reinsurance capacity. State wind pools do. 

So, there clearly is an appetite and a desire to look at catastrophe risk. It is a common use of reinsurance. 

I will supply for the committee’s staff, if you would like, a more 

detailed set of metrics that would be appropriate for this. 

And what I would say is that you would expect that the program, 

working with the private sector, would want information related to 

32 

the types of properties that are insured, the insured values, any 

mitigation in the area—the kind of things that even the layman 

would understand would be necessary to fully evaluate the risk— 

and then to make a recommendation to FEMA and the NFIP about 

how to structure a program that would be successful when placed 

in the market. 

Chairwoman BIGGERT. Please submit for the record the data that 

is— 

Mr. NUTTER. Thank you. I will. 

Chairwoman BIGGERT. Without objection, it is so ordered. 

Thank you. 

Mr. Ellis, in reviewing the subcommittee’s discussion draft, can 

you elaborate for us how it would reduce the burden on taxpayers? 

And can you provide us with specific recommendations to improve 

it in this regard? 

Mr. ELLIS. Sure. Thank you very much, Madam Chairman. 

No, we definitely have. I think this bill is a very constructive 

start in this process. And certainly, the areas where we are going 

to allow the rates to actually increase, one is that it would go from 

a 10 percent maximum annual increase to a 20 percent maximum 

annual increase. 

Also, the fact that it increases the deductible for pre-flood insurance rate map properties to $2,000 is something that would help 

protect taxpayers and reduce some of the subsidy for pre-FIRM 

properties. 

And then, lastly, as you start moving to the special flood hazard 

properties and essentially the provisions to try to reduce the subsidies by allowing the rates to increase 50 percent in the first year 

and then 20 percent each year after that—all of those factors really 

start moving the program in a much more actuarially sound—or 

much more fiscally sound, and off of the backs of taxpayers. 

Chairwoman BIGGERT. Thank you. 

And then, for anyone who cares to answer, why has there been 

a decrease in the number of companies participating in NFIP? Do 

you think that any primary insurance companies would ever be 

willing to include flood insurance in the basic homeowner’s policy 

with regard to properties outside the 100-year floodplain? 

Ms. JALLICK. I would certainly be willing to take that question. 

Chairwoman BIGGERT. Ms. Jallick? 

Ms. JALLICK. The main reason carriers have been leaving the National Flood Insurance Program is, number one, the profit margin 

is very slim. 

We receive approximately 30 percent for administering this program. Out of that 30 percent, we pay our agents 20 percent. We 

then pay State premium taxes of 2 percent, which leaves us 8 percent to manage this program and to pay for all of our costs. 

Not only that, the program is very, very technical in nature. And 

a lot of carriers have felt that, because of the complexity of the program, they do not really have the expertise to remain in the program. 

Because of the litigation that has been ensuing over the last few 

years, they feel like the exposure that they are at due to the litigation is not worth remaining in the program. 

Chairwoman BIGGERT. Thank you. 

33 

At this time, I yield back the balance of my time. 

And Mr. Sherman, you are recognized for 5 minutes. 

Mr. SHERMAN. I thank the chairwoman. 

I also thank my colleague from Los Angeles for letting me ask 

questions first. 

I think it is in the national interest that we have people insured. 

You can do this by mandates, or subsidies, or by Federal involvement. Or you can sit back and watch them be uninsured. 

The reason that we want to see them insured is apparent to 

those who are soft-hearted. When the disaster happens, you hate 

to see people uninsured. No one has ever accused me of being softhearted. 

But if you are hard-hearted, every time we have a major disaster, we have an extraordinary or supplemental appropriation 

that comes right out of the Federal budget increases the deficit. 

And so, it is in the government’s interest to make sure people are 

insured. 

That being said, we are here to talk about flood insurance, and 

I represent a desert. I look forward to seeing how this program can 

be expanded or used as a model for earthquake insurance. I represent, for example, Northridge. 

So, I am anxious to see this program work effectively, even if it 

costs the Federal Government something to make sure that people 

have insurance, both in terms of actuarial cost, or in terms of the 

Federal Government being involved, providing capital at its lower 

rates, etc. 

You may say, that is Federal Government involvement we should 

not have. But I have been here a while. And every time there is 

a disaster, all of a sudden, nobody is talking about the deficit. Nobody is talking about the growth of the Federal Government. Everybody is talking about how to help people who are uninsured. 

Ms. Jallick, as you know, the Federal Emergency Management 

Agency has been going through the process of updating the floodplain maps. And there have been questions about the process of developing the maps, and the impact they will have on local communities. 

Some homeowners who have never had to buy flood insurance 

will now have to do so. And homeowners who are currently mandated to buy coverage may not have to in the future, causing confusion in a lot of areas. 

What would you do to fix the mapping issues? And do you have 

any thoughts on why the floodplain remapping has been a problem? 

Ms. JALLICK. That is actually a very good question. And I feel 

your pain. And I feel the pain of all of the property owners who 

have been moved to a Special Flood Hazard Area. 

I think that this is something that is being addressed in the bill. 

And it does need to be explored, because there are definitely areas 

that have been removed from the floodplain that should still be in 

it. 

Mrs. McCarthy spoke earlier this morning—she is from Long Island—about structures sitting right on water that were removed 

from the floodplain, hers being one of them. There are definitely 

areas for improvement for risk mapping. 

34 

I feel that the council that has been put together that is mentioned in this bill is an excellent start. And there are many experts 

who will be able to properly address this issue and lend us all some 

insight as to how we can come up with better risk mapping than 

what we currently have. 

Mr. SHERMAN. Thank you. 

I now have a question for the record that I would like anyone to 

respond to after some thought when you go home tonight or tomorrow, or until the record closes. And that is: What should we be 

doing to make sure that people have the earthquake insurance that 

they need, both to help them as individuals, to make sure that 

lenders are willing to loan? 

You can tell people not to build in a floodplain. You cannot tell 

California not to build near an earthquake fault, unless you want 

to be a 49-State country. 

So, what do we do on earthquake coverage? I would like to hear 

your considered views for the record on that, if any of you think 

you can provide some enlightenment. 

Thank you. And I yield back. 

Chairwoman BIGGERT. Thank you. 

The gentleman from Georgia, Mr. Westmoreland, is recognized 

for 5 minutes. 

Mr. WESTMORELAND. Thank you, ma’am. 

Most of you all are in the business world. How long do you think 

it would have taken you all to sit down and try to come up with 

a remedy for losing $18 billion in about 4 years? Would you all 

have thought about that anywhere down the road? 

We are just a little late, I guess, in trying to do this. I think, since 2005, this program has gone in the hole about $18 billion. I 

think it has paid off a couple of billion since then. 

The government does not seem to sense that losing money is a 

problem. But it is to all the taxpayers of this country, and so, we 

have to do something to remedy this. But we do not want to do 

anything that does not make sense. 

We have two speeds up here: do-nothing; and knee-jerk. And too 

many of our solutions come from the knee-jerk type thing. 

But Mr. Ellis, I wanted to ask you, is there any type of program 

that any of the environmental groups or conservation groups have 

about going in and buying some of this property that may have had 

a total loss that is adjacent to a wetlands? Or is there any type of 

program that you all are aware of, or that you all are thinking 

about trying to create that would do that? 

Mr. ELLIS. Speaking for SmarterSafer, the coalition, we are a 

budget group. But there are environmental groups in that coalition. 

And certainly, there have been interests both after major disasters 

to purchase properties and buy out the owners, and then—at the 

value the home was prior to the disaster—and then using that for 

conservation or other things along those lines. 

There was a separate program that was created years ago called 

Challenge 21, that was looking at that. 

So, I would certainly think that that tool and mitigation are certainly appropriate areas for FEMA and for this program to get involved in, and actually could pay dividends in the long run. 

Mr. NUTTER. Mr. Westmoreland? 

35 

Mr. WESTMORELAND. Yes. 

Mr. NUTTER. Do you mind if I add to that? 

The current program, the National Flood Insurance Program, 

does have funds allocated for mitigating property losses, including 

purchasing properties that are repetitive loss properties. And then, 

the Pre-Disaster Mitigation program that FEMA has does allocate 

money as a percentage of the overall payments for disaster mitigation for just this purpose. 

I think our view would be that maybe FEMA has not been as aggressive as it could be in utilizing those funds, and we certainly 

would encourage the Congress to consider enhancing those funds to 

achieve the goal that you mentioned. 

If I could also answer the comment—it was not really a question—you asked at the beginning about planning? 

I represent the reinsurance industry. And nearly all insurance 

companies and most State insurance plans, like the California 

Earthquake Authority and others, do, in fact, plan for the outlier 

year, the severe loss, infrequent year, by buying reinsurance to protect them against that. And that is what we are recommending 

that the flood insurance program do, as well. 

Mr. WESTMORELAND. Okay. Talking about the repetitive losses, 

I think it is 2 percent of the policies are for the repetitive, but 25 

percent of the losses is on the repetitive. 

What would some of the insurance companies’ idea be for remedying that, when 2 percent of your premiums is covering 25 percent of your losses? 

Ms. PARRILLO. Congressman, may I answer that? 

I represent a primary insurer. And I would like to remind us of 

the phrase and the old adage that ‘‘once bitten, twice shy.’’ And 

this is what has happened with repetitive loss properties. 

Looking at it as a primary insurer, if we insured flood losses on 

a property, and some natural disaster came in and the property 

was destroyed, if the property was rebuilt in the same location with 

no mitigation, I would be not inclined to insure that property a second time. 

And I would suggest that we need corrections in the National 

Flood Insurance Program to do that. We do not want to allow, to 

have people rebuild in areas that, under the same circumstances, 

will have these repetitive losses. It is simply not fair to the American taxpayer. 

There are folks who wish to do so. If they wish to rebuild in 

these areas, they need to be charged actuarially sound rates. If 

they want to absorb that risk, they need to pay for that risk. 

They need to pay for it, not the American taxpayer. 

Mr. WESTMORELAND. Yes. I could not agree with you more. 

Mr. Rutenberg, I come from a homebuilding background, too. 

And a lot of times, you are faced with having a lot that has a lot 

of contour to it, let us say. And part of it is in a floodplain, a 100- 

year floodplain, or whatever, but the floor level may be 15 feet 

above the flood level. 

My experience has been that the homeowner still had to buy 

flood insurance, even if the floor level was at a level that it would 

be impossible to flood. Has that hindered you? Or have you found 

36 

that in any of the subdivisions, or whatever, that you have done 

business in? 

Mr. RUTENBERG. Yes, Congressman. We do find that it is an 

issue for some people. But other people are willing to say, if I want 

to be on this lot—or normally, there is a nice view, or something 

else, that they will pay the premium. And we have to work with 

our county to build it in a way that will ensure that it is not a burden in the future. 

I think I might, if I could quickly add that, in many of the new 

developments that we are doing, in my area we now build for an 

18-inch rain storm event. We have other developments that have 

no retention areas whatsoever, or somewhere in the middle, and we 

are all paying the same. 

And perhaps in the future we should be looking at whether or 

not we should be charged based upon the risk. And if you have that 

much capacity for stormwater, then maybe that is a lower risk. 

I would also suggest that, if you are looking for things to do, that 

we seem to have a few people available to work on mitigation. And 

for that 1 to 2 percent, there may be a program we want to do, a 

lower interest rate program, or something on that order, for people 

to go ahead and modify their homes out of their own money, spend 

their money. And that would reduce the risk to the program. 

Mr. WESTMORELAND. Yes, sir. 

Mr. RUTENBERG. Thank you. 

Chairwoman BIGGERT. The gentleman’s time has expired. 

Mr. WESTMORELAND. And I yield back. 

Chairwoman BIGGERT. Thank you. 

I would note for the record that one town in Illinois, due to repetitive loss, moved the town to higher ground. So, I think there are 

various ways that we can take care of that. 

I would now recognize Ms. Waters of California for 5 minutes. 

Ms. WATERS. Thank you very much, Madam Chairwoman. 

I am sorry that our FEMA representative had to leave, but certainly had to leave for a good reason. I had a number of questions 

that I would have liked to have asked. 

Chairwoman BIGGERT. Maybe we will try and get him back at a 

later date. 

Ms. WATERS. Okay. 

Let me talk about my bill, H.R. 1026. It would restore stability 

to the Flood Insurance Program by reauthorizing the program for 

5 years. It would also address the impact of new flood maps by delaying the mandatory purchase requirement for 5 years, then phasing in the actuarial rates for another 5 years and make further improvements to the program. 

That is a little bit different from your bill, Madam Chairwoman. 

But I think we are both committed to working to see how we can 

find the best solutions. 

I would just like to ask the panel—I do not want you to take 

sides, but I want to find out—what about the time, 2 years as opposed to 5 years? What do you think makes good sense and is reasonable, and would help us to get everybody into the program at 

the correct rates, and basically help us to stabilize this program? 

Can I get a response from anyone? Give me your thoughts. 

37 

Mr. ELLIS. Congresswoman Waters, we would be concerned to 

have a longer delay, such as is envisioned 5 years, and then slowing in the rate increase, just because the people are in the floodplain. We are essentially denying them some of the information 

that they are actually in the floodplain. And we want to give them 

the tools, and some of that is the rates and understanding of that. 

And so, basically freezing the maps or denying them to go into 

place does not really help the communities. 

I would much rather pursue an approach, such as in the draft 

legislation, that would phase in the rate increase, so it is not a 

shock to the system. And then, if there are people who are unable 

to pay, who are truly needy, then we should have, outside the 

rates, certain subsidies to enable them to purchase flood insurance. 

I think that is a better way to go, Congresswoman, and something that would be responsible to the taxpayer and to the— 

Ms. WATERS. Based, then, over what period of time? 

Mr. ELLIS. I am amenable to the timeline that is in the draft legislation. It could be a year that they would—say that you do not 

have to do the purchase, and then they extend it for a year, and 

a year after that, up to 3 years. 

I would rather see briefer and no delays, and just try to deal 

with the rates. But I am amenable to that sort of balanced approach. 

Ms. WATERS. Anyone else? 

What about the question of the cost to the taxpayers with subsidies? 

Mr. ELLIS. The subsidies are there right now. We have a pro- gram that is $18 billion in the hole. I certainly think that we are 

going to have to deal with this issue to try to have affordability for 

insurance for people who are truly needy, and something that is 

outside the program. 

I am not sure what the costs would necessarily be, but I think 

it is important that we get people the accurate maps. And we have 

these tools, which some of it is knowing that they are in the floodplain, or what type of floodplain they are in. 

And the second thing is knowing what it costs and what the true 

cost of living in harm’s way is. And that gives them some decisionmaking to deal with about where their home is, or mitigation 

measures they could take that would reduce the cost or reduce 

their vulnerability. 

Ms. WATERS. Let me, Madam Chairwoman, just say, in addition 

to my concern about the time for phasing in people with the correct 

actuarial rates, I am concerned about too many communities in 

this country that are improperly, incorrectly mapped, and the ability of individuals and communities to oppose the mapping and how 

we are going to resolve that. 

And what impact does that have on the delays that I am speaking about? 

I want the mapping to be as accurate as it possibly can, to avoid 

people being in the situation where the mapping is incorrect, the 

flood zones that are created or identified through the mapping, or 

are not proper. 

I just went through one of these in my district where, luckily, the 

community got together and just worked very, very hard, and got 

38 

it changed. But I do not know how much of that is out there, and 

whether or not if we need to also think about that as we do a delay 

of getting the program on track. 

Chairwoman BIGGERT. If the gentlelady would yield? 

Ms. WATERS. Yes, I yield to the Chair. 

Chairwoman BIGGERT. I think that, actually, Congresswoman 

McCarthy was here and had very much sort of the same concerns 

and some maps that she believed were really mistaken. It sounded 

like that. So, this is an issue. And I think the first panel replied 

that there is an appeals process that people should take advantage 

of. 

But you are right. We need to make sure that is correct. And I 

think that we have in this draft attempted to address that issue, 

and that mandatory purchase requirement would be suspended for 

1 year with the possibility of 2 additional 1-year suspensions provided that FEMA makes a finding with respect to the flood risk 

mapping on a community-by-community basis. 

Ms. WATERS. You are talking about when they are in the appeals 

process? 

Chairwoman BIGGERT. No, I am talking about what is in—now 

I am talking about what is in the draft legislation that we have 

been talking about. 

Ms. WATERS. That deals with the incorrect mapping issue? 

Chairwoman BIGGERT. That is correct. Yes. So, I think that there 

is something in there that you will like— 

Ms. WATERS. Yes, I would like to talk further with you about it, 

if I may, because I am told that if you get a study, that costs 

money, that individual homeowners can do studies, and the communities can do studies. But it costs money to do that. 

And I am not so sure— 

Chairwoman BIGGERT. If I might again? 

Ms. WATERS. Yes. 

Chairwoman BIGGERT. We also have a mapping council in the 

bill, so that this can be done, other than having the communities 

having to do their own study. 

But I do not want to take any more time— 

Ms. WATERS. Okay. Thank you. 

Chairwoman BIGGERT. The gentleman from Virginia, our vice 

chair, is recognized for 5 minutes. 

Mr. HURT. Thank you, Madam Chairwoman. 

Welcome. Thank you all again for being here and for helping us 

sort through this important matter. 

As I said during the first panel, it seems to me our primary responsibility, or a primary responsibility as we look at this, is, obviously, trying to figure out how we minimize the impact to the taxpayer and be good stewards of our responsibility that way. 

And then, I think also it is incumbent upon us in Washington to 

not promote policies that create moral hazard. And obviously, I 

know that is of great interest to you. 

I have a question, maybe for Mr. Ellis, and then maybe Mr. 

Houldin and Ms. Parrillo. And Ms. Jallick, I would like to hear the 

perspective from your quarter. 

But my question is: What is our goal here, and what is achievable? 

39 

Are we able to minimize the impact, if this bill goes forward? Do 

you think that this will be effective in minimizing the impact of 

subsidies to the taxpayer? We have heard different figures, $1.3 billion of taxpayer built-in subsidy, $1.8 billion. And that is obviously on top of the $18 billion 

debt that has accrued. 

And then, secondly, I think, addressing the issue of moral hazard, will we be encouraging or discouraging to the maximum extent 

possible homeowners from making decisions that not only threaten 

their property—and that is, obviously, your concern as members of 

the insurance industry who are here, is the property issue. 

But obviously, as we see in Japan, it is not just property. It is 

also lives. And so, I was wondering if you could address kind of the 

big picture or where we are going with this. 

Mr. ELLIS. Sure. 

Mr. HURT. And how do we measure our success? 

Mr. ELLIS. That is always critical, I think, with any government 

program, is trying to figure out how to measure success, Congressman Hurt. And I think that what we are trying to do, or what we 

would like to see at Taxpayers for Common Sense, and then also 

at SmarterSafer.org, is to move this program into a sounder fiscal 

footing. 

So, to move it to where first, people actually know the risk. And 

part of it is having accurate and up-to-date flood maps, so that they 

actually know where they are living, or buying a home. 

Second, that they understand the cost of that risk, that they are 

actually purchasing insurance that is commensurate to the risk 

that is actuarially sound, so that they have also that tool, sort of 

an understanding of where they live. And then also, how to mitigate or reduce that risk. 

And lastly, and very important for our group, is trying to remove 

that risk off the back of the taxpayer and putting it back on to the 

policyholders where it logically belongs. 

And so, I think that, we created this program in 1968, and we 

are stuck with it. And there is not a private market—a large private market anyway—in flood insurance. 

We are going to have to deal with this program and try to move 

it towards a more actuarially sound basis and also try to use it as 

a tool to help people out—not just help them out in buying flood 

insurance, but help them out of harm’s way—to give them those 

tools and that information to reduce their risk and also reduce the 

impact on the American taxpayer. 

Mr. HOULDIN. Congressman, I agree with the actuarially sound 

concept. I will not go into that further. 

But as somebody who sells the policy to the consumer on a daily 

basis, I think we actually need to make the program more attractive, because the more people that we get to buy the product, the 

larger the number is, the bigger the risk pool. 

And so, one of the components of the draft legislation that I 

feel—as somebody who sells to the consumer every day—is very important is the loss-of-use coverage for the residential property, 

where we could actually have some coverage for them to live elsewhere if there is a flood loss, and the business interruption on the 

commercial side. 

40 

Because right now, when you are trying to sell this product to 

the consumer, there is a lot in the bill—or a lot in the policy—that 

a lot of coverage that is not there, that I think would make it more 

attractive. 

Those components, although we are expanding the policy to some 

degree, we can make actuarially sound right off the bat. And I 

think that the consumer will find it a much more attractive program. 

Ms. JALLICK. I am sorry. Go ahead. 

Ms. PARRILLO. Thank you, Congressman. There are two things I 

would like to address. 

First, as a representative of the National Association of Mutual 

Insurance Companies, we believe that the program is necessary. 

There is not a private market that is available at this time to be 

able to insure those properties. But it does need to be reformed. It 

does have significant weaknesses. 

The first thing I would like to talk about is the take-up rates. 

In my testimony, I testified that less than 30 percent of people who 

are in those floodplains actually purchase the insurance. 

First of all, they may not purchase it. If they do, purchasing a 

new home, they have a federally-backed mortgage, they are required to have flood insurance. They do, and it lapses. There need 

to be penalties there to ensure that does not happen. 

As my colleague here talked about the law of large numbers, that 

is what the insurance mechanism is, how it is predicated on that 

basis. We need to have enough people in there who will pay a little, 

so we will be able to spread the risk across a larger base. It will 

keep the prices reasonable and affordable. 

The second thing I would like to talk about is the idea of the actuarially sound rates. And I will take that up. I think that is an 

absolute necessity to this program. 

And there are two points I would like to make about the actuarially sound rates. First of all, the NFIP was formed on the basis, 

in 1968, of gradually moving toward actuarially sound rates for all 

properties in the program. Here we are 40 years later, and we are 

not close to that. 

We need to be able to be disciplined in the program to be able 

to get to that point, be it 2 years or 5 years. 

Secondly, these subsidized rates, as they are in effect right now, 

apply to all properties, to all property owners, regardless of their 

ability to pay. If you own a beautiful property, a waterfront, and 

you are well established, and you can well afford to pay for the cost 

to insure that property for flood insurance, you are paying the 

same rate as that individual who is in a property, perhaps of lesser 

means. 

Maybe they have been there 40 years and they are on a pension. 

They are paying the same rate. We feel that is fundamentally unfair. 

So, that is why we are proposing, to move toward actuarially 

sound rates should be supported by some type of means-based testing for those folks—now, again, not through the Flood Insurance 

Program. If you bury that quote, that subsidy in the Flood Insurance Program, the insurance mechanism, it is hidden to all. It 

needs to be transparent. 

41 

So, it needs to come outside of the Flood Insurance Program and 

deal with those individuals who truly need the assistance of government. And the others who do not, who can pay for it themselves 

and choose to live in those properties, they should absorb the costs 

themselves. 

Ms. JALLICK. I would like to comment first on the fact that I do 

not feel that we are stuck with the National Flood Insurance Program. I think we should all be extremely fortunate that we do have 

the National Flood Insurance Program. 

The National Flood Insurance Program has worked in the manner that is was designed to work. It was designed to protect people 

for a general condition of flooding. The rates were designed based 

on an average loss year. 

Therefore, when you look at a catastrophe like Katrina, the bill 

was never designed to fully make the program actuarially sound 

with something like a Katrina. 

The NFIP did not fail during Katrina. The levees broke. The system is not broke. 

The most important goal here is for this program to continue to 

protect the 5.6 million people who currently have a flood policy in 

place. This bill goes a long way towards reducing the Federal subsidies and the moral hazard, and addressing lingering concerns, 

such as mapping, which is a true concern. 

Mr. NUTTER. Mr. Hurt, do you mind if I add one more comment 

to that about the actuarial rates? 

Chairwoman BIGGERT. One minute. 

Mr. NUTTER. The program does not include a factor for catastrophe loss years like 2005, but it should. The reason you have all 

this Federal debt is because it does not plan for and it does not 

price for all of that. 

So, if you want to send the right signal to the policyholders who 

live there, but if you also want to protect taxpayers, you really do 

need to factor in that rate. Or as I have suggested on several occasions, the program needs to be purchasing reinsurance as a way to 

protect against the outlier year. 

Thank you for the opportunity. 

Chairwoman BIGGERT. Thank you. 

The gentleman from Missouri is recognized for 5 minutes. 

Mr. CLEAVER. I just have one question, Madam Chairwoman. 

I disagree with your statement, Ms. Jallick. I think there were 

some things broken other than the levees in the Gulf. 

Shortly after Katrina, the Chair, Ms. Waters and I, along with, 

I think, three other Members, went to the Gulf. We held hearings 

in New Orleans and in Biloxi. 

Katrina was not partisan. We lost a Republican Senator’s home, 

and the home of a Democratic Member of the House. 

And the thing that I think has to eventually be addressed is this 

whole issue of wind. Gene Taylor, Congressman Gene Taylor, only 

had his steps remaining on the lot where he lived. 

And I guess the question is: How do you determine whether the 

house was washed away by the flood, or whether the house was 

blown away by the wind? 

And it seems to me that what was broken was that it provided 

a lot of insurance companies with a way out. They just declared, 

42 

you do not have wind insurance, and your house is not here because of the flood. 

It seems to me that is something that has to be repaired, as secondarily to the repair of the levees. 

Ms. JALLICK. In 99 percent of the cases, the two adjusters who 

are assigned to assess the damage will be able to determine the difference between wind and water. It is very rare when the professional adjusters in the field cannot make that determination. 

Adding wind to a policy would just add more debt to the taxpayers. Whereas this particular bill, I feel very strongly that it, 

while not a perfect bill, is a bill that can get enacted into law— 

Mr. CLEAVER. Okay. I support the bill. I want to deal with what 

I was trying to deal with, which is, we have a problem. 

If you are saying that there can be concrete evidence and proof 

on whether it was flood waters or wind, why were we having so 

many controversies if was so easily determined? 

Ms. JALLICK. Again, I do believe, 99 percent of the time, you do 

have the ability to distinguish between the wind and the water. 

And on a very rare occasion—and again, Katrina is something 

that was not foreseen, not expected. And hopefully, we can take 

some of the missteps that we feel happened during Katrina and 

learn from them, and put things into law going forward that will 

help to shore up any type up misconceptions between the wind and 

the water. 

Mr. CLEAVER. Thank you. 

Ms. JALLICK. And the expert council that is designed in this bill 

should be able to assist with that, as well. 

Chairwoman BIGGERT. The gentleman yields back? 

Mr. Stivers from Ohio is recognized for 5 minutes. 

Mr. STIVERS. Thank you, Madam Chairwoman. 

And I would like to thank the witnesses for being here and sharing your expertise. 

It seems to me that we all know that the Flood Insurance Program has to do a better job of pricing risk, number one. The flood 

insurance program also has to—we have to decide how much risk 

we want to give the taxpayers, number two, and whether we want 

to have the taxpayers have a lot of risk. 

The third issue, I think, is how we deal with broader participation. We need to all recognize that there are people who live in 

areas that probably should be participating in the Flood Insurance 

Program who are not participating. 

And then the fourth issue to me personally is, I think we need 

to figure out how we can encourage growth of the private market 

over time, not necessarily immediately, and I do not think it will 

happen immediately. 

I would like to kind of hit those one by one. 

And I know that some of your written testimony talks about pricing risk. I have a real concern about the government’s ability to 

price risk. It just has shown, not just in the Flood Insurance Program, but in many programs in many ways, that the government 

does not do a very good job of pricing risk. 

Do you have any specific recommendations—any of you—that 

would help the government do a better job of pricing risk? 

43 

Mr. NUTTER. Mr. Stivers, Frank Nutter. We represent the reinsurance market. 

And the point that I have made about two suggestions we have 

made is that, if you introduce the private reinsurance market into 

the program, you have introduced into it the risk assessment mechanism that the private reinsurance market does, which it does routinely for catastrophe risk, for earthquakes and tsunamis, and 

floods and windstorm. 

And I have made two proposals. The first is that the program actually go into the market and seek to lay off risk into the reinsurance market on the basis of a data analysis between the NFIP and 

appropriate brokers. 

And second, there is a pooling mechanism in the existing legislation that has been dormant for 40 years—35 years. And while I am 

not suggesting it be reinstituted, I am suggesting that it does provide an opportunity for the private sector on a reinsurance basis 

to participate through a pool with the program. And again, it would 

have that interaction with the private sector risk pricing, risk assessment mechanism. 

Mr. STIVERS. Thank you. 

And briefly—that was a pretty good answer—does anybody else 

have any other ideas, suggestions? Yes? 

Mr. ELLIS. Yes, Congressman. I would just like to add that part 

of it—you are right. Government is never going to be that good at 

pricing risk, just simply because it is not good politics, necessarily. 

Charging people would actually cost— 

Mr. STIVERS. Terrible politics— 

Mr. ELLIS. So, part of the way to guard against that is to make 

sure that we do not expand the program, so we do not add in wind 

insurance, or we do not actually add in, as has been suggested and 

is in the draft, coverage for business interruption or other areas 

that could be insured separately, just because we know that government is inherently flawed in that. 

And so, the more that we expand the program, or even increase 

annually the levels that are available in insurance, we are crowding out the private market, and we are putting the government potentially more on the hook at not pricing risk adequately. 

So, some of it is just, do not make it worse. 

Mr. STIVERS. Thank you for that. 

Let us talk a little bit about encouraging participation—and I 

cannot read your name, I apologize. I know you talked about the 

lack of participation. 

Are there proposals that would—you could pass a law that says 

everybody has to get it. We passed a law in the 1930s that said 

nobody could drink—or the 1920s—and people drank. So, passing 

a law will not necessarily mean compliance. 

What I am curious about is how do we get more compliance of 

people who should be buying flood insurance to buy flood insurance, as opposed to just saying it is mandatory? Which, obviously, 

it is maybe a start, or part of it. But I do not think that alone is 

the solution. 

Ms. PARRILLO. I think the bill does a very fine job in going down 

the road of ensuring compliance with it. There are mandatory purchase requirements regarding properties that are backed by federVerDate Nov 24 2008 18:31 Jun 14, 2011 Jkt 065676 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 K:\DOCS\65676.TXT TERRIE
44 

ally-backed mortgages. And there needs to be a continued enforcement on it. 

Within the National Flood Insurance Program, they need to be 

able to track better those properties that have flood insurance, and 

in the event they allow those policies to lapse, to be able to institute any type of remedial action or penalties to ensure that it is 

done. 

Mr. STIVERS. Thank you. Let me ask you, let us say my house 

is paid off. I do not have a mortgage. How do we enforce that? 

Ms. PARRILLO. I do not think you can enforce that. But I would 

suggest that a prudent person would want to protect their largest 

financial asset. And that may not be a position for the National 

Flood Insurance Program, but one of understanding the risks that 

we all have. 

And I know my colleagues, as independent agents, will counsel 

our clients that the exposures that they have, and to properly protect those exposures. 

Mr. STIVERS. Let me let somebody else weigh in, because I only 

have a limited number of time. Thank you. 

Mr. HOULDIN. I just wanted to mention that anything that a consumer wants to purchase, they are going to purchase, if it is an attractive product to purchase. And right now, the program has a lot 

of unattractiveness to it. I hear it every day. 

When I explain the program to a client, it is like, no, I do not 

think it is something I need. 

I think this bill does a lot towards making the policy and the coverages much more effective. 

Mr. STIVERS. Thank you, Madam Chairwoman. I am sorry. I am 

out of time. 

Chairwoman BIGGERT. Thank you. 

Without objection, Mr. Cleaver is recognized. 

Mr. CLEAVER. Thank you for your generosity, Madam Chairwoman. This will be very short. 

I gave up caffeine for Lent, and so I have a headache. 

[laughter] 

And I have to get on an airplane. And I have a double headache, 

because I am on this wind versus the flood. 

Can somebody explain to me what you did to determine whether 

a house was blown away or washed away? 

Because, as I am sure you know, there were throngs coming to 

us about that issue. And as I said, we saw steps remaining, the 

only thing remaining—can you measure something on the cement? 

Help me, somebody. 

Ms. JALLICK. If the structure is no longer there, then the wind 

and water adjusters are going to work very closely together and 

look at the proximity to water lines, perhaps. Was there a surge 

that had occurred, which then definitely would be the cause of loss 

was water? If there was a tornado, or through wind-driven rain 

that it was determined that the house was destroyed by wind? 

But they would pull weather reports. They would do a lot of investigation to make that determination, call in engineers if need 

be. 

Quite frankly, there are going to be times when maybe they cannot make that determination. And at that point, then, we would exVerDate Nov 24 2008 18:31 Jun 14, 2011 Jkt 065676 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 K:\DOCS\65676.TXT TERRIE
45 

pect that the wind and the water carrier would then split the cost 

of the damage. 

And it is very unfortunate when that happens, but it is also extremely rare when it happens. 

Mr. CLEAVER. Not in Katrina. 

Ms. JALLICK. Very rare. 

Mr. CLEAVER. Not in Katrina. 

Ms. JALLICK. But again, Katrina was not a normal event, as well. 

Mr. CLEAVER. Thank you, Madam Chairwoman. 

Mr. RUTENBERG. May I answer that? 

Chairwoman BIGGERT. Who was speaking? Go ahead. 

Mr. RUTENBERG. You can quite often tell by the construction and 

by the date of the construction, because as we have been evolving 

the construction techniques and the building codes, the newer 

homes are much more protected against wind than the latter ones. 

And depending upon the area and the code that it was built on, 

there are often very good clues. Then, again, that goes to the insurance professionals. 

You should know from the viability of the NFIP that the newer 

houses are being built to much higher standards. And therefore, 

the risks are diminished. 

Chairwoman BIGGERT. Thank you. 

I would like to ask you, any of you who could offer suggestions, 

how would Congress structure assistance for certain homeowners, 

whether we want to do, say, means-testing or modest-income homeowners outside of NFIP? 

So, if you have a suggestion, if you could submit that for the 

record, I would appreciate it. 

And as I mentioned earlier, during the coming months, our subcommittee intends to mark up legislation and implement several 

reforms that will improve the financial integrity and stability of the 

program. And I think legislation will require an examination of 

ways to decrease the role of taxpayers and increase the role of private markets in flood insurance. 

So, more specifically among several provisions, our reform measure will aim to improve flood maps to a fair and transparent process, phase in adequate rates for risk, increase program flexibility 

to better serve homeowners, and enhance local communities’ ability 

to enforce building codes. 

So, NFIP reforms must enhance the program and protect both 

taxpayer and policyholders. 

And with that, I would really like to thank all of the witnesses. 

I think you really have highlighted a lot of issues and explained 

it to a lot of our members who have not been through flood insurance before. So, this has been very helpful. I really appreciate it. 

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

Without objection, the hearing record will remain open for 30 days 

for members to submit written questions to these witnesses and to 

place their responses in the record. 

And with that, this hearing is adjourned. 

[Whereupon, at 1:26 p.m., the hearing was adjourned.] 

(47) 

A P P E N D I X 

March 11, 2011 

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