```

[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]

                      OPPORTUNITIES AND CHALLENGES
                       FACING THE NATIONAL FLOOD
                           INSURANCE PROGRAM

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         HOUSING AND INSURANCE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 12, 2016

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 114-67

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                            
                         U.S. GOVERNMENT PUBLISHING OFFICE 

99-798 PDF                     WASHINGTON : 2017 
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
SCOTT GARRETT, New Jersey            GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas              MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico            RUBEN HINOJOSA, Texas
BILL POSEY, Florida                  WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK,              STEPHEN F. LYNCH, Massachusetts
    Pennsylvania                     DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia        AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri         EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan              GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin             KEITH ELLISON, Minnesota
ROBERT HURT, Virginia                ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio                  JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee       JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina        BILL FOSTER, Illinois
RANDY HULTGREN, Illinois             DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida              PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina     JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri                 KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania       DENNY HECK, Washington
LUKE MESSER, Indiana                 JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
                 Subcommittee on Housing and Insurance

                 BLAINE LUETKEMEYER, Missouri, Chairman

LYNN A. WESTMORELAND, Georgia, Vice  EMANUEL CLEAVER, Missouri, Ranking 
    Chairman                             Member
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
SCOTT GARRETT, New Jersey            MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico            WM. LACY CLAY, Missouri
BILL POSEY, Florida                  AL GREEN, Texas
ROBERT HURT, Virginia                GWEN MOORE, Wisconsin
STEVE STIVERS, Ohio                  KEITH ELLISON, Minnesota
DENNIS A. ROSS, Florida              JOYCE BEATTY, Ohio
ANDY BARR, Kentucky                  DANIEL T. KILDEE, Michigan
KEITH J. ROTHFUS, Pennsylvania
ROGER WILLIAMS, Texas

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    January 12, 2016.............................................     1
Appendix:
    January 12, 2016.............................................    35

                               WITNESSES
                       Tuesday, January 12, 2016

Ellis, Steve, Vice President, Taxpayers for Common Sense.........     4
Heidrick, Christopher, Principal, Heidrick & Company Insurance 
  and Risk Management Services, LLC, on behalf of the Independent 
  Insurance Agents and Brokers of America........................     6
Templeton-Jones, Patty, Executive Vice President and Chief 
  Program Advocate, Wright National Flood Insurance Company, on 
  behalf of the Property Casualty Insurers Association of America     8
Woods, Tom, 2015 Chairman of the Board, National Association of 
  Home Builders..................................................    10

                                APPENDIX

Prepared statements:
    Ellis, Steve.................................................    36
    Heidrick, Christopher........................................    43
    Templeton-Jones, Patty.......................................    48
    Woods, Tom...................................................    60

              Additional Material Submitted for the Record

Luetkemeyer, Hon. Blaine:
    Written statement of the National Multifamily Housing Council 
      and the National Apartment Association.....................    66
    Written statement of the American Insurance Association......    69
    Written statement of the National Association of Professional 
      Insurance Agents...........................................    71
    Written statement of the National Association of REALTORS...    76

 
                      OPPORTUNITIES AND CHALLENGES
                       FACING THE NATIONAL FLOOD
                           INSURANCE PROGRAM

                              ----------                              

                       Tuesday, January 12, 2016

             U.S. House of Representatives,
                            Subcommittee on Housing
                                     and Insurance,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2128, Rayburn House Office Building, Hon. Blaine 
Luetkemeyer [chairman of the subcommittee] presiding.
    Members present: Representatives Luetkemeyer, Royce, 
Pearce, Posey, Stivers, Ross, Barr, Rothfus; Cleaver, Clay, 
Green, Moore, Beatty, and Kildee.
    Ex officio present: Representatives Hensarling and Waters.
    Chairman Luetkemeyer. The Subcommittee on Housing and 
Insurance will come to order. Without objection, the Chair is 
authorized to declare a recess of the subcommittee at any time.
    Today's hearing is entitled, ``Opportunities and Challenges 
Facing the National Flood Insurance Program.''
    I would like to thank the witnesses for appearing today. We 
look forward to your testimony.
    I now recognize myself for 3 minutes to give an opening 
statement.
    My district is home to many communities that lie in flood 
plains near major rivers, streams, and lakes. Many of the towns 
I represent, like so many communities across the Nation, are 
suffering from some of the most destructive flood scenes in 
years.
    While the long-term repercussions are yet to be fully 
known, previous experience has continually brought to light 
many issues surrounding the National Flood Insurance Program 
(NFIP). Within the past 5 years, nearly every one of the 50 
States has experienced flooding. In the past decade, insurance 
claims stemming from flood damage have averaged $3.5 billion a 
year. It is not surprising, then, that flooding is the number 
one natural disaster in the United States. As a result, the 
NFIP today has an outstanding debt of approximately $23 billion 
borrowed from the Treasury, with $7.45 billion remaining of its 
total temporary borrowing authority.
    I have previously voiced concerns about the administration, 
operation, and suitability of the NFIP. Time and time again, we 
see Americans suffer because of governmental failure and 
inaction in times of greatest need. Authorization of the NFIP 
will expire on September 30, 2017. Unlike in previous years, it 
is my hope that Congress can avoid coverage lapses that leave 
economies along the Missouri and Mississippi Rivers and local 
economies in every congressional district in a lurch. At the 
same time, we all recognize, regardless of political 
affiliation, that the status quo isn't acceptable.
    Throughout this year, this committee will aim to garner 
more information on the NFIP, examine whether or not changes to 
flood insurance are likely to solve longstanding issues, and 
develop ways to fix a broken system in order to ensure it does 
more to benefit all parties involved.
    I look forward to today's testimony and to the start of 
what I hope is a productive conversation on the future of flood 
insurance in America. My hope is that, at some point over the 
course of this year, we will be able to get enough information 
so that we can put together the reauthorization bill by the end 
of the year and that we will take next year, 2017, to be able 
to then authorize that bill, fine-tune it, and get it to the 
point where we can pass it and avoid the management by crisis 
that we do around here on a regular basis.
    However, that being said, I look forward to today's 
testimony.
    With that, the Chair now recognizes the ranking member of 
the subcommittee, the gentleman from Missouri, my good friend 
Mr. Cleaver, for 5 minutes for an opening statement.
    Mr. Cleaver. Thank you, Mr. Chairman, and members of the 
subcommittee, as well as the witnesses today, especially Tom 
Woods. Woods Custom Homes is one of the most significant and 
successful builders in my area. And Tom Woods, of course, 
served as a mayor of Blue Springs probably 10 years before I 
served as mayor of Kansas City. And I am so pleased that he is 
here. And he knows, as well as people in the State of Missouri, 
as you have already indicated, Mr. Chairman, this is a 
significant issue with which we are dealing.
    And this hearing is particularly appropriate. In the last 
few weeks, flooding from the Mississippi River has damaged 
homes and businesses in Missouri. Now, my congressional 
district was spared much of the damage to homes and businesses 
that hit the western and southwestern part of our State. Closer 
to home, I do often hear from farmers in my district who remain 
extremely concerned over flooding risks in their fields.
    As we all know, the National Flood Insurance Program was 
created in 1968 through the passage of the National Flood 
Insurance Act in response to a limited number of available 
companies--private companies--which were interested in 
providing flood insurance.
    The NFIP provides flood insurance to many property owners 
in designated areas as well as develops the flood insurance 
rate maps and promotes mitigation activities.
    Since 1968, the act of NFIP has been amended many times, 
more recently through what we all affectionately call the 
Biggert-Waters Act of 2012, and the Homeowner Flood Insurance 
Affordability Act of 2014.
    With the need for authorization around the corner, today we 
have the opportunity to fully discuss this issue, and more 
specifically, it gives us a chance to consider the importance 
of retaining flood insurance as well as how we can improve this 
program.
    I am going to be the last person to ever say that the 
issues we deal with in Federal agencies are perfect. They are 
imperfect. The only thing perfect is the 11 consecutive games 
won by the Kansas City Chiefs.
    I look forward, Mr. Chairman, to this hearing.
    And now I will ask if the ranking member, Ms. Waters, would 
like the remainder of my time?
    Chairman Luetkemeyer. Very good.
    Good morning, Ranking Member, whenever you are ready.
    Ms. Waters. I'm ready.
    Chairman Luetkemeyer. Okay. The ranking member of the full 
Financial Services Committee, Ms. Waters from California, is 
recognized for 2 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    I am pleased to see that this committee has chosen to 
prioritize the National Flood Insurance Program this year. At 
the end of last year, I requested that the committee hold this 
hearing because I believe that it is absolutely critical that 
we start thinking about the program and how we can improve it 
for the long term.
    Now, let me briefly discuss the beginning before we discuss 
the future.
    When I agreed to work with Ms. Biggert on what ultimately 
became the Biggert-Waters Act, our goal was to create a 
bipartisan solution to repair our ailing Flood Insurance 
Program. There was a broad consensus around the need for the 
program because it is essential to our housing market and to 
our disaster recovery. For years, instability and insolvency 
issues threatened the effectiveness of NFIP.
    And since 2008, Congress has been extending the program a 
few months at a time. Twice, this led to shutdowns, including 
one that stalled more than 40,000 home sales in June 2010 
alone. Short-term extensions cause lapses in the program that 
place communities at risk and undermine our housing market. In 
2010, the National Association of REALTORS estimated that 
approximately 1,400 home closings were adversely affected each 
day the program sat expired.
    For this reason, and to address the NFIP's then-$24 billion 
debt, we attempted to fix the program through a 5-year 
extension and a 10-year repayment plan. But it soon became 
clear that our best intentions fell victim to circumstances 
that led to rate increases too severe for any family's budget. 
Together, we worked tirelessly to enact reform that provided 
much needed rate relief for thousands of homeowners and put 
FEMA back on the path to addressing affordability issues on a 
broader scale.
    In 2013, when this committee refused to hold hearings, I 
convened a bipartisan meeting which led to the creation of a 
bipartisan and bicameral coalition. Ultimately, we were 
successful in passing legislation that addressed the unintended 
consequences of the Biggert-Waters Act. I stand ready to take 
these next 2 years to continue in that spirit and work across 
the aisle to ensure that the NFIP remains able to provide 
affordable flood insurance so that our Nation is resilient in 
the event of a disaster.
    So I thank you, Mr. Chairman, and I yield back the balance 
of my time. And I hope that we can work together in a 
bipartisan effort in the way that we did to pass the bill that 
corrected the unintended consequences of Biggert-Waters. I 
enjoy doing that.
    I yield back.
    Chairman Luetkemeyer. Thank you, Ms. Waters.
    With that, we will open with our testimony for the day.
    We have Mr. Stephen Ellis, vice president, Taxpayers for 
Common Sense; Mr. Christopher Heidrick, principal of Heidrick & 
Company Insurance and Risk Management Services, on behalf of 
the Independent Insurance Agents and Brokers of America; Ms. 
Patty Templeton-Jones, executive vice president and chief 
program advocate for Wright National Flood Insurance Company, 
on behalf of the Property Casualty Insurers Association of 
America; and Mr. Tom Woods, 2015 chairman of the board, 
National Association of Home Builders.
    We had a roundtable last week, which was great from the 
standpoint that we were looking at the mapping problem, 
believing that we need to start there. In today's hearing, we 
hope to build on that with a more broad look at flood insurance 
as a whole and then on--in fact, tomorrow, we will look at a 
private sector solution with a bill that is out there to also 
take that into consideration. So we are starting off the year 
with a lot of research and looking into the aspect, different 
aspects of flood insurance, and we look forward to your 
testimony here today.
    Just to give you a brief tutorial on the lighting system, 
you get 5 minutes to speak, and give us your testimony. At the 
1-minute mark, a yellow light will come on. And when you hit 
red, that means my gavel is close behind.
    With that, Mr. Ellis, welcome to the committee, and I look 
forward to your testimony. You have 5 minutes.

STATEMENT OF STEVE ELLIS, VICE PRESIDENT, TAXPAYERS FOR COMMON 
                             SENSE

    Mr. Ellis. Thank you.
    Good morning, Chairman Luetkemeyer, Ranking Member Cleaver, 
Chairman Hensarling, Ranking Member Waters, and members of the 
subcommittee. I am Steve Ellis, vice president of Taxpayers for 
Common Sense, a national nonpartisan budget watchdog. Thank you 
for inviting us to testify on opportunities and challenges 
facing the National Flood Insurance Program. Taxpayers for 
Common Sense is aligned with Smarter Safer, a coalition that is 
in favor of promoting public safety through fiscally sound, 
environmentally responsible approaches to natural catastrophe 
policy. The groups involved represent a broad set of interests 
from free market and taxpayer groups to consumer and housing 
advocates to environmental and insurance industry groups. All 
of the groups agree that NFIP should be made more responsible 
and greater reforms are needed.
    I have a more extensive discussion of the opportunities and 
challenges facing NFIP in my written testimony, but in my short 
time now, I would like to address four of the points the 
committee raised in the letter inviting me to testify.
    The committee asked, is the NFIP the ideal model for 
effective protection of residential and commercial property 
owners? No. And not just because it is $23 billion in debt to 
taxpayers. As was mentioned, the NFIP was created nearly 50 
years ago because of a market failure. Today, the insurance 
industry is hungry for this risk and can provide it. To be 
clear, I am not suggesting eliminating NFIP tomorrow or 
anything close to that. The community rating system encourages 
mitigation, and there are properties that would see 
significantly higher premiums in the private marketplace.
    But a primarily private sector program is where flood 
insurance is heading and should head, and FEMA has indicated as 
such, that it is heading this way. This is already happening, 
and in the coming decades, NFIP will likely become a residual 
market for policyholders who cannot obtain private flood 
insurance. This would be a limited set of policies, and it is 
not unlike residual homeowners' insurance programs at the State 
level. But Congress should be intentional about this 
development and ensure mitigation benefits achieved by NFIP are 
retained and funds for mapping maintained.
    The committee asked about FEMA's efforts to accurately 
predict flood risks, price flood risk, and create an effective 
administrative mechanism to serve policyholders. I know FEMA is 
working hard to update the maps and has the new Technical 
Mapping Advisory Council to help guide them in their work. I 
also know that mapping efforts have not received full funding 
in the last several years, which inhibits their progress.
    That said, more needs to be done for the public to have a 
greater understanding of their flood risk. FEMA is tasked with 
mapping this special flood hazard area for the mandatory 
purchase requirement. That is a Federal mandate that isn't 
likely to change. However, these maps are static; lines on a 
map designating various flood risk areas and charging various 
rates based on those risks. If a homeowner has an elevation 
certificate that proves they are elevated out of the flood 
plain, they can have those rates adjusted. But the creation of 
the rates as a sort of black box is not entirely clear that 
even full risk rates are actuarially sound. In some cases, 
there are significant cross subsidies where lower risk 
properties pay more to maintain subsidies for higher risk 
properties.
    The committee also asked how NFIP in the private sector 
could better serve high-impacted communities and modernized 
mapping systems while incorporating local community mitigation 
efforts. There is no way around it. The maps have to be more 
accurate and smarter. There is a whole industry that has very 
accurate data. FEMA should explore data sharing and further 
contracting with them. There are also many different Federal 
agencies that engage in mapping. This should be better 
coordinated and shared among agencies to avoid duplication.
    This is also where--and I know this is outside the 
committee's jurisdiction--the Nation's mitigation and pre-
disaster programs have to dovetail with NFIP and post-disaster 
response.
    Finally, the committee asked about the issue of 
affordability for families without the resources to pay 
actuarial flood rates. The affordability issue has to be 
addressed, but it must be done in a means-tested, targeted, and 
time-limited manner. Current subsidies are effectively hidden 
from the homeowner, which eliminates any price signal of risk 
or incentive to mitigate to reduce the risk and thereby the 
premium. Masking subsidies with lower rates prevents 
policyholders from understanding the true level of their risk. 
As was noted in the privatization report mandated by Biggert-
Waters, subsidized rates ``can promote and have promoted poor 
decisions on the part of property owners and political 
representatives. They also create a moral hazard, especially 
when the subsidies are not well targeted.'' The report 
continues, that the presence of subsidies ``removes the 
incentive to undertake mitigation efforts, thereby encouraging 
ever-increasing societal costs.'' A far better approach is to 
encourage and fund mitigation measures that could serve to 
reduce rates by reducing risk.
    In conclusion, private insurers are ready to write flood 
insurance, and as NFIP rates rise in the program to be more in 
line with risks, this will become even more so. With more 
insurers writing flood insurance, there should be a growth in 
overall coverage in the United States while the Federal program 
develops into a residual market. This will take a decade or 
maybe 2 decades or more, but Congress should work with the 
Executive Branch to manage the transition and use targeted 
mitigation tactics that make these remaining policies more 
commercially insurable.
    There is no need for the Federal Government to further 
extend into the catastrophe insurance market through 
reinsurance or other means.
    Thank you for the opportunity to testify. I am happy to 
answer any questions you may have.
    [The prepared statement of Mr. Ellis can be found on page 
36 of the appendix.]
    Chairman Luetkemeyer. Thank you, Mr. Ellis.
    Mr. Heidrick, you are now recognized for 5 minutes.

   STATEMENT OF CHRISTOPHER HEIDRICK, PRINCIPAL, HEIDRICK & 
COMPANY INSURANCE AND RISK MANAGEMENT SERVICES, LLC, ON BEHALF 
   OF THE INDEPENDENT INSURANCE AGENTS AND BROKERS OF AMERICA

    Mr. Heidrick. Thank you.
    Good morning, Chairman Luetkemeyer, Ranking Member Cleaver, 
Chairman Hensarling, Ranking Member Waters, and members of the 
subcommittee. My name is Chris Heidrick, and I am pleased to be 
here today on behalf of the Independent Insurance Agents and 
Brokers of America, or the Big ``I,'' to present the 
Association's perspective on flood insurance and the National 
Flood Insurance Program. We commend the subcommittee for 
looking at this very important issue.
    I am the principal of an independent insurance agency 
located in Sanibel, Florida. I regulate and counsel clients of 
all sizes regarding flood insurance. I also hold the 
designation of associate in national flood insurance. I 
currently serve as the chairman of the Big ``I'' Flood 
Insurance Task Force and represent the Big ``I'' on the Flood 
Insurance Producers' National Committee.
    The Big ``I'' is the Nation's largest and oldest trade 
association of independent insurance agents and brokers, and we 
represent a nationwide network of approximately a quarter of a 
million agents, brokers, and employees. Working with Write Your 
Own companies, many of these agents serve as the sales force 
for the NFIP. It is from this vantage point that Big ``I'' 
members understand the capabilities and challenges of the 
insurance market when it comes to ensuring against flood risks. 
The Big ``I'' believes the NFIP provides a vital service for 
the people and places that have been hit by a natural disaster. 
Recent severe flooding in Missouri and across the central 
United States has provided an unsettling reminder of the 
terrible damage that flooding can cause, and the NFIP is 
virtually the only way for many people to protect against the 
loss of their home and business due to flood damage.
    Despite our support of the NFIP, the Big ``I'' also 
recognizes that the program is far from perfect. The program 
has recently faced scrutiny for its handling of Superstorm 
Sandy claims and has a debt of approximately $23 billion. But 
it is important to note that for more than 2 decades, up until 
the 2005 hurricane season, no taxpayer money had been used to 
support the NFIP. The NFIP was able to support itself using 
funds from the insurance premiums it collected.
    In order for the NFIP to move forward toward financial 
solvency, rate adequacy should be examined. However, it must be 
done with careful consideration to avoid market disruption and 
other unintended consequences. For the NFIP to regain any sort 
of solid financial footing, the number of policies needs to 
increase, not decrease. As Congress considers possible reforms 
to the program, careful analysis of their potential impact on 
policy take-up rates and retention should be paramount.
    Now, I would like to talk about the role of the insurance 
agent in the delivery of flood insurance, which is considerably 
more complex than most traditional property and casualty lines. 
Independent agents are an essential part of the consumer 
experience when purchasing a flood policy. Placing a new policy 
on a property located in a special flood hazard area where the 
government requires flood insurance for any home with a 
federally-backed mortgage is an intensive process that can take 
multiple days, if not weeks, to complete.
    Furthermore, when consumers are ``not in a flood zone,'' 
they often believe they don't need flood insurance when, in 
fact, this is not the case. Properties outside of this special 
flood hazard area comprise over 20 percent of all NFIP flood 
insurance claims and receive one-third of Federal disaster 
assistance for flooding. It is my job to explain the flood 
insurance options available to consumers and to make sure they 
understand the consequences of their purchase decision.
    As you know, the NFIP is a congressionally authorized 
program that requires periodic extensions. The NFIP is 
currently scheduled to expire on September 30, 2017, and the 
Big ``I'' strongly urges Congress to pass a long-term extension 
as soon as possible. Instability and uncertainty created by 
short-term and sometimes retroactive or last-minute extensions 
can lead to concrete damages in the real estate and development 
market as well as the country's economy overall.
    Briefly, regarding the private market, which I know the 
subcommittee is exploring in a separate hearing tomorrow, the 
Big ``I'' supports H.R. 2901, the Flood Insurance Market Parity 
and Modernization Act, as introduced. I would like to thank 
Representatives Ross and Murphy for taking the lead on this 
bipartisan legislation. This bill ensures that policyholders 
can move seamlessly between the private market and the NFIP. 
The Big ``I'' believes that the private flood insurance market 
can play a valuable but limited role as a complement to the 
NFIP in protecting homes and businesses but lacks the 
capability to underwrite flood insurance on a pervasive basis 
to meet customer needs.
    In conclusion, the Big ``I'' strongly supports the NFIP and 
the continued role of our members as the distribution force for 
the program. The NFIP is essential for millions of Americans, 
and ensuring the long-term stability of the program is of vital 
importance. I thank the subcommittee for holding this hearing 
and I look forward to answering any questions you may have.
    [The prepared statement of Mr. Heidrick can be found on 
page 43 of the appendix.]
    Chairman Luetkemeyer. Thank you, Mr. Heidrick. Well done, 
you wound up within the time limit there. Good job.
    Mr. Heidrick. Thank you.
    Chairman Luetkemeyer. Ms. Templeton-Jones, you are 
recognized for 5 minutes.

 STATEMENT OF PATTY TEMPLETON-JONES, EXECUTIVE VICE PRESIDENT 
  AND CHIEF PROGRAM ADVOCATE, WRIGHT NATIONAL FLOOD INSURANCE 
     COMPANY, ON BEHALF OF THE PROPERTY CASUALTY INSURERS 
                     ASSOCIATION OF AMERICA

    Ms. Templeton-Jones. Good morning, Chairman Luetkemeyer, 
Ranking Member Cleaver, and members of the subcommittee. My 
name is Patty Templeton-Jones. I am executive vice president 
and chief program advocate of Wright National Flood Insurance 
Company, which is based in Florida and domiciled in Texas. 
Thank you for the opportunity to testify.
    Wright National Flood Insurance Company is a Write Your Own 
flood insurance partner with the NFIP for the Write Your Own 
Program. WNFIC is the largest writer of flood insurance in the 
Nation. Wright National Flood Insurance Services, our 
processing center, is also active in the private flood 
insurance market growing outside of the NFIP. Wright National 
Flood is a member of the Property Casualty Insurers Association 
of America, which is composed of nearly 1,000 member companies, 
including two-thirds of the Write Your Own insurers that 
partner with the NFIP to administer the National Flood 
Insurance Program.
    My testimony today is provided on behalf of PCI and its 
nearly 1,000 member companies. Today, I would like to: first, 
draw your attention to the dramatic increase in private capital 
available to underwrite flood coverage outside the NFIP; 
second, underscore the importance of consensus for the long-
term reforms needed to provide stability in the NFIP throughout 
the lengthy transition period necessary for significant market 
for flood coverage to develop outside the NFIP; third, 
highlight several key issues policymakers need to consider 
before any period of transition begins; and finally, suggest 
several broad categories on which such long-term consensus 
reforms should focus.
    Without question, the biggest change in the flood insurance 
landscape since Congress last authorized the NFIP is that now, 
for the first time in a generation, substantial sources of 
private capital are available and actively interested in 
writing primary flood insurance coverage. Today, an increasing 
number of private insurers are planning on entering into the 
private flood market.
    In response, State insurance regulators, like those from 
Florida and Pennsylvania, are engaging insurers with the 
intention of fully incorporating flood insurance into the U.S. 
State system of insurance regulation.
    The 48-year-old NFIP has experienced significant turmoil 
over its history. Program uncertainty and confusion peaked 
between 2008 and 2012 as the NFIP suffered through a period of 
more than a dozen short-term program lapses and extensions. 
Unfortunately, a decade of program uncertainty, lapses, and 
midstream operational changes have not only caused numerous 
insurers to leave the Write Your Own Program but have 
repeatedly disrupted the housing market and caused ripple 
effects throughout the larger economy.
    Developing consensus on long-term reforms, and 
restructuring and reauthorizing the NFIP well before the 
September 2017 expiration, is the single most important thing 
Congress can do to foster certainty in the flood insurance 
marketplace and encourage the continued development of market-
oriented solutions in flood risk management.
    The availability and interests of significant sources of 
private capital to provide primary flood insurance coverage 
outside the NFIP represents a paradigm shift. It presents the 
opportunity for a gradual transition toward a flood insurance 
marketplace in which an increasing share of risk is borne by 
private capital.
    However, the growth of a private primary flood insurance 
market does not mean the elimination of the need for the NFIP, 
particularly, as the private market will not be willing to 
assume all flood risk or be acceptable to all buyers. In 
advance of any significant transition into the flood insurance 
market, topics policyholders need to consider are: first, 
should the NFIP become a national residual market or market of 
last resort for the substantial number of properties the 
private market will be unable or unwilling to insure; second, 
how is the NFIP's mission to encourage the purchase of flood 
insurance by providing affordable coverage impacted by the 
growth of the private insurance market; and lastly, how will 
the NFIP's mapping and flood mitigation functions be funded if 
policyholders leave the NFIP and purchase private flood 
insurance?
    Detailed in my written testimony are a number of immediate 
operational reforms that FEMA can take up on its own that the 
subcommittee may wish to consider in an oversight role. In the 
immediate term, Congress could and should bolster the 
development of a robust private flood insurance market by 
passing the bipartisan and bicameral Ross-Murphy-Heller-Tester 
Flood Insurance Market Parity and Modernization Act of 2015, 
H.R. 2901. This straightforward legislation addresses post-
Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) 
regulatory confusion and provides homeowners greater coverage 
options in pricing.
    In conclusion, PCI and Wright National supports the 
committee's review of NFIP in consideration of how to encourage 
additional private participation in flood underwriting and 
accordingly limit taxpayer risk. We would also suggest that 
even if the subcommittee and Congress ultimately reshape the 
marketplace, there will be a necessary long-term transition. 
Given the NFIP's important role in the lives of so many 
Americans, it is critical to develop a strong, bipartisan 
consensus for a stable, long-term reform in advance of the 
program's 2014 expiration.
    I thank the members of the subcommittee for this timely 
subject: reimagining flood risk management in advance of the 
November 2017 reauthorization of the NFIP. I am happy to 
address any questions, and I look forward to working with the 
subcommittee throughout this process.
    [The prepared statement of Ms. Templeton-Jones can be found 
on page 48 of the appendix.]
    Chairman Luetkemeyer. Thank you, Ms. Templeton-Jones.
    And finally, we will go to Mr. Woods.
    Mr. Woods, I want to thank you, again, for your 
participation last week in our flood mapping roundtable. I 
realize this is your second visit to D.C. in 2 weeks, so we 
appreciate your willingness to work with us, to enlighten us, 
and to represent your association, which you do very well.
    So, again, as a fellow Missourian, welcome to our 
committee, Mr. Woods.
    And you are recognized for 5 minutes.

 STATEMENT OF TOM WOODS, 2015 CHAIRMAN OF THE BOARD, NATIONAL 
                  ASSOCIATION OF HOME BUILDERS

    Mr. Woods. Chairman Luetkemeyer, Ranking Member Cleaver, 
and members of the subcommittee, thank you for the opportunity 
to testify today. My name is Tom Woods, and I am a builder from 
Blue Springs, Missouri, and the National Association of Home 
Builders (NAHB) chairman of the board. NAHB has a long history 
of supporting NFIP, and we are committed to ensuring that it 
remains a viable and affordable program to its policyholders 
while being mindful of the costs to the American taxpayer.
    NAHB commends the subcommittee on addressing this critical 
issue early in the year, and we look forward to working with 
you and your colleagues as you contemplate changes to the NFIP 
to ensure that federally-backed flood insurance remains 
available, affordable, and financially stable.
    The unprecedented losses suffered in 2005 and in 2012, 
including the devastation brought on by Hurricanes Katrina and 
Sandy, have severely taxed and threatened the solvency of the 
NFIP.
    While these events have been tragic and sobering, resulting 
reforms must not be overreaction to exceptional circumstances.
    Instead, reforms should take the form of thoughtful, 
deliberate, and reasoned solutions. A key step in this process 
is to take stock of where we are today, what has worked, and 
what has not.
    While the NAHB supports the passage of BW-12 to ensure the 
continuation of the NFIP, the legislation created unintended 
consequences that resulted in dramatic flood insurance premium 
hikes that hurt the sale, construction, and remodeling of 
homes. The combination of inaccurate mapping into higher risk 
flood zones, and the immediate shift to full actuarial rates 
for many homeowners resulted in increases that priced 
prospective buyers out of their developments and forced the 
cancellation of sales, harming communities.
    HFIAA fixed many of the problems associated with BW-12. It 
provided that those who were charged higher rates should be 
refunded for excess premiums, specified that properties should 
and would continue to pay their grandfathered rates, and 
repealed the requirement that flood insurance premium increase 
immediately to full actuarial rates upon the sale of a home. 
The return to grandfathered rates provided a more affordable 
rate structure for policyholders. NAHB has estimated that in 
2014, because of HFIAA, there was $755 million more in new 
construction and $361 million a year in additional remodeling.
    Any reform efforts need to address the accuracy of the 
flood insurance rate maps. For flood maps to be fair and 
accurate, they have to take into account all flood-control 
structures. Consequently, many properties are incorrectly 
mapped into flood plains, which results in homeowners being 
forced to purchase unneeded flood insurance. It typically takes 
years for those mistakes to be fixed, often requiring a lengthy 
and costly appeals process for the community, the builder, and 
the homeowner.
    There is an opportunity for home builders or landowners to 
elevate plots of land out of the flood plain through the letter 
of map change process. For example, I engaged in a CLOMR-F 
process in a subdivision I built in Independence, Missouri. It 
took over 8 months and a quarter of a million dollars for FEMA 
to approve the map change. In States with short construction 
seasons, going through the letter of map change process could 
create devastating costs and delays.
    I would like to thank the subcommittee for the opportunity 
to share NAHB's views. Home builders have long supported 
commonsense changes to the NFIP, and we urge Congress to 
continue to support and protect small business owners and 
homeowners from the exorbitant rate hikes and inaccurate 
mapping we have seen in the past.
    Thank you.
    [The prepared statement of Mr. Woods can be found on page 
60 of the appendix.]
    Chairman Luetkemeyer. Thank you, Mr. Woods.
    I want to thank each of the individuals testifying today 
for your testimony.
    And, without objection, your written statements will be 
made a part of the record.
    With that, I want to recognize myself for 5 minutes and 
begin the questioning.
    Mr. Ellis, you make a lot of different statements, a lot of 
interesting conjectures as to how things could be, should be. 
You are looking at private insurance, to go that direction. How 
do we get there? And what do we do with mapping if it is still 
necessary, if you go to a private insurance market?
    Mr. Ellis. Sure. Thank you, Mr. Chairman.
    Chairman Luetkemeyer. You still need the NFIP, I think, I 
guess also.
    Mr. Ellis. Right. So there is currently built into the rate 
structure a certain charge that goes to every policyholder 
under NFIP that is supposed to go for mapping. And then, there 
are also appropriations that augment that go for mapping. We 
believe that as you develop the private marketplace, there 
should be explicitly a similar fee, a matching fee, for mapping 
that is done on the private sector policies. It would be 
exactly the same as what somebody is do if paying an NFIP as 
they would paying the private sector, as this sort of a sur 
fee, if you would. And that way, one is we are still going to 
have the mapping required by the Federal Government to do the 
mandatory purchase requirement, unless you all decide to change 
that. And so we need to make sure that is retained. And so that 
would be how we would envision that would be addressed, Mr. 
Chairman.
    Chairman Luetkemeyer. Mr. Heidrick, one of the things that 
you were talking about was the low take-up rate. What is your 
solution for that, or do you have a solution, or do you believe 
that is just an inherent problem with the nature of flood 
insurance?
    Mr. Heidrick. Thank you, Mr. Chairman.
    I believe the inherent problem is the 
catastrophic nature of flood risk. As I am talking to clients, 
you think of homeowners' insurance, auto insurance, these are 
products they typically buy every day that can experience 
higher frequency, sometimes lower severity losses. Flood 
insurance doesn't work like that. Flood insurance is 
catastrophic in nature and often hits the people who least 
expect it.
    And one of the largest challenges we have in communicating 
flood risk right now is the binary nature of the existing maps. 
When you look at frequency, there are only 3 categories the 
National Flood Insurance Program specifies: less than a 0.2 
percent chance of flooding in a given year; 0.2 to 0.99 
percent; or 1 percent or greater. So imagine you have two 
houses that are on either side of the line, whether that line 
is inside or outside of the SFHA or in between two flood zones. 
And consumers are led to believe that because they are on the 
safe side of that line, they don't need to purchase flood 
insurance. The rest of that statement is actually, they don't 
need to purchase flood insurance to satisfy their lender, but 
there certainly is still a risk. And the relative risk between 
those two homes that I just gave in that example is much closer 
than in or out.
    Chairman Luetkemeyer. Along those lines, if it is more 
difficult for people to ascertain they need it, and if you 
would go to a more private market, how would you market the 
insurance? Are you going to market like you do car insurance 
and homeowners insurance, or life insurance, where you would 
market it as one of those risks that is out there? Do you see a 
marketing program that would help do this, to show people the 
need for this, or is this something that the government is 
going to have to do, or the local communities who live in the 
flood plain areas are going have to do? How would you market 
the product if it is a private sector product?
    Mr. Heidrick. I don't know that I would market it any 
differently than I market any other product. When I am meeting 
with a client, I am assessing their overall personal risk, 
whether that is wind or flood or auto or life or health, where 
each individual may have a different set of risks or those 
risks may be more severe or less severe from individual to 
individual.
    One of the things that I believe the private market may be 
able to do better than the NFIP today is price in a more 
granular level. So the example I gave before, where there are 2 
homes on either side of a line, and sometimes 10 feet can make 
several thousand dollars of difference in the cost of flood 
insurance for an individual, that is going to weigh heavily on 
their cost-benefit analysis. But if the private market is able 
to make it more granular, it would be a different outcome.
    Chairman Luetkemeyer. Mr. Woods, you deal with this every 
day. With the fact that you build homes and hopefully you can 
sell them, financiers are supposed to be required to have in 
their files a document that says this either is or is not 
subject to flood insurance. How do you see this playing out 
with the private market? How do we solve this problem of 
participation?
    Mr. Woods. I think, number one, again, and not to beat it 
to death, but the flood maps have to be accurate. Without that, 
you are at a loss. You can't make that judgment.
    The second thing is simply an educational process. Right 
now, we are working where the only person having to have flood 
insurance is that person who is within the 1-percent area. And 
there are a number of answers to that question. Right now, with 
new construction in those areas or significant remodeling, you 
are required to move the base elevation of that house above the 
flood plain by whatever means. And then as you go down through 
the list, there are others. So I think you do it through 
education. But I think you have to have the confidence, and the 
home builder, the city, and the homeowner have to have the 
confidence that those maps are correct.
    Chairman Luetkemeyer. Okay. Very good. My time has expired.
    With that, I will recognize the ranking member of the full 
Financial Services Committee, Ms. Waters, for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    I would like to thank all of our panelists who are here 
today. And I am especially listening to Mr. Woods from 
Missouri. I am from Missouri, and you have three members on 
this committee who represent Missouri. And the recent floods, 
all of the flooding that has taken place in Missouri and in 
that St. Louis area where rivers converge have caused me great 
concern as I have been concerned about other areas of this 
country. And I spent a lot of time after Hurricane Katrina 
working down there with the residents who were just so harmed 
by Katrina.
    I was part of a problem. Biggert-Waters was not right, and 
it increased those premiums for homeowners, but I was part of a 
temporary solution also to fix that. And now, I am interested 
in a permanent solution.
    And I agree with you. If we can't get the mapping right, we 
won't be able to do the reform that is absolutely needed in 
this program.
    I guess you have already said it, but would you just 
reiterate how important it is for us to get the maps right? I 
don't know what it is going to take. I know it is going to take 
some more resources to do that. It is going to take expertise 
that should be both public and private, but would you reiterate 
for us the importance of mapping?
    Mr. Woods. Certainly. Without a correct map, all that we 
do, other than that is really wasted. None of us can guarantee 
what the outcome will be. But I want you to understand also 
about the mapping and why it is so important. The map is only 
good if the local community follows the map. And I will give 
you an example back to the Independence example. I could move 
all of my property, in fact, above the 500-year flood plain, 
simply by constructing some lakes in the area and elevating the 
rest of the ground. I could contain all of my water onsite. 
However, the one thing I could not address is waters that were 
coming to me from other areas.
    So it can't be a piecemeal, one-spot area. It has to have 
the hydraulics in the entire flood plain within it.
    The second thing is, I believe there are some tremendous 
cost savings to be realized. Two points. I, in fact, mapped the 
flood plain. I, in fact, knew where there were some errors in 
the flood plain that have existed for years, and yet we have 
not been able to get them addressed. All right? So I believe 
that we ought to rely on that data. If accurate, it wouldn't 
then require a second set of mapping; it would require a 
review.
    And the second thing is--and this may be a novel approach 
for here, but we need to stop spending all our money suing each 
other to prove who is right. And, ultimately, I was a winner, 
but the bottom line is that money could have been well spent to 
have improved both the mapping and the area if we were working 
together.
    Ms. Waters. If I may just continue, there are some people 
who believe it is impossible to get this remapping done and 
that it is going to cost too much money. Some people even 
question the expertise. But you believe that it can be done, is 
that right?
    Mr. Woods. I believe it can be done if we all work 
together. I don't think you have to go with where is it 
important to remap. It is not all that important to, perhaps, 
remap many areas of the country where there isn't that much 
exposure. Those areas that have the most population, the most 
economic drought, those are certainly the ones that should come 
first. But those are also the areas where you are going to have 
the help of the home builders, the developers, and perhaps the 
cities. I think they are all interested in this.
    Ms. Waters. So you do believe that the private sector could 
really help us in getting this remapping done?
    Mr. Woods. It could help you, but they are going to have to 
know that there is an effort from the regulator side to--I am 
not asking to accept anything that is not right, but I am 
asking to stop being adversarial throughout this whole process.
    Ms. Waters. I do believe that the chairman of this 
subcommittee, Mr. Luetkemeyer, who is from Missouri, is headed 
in the right direction. And I do believe that he can get all of 
the forces together so that we can get this right. So I am very 
optimistic.
    And I thank you for your testimony.
    Chairman Luetkemeyer. I thank the ranking member. The time 
has expired.
    With that, we recognize the gentleman from New Mexico, Mr. 
Pearce, for 5 minutes.
    Mr. Pearce. Thank you, Mr. Chairman.
    Mr. Woods, could you give us a little bit more explanation? 
You said, ``if the regulators would stop being adversarial,'' I 
think was your last statement. Could you give us a little bit 
more insight into that adversarial relationship?
    Mr. Woods. Just recently, a flood map was adopted in the 
Little Blue River Basin in Independence, Kansas City; it runs 
through both cities. And, in fact, we knew there were errors in 
that map. The cities knew there were errors in that map. The 
two cities' maps did not match. And the bottom line was I was 
told, when I asked a question of some people, to FEMA, 
basically told, ``Why didn't you step up and provide it?'' 
Number one, in the economic conditions that we are in, I wasn't 
able to do that. It wasn't worth my time.
    But they had that information. In fact, one of the major 
changes in that flood map was a realignment, a regrading of the 
Little Blue River, which is the river that would be flooding 
those grounds for the most part. And that was done by the Corps 
of Engineers 10, 12 years ago. The changes the Corps made were 
not reflected in the map, readily available, I would believe.
    Second, there was a Federal road project in that area, and 
during that road project, they took two of the bigger 
bottlenecks out of the flood plain with some bridges and that 
kind of thing that they did. Those significantly changed the 
way that flood plain operated. And that information was readily 
available from the highway department. But they were still not 
included because they simply are not playing team ball. And so, 
those are all very important.
    And the last thing was just the way, when we submitted for 
our Conditional Letter of Map Revision Based on Fill (CLOMR-F), 
we went out--we did it a little differently. Before we 
submitted and before we even did the plan, we invited all of 
the parties to the site, which is about 500 acres, and 
physically wanted to walk the site with them and show that we 
could be good stewards; we could improve wetlands; we could 
stop the flooding; we could enhance the property. And the 
result wasn't what I expected. We, quite frankly, became a 
guinea pig instead of--
    Mr. Pearce. We have undertaken two rewrites of flood plains 
ourselves as an office, and it is much more difficult than it 
should be. You have the facts, they have the facts, but they 
refuse to rewrite it. So, I just want to get your insights on 
that.
    If a builder knows that an area is not being described in 
the flood plain, is he allowed to go in and make the changes 
with his knowledge that it is actually on the flood plain, or 
does the agency stop him from doing that?
    Mr. Woods. The agency stops him from doing that.
    Mr. Pearce. Yes, this is the craziness that is called the 
U.S. Government today.
    Mr. Heidrick, basically, it is my understanding that the 
insurance program, the Flood Insurance Program, was solvent up 
until maybe 10 years ago, just as whatever flood it was before 
Katrina, so it was about a billion in and a billion out. Then 
we had a several billion dollar problem, and then Katrina 
followed up with about a $13 billion problem, and so now we are 
underwater in the program. Is the program basically back to 
being solvent, about the same amount in, same amount out, 
except for these catastrophic events, or is it not even close 
to solvent these days?
    Mr. Heidrick. It is my understanding--excuse me, thank you 
for recognizing me--that the $23 billion in debt really 
represent those two extraordinarily rare catastrophic events, 
which are Katrina and Sandy. Outside of those events, the 
program would be operating just as it was originally designed, 
which is without surplus--instead of surplus, a line of credit 
to the U.S. Treasury where it would borrow during years of need 
and pay back during other years, which--
    Mr. Pearce. Yes. Mr. Ellis, do you know if anyone has done 
extensive studies on the fraud? I know that I was in New 
Orleans maybe a year or 2 years after the bailout and the money 
that was sent down there, and billions of dollars sent, and 
just story after story in the short time I was there about 
people collecting the money and never fixing the houses. Has 
anyone done an extensive study on that to determine the amount 
of fraud in these programs?
    Mr. Ellis. The lead inspector general after Katrina was the 
Department of Homeland Security's Inspector General, and they 
kind of led all the other agencies. And they did a lot of 
investigation into that area. And there has been some 
documentation on that. GAO also did a report on missed payments 
a couple of years ago as well.
    Mr. Pearce. Is it extensive?
    Mr. Ellis. It is present. I think any time you have a 
Federal program, you are going to have some waste, fraud, and 
abuse, unfortunately, which keeps people like me in business. 
And so, I think that is still going to be an issue.
    One other thing, Mr. Pearce, I just want to point out, is 
that we knew these kinds of catastrophic events were going to 
happen. So even if it was on the margins that the program was 
actually solvent, in large scale, we knew that there would be 
some event. We didn't know it would be Katrina, and Rita and 
Wilma in 2005, and we didn't know it was going to be Sandy in 
2012, but we knew something was going to happen to make this 
program insolvent.
    Mr. Pearce. Thank you.
    I yield back, Mr. Chairman.
    Chairman Luetkemeyer. The gentleman's time has expired.
    With that, we go to the gentleman from Missouri, Mr. 
Cleaver, the ranking member of the subcommittee.
    Mr. Cleaver. Thank you, Mr. Chairman.
    And let me preface my questions to the panel by thanking 
you, again, for this hearing. There is a lot of criticism 
thrown at Congress for waiting till the last minute and so 
forth, and the fact that we are starting on this right after 
the New Year, giving us almost a year to do this, I think is 
commendable. So thank you very much.
    I want to find out if any of you on the panel believe that 
Congress should completely eliminate the NFIP? Is there anyone?
    [no response]
    Mr. Cleaver. I am glad. Because we tried that a couple of 
times, and it didn't work, which I understand. Most of the 
private carriers have suggested previously in hearings before 
us, not during this session of Congress, but previously, that 
the private insurers could not diversify their losses, and so 
it made it practically impossible. And if you pay $130 
premiums, if you put all the premiums together, they are not 
sufficient to cover the cost of the damage of a flood.
    So is there anything that you think we could do to further 
encourage private insurers to participate in this program? 
Anyone?
    Mr. Ellis?
    Mr. Ellis. Ranking Member Cleaver, absolutely. Tomorrow, 
you are going to have a hearing on Mr. Ross' bill along with 
Mr. Murphy, that would actually fix, adjust the definition of 
what is or what would represent insurance that met the 
mandatory purchase requirement. There are insurers in other 
States, even after Biggert-Waters was enacted, before the 
subsequent legislation, that we are starting to--in West 
Virginia and in Florida--that wanted to write insurance. So 
there is definitely an appetite and effort there. Some of it is 
just making it easier for that program to develop.
    And then, actually, also, I think that which will also 
bring the private sector in is some of the consumer demand, 
because flood insurance, as was indicated by Mr. Heidrick, is a 
pretty limited product. I mean, you can't insure your 
basements. You have a limited $250,000, plus $100,000 for 
contents. There are other things they can do with the products 
they can make that are going to attract new ratepayers--or new 
policyholders on a product basis.
    Mr. Cleaver. So how many of you would have thought or 
believe the revolving loan fund that actually at one time 
started was the right direction to go? There was a revolving 
loan fund up until, I think, maybe in the 1980s, sometime in 
the 1980s. And eventually the private sector was then--with 
FEMA, and they ended up in some kind of conflict and the both 
sides mutually agreed to discontinue the revolving loan fund.
    Mr. Ellis. My understanding, Ranking Member Cleaver, in the 
1980s, was that also that was when they changed to actually 
having borrowing from the Treasury, and before that, there were 
appropriations that would backfill and dealt with that, and 
they forgave about a billion dollars of debt and then went to 
borrowing from the Treasury. That is my major recollection at 
that time.
    Mr. Cleaver. What would you suggest, any of you, that this 
committee look at in terms of trying to put together the best 
piece of legislation we can when the renewal time is closer to 
us?
    Ms. Templeton-Jones. I would like to also support Mr. 
Ellis' comment about H.R. 2901. I think H.R. 2901 is the first 
very important piece of legislation that would enable the 
private sector to start moving into the marketplace. We are 
starting to see, because of private capital, private markets 
are moving in, slowly but surely. We are seeing them move in 
with some better coverage, many times less expensive premiums. 
But in order to clarify the Biggert-Waters definition of what 
private flood insurance is acceptable, I think it is essential 
that H.R. 2901 be passed as well as we need to eliminate the 
noncompete clause in the program.
    Mr. Cleaver. Thank you.
    Mr. Woods mentioned the 500-year floods. I served as mayor 
for 8 years in Kansas City. We had two 500-year floods in 8 
years.
    And, also, let me just conclude, Mr. Chairman, by saying 
that I think the mapping is a critical issue which has to be 
resolved. Thank you.
    Chairman Luetkemeyer. I thank the gentleman. The time has 
expired.
    With that, we go to the gentleman from Florida, Mr. Ross, 
for 5 minutes.
    Mr. Ross. Thank you, Mr. Chairman.
    And I thank the panel for being here.
    In 1973, it seemed like a good idea that we would carve out 
from an all-perils policy flood insurance. It just seemed like 
the thing to do at the time on behalf of consumers. As we fast 
forward to today, it is somewhat akin to carved-out cardiology 
coverage under a health insurance policy and led to terrible 
results and not to the benefit of the consumer. So trying to 
put these back together, I think, is not necessarily a function 
of the Federal Government, but more a function of those who are 
willing to put at risk their capital to make sure that they can 
not only manage that risk but to do so at the benefit of the 
consumer.
    Mr. Ellis, you talk in your testimony about an all-perils 
policy, that including flood into an all-perils policy may, 
quite frankly, not only engage the consumer into wanting to buy 
flood insurance at a cheaper price because they will have 
limited risk, but, yet, the price of it would be so much 
cheaper that we in fact may cover more people through the 
privatization of flood insurance than putting it into an all-
perils policy. Would you expound on that?
    Mr. Ellis. Absolutely. Right now, there is about--it 
changes, and it has been going down. There are about 5.3 
million national flood insurance policies in the country. To 
put that in perspective, leaving aside multi-unit housing, 
there are about 100 million housing units in this country. So 
we already have an adverse selection and not very many people 
buying flood insurance, and even though FEMA says that a lot of 
their payouts are to people who are outside the mandatory 
purchase requirement area.
    And so if this becomes a product that insurance companies 
can sell to their clients, then all of a sudden, it becomes 
less expensive. More people will be covered. We know these 
floods happen in these areas that are not in the 100-year flood 
plain, as has been indicated. So, actually, we can see an 
expansion in coverage in this country, which is certainly what 
we would like to see happen.
    Mr. Ross. And more sharing or pooling of the risk across?
    Mr. Ellis. Absolutely. We also would like to see a lot of 
that risk removed from the taxpayer onto the private sector 
where it belongs. Absolutely.
    Mr. Ross. Right. In August of 2015, FEMA stated in their 
reinsurance study that, ``Reinsuring a portion of the NFIP's 
insurance risk would be a logical step toward privatization and 
could provide an additional lever in the financial management 
of the NFIP.''
    To your knowledge, has the NFIP or FEMA attempted to 
broaden or cede their exposure to the reinsurance markets?
    Mr. Ellis. I don't know that they have actually gone 
further from that study, and that was--the reinsurance study 
was done by Guy Carpenter, and then that was their opinion on 
top of it. So we would like to see the committee prod FEMA to 
go in that direction and to explore that more.
    Mr. Ross. And if I might, Ms. Templeton-Jones?
    Ms. Templeton-Jones. I would just like to advise you that I 
have been made aware that FEMA has reached out to some 
reinsurers. Reinsurers have met with FEMA. So I do think the 
process is beginning.
    Mr. Ross. Good. And is it your understanding that there is 
capacity in the reinsurance markets to take a significant 
portion of this risk?
    Ms. Templeton-Jones. Yes, there is. Absolutely, there is.
    Mr. Ross. Let's talk, Ms. Templeton-Jones, about the 
process that was alluded to earlier. Let's assume, because I 
have a good friend of mine who is a registered land surveyor, 
site work contractor, back home, who lives in a house on a 
hill, that the base of the hill is in a flood plain; there is 
this structures, but he is 20 feet above. He has all the 
documentation because he can do it himself, but it is not worth 
his time and effort to challenge FEMA about his flood map, and 
so he is buying flood insurance. Do you believe that if you 
were to put capital in the market from private companies, a 
consumer would have a better opportunity, a better due process, 
and a better result if they were able to prove their home was 
no longer in a flood zone?
    Ms. Templeton-Jones. Absolutely. And I would like to take 
that just one step further than that. I think as the private 
market evolves--and, again, I want to clarify that this is 
going to be a long-term process.
    Mr. Ross. It is.
    Ms. Templeton-Jones. It is not going to be something 
overnight. But as the private market evolves, they will utilize 
more and more tools. Modeling will become more efficient. We 
will see better risk-analysis tools to enable that company to 
take that insurance and properly price it better with better 
coverage.
    Mr. Ross. And manage that risk better. In other words, to 
be able to help the consumer mitigate their exposure.
    Mr. Woods, you talked about how you would build a home, the 
site you would build above the flood zone, and you could 
contour the land. For every $1 that we spend in mitigation pre-
events funding, we save $4 in disaster relief. What this big 
parcel is--not getting rid of NFIP. That is not our goal. Our 
goal, as Mr. Ellis pointed out, is to make it residual market. 
We did this in Florida to a great degree as a bad example for 
several years in windstorm, but what we have done is we have 
been able to create a residual market and create a competitive 
market so that consumers can get the best product at the best 
price. That entails the private market.
    Mapping is not an exclusive function of FEMA. If we put 
private capital into the market, I submit to you, you would see 
so much technology come into the game to be able to map not 
only better but more granularly because the capital that is put 
at risk wants to be managed better. Would anybody disagree with 
that?
    [no response]
    Mr. Ross. Thank you.
    My time is up. I yield back.
    Chairman Luetkemeyer. I thank the gentleman. Time has 
expired. With that, we go to another gentleman from Missouri, 
Mr. Clay, for 5 minutes.
    Mr. Clay. Thank you, Mr. Chairman, and I thank you and the 
ranking member for conducting this hearing.
    Mr. Ellis, the question of how to balance the goals of 
affordability and risk-based rates has been a key question for 
Congress in seeking to improve the National Flood Insurance 
Program over the years. Do you believe that these goals are 
fundamentally opposed, or do you believe that there is a way to 
appropriately balance these goals?
    Mr. Ellis. I believe there is a way, and we have to find a 
way, Congressman Clay. What we have said is that right now when 
you have the subsidies that are built into the program, they 
are relatively hidden from the consumer. There isn't an 
explicit knowledge of what the subsidy is, and then also they 
are not means-tested. That means it is basically if you owned 
the house that was before the flood insurance rate map, you get 
the subsidy. And so we think that as rates increase--and we 
think they do need to increase, if there are cases--we need to 
do a means-tested, and we need have very targeted assistance 
that is outside the rate structure. We are open to talking 
about ways to do that. The Wharton Risk Center has talked about 
vouchers. There have been other ways of looking at how to 
address that for that core.
    And then also the other thing is that reducing the rate or 
making people pay less, doesn't reduce their risk at all. It 
doesn't encourage them to reduce their risk at all. And so to 
some extent, one of the things that we have talked about is 
also looking at even prefunding some of that subsidy so that 
people can actually use that to mitigate and reduce their rate 
by reducing their risk. And that way, we are not putting people 
in harm's way, encouraging and subsidizing people to be in 
harm's way, but we are actually helping them out of the flood 
plain.
    Mr. Clay. Thank you for that response. Mr. Woods, an 
example of Missourians rebuilding just recently, is that over 
the holidays, we experienced flooding in and around the St. 
Louis region. One community allowed for the homes to be 
elevated after the last flood. I guess they put some of the 
houses on stilts, I will say.
    Do you think that is smart, as far as allowing them to 
remain there and raise the elevation? This time, they still had 
to evacuate the community because the water rose too high. What 
do you think about them elevating and raising the level of the 
house?
    Mr. Woods. I think that--
    Chairman Luetkemeyer. Your microphone is off, sir.
    Mr. Woods. I'm sorry. I think that there are all kinds of 
economic issues that start to play into this, and elevating may 
be the solution, but there are other solutions to look at. 
Would it have been less expensive, less catastrophic, to have 
moved those houses someplace else, out of the flood plain; and, 
again, where would that be? And what you really get into is 
many of those people are probably close to their jobs. That may 
be the only house they can afford. All kinds of things.
    So it is not an easy question, and I think it is greatly 
driven by just the demographics of the area. But at the same 
time, I think you have to have a comprehensive solution that 
includes the city and the county, and the State, so that we are 
making good decisions based on good science.
    Mr. Clay. Another question: Can you explain why the removal 
of grandfathered and subsidized rates on existing homes is a 
concern to your organization, which represents the interests of 
builders of newly constructed homes?
    Mr. Woods. If you do that--basically for home builders, 
nearly 50 percent of all prospective home buyers are what are 
called move-up buyers, your person with a house on stilts or 
four stilts. Okay? These individuals must be able to sell their 
current home. And if you took away that subsidy or the 
grandfathering of the rates, you are going to devastate the 
price of that home, and they are no longer going to be move-up 
buyers. They will simply be trapped in that residence until the 
rest home. Again, we rely on the ability of homeowners to move 
up, and owners to buy newly constructed homes. Many home 
builders and many homeowners have lost the ability to buy or 
the ability to sell simply because of that rate structure.
    Mr. Clay. Thank you for your response. Mr. Chairman, I 
yield back.
    Chairman Luetkemeyer. The gentleman yields back. And with 
that, we go to the gentleman from Kentucky, Mr. Barr, for 5 
minutes.
    Mr. Barr. Thank you, Mr. Chairman. We will start with Mr. 
Ellis, and the question I have is, can you describe how the 
National Flood Insurance Program discourages private insurance, 
if at all?
    Mr. Ellis. We talked a little bit about Mr. Ross' bill, and 
one of the issues has been what exactly constitutes a private 
policy that would meet the mandatory purchase requirement, and 
his bill would clear that up in allowing the State insurance 
regulators to designate that. But that is just dealing with the 
mandatory purchase requirement. Obviously, there are people who 
do purchase flood insurance that are outside the flood plain. 
And part of it is that if the Federal Government is 
undercutting the rate, it is actually selling at a subsidized 
rate, both because either the rate is explicitly subsidized or 
because they can borrow from the Treasury, then you are really 
undercutting and crowding out the private marketplace. We 
believe that as rates increase, which they have been, that will 
become more competitive and actually allow the private sector 
to step in.
    Mr. Barr. Thank you. For those who are at risk, who are 
presently not mandated to have flood insurance, how do we do a 
better job encouraging those individuals to go ahead and get 
the coverage? Is it the all perils policy? Is it more capacity 
in reinsurance, inviting more reinsurance in there? What is the 
best way to do that?
    Mr. Ellis. Congressman Barr, I think that it is all perils, 
and as the private sector gets more engaged in the flood 
insurance market, and some of that will be because of clearing 
up some of the issues in the hundred year flood plain or the 
Special Flood Hazard Area, then there will be more companies 
writing policies. There will be more experience with writing 
policies, and that should actually attract consumers and 
actually more policyholders. That is certainly what we believe 
and think that will happen.
    Mr. Barr. The reason I ask is in flood-prone areas without 
the mandate to purchase flood insurance, I think the statistic 
is that only 1 percent of those structures are insured. So, 
developing that marketplace is very critical.
    To Mr. Woods, though, my question to you all would be, is 
moving toward actuarially sound rates and risk-based pricing a 
real impediment to real estate transactions? And I would like 
to hear your thoughts on that.
    Mr. Woods. I don't know that it is. I don't have any 
information, and we don't have any policy. We are going to be 
discussing this very thing next week in depth at our meeting. I 
tend to lean on the side of open competition usually. It gets 
you the best answer.
    Mr. Barr. We have seen, in my area in central and eastern 
Kentucky, real problems with the accuracy of the maps. And Mr. 
Woods, I couldn't agree with you more. We have to get to more 
accuracy in maps as part of that process of inviting more 
coverage. Can any of you all elaborate a little bit more on 
some of the issues that the members of your associations have 
had with these maps, and what are some of the ways that we can 
improve the mapping?
    Mr. Heidrick. If I may?
    Mr. Barr. Sure, yes. Go ahead.
    Mr. Heidrick. Thank you, Mr. Barr. As I stated earlier, 
having a more granular view of flood risk is, I think, of 
paramount importance to consumers who live outside of the 
Special Flood Hazard Area. Twenty percent of all flood 
insurance claims occur outside of the Special Flood Hazard 
Area.
    In Columbia, South Carolina, from what I understand about 
792 people had flood insurance policies. These are examples 
where if you had a way to measure risk maybe on a scale of zero 
to 100 for instance, and I know that the NFIP is currently 
working on some way to articulate risk in this way, to help 
customers understand that they are not immune from flooding 
simply because they live on one side of a line or another, we 
would have much more recognition, it would improve the takeup 
rate.
    Mr. Barr. Mr. Ellis?
    Mr. Ellis. Yes. Congressman Barr, also there is a lot of 
mapping that is being done and modeling that is being done by 
the private sector, companies like CoreLogic, that have some of 
this data, and I think it is important--I believe as Mr. 
Heidrick mentioned before--the maps that FEMA does are really a 
snapshot, and they are looking backwards.
    The risk modeling is looking forward, recognizing there are 
changes in development and other patterns, and that can help 
inform consumers more that they have this risk. It is not this 
binary situation where you either have to buy it or you don't 
have to buy it, and if you don't have to buy it, then you think 
you are not at risk, when in reality you are at some risk and 
it could be quite considerable.
    Mr. Barr. Yes, ma'am?
    Ms. Templeton-Jones. I would just like to elaborate one 
piece. I absolutely support flood modeling. I think we are 
seeing it, but I do want to make sure the committee realizes it 
is in its infancy. It is going to get better. Mapping needs to 
be the starting point, and then we need to build upon that with 
the modeling and so forth.
    Mr. Barr. Thank you. I think my time has expired. Thank you 
for your testimony. I yield back.
    Chairman Luetkemeyer. The gentleman's time has expired. We 
now go to the gentleman from Texas. Mr. Green is recognized for 
5 minutes.
    Mr. Green. Thank you, Mr. Chairman. And thank you, Mr. 
Ranking Member. And I thank the witnesses for appearing as 
well. Let's for just a moment look at the markets in terms of 
how they impact affordability, more specifically, the residual 
market juxtaposed to the voluntary market.
    For our purposes, I think it is fair to say that the 
residual market is a market of last resort. The voluntary 
market is a competitive market. And the way we structure the 
residual market is going to have a lot to do with 
affordability. So I would like, Mr. Ellis, to visit with you, 
because I have read your testimony in its entirety, and the 
last paragraph of it where you give your conclusion, I think, 
is quite revealing. You indicate that the Federal Government 
will develop the residual market. How will that market be 
developed such that we will still have competition in the 
voluntary market, and not have the taxpayers assume all of the 
high-risk persons that the voluntary competitive market does 
not find beneficial in the sense of profits and loss, market 
demands?
    And I mention this to you because, as you know, with the 
health insurance we find ourselves with insurance companies 
assuming a lot of clients, if you will, who are not over age 62 
to 65. When you get above that, insurance companies are not 
enthralled with the notion of having you as a client, customer. 
And given that I am above that age, I kind of look into these 
things, as you can well understand. I see you smiling, so you 
understand what I am talking about.
    So what I am interested in is finding out how do we have a 
residual market that will have a positive impact on 
affordability given that the voluntary market is where 
everybody wants to be, and getting insurance companies to go 
residual can be exceedingly difficult?
    Mr. Ellis. Thank you very much, Congressman Green, for the 
question. Part of what we are observing, which was actually 
observed in the reports that came out after Biggert-Waters, the 
FEMA reports that came out, is that the residual market is 
where it is actually going. Unintentionally or intentionally, 
that is what is developing as the rates increase in the flood 
insurance program and as competition is going to come in. And 
so our point has been that it needs to be--and I think you are 
spot on, Congressman--an intentional decision by Congress on 
how to develop that and how to protect those consumers.
    Also, as it becomes a more concentrated market, then it 
becomes something where Congress and the Executive Branch can 
target mitigation to help those people out. So it is not just 
about affordability because we are giving them subsidies or we 
are giving them a cheaper product, but we are actually reducing 
their risk so there becomes an appetite in the private sector 
to write policies for them as well. Because unlike your example 
in health care, and I am not an expert in that area at all, but 
it isn't that there is a 60-year-old house--it's not that 
houses get to being over 60 years--obviously there are houses 
that are 100 years old, but that same characteristic isn't 
analogous. We could actually make that 60-year-old house, at 
least in a risk standpoint, be a 30-year-old house if we do the 
right mitigation tactics.
    Mr. Green. Given that I have about a minute and 18 seconds 
left, permit me to ask this. Help me to flesh it out. Help me 
to understand, and others who are listening at home to 
understand, what you would do specifically to make sure that 
the residual market is affordable for persons who are going to 
live along the Gulf Coast. I am from Texas. I went through 
Katrina, Rita, and those who are on the East Coast where we had 
Sandy, how do they have affordability? Give me some examples of 
how it can be done?
    Mr. Ellis. One of the things that came out of Wharton was 
this idea of vouchers to help people purchase their insurance. 
But I also think, and I know I am kind of going back to this, I 
think we should be trying to mitigate their risk and providing 
them assistance to mitigate their risk to reduce their rate 
rather than just giving them subsidies. But we already have 
certain affordability provisions built into flood insurance 
with the Pre-FIRM structures that have explicitly grandfathered 
and subsidized rates.
    Mr. Green. And by mitigation, you mean cost to replace or 
repair?
    Mr. Ellis. Well, no, not to repair or replace. It could be 
to relocate. But it also could be to elevate or other 
mitigation tactics. I think that what we want to do is reduce 
the risk. It was brought up earlier that for every dollar we 
spend on mitigation, it is $4 less in disaster costs, and we 
think that would be the way to target it.
    Mr. Green. Thank you, Mr. Chairman. I yield back.
    Chairman Luetkemeyer. The gentleman's time has expired. 
With that we go to the gentleman from Pennsylvania. Mr. Rothfus 
is recognized for 5 minutes.
    Mr. Rothfus. Thank you, Mr. Chairman. Mr. Heidrick, in your 
written testimony you assert that ``private insurance industry 
lacks the capability to underwrite flood insurance on a 
pervasive basis to meet customer needs.'' Could you elaborate 
on how you and the Big ``I'' arrived at that assessment?
    Mr. Heidrick. Sure. It is a market that is in its infancy. 
In the United States, there are not a lot of insurers who have 
a lot of expertise. There is a dearth of claim data, and as the 
claim data is lacking. Without having loss experience and the 
ability to price accurately based on that experience, those are 
impediments that will, we believe, the Big ``I'' believes, will 
be overcome over time and modeling will get better over time. 
But as we sit here today, we don't believe that the private 
market is capable of fully replacing the NFIP.
    Mr. Rothfus. Are there reforms outside of the Ross-Murphy 
legislation that the committee should consider to remove 
barriers preventing the private sector from contributing to the 
flood insurance market?
    Mr. Heidrick. I believe there are a number of reforms that 
are already existing that will play out over time, will 
manifest themselves over time. The changes that were made in 
2012 and 2014 were aimed to bring rates up to something that is 
more reflective of a market level. There is actually a flip 
side to that coin as well, though. It also resulted in a number 
of policies, and according to the NFIP, 80 percent of the NFIP 
policies had actuarially correct ratings before those measures 
were put in place.
    So now there are additional surcharges and assessments that 
are outside of the true cost of risk that actually are going to 
give the private market an ability to come in, and they don't 
need to charge those for those costs, so it is going to make 
some risks more attractive to the private market.
    Mr. Rothfus. Ms. Templeton-Jones, Biggert-Waters attempted 
to address the issue of those properties with multiple damage 
claims that have been a serious financial drain for the NFIP. 
Do you believe that FEMA and the NFIP have the tools necessary 
to address high-risk repetitive loss properties?
    Ms. Templeton-Jones. I think Biggert-Waters 2012 was 
absolutely the beginning of heading in the right direction. I 
think the challenge still is the biggest drain on the NFIP, is 
the severe repetitive loss properties, and I believe targeted 
mitigation efforts should be addressed at those properties.
    Mr. Rothfus. Beyond the targeted mitigation efforts, would 
there be other reforms that you might propose?
    Ms. Templeton-Jones. I think targeted mitigation on those 
severe repetitive loss properties is the key on that.
    Mr. Rothfus. Mr. Woods, with the NFIP being $23 billion in 
debt, GAO has classified the program as high-risk, citing 
NFIP's artificially low rates which are insufficient to cover 
obligations and projected losses. I worry, and many of us on 
both sides of the aisle are deeply concerned, that another 
catastrophic event could push the NFIP's debt level above the 
$30 billion mark.
    In your testimony, you write about the importance of 
ensuring that this taxpayer-backed program is financially 
stable so that it can continue to meet the needs of its 
participants. I think we can both agree that the current 
situation is unacceptable to the taxpayer. What are some ways 
that we can improve the financial sustainability of the NFIP 
and reduce taxpayer exposure to significant losses?
    Mr. Woods. Again, I think from what Ms. Templetone-Jones 
said, I think also from the fact that if you got the private 
sector involved and the competition that would take place 
there, and, again, we go back to the mapping. But the reality 
of the mapping is there are many things, and I happen to think 
if we were all on the same side--the insurance company wanted 
to sell insurance. The home builder and developer wanted to 
develop ground--that we would work together to find a solution 
that gave each of us the best chance of success. That is not 
happening today in the system.
    We are spending all of our money on people who are almost 
guaranteed--well, we are not spending all of our money there, 
but we are really spending the money on people who are 
guaranteed to have a flood. We have insured property, and if 
the ones we are insuring are pretty well guaranteed to have the 
loss, that is fine, but I think you could do these other things 
that would help us all in the free enterprise system. They 
won't do it in one afternoon, and unfortunately we might get 
that disaster in one afternoon. But the reality is that over a 
period of time, I believe they could.
    Mr. Rothfus. There remains a concern with affordability in 
my district in Western Pennsylvania. Mr. Ellis, you touched on 
affordability. Can you elaborate on some of your ideas on how 
NFIP can address this affordability issue?
    Mr. Ellis. Congressman, as the rates increase, and one of 
the issues we talked about and I mentioned earlier was the 
Wharton study looking at vouchers and sort of something outside 
the rate structure. Our biggest thing is making sure that 
people know their risk by knowing their actual rate, and then 
whatever we do as a country to help those people purchase 
insurance, that it be outside the rate structure so that they 
can actually inform them of their risk and then help them 
mitigate that.
    Mr. Rothfus. Mr. Heidrick or Ms. Templeton-Jones, do you 
have any thoughts? I guess I am over my time. I yield back. 
Thank you, Mr. Chairman.
    Chairman Luetkemeyer. Darn that clock, right? The 
gentleman's time has expired. With that, we go to the 
gentlelady from Wisconsin, Ms. Moore, for 5 minutes.
    Ms. Moore. Thank you so much, Mr. Chairman, and let me join 
the chairman and the ranking member in thanking and welcoming 
this distinguished panel.
    It is hard to know who to ask questions of because all of 
your testimony has been very compelling. But I want to ask a 
question, and I want to prioritize getting answers from Mr. 
Ellis, Mr. Woods, and Mr. Heidrick.
    And I just want to reference the fact that Ms. Templeton-
Jones, in your testimony you talked about the number of 
insurers that are just leaving the program because of the 
lapses and so on. So with that in mind, my question relates to 
a provision that I was able to get into the Biggert-Waters 
legislation, just a simple study of community-based insurance, 
and I was just wondering how some of the challenges, I believe 
it was Mr. Ellis, you mentioned, you laid it out very clearly, 
the debt, adverse selection, subsidies, the accuracy or lack 
thereof of the mapping.
    How would a community-based flood program fit in with some 
of the solutions that you all have suggested, giving incentives 
for cities and States to do mitigation, really bringing more 
re-insurance and money and private sector dollars into a 
program, maybe mitigating the adverse selection by having a 
community-wide effort? I'm just wondering what your thoughts 
were on that?
    Mr. Ellis. Thank you, Congresswoman Moore. So, that study 
did result in a National Academy of Sciences report that came 
out recently. Separately, there was also one done by Resources 
for the Future that was very interesting. I think the challenge 
is that in 1968, we went with an individual policyholder 
perspective, and having it house by house. You can see in 
certain ways that maybe even layering it on--you think about 
the fact that people will have lower homeowners' insurance 
rates if the community puts in fire hydrants and such a regular 
pattern. And so, there are certainly things that a community 
insurance could try to overall reduce the individual homeowners 
rates in that perspective.
    And then also, that was part of what I think that when they 
created the community rating system and required communities to 
actually opt into the flood insurance program, agree to operate 
under certain restrictions, and then also gave them benefit to 
their homeowners if they actually did community-wide mitigation 
measures or whatever, that actually is trying to replicate 
that, but I would recommend the Resources for the Future 
analysis on that.
    Ms. Moore. Okay. Mr. Heidrick?
    Mr. Heidrick. Thank you, Ms. Moore. The Big ``I'' doesn't 
have a formal position on community-based insurance in general. 
It is an organization that supports choice for consumers to 
make their own decisions based on their own individual risk, 
and of course as we discussed earlier, there is gradation of 
risk. There are some people who are at more risk than others 
when it comes to flood insurance. So we think that those are 
factors that would have to weigh into a proposal.
    Ms. Moore. Mr. Woods?
    Mr. Woods. This is a very technical place. I think there 
are, with the community's involvement, ways to allow people to 
have a choice, and I think that choice is always important, but 
I think it does take the involvement of many of us, the 
insurers, as well as the communities, as well as the builders, 
and remodelers, and the homeowners.
    Ms. Moore. You don't think this would help with the cost, 
some of the challenges that were mentioned, to have a 
community-wide plan? If I don't particularly live in a flood 
plain, but I find myself paying 15 cents per thousand dollars 
of value on my property for a community plan where maybe 
somebody else pays more because they actually live in a flood 
plain, just say, New Orleans if I am in the Garden District, 
but I pay a very small premium to sort of mitigate, as a 
community plan, you can't see a place for that?
    Mr. Woods. I guess I would say, yes, there is possibly a 
place for that, and that kind of falls to that answer I had 
about being able to control my own piece of property, but I 
can't do it without the community working with the others, so I 
think it is the same thing.
    I would also offer that we are already paying those rates. 
We are paying them in our taxes to the United States 
Government, and we are paying them in our taxes to the 
communities right now, because when it happens, we step up. 
That is what we do in the United States. And when we step up, 
we are spending that money.
    Ms. Moore. Thank you. I yield back.
    Chairman Luetkemeyer. The gentlelady's time has expired. 
With that, the gentleman from California, Mr. Royce, is 
recognized for 5 minutes.
    Mr. Royce. Thank you, Mr. Chairman. I just would build on a 
conversation that Mr. Clay had, and this was, Mr. Ellis, in 
your testimony you said that masking subsidies with lower rates 
prevents policyholders from understanding their true level of 
risk. Is my understanding correct that under the current 
program, policyholders just see the premium payment that they 
need to make. Right?
    Mr. Ellis. That is my understanding, yes.
    Mr. Royce. That is what they can see. How difficult would 
it be to break out the subsidy? How difficult would it be to 
make transparent the amount that the government or that the 
other taxpayers are covering on behalf of the homeowner?
    Mr. Ellis. One of the challenges would be for many of the 
policies that get the grandfathered or the subsidized rate, the 
preflood insurance rate map policies, they don't actually know 
the elevation of the actual policy, and so then there are some 
of the challenges in dealing with that. But I think that is 
something that would be worth doing, especially considering as 
we recommended that anything going forward as we are trying to 
do affordability issues, that the subsidy or whatever, the 
support be means-tested and be tested outside the rate 
structure. And so I think it would be a valuable effort, 
Congressman Royce.
    Mr. Royce. It seems to me that if you can capture the 
information, that the increased transparency there would have a 
positive impact on future decision-making because it would 
probably decrease moral hazard. It would increase mitigation 
efforts, perhaps, but letting the policyholder understand that 
up front would be helpful.
    My other point was that the Flood Insurance Program Act of 
2012 attempted to address the issue of repetitive loss 
priorities, and this is where multiple claims have been made on 
the same property. So the GAO found that while these properties 
amount to 1 percent of policies, they account for 40 percent of 
all of the program claim losses. Do you think that 2012 reform 
bill gave the NFIP the tools necessary to address high-risk, 
repetitive loss properties, and what else could be done there?
    Mr. Ellis. Sure, Congressman Royce. Certainly in Biggert-
Waters 2012, they had the provision there about increasing 
rates for severe repetitive loss properties. That did not get 
changed in the subsequent legislation, so that is still going 
on, and so we think that is a positive step.
    But I think that also looking at some of the programs that 
FEMA already has to actually, they have the ICC program which 
is like a $30,000 cap and you could possibly increase that cap 
in trying to help people elevate or mitigate or relocate. And 
so I think there are things we should be targeting our 
resources because as you pointed out, Congressman, it is such a 
drain on the program that those are the most likely, the most 
beneficial, the best investment to try to mitigate or relocate 
them out of the flood plain.
    Mr. Royce. And I think if people understand the risks they 
were taking or the likelihood, and if all of that data--well, 
let's hear some of the other perspectives on that issue, if I 
could just open it up.
    Ms. Templeton-Jones. I agree. I think we need to indicate 
what the actual rate is. We need to be actual rated policies. 
The challenge is, like Mr. Ellis has said, unless we have the 
elevation certificate, and not all properties, your PreFIRM 
properties, your older structures, your properties that are in 
the B, C, and X zones, which again we need to remember that 25 
percent of all claims come out of your low- to moderate-risk 
properties, the B, C, and X areas, we don't have elevation 
data. Without that elevation data, we can get an idea, and come 
April 2016, FEMA is implementing clear, concise information to 
the policyholder; but again not having the elevation, is an 
impediment.
    Mr. Royce. But it is not that many claims, there are not 
that many areas that we are discussing in the general scheme of 
things. How difficult would it be to try to obtain that 
information?
    Mr. Heidrick. Mr. Royce, today it is house by house by 
house, and it requires a surveyor to go out, and the cost of 
that work is--it ranges by State, but somewhere between $200 
and $1,000 per house. There probably are more efficient ways 
that it can be done--
    Mr. Royce. There must be. Is there any way, with GPS or 
something, that would be cheaper in today's world?
    Mr. Heidrick. There is a technology referred to as LIDAR 
which actually could be used, and I believe that the State of 
North Carolina has used LIDAR extensively in generating their 
own maps. North Carolina is a little bit different because 
North Carolina actually takes the lead on developing their 
flood maps.
    Mr. Royce. Yes. We should probably ask the GAO to see if we 
can find a very inexpensive way in order to create a template 
here where we can get access to that information, and share it 
with the policyholders as well so that they understand in terms 
of the elevation, if you are in a flood plain. Anyway, my time 
has expired. Thank you very much.
    Chairman Luetkemeyer. The gentleman's time has expired. We 
have a few additional questions that we would like to ask. A 
few Members are still here. We will begin our second round with 
the ranking member, Mr. Cleaver from Missouri. He is recognized 
for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman. I want to direct this 
to Mr. Wood, but when we had the flood of 1993, one of the 
farmers famously said that to determine the 100-year flood 
mark, you put 99 white marbles in a jar, put in one blue 
marble, and shake it. And every time you pull the blue marble 
is the percentage of chances of having a 100-year flood. But 
you keep putting it back every time and shaking it again, so 
there is some unpredictability no matter what we do, but I 
think we ought to be intelligent about it.
    Most people who are not familiar with Kansas City probably 
can't understand this, that in 1977 in the Country Club Plaza, 
the world's first shopping center, 25 people drowned in the 
middle of Kansas City, Missouri. I am not sure--I think we have 
fixed that with Brush Creek, as you know this, Mr. Wood. But I 
am pointing out, I think, to the best of our ability to also 
follow up with Mr. Royce, we have to use the highest level of 
technology possible and do this remapping.
    But I am also concerned, and I would like to ask you, Mr. 
Wood, we have incurred a lot of debt. The NFIP has incurred a 
lot of debt over the past few years with all of the recent 
events. And then the opponents are always saying that the 
reason that the debt is so high is because of the subsidized 
policies in these exotic areas, these environmentally sensitive 
areas. Do you think that we ought to deal with trying to force 
people out of environmentally sensitive areas, the exotic 
places, building the house at the foot of a hill where you have 
annual mudslides, or do you think that we ought to just realize 
that is the way things are and try to build that into whatever 
program we put together?
    Mr. Woods. I will put it in the perspective, I guess, of 
the home builder, and talk about it from a new-construction 
perspective. That is the one I probably know the most about.
    First, I don't believe that new construction within the 
flood plains is the reason why the NFIP is experiencing a 
shortfall in funding. It is quite the opposite. First, in order 
for a builder to construct a new home within a flood plain, the 
builder must ensure that the structure is compliant with all 
building standards within the flood plain. Second, all new 
homes, when purchased using a federally-regulated mortgage, are 
required under Federal law to obtain flood insurance under the 
NFIP. And third, as FEMA has already publicly acknowledged 
several times, new construction always pays a full-risk rate 
for that insurance, meaning newly constructed homes within the 
flood plains do not received subsidized insurance.
    Additionally, NAHB has been told that in commonly flooded 
areas, new construction that is built today with current 
building codes routinely outperforms the existing housing stock 
that is there. So I think it is a process and the decisions 
need to be made based upon, again, we beat it to death, but the 
correct flood maps and the correct flow designs. And I would 
point out one other thing that I might add to it that goes back 
to our conversation, the elevation of a home, at least with new 
construction, is a very simple thing to gather. And that is a 
fact that we have to put that elevation on our building permit 
at the city, so a whole subdivision--and that is where most of 
the construction goes on--you could have those elevations 
immediately. They are part of the public record.
    Mr. Cleaver. Thank you.
    Chairman Luetkemeyer. The gentleman yields back. With that, 
we go to the gentleman from New Mexico, Mr. Pearce. He is 
recognized for 5 minutes.
    Mr. Pearce. Thank you, Mr. Chairman. Mr. Ellis, you 
mentioned here that 5.4 percent of the houses in the country 
have flood insurance. Have you broken that down also for the 
number of people in high-risk areas? Is that equally 5.4 
percent?
    Mr. Ellis. I have not, Congressman. Basically, that number 
is realized by looking at the census data of how many housing 
units are in the country and then how many--
    Mr. Pearce. Would your guess be that it is a similar 
amount, that 5.4 percent in the high-risk areas have flood 
insurance, or do you think there are a little bit more?
    Mr. Ellis. There is a problem with the fact that there are 
properties in the mandatory purchases in the Special Flood 
Hazard Area that are not purchasing flood insurance, and GAO 
has done some analysis of that.
    Mr. Pearce. Mr. Heidrick, we get 9 inches of rain a year in 
New Mexico, in my district. Do we pay a higher insurance 
premium because of the events on the coastal areas?
    Mr. Heidrick. Thank you, Congressman, no. The flood 
insurance rates are set by flood zone. An ``A'' zone is an 
``A'' zone regardless of what State it is in. So if you are in 
a preferred-risk area, regardless of what State you are in, 
that is the rate you are going to pay.
    Mr. Pearce. If I could interrupt, several years ago we were 
paying hundred-year flood rates. Now, we are up to thousand-
year flood rates. Doesn't that stick us with a higher premium? 
People would be more apt to have to pay flood insurance when we 
define it as a thousand year to get into the program, isn't 
that correct? That definition has not changed.
    Mr. Heidrick. The mandatory purchase requirement is only to 
a 1 percent chance or greater of flooding. If your chance of 
flooding is less than 1 percent in any given year, then there 
is no mandatory purchase requirement. Did I understand your 
question correctly?
    Mr. Pearce. That doesn't gel with what banks and real 
estate people in New Mexico tell me. They tell me that 
previously they did not have to buy flood insurance, and after 
the great losses in Sandy and Katrina, they are having to buy 
flood insurance. And they said it is because of the 
redefinition of who has to buy flood insurance, who is required 
or encouraged to buy flood insurance. I will sort through that.
    Ms. Templeton-Jones, are there areas that we absolutely 
should not rebuild in after they have been flooded and 
destroyed once or twice or 10 times, or should we have such a 
definition?
    Ms. Templeton-Jones. I think we need to mitigate losses. We 
need to take a property, if it is subject to having been 
flooded more than once or twice, the cost of that is to 
mitigate the property, raise the property, move the property 
outside of it. I think we need to also recognize that it is not 
just people who are wealthy who are living on the coast or at 
the bottom of this hill who will have these big, huge wonderful 
houses. Many times it is people who are just--I am originally 
from New Orleans. Granted, in New Orleans, Katrina was a huge 
disaster. But the vast majority of people are not wealthy 
people. These people live there because it is a major port. 
People have to live near where they work. So we have to find a 
way to protect these individuals, help them mitigate their 
properties, raise them, move them to a safer ground so that 
they don't experience the losses.
    Mr. Pearce. Would you go so far as to say that when it is 
within people's capability, or when a city has been told that 
they should mitigate and they don't mitigate, that they won't 
be covered under the program? Is that too extreme, that you 
would be somewhat responsible for your own actions?
    Ms. Templeton-Jones. I have my own personal opinions, but 
at the end of the day, people have to have a place to live.
    Mr. Pearce. I understand that, but there is no national 
tornado program. In other words, we don't have floods in New 
Mexico. We have tornados, and there is no national program to 
help us rebuild. We have forest fires that are created by 
whatever reasons, and there is no national program to help us 
rebuild from the forest fires. So where is the moral 
responsibility to people like us? We have to pay a higher 
program, and with all respect, Mr. Heidrick, I believe that we 
do pay higher rates. We pay rates because of people out there 
who suffer the problem, but they don't pay rates higher to help 
us suffer from our problems, so where is the moral component of 
that? If you would like to address that, or if you don't, it is 
okay, Ms. Templeton-Jones.
    Ms. Templeton-Jones. I think, and I have to agree with Mr. 
Heidrick, the rates are the rates across-the-board, and we see 
this every day. If you are in A zone, you pay A zone rates. If 
you are in a V zone or an X zone, you pay V or X zone rates. As 
far as the, there are some ``gotchas'' in it. If you don't have 
flood insurance and you experience a loss and you receive 
Federal funding, you have to carry flood insurance from that 
point forward. But I think we need to also recognize the fact 
that it floods everywhere. It is not just a coastal situation. 
Where it rains, it can flood. And unfortunately, people who 
experience flooding in coastal areas recognize it and do have a 
better uptake on the flood insurance policies. But it is areas 
that don't experience the floods often and we don't see the 
amount of flood insurance available.
    Mr. Pearce. We will leave the moral question hanging for 
another time. Thank you, Mr. Chairman. I yield back.
    Chairman Luetkemeyer. The gentleman's time has expired. I 
just want to kind of wrap it up. I have a question or two here 
myself. One of the things that was brought up was with regard 
to the debt of the NFIP. The gentleman from New Mexico makes a 
great point here about the different tragedies and catastrophes 
that we go through as a country.
    Mr. Ellis, I am curious about your position on the debt 
that the NFIP has accumulated. Is that something that we 
should--whenever we did Hurricane Sandy, we found other monies 
in the budget and paid for it by doing that rather than 
extending the debt. Some of it is still there. And I guess the 
question becomes, actuarially, do you figure in those extreme 
events, or do you actuarially figure in the normal things that 
happen, like in my area here it just happened this last couple 
of weeks? What would your opinion be on that.
    Mr. Ellis. A couple of things, Mr. Chairman. So it is true 
that the debt was largely driven by the storms of 2005 and then 
by Sandy. One of the things, and just kind of getting to the 
point about people paying full-risk rates and not the subsidy, 
I would argue that the fact that the program can carry a $23 
billion debt and still operate is a subsidy inherently. 
Subsidies are inherently baked into the program because no 
private sector, there is no profit that needs to be taken. You 
can operate with a $23 billion debt. And so I think that is 
actually already built into the program.
    As far as the debt, it is pretty clear that it is very 
unlikely that it will ever be repaid under the program. They 
repaid a billion dollars 2 years ago. They hadn't repaid 
anything over several years. It is very unlikely that it is 
going to be repaid. But it does concentrate the minds of 
lawmakers and of the public about some of the challenges in 
this program and the need to reform it. So certainly we see 
that as an important symbol for actually continuing to reform 
and improve the program.
    Chairman Luetkemeyer. My second question, I guess, is, do 
you believe that we need to structure the program actuarially 
for the average losses per year, which are several billion 
dollars, versus the catastrophe that happens once every 10 
years?
    Mr. Ellis. The way that FEMA had set rates before was that 
they looked at the average historical loss year over the 
previous decade, throwing out the highest loss and the lowest 
loss. You have to discount it, but you have to take into 
account these extremely large events, because we already know 
they can occur and they do occur. If you look at 2005 and the 
number of named hurricanes, we got into the Greek alphabet. We 
ran out of names. Clearly these are issues--and then there were 
a lot of people who said, well, that was a one-off. That was 
Katrina and it was a one year, but then not even a decade 
later, you had Sandy, which not only increased the borrowing 
authority for the Flood Insurance Program by $10 billion; it 
also required a $50 billion outlay from the Federal Government 
on dealing with that issue.
    So I think you have to, Mr. Chairman, take that into 
account when you are setting the actuarial rates that there are 
these black swan events, there are these fat tail losses, but 
you have to discount it appropriately, and that is what 
actuaries are all about.
    Chairman Luetkemeyer. I guess the question becomes then, do 
you believe that when you structure the program, you need to 
structure in a governmental component as a reinsurance as a 
backstop on this? Because it appears that historically when 
these things occur, the government is going to be there as a 
backstop. Do you believe that should continue and, if not, how 
to do that?
    Mr. Ellis. We have testified before this committee in the 
past, and have been opposed to creating a national catastrophe 
reinsurance fund. We don't think that is necessary. There is a 
vibrant, very well-functioning reinsurance market. We can lay 
off debt on the worldwide marketplace, and so we don't think 
that is necessarily the route. Obviously, Uncle Sam is serving 
as a lender for this program to keep it afloat while it is 
underwater. We want to see further reforms in the program. We 
want to see more of the risk laid off on to the private sector 
through the primary insurers and reinsurers and deal with that 
issue that way, rather than creating some sort of Federal 
reinsurance.
    Chairman Luetkemeyer. Mr. Heidrick, what do you believe? 
What do you think about that? Can you actuarially make this 
thing work and have the private sector take all the risk on all 
the properties, just what Mr. Ellis is advocating?
    Mr. Heidrick. I wouldn't have the expertise to say that 
they could take on all the risk, but what I can say is, and as 
we have proposed, that there is room for the private market to 
participate in this and to develop the expertise and to take on 
more and more risk over time in many markets, even auto 
insurance. States have residual markets, and that is a normal 
part of the insurance industry. I couldn't tell you whether or 
not I think the NFIP should become a residual market. It all 
depends on what the ultimate design would be. In terms of the 
debt, one of the things to keep in mind is, yes, the program is 
$23 billion in debt to the U.S. Treasury, but it has paid out 
over $50 billion in claims over its lifetime, so that is about 
$27 billion that otherwise would have been paid through 
disaster assistance that was actually paid by policyholders 
through premiums.
    Chairman Luetkemeyer. Very good. Well, my time has expired, 
and I think we have had a great discussion this afternoon. Our 
intention is to, with our discussion yesterday or last week 
with regards to mapping, begin the discussion of how we get the 
basics down and get the maps correct so we can begin to have 
some intelligent discussion about the rest of the program.
    Today we want to discuss the important strengths and 
weaknesses of the NFIP, alternatives to the NFIP, if there are 
some, improvements to NFIP, whatever we can make, and I think 
mitigation is an important part of this. There is some action 
along that road. I can tell you from personal experience with 
this last flood we had in Missouri this last 2, 3 weeks--we had 
a historic flood back in 1993 along the Missouri River. A lot 
of the properties were mitigated. In fact, entire small towns 
were bought out and moved up on top of the ridges away from the 
lowlands. Levees were built up and improved and reinforced. As 
a result of that, even though we had a historic flood along the 
Missouri, on my half of the Missouri anyway, this past couple 
of weeks, the damage was not as great as it would have been. It 
actually worked. Mitigation worked. So I think there are a lot 
of things we need to talk about, anddiscuss along those lines.
    We talked today a little bit about the affordability, of 
people being able to afford the rates, as well as the take-up 
rate, how you balance those things. And then we looked at the 
debt a minute ago. How do we look at the debt that we incur? Do 
we need to have a government component of this? Can we do it 
without the government component? Where do we need to go? All 
of these things are things that over the next several months, 
we want to ferret out. I want to try and get your input.
    I know we have a lot of folks in the audience who are very 
interested in this. We want to continue to have a dialogue with 
all of you as we go through the process of trying to find a way 
to improve the situation. And the testimony is pretty general 
in agreement that at some point, part of it, if not all of it, 
will transition into the private market. So if that is the 
case, how do we facilitate that and not hinder it? So we have a 
lot of work to do and a lot of things to discuss.
    We certainly appreciate all of the witnesses today. You did 
a great job. We appreciate all of what you did.
    Without objection, I would like to submit the following 
statements for the record: the National Association of 
REALTORS; the National Association of Professional Insurance 
Agents; the National Multifamily Housing Council and the 
National Apartment Association; and the American Insurance 
Association.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    The hearing is adjourned.
    [Whereupon, at 11:52 a.m., the hearing was adjourned.]

                            A P P E N D I X

                            January 12, 2016
                            
                            
                            
                            
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