[Senate Hearing 112-698]
[From the U.S. Government Publishing Office]
S. Hrg. 112-698
THE NATIONAL FLOOD INSURANCE PROGRAM: THE NEED FOR LONG-TERM
REAUTHORIZATION AND REFORM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
ECONOMIC POLICY
of the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
ON
EXAMINING THE NEED FOR LONG-TERM REAUTHORIZATION AND REFORM OF THE
NATIONAL FLOOD INSURANCE PROGRAM
__________
MAY 9, 2012
__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
TIM JOHNSON, South Dakota, Chairman
JACK REED, Rhode Island RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii JIM DeMINT, South Carolina
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia MARK KIRK, Illinois
JEFF MERKLEY, Oregon JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina
Dwight Fettig, Staff Director
William D. Duhnke, Republican Staff Director
Dawn Ratliff, Chief Clerk
Riker Vermilye, Hearing Clek
Shelvin Simmons, IT Director
Jim Crowell, Editor
______
Subcommittee on Economic Policy
JON TESTER, Montana, Chairman
DAVID VITTER, Louisiana, Ranking Republican Member
MARK R. WARNER, Virginia ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina MIKE JOHANNS, Nebraska
TIM JOHNSON, South Dakota
Alison O'Donnell, Subcommittee Staff Director
Beth Cooper, Professional Staff Member
Travis Johnson, Republican Subcommittee Staff Director
(ii)
C O N T E N T S
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WEDNESDAY, MAY 9, 2012
Page
Opening statement of Chairman Tester............................. 1
Opening statements, comments, or prepared statements of:
Senator Vitter............................................... 11
WITNESSES
Todd Klietz, Missoula County Floodplain Administrator, Missoula,
Montana........................................................ 3
Prepared statement........................................... 25
Dwayne Bourgeois, Executive Director, North Lafourche
Conservation, Levee, and Drainage District, Raceland, Louisiana 5
Prepared statement........................................... 26
David A. Sampson, President and Chief Executive Officer, Property
and Casualty Insurers Association of America................... 12
Prepared statement........................................... 63
Jon Jensen, Government Affairs Committee Chairman, Independent
Insurance Agents and Brokers of America, and President, Correll
Insurance Group................................................ 13
Prepared statement........................................... 65
Moe Veissi, 2012 President, National Association of Realtors..... 15
Prepared statement........................................... 68
Sarah Murdock, Senior Policy Advisor, The Nature Conservancy..... 17
Prepared statement........................................... 75
Additional Material Supplied for the Record
Prepared statement of the American Insurance Association......... 80
Prepared statement of the Mortgage Bankers Association........... 83
Prepared statement of the National Association of Mutual
Insurance Companies............................................ 87
Prepared statement of the American Bankers Association and the
American Bankers Insurance Association......................... 91
Prepared statement of the Council of Insurance Agents and Brokers 95
Prepared statement of R.J. Lehmann, Deputy Director, Center on
Finance, Insurance, and Real Estate, The Heartland Institute... 97
Letter submitted by Bill Cheney, President and Chief Executive
Officer, Credit Union National Association..................... 104
Letter submitted by James W. Tobin III, Senior Vice President and
Chief Lobbyist, National Association of Home Builders.......... 106
Letter submitted by Franklin W. Nutter, President, Reinsurance
Association of America......................................... 107
Letter submitted by SmarterSafer................................. 109
Letter submitted by James Bradley, Senior Director of Government
Relations, American Rivers..................................... 111
FIRM map and notice submitted for the record..................... 113
(iii)
THE NATIONAL FLOOD INSURANCE PROGRAM: THE NEED FOR LONG-TERM
REAUTHORIZATION AND REFORM
----------
WEDNESDAY, MAY 9, 2012
U.S. Senate,
Subcommittee on Economic Policy,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Subcommittee met at 10:04 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Jon Tester, Chairman of the
Subcommittee, presiding.
OPENING STATEMENT OF CHAIRMAN JON TESTER
Chairman Tester. I want to welcome everyone, and I call to
order this hearing of the Economic Policy Subcommittee titled
``The National Flood Insurance Program: The Need for Long-Term
Reauthorization and Reform.'' Oh, how we long for the day.
I look forward to hearing from our witnesses this morning
about the importance of long-term reauthorization and reform of
the National Flood Insurance Program, which is vitally
important to Montana homeowners and communities. Given the
fast-approaching May 31st expiration of the Flood Insurance
Program, the need to reauthorize and reform this program is
imperative. Without an extension, in a matter of weeks
policyholders and insurers will be in limbo; realtors and
homeowners will be forced to put closings on hold contingent on
reauthorization of this program.
We have been down this road before and have seen how
unproductive and destructive lapses of this program can be. The
unprecedented flooding in the Mississippi River basin last year
further drove home the necessity of passing a long-term
reauthorization that offers Americans and Montanans certainty
in the face of risk.
Senator Vitter and I have been working together on this
issue for quite some time now. He has been a great partner and
dogged in his efforts to ensure that the NFIP program does not
continue to suffer from the same lapses that we saw in 2010. I
appreciate his sponsorship of S. 2344, a short-term extension
of the program through the end of this year, which I joined as
a cosponsor to ensure that we do not fall into a lapse on June
1 and that we can continue our work on a long-term
reauthorization bill.
Teaming up on recommendations to improve the Senate Banking
Committee draft, Senator Vitter and I worked with the Committee
to incorporate critical provisions in the final bill. These
provisions include a requirement that the Army Corps and FEMA
work together to develop common standards that would allow
existing Corps certification activities to meet FEMA levee
certification criteria and a lengthening of the phase-in period
for homeowners who must purchase flood insurance as a result of
being mapped into a floodplain.
Unfortunately, too many Montana communities have
experienced what happens when FEMA and the Army Corps do not
work together. I am especially pleased to hear from Todd Klietz
this morning, who will discuss his experience in Missoula with
levee certification. In addition to these important provisions,
the flood insurance bill also makes a number of important
reforms to put the program on a more sound financial footing to
protect taxpayers and to ensure long-term solvency of the
program.
The bottom line is that we need a long-term reauthorization
and reform bill and we need it now. The House and the Senate
have never produced long-term reauthorization bills as closely
aligned as the two that we have before us today. I am also not
sure whether we have had the same strong, broad, industry-wide
support that we have now, evidenced by our witnesses here
today, and the efforts of the Flood the Hill Coalition, and I
want to thank everybody who has been a part of that and will be
a part of that.
And while we cannot take our focus away from passing a
long-term reauthorization and reform bill, it is also clear
that we will need a short-term extension in order to continue
our work in getting the long-term reauthorization reform bill
across the finish line.
I look forward to hearing from all of our witnesses about
the importance of this program and protecting communities from
national disasters and protecting taxpayers.
Senator Vitter is not here yet, so I think we will go right
straight to the panel. When he shows up, we will get his
testimony when appropriate.
So I would like to welcome our witnesses, two folks who
have spent quite a bit of time in the field, and I want to
thank them for their willingness to testify this morning. We
will start with Mr. Klietz, a Montana floodplain administrator
for the city of Missoula and Missoula County, a role that he
has served in since 2003. He is also a past chairman of the
Association of Montana Floodplain Managers. He is a certified
floodplain manager and also previously served as a floodplain
administrator for Ravalli County, a bit south of Missoula. I
want to welcome you, Mr. Klietz.
We also have with us--and my French is not exceptionally
good today, but I will do my best--Mr. Dwayne Bourgeois,
executive director of the North Lafourche Conservation, Levee,
and Drainage District, a role that he has served in since 2010.
Mr. Bourgeois has significant experience in the area of
emergency preparedness, developing new ways for employers and
employees to communicate in the event of an emergency
evacuation through his work developing Rally Point. Welcome,
Mr. Bourgeois.
Each of our witnesses will have 5 minutes for oral
statements, and your entire written testimony will be a part of
the record. Mr. Klietz, I would like you to start.
STATEMENT OF TODD KLIETZ, MISSOULA COUNTY FLOODPLAIN
ADMINISTRATOR, MISSOULA, MONTANA
Mr. Klietz. Thank you, Senator. On behalf of Missoula
County, Montana, and the Association of Montana Floodplain
Managers, I am honored to appear before you today to provide
comment on the reauthorization of the National Flood Insurance
Program. I respectfully urge this Committee to ensure that
long-term reauthorization of the NFIP is enacted prior to May
31st.
Over the past several years, I have witnessed the results
that delayed and uncertain congressional action on
reauthorization has caused within my community and my State.
Property values, already having fallen due to the economy, fall
further in the floodplain due to buyers' uncertainty that
Congress will provide homeowners with long-term flood insurance
coverage. Real estate transactions have been delayed, and some
have completely fallen through.
Homeowners, many of whom already must sell their property
at a loss, are forced to reduce their sales prices further. The
small pool of local insurers that are willing to process flood
insurance policies dwindles further as they become increasingly
frustrated with the ever changing uncertainty the last several
years of delayed short-term reauthorizations have caused.
Floodplain citizens need to know that you have their back by
reauthorizing the National Flood Insurance Program for the long
term.
This is not to say that we support reauthorization of the
exact same Flood Insurance Program that has contributed
significantly to our national debt. From my perspective, reform
is correctly focused on the insurance side as the requirements
for floodplain development within NFIP communities do work.
Simply tour a participating community post-flood to see those
results. My own community just experienced a 10-year flood last
spring. Older homes built before FEMA mapping were destroyed
while the newer homes right next door suffered virtually no
damages.
The commonsense reforms, including those that the Montana
delegation and this Committee have put forward, must be
included in the long-term reauthorization. The American
taxpayer is increasingly unwilling to provide financial support
for those who have time and time again received handouts post-
flood who then do absolutely nothing to prevent future damages
as they know Uncle Sam will be there check in hand to quite
literally bail them out again. Many repetitive loss property
owners within my community received FEMA checks last year. None
have voluntarily chosen to mitigate their homes.
Gone, too, are the days that the taxpayer will support
those who knowingly choose to live in areas and in homes with
severe flood risk. So we thank you for moving the NFIP away
from overwhelmingly tax-subsidized premiums toward actuarially
rated policies. I also want to thank you for your commitment to
fund ongoing mapping so that communities in rural States like
Montana will eventually be provided with detailed floodplain
maps allowing our citizens to build homes constructed through
means that minimize flood loss.
I further appreciate the efforts that are being made
regarding levees. Although the issuance of new FEMA floodplain
maps for my community has been on hold for several years due to
inconsistencies with how FEMA is mapping properties behind them
and behind levee-like structures such as railroad beds, roads,
and even interstate highways, my community was fortunate that
the Army Corps of Engineers certified their levees. This makes
sense as the Corps designed, built, and inspects them on a
regular basis. My community's experience with the Seattle
District of the Army Corps of Engineers was exactly the way it
should be. We asked, they came, and while we had some
unexpected work that needed to be done, we did our job in
maintaining those levees, and the Corps did their job in
certifying them. Unfortunately, other Montana communities have
been required to spend hundreds of thousands of dollars to
certify the levees that the Corps designed, built, and already
inspects. An unjustifiable burden on those communities and
their residents, we are glad to see the Senate taking a
proactive position to put the Federal responsibility for
certifying Federal levees back where it belongs.
The positive reforms that have been put forward are long
overdue, and I applaud your efforts to make them happen.
However, there remains one very important issue: 500-year
floodplains. You have heard testimony regarding the losses that
the NFIP incurs--the taxpayer incurs--when homes within 500-
year floodplains are damaged. The Senate bill will ensure
property owners will now be notified of the risk of living in a
500-year floodplain. The problem is that FEMA does not map 500-
year floodplains. These areas are identified as ``Shaded-X'' on
the floodplain maps, and in small print, the corresponding
legend states that these actually are ``areas of 100-year
flood'' or ``areas protected by levees from the 100-year
flood'' or ``areas of 500-year flood.'' Until FEMA is actually
required to map these Shaded-X areas based on actual
topography, the maps simply cannot be relied on to determine if
a building proposed in these locations is actually within the
500-year floodplain or will be inundated during lesser flood
events. Last spring, I was in a Shaded-X 500-year home with a
full walkout basement that was inundated during our 10-year
flood. There are no Federal requirements for how that home
should have been built, nor how that home should be mitigated
to prevent future losses. There are no requirements that the
property owner obtain flood insurance to ease the burden on the
taxpayer. The property owners had received multiple checks
prior to last year's 10-year flood event, and they did so again
last spring.
I was in another flooded home. This one was built in the
100-year floodplain--with a basement. It should have never
happened--and it did not happen on my watch--but it did.
Although that home was not constructed in compliance with FEMA
requirements, those property owners also received a check from
FEMA.
I sincerely appreciate the opportunity to appear before you
today and would like to leave you with my own top three
requests:
Stop issuing subsidized flood insurance policies for new
structures built after FEMA's floodplain designation.
Fortunately, as addressed in the Senate bill, the taxpayer will
no longer be forced to subsidize insurance for those that
choose to build in designated floodplains.
Stop rewarding those who bring fill into the floodplain to
protect their development at the expense of pushing those flood
waters onto their neighbors. FEMA encourages this practice by
issuing Letters of Map Revision Based on Fill which completely
removes the owner's obligation to obtain flood insurance
coverage and contribute to the National Flood Insurance
Program.
Finally, stop issuing FEMA floodplain maps without
providing written notice to affected property owners. FEMA has
the audacity--and the budget--to send notices to widows on
fixed incomes in Bozeman and Missoula and across the Nation
whose homes are nowhere near the floodplain which scares them
into buying flood insurance. At the same time, FEMA does not
have the budget or desire to send such notices to people that
are actually in the floodplain. Thankfully, notification is now
addressed in the Senate bill. These scare tactics are not. Even
Missoula City Hall, located nearly a half-mile from the 100-
year floodplain, received such a letter from FEMA. Targeting
extremely low-risk properties may be good for the bottom line
but is not what citizens expect from their Government.
In closing, I sincerely thank this Committee and both
Houses for pursuing significant reform and providing our
citizens with long-term, confidence-restoring reauthorization.
Thank you.
Chairman Tester. Thank you, Mr. Klietz, and I appreciate
your testimony. We will get to some questions for both of you,
but we will go to Mr. Bourgeois now for his testimony. Mr.
Bourgeois?
STATEMENT OF DWAYNE BOURGEOIS, EXECUTIVE DIRECTOR, NORTH
LAFOURCHE CONSERVATION, LEVEE, AND DRAINAGE DISTRICT, RACELAND,
LOUISIANA
Mr. Bourgeois. Thank you, Senator Tester and Members of the
entire Committee, for this opportunity to testify today. I am,
as you mentioned, the executive director of the North Lafourche
Levee District, a political subdivision of the State of
Louisiana. However, I am here today representing a broader
coalition of Government agencies, citizens, and businesses in
the State of Louisiana who rely heavily on the National Flood
Insurance Program.
We commend the Committee for addressing the long-term
reauthorization and reform of the National Flood Insurance
Program. Further, we appreciate the opportunity to provide to
you details of our current circumstance. Though particulars may
vary, the situation we face today is typical for many areas in
South Louisiana and across our Nation.
Currently, we are working with FEMA--and I will add that
the U.S. Senate and the House of Representatives have been
actively working along with us--to reform a FEMA policy
regarding the impact of nonaccredited levees during the Flood
Insurance Study. We believe that you will agree that our issue
clearly demonstrates the need for reform for the National Flood
Insurance Program. However, we further believe that such reform
is currently being complicated and made more difficult by the
lack of a long-term reauthorization of the National Flood
Insurance Program itself. Even the seemingly obvious need for
reforms takes much effort and time in a program such as this.
It is hard for everyone involved to work diligently through
such a complicated issue with a looming expiration date set for
the fate of the entire program.
Our issues began in mid-2009 when we received new flood
maps in our area. It was immediately obvious to us that the
maps could not possibly represent the true risk of flooding in
our area because the flood zones shown in the maps had no
correlation to any real world features. We began working
through the appeals process with FEMA and were able to quickly
identify the elements of the Flood Insurance Study that were
causing the erroneous mapping as well as limitations of the
process itself that would not allow the maps to more accurately
reflect the threat of flooding in our area.
Realizing that complete resolution of our issues would have
to come from a change in FEMA's policy and that this change
would have to come from Washington headquarters of FEMA, we
began to inform and work with our legislative delegation. In
early February 2011, 27 Senators signed a letter to FEMA
Administrator Fugate asking FEMA to discontinue the ``Without
Levees'' policy. In March of 2011, Administrator Fugate
announced that FEMA would begin developing a series of targeted
modeling approaches to replace the ``without levees'' approach
to identifying the risk of flooding behind uncertified levees.
In December 2011, FEMA released for public comment a draft
of their proposed revised approach. About this same time, FEMA
did reveal to us that they were still working on details on how
to address coastal levee analysis. They realized that some of
the riverine methods developed would not be appropriate for
coastal levees. Most importantly, in a collaborative reform
process, they also agreed to meet with us on these specific
issues. A small group from our local coalition met with FEMA's
technical staff in February of this year. When it came to
producing more accurate flood maps, we were told by FEMA
nothing was off the table. This was a very productive meeting,
but we have a long way to go. As of today, FEMA has not
released the results of their analysis of all the public
comments they received. This is still very much a reform in
process.
So today we find ourselves working hand in hand with FEMA
on meaningful reforms to their policy only to be met by another
pending expiration of a short-term extension of the National
Flood Insurance Program. Yet, the details I have provided today
are a tremendous effort to resolve but a single issue within
the National Flood Insurance Program. There are many more
issues that can be corrected through cooperative reform and a
long-term reauthorization of this vital program.
The framework for some of the other required reform is
already in the language of the bill. An example is the creation
of a task force that will help local levee owners work more
efficiently with the U.S. Army Corps of Engineers when trying
to have their levees accredited for consideration in the
National Flood Insurance Program.
In conclusion, I would like to point out that ours is a
working delta, the fruits of which are enjoyed by and enrich
our entire Nation. From our freight transportation on the
Mississippi River to our oil and gas and petrochemical industry
to our abundant fisheries, not to mention tourism, jazz, and
Mardi Gras, we simply must work and live within this delta. As
such, the availability of federally backed, affordable, and
financially stable flood insurance is of vital importance to
our region and the entire Nation. All of this can be provided
with the long-term reauthorization and reforms being proposed.
We thank you for this opportunity to share both our
situation and our views on this important issue. We look
forward to working with all of you to continue making these
changes to the National Flood Insurance Program.
Chairman Tester. Well, I want to thank you for your
testimony also, Mr. Bourgeois.
I think what we will do is we just go right into the
questions, if I might. I am going to start with you, Mr.
Bourgeois. One of the last statements you made was you have a
working delta and how critically important it was to have a
financially stable Flood Insurance Program. I do not know if
you have had a chance to look at the bill in depth, but does it
meet that criteria?
Mr. Bourgeois. I have not read it completely in total
depth, but I am familiar with it and familiar with the fact
that we have gone through a series of short-term
reauthorizations and how difficult that was to us.
I will put this to you simply. Yesterday I had a revelation
eating lunch at a deli, and I had a bag of chips that had the
same expiration date as the National Flood Insurance Program. A
program as important as this should not have the same
expiration date as a bag of chips.
[Laughter.]
Mr. Bourgeois. It just floored me, and I wanted to bring it
in because I did not think anybody would believe me. But those
are the problems we are having. I mean, how can anyone make
meaningful reforms, how can you plan long term, when we are
faced with these constant short-term things? We need a solid
commitment to the program so that everybody can move on and do
what they need to do.
Chairman Tester. And predictability comes with that long-
term commitment.
Mr. Bourgeois. Absolutely.
Chairman Tester. Yes, thank you.
Mr. Klietz, I want to thank you for being here this
morning. We both know how long a trip it is from Montana to
Washington, DC, so I appreciate your willingness to be here and
to share your expertise on the program of flood insurance.
You mentioned in your testimony that flood maps are in the
process of being remapped and that levees were certified by the
Army Corps in your town. Could you describe the process of how
that certification was handled and the division of cost and
labor between the local levee sponsors, FEMA, and the Army
Corps?
Mr. Klietz. Certainly. Missoula and Missoula County have
three levees that were built by the Corps--one in 1949 and two
more in the 1960s within the city of Missoula. When we first
heard that the NFIP was going to be updating FEMA's floodplain
maps for Missoula and Missoula County, I contacted the Army
Corps of Engineers in Seattle, the Seattle District, who built
our levees, and they readily agreed to come out and assist us
with that process. It was their dime. They came out, and as
they normally inspect our levees anyway, they were willing to
certify that. They came out, saw the condition of our levees,
saw that we had been maintaining them, but also saw some issues
that had concerned them, mainly had to do with overgrowth of
vegetation. So both the city and the county then had to spend
several thousands dollars to bring those levees into compliance
with the requirements for certification.
That certification, again, was primarily--the cost of doing
the certification was done by the Army Corps of Engineers out
of Seattle. FEMA's response basically was to review the
certification papers that the Corps provided and to ensure that
we had an ongoing maintenance and operation for those
particular levees. So there was not a whole lot that FEMA had
to do other than review the paperwork. And, again, the Corps
did most of that work themselves.
Chairman Tester. Bottom line, the local levee folks had the
financial capacity to handle the cost?
Mr. Klietz. The cost and the obligation of maintaining the
levees, not the financial resources if we would have been
forced to certify those ourselves like some other Montana
communities have.
Chairman Tester. OK. As you know--and I was going to ask
Mr. Bourgeois--coastal levees, does the Corps certify those?
Mr. Bourgeois. Yes, sir. They certify any levees that meet
65.10, so they will certify any levees that will have that
requirement. Some of them are coastal and some of them are
riverine in our area.
Chairman Tester. OK. So in Louisiana, because I am not
familiar with it, so this is an education point, what percent
does the Army Corps certify now? I mean, they used to certify
them all in Montana. They do not do any of them now.
Mr. Klietz. It is a relatively short number of levee
systems. The mileage may be up there because they certify the
main line Mississippi River levees, but a lot of the additional
and ancillary levee systems are no longer certified by the
Corps, and a lot of the levees that we have in our district--
for example, we have no federally authorized levees, no Federal
levees whatsoever. So none of our levees are actually certified
currently.
Chairman Tester. OK. So this is a question for both of you.
Since the Army Corps has ceased providing levee certification
services for flood mapping, my question is: Without the Corps
performing the certifications, how is the process working in
your respective States?
Mr. Klietz. Senator, in Montana it is not working at all.
The town of Miles City has levees. They have not been able to
certify those levees. The Corps has not certified those levees.
The properties behind those levees are being mapped as being
within the floodplain as if the levee does not exist.
The city of Livingston did, on their own dime, spend almost
$300,000 to certify those levees that were built by the Corps.
The Corps levees in Great Falls, Cascade County, Montana, were
able to eventually get a 2-year provisional accreditation from
FEMA, but that is just a 2-year stop gap, and when that 2-year
period expires, the levee accreditation will expire. And
without the Corps' ability to certify those levees, all those
properties will go into the floodplain and require those
individual property owners to now carry flood insurance.
Chairman Tester. Could you give me a Louisiana perspective,
if different?
Mr. Bourgeois. Well, it is somewhat similar. The actual
process of certifying something is--certifying the levees is
very difficult for an individual engineering firm to take on
the responsibility. So it sort of all turns to the Corps, and I
think in some cases the Corps would be willing, but they have
their limitations on what they can do, and the funding and
everything else also. So it does put everyone in a quandary.
Chairman Tester. Well, it is interesting because Montana is
a headwater State; you guys are where it goes into the ocean;
and the challenges we have with levee certification obviously
are concerning the whole river system.
Do the local levee sponsors--and this can be a pretty short
answer because I think I know what it is. Do the local levee
sponsors have the ability to certify those levees, even if they
could get an engineering firm to do it?
Mr. Bourgeois. It would be very difficult and very costly.
Chairman Tester. OK.
Mr. Klietz. The same in Missoula.
Chairman Tester. All right. I want to talk a little bit
about the 500-year floodplain. Mr. Klietz, you mentioned in
your testimony the mapping of the 500-year floodplain and a
move toward actuarial premiums. I want to flesh this out a
little bit. Could you tell us a little bit about how these
issues affect somebody in your position's ability to manage the
floodplain and ensure the right kind of development is
happening in the right place?
Mr. Klietz. In regards to the 500-year floodplains, the
Montana Legislature actually back in the early 1970s went above
and beyond the requirements of the FEMA mandates, and they do
give local communities in Montana the ability to look at 500-
year floodplains for development purposes. That is quite
different than what happens at the national level, but we do
have that specific legislative authority from the State of
Montana.
For instance, in my community, when there is a proposed
subdivision within a 500-year floodplain or when there is a
proposed septic system that needs to be installed for a new
home, we ensure that those properties are above the 100-year
flood elevation and that they are constructed so that their
lowest floors are 2 feet above the 100-year flood elevation,
which is the standard for freeboard in the State of Montana.
Chairman Tester. The last one, and then I will kick it over
to my Ranking Member. And I may ask this question of the second
panel, too. You guys touched on a little bit in your testimony
about the consequences of the continual short-term extension
versus a flood insurance program that is long term. Could you
give me some real-life examples in your communities of what you
have seen over the last few years, the impacts of those short-
term extensions, problems that have arisen that would not
necessarily have to arise if we could get a long-term extension
passed? Mr. Bourgeois, go ahead.
Mr. Bourgeois. Well, as mentioned in my testimony, the
whole process of reforms that we are working on to give credit
or some consideration to nonaccredited levees in a Flood
Insurance Study puts everything in flux. And I would think that
even as complicated as the issue is, we could have gotten
through this a lot quicker, but, you know, with a constant
expiration date hanging over the whole thing, it is very
difficult for everyone to work diligently toward solving such a
complicated issue, thinking the whole thing could be ending
fairly soon. And I know that that has had impacts on our
development and impacts on--we still have flood maps that are
in flux. Again, since 2009 and still working on this today, we
do not have solid maps and things in place that we need for
floodplain management.
Chairman Tester. OK. Mr. Klietz, would you like to respond?
Mr. Klietz. The reduction of property values for property
owners in the floodplain, their inability to sell their homes
when flood insurance has lapsed, and the inability for buyers
to want to buy a home in the floodplain when they do not know
what is going to happen, if they are going to be able to pay
for their mortgage on top of flood insurance and whether flood
insurance is going to be provided. It has affected property
values, and it has affected the sales of homes within my
community.
Chairman Tester. Well, thank you both. I appreciate your
testimony, and I appreciate your frank answering of the
questions.
Senator Vitter is here, and I will just turn it over to you
because I am done with the first panel, David.
Senator Vitter. Thank you, Mr. Chairman, and thanks to both
of you for being here, and a special welcome to Dwayne
Bourgeois of the North Lafourche Conservation, Levee, and
Drainage District. Thank you for your service and for being
here.
I apologize for being late, but it was only because I was
on the floor talking about the absolute need to pass a long-
term reauthorization now before May 31st, so talking about the
same thing. But thank for being here.
Mr. Bourgeois, I just wanted to underscore what I
understand to be one of your significant points, which is that
a lot of important improvements and reforms can be done
administratively, but all of these very short-term extensions
really get in the way of that, and a long-term full
reauthorization would allow that to happen in a much more
effective way. Is that fair to say?
Mr. Bourgeois. Yes, sir, absolutely. That is the best way
to put it. And we know it is happening to us here. We are
working with you guys. FEMA is trying to work with us, I feel,
working through these issues. The legislators in the House and
the Senate put pressure on FEMA to do so. They have agreed. We
are all in step. But we keep hitting the deadline.
Senator Vitter. Right. And, again, perhaps the best example
from our Louisiana experience is this so-called without-levee
issue, and we want to work through that.
Mr. Bourgeois. Absolutely, and I think we are making
headway, but we need to be able to do this before June 1st.
Senator Vitter. Right. Well, of course, the Chairman and I
completely agree, and that is why we are pushing hard for that
long-term reauthorization. Of course, we do not want to let the
program expire, but we need to get beyond this Band-aid
approach, too. We need a real long-term reauthorization for all
the reasons you have both talked about, so thank you.
Mr. Klietz. Thank you.
Mr. Bourgeois. Thank you.
Senator Vitter. Thank you, Mr. Chairman.
Chairman Tester. Thank you, Senator Vitter. I appreciate
your support on this issue. You are right. We are trying to get
this thing done, and I want to thank the panel for their
testimony because I think it helps contribute to the fact that
there are issues out there we need to deal with, and continuing
to deal with them on a short-term basis is not really getting
the job done. So I want to thank you, and we will bring up the
next panel.
The next panel consists of Dr. David A. Sampson, Mr. Jon A.
Jensen, Maurice ``Moe'' Veissi, and Sarah Murdock. You guys can
all come up, and we will get the proper name tags.
What we will do, before we start on this panel, is I would
like to give Ranking Member Vitter the opportunity to say a few
words.
STATEMENT OF SENATOR DAVID VITTER
Senator Vitter. Thank you again, Mr. Chairman, and I will
be very brief. I just wanted to underscore really my last
point. Today is May 9th. The entire program expires after May
31st, 22 days, slightly over 3 weeks, and we really, really
need to act for the good of the country and the economy. And we
need to act in a longer-term way, not just another Band-aid,
another short-term extension which creates and continues an
unhealthy level of uncertainty. And I appreciate the Chairman
feeling the same way and working very closely with me and
others in this regard.
I am going to be doing two things this week that I hope get
widespread support. I will be passing around a new letter
addressed to Senators Reid and McConnell urging this to be put
on the floor absolutely as soon as possible. Senator Tester and
I had that same sort of plea in a letter dated February 14th.
That was 3 months ago. So it is even more urgent now.
Second, I am going to be proposing as a floor amendment to
the next bill on the floor after the present one, whatever that
is, the Senate reauthorization bill with some noncontroversial
perfecting amendments that have been worked out since
Committee. So it looks like that next bill on the floor will
either be an FDA user fee reauthorization or a small business
tax bill. Neither of those is highly partisan or highly
controversial. So whichever of those comes up, I will be
proposing as a floor amendment the Senate bill with the
perfecting amendments incorporated into it, and I hope we can
get bipartisan cooperation and effort to get that attached to
that bill as a means of pushing this forward.
Thank you, Mr. Chair, for the couple of minutes, and I look
forward to our second panel.
Chairman Tester. Absolutely, and I do not think flood
insurance should be controversial or partisan either. It
impacts everybody.
I want to get started with our next panel, representing
broad, cross-industry support for reauthorization and reform of
NFIP. I want to thank you all for being here ahead of time.
Dr. David A. Sampson is the president and CEO of the
Property and Casualty Insurers Association of America,
otherwise known as PCI, which represents more than a thousand
homeowners, autos, and business insurance companies that write
over 30 percent of this Nation's property and casualty
insurance. Dr. Sampson also served in the George W. Bush
administration as Deputy Secretary of the U.S. Department of
Commerce and Assistant Secretary of Commerce for Economic
Development. Welcome, Dr. Sampson.
STATEMENT OF DAVID A. SAMPSON, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, PROPERTY AND CASUALTY INSURERS ASSOCIATION OF AMERICA
Mr. Sampson. Thank you, Mr. Chairman and Ranking Member
Vitter. It is a pleasure to be with you today. I appreciate
your leadership on this issue and the invitation to be here.
PCI and its members, who write about 52 percent of all the
flood insurance as partners with the NFIP through the Write-
Your-Own Coalition Program, believe that the NFIP is vitally
important to our Nation and the economy. It does not just
affect one part of the Nation. Flooding occurs all across the
country. And we fully support your efforts to pass bipartisan
legislation that includes a long-term reauthorization and
meaningful reforms.
I would like to just briefly emphasize three key points in
my testimony today.
First, it is vitally important to avoid another lapse in
the NFIP as lapses have real-world negative consequences for
consumers and the economy.
Second, as confirmed by the Government Accountability
Office, the program needs meaningful structural reforms.
And, third privatization of the Flood Program is not
feasible under current conditions.
Let me just expand on those a little bit.
The first priority, of course, is to avoid a lapse in
coverage. You have already documented your concern about that.
More than 5.6 million American homeowners, renters, and
businesses are NFIP policyholders and rely on this program to
protect their property. You have already discussed the 12
short-term extensions of the program since September of 2008
leading to lapses in coverage when Congress has failed to act.
In 2010 alone, the NFIP lapses for a total of 53 days, and
during these lapses flood insurance policies could not be
issued or renewed. And each time the program lapses, a
cumbersome and expensive series of special bridging
transactions is required from insurers and consumers and the
NFIP to set aside policy purchases, collect funds, and advance
claim payments. And all of this creates significant friction
costs for the marketplace and certainly for Americans who rely
on this important protection.
Second, while it is critical for Congress to reauthorize
the NFIP before May 31st, the program as it stands now needs
essential structural reforms which are addresses in the Senate
Banking Committee bill. The NFIP is deeply in debt and must
transition to a more sustainable path. I would point out that
if a private insurance company held no surplus and carried $18
billion in debt on a $4 billion annual revenue stream for 6
years running, regulators would immediately shut it down and
the CEO would be fired, and yet that is the situation that we
face with the NFIP program.
Two PCI studies on flood risk pricing revealed that the
NFIP is providing Government-subsidized flood policies at
roughly one-third of what the full load risk costs would be in
the private sector.
The subsidies for repetitive loss and high-risk policies
are even greater. One percent of the properties insured by the
NFIP have accounted for over a third of the claims on an
ongoing basis, and the previous panel spoke of that so
eloquently.
The third point I wanted to make is that while the program
needs to be reauthorized and must be reformed, it is important
to note that discussions on privatizing the program are
unfeasible under the current conditions. The current NFIP rates
would need to be closer to true market rates before any
meaningful discussion related to the private industry taking on
flood risk can take place.
A 2011 PCI study estimated that if the private market were
to underwrite the flood peril, policyholders in floodplains
could see rate increases of up to 200 to 300 to 400 percent.
Proposals to end the NFIP are unrealistic given the current
steep subsidies and the unwillingness of many homeowners to
purchase coverage in high-risk areas even when mandated at
these subsidized risks.
So we applaud your efforts, and PCI certainly stands
willing to work with this Committee to do anything we can to
help this overwhelmingly bipartisan piece of legislation make
it through the Senate in time to avoid the lapse and to pursue
the structural reforms that you have proposed.
Thank you, Mr. Chairman.
Chairman Tester. Well, thank you, Dr. Sampson. We
appreciate your testimony, and we will have questions after we
get done with the testimony of the other panelists. But thank
you for your perspective and for your testimony.
Next we have Mr. Jon A. Jensen, who serves as Government
Affairs Committee chairman of the Independent Insurance Agents
and Brokers of America and as president of Correll Insurance
Group. He is currently the South Carolina national director for
Independent Insurance Agents and Brokers of America. He is a
past chairman of the Independent Insurance Agents and Brokers
of America's InsurPac Board of Trustees. I want to welcome you
today, Mr. Jensen. You may proceed with your testimony.
STATEMENT OF JON JENSEN, GOVERNMENT AFFAIRS COMMITTEE CHAIRMAN,
INDEPENDENT INSURANCE AGENTS AND BROKERS OF AMERICA, AND
PRESIDENT, CORRELL INSURANCE GROUP
Mr. Jensen. Thank you very much. Good morning, Chairman
Tester and Ranking Member Vitter. I am pleased to be here today
on behalf of the Independent Insurance Agents and Brokers of
America--or the Big ``I''--to present our association's
perspective on extension and reform of the NFIP. We commend the
Subcommittee for looking at this very important issue. I am
president of Correll Insurance Group, which is an agency with
132 associates in 12 locations, including offices in both
Myrtle Beach and Hilton Head Island. We also write nearly 3,000
NFIP policies. Since 2011 I have served as chairman of the
Government Affairs Committee for the Big ``I.''
The Big ``I'' is the Nation's oldest and largest trade
association of independent insurance agents and brokers, and we
represent a nationwide network of more than a quarter of a
million agents, brokers, and employees. Many of these agents
serve as the sales force of the NFIP, working with Write-Your-
Own companies. It is from this vantage point that we understand
the capabilities and the challenges of the insurance market
when it comes to insuring against flood risks.
The private insurance industry has been and continues to be
largely unable to underwrite flood insurance because of the
catastrophic nature of these losses. Therefore, the NFIP is
virtually the only way for people to protect against the loss
of their home or business due to flood damage. Prior to the
introduction of the program in 1968, virtually the only
financial remedy available to consumers after floods was
Federal disaster assistance. Since then, the NFIP has filled
the private market void and created a reliable safety net for
people whose properties have suffered damage.
With this said, we do recognize that the program is far
from perfect, which was made all the more clear by the
devastating 2005 hurricane season. The current $17.2 billion
dollar debt reveals some of the deficiencies of the program,
and it is clear that Congress should shore up the NFIP's
financial situation.
For this reason, the Big ``I'' is very encouraged by
Chairman Johnson's legislation, the Flood Insurance Reform and
Modernization Act of 2011. I want to be very clear: The Big
``I'' strongly supports a long-term extension and reform
legislation. There are important reforms that must happen to
the program in order for it to be put on stable footing.
In particular, the Big ``I'' for many years has asked
Congress to begin phasing out subsidies found in the program.
We are pleased that Chairman Johnson's legislation contains
proposals to do just that for many properties.
Additionally, the Big ``I'' welcomes the legislation's
proposal to increase the amount FEMA can raise premiums in any
given year. Currently, FEMA can only raise premiums by 10
percent on any property. The legislation would propose to
increase this to 15 percent, which would allow the program to
become more financially sound.
I would also like to comment on some recent discussions
aimed at finding ways to privatize the program. The Big ``I''
would always prefer to utilize the private market. However, we
have yet to see evidence that the private marketplace is any
more prepared or capable of underwriting flood risk today than
they were in 1968. That said, we welcome the study on
privatization options found in the legislation, and we would be
happy to discuss any ideas for increasing the private market's
role going forward.
Finally, I would like to touch on one of the most important
things found in the reform legislation, and that is the long-
term extension. As you know, for the past 6 years, Congress has
not passed a long-term extension of the program and instead has
opted to pass numerous short-term extensions. This has been
done mainly so that Congress could continue efforts at reform
legislation. While the Big ``I'' fully appreciates the passage
of each of these short-term extensions, it should be noted that
there is increasing frustration both in the marketplace and
among our consumers with the program and its complete lack of
stability.
A 5-year extension of the NFIP, as found in S. 1940, is of
more importance than I can stress. We strongly urge the Senate
leadership to secure floor time for a full debate of S. 1940.
In fact, as you know, this week a number of organizations from
various industries are taking part in a Flood the Hill Week to
urge the Senate to finally pass S. 1940. I am happy that three
panelists here today--the realtors, PCI, and Nature
Conservancy--are part of that effort. Hopefully we can make
some progress this week.
I thank the Committee for giving me the opportunity to
express the views of the Big ``I'' on this important issue, and
I look forward to any questions you may have. And on a separate
note, I would like to thank you, Mr. Chairman, on behalf of our
entire membership for introducing NARAB II. We look forward to
working with you on this commonsense agent licensing reform
legislation.
Chairman Tester. Well, thank you, Jon. I appreciate the
kudos, and it is good to see a guy who spells ``Jon'' right. So
thank you.
[Laughter.]
Chairman Tester. I appreciate your testimony.
Mr. Maurice ``Moe'' Veissi is president of the National
Association of Realtors representing 1.1 million members
involved in all aspects of residential and commercial real
estate industries. He was elected president of the Florida
Association of Realtors in 2001 and was named Realtor of the
Year in 2003.
I want to welcome you here today, Mr. Veissi, and proceed
with your testimony, please.
STATEMENT OF MOE VEISSI, 2012 PRESIDENT, NATIONAL ASSOCIATION
OF REALTORS
Mr. Veissi. Thank you, Chairman Tester, Senator Vitter, and
Members of the Subcommittee. Thank you for the opportunity to
testify on this urgent need for a 5-year reauthorization of the
National Flood Insurance Program. And I would be remiss if I
did not bring you these salutations from Marbury Little, past
president of the Louisiana Association of Realtors, and all the
5,000-plus Realtors in Louisiana who appreciate, Senator
Vitter, your involvement and commitment to this issue; and from
Betty Kissock and Ronda Tompers, who said specifically,
Chairman, to tell you that they are very much pleased and very
much committed to what you are trying to accomplish here on the
Hill.
Chairman Tester. Thank you.
Mr. Veissi. My name is Moe Veissi. I am the 2012 President
for the National Association of Realtors and the broker-owner
of Veissi & Associates in Miami, Florida, a Realtor firm that
has been in existence for over 42 years.
The National Association of Realtors represents more than a
million members, as you have mentioned, involved in all aspects
of the real estate industry. Long-term reauthorization and
reform of the National Flood Insurance Program is a key
priority to our members. As a matter of fact, on May 17th, here
in Washington, DC, we will have over 15,000 Realtors at the
Washington Monument, and one of the five key issues that we
will be speaking to the folks on the Hill about is just this
issue.
Ensuring access to affordable flood insurance is critical.
It creates certainty in the real estate market, and certainty
is required for this real estate market to recover. Home prices
are still enormously fragile across the United States, and more
than a quarter of a million of existing home sales are
distressed properties. Tight lending standards remain a
problem, and we do not want to give a lender another excuse not
to approve a loan.
Stopgaps or shutdowns exacerbate this market uncertainty.
There have been 17 stopgaps since 2008. Twice, failure to act
led to program shutdowns, and the latest is set to expire, of
course, as you know, on May 31st of this year.
The National Flood Insurance Program stopgaps and shutdowns
have broader implications for the U.S. economy. NFIP is
essential to 500,000 home sales annually; 1,300 sales
nationally can be delayed per day if we do not have this
program--intact. More than 47,000 real estate transactions were
stalled in June 2010 for the 33 days that this act was not in
service.
Over 16,000 homes are in the floodplains in Montana. Over
660,000 homes are in the floodplains in Louisiana. But more
than the homes are impacted by this. The commercial,
multifamily, and refinancing of properties all are impacted by
the uncertainty in the National Flood Insurance Program.
The 5-year National Flood Insurance reauthorization offers
broad advantages, and the first one is the important bipartisan
win for Congress, which in my humble estimation is so much
needed right now.
Two, this has passed unanimously out of Committee, and the
House has passed this bill by over 400 votes. Crucial reforms
are lost if the 5-year bill is not adopted: enhancing FEMA
communications with communities, greater notification of
floodplain mapping, reimbursement of flood map and appeal
expenses for NFIP errors, streamlining of the mapping appeals
process, additional time for the resolution of appeals, and
review of flood mapping standards and procedures. The number of
States that are affected are enormous. This is no longer a
coastal issue. Places like West Virginia, Tennessee, Kentucky,
Alabama, New Mexico, Vermont, Kansas, Iowa, Nebraska, Missouri,
Utah, Minnesota, Wyoming, North and South Dakota all have
related Presidential disaster declarations, and there is more.
Every time we slow this down, every time we create an
uncertainty in this program, we slow down the process of a
healthy real estate recovery in this country.
If there is one thing that is enormously important to this
country's economic and social and cultural background, it is
the resurgence of a strong and healthy housing market and
peripheral industry.
So I would encourage you to continue to do the good work.
You have the National Association of Realtors who believes and
understands your commitment. Thank you very much.
Chairman Tester. Moe, thank you for your testimony, and I
could not agree more. The real estate recovery is critically
important to get our entire economy back on track. Thank you
for your testimony.
Next we have Sarah Murdock, senior policy advisor for
climate change policy with The Nature Conservancy, a leading
conservation organization working to protect ecologically
important lands and waters. Ms. Murdock handles climate change
adaptation strategies and Federal hazard risk reduction policy
for The Nature Conservancy. She has also worked here in the
Senate, working for Senator John Kerry.
Welcome, Ms. Murdock, and you may proceed with your
testimony.
STATEMENT OF SARAH MURDOCK, SENIOR POLICY ADVISOR, THE NATURE
CONSERVANCY
Ms. Murdock. Thank you, Mr. Chairman and Members of the
Subcommittee. Thank you for the opportunity to present The
Nature Conservancy's views on the timing and nature of reforms
to the National Flood Insurance Program. My name is Sarah
Murdock, and I am a senior policy advisor for the Conservancy.
The Nature Conservancy is an international, nonprofit
conservation organization working around the world to protect
ecologically important lands and waters for nature and people.
The Nature Conservancy continues to support a 5-year
reauthorization of the National Flood Insurance Program through
the passage of the Senate Banking Committee's flood insurance
reform legislation. We ask that this legislation be brought
before the full Senate for debate and consideration at the
earliest opportunity.
The Nature Conservancy is also a member of the Smarter
Safer Coalition, a diverse coalition of environmental
organizations, taxpayer advocates, insurance industry
representatives, and housing groups. Smarter Safer also
strongly supports the Senate Banking Committee's flood
insurance reform, and this week we are participating in this
week's Flood the Hill activities. With this much diverse
political support, it seems like passage of flood reform
represents a win for all.
Contrary to congressional intent, the program as it
currently functions is increasing risk from storms and flooded
to people, property, and ecosystems, and the important services
that those ecosystems provide to people. Enactment of the flood
insurance reform legislation will phaseout subsidies that have
undermined the financial stability of the program, will require
FEMA to ensure that maps are updated and accurate so that
people can understand and better prepare for their risks, and
will streamline and strengthen the mitigation programs to help
decrease flood risks and better protect flood-exposed
communities, homes, and businesses.
I would like to focus the remainder of my testimony on our
interest in this final provision--our support for strengthening
the mitigation programs.
In 2011 alone, there were 58 Federal flood disaster
declarations covering 33 different States and costing $8
billion and causing 113 deaths. Both the costs and the number
of deaths exceeded the 30-year averages, and results from
scientific studies indicate that changing climate has
exacerbated and will continue to intensify extreme weather
events, including flooding and coastal storms.
The proposed reform legislation is the most important
single step we can take toward mitigating these risks.
Currently, under the Flood Insurance Program, a dangerous
feedback loop is in play. Subsidized insurance rates facilitate
development in coastal zones and freshwater floodplains, which
not only puts people and property at risk, it simultaneously
facilitates the destruction and degradation of the ecosystems
that provide a natural defense to people and properties.
The traditional approach to flood protection and river
floodplain systems has been to rely on dams and levees to
contain flood waters and in coastal areas has been to build sea
walls, bulkheads, and other ``grey'' infrastructure. While
built infrastructure plays an important role in helping secure
our communities, it requires substantial investments for both
initial construction and ongoing maintenance.
Instead of relying solely on grey infrastructure, an
alternative approach involves integrating the use of natural
infrastructure--or so-called ``green'' infrastructure--with
built infrastructure. This specifically involves maintaining
and restoring the connectivity of rivers along with sufficient
area of floodplain and conserving and restoring coastal natural
infrastructure such as wetlands, reefs, dunes, barrier beaches,
and islands.
In addition to flood control benefits provided, these
ecosystems provide many services that support and protect
humans and nature, such as filtering pollutants, erosion
protection, production of fish and shellfish, and continued
agriculture production.
The Nature Conservancy is working with diverse partners
across the country to implement floodplain restoration projects
and along the east and Gulf coasts, in Louisiana and Alabama in
particular, we are restoring and building oyster reefs as a way
of protecting against floods.
Due to our understanding of the benefits of investments in
mitigating efforts, we stand ready to work with FEMA and
Members of Congress to strengthen this aspect of the Flood
Insurance Program.
Thank you for the opportunity to present The Nature
Conservancy's recommendations on the need to pass the Senate's
5-year reauthorization of the Flood Insurance Program.
Chairman Tester. Well, thank you, Ms. Murdock. I appreciate
your testimony, as I do with the whole panel. We will start
with questions now. I want to, before I start, though, thank
each one of you for your commitment to a long-term
reauthorization. I very much appreciate it.
I think the clerk can put on 7 minutes. We will probably
have more than one round, would be my guess.
I am going to start with the most pressing issue that is
facing us right now, and that is the danger of a lapse in the
program. I understand--and this may be different today. I do
not know, Senator Vitter, but the short-term extension has
cleared my side of the aisle. I do not know if it has cleared
yours yet or not. But we are working together to try to get
this done. In some cases, I would rather just see us get this
thing done rather than deal with the extension. I think that is
what Senator Vitter talked about in his remarks.
I want to drill down on the point of the lapse because the
clock is ticking. In your testimony, you all spoke of
consequences which can be pretty severe if this program does
lapse again. So what I would like is from each one of your
different perspectives, describe the most damaging consequences
of failing to extend this program. And at what point prior to
the expiration do carriers and agents and realtors and
homeowners need to start preparing for a potential lapse? Go
ahead, Dr. Sampson.
Mr. Sampson. Well, while the costs of the lapse are hard to
quantify, they are very real. And in answer to your question,
Mr. Chairman, insurers are already in the process, now that we
are this close to the expiration, of beginning to mail out
those notices of the imminent lapse of the program. Now, the
only one who wins by that may be the U.S. Postal Service
because they get revenue, and I know you have been dealing with
that recently, but those are embedded friction costs to
insurers. And I think it is these repetitive lapses in the
program that have caused a number of major participants in the
Write-Your-Own Program to leave in recent years. We are down to
85 active participants in the program from 150 just a few years
ago.
So that is giving you the indication that the frustration
and the friction costs of these very complicated bridging
transactions are making it not worth the participation from the
insurers' perspective.
Chairman Tester. OK. Jon, would you like to respond to
that?
Mr. Jensen. Yes, sir. As Dr. Sampson mentioned, the
carriers are forced to start sending out these notices. The
perspective from an agency, as I mentioned in my testimony, we
have 3,000 flood insurance policies. That means we will get
6,000 calls from folks that say, you know, ``What is happening?
What is going on?''
I would also emphasize that it is truly important to the
consumers. As a matter of fact, this morning on a cab ride over
I was forced to share a cab with five other people due to some
transportation issues, but one of the ladies had a home in
Charleston, Structural, and asked me what I was doing here. And
I explained to her, and she said, ``My God, don't they
understand that hurricane season is June 1st?'' And this lapses
May 31st. She said, ``We get these notices all the time.'' And
as we were leaving the cab, she said, ``Would you do me a
favor?'' She said, ``My name is Angie Davis. Would you please
tell the Senate to do good work here. We need flood insurance.
We cannot be without it.''
Chairman Tester. That is good. Thanks, Jon.
Maurice? Moe?
Mr. Veissi. You know, six of the last eight recessions have
come out because of a healthy housing and construction market.
We know that every two houses sold generate one job, so even in
the worst of times, we are generating about 2-plus million jobs
a year when a housing market is on track. Without national
flood insurance, we affect so many homes--not just coastal
States but interior States today. And even those that have
existing homes--not potential homeowners, not folks that are
looking to either go out and sell their home or buy a new one,
but those that exist--have clauses in their existing mortgage
that simply say if there is a failure to renew flood insurance,
the mortgage could be in technical default. So even those folks
do not know how at risk they might be.
This is a fledgling, recovering real estate market. As
important to this market as any other aspect, as important to
the recessionary period that we have had is a healthy real
estate market both from the economic standpoint for America and
from the social and cultural standpoint. And when you do
anything--anything--to affect that fledgling real estate
recovery, you are literally affecting the economic recovery and
the social and cultural aspects of America. I cannot tell you
how important this piece of legislation is and, Senator Vitter
and Senator Tester, how important your efforts are to get it
extended for the 5 years. That is enormously important not just
to Realtors but to American homeowners.
Chairman Tester. Just a real quick follow-up, Moe. You may
not know this on a national basis, but you may know it on a
southern Florida basis. If this thing were to expire, what kind
of impact as far as percentage of homes would it have, say, in
southern Florida?
Mr. Veissi. Well, I cannot be specific about that, although
I will get you those----
Chairman Tester. Is it a big number? I just want to get an
idea.
Mr. Veissi. As I quoted to you, nationally the lapse
stalled about 1,300 a day, or 47,000 during June 2010. But in
Florida, where we would be specifically impacted because the
entire State, for all intents and purposes, is a floodplain, it
would impact every one of those sales and even the existing
mortgages. Percentage-wise, I am going to guess at least one
out of every two.
Chairman Tester. Thank you very much.
Ms. Murdock, from your perspective, from The Nature
Conservancy's perspective, if we just keep doing extensions or
if it is to expire, how does that impact the mitigation
efforts?
Ms. Murdock. Clearly, we are seeing more frequent and more
intense storms, which is causing more and more damage. And the
mitigation efforts are long-term efforts. They are not
something that can happen overnight. So you need that long-term
certainty of the program, the backing of the program and the
grants that they provide in order to really plan for an
implement some of these mitigation efforts.
Chairman Tester. Thank you.
Senator Vitter.
Senator Vitter. Thank you, Mr. Chairman. And I certainly
strongly support a short-term extension if we need it, if we
cannot do anything else before May 31st. In fact, I think
technically it is my bill, so I will certainly be trying to
clear that if it is necessary.
I am just concerned about two things. Number one, patience
is running really thin among some members about doing all these
short-term extensions, so we may not be able to clear it.
``Clear it'' means get unanimous consent, every Senator on our
side has to agree. And, you know, the more these Band-aid
extensions we do, the less patience members have because they
want reform, which is needed.
Second, a short-term extension avoids a lot of negatives,
but it does not accomplish the positives that the full
reauthorization does, and I think that was one of Moe's points.
So I am for it if we can only do that between now and May 31st,
but I am also trying, as Jon and others are, for the full
reauthorization.
May 31st is 3 weeks and a day away. When do concrete
negative actions, notices, letters, other things, start going
out compared to that date? Is it now, Dr. Sampson?
Mr. Sampson. They have already started.
Senator Vitter. Why don't you describe some of that and
when that starts?
Mr. Sampson. Sixty days out from the expiration of the
program, insurers are required to notify holders of policies
that the coverage is going to be ending. And then as I say, it
has a cascading--during the lapse, there is this whole
cascading series of very complicated bridging transactions that
add no value to the process but only cost to the carriers and
uncertainty to the policyholders.
You know, we are in a bizarre situation where you have the
National Flood Insurance Program actively advertising the NFIP
on television to try to increase the take-up rate, which is the
socially responsible thing to do. And yet everyone who has a
policy knows the number of disruptions that we have experienced
over the last several years. And so, you know, we are really
sending cross signals here, and these lapses are causing
companies to exit the program, and I am convinced that these
continual lapses create such uncertainty in the policyholder
that it reduces and suppresses the take-up rate and the renewal
rate.
Senator Vitter. And I assume part of what you are saying is
a near lapse, a near miss, is also negative. I mean, if you act
the day before or 3 days before, that is also not a great
situation.
Mr. Sampson. Well, we are within the period where negative
activities are already occurring from the companies'
perspective.
Senator Vitter. Right.
Mr. Sampson. But I would say, if you can get the short-term
extension without letting it lapse, we are talking about here
the least of the bad alternative. So certainly we are in the
cone of negative activity, but it is not as negative as it will
be if we get to May 31st and the program lapses for the 13th
time.
Senator Vitter. Right, right. OK.
That is all I have. Thank you, Mr. Chairman.
Chairman Tester. Senator Moran.
Senator Moran. Mr. Chairman, thank you. I am not a Member
of this Subcommittee, although I am a Member of the full
Committee, and I appreciate you allowing me the opportunity to
join you today, really only for the purpose to lend my support
to the efforts of the two of you to see that we get this
accomplished and to hear from the witnesses today so that I can
have my arguments reinforced.
I still remain baffled by--at least I am unaware of a
response to the letter that the two of you led to our leaders
asking that the 5-year reauthorization be considered by the
Senate. I just do not understand why this is something that
cannot be accomplished based upon the nature of this
legislation, its importance, its value to the country, and its
bipartisan support. And so every once in a while, when we have
to admit how dysfunctional this place is, this just seems to me
to be the perfect example of dysfunction. And if there is
something I can do, Senator Vitter, Senator Tester, to assist
in your efforts to get the 5-year reauthorization bill to the
Senate floor, I am your ally. And I appreciate the testimony
that I read and heard expressing the value and importance of
accomplishing that.
What Mr. Sampson just said I had not thought about, but it
does make sense to me that the ability to continue to write
these policies in this uncertain environment diminishes as
Congress fails to act on so many occasions.
I appreciate you having this hearing to highlight the
importance of this legislation, and I am pleased that you would
allow me to join you for this brief period of time.
Chairman Tester. I have got another question here. There
are some that have suggested that a 2-year straight extension
would be better than the reform of the existing insurance
program. I think both Senator Vitter and Senator Moran alluded
to it. I think we have an opportunity here to reform this
program and put it on more firm ground with a long-term
extension.
I would just like--and this is basically to Dr. Sampson or
Mr. Jensen or Moe, either one of the three or two of the three
or all of you can talk to this. But beyond improving the
solvency of the program, could you discuss some areas where
reform on this bill is important to the constituencies that you
represent? What else does it provide?
Mr. Jensen. Thank you, Senator. In addition to the reform,
as you mentioned, there are some issues with increasing maximum
coverage limits. Currently, the coverage limit on a home for
flood loss is $250,000 as the maximum indemnity limit. That is
increasingly becoming a problem and an issue as we see higher
values in homes again.
As well, we are looking at business interruption. It is
important to note that there is a study called for in the bill
that talks about business interruption coverage within the
commercial sector. We think that is very valuable as well.
Mr. Veissi. In addition, you heard testimony on the
previous panel of folks that were placed in areas that, in
fact, were not in a floodplain. One of the bill's reforms would
be to enable folks who were not in floodplain areas but were
charged for flood insurance to come back and get reimbursed for
their floodplain appeal expenses. So that would help us for the
folks that have been incorrectly mapped into the floodplain.
Chairman Tester. Thank you.
Mr. Sampson. Mr. Chairman, I would say that from the
company perspective, the number one concern is the fiscal
reforms, and I would not underestimate that at all. I think the
bill also, though, does address the repetitive loss properties.
I think it is absolutely essential, as the previous panelists
talked about, that repetitive loss properties where you have 1
percent of the properties that account for 30 percent of all of
the claims in the NFIP, the reform bill does address that. And
I would say that that is a critical component.
The increase in the amount that FEMA can increase premiums
to incrementally move toward an actuarially sound rate, while
important, I would say what is even more important than that,
though, is that FEMA has been unwilling to raise the premium
prices even by the amount that they are currently authorized in
legislation, which is 10 percent a year. And so even more
important than raising the cap in legislation of what they
could raise prices I think is a signal to the marketplace that
they will actually do that in incremental steps. The longer you
artificially suppress these rates, the greater the impact is
going to be on the consumer down the road.
So in addition to what is in the legislation, this
Committee and other committees of jurisdiction, encouragement
of FEMA to use the authority that they currently have I think
is critically important.
Chairman Tester. Well, thank you.
Ms. Murdock, in your testimony you cite an interesting
statistic that for every dollar spent on flood mitigation, $5
are saved. In your testimony you make the distinction between
grey and green flood-related infrastructure investments. Could
you just elaborate on the distinction between grey and green
infrastructure investment and the relative costs of both?
Ms. Murdock. Yes. When we are talking about grey, we are
talking about hard infrastructure like levees and dams,
bulkheads, sea walls. An increased focus is now being placed on
implementing projects where we allow natural systems--
floodplains, wetlands, coastal wetlands, barrier beaches,
oyster reefs--to also perform flood mitigation services. So we
are doing a lot of projects like that both in floodplain
systems focused on restoring floodplains. Some of that involves
just setting back levees far enough from the river to allow
floodplains to perform their natural function. And then along
the Gulf coast, for example, where we have a goal of building
100 miles of oyster reefs along the Alabama coast.
The cost comparison compared to grey infrastructure is very
new, and we are actually starting to work in partnership with
some insurance companies to accurately compare the cost of grey
versus green infrastructure. We have some preliminary figures
on the oyster reefs, but it is very new, and I do not think it
accurately yet reflects what the true cost/benefit of the green
versus grey would be.
Chairman Tester. Thank you very much.
Senator Wicker is coming here in just a second, and I want
to make sure to get his perspective for his questions. In lieu
of that, I just want to say this, first of all--and he will be
here momentarily. I would just like to say thank you for your
testimony--we are waiting for you, Roger. You are good to go.
Go ahead and get organized while I talk for a second.
I want to thank you for your testimony. I can tell you that
Senator Vitter and myself and Senator Moran and others want to
make sure we get this thing considered and moved forward. I
think, as you do, Moe, that this is a critically important
piece of our economic recovery, and I think the longer we put
this off, I think it is just a missed opportunity. So the
coalition that has formed here and the work that you are doing
on the Hill, do not underestimate it. It is critically
important to put pressure on everybody that serves in the
Senate to allow us to put pressure on leadership to take this
bill up sooner rather than later.
And with that, Senator Wicker, you have comments,
questions. Have at it.
Senator Wicker. Right, and thank you, Mr. Chairman. I have
been back in my office watching the hearing while trying to get
my desk cleared. I would not be surprised if some other Members
of the Committee also were availing themselves of this
opportunity. But I just had to rush down and add my support for
what you are trying to do, Mr. Chairman, and to thank all of
these Members of the panel for their excellent remarks.
I guess it was the representative from the realtors--I am
not sure, but someone made a very cogent point. You know, Mr.
Chairman, we need a bipartisan accomplishment in this Senate.
And we have it in our grasp to do this on a very important
issue. The American people are looking at us, they are looking
to us. They expect us to come to Washington and actually engage
in accomplishments, and this is an opportunity for us to do
that. A good vote in the House, strong support in this
Committee, and the opportunity is right there.
So for those Members of the leadership within the sound of
our voices, I just had to rush down before we gavel to a close
and say that I absolutely hope we can do this.
I would mention that the Committee leadership has been very
generous in working with me and others on the so-called Coastal
Act, which is a small step toward using science that is already
out there to get us toward a resolution on this wind and water
issue that is often a problem when a hurricane comes along. But
you have made great points. This is not just a bill for people
along the oceans and the gulf. This is a bill for the entire
United States of America. It is a bill for the taxpayers, for
heaven's sake. And so, Senator Tester, thank you for your
leadership and that of Senator Vitter, and I appreciate Senator
Moran coming, too.
I do not have questions because the questions I would have
asked had been asked while I was listening. But thank you very
much, and let us keep this up and let us redouble our resolve
to actually get an accomplishment for the taxpayers and for the
American public.
Chairman Tester. Well, thank you, Senator Wicker. We
certainly appreciate your long support and working on this bill
has been critically important, and I think you are right--Moe
brought it up--it is a good bipartisan win. It is something
that we need to do that will help do a lot of good things for a
lot of folks out there, and plus fix some fiscal problems that
this program has.
So I just want to thank this panel, and I want to thank the
previous panel for their testimony. The hearing record will
remain open for 7 days for any additional comments that anybody
might want to add for that, or any questions that folks want to
submit for the record.
With that, thank you all very much, and this hearing is
adjourned.
[Whereupon, at 11:21 a.m., the hearing was adjourned.]
[Prepared statements and additional material supplied for
the record follow:]
PREPARED STATEMENT OF TODD KLIETZ
Missoula County Floodplain Administrator, Missoula, Montana
May 9, 2012
On behalf of Missoula County, Montana, and the Association of
Montana Floodplain Managers, I am honored to appear before you today to
provide comment on the reauthorization of the National Flood Insurance
Program.
I respectfully urge this Committee to ensure that long-term
reauthorization of the National Flood Insurance Program (NFIP) is
enacted prior to May 31st. Over the past several years, I have
witnessed the results that delayed and uncertain congressional action
on reauthorization has caused within my community and my State.
Property values, already having fallen due to the economy, fall further
in the floodplain due to buyer's uncertainty that Congress will provide
homeowners with long-term flood insurance coverage. Real estate
transactions have been delayed--and some have completely fallen
through. Homeowners--many of whom already must sell their property at a
loss--are forced to reduce their sales prices further. The small pool
of local insurers that are willing to process flood insurance policies
dwindles further as they become increasingly frustrated with the ever-
changing uncertainty the last several years of delayed short-term
reauthorizations has caused. Floodplain citizens need to know that you
have their back by reauthorizing the National Flood Insurance Program
for the long term.
This is not to say that we support reauthorization of the exact
same flood insurance program that has contributed significantly to our
national debt. From my perspective, reform is correctly focused on the
insurance side as the requirements for floodplain development within
NFIP communities do work--simply tour a participating community post-
flood to see those results. My own community just experienced a 10-year
flood last Spring. Older homes built before FEMA mapping were destroyed
while the newer homes right next door suffered virtually no damages.
The commonsense reforms including those that the Montana delegation
and this Committee have put forward must be included in long term
reauthorization. The American taxpayer is increasingly unwilling to
provide financial support for those who have time and time again
received handouts post-flood who then do absolutely nothing to prevent
future damages as they know Uncle Sam will be there check in hand to
quite literally bail them out again. Many repetitive loss property
owners within my community received FEMA checks last year. None have
voluntarily chosen to mitigate their homes.
Gone too are the days that the taxpayer will support those who
knowingly choose to live in areas and in homes with severe flood risk--
so we thank you for moving the National Flood Insurance Program away
from overwhelmingly tax-subsidized premiums towards actuarially rated
policies. I also want to thank you for your commitment to fund ongoing
mapping so that communities in rural States like Montana will
eventually be provided with detailed floodplain maps allowing our
citizens to build homes constructed through means that minimize flood
loss.
I further appreciate the efforts that are being made regarding
levees. Although the issuance of new FEMA floodplain maps for my
community has been on hold for several years due to inconsistencies
with how FEMA is mapping properties behind levee-like structures such
as railroad beds, roads and even interstate highways, my community was
fortunate that the Army Corps of Engineers certified their levees. This
makes sense as the Corps designed, built and inspects them on a regular
basis. My community's experience with the Seattle District of the Army
Corps of Engineers was exactly the way it should be. We asked, they
came and while we had some unexpected work that needed to be done, we
did our job in maintaining them--and the Corps did their job in
certifying them. Unfortunately, other Montana communities have been
required to spend hundreds of thousands of dollars to certify levees
that the Corps designed, built, and already inspects. An unjustifiable
burden on those communities and their residents, we are glad to see the
Senate taking a proactive position to put the Federal responsibility
for certifying Federal levees back where it belongs.
The positive reforms that have been put forward are long overdue
and I applaud your efforts to make them happen. However, there remains
one very important issue: 500-year floodplains. You've heard testimony
regarding the losses that the National Flood Insurance Program incurs--
i.e., the taxpayers incur--when homes within ``500-year floodplains''
are damaged. The Senate Bill will ensure property owners will now be
notified of the risk of living in a 500-year floodplain. The problem is
that FEMA does not map 500-year floodplains. These areas are identified
as ``Shaded-X'' on the floodplain maps and in small print, the
corresponding legend states these are actually ``areas of 100-year
flood'' OR ``areas protected by levees from 100-year flood'' OR ``areas
of 500-year flood.'' Until FEMA is actually required by Congress to map
these Shaded-X areas based on actual topography, the maps simply cannot
be relied on to determine if a building proposed in these locations is
actually within the 500-year floodplain or will be inundated during
lesser flood events. Last Spring, I was in a Shaded-X ``500-year'' home
with a full walkout basement that was inundated during our 10-year
flood. There are no Federal requirements for how that home should have
been built--nor how that home should be mitigated to prevent future
losses. There are no requirements that the property owner obtain flood
insurance to ease the burden on the taxpayer. The property owners had
received FEMA checks multiple times prior to last year's 10-year flood
event--and they did so again last Spring.
I was in another flooded home that was built in the 100-year
floodplain--with a basement. It should have never happened but it did.
Although that home was not constructed in compliance with FEMA
requirements, those property owners also received a check from FEMA.
I sincerely appreciate the opportunity to appear before you today
and would like to leave you with my own Top Three reform requests:
Stop issuing subsidized flood insurance policies for new
structures built after FEMA's floodplain designation. As
addressed in the Senate Bill, the taxpayer will no longer be
forced to subsidize insurance for those that choose to build in
designated floodplains.
Stop rewarding those who bring fill into the floodplain to
protect their development at the expense of pushing those
floodwaters onto their neighbors. FEMA encourages this practice
by issuing Letters of Map Revision Based on Fill (LOMR-F) which
completely removes the owner's obligation to obtain mandatory
flood insurance coverage and contribute to the National Flood
Insurance Program.
Stop issuing FEMA floodplain maps without providing written
notice to affected property owners. FEMA has the audacity--and
the budget--to send notices to widows on fixed incomes in
Bozeman and Missoula whose homes are nowhere near the
floodplain which scares them into buying flood insurance--but
FEMA does not have the budget or desire to send such notices to
people that are actually in the floodplain?! Thankfully,
notification is now addressed in the Senate Bill--scare tactics
are not. Even Missoula City Hall located nearly a half mile
from the floodplain received such a letter from FEMA. Targeting
extremely low risk properties may be good for the bottom line
but is not what citizens expect from their Government.
In closing, I sincerely thank this Committee and both Houses for
pursuing significant reform--and providing our citizens with long-term,
confidence restoring, reauthorization.
______
PREPARED STATEMENT OF DWAYNE BOURGEOIS
Executive Director, North Lafourche Conservation, Levee, and Drainage
District, Raceland, Louisiana
May 9, 2012
I would like to thank you Mr. Chairman and Members of the
Committee, for this opportunity to testify today. I am the Executive
Director of the North Lafourche Levee District, a political subdivision
of the State of Louisiana. However, I am here today representing a
broader coalition of agencies, citizens, and businesses in the State of
Louisiana who rely heavily on the National Flood Insurance Program.
We commend the Committee for addressing long-term reauthorization
and reform of the National Flood Insurance Program. Further, we
appreciate the opportunity to provide to you today details of our
current circumstances which are typical for many areas in South
Louisiana and across our Nation. We firmly believe that our issues are
being complicated and made worse by the lack of a long-term
reauthorization of the National Flood Insurance Program. We also
believe that our issues clearly demonstrate a need for reform, a reform
that we are right in the middle of at this time.
Our issues began in mid-2009 with FEMA's issuance of Preliminary
Digital Flood Insurance Rate Maps (DFIRMS) for our area. It was
immediately obvious to us that the maps could not possibly represent
the true risk of flooding in our area because the maps had no
correlation to any real world features. The North Lafourche Levee
District, along with the South Lafourche Levee District and the
Lafourche Parish Government immediately began to prepare our appeals to
FEMA. (A full copy of the Appeal launched by the North and South
Lafourche Levee Districts is included as Attachment A.)
The conclusion in our appeal was that FEMA's policy of removing
noncertified levees before running the wave analysis part of their
Flood Insurance Study was a scientifically unsound policy. This
approach to mapping produces DFIRMS that indicate base flood elevation
zones with boundaries that have no correlation to real world features.
Such maps are not understood or acceptable to local residents and
businesses. Further, and most importantly, we noted that intentionally
ignoring the impact of noncertified levees on the propagation of
floodwater necessarily yields results that overstate the risk of
flooding in some areas and understates the risk of flooding in other
area. We also noted that FEMA's Mapping Partners had insufficient
information, familiarity and experience to realize the results of their
mapping efforts were not a reasonable result of their study. Finally,
we pointed out that the modeling and mapping results were not in even
basic agreement with past flooding patterns and historical data.
Particularly in our appeal, we questioned how the preliminary
DFIRMs could indicate that a small polder, with a ring levee system of
only 8.2 miles in circumference, would possibly have a requirement for
7 different base flood elevations. (VE8, AE7, AE6, AE5, AE4, AE3, and
X) This entire polder is surrounded by a single levee of the same
elevation and the ground elevations inside this sub-drainage district
were virtually at the same elevation throughout. The results were
nonsensical. In the South Lafourche Levee System, the Preliminary
DFIRMS had similar unbelievable results. In some areas these maps
indicated there were 5 different base flood elevation requirements
within 800 feet all over perfectly flat ground. Literally, if the
DFIRMS were to be believed in expressing the risk of flooding, two
people standing on level ground, a mere 800 feet apart could be in two
different flood zones and there would be three additional base flood
elevations between them. This simply could not be.
We began working through the appeals process with FEMA and were
able to quickly identify the elements of the Flood Insurance Study that
were causing the erroneous mapping as well as the limitation of the
process that would allow the maps to more accurately reflect the threat
of flooding in our area. In short, two items primarily caused the
mapping problems. First, was the FEMA policy to NOT consider the
impacts of nonaccredited levee in their Flood Insurance Study. This
would become known as the ``without levees'' policy. The second problem
was in the application of the wave model FEMA was using as part of the
Flood Insurance Study for coastal levees. This model, known as the Wave
Height Analysis for Flood Insurance Studies (or WHAFIS) had serious
limitations when applied to long transects such as would be required in
south Louisiana.
We found that the appeals process was also limited in its ability
to produce accurate DFIRMS. We learned these limitations as we took our
appeals on these issues to FEMA including FEMA's Region 6 office in
Denton, TX. All along this process, we encountered cooperative and
sympathetic FEMA employees who were powerless to make any changes that
were not part of the official FEMA policy. Realizing that complete
resolution of these issues would have to come from a change in FEMA's
policy, and that this change would have to come from Washington, we
began to inform our Legislative Delegation of our quandary. In early
February of 2011, twenty-seven (27) U.S. Senators signed a letter to
FEMA Administrator Fugate asking FEMA to discontinue the ``Without
Levees'' policy.
In March of 2011, Administrator Fugate announced that FEMA would
begin developing a series of targeted modeling approaches to replace
the ``without levees'' approach to identifying the risk of flooding
behind uncertified levees. In one of the first publications that FEMA
released to answer questions as to how they were going to go about
making and implementing such a change, FEMA stated that it was
``engaged in a systematic effort to reform the national Flood Insurance
Program (NFIP), and we view a change in the manner in which we map
levees that do not meet the criteria for accreditation as a step toward
a long-term solution.'' (See Attachment B for a full copy of that
document.)
FEMA began working on the change to their policy. By the end of
July 2011, FEMA had put together enough of their revised policy to host
a Community Roundtable Forum here in Washington. Approximately 20
people from various stakeholder agencies across the country were
invited to participate in this forum. This was a very welcomed step and
I can truly say that FEMA was working earnestly on the issues at hand.
The main points that I was able to take away from attending the Forum
was first and foremost, the ``without levees'' approach was history.
Next, FEMA made it clear that the substitute process was going to be
collaborative with the local stakeholders, flexible yet technically
sound, and feasible in that the approach must be cost effective and not
overly burdensome on a community. (A full copy of our press release
after this event is included as Attachment C.) But, the forum focused
most of its efforts on the process and the basic revisions to the
policy. We started to see that FEMA was still working on the technical
side of the approach and we remained concerned for FEMA's ability to
develop a suitable approach for both Riverine and Coastal flood
protection levees.
We continued to follow-up with our friends at FEMA who were working
on the technical side of the policy changes. (Please see Attachment D.)
We were hoping to get a better understanding on how FEMA was going to
handle the differences in coastal versus riverine flooding; but, we
were hampered by FEMA's desire to release the Proposed Approach for
Public Review, which eventually came in December of 2012. After the
proposed policy change was opened for a 45 day public comment period,
FEMA did reveal that they were still working on how to address coastal
levee analysis. Further, they realized that some of the riverine
methods developed would not be appropriate for coastal levees. Finally,
they also acknowledged the limitations of their use of the one
dimensional WHAFIS model used for V zone determination was not
appropriate in parts of coastal Louisiana. However, they stated that
making changes to the use of WHAFIS was beyond their current study (the
revised approach) and they were looking for ways to improve coastal
analysis. They also agree to meet with us on these specific issues.
In order to answer the call for public comment on the revised
approach, we broadened our coalition to include questions and comments
agreed upon by the State's Coastal Protection and Restoration
Authority, the Association of Levee Boards of Louisiana, the North
Lafourche Levee District, the South Lafourche Levee District, the
Lafourche Parish Government, the Terrebonne Parish Government, the St.
Mary Parish Government and Coastal Oceanographer Dr. Joseph Suhayda.
(Please see Attachment E.) Again, most of these comments centered on
the difference between coastal levees and riverine levees. The draft,
revised policy included pages of technical details on how riverine-
based flood protection systems would be analyzed; but, it certainly
lacked detail in how reasonable maps would be developed for coastal
levees. As you can imagine, the flood source for coastal levees,
typically a short duration tropical event, is broadly different than
the flood source for riverine levees which is primarily driven by the
timing of rainfall and snowmelt. Further, the arrangement of riverine
levees, basically along the river, is different than coastal levees
which intend to provide protection from backwater flooding. The two
types of systems are so different that there is little opportunity to
create one methodology that can be used for both.
Following up on FEMA's offer to meet with us further on coastal
levee issues, FEMA helped facilitate a meeting with a small group from
our local coalition in February of this year, the topic of which was
centered on coastal levee issues. I must state that each time we have
met with FEMA we have encountered a group of individuals that were
cooperative in trying to produce the best product that they could,
given the confines of their operational policies. I could sense that
the recent proposed changes were giving them a better opportunity to
produce a better product and they were enthusiastic about the new
possibilities to produce a more accurate DFIRM. The most import points
that our group took away from the meeting are as follows.
1. When it comes to producing more accurate DFIRMS, no methods of
analysis are ``off the table'' as far as FEMA is concerned.
2. The process is not going to be black or white any longer. The
process is now ``intentionally gray'' in order to allow the
utmost flexibility in producing accurate results.
3. Where in the past, when trying to work with FEMA, we encountered
a series of well intending people whose hands were ``tied'' by
existing regulations; we will now be able to meet with FEMA
personnel who are no longer encumbered.
4. We can hope to see released coastal levee guidance independent of
riverine guidance to draw a clean distinction in the
differences to better assist FEMA mapping partners in handling
Coastal Levees.
(A full copy of the press release for this meeting is included as
Attachment F)
Overall, it was believed by all to be a very productive meeting.
Yet we have a long way to go and as of yet, FEMA has not released the
results of the analysis of all the Public Comments received.
So, today, we find ourselves working hand in hand with FEMA on
meaningful reforms to their policy only to be met by another looming
expiration of a short-term extension of the National Flood Insurance
Program. These are reforms that from our point of view began in mid-
2009, were enhanced by Legislative intervention and a commitment by
FEMA to improve the process in 2011 and are still being worked on
today. Obviously, changes to a process such at this takes time. And
yet, the details I have provided today are the efforts to resolve but a
single issue within the National Flood Insurance Program. There are so
many more issues that can be corrected trough cooperative reform and a
long-term reauthorization of this vital program.
In conclusion, I would like to point out that ours is a working
delta, the fruits of which are enjoyed by and enrich our entire Nation.
From freight transportation on the Mississippi River to our oil and gas
and petrochemical industry to our abundant fisheries, not to mention
tourism, jazz and Mardi Gras, we simply must work and live within this
delta. As such, the availability of federally backed, affordable and
financially stable flood insurance is of vital importance to our region
and the entire Nation.
We thank you for this opportunity to share both our situation and
our views on this important issue. We look forward to working with all
of you to continue to make these changes to the National Flood
Insurance Program.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF DAVID A. SAMPSON
President and Chief Executive Officer, Property and Casualty Insurers
Association of America
May 9, 2012
Executive Summary
Good morning Mr. Chairman, Members of the Subcommittee. My name is
David Sampson and I am President and Chief Executive Officer of the
Property Casualty Insurers Association of America (PCI).
PCI and our members believe that the National Flood Insurance
Program (NFIP) is vitally important to our Nation and the economy, and
we are here today to support your efforts to pass bipartisan
legislation in the Senate that includes a long-term reauthorization and
meaningful reforms.
PCI represents the broadest cross-section of insurers of any
national trade association. Our more than 1,000 member companies write
approximately 38 percent of all home, auto, and business insurance in
the country. PCI members write about 52 percent of all the flood
insurance as partners with the NFIP through the Write-Your-Own (WYO)
program. PCI also chairs the WYO Flood Insurance Coalition, a group
that includes the more than 85 private insurers that actively
participate in the WYO Program as well as all the other national
property casualty trade associations. Thank you for the opportunity to
appear before you today on behalf of PCI and its members.
PCI commends you for holding this important hearing. The NFIP is
set to expire on May 31--the day before the official start to the
Atlantic hurricane season--if Congress does not act. More than 5.6
million American homeowners, renters, and businesses are NFIP
policyholders and rely on this program to protect their homes and their
financial security. They are depending on you to act quickly to avoid
another lapse in flood insurance coverage. In addition, the millions of
Americans who intend to purchase or refinance homes with financing from
federally regulated lenders will not be able to do so if they live in a
flood plain and Congress fails to extend the NFIP. Finally, the U.S.
Government, and ultimately taxpayers, will be forced to pay the tab for
the next flood if consumers are unable to purchase insurance due to an
expired NFIP.
The NFIP is also deeply in debt and needs long-term structural
fiscal reform. If a private insurance company held no surplus and
carried $17.75 billion in debt (on $4 billion in revenue) for 6 years,
State regulators would immediately shut it down and the CEO would be
fired. And yet the NFIP is both statutorily unable to charge adequate
rates and often unwilling to raise prices by even the amount they are
allowed, despite their massive accumulated debt.
Two PCI studies on flood risk pricing revealed that the NFIP is
providing Government subsidized flood policies at roughly one-third the
private sector comparable premium. A RAND study estimated that FEMA is
underpricing policies by 20 to 50 percent, and even the Congressional
Budget Office estimates that the NFIP's built-in deficit is at least
$1.3 billion annually, with the Government Accountability Office (GAO)
suggesting the true program subsidy is far higher. The subsidies for
repetitive loss and high flood-risk properties are even greater,
estimated by GAO at 40 to 45 percent of Government risk costs, with
such explicitly subsidized policies actually growing in number and now
representing over 22 percent of all Federal flood policies. The NFIP is
fiscally unsustainable in its current path and must be reformed.
NFIP Reauthorization
The NFIP Should Be Reauthorized on a Long-Term Basis (e.g., 5 Years)
Congressional authorization for the NFIP program has been extended
on a short-term basis 12 times since September 30, 2008, with the flood
program scheduled to expire again on May 31, 2012. A long-term
reauthorization will ensure that there will be no gaps in coverage,
which occurred four times in 2010 alone, each lapse longer than the
previous with increasing uncertainty and frustration among consumers
and providers.
Gaps in flood insurance coverage cause significant disruption in
the housing markets. Homebuyers in flood zones with a federally backed
mortgage are required to purchase flood coverage before the property
can be closed on. According to the National Association of REALTORS, in
2010, more than 40,000 real estate transactions were delayed because of
lapses in the NFIP's authorization.
Gaps also cause policyholders and insurers to doubt the continued
availability of the product. Each time the program lapses, or is
extended for a short term, a cumbersome and expensive series of special
bridging transactions is required. Insurers, consumers, and the NFIP
must set aside policy purchases, collect funds and advance claims
payments. This creates significant costs and bureaucracy for the
marketplace and uncertainty for Americans who rely on this important
protection. This uncertainty has been one of the reasons that several
Write-Your-Own carriers have exited the program.
With the next NFIP expiration deadline scheduled for the day before
the upcoming hurricane season, Congress and consumers face a potential
economic nightmare in both public and private markets if a major storm
occurs during a lapse--something that is so easily preventable.
First and foremost to protect Americans and our economy, a long-
term reauthorization of the national flood program is needed.
Reforms
Fixing the Rate Structure
The NFIP heavily subsidizes consumer rates across the board, unlike
rates charged in the private sector. High flood-risk properties are
particularly and explicitly subsidized, as part of a grandfather clause
established at the NFIP's inception in 1968 that was expected to shrink
over time but has instead morphed into an ever-growing subsidy. Even
while carrying tens of billions of dollars in ongoing debt, the NFIP
has allowed these subsidies to grow in recent years as it has struggled
to impose updated flood maps. Rate increases during that time have been
minimal despite increasing predictions of storm loss by catastrophe
modelers. While Write-Your-Own carriers have little direct interest in
the NFIP's rates, as taxpayers who help facilitate the program, we
encourage Congress to consider phasing out NFIP subsidies over time.
Government insurance subsidies can create a moral hazard by encouraging
overbuilding and discouraging consumer risk mitigation. This results in
greater ultimate costs to taxpayers.
The long-term NFIP reauthorization bill passed by the Senate
Banking Committee last year includes reforms raising from 10 to 15
percent the ceiling for annual rate increases that the NFIP can
establish. Insurers believe that insurance premiums should reflect the
risk of loss, and we support this initial improvement. The bill also
increases the minimum deductibles for flood losses to reduce program
costs and more appropriately reflect prevailing practices in the
private insurance market. Increasing the loss deductible should also
improve the NFIP's solvency and allow more resources to be reallocated
towards loss mitigation and protecting consumers from financial ruin.
PCI also supports congressional proposals to establish an NFIP reserve
fund, setting aside a percentage of the potential loss exposure. This
would better protect consumers and taxpayers, though it would still be
a fraction of the surplus that would be required for private insurers.
Increasing the rates is the first step, but the program must also
begin to further offset the significant Government subsidy (which FEMA
states is 40-45 percent for pre-FIRM properties). The rates need to be
closer to true market rates before any meaningful discussion related to
the private industry taking on flood risk can take place. PCI estimates
that flood insurance premiums would need to double, and in some cases
triple, if the private insurance market were to write this business on
a primary basis. Proposals to end the NFIP's primary flood underwriting
are unrealistic given the current steep subsidies and the recognized
unwillingness of many homeowners to purchase coverage in high risk
areas and at highly subsidized rates, even when mandated.
Address Mapping Issues
The certification of levees and ongoing flood map modernization has
continued to be controversial, particularly for consumers who are now
required to purchase flood insurance, often at higher-than-average
Federal rates, as a result of map revisions. While PCI believes that
insurance rates should always appropriately reflect the cost of risk, a
phase-in for these purchasers as well as the reestablishment of the
Technical Mapping Advisory Council are important measures to ameliorate
the impact of these changes for consumers, communities, the States and
policyholders. PCI and members of the Write-Your-Own coalition would
ask that our industry be represented on that Council by a
representative of a flood insurance servicing carrier (a ``Write-Your-
Own'' company).
PCI encourages the extension of the Flood Insurance Reform Act of
2004 program for Severe Repetitive Loss Properties. These properties
account for just 1 percent of NFIP's insured properties but are
responsible for 25 to 30 percent of claims. It is time to buy-out, or
otherwise charge the appropriate premium for these properties that
continually flood and are rebuilt time after time.
PCI also supports the inclusion of nationally recognized building
codes in the floodplain management criteria. This would require FEMA/
NFIP to work with the building code councils to include this
information. It would provide for better construction of properties and
help minimize damage from a variety of perils, including flood, as well
as reduce the number of repetitive loss properties over time.
Address Servicing Issues
The ``Write-Your-Own'' (WYO) program, established in 1984, has been
very successful in increasing consumer participation in the NFIP, but
it has also been the subject of legislative discussion over the past
few years. There have been issues related to loss settlement, expense
reimbursement, and participation in the NFIP by WYO insurers.
Following Hurricane Katrina, there were significant issues related
to the settlement of wind and water losses. Most of these issues would
have been addressed by the application of the NFIP appeals process that
was included in the Flood Insurance Reform Act of 2004. Unfortunately,
that process was not implemented when Katrina hit, but it is in place
now. Thus, the rare occurrences of wind-water disputes are already
effectively dealt with by existing reforms and no new reporting
requirements (such as providing the NFIP with wind claims information)
or other legislation is needed to address these issues.
Questions sometimes also arise about the WYO claims expense
reimbursement for insurers. Following Katrina, the NFIP worked with the
WYO participating insurers to revise the claims expense reimbursement
when significant catastrophes occur. Indeed, the NFIP reduced the
amount of the claims expense reimbursement where the number of losses
are significant and insurers and the NFIP can benefit from some
economies of scale. However, the marketplace has now proven that
existing claims reimbursement payments are not overly generous. If they
were, the number of insurers willing to participate in the WYO program
would not have continued to decline. Thus, to the extent any further
changes are proposed, we urge careful consideration of the potential
effect on WYO participation.
Eliminate Outdated Commissions
Past Senate bills have included provisions establishing a natural
catastrophe commission to examine insurance market conditions following
the 2005 hurricanes. PCI suggests that the marketplace, its regulation,
and the sophistication of catastrophe modeling have advanced
significantly over the past 7 years, eliminating the need for such a
commission.
Conclusion
A long-term extension of the flood program with fiscal rate reforms
is supported by consumers, insurers, environmental groups, taxpayer
groups, the real estate industry, and the overwhelming majority of both
parties in Congress. At a time when the American economy is struggling
to move forward, housing values are still mired in recession, and
hurricane season is rapidly approaching, a fiscally sound long-term
reauthorization of the NFIP is absolutely critical before another lapse
occurs.
PCI applauds your efforts to encourage the Senate to take up this
issue and to pass a long-term reauthorization and reform bill before
May 31. PCI stands ready to be of any assistance in this effort.
Thank you.
______
PREPARED STATEMENT OF JON JENSEN
Government Affairs Committee Chairman, Independent Insurance Agents and
Brokers of America, and President, Correll Insurance Group
May 9, 2012
Good afternoon Chairman Tester, Ranking Member Vitter, and Members
of the Subcommittee. My name is Jon Jensen, and I am pleased to be here
today on behalf of the Independent Insurance Agents and Brokers of
America (IIABA or Big ``I'') to present our association's perspective
on efforts to reform the National Flood Insurance Program (NFIP). I am
president of Correll Insurance Group, an insurance agency based in
South Carolina with 12 offices and 132 associates. Since 2011 I have
served as Chairman of the Government Affairs Committee for the Big
``I''.
The Big ``I'' is the Nation's oldest and largest trade association
of independent insurance agents and brokers, and we represent a
nationwide network of more than a quarter-of-a-million agents, brokers,
and employees. IIABA represents independent insurance agents and
brokers who present consumers with a choice of policy options from a
variety of different insurance companies. These small, medium, and
large businesses offer all lines of insurance--property/casualty, life,
health, employee benefit plans, and retirement products. In fact, our
members sell 80 percent of the commercial property/casualty market. It
is from this vantage point that we understand the capabilities and
challenges of the insurance market when it comes to insuring against
flood risks.
Background
The Big ``I'' believes that the NFIP provides a vital service to
people and places that have been hit by a natural disaster. The private
insurance industry has been, and continues to be, largely unable to
underwrite flood insurance because of the catastrophic nature of these
losses. Therefore, the NFIP is virtually the only way for people to
protect against the loss of their home or business due to flood damage.
Prior to the introduction of the program in 1968, the Federal
Government spent increasing sums of money on disaster assistance to
flood victims. Since then, the NFIP has saved disaster assistance money
and provided a more reliable system of payments for people whose
properties have suffered flood damage. It is also important to note
that for almost two decades, up until the 2005 hurricane season, no
taxpayer money had been used to support the NFIP; rather, the NFIP was
able to support itself using the funds from the premiums it collected
every year.
Under the NFIP, independent agents play a vital role in the
delivery of the product through the Write Your Own (WYO) system.
Independent agents serve as the sales force of the NFIP and the
conduits between the NFIP, the WYO companies, and consumers. This
relationship provides independent agents with a unique perspective on
the issues surrounding flood insurance, yet also makes the role of the
insurance agent in the delivery process of flood insurance considerably
more complex than that of many traditional property/casualty lines.
Agents must possess a higher degree of training and expertise than
their non-NFIP participating counterparts, which requires updating
their continuing education credits through flood conferences and
seminars. This is done regularly and involves traveling to different
regions of the country, costing personal time and money. Every agent
assumes these responsibilities voluntarily and does so as part of being
a professional representative of the NFIP.
Despite our strong support of the NFIP, we also recognize that the
program is far from perfect, which was made all the more clear by the
devastating 2005 hurricane season. The current $17.2 billion dollar
debt, incurred in 2005, reveals some of the deficiencies of the program
and has strained Government resources. While IIABA is confident that
the NFIP will recover, it is important that Congress shore up the
NFIP's financial foundation and use this opportunity to enact needed
reforms to ensure the long-term sustainability of the program.
For this reason, the Big ``I'' strongly supports S. 1940, the
``Flood Insurance Reform and Modernization Act of 2011,'' by Chairman
Tim Johnson, which the Senate Banking Committee reported out
unanimously last year. The Big ``I'' thanks the Committee for its
action on this legislation and urges the full Senate to consider the
legislation on the floor at the earliest opportunity.
The Big ``I'' also supports H.R. 1309, the ``Flood Insurance Reform
Act of 2011,'' similar legislation which passed the House of
Representatives with over 400 votes last year. We believe that while
there are some differences between the Senate and House bills, these
minor differences could be overcome by policy makers with a modest
amount of effort.
Long-Term Extension
As you know, the NFIP is a Congressionally authorized program that
requires periodic extensions. Traditionally these extensions have been
for multiple years (often for 5-year periods) but in recent years
Congress has not passed a long-term extension of the program and
instead has opted to pass numerous short-term extensions. In 2010 alone
the NFIP expired three separate occasions only to be retroactively
extended by Congress each time. Each expiration of the program led to
concrete damage to the real estate market and the country's economy.
During one month-long expiration in June 2010, for example, the
National Association of Realtors estimated that as many as 50,000 new
home loans were either significantly delayed or canceled. While the
IIABA appreciates each of the retroactive extensions, we strongly
believe that in order to provide certainty to the marketplace as well
as avoid damage to our fragile economy, Congress should pass a long-
term extension.
Even the short-term extensions passed over the last several years,
while thankfully staving off expiration of the program, caused their
own economic damages. Every time the program is set to expire, WYO
companies send notices to their consumers about the pending expiration,
agents must then communicate to their clients about what the
ramifications of an expiration would be (as well as oftentimes
providing real time legislative updates on extension legislation),
banks must prepare for how and if to enforce the mandatory purchase
requirement of an expired program, and realtors and mortgage bankers
must discuss with their customers how and if to proceed with home loan
closings. While not nearly as damaging as an actual expiration, the
uncertainty and the increased work-load caused by short-term extensions
justifies a long-term extension of this critical program.
It is for these reasons that IIABA strongly supports the 5-year
extension found in the Senate reform bill.
Moving Towards More Actuarial Prices
The Big ``I'' has for many years asked Congress to explore phasing
out subsidies in the NFIP altogether. We are pleased that the Senate
legislation contains proposals to phase out subsidies for many
properties. Almost 25 percent of property owners participating in the
NFIP pay subsidized premium rates. These subsidies allow policyholders
with structures that were built before floodplain management
regulations were established in their communities to pay premiums that
represent about 35 to 40 percent of the actual risk premium. The
subsidized rates were deliberately created by Congress in 1968 in order
to help property owners during the transition to full-risk rates.
However, after 43 years the Big ``I'' believes it is time to start
phasing out this significant subsidization.
In addition to the fact that subsidized rates torpedo any hope that
the NFIP could ever be actuarially sound, FEMA estimates that
subsidized properties experience as much as five times more flood
damage than structures that are charged full-risk rates. Customers that
are paying a full actuarial rate have a vested interest to take
measures to reduce the economic damages associated with floods. In
contrast, those with subsidized rates have less incentive to mitigate.
The Big ``I'' welcomes and supports the Senate legislation's phasing
out of subsidies for commercial buildings, second and vacation homes,
homes experiencing significant damage or improvements, and repetitive
loss properties.
Finally, the Big ``I'' welcomes S. 1940's proposal to increase the
``elasticity band'' with which FEMA can increase premiums in any given
year. Currently the annual elasticity band for premium increases is a
maximum of 10 percent on any property. S. 1940 would propose to
increase this band to 15 percent which would allow the program to move
even more properties towards actuarially priced rates.
Privatization of the NFIP
Some observers have argued that the program should be eliminated or
completely privatized. These arguments center on the assumption that
the private market could step in and offer flood insurance coverage.
However, the IIABA has met with many insurance carriers who
categorically state that the private market is simply unable to
underwrite this inherently difficult catastrophic risk, especially in
the most high risk zones where it is needed. IIABA would always prefer
to utilize the private market, and our members would almost certainly
prefer to work directly with private insurance carriers rather than a
Government agency. However, where there is a failure in the
marketplace, as there is in the case of flood insurance, we believe it
is imperative that the Government step in to ensure that consumers have
the protection they need. This was the reason the NFIP was first
created in 1968, because the private market could not offer flood
insurance and a series of high profile floods had consumers turning to
direct Federal disaster assistance as their only recourse. We see no
evidence that the private marketplace is any more prepared or capable
of underwriting flood risk in 2011 than they were in 1968.
We do not, however, oppose the study on private market capacity as
called for in the Senate bill. We believe that this study will likely
show that the private market cannot properly underwrite flood risks,
but if it can be demonstrated that a private market could emerge in
some way, we would welcome that discussion.
Repetitive Loss Properties
Repetitive loss properties--currently defined as those that have
had two or more flood insurance claims payments of $1,000 or more over
10 years--continue to put a significant drain on NFIP resources. These
properties account for about 1 percent of all policies but are
estimated to account for up to 30 percent of all NFIP losses. The Big
``I'' is encouraged that the Senate legislation would phase out
subsidized rates for these repetitive loss properties, and in the
future would urge the Committee to consider taking further measures to
combat this difficult issue. For example, if a repetitive loss property
continues to experience a certain number of losses within a specific
timeframe, Congress could require that property to either take
stringent mitigation measures or to be disqualified from participating
in the NFIP altogether.
While Congress has previously made efforts to tackle the repetitive
loss issue, according to GAO the number of repetitive loss properties
has actually grown over the last decade. Dealing with repetitive loss
properties is of the utmost importance not only because of the
financial strain that they place on the program, but also because of
the obvious lack of fairness that these properties highlight to other
program participants and the general public.
May 31st Expiration
As you know, the NFIP is set to once again expire on May 31, 2012,
barring Congressional action. While some stakeholders believe that
short-term extensions are helping to add a sense of urgency for the
passage of the long-term reform and extension bills, the Big ``I'' is
very concerned about the messages that these continual short-term
extensions are sending to NFIP consumers, the WYO companies, and the
agents that drive consumers to the program.
While the most important message the Big ``I'' would like to share
with this Subcommittee is to urge you to not allow the NFIP to expire,
it is also important to reiterate the increasing frustration felt in
the marketplace concerning the continual short-term extensions. The
NFIP protects 5.6 million consumers across the country, and after 6
years of short-term extensions it deserves some long-term certainty.
Conclusion
The IIABA is very pleased that the Subcommittee is conducting
today's hearing on comprehensive flood insurance reform and we strongly
urge the Senate to quickly consider the Flood Insurance Reform and
Modernization Act so that work can start immediately on resolving
differences between S. 1940 and H.R. 1309. Reforming and extending the
NFIP is essential to ensure the long-term stability of the NFIP. It is
our sincere hope that agreement can be reached soon on the reform and
long-term extension legislation, but we also feel that the time is
approaching to consider abandoning the chaotic practice of short-term
extensions and to finally provide some stability for the program and
the marketplace--regardless of the status of the reform bills.
I thank the Committee for giving me the opportunity to express the
views of the IIABA on this important program. I hope very much that
this hearing will contribute to additional action taken by Congress to
pass long-term flood insurance reforms and to ensure the stability of
the NFIP.
______
PREPARED STATEMENT OF MOE VEISSI
2012 President, National Association of Realtors
May 9, 2012
Introduction
Chairman Tester, Senator Vitter, and Members of the Economic Policy
Subcommittee, the 1 million members of the National Association of
REALTORS' (NAR) thank you for this opportunity to testify on
the urgent need for long-term reauthorization and reform of the
National Flood Insurance Program (NFIP).
My name is Moe Veissi, and I am NAR's 2012 President. I have been a
REALTOR' for over 40 years, and am the broker-owner of
Veissi & Associates, Inc., in Miami, FL. Since 1981, I have served the
REALTOR' community in many capacities, from local
association president, to State association president, to Regional
Vice-President, and now on the national stage as NAR President. Based
on numerous first-hand accounts over the years, as well as my direct
personal experience as a practitioner in the field, I can assure you
that there are few issues of greater importance to real estate markets
than ensuring access to affordable flood insurance.
Thanks to your continued leadership, the Senate Banking, Housing,
and Urban Affairs Committee has already taken a critical step toward
providing that certainty, by unanimously approving the Flood Insurance
Reform Act (S. 1940) last year. One of the most important next steps
the Senate could take right now is to pass this bill and keep the
legislative process moving forward. The House has already passed
similar legislation (H.R. 1309) by an overwhelming margin (406-22).
This is a level of bipartisan support few bills have received in any
Congress, and it is testament to the careful and painstaking work by
you and many other members over multiple sessions. The bill would not
only reauthorized but reform and strengthen NFIP long-term, and we are
confident that any remaining issues can be resolved through the
amendment process on the floor. This bill is ready for Senate
consideration. It is a bipartisan opportunity. It deserves a vote.
As the Committee is well aware, for some time now, the NFIP has
been operating under stopgap extensions of authority to issue flood
insurance. The latest one is set to expire on May 31, 2012. There now
have been a total of 17 extensions since 2008 (appended); twice,
failure to act on an extension resulted in a multiweek lapse of NFIP
authority. According to NAR research, this stalled more than 1,300 home
sales per day during the 53-day lapse in 2010. Each sale meant jobs and
growth to the U.S. economy. There were unquantified losses to property
owners and taxpayers beyond homes sales--not to mention 17 missed
opportunities for reforms which would help pay down the outstanding
loan for Hurricane Katrina. A stopgap approach to NFIP reauthorization
is not a responsible way to run a Federal program--let alone one upon
which 5.6 million taxpayers in 21,000 communities depend. We urge the
Senate to bring up and pass the Flood Insurance Reform Act,
immediately.
Background
Floods are a national problem requiring a Federal solution. As
detailed in our prior testimony before this Committee, there is not a
single State in the Union that has escaped a presidential flood
disaster declaration in the past two decades. \1\ Since May 1, 2011,
disasters have been declared in more than half the States, including
Wyoming, New Mexico, Oklahoma, Utah, Nebraska, North and South Dakota,
Iowa, Kansas, Ohio, and Missouri. Tomorrow, it could be Michigan or New
York. Floods are inherently unpredictable. They can occur anywhere--
along rivers, wherever snow melts or rain falls. We simply do not know
when or where they will strike next.
---------------------------------------------------------------------------
\1\ NAR Statement to the U.S. Senate Committee on Banking,
Housing, and Urban Affairs, regarding the hearing ``Reauthorization of
the National Flood Insurance Program,'' June 9, 2011, pp. 9 and 20.
---------------------------------------------------------------------------
Because of their unpredictable nature and high cost, there has
never been an adequate private market for flood insurance. The lack of
predictability would force insurers to charge unaffordable rates that
few States would be willing to approve. \2\ Already, few property
owners will buy flood insurance at the more affordable NFIP rates;
short of imminent threat, most question the need. However, allowing the
rate to rise to reflect this ``adverse selection'' (i.e., those most
likely to buy are also most likely to flood) would guarantee that few
could afford flood insurance in a purely private market.
---------------------------------------------------------------------------
\2\ Id, pp. 4-5.
---------------------------------------------------------------------------
Given this, and the widespread devastation floods cause, the
Federal Government will step in, one way or another. In the past, the
Federal response took entirely the form of appropriated disaster relief
where taxpayers were 100 percent ``on the hook'' for rebuilding flooded
communities and properties. Then Hurricane Betsy struck in 1965, and
the Federal Government could no longer afford to ignore the cost to the
Federal Government and taxpayers. A HUD commission, authorized by
Congress and convened by President Johnson, had demonstrated how
creation of a Federal insurance alternative could reduce the cost.
Rather than relying on Government assistance after the fact, those at
risk of flooding could assume a measure of responsibility and control
upfront by purchasing federally backed insurance and essentially
prepaying to cover future flood damage. Every insured property would
mean one fewer to be rebuilt with taxpayer dollars. Insurance would pay
for the damage, so taxpayers would not. The NFIP was the result in
1968.
Since then, the NFIP has been reauthorized multiple times, but the
Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004 (P.L.
108-264) was the last reauthorization bill to become law. Congress
returned to the subject last session, but the 110th Congress came
closer to a subsequent reauthorization, when both houses passed similar
versions of the Flood Insurance Reform Act, the predecessor to this
Committee's S. 1940. That bill passed the Senate by 92 votes and was
headed to a conference with the House when attention turned to the U.S.
financial crisis. S. 1940 is virtually unchanged from what passed the
Senate in 2008. And while there were not many bill differences to begin
with, the House has since adopted many of the Senate provisions. Now 17
stopgaps and two shutdowns later, NFIP authority is again set to expire
on May 31st of this year.
Real Estate Markets Have NOT Rebounded
The housing market continues to recover from one of the longest
economic downturns since World War II. While fewer property owners are
reporting as many major problems as they have in the past and some
markets are even starting to trend upward, surveys show real estate
prices remain weak as the distressed properties still make up a
significant portion of home sales. Many home buyers, who bought during
the peak of the market and saw their homes values drop precipitously,
continue to be underwater and many of those face foreclosure. Below is
NAR's chart of existing home sales.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Data show a concomitant drop in sales around the time of the last
multiweek lapse. As the chart illustrates, sales were dropping before
and during June 2010 but rebounding afterward. The lapse was not the
only or even the driving factor for this, but as this suggests, it
contributed. By Federal law, buyers and property owners may not obtain
a federally related mortgage loan without flood insurance in 21,000
communities, where there is a 100-year floodplain. These days, the bulk
of financing is federally related, and private insurance is not an
option, except for the highest value property owners. \3\
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\3\ Id, p.4.
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Commercial real estate markets are similarly struggling. Property
values have plummeted across the board since 2007. Small business
owners--the engine of job creation and innovation and backbone of the
local community--have suffered the most. Compounded with $2 trillion in
commercial real estate loans coming due over the next decade and a
limited capacity to refinance, sales and leasing of commercial
properties have been dismal. The failure to reauthorize the NFIP has
only exacerbated the situation for commercial property owners, who are
already struggling to stay afloat amid the liquidity crisis, high
vacancy rates, and lower net operating incomes. In many cases, this
held up commercial sales, contributing to the economic instabilities.
NFIP Stopgaps Exacerbate Market Uncertainty
For some time now, the NFIP has operated under stopgap extensions
of authority to issue flood insurance. Since 2008, there have been a
total of 17 extensions, with the latest one set to expire on May 31,
2012. Twice in 2010, failure to act on an extension turned into a
multiweek shutdown, resulting in the delay or cancellation of any
property sale to be financed with a federally related mortgage in the
100-year floodplain.
NAR surveyed its membership to assess the impact of the shutdown
and found that the NFIP is essential for successfully completing half a
million home sales annually. Further analysis confirmed that each day
of a lapse stalls more than 40,000 sales per month or 1,300 daily.
Nationwide, about 8 percent, or 10 million homes, are located in the
100-year floodplain or Special Flood Hazard Areas (SFHAs). Table 1
presents the daily impact in SFHAs by census region.
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\4\ NAR estimated annual existing home sales by taking the 2008-
2010 average. Using an average ensures that any year-to-year
variability (such as the first-time home buyer credit) is smoothed out
and avoids the elevated activity of the circa-2002 housing boom. The
2008-2010 market activity has been generally consistent with the
activity prior to the year 2000. Adding 2011 data would not
significantly change the results.
\5\ NAR estimated the percentage of the existing sales in SFHAs by
using GIS software to overlay spatial layers of block-level data from
the latest American Housing Survey (ACS 2005-2009) with the map of
SFHAs from FEMA.
\6\ New residential sales data is available by region only.
Assuming the new homes are similarly located in the SFHAs as the
existing homes are, the share of homes located in the flood zone is
multiplied by the total number of new sales by region.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Economic Impact of Home Sales
A stopgap approach to NFIP reauthorization not only affects home
sales but also has a ripple effect throughout the economy. Each sale
provides jobs and income to real estate agents, construction workers,
building contractors, mortgage service providers, home inspectors, home
appraisers, and many others. There is an annual impact to the community
as there is less income to spend on goods and services.
NAR estimated the contribution of each home sale to Gross Domestic
Product (GDP). In 2010, real estate and related industries added
$58,000 in income per sale, accounting for the multiplier effect. Using
a conservative earnings assumption, this translates into two jobs
generated for each sale.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Additional Economic Impacts
Each NFIP lapse affects +1,300 home sales daily, each of which has
the potential to generate jobs and contribute to the annual growth of
the economy. But this home sales impact is not the full impact of a
lapse. While NAR has quantified the loss of those sales with a
federally related mortgage in the 100-year floodplain, as well as the
multiplier effect, this does not account for:
Property Sales Other Than Single Family Homes and Rentals.
The mandate to purchase flood insurance applies to multifamily
and nonresidential properties, too.
Refinancing. During the lapse, Write Your Own companies
(which partner with NFIP to process insurance policies) are
unable to renew or modify a policy, either. Existing property
owners could be in technical default of a mortgage for failure
to renew flood insurance after the 30-day grace period.
Financing BEFORE Lapses. Some banks, when faced with the
prospect, often weeks in advance, preemptively suspended
lending in the floodplain. Federal regulators attempted to
address this through guidance that loans could still be made
where buyers took steps, though due to the lapse, were unable
to obtain flood insurance; nevertheless, anecdotal reports were
that most of these lenders did not find the guidance persuasive
and instead, erred on the side of protecting their interest in
the property, by choosing not to lend.
Insurance Outside of Federally Designated Floodplains.
According to NFIP, 25 percent of flood claims come from
properties located outside of areas where flood insurance is
required but where the owner chooses to purchase coverage.
Finally, there is also the consequence to taxpayers. Again, a
property without flood insurance is a property one flood away from
Federal disaster relief--at taxpayer expense. Owners of a property
facing a 1-percent chance of flooding in a given year (or a 26-percent
chance over the life of a 30-year mortgage) would most likely turn to
the Federal Government after flooding. Compared to the number of NFIP
policies, the following table bounds the impact of uninsured
residential structures for the United States.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Bipartisan Opportunity for NFIP Reform
We appreciate NFIP's many program innovations over the years,
including employing advanced flood mapping technologies (e.g.,
satellite imaging and LIDAR), working to replace its ``without levee''
policy with a more precise approach, and instituting independent review
of map appeals. While there have been many great strides,
REALTORS' have helped identify a number of areas for further
improvement, including:
---------------------------------------------------------------------------
\7\ NAR estimated the percentage of these in SFHAs by using GIS
software to overlay spatial layers of block-level data from the latest
American Housing Survey (ACS 2005-2009) with the map of SFHAs from
FEMA.
\8\ The 5-year ACS offers a rolling average of housing units at
the lowest geographic level available. NAR calculated the comparable 5-
year average of NFIP policies, based on data provided by FEMA.
Enhancing FEMA notifications and communications with
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communities.
Providing reimbursement of flood-map appeal expenses where
NFIP erred.
Providing additional time for communities and homeowners to
work through appeals.
Reviewing mapping standards and procedures, and
streamlining the process.
Undertaking more accurate insurance pricing, particularly
behind dams and levees to account for the protection provided
by flood control structures.
Indexing and expanding coverage to include business
interruption and living expenses.
We applaud the Committee for addressing virtually every one of
these recommendations in S. 1940. These reforms will greatly improve
the accuracy of floodplain mapping and increase participation. They
will help property owners better understand the flood risk and make
more informed decisions that protect their homes and businesses as well
as taxpayers. But unless the Senate takes up this bill and soon, the
many years of hard work and collaboration on these reforms will be
lost, and we will have to start again. We will not only have lost these
important reforms but also missed yet another opportunity to fiscally
strengthen the program for the long run.
Conclusion
Thank you again for the opportunity to share the
REALTOR' community's views on the NFIP and the urgent need
for long-term reauthorization and reform. All stopgap extensions do is
maintain an uncertain status quo while shut downs risk homes,
businesses, communities, and the U.S. economy. NAR urges the Senate
take up and pass the Flood Insurance Reform Act, immediately, and keep
the legislative process moving forward. NAR stands ready to work with
you and the Senate to pass meaningful reforms to the NFIP that help
protect property owners and renters and help them prepare for and
recover from future losses resulting from floods.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF SARAH MURDOCK
Senior Policy Advisor, The Nature Conservancy
May 9, 2012
Mr. Chairman and Members of the Subcommittee, thank you for the
opportunity to present The Nature Conservancy's views on the timing of
and nature of reforms to the National Flood Insurance Program. My name
is Sarah Murdock and I am a Senior Policy Advisor for The Nature
Conservancy. The Nature Conservancy is an international, nonprofit
conservation organization working around the world to protect
ecologically important lands and waters for nature and people. Our
mission is to conserve the lands and waters upon which all life
depends.
The Nature Conservancy continues to support a 5-year
reauthorization of the National Flood Insurance Program through passage
of The Flood Insurance Reform and Modernization Act of 2011 currently
being considered by the United States Senate. We believe this
legislation brings significant reforms which we consider critical to
begin to address areas of the Program that are currently broken.
Contrary to Congressional intent, the Program as it currently functions
is increasing risk from storms and floods to people, property and
ecosystems, and to the important services that those ecosystems provide
to people.
Enactment of The Flood Insurance Reform and Modernization Act of
2011 will phase out subsidies that have undermined the financial
stability of the program; will require the Federal Emergency Management
Agency (FEMA) to ensure maps are updated and accurate so that people
understand and can better prepare for their risks; and will streamline
and strengthen mitigation programs to help decrease flood risks and
better protect flood-exposed communities and homes and businesses. We
ask that this legislation be brought before the full Senate for debate
and consideration at the earliest opportunity.
The Nature Conservancy is also a member of the Smarter Safer
coalition, a diverse coalition of environmental organizations, taxpayer
advocates, insurance industry representatives and housing groups.
Though the groups span the political spectrum, the coalition works
together on insurance, natural disasters and mitigation. Smarter Safer
also strongly supports the Senate Banking Committee flood insurance
reform bill which will help ensure that the flood program can continue
to provide needed insurance to Americans in harm's way while making
commonsense reforms.
Why Reform Is Needed Now
Waiting to implement reforms will continue a policy that results in
increased risk, destruction of homes and infrastructure, and cost to
people, property and the natural resources upon which we depend. The
National Flood Insurance Program (NFIP) is currently over $18 billion
in debt.
Without significant reform, the NFIP will not be economically
sustainable and American taxpayers will continue to be asked to bail
out the program and subsidize public and private development in flood
risk areas.
Extreme Weather Events Predicted To Increase
Results from scientific studies indicate that a changing climate
has exacerbated and will continue to intensify extreme weather events
including flooding and coastal storms. Over the last 50 years,
Americans have seen a 20 percent increase in the heaviest downpours. In
addition, newly published research demonstrates that proportion of
category 4-5 hurricanes has doubled from 20 percent to 40 percent in
only 35 years. \1\ Coastal storm surge and storm impacts will only
intensify as sea levels continue to rise the predicted 0.6 and 2 feet
globally in the next century. \2\
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\1\ Holland and Bruyere (2012).
\2\ International Panel on Climate Change (2007).
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A published study conducted by Nature Conservancy scientists and
others examines the impacts of storm surge to people and property on
Long Island, NY and in particular examines the likely added effect of
sea level rise to these impacts. Just a little bit of sea level rise
(just 1.6 feet) increases predicted impacts of storms to people and
property by nearly 50 percent and 75 percent respectively. \3\
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\3\ Shepard, C., V.N. Agostini, B. Gilmer, T. Allen, J. Stone, W.
Brooks, M W. Beck. 2011. ``Assessing Future Risk: Quantifying the
Effects of Sea Level Rise on Storm Surge Risk for the Southern Shores
of Long Island, New York''. Natural Hazards. DOI: 10.1007/s11069-011-
0046-8.
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Associated Costs Are Increasing
In the first decade of the new millennium, floods and flood damage
associated with extreme rainfall events have increased, with damages
rising from $6 billion to $10 billion over this time period, despite
the billions of dollars invested in flood control. In 2011 alone, there
were 58 Federal flood disaster declarations, covering 33 different
States. The 2011 flooding damages cost over $8 billion and caused 113
deaths; both the costs and the number of deaths exceeded the 30-year
averages. Clearly, these trends all speak to the immediate need to
decrease risk and allow implementation of mitigation measures that
decrease risks. The proposed reform legislation is the most important
single step we can take toward decreasing flood risks.
Maximizing Our Return on Investment by Integrating Built and Natural
Infrastructure
Under the current National Flood Insurance Program (NFIP), a
dangerous feedback loop is in play. Subsidized insurance rates
facilitates development in coastal zones and in freshwater floodplains
which not only puts people and property at risk, it simultaneously
facilitates the destruction and degradation of ecosystems that provide
a natural defense to people and properties. Left in place, coastal
marshes and sand dunes and inland wetlands and floodplains serve
important flood- and storm-control purposes.
The overall benefits of flood mitigation efforts implemented has
been studied and found that for every dollar spent on flood mitigation
5 dollars are saved. \4\ Other recent studies \5\ show that one of the
most cost-effective solutions to protect people from the impacts of
increased extreme precipitation and coastal storm intensity will be to
preserve, enhance and restore the natural systems that already deliver
critical protection from sea level rise, storm surge and coastal and
inland flooding. Scientists from the Nature Conservancy recently
published a review of all papers that measured the role of salt marshes
in protecting coastlines from waves and erosion. They found that salt
marshes have a strong and significant role in the United States and
globally in providing coastal defense and shoreline stabilization. \6\
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\4\ Multihazard Mitigation Council, ``Natural Hazard Mitigation
Saves: An Independent Study To Assess the Future Savings From
Mitigation Activities'', Multihazard Mitigation Council, http://
www.floods.org/PDF/MMC_Volume1_FindingsConclusionsRecommendations.pdf,
and Rose, A., et al. 2007. ``Benefit-Cost Analysis of FEMA Hazard
Mitigation Grants''. Natural Hazards Review 8, 97.
\5\ Examples include a report on the effect climate change will
have on Caribbean economies, by the Caribbean Catastrophe Risk
Insurance Facility; and a study by Entergy Corporation and Swiss Re on
disaster risk along the Gulf Coast.
\6\ Shepard, C., Crain, C., Beck, M.W. 2011. ``The Protective Role
of Coastal Marshes: A Systematic Review and Meta-Analysis''. PLoS ONE
6(11): e27374. http://bit.ly/vfAHvT
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In addition to flood control benefits provided by protection and
restoration of floodplains and coastal wetlands, these ecosystems
provide many services that support and protect humans and nature such
as filtering pollutants, erosion protection, habitat that supports fish
and shellfish populations. These services provide real economic
benefits that can be measured through reduced cost of water quality
protection, increased revenue from fishing and increased value to
personal property.
The traditional approach to flood protection in river-floodplain
systems has been to rely on dams and levees to contain flood waters and
in coastal areas has been to build sea walls, bulkheads and other
``grey'' infrastructure and to ``nourish'' beaches with additional sand
to slow erosion and diminish the impact of storms. While built
infrastructure plays an important role in helping to secure our
communities, it requires substantial investments for both initial
construction and ongoing maintenance. Moreover, an over-reliance on
built infrastructure in the United States during the 20th and early
21st centuries has encouraged extensive land development in areas
particularly susceptible to flooding and storm damage, and catastrophic
flooding when infrastructure fails. And fail it has. Despite many
billions of dollars in taxpayer investment in flood protection, flood
damages continue to increase and now average more than $6 billion
annually. \7\ If left unaddressed, as the Nation's water and coastal
protection infrastructure continues to age we should be expecting that
these economic losses will continue to increase--including the
taxpayer's obligation under the National Flood Insurance Program--along
with the risk faced by tens of millions of Americans who live and work
behind levees \8\ and tens of millions more living along the coast.
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\7\ U.S. Army Corps of Engineers (USACE). (2009). ``Flood Risk
Management: Value to the Nation''. (http://www.corpsresults.us/docs/
VTNFloodRiskMgmtBro_loresprd.pdf).
\8\ Freitag, B. S., Bolton, F. Westerlund, and Clark, J.L.S.
(2009). ``Floodplain Management: A New Approach for a New Era'', Island
Press, Washington, DC, USA.
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Simply investing to renew the Nation's over-reliance on built flood
control infrastructure poses a daunting challenge. There are more than
more than 110,000 miles of levees across the country, \9\ the average
of which is well over a half century and which the American Society of
Civil Engineers estimates would require $100 billion to repair and
rehabilitate. \10\ The challenge also exists for coastal
infrastructure. In Massachusetts alone, there are about 140 miles of
publicly owned sea walls or other structures along the coast designed
to protect billions of dollars of property. Most were designed to last
a half century but are older than that now. The estimated price tag to
repair and fortify all of them against rising seas is more than a
billion dollars. I happen to live in the coastal town of Scituate,
Massachusetts, where the sea walls are crumbling and in disrepair.
During a nor'easter on Dec. 27th, 2010, a break in the sea wall
occurred, flooding dozens of homes. Two homes caught fire and burnt to
ground as firefighters could not access them through the five feet deep
freezing water. All of the residents living in those homes were
displaced for many months and some were forced to permanently relocate.
Yet the town does not have the financial resources necessary to
adequately repair the town's sea walls. The town is seeking State and
Federal resources to maintain the sea walls, yet those funds are
becoming scarcer and more difficult to secure. Unless significant
repairs are made, residents living behind these sea walls continue to
be at significant risk. This is but one example of similar incidents
occurring throughout our Nation.
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\9\ National Committee on Levee Safety. (2009). ``Draft
Recommendations for a National Levee Safety Program: A Rep. to Congress
From the National Committee on Levee Safety''. (Jan. 15, 2009).
\10\ ASCE. (2009). ``Facts About Water and Environment, Levees'',
2009 Infrastructure Fact Sheet, (http://
www.infrastructurereportcard.org/sites/default/files/RC2009_levees.pdf)
(Mar. 25, 2009).
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Instead of relying solely on grey infrastructure, an alternative
approach involves integrating the use of natural infrastructure (or so-
called ``green infrastructure'') with built infrastructure. This
specifically involves maintaining and restoring the connectivity of
rivers along with sufficient area of floodplain and conserving and
restoring coastal natural infrastructure such as wetlands, reefs,
dunes, and barrier beaches and islands.
An example of this approach is the Yolo Bypass in California's
Central Valley. It is a 60,000-acre engineered area of the Sacramento
River floodplain that was reconnected to the river in the 1930s. The
system is designed such that when the Sacramento River rises during
major floods and exceeds the elevation of weirs built within the levee,
additional floodwater flows over the weirs into the Yolo Bypass and
away from the City of Sacramento and its suburbs. Since its
construction, Yolo has been an integral part of the valley's flood
management system, conveying as much as 80 percent of large floods. The
Yolo Bypass not only protects Sacramento and the surrounding area, it
does so at a small fraction of the cost of would have been necessary to
construct and maintain traditional built infrastructure for a similar
level of protection. Moreover, because of the episodic and seasonal
nature of floods, Yolo has continued to act as economically valuable
and productive farmland while providing additional benefits such as
critical habitat for fish and water fowl. \11\
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\11\ Sommer T., Harrell B., Nobriga M., et al. (2001).
``California's Yolo Bypass: Evidence That Flood Control Can Be
Compatible With Fisheries, Wetlands, Wildlife, and Agriculture''.
Fisheries 26: 6-16.
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On the Gulf Coast, The Nature Conservancy is focusing efforts on
restoration of sea grass and oyster reef habitat both of which serve to
greatly diminish coastal erosion and mitigate impacts from storms and
flooding. Over the past 100 years, the oyster reef habitat has severely
diminished and this has contributed to increased coastal erosion and
vulnerability to storm impacts. In Alabama and Louisiana, The Nature
Conservancy has created 5 miles of shoreline--protecting oyster reefs
and directly supported 227 jobs through the work to create these reefs.
Working with partners, our goal is to develop 100 miles of oyster reef
breakwaters/living shorelines in Alabama that will in turn promote the
growth of more than 1,000 acres of coastal marsh and sea grass.
The Nature Conservancy and dozens of diverse partners across the
country recognize the long-term effectiveness and cost-efficiency of
connected river-floodplains and in conserving and restoring coastal
wetlands and reef habitats in helping to reduce flood risk, while
providing other economically important benefits such as continued
agricultural production, enhanced water quality, and improved fish and
wildlife habitat and associated recreation. Floodplain restoration
projects such as Mollicy Farms in Louisiana, Emiquon and Spunky Bottoms
in Illinois, and Hamilton City in California are further demonstrating
the many values of this approach and underscore the commitment of the
Conservancy and its partners to implement these projects and realize
the associated high returns on investment.
Nature Conservancy Supports Legislative and Administrative Reforms
Enactment of The Flood Insurance Reform and Modernization Act of
2011 will accomplish several policy objectives. It will put the program
on a path of financial sustainability, will improve communication of
risk through more accurate, higher quality maps, and finally will
streamline and strengthen mitigation programs to help decrease flood
risks and better protect flood-exposed communities and homes and
businesses. In addition to passage of the legislation, there are
additional policy changes that support the legislative goals that are
needed and could be achieved administratively that would support,
amplify and run parallel to the legislative reform efforts.
The Nature Conservancy supports the following three key provisions
of the Senate Flood Insurance Reform and Modernization Act of 2011 and
corresponding administrative reforms:
Scientifically Accurate Mapping of Current and Future Risk
Providing scientifically sound data and information related to
flood risk, land use, and natural resources is essential to
communicating the actual flood risk to people and properties.
Information on future changing climate conditions must also be
incorporated to enable individuals, communities, and regional and State
Government entities to sufficiently plan to mitigate their flood risks.
The Senate NFIP bill accomplishes this by requiring the incorporation
of the most accurate science on current conditions and future
conditions by assessing the best available climate science related to
flood risks including the impact of sea level rise and other future
conditions. The bill also requires outreach and education to property
owners to ensure sharing of this new risk based information.
Charging Rates That Accurately Reflect Flood Risk
Only if rates reflect the true risk to people and property will
people understand the true risk of living in or developing certain
areas and act to discourage development in the most risky areas.
Additionally, the current Program allows and subsidizes redevelopment
in flood risk zones, not properly incentivizing retreat of structures
and restoration of the important natural systems. It is the American
people who are currently supporting the subsidization of this Program
through our tax dollars, and this subsidization occurs regardless of
the economic status of those benefiting from it. The National Flood
Insurance Program will never be financially sound until actuarial sound
rates are charged. Currently there are 1.2 million NFIP properties (20
percent) that are charged premiums well below the actuarial value of
the insured liability. On average (including subsidized and
unsubsidized policies) NFIP premium collections cover approximately 70
percent of the actuarial value of the insured liability. The Senate
bill makes a number of needed reforms to put the flood insurance
program on sound financial footing by eliminating subsidized rates and
allowing for rates to be adjusted reflecting true risk, taking into
consideration future conditions. Charging actuarial sound rates for
properties in flood hazard areas will greatly improve the public's
understanding of the true risk of living in such areas. Such
understanding should drive better decisions related to development and
implementation of mitigation measures.
We recognize that increase rates for flood insurance will place an
economic burden on people of lower economic means living in flood prone
areas. The Senate bill does not and should consider the affordability
of increased flood insurance through implementation of a voucher system
or some similar means tested assistance. At a minimum a thorough study
of the issue of affordability of flood insurance needs to be conducted
to determine the extent to which this is an issue.
Ensuring Nature-Based Solutions Are Properly Incentivized and Funded in
All FEMA Programs
The Senate bill will accomplish improvements related to the use of
hazard mitigation grant funds and the ability to use grant funds to
accomplish conservation and restoration of freshwater and coastal
ecosystems by consolidating, streamlining and making more efficient the
existing programs and clarifying that voluntary buy out of properties
are an allowable use of these funds.
As discussed above, preserving and restoring natural ecosystems
like floodplains and coastal wetlands can provide cost-effective
protection against some of the threats that result from current natural
disasters which will be exacerbated by climate change. For example,
coastal ecosystems like wetlands, mangroves, coral reefs, oyster reefs,
and barrier beaches and intact freshwater floodplains all provide
natural protection from storms and flooding in addition to their many
other benefits such as habitat for fish populations, water quality
improvement, economic development from recreation and tourism.
Incentives to protect and restore floodplains in the Mississippi River
valley could substantially contribute to reducing the dead zone in the
Gulf of Mexico. The Conservancy supports greater emphasis placed on use
of hazard mitigation funds for the purpose of conservation and
restoration of natural systems like floodplains and natural coastal
ecosystems.
While the legislation begins to make more efficient the mitigation
programs of the NFIP, more changes need to occur to enable, facilitate,
and encourage floodplain and coastal protection and restoration. Doing
so will play a significant role in returning the National Flood
Insurance Program to solvency, thereby making a relatively modest--yet
important--contribution to Federal debt reduction. Overall greater
emphasis should be made to improve these programs which as cited
before, return $5 in reduced cost for every $1 invested. Improvements
should include overall increased funding for the mitigation programs
and increased effort to link the FEMA mitigation programs to programs
with similar goals of other Federal agencies, including FEMA's other
mitigation programs that fall under the Stafford Act. Several important
administrative changes should also be considered that will additionally
facilitate use of the mitigation funds for floodplain and coastal
restoration. Such changes involve changes to how FEMA calculates the
cost and benefit of mitigation activities. Currently, clear economic
benefits such as water quality improvements, flood reduction benefits,
and fisheries revenue enhancement are currently valued or considered.
These policy changes will better protect American communities from
the threat to life and livelihood of future flooding, improve the
quality of our drinking water, and help restore the health and
productivity of the Nation's rivers and estuaries.
Summary
Thank you for the opportunity to present The Nature Conservancy's
recommendations on the need to pass the Senate's 5-year reauthorization
of the National Flood Insurance Program and why we implore immediate
reform to begin to fix aspects of the Program that are currently
financially and environmentally unsustainable.
Additional Material Supplied for the Record
PREPARED STATEMENT OF THE AMERICAN INSURANCE ASSOCIATION
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PREPARED STATEMENT OF THE MORTGAGE BANKERS ASSOCIATION
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PREPARED STATEMENT OF THE NATIONAL ASSOCIATION OF MUTUAL INSURANCE
COMPANIES
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PREPARED STATEMENT OF THE AMERICAN BANKERS ASSOCIATION AND THE AMERICAN
BANKERS INSURANCE ASSOCIATION
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PREPARED STATEMENT OF THE COUNCIL OF INSURANCE AGENTS AND BROKERS
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PREPARED STATEMENT OF R.J. LEHMANN, DEPUTY DIRECTOR, CENTER ON FINANCE,
INSURANCE, AND REAL ESTATE, THE HEARTLAND INSTITUTE
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LETTER SUBMITTED BY BILL CHENEY, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
CREDIT UNION NATIONAL ASSOCIATION
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LETTER SUBMITTED BY JAMES W. TOBIN III, SENIOR VICE PRESIDENT AND CHIEF
LOBBYIST, NATIONAL ASSOCIATION OF HOME BUILDERS
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LETTER SUBMITTED BY FRANKLIN W. NUTTER, PRESIDENT, REINSURANCE
ASSOCIATION OF AMERICA
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LETTER SUBMITTED BY SMARTERSAFER
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LETTER SUBMITTED BY JAMES BRADLEY, SENIOR DIRECTOR OF GOVERNMENT
RELATIONS, AMERICAN RIVERS
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FIRM MAP AND NOTICE SUBMITTED FOR THE RECORD
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