[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
FLOOD INSURANCE REFORM:
FEMA'S PERSPECTIVE
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
HOUSING AND INSURANCE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
MARCH 9, 2017
__________
Printed for the use of the Committee on Financial Services
Serial No. 115-3
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking
Vice Chairman Member
PETER T. KING, New York CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California
STEVAN PEARCE, New Mexico GREGORY W. MEEKS, New York
BILL POSEY, Florida MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin DAVID SCOTT, Georgia
STEVE STIVERS, Ohio AL GREEN, Texas
RANDY HULTGREN, Illinois EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina KEITH ELLISON, Minnesota
ANN WAGNER, Missouri ED PERLMUTTER, Colorado
ANDY BARR, Kentucky JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania BILL FOSTER, Illinois
LUKE MESSER, Indiana DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine JOYCE BEATTY, Ohio
MIA LOVE, Utah DENNY HECK, Washington
FRENCH HILL, Arkansas JUAN VARGAS, California
TOM EMMER, Minnesota JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana
Kirsten Sutton Mork, Staff Director
Subcommittee on Housing and Insurance
SEAN P. DUFFY, Wisconsin, Chairman
DENNIS A. ROSS, Florida, Vice EMANUEL CLEAVER, Missouri, Ranking
Chairman Member
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
STEVAN PEARCE, New Mexico MICHAEL E. CAPUANO, Massachusetts
BILL POSEY, Florida WM. LACY CLAY, Missouri
BLAINE LUETKEMEYER, Missouri BRAD SHERMAN, California
STEVE STIVERS, Ohio STEPHEN F. LYNCH, Massachusetts
RANDY HULTGREN, Illinois JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania DANIEL T. KILDEE, Michigan
LEE M. ZELDIN, New York JOHN K. DELANEY, Maryland
DAVID A. TROTT, Michigan RUBEN KIHUEN, Nevada
THOMAS MacARTHUR, New Jersey
TED BUDD, North Carolina
C O N T E N T S
----------
Page
Hearing held on:
March 9, 2017................................................ 1
Appendix:
March 9, 2017................................................ 51
WITNESSES
Thursday, March 9, 2017
Wright, Roy E., Deputy Associate Administrator, Federal Insurance
and Mitigation Administration, Federal Emergency Management
Agency (FEMA), U.S. Department of Homeland Security............ 5
APPENDIX
Prepared statements:
Wright, Roy E................................................ 52
Additional Material Submitted for the Record
Duffy, Hon. Sean:
Letter from the American Insurance Association............... 61
Written statement of the Consumer Mortgage Coalition......... 64
Letter from the National Multifamily Housing Council and the
National Apartment Association............................. 103
Written statement of the Property Casualty Insurers
Association of America..................................... 107
Green, Hon. Al:
Harris County, Texas, Resolution............................. 115
Wright, Roy E.:
Written responses to questions for the record submitted by
Representatives Hultgren, Ross, Beatty, and Loudermilk..... 116
FLOOD INSURANCE REFORM:
FEMA'S PERSPECTIVE
----------
Thursday, March 9, 2017
U.S. House of Representatives,
Subcommittee on Housing
and Insurance,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2128, Rayburn House Office Building, Hon. Sean P. Duffy
[chairman of the subcommittee] presiding.
Members present: Representatives Duffy, Ross, Royce,
Pearce, Posey, Luetkemeyer, Stivers, Hultgren, Rothfus, Zeldin,
Trott, MacArthur, Budd; Cleaver, Velazquez, Capuano, Sherman,
Beatty, Kildee, and Kihuen.
Ex officio present: Representatives Hensarling and Waters.
Also present: Representatives Kustoff and Green.
Chairman Duffy. The Subcommittee on Housing and Insurance
will come to order. Without objection, the Chair is authorized
to declare a recess of the subcommittee at any time.
Also, without objection, members of the full Financial
Services Committee who are not members of this subcommittee may
participate in today's hearing for the purposes of making an
opening statement and questioning our witness.
Today's hearing is entitled, ``Flood Insurance Reform:
FEMA's Perspective.''
The Chair now recognizes himself for 3 minutes for an
opening statement. As I said at our first hearing last month,
this subcommittee has a full agenda this year. Our top priority
is a timely reauthorization of the National Flood Insurance
Program (NFIP) and its key authorities, which are set to expire
on September 30th.
Over the past few weeks, my staff and I have taken over 50
meetings with stakeholders on top of the multiple meetings that
were taken by Chairman Luetkemeyer in the last Congress.
On Monday, I had the opportunity to visit Louisiana with
Majority Whip Steve Scalise, where I visited local parish
leaders, levee district representatives, bankers, retailers,
homebuilders, and many others. I also toured the southern part
of the State which was devastated, as we know, by Hurricane
Katrina, in which 1,800 people lost their lives.
The NFIP is critical to many Americans. Over and over
again, some of the same things continue to emerge in the
meetings that I hold.
First, a lapse in the program would be irresponsible and
would be damaging to communities.
Second, policies must be accessible and affordable for
those who are in need.
Third, there is a strong interest in the growth of a robust
private market that can offer consumers a choice in flood
insurance.
Fourth, communities are frustrated by the accuracy of
FEMA's flood maps and the amount of time it takes for maps to
be approved.
Fifth, we should explore new options for mitigation and
community resiliency.
Sixth, the financial integrity of the program is weak.
Today, the NFIP is more than $24.6 billion in debt and runs an
annual deficit of $1.5 billion. This is absolutely
unsustainable.
And finally, we must address some of the egregious claims
processing problems that the northeast in particular
experienced during Superstorm Sandy.
I am grateful to Mr. MacArthur, Mr. King, Mr. Zeldin, and
Ms. Velazquez for the input they have given us as we have gone
through this process, input on behalf of their constituents.
So I look forward to a robust discussion with Mr. Wright
this morning about FEMA's perspective on these issues and
others as we ready legislation for reauthorization of this
program, which is so important to millions of Americans.
I now recognize the ranking member of the subcommittee, the
gentleman from Missouri, Mr. Cleaver, for 5 minutes.
Mr. Cleaver. Thank you, Mr. Chairman.
And thank you, Mr. Wright, for being here today. Over the
past few years, this subcommittee has held a number of hearings
to assess the National Flood Insurance Program (NFIP) and to
discuss the program's reauthorization. And as we all know,
authorization for the program will expire on September 30,
2017.
Should the program expire without reauthorization, no new
flood insurance contracts will be able to be extended, which
means that homebuyers will not be able to obtain mortgages and
close on their homes in flood hazard areas.
Additionally, the NFIP's ability to borrow from the
Treasury will be drastically reduced. Given the importance of
the NFIP to our constituents, it is absolutely critical that
this committee work together to reauthorize the program before
the September deadline.
The NFIP was created in 1968 to provide flood coverage to
consumers who were unable to obtain coverage from the limited
private market. The NFIP is funded primarily through premiums
and fees from policyholders, and a portion of the premiums is
used to fund mapping and mitigation activities.
Currently, the program covers about 5 million homes
nationwide for a total of $1 trillion in flood insurance
coverage. It is important to reiterate that the threat of
flooding impacts all of our communities, from coastal regions
in Florida to parts of Texas and New York, and even to my own
State of Missouri. There are over 200,000 Missourians who live
in areas where flooding is a risk.
As options for reauthorization are discussed, we need to
work to ensure that flood insurance remains affordable to our
constituents. And to this end, it is essential that FEMA
completes the affordable framework that was mandated by the
Homeowner Flood Insurance Affordability Act.
Additionally, it is important for us to continue exploring
the best methods for keeping our flood maps updated and to
provide sufficient funding for the process. Mitigation is key
to preventing flood damage, and I am eager to further assess
how best to improve those efforts.
Lastly, as we move forward in this legislative process we
need to assess the current role of the private market and the
role that it plays in our future.
Mr. Chairman, with that, I yield to the ranking member of
the full Financial Services Committee, Ms. Waters.
Ms. Waters. Thank you, Mr. Chairman. Reauthorization of the
National Flood Insurance Program is critical. Our housing
market has struggled in the past as Congress continued to
extend the NFIP for months at a time.
These short-term extensions sometimes led to lapses in the
program's authorization, which caused instability, wreaked
havoc on our housing market, and placed communities at risk.
That is why I worked with Mrs. Biggert on what ultimately
became the Biggert-Waters Act, to put forth a bipartisan, long-
term reauthorization. We accomplished a lot of good things in
the Biggert-Waters Act, but what I will never forget are the
unintended consequences of the rate increases that caused great
concern for homeowners, businesses, and renters across the
country.
In response, I worked tirelessly with my colleagues across
the aisle to enact much-needed rate relief for thousands of
homeowners and put FEMA back on the path to addressing
affordability issues. Let's continue in that bipartisan spirit
to ensure that the NFIP remains able to provide affordable
flood insurance.
The affordability challenges are great, but the risk of
failing to protect homes and businesses in the face of
catastrophe is greater. Congress must address the $24.6 billion
debt the program has accumulated responding to catastrophic
storms like Hurricane Katrina and Superstorm Sandy.
I will continue to call for the cancellation of this
enormous burden that has already cost the NFIP nearly $4
billion in interest alone.
Mr. Chairman, as we move forward, we should remember that
in the past 5 years, Congress has made sweeping reforms to
nearly every aspect of the flood insurance process. In our
efforts to quickly move a reauthorization, let us not repeat
the mistakes of the past, when we may have acted with good
intentions, but due to unintended consequences ended up with
bad outcomes for families and businesses.
I yield back the balance of my time.
Chairman Duffy. The gentlelady yields back.
The Chair now recognizes the vice chairman of the
subcommittee, the gentleman from Florida, Mr. Ross, who has
done a lot of work on flood insurance both on this committee,
and in his prior life in the legislature in Florida. The
gentleman is recognized for 2 minutes.
Mr. Ross. Thank you, Mr. Chairman. I want to thank our
distinguished guest, Mr. Roy Wright, for being here to discuss
FEMA's perspective on flood insurance reform. The NFIP is
something that we have a responsibility to reauthorize in a
very brief period of time, as was pointed out by my colleagues.
The fact is the NFIP is in need of significant reforms.
Floods are a costly and deadly peril, and as has been pointed
out, the NFIP has an outstanding debt of $24.6 billion. We must
thoroughly consider reforms to protect taxpayers and improve
the program now and for the future.
Ultimately, when I consider reforms to the NFIP, I do so
with my Florida homeowners in mind. I am committed to ensuring
that Florida homeowners have uninterrupted access to affordable
and comprehensive flood insurance policies. As such, my
priorities for reauthorizing the NFIP are as follows.
First, Floridians and all Americans across the country
would greatly benefit from more choices when it comes to flood
insurance policies, and private competition in this market will
lead to greater innovation and more affordable and
comprehensive policies for consumers. We must enact reforms
that remove regulatory barriers and allow for the development
of a private flood insurance market.
Yesterday, I reintroduced my bipartisan legislation that
passed the House last session by a vote of 419-0. This bill
will do just that with regard to competition and consumer
choice.
Second, we must place the NFIP on sound fiscal footing and
ensure that there is no lapse in authorization of the program
that would create an interruption to the real estate markets.
Third, we must recognize the importance of mitigation and
reducing the risk exposures for floods and other disasters. Our
witness today has testified that for every $1 investment in
mitigation, communities see a savings of $4 in disaster relief.
The importance of mitigation cannot be understated or
overlooked.
I look forward to working with my colleagues to address
these and other important issues related to the reauthorization
and reform of the NFIP.
I thank the chairman again for calling this hearing, and I
yield back the balance of my time.
Chairman Duffy. The gentleman yields back the balance of
his time.
We now welcome our witness, Mr. Roy Wright, who serves as
FEMA's Deputy Associate Administrator for the Federal Insurance
and Mitigation Administration. In that capacity, Mr. Wright
directs the National Flood Insurance Program, the Mitigation
and Resiliency programs under FEMA's Stafford Act authorities,
the National Earthquake Hazard Reduction Program, and the
National Dam Safety Program.
Mr. Wright will now be recognized for 5 minutes to give an
oral presentation of his testimony. And without objection, his
written statement will be made a part of the record.
Once the witness has finished presenting his testimony,
each member of the subcommittee will be given 5 minutes within
which to ask questions.
On your table, as you know, Mr. Wright, you have three
lights: green means go; yellow means you have a minute left;
and red means your time is up.
With that, Mr. Wright, you are now recognized for 5
minutes.
STATEMENT OF ROY E. WRIGHT, DEPUTY ASSOCIATE ADMINISTRATOR,
FEDERAL INSURANCE AND MITIGATION ADMINISTRATION, FEDERAL
EMERGENCY MANAGEMENT AGENCY (FEMA), U.S. DEPARTMENT OF HOMELAND
SECURITY
Mr. Wright. Good morning, Chairman Duffy, Chairman
Hensarling, Ranking Member Cleaver, Ranking Member Waters, and
other members of the subcommittee. Thank you for the
opportunity to testify today.
I want to discuss four core principles for reauthorization
with you this morning.
First, we need an on-time multiyear reauthorization.
Second, we need to increase flood insurance coverage across
the Nation through both the expansion of private flood
insurance markets as well as the National Flood Insurance
Program.
Third, we need to address barriers to meeting the needs and
demands of our customers.
And fourth, we need to bring transparency to the financial
framework of the National Flood Insurance Program.
Flooding is the most frequent and expensive disaster in the
United States: 90 percent of natural disasters in the United
States involve a flood, and 22,235 communities across the
Nation rely on the National Flood Insurance Program. That
represents 98 percent of the Nation's population.
We work with 73 private insurance companies who participate
with FEMA in delivering these policies to our 5.1 million
policyholders.
So let's look with some perspective over the last couple of
decades. Due to the nature of flooding, impacts can vary
significantly each year.
After 15 years of lower-than-expected damages, Hurricanes
Katrina, Rita, and Wilma all hit the Nation in 2005. These 3
catastrophic events resulted in NFIP claims that totaled 8
times the size of any prior year in the program's history.
Rather than directly providing the funds to meet these
requirements, Congress directed the NFIP to pay for
catastrophic losses through funds borrowed from the Treasury.
Paying the insured losses in 2005 required the NFIP to borrow
$17.5 billion.
In 2012, Hurricane Sandy hit the East Coast and resulted in
more than 144,000 NFIP claims. The program paid out an initial
$8.4 billion to policyholders. With the corrective actions that
FEMA has taken, the NFIP has since paid out an additional $350
million.
Since Hurricane Sandy, FEMA has been transforming the NFIP
customer experience and has been improving our oversight and
engagement with the Write Your Own (WYO) companies. Using our
own authorities, we have implemented a new appeals process. We
have improved the oversight of the Write Your Own companies,
with special attention to litigation.
FEMA has streamlined the process for making regular changes
to the relationships with the private sector partners. And we
have begun to modernize the product to better provide the
coverages that policyholders want and expect.
The NFIP is also going to change as being more proactive in
disaster readiness and response. I think 2016 is a case in
point. We began issuing advanced payments to policyholders, up
to $10,000, while their full claim was processed.
We increased coordination with State insurance
commissioners. We deployed our insurance staff directly
downrange in the field. And we have far more proactive
communication with policyholders and the companies. I would
assert that FEMA's performance in 2016 demonstrates the
proactive progress we have made.
While there was no single catastrophic disaster in 2016,
multiple events in Louisiana, Texas, and several other States
involved in Hurricane Matthew all resulted in the third largest
claims payout in NFIP history, with incurred losses of more
than $4 billion.
So to the reauthorization, the core principles, first, it
has been said by numerous people today, and I would wholly
agree, that the NFIP needs an on-time, multiyear
reauthorization. The stability of the real estate and mortgage
markets depend on this.
Second, the reauthorization should recognize the need to
increase flood insurance coverage across the Nation in both
high- and moderate-risk areas.
FEMA recognizes that there is a growing interest by private
insurers to offer flood insurance protection. FEMA supports
this because an insured survivor, whether they get their
coverages on the private market or through the NFIP, will
recover more quickly and more fully.
To these ends, we must realize that it will take time for
the private market to adapt to the market currently served by a
public program.
And if the private market were to glean only the lower-risk
policies, the NFIP would be left with all of the high-risk
policies. This could lower NFIP premium revenue while
increasing potential claims payout. Such action would leave the
program with even more financial risk, with greater reliance on
taxpayers and the Treasury each and every year.
As we look forward, a number of opportunities should be
explored. Congress could identify a future point in time by
which flood policies for all new construction would be provided
solely by the private market. When coupled with ongoing
floodplain management and building code enforcement, these new
residential structures would be built to insurable levels for
risk to the private market.
Third, we need to remove barriers to providing
policyholders the coverages they want and need.
And finally, we will all be better off in the future
discussions relating to the National Flood Insurance Program
when the program has a sound financial framework.
We need to price the risk and make it plain. Whether this
is done by increasing premiums, reducing risk through
mitigation grants, or by discounts directed by Congress, the
fiscal solvency of the program depends on it.
I appreciate the time to be with you this morning, and I
look forward to the conversation, Mr. Chairman.
[The prepared statement of Mr. Wright can be found on page
52 of the appendix.]
Chairman Duffy. Thank you, Mr. Wright.
The Chair now recognizes himself for 5 minutes to ask
questions. Mr. Wright, my staff reached out to yours in regard
to data on compliance rates for mandatory purchase properties.
We have heard a lot of conversation, as I have talked to a lot
of stakeholders, that there is a low take-up rate.
You have indicated to me that you don't have data on that
front. We have actually reached out to the OCC, who also said
that they don't have data on that front.
However, earlier this week our staff was provided a copy of
the following slide--if we could put the slide up--from a FEMA-
developed presentation entitled, ``State of the NFIP,'' which
says there is a significant amount of noncompliance--53 percent
of policies.
I would just note, being a guy from Wisconsin, we are one
of the best of the worst States on that front. Duly noted. Do
you stand by this data?
Mr. Wright. So--
Chairman Duffy. My question is, I keep hearing this, and I
am wondering where this data is coming from? That is a real
issue in regard to the program.
Mr. Wright. There is a set of studies that have been out
there. We have cited them. As you look nationally, I have heard
a third. We can look at the half in terms of these concentrated
States.
Under the National Flood Insurance Act, mandatory purchase
is not a responsibility of the National Flood Insurance Program
at FEMA. I can use the data that is there. What I will tell you
is it is very difficult to fully understand a couple of pieces
of the market.
I was shown some data 2 weeks ago that 39 percent of real
estate transactions in 2016 were cash transactions. And so when
we started looking at the way that would play, those folks
would not be having a federally-backed mortgage.
That said, more people clearly need to be covered. There
are structures at risk that do not have the insurance they
need. And collectively, whether that is through us or through
the lending regulators, we need to redouble our efforts to see
that improve.
Chairman Duffy. Just to be clear, this is a FEMA document,
correct?
Mr. Wright. Yes, sir.
Chairman Duffy. FEMA in the bottom left corner. Do you
stand by these numbers?
Mr. Wright. They are the best--
Chairman Duffy. Is it a surprise that this is a problem?
Mr. Wright. I acknowledge it as a problem and it is the
best numbers that I have available to me today, yes.
Chairman Duffy. Okay. Let's move on to the NFIP debt and
future costs. Under Grimm-Waters and Biggert-Waters, there is a
requirement that FEMA put a plan together to pay back the
billions of dollars the NFIP owes the American taxpayer. You
are tasked in putting together a plan. Have you put together a
plan to pay back the American taxpayer?
Mr. Wright. We have developed the required plans related to
when we borrow. To be very plain, given the discounts, later
the subsidies and grandfathering that are in place today, there
is not a practical way for us to repay this debt.
Chairman Duffy. So we don't have a plan to pay it back?
Mr. Wright. Based on the discounts and subsidies that I
have been directed under the National Flood Insurance Act to
implement, which are the constraints--I have to follow the
laws--I don't have an ability to do so.
Chairman Duffy. Is it possible for you to put together a
plan that says okay, I am going to make a recommendation to
Congress which states that if you want to pay this back, this
is what you have to do on a policy front to actually allow me
to be in a situation where this debt can be paid down or
brought to zero?
Mr. Wright. It would require an exponential move in the
policy premiums or reserve allocations in order for us to be
able to pay the normal year claims, deal with the mid and
larger events that are prospectively coming, and deal with the
$24.6 billion. The $24.5 billion that is there I can attribute
to the grandfathering and discounts that we have been directed
to implement.
Chairman Duffy. Quickly, I want to move to reinsurance.
Obviously, we now have purchased reinsurance through the NFIP.
Mr. Wright. Yes.
Chairman Duffy. Are there any plans to have further
purchases of reinsurance to offload some of our risk?
Mr. Wright. Absolutely, and I have collaborated with a
number of people on the committee on this front. I think,
rightfully, this committee pushed the program to begin to find
other ways to transfer the debt. We did a pilot last fall and
then did this first placement.
I view it as a cornerstone placement that we will building
upon going forward. Reinsurance is an important tool, but I do
not believe that reinsurance can wholly solve for the unmanaged
liabilities that are in front of us.
Chairman Duffy. I only have 15 seconds left, but I want to
go back to the slide that I presented to you. You said that you
stand by these numbers.
Do you have any recommendations on what you should be
doing, or regulators of banks should be doing, or what Congress
should be doing to make sure? If you stand by these numbers,
the take-up rate isn't as low as it actually is. It is at 50
percent.
Mr. Wright. We need to collectively be working with the
insurance agents that are across the country who are the
frontline salesforce that is there. We need to be working with
the banking regulators, the lenders, OCC and others, who have
those authorities in place. And collectively, we have to push
farther down the road.
There were some increases in penalties that were put into
the last bill that became law. Obviously, that has not forced
us to see a bigger uptake.
Where I see the uptake happen is when people in the
aftermath of events, when they have seen their neighbors and
others across their State experience flooding, that is the
point by which I usually begin to see an increase in policies.
Chairman Duffy. Thank you.
The Chair now recognizes the ranking member of the
subcommittee, the gentleman from Missouri, Mr. Cleaver, for 5
minutes.
Mr. Cleaver. Thank you, Mr. Chairman.
Mr. Wright, I want to go back to where the chairman was on
the debt, the $23 billion and coverage is about $1 trillion, a
trillion dollars? If we wanted to realistically try to
eliminate the debt, what percentage of an increase do you think
would be required on the policy premiums?
Mr. Wright. Without fully being able to model out the exact
expected--
Mr. Cleaver. No, I understand. I am just--
Mr. Wright. --losses that are there, but I finished 2016
having used up all of the reserve fund, which thankfully had
been created. And we used up $1.5 billion out of the reserve
fund. I drained all the premiums that were there and still
needed another $1.6 billion.
That kind of event or year the models tell me I would
expect in any 10-year period it would be reasonable to expect
that. To pay off the debt seems impractical to me in that that
debt is associated with discounts and subsidies that Congress
asked me and my predecessors to implement, which we did.
The idea that we would then go to future policyholders and
say they have to pay for that debt, I think becomes a difficult
mountain to climb.
Mr. Cleaver. Right. So we all acknowledge, I think, that we
have a significant debt. And what would be at risk if we just
forgave the debt, just write it off and with this new bill
coming out, hopefully before September 30th, we can begin a
process of preventing another rise of $23 billion?
Mr. Wright. I think things like reinsurance help us build a
credibility so that we are less likely to experience those kind
of losses going forward. Ultimately, only Congress can deal
with that. It was under Congress' direction that we went and
borrowed those dollars.
From a year-to-year perspective the piece that has the most
direct impact on us is the servicing of that debt. And while
today we have an advantageous rate with the Treasury, it is
nearly $400 million a year that we are paying to service that
debt.
In this instance, the interest payments that I owe, just
under $200 million this month, we will be paying based off of
money that we borrowed from the Treasury.
Mr. Cleaver. But if we had WYOs, if more than--how many? We
have 70-something?
Mr. Wright. We have 73 Write Your Owns today.
Mr. Cleaver. Okay. If that wasn't the program, that means
that the insurance companies would service the debt, would
service the policies?
Mr. Wright. So if this was written entirely in the private
market they would have to charge rates and submit to insurance
regulators in their State. They would have to charge rates
commensurate with that risk. And those rates in many instances
would be substantially higher than we charge today.
Mr. Cleaver. Okay. Now, does it make sense to have a bill
that we make--I realize we are legislative and you are not, but
privately, I am asking for advice.
Mr. Wright. Yes.
Mr. Cleaver. Would it not be helpful if we had a 10- or 12-
year bill so that we could actually experiment with the WYO
program, giving interested companies an opportunity to examine
and look at this program perhaps better than they ever had or
that we have had?
And that as the years move by we then reduce the Government
participation until it reaches a level that won't bankrupt the
Government?
Mr. Wright. Right. Two points on that, Mr. Cleaver. I think
in terms of the length of a reauthorization, I would leave that
up to the committee. I think we need a multiyear and there are
a lot of different ways to get there.
I do think that in terms of what does it mean over this
next decade to see the private market grow, I am a strong
proponent of seeing the private market grow. As I said in my
testimony, I can imagine beginning to set aside portions,
particularly new construction at a date on forward by which
when we look at that it says that will solely be purchased on
the private market.
I think it give us an opportunity to create dedicated
space, let those markets take hold, take root, and flourish.
Because at the end of the day, from a public policy
perspective, yes, I direct the National Flood Insurance
Program, and I am an advocate for the National Flood Insurance
Program, but more important is to ensure that people are
covered for these risks. Because I know after an event, when I
am on the ground, those who are insured recover more quickly
and more fully.
Mr. Cleaver. Thank you.
Chairman Duffy. The gentleman yields back.
The Chair now recognizes the vice chairman of the
subcommittee, the gentleman from Florida, Mr. Ross, for 5
minutes.
Mr. Ross. Thank you, Mr. Chairman.
And if I might go back to the slide that was up with the
questioning by the Chair? Quickly, Mr. Wright, this is taken
from a policy and mandatory purchase requirement penetration
report ending in July 2014. Is there a more recent report, and
if so can you provide the committee with that report?
Mr. Wright. FEMA does not have a report it has generated.
There are a number of statements and reports that are out and
we would be happy to--
Mr. Ross. The most recent would be whatever resources that
are out there that would reflect similar data.
Mr. Wright. I would be happy to do so.
Mr. Ross. Great. Quickly, in regard to reinsurance, how
much reinsurance would you say you purchased on behalf of NFIP
in percent of your liability, your exposure--5 percent?
Mr. Wright. It depends on what the probable maximum loss is
in those kind of pieces and you would never insure all the way
to that full probable maximum loss. But a 1 percent annual
chance event across the entire program has been modeled at
about $26 billion. We often view that as a probable maximum
loss.
So I would look at the revenues in any given year, retained
premiums and the like. The 1 percent that we bought, the $1
billion, excuse me, that we bought--
Mr. Ross. So it is not a function of capacity in the
market, is it?
Mr. Wright. At some point, this does turn into a capacity
question.
Mr. Ross. But there is significantly more capacity than 1
percent, I would assume?
Mr. Wright. There is more capacity than we have used.
Mr. Ross. Good. And I apologize because I am going to kind
of go fast here in 5 minutes. Let's talk about risk assessment
because I think that is what we really get at when we are
talking about insurance, not relief but insurance where we have
prefunding of risk and we manage that risk.
There is a 2014 NFIP report report on the feasibility of
releasing property specific policy and claims data which states
that, ``Full risk premiums--these are flood premiums--are not
based on loss experience due to the large variability of flood
losses.
``Rather, NFIP rate setting is based on several components
that vary from property to property and involves complex
calculations of expected frequency and severity of flood
losses.''
So you would agree with that, I assume? And I guess my
question is, you don't use loss claims data to assess risk, is
that correct?
Mr. Wright. I think--
Mr. Ross. But anybody else out there who is managing risk
uses loss claims data.
Mr. Wright. We do use loss claims data.
Mr. Ross. To what extent?
Mr. Wright. We use that along with other data. And so--
Mr. Ross. And about that data, do you consider the data and
the calculations that the NFIP uses to assess their risk to be
proprietary?
Mr. Wright. I do not.
Mr. Ross. So it could be shared?
Mr. Wright. So--
Mr. Ross. You are the only game in town essentially?
Mr. Wright. What I have done is, as part of reinsurance, we
did a lot of modeling in order to get pricing from the
reinsurers.
Mr. Ross. Right. But--
Mr. Wright. the result of that additional--
Mr. Ross. --for pricing to the consumer.
Mr. Wright. Correct. So to that point, I have recently
released most of the data that I provided to the reinsurers. It
is the fullest expression of loss that we have ever published.
Mr. Ross. Okay. So you use some loss claim data for that,
but looking ahead, you also really just rely on mapping and
elevations?
Mr. Wright. No, I use loss claim data as well as future
expected losses.
Mr. Ross. Okay.
Mr. Wright. There are other elements, but if I look at my
rate calculations, both of those elements come into that
calculation.
Mr. Ross. How granular do you get? Do you ever go to see if
this--do you concern yourselves with whether the structure you
are considering insuring, which we will have to insure, is
concrete block, wood, or whatever?
Mr. Wright. We do look at type of construction. We also
look at elevation of that structure and the expected--
Mr. Ross. Yes.
Mr. Wright. In a coastal area, we look at velocity
elements, whether there has been ponding. We do look at those
elements as well.
Mr. Ross. So when we talk about mitigation, what incentives
are out there for an existing homeowner to mitigate under the
NFIP?
Mr. Wright. The first incentive is that by mitigating, they
are going to be able to withstand that flooding event. Beyond
that, I have used some ways to discount the flood insurance
pricing if their community participates in the community rating
system.
Mr. Ross. Okay.
Mr. Wright. And in some instances, we make grants available
to do that elevation or acquire that property.
Mr. Ross. And if I am a homeowner who believes they have
mitigated their home to withstand, and I have science and
engineering to support that, how do I go about convincing you
that I am entitled to a discount or otherwise am not the risk
that you have assessed me at?
Mr. Wright. Chief among them is going to be the elevation
of that, and we have ways for you to submit those data to us,
and we will look at that specific property.
Mr. Ross. And if I am successful, having spent thousands of
dollars for my engineerings, I bear the cost of that, don't I?
There is no recovery of costs for being able to be successful
against the NFIP to have a reduction in premium?
Mr. Wright. Correct.
Mr. Ross. Is that correct? Okay.
I yield back.
Chairman Duffy. The gentleman yields back.
The Chair now recognizes the gentlelady from New York for 5
minutes.
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Wright, President Trump has stated multiple times that
Mexico will pay for his proposed border wall. But now,
according to media reports released on March 7th by the
Washington Post and this morning by another outlet, it is
looking like the White House is considering a surcharge on NFIP
policyholders to pay for the President's border wall.
So Mr. Wright, what do you have to say to homeowners who
are trying to purchase insurance through NFIP and find it more
expensive because of this new surcharge? And what do you say to
taxpayers in this country, because throughout the campaign
trail Mr. Trump said that Mexico will pay for that wall?
Mr. Wright. I am familiar with the report that you are
referencing. To the best of my knowledge, final decisions
related to the budget being developed by the White House have
not been made, so I need to refer you to the Office of
Management and Budget related to those pre-decisional elements
related to it.
The assurance that I can give you, Congresswoman, is that
when we do have a budget proposal in hand, I would be happy to
sit down and discuss that with you.
Ms. Velazquez. Well, I can tell you this. Policyholders in
my district in Red Hook, in lower Manhattan, who were
devastated by Sandy, they truly, truly believe that this is an
outrageous idea. And I hope that you can take that to the
President.
Mr. Wright, in response to the systemic problems in the WYO
program that surfaced after Sandy, I have introduced H.R. 1423,
the National Flood Insurance Program Reauthorization and
Improvement Act of 2017, to improve the efficiency and
transparency of the processing of claims and to provide better
oversight and management of FEMA and the Write Your Owns.
What lessons has FEMA learned in the aftermath of Sandy?
And how have you incorporated those lessons into your claim
practices?
Mr. Wright. I appreciate the question. As we look at it,
clearly Sandy was a pivot point. The program had lost the focus
on the policyholder and on the customer that needed to be
there.
There are many things that we have learned, some of which
change how we sell policies going forward. Let me take
particularly the element related to claims and oversight
because I think that is where you are headed with this.
Ms. Velazquez. Yes.
Mr. Wright. We have now issued instructions which ensure
that after an event, we go down and provide additional training
to adjusters before they go out. We have increased the amount
of quality control of those adjusters.
To the point of engineering reports, I have issued
instructions, so there is policy out to all of the Write Your
Owns--whatever engineering report is the basis of the claim
decision must be provided to the policyholder. They have a
right to see what those elements are.
Ms. Velazquez. Okay. Thank you. A number of the Sandy claim
disputes revolve around whether the flood caused the damage or
the property had a pre-existing condition. Could you tell me
what fraction of the properties in the NFIP currently have such
a pre-existing condition that might lead to denial or reduction
in a claim payment? And if not, what will FEMA need in order to
estimate that figure?
Mr. Wright. I think that the nature of structures,
particularly residential structures, continues to evolve over
time. And so I don't know if you can ever have a perfect
insight into it. As we look at these elements, what I have
tried to do is make plain--one of the things that we have given
advice on to policyholders, and actually it is true for all
kinds of insurance, is that you should be taking pictures and a
video of your home every single year all the way around and
walking all the way through. You will have physical
documentation of what pre-existing looked like in these
instances.
But we have to look at this. I sometimes use a car example
related to insurance.
Ms. Velazquez. You are not of the opinion that you need to
go and inspect a property before buying a flood insurance
policy?
Mr. Wright. Today, an agent works with them. There are data
that are collected. I don't know about the feasibility of
visiting all 5.1 million policyholders.
Ms. Velazquez. Okay.
Thank you, Mr. Chairman.
Chairman Duffy. The gentlelady yields back.
The Chair now recognizes the gentleman from New Mexico for
5 minutes.
Mr. Pearce. Thank you, Mr. Chairman.
Mr. Wright, continuing the discussion that Mr. Ross had
about the release of your data, are you allowed by law to
release that data?
Mr. Wright. The legal constraint that I have says that I
need to continue to comply with the Privacy Act when I do so.
And I know that folks have wanted to--
Mr. Pearce. I just need to get to an answer. We have a lot
of questions here. You can do it or you can't do it without
conditions? I know you may have conditions, but you can do it?
Mr. Wright. I can release data presuming--
Mr. Pearce. And so you said you only recently--
Mr. Wright. --that I do not violate the Privacy Act.
Mr. Pearce. --released data. Why did it take this long to
release the data and what is it going to take to release the
rest of the data? If you are going to get private lines into
the market, they need something to work with. So why did it
take this long?
Mr. Wright. Sir, it is something that we have worked on for
a number of years. It hasn't moved fast enough. Part of what I
did is I had to package up and do modeling related to
reinsurance last year and I have now released those data.
Mr. Pearce. Why didn't it move faster? What were the hold-
ups internally?
Mr. Wright. There are some realities related to some
systems that are in place and then how would we package up
those data to make them available without violating the Privacy
Act.
Mr. Pearce. But when I translate that to West Texan, which
we speak out in New Mexico, it sounds like ``stall.'' I don't
know. Maybe it is; maybe it is not.
And the problem is that you keep saying that we need to get
the private sector involved. But when you don't facilitate that
with the data, and I think Mr. Ross made it very clear that
that is the basis, then it is just words, that we are going to
get the private market involved.
It is what your testimony says, but we don't actually ever
make it possible. We don't ever make the information available.
So we go year after year after year without that.
And it gets very frustrating because now the taxpayer is on
the hook for stuff that you said previously in answer to
questions that we are not ever going to pay off. You don't see
a way to pay that off. That is very frustrating for us from
this side.
So when a community is--changing the focus--going to join
in and participate with FEMA, is there a process you all have
to get an agreement back and forth?
Mr. Wright. Yes, sir.
Mr. Pearce. Recently, one of the tribes in my district got
FEMA maps published, and that was during the last year. They
had never entered into an agreement with FEMA, so how did it
occur that one of the tribes didn't have an agreement, FEMA
admits it doesn't have a signed agreement, and you go in and
map? How did that occur?
Mr. Wright. We have direction and authorities to do mapping
across the country. I would need to go back, sir, and look at
the specifics in this instance. And in many contexts we are
doing water--
Mr. Pearce. But you don't need signatures from Indian
tribes?
Mr. Wright. We do watershed-based analysis.
Mr. Pearce. I see. You don't get signatures from Native
American tribes to get into the FEMA system so that the maps
are drawn. Yes or no?
Mr. Wright. I require them to give me a signature if they
want to join the program when they are--
Mr. Pearce. Okay. So they didn't sign, they didn't indicate
that desire, you all admit that you didn't get the signature,
but you went ahead and mapped anyway.
I have constituents of mine asking how a Government agency
proceeded like that without their approval? And I am trying to
get an answer from you in this hearing today. How did that
happen?
Mr. Wright. I can go back and get the specifics on this map
and the information related to the tribe. Ultimately, it is the
tribe's choice about whether or not to join the national--
Mr. Pearce. Yes, but they made the choice not to join. I am
telling you that they made the choice. You did it anyway, and I
am asking how that moved forward? You said that you require so
surely the agency had some ability. They have admitted they
didn't have a signature.
Surely they have the ability, whomever went out and mapped
it has some requirement or checklist, yes or no, agreement, I
don't have it, so I probably shouldn't go out there and map
that and they did.
And I am just saying that you need to get me an answer
because I am being asked to give an answer. And that process
needs to move rather quickly instead of rather slowly, like the
whole release of data. I don't want it to take that long, if
that makes some sense?
Mr. Wright. We will get you an answer, sir.
Mr. Pearce. Now, when I look at the $4 billion, 83,000
participants that you paid out, that is $48,000 per person.
Roughly in my last 28 seconds, how is that money distributed or
how is that money used? What was it distributed for?
Mr. Wright. When we distribute money post-claim, it is to
pay for the damages to that facility. So we will send out an
adjuster. We will look at the damages. Once those are
documented we will pay for the eligible damages up to the
maximum value of the policy.
Mr. Pearce. And the $10,000 advance payment, what is that
for?
Mr. Wright. That $10,000 is part of their claim payment. It
is the first piece of that, ensuring that policyholders who
were insured have money in their hand immediately following the
event.
Mr. Pearce. Okay. I will look forward to hearing from you
on the Isleta tribe in my district. Thanks.
Mr. Wright. We will get you that.
Mr. Pearce. I yield back my time.
Chairman Duffy. The gentleman's time has expired.
The Chair now recognizes the gentleman from Massachusetts,
for 5 minutes.
Mr. Capuano. Thank you, Mr. Chairman.
And thank you, Mr. Wright. Mr. Wright, you realize we are
here again doing flood insurance because some people in this
committee have a blind philosophical commitment to total
privatization of the flood insurance market. I am just curious.
Do you think we could privatize it tomorrow?
Mr. Wright. I think that there is a portion of the risk
that--
Mr. Capuano. Do you think we can privatize the whole of it?
Right now. We have always had some private entities in the
market. Nobody, I think, objects to that. Do you think that we
could privatize the entire flood insurance market now?
Mr. Wright. There is a portion of the risk that I believe
will likely always be with the National Flood Insurance
Program.
Mr. Capuano. It is a very simple question. Can we do the
whole market or can we not? Yes or no, very simple?
Mr. Wright. I don't believe we could do that today.
Mr. Capuano. I thought that was what you would say. I just
wanted you to say it instead of me. Let me ask you a question.
When you work for FEMA, you don't just work for flood. You also
work for any other emergencies that happen or any other
catastrophic--
Mr. Wright. I have responsibilities across--
Mr. Capuano. That is right.
Mr. Wright. --a full range of natural hazards.
Mr. Capuano. Can you tell me if there is a difference if I
lost my home to a flood or a tornado? Do I care about that as
an individual? Have you ever met an individual who cares how
they lost their home?
Mr. Wright. At that point, they are focused on the fact
that they lost their home.
Mr. Capuano. That is what I thought. Yes, we treat them
differently because we don't have a tornado insurance trust
fund. Is that correct? Did I miss something?
Mr. Wright. Tornado is covered under the standard
homeowners' policy loss--
Mr. Capuano. Right. Standard homeowner policy and/or FEMA,
but if there is a massive tornado that comes in and rips up
thousands of homes, we don't have a typical thing like flood
insurance?
Mr. Wright. Most of those residences would be covered in
their homeowners'. FEMA's role oftentimes from a financial
perspective deals with the community and their infrastructure
post-disaster.
Mr. Capuano. So we come back in, and we still pay them lots
of money. See, I personally think we should have a natural
disaster insurance fund as opposed to simply flood insurance,
because I don't think people care.
It also avoids the argument after the Sandy's and the
Katrina's of, did your house go away by flood or did your house
go away by wind? Who cares? Nobody cares except the insurers
who don't want to pay, which I understand, but nonetheless, I
would argue that is something we should be looking at.
I guess, as I was reading your testimony, you did talk
about privatization for new construction. What do you think it
would cost if it was just new construction?
If I had a home here and I built the--and it was flood
insurance and typical, and I built a home right next door. It
was brand new construction, but the exact same home as was next
door, what do you think the cost differential would be? About?
Mr. Wright. At that point, the private market actually
priced their risk. What I would tell you is this: Given the
maps that are in place, the building codes that are in place,
new construction would be built higher and stronger. It is an
insurable risk. At that point it is--
Mr. Capuano. What do you think it would cost? About the
same?
Mr. Wright. It would likely be commensurate to what we
charge.
Mr. Capuano. Commensurate to what we charge now?
Mr. Wright. Minus the surcharges and other assessments that
we are required to put on.
Mr. Capuano. So it would cost more?
Mr. Wright. It would likely cost more.
Mr. Capuano. Right. And what do you think that would do to
small communities or small businesses that want to expand,
because new construction is also expansion? Who want to expand
or want to build a new restaurant or a new little grocery store
to service people?
Mr. Wright. Congressman, I think this is why we need to lay
this out and give ourselves a few, 3 years or whatever the
right number is so that these markets can build out. We will be
better served--
Mr. Capuano. Can we do that if we simply kick this can down
the road again like we did? If we just kick this can down the
road another year or so because we won't be able to come up
with an answer, do you think that will happen?
Mr. Wright. It would require a more comprehensive action by
this body for us to make this.
Mr. Capuano. So you think we need to do something that
takes, what, 3 years minimum, 5 years minimum?
Mr. Wright. I would assert to you that we should work with
the markets. I would say something like 3 years or so, so that
we can see it build out would be an appropriate piece. At that
point, the private markets will be there and they should be
able to respond to those elements.
Mr. Capuano. You think if we simply do what we have done
already which is to say let's delay it a year, let's just keep
what we have, because we can't come up with a conclusion, do
you think that would be a missed opportunity?
Mr. Wright. I will tell you that my first priority is to
get a multiyear reauthorization done. And that can be done in a
one-page bill or that can be done in a 300-page bill. The first
priority is to make sure we don't have the disruption.
Mr. Capuano. I would agree with that wholeheartedly. By the
way, just out of curiosity, do you realize how many second
homes there are in, oh, I don't know, let's say Florida?
Mr. Wright. I don't have that number, sir.
Mr. Capuano. I think the answer is a lot.
[laughter]
And how many of them are Mar-a-Lagos versus maybe a small
condo a few hundred feet from the beach, or maybe even a
trailer park? Do you have any idea--like a double-wide?
Mr. Wright. Sir, I don't have a second home, and I don't
have an answer on that.
Mr. Capuano. I can only tell you my in-laws had a double-
wide, and it wasn't a multimillion dollar home, and it was in
Florida and they were in a floodplain. And if it went totally
private they would have had to sell their double-wide, gone
away, and that town would have lost thousands of residents
because of it. Thank you, Mr. Wright.
Chairman Duffy. The gentleman yields back.
The Chair now recognizes the gentleman from Florida for 5
minutes.
Mr. Posey. Thank you very much, Mr. Chairman.
Mr. Wright, flood insurance policyholders pay for increased
cost of compliance, ICCs, as part of the standard policy that
offers $30,000 to cover the cost of certain mitigation
measures. So that is up to $30,000 for a policyholder to
elevate, flood-proof, relocate, et cetera, to come into
compliance.
However, they can only access the money after their home
floods, a claim is filed, and the community makes a
determination of substantial damage. Usually when I hear the
word ``mitigation,'' I kind of visualize the word
``prevention.''
And I don't think it is really mitigation if we are only
allowing the policyholder to take these measures after the
fact, after the damage has already been done.
So the statute does authorize ICC for homeowners who
receive an offer of pre-flood mitigation, and I'm just
wondering if you have implemented any part of that statute?
Mr. Wright. Given the breadth of my responsibilities, I
will tell you, there is no bigger proponent of building higher
and stronger from a mitigation perspective than myself. As I
look at ICC, this increased cost of compliance sits inside an
insurance program, but it really is a mini-grant.
And so we are told by Congress to set a price. There is a
cap that is put on that price so that we can collect revenue
for it. A decision to expand ICC to a higher number or to allow
it to be applied in more instances would require us to collect
more revenue related to that increased cost of compliance.
Mr. Posey. Okay. So that is why it has not been
implemented. You don't have the revenue.
Mr. Wright. Yes, sir.
Mr. Posey. Okay. Now, is it true that a few years ago FEMA
considered providing ICC grants before a property floods, when
it is more cost-effective?
Mr. Wright. We have considered the pieces in the past. Up
to this point we have implemented the pieces that are
consistent with the revenue that we bring in.
Mr. Posey. Okay. So what happened to the rulemaking when
they were going to do the pre-catastrophe?
Mr. Wright. Today, and we can go back to the specifics, I
have a tolerance thing in the statute up to $75 that I can
collect in premiums towards that increased cost of compliance.
Those dollars are already being occupied based on those who are
in the post-event environment.
And so we have looked at this. Given your interest, sir, we
will look into it more.
Mr. Posey. Thank you. On another note, I want to ask about
the flood insurance advocate office. The Homeowner Flood
Insurance Availability Act created an Office of Consumer Flood
Insurance Advocate to help homeowners navigate the flood
insurance questions. Can you give us an update on how this
office has been able to help consumers since 2014?
Mr. Wright. Yes. I think it is one of the things as I look
at HFIAA, as well as Biggert-Waters, that I can say truly has
produced value and benefit for us.
This group has really a sort of independence allowed to
them. They get the frustrated and confused policyholders. It is
the last kind of relief valve that is available to them.
Their caseload has continued to rise as people become more
aware of it. They work a specific case, but just as important
to me is the fact that as they look at their caseload, they are
making recommendations, back to myself and the FEMA
administrator, about ways that we can improve the program and
intervene in ways so that we can really be a learning
organization so that--
Mr. Posey. Okay.
Mr. Wright. --we don't repeat those problems.
Mr. Posey. All right. Now, what is the biggest complaint
you hear from consumers and how can we help address those in a
reauthorization?
Mr. Wright. First, we get some concerns about the rates
that they have to pay and they want to make sure that those
have been looked at and any way to reduce their rate that they
can have.
The second piece that they look at is on their
understanding of the coverages that they have. In the most
recent report from the advocate that was given to me and has
been released publicly, he has also highlighted the concerns
about processing of the ICC, the increased cost of compliance.
And then I have a whole smattering of things. Sometimes it
is on a mapping issue. Sometimes it is on an underwriting issue
on a--I get a report from him every 60 days looking at kind of
the throughput of what they are hitting. He can make
recommendations anytime during the year, and then once a year
he releases a public report.
Mr. Posey. Thank you for your frank answers.
I yield back, Mr. Chairman.
Chairman Duffy. The gentleman yields back.
The Chair now recognizes the gentleman from Michigan for 5
minutes.
Mr. Kildee. Thank you, Mr. Chairman.
And thank you, Mr. Wright, for being here, and like my
colleagues, I am quite concerned that we reauthorize this
program in a timely fashion. And I think many of us on the
committee and in this room know what happens when there is
uncertainty in these markets.
It was not that long ago that we saw TRIA go through a
similar situation where uncertainty and the uncertainty that
this Congress would reauthorize that program led to a real
impact in the marketplace.
And we would certainly hate to see the entire housing
market impacted by our inability to move and agree with you to
get a longer-term reauthorization. That is really not the
direction I would like to take.
I would like to follow up a little bit on the last set of
questions. In your answer on consumer concerns, you mentioned a
few areas. And you indicated one of those areas where I think
your term was, ``smattering of complaints or concerns'' that
had to do with mapping.
I wonder if you first might comment on what your level of
confidence is or what your assessment is of the accuracy of the
maps as they currently exist?
I know it is a dynamic process, but in general how would
you characterize the accuracy of maps that are determining
which properties fall into the category requiring insurance?
Mr. Wright. I would characterize the maps today as
credible. And the nature of the science continues to evolve.
The nature of the built environment continues to evolve.
By statue, the mapping process is done in collaboration
with the communities. And you can always buy more data. You can
always buy more precision.
I have to work with the resources that I have, and that is
why from a credibility perspective, when the maps are
developed, they are then sent to the community for review and
comment, ultimately going through a formal due process and
appeal period for 90 days.
Mr. Kildee. It would seem to me though, having worked in
local government for a very long time and seeing just
incredible changes in the ability of a community to deal with
say, planning and zoning or other land use issues through the
development of new technology with GIS and all the other tools
that are available, that we ought to be able to be much more
efficient in terms of updating maps.
And I raise that because at least in the area that I
represent, and I am from Michigan, we run into significant
problems with accuracy and also significant delays with the
time-consuming nature of the appeal process for individual
properties.
What can you say about what is lacking, if anything, in the
availability of technology or new applications that might make
more efficient the updating of these maps?
Mr. Wright. The single thing that would push us in a
leapfrog forward would be to have an elevation layer, ground
elevation layer map across the Nation.
Today, when we go to build a map, we have to know where the
ground is. We have to know how much water and we have to know
how deep it is going to be and then how it is going to interact
with the built environment in terms of the structures.
Today, we partner with other Federal agencies and State
agencies to acquire usually LIDARs, the technology that is
referenced, that light detection radar that is used, but we
don't have enough of it today. And so there is a significant
investment that needs to be made in that national elevation
data layer.
Today, I buy it piecemeal. I buy it one watershed at a
time, one piece. But what I do know, and we are running a
couple of pilot projects with States, Minnesota is one of them,
next-door to you, where they have a State-wide elevation,
digital elevation data.
And we are using some of the innovations in technology that
are speeding things up tremendously because the automation
works very well when you have highly accurate ground
elevations.
Mr. Kildee. I would certainly encourage that and suggest
that you include in any of your recommendations that the
accuracy issue is really an important one. It affects
individual customers but it also affects the entire program.
And I would be really anxious to see some movement in that
direction.
And also, if you could just briefly comment in the few
remaining seconds, on anything that is being done to streamline
the process for individuals to challenge maps? That can be very
time-consuming and often becomes irrelevant because of the time
involved.
Mr. Wright. If you want to look at a map amendment on a
single structure basis, when those data are submitted, on
average, it is a 7-day turnaround time. Some of it can be done
online within 24 hours. So if you are doing single structure
data to submit to us, I think it goes pretty quickly.
If you are trying to do something that is more of a
neighborhood scale--
Mr. Kildee. Right.
Mr. Wright. --that map revision process is longer. It
requires us to verify data in a much greater level of
precision. And we are required under the statute to go through
due process. And so a draft has to be presented to the
community. Ultimately, we have to go through the Federal
Register for a 90-day appeal period.
I do think that this element is one that we could explore
through reauthorization. In this particular element of it, and
I know that other Members have asked me about this in the past,
if there is no objection to the map and the data that was
generated by the community, well, I don't think we can bypass
the due process because there may be a homeowner who believes
that they have an equity in this.
I do think we should be looking at ways to leapfrog
elements and push faster.
Mr. Kildee. I thank you. And I know my time is over.
I thank the chairman for his indulgence. Thank you very
much.
Chairman Duffy. The gentleman's time has expired.
The Chair now recognizes the gentleman from Pennsylvania
for 5 minutes.
Mr. Rothfus. Thank you, Mr. Chairman.
Good morning, Mr. Wright.
Mr. Wright. Good morning.
Mr. Rothfus. You mentioned in your testimony that at a
national scale, estimates lead FEMA to believe as little as
one-third of residential properties in the special flood hazard
area have NFIP policies. What, if anything, does FEMA do to
coordinate with banking regulators to determine whether
homeowners with federally-linked mortgages are actually current
NFIP policyholders?
Mr. Wright. We cooperate with the regulators, as I
understand it, and I am not a banking regulation expert. When
they come in, they do a small sample of the book that may or
may not even be in the special flood hazard area. If it is,
they would check to make sure that the right kind of insurances
are in place.
That cooperation, though, is simply how we deal with the
enforcement. Where we have focused is, what does it mean to do
the outreach at the point of a new map and working with the
agents, as well as the State commissioners, to advocate that
people do those purchases?
Mr. Rothfus. Is this a reactive or a proactive approach? If
you say that you are cooperating with the banking regulators
and they are coming in to take a look, that is a little
different from you proactively going out and assessing.
Mr. Wright. Right. To my understanding, I don't have the
authority to go in and ask to see a bank's book of business and
do that audit. The banking regulators have that authority. So I
defer to the Office of the Comptroller of the Currency and the
other regulators.
Mr. Rothfus. Yes, and the regulators--the OCC, the Fed, the
FDIC, and the Farm Credit Administration, as well as the NCUA--
issued a joint notice of proposed rulemaking last fall in
November concerning the implementation of the private flood
insurance provisions of Biggert-Waters.
In this release the regulators proposed a provision that
would allow regulated lending institutions to accept at their
discretion certain flood insurance policies issued by mutual
aid societies, which are common in the Amish and Mennonite
communities in Pennsylvania.
As you may be aware, due to their religious beliefs,
members of these committees do not purchase traditional
insurance products, and they have established a long tradition
of insuring their own communities. How does FEMA view this
proposal?
Mr. Wright. FEMA has not taken a formal view on that
rulemaking. That said, I believe that what is proposed
personally is right-headed, and the kind of provision that you
are highlighting I think is an important one.
Mr. Rothfus. I have heard concerns about homeowners
receiving widely divergent flood insurance quotes from
different insurance agents. Much of this is likely due to the
challenges associated with navigating the NFIP. How can we make
it easier for insurance agents to provide consumers with
consistent and accurate information?
Mr. Wright. Congressman, I think you really have hit the
heart of some of the transformation we are trying to do in the
program today. It is too complex. And while I don't find it
acceptable that they are getting different answers, I can
understand how that can happen.
So I think we actually need to get to a point by which,
given our understanding of the underwriting actuarial
provisions of the program, we can get to the base information.
Today, the application and the questions we ask are far too
many and there is far too much room for misunderstanding that
can move one direction or another.
Mr. Rothfus. So what are you doing in that space right now?
Do you have a plan?
Mr. Wright. We sure do. First--
Mr. Rothfus. When can we expect to see something?
Mr. Wright. Later this spring. For the last 8 months we
have been working to rewrite the underwriting manual, which is
where all of those instructions are at. Frankly, it was not in
plain language.
Sometime in April, we will be releasing that in beta and
testing it with the agents on the ground. It will go into full
effect this summer. We are doing a similar kind of thing on the
claim side.
Ultimately, we have to look at the coverages because this
kind of push-pull that happens often gets, well, there are too
many options that bring too many complexities. And usually they
don't fully understand that until the day they file a claim. I
have to bring that forward.
Ultimately, with this underwriting approach I would like to
get us to a point by which we are using online and technology-
based ways by which the same answer is being produced every
single time.
Mr. Rothfus. Any idea what that would require or what it
would take to make that happen?
Mr. Wright. The first thing is we are going through a
modernization of our IT efforts. We actually have gone through
all the reviews with the Department of Homeland Security and we
are beginning agile development this spring on elements of it.
Over the next 2 years, more of those pieces will be in
place. We are also partnering with the Write Your Own companies
who can implement these technologies themselves to make sure
that there are data standards in place to better enable us to
use technology.
Mr. Rothfus. I had to step out and take care of something
outside, so you might have been asked this question already,
but I just wanted to see what the answer is.
As I have studied the NFIP, I have noticed how difficult it
is to get complete and usable data, I can only imagine how
difficult it would be for firms in the private sector that want
to get into the flood insurance business to get a better
understanding of the NFIP's historical data. Is there a
provision in the law or some other reason that FEMA cannot
share this information with insurers?
Mr. Wright. The chief concern is one related to the Privacy
Act. What I have done, and again, I have been pushed rightfully
on this because we did not make enough progress on it, we were
able to do some new modeling last year related to reinsurance.
It was sufficient for the reinsurers to price the products
for me. And I have recently released most of the data that we
worked on with those reinsurers and they are now available to
be downloaded from FEMA.gov.
Chairman Duffy. The gentleman's time has expired.
The Chair now recognizes the ranking member of the full
Financial Services Committee, the gentlelady from California,
Ms. Waters, for 5 minutes.
Ms. Waters. Thank you very much, Mr. Duffy.
Let me just say to Mr. Wright, I appreciate you being here
and sharing with us how FEMA works. You are in an untenable
position. You were asked by Mr. Duffy, what is your plan for
reduction of the debt?
I wish you could have told him there is no such thing as a
plan for the reduction of the debt. We are paying $4 billion a
year on this debt. The Congress of the United States of America
will have to make a decision about this.
And I don't know what my colleagues are thinking, but I use
the word ``forgiveness.'' I really do believe that we need to
forgive this debt.
This agency needs a revolution, and it starts with
forgiving the debt. There is no way that you could plan to
forgive this debt by raising the premiums or doing some of the
other things that you say that you do in order to come up with
premium costs.
You talk about loss claims data, future expected losses.
You can redo that a thousand times, but it is not going to
reduce this debt. And so I am going to be working very hard to
try and convince my colleagues that we need to really, really
step up to the plate and deal with this issue and this issue of
debt.
Having said that, when I talk about a revolution, in
addition to forgiving the debt I think the Members of Congress
really do need to understand all of the calculations that go
into determining premiums.
You talk about loss claims data and there seems to be some
misunderstanding about whether or not you are actually using
this. I heard the questioning on this issue and it sounded as
if you said that is part of it.
We don't know how much of that is taken into consideration.
I heard you talk about future expected losses. How much of
that? How is that calculated? Is this truly scientific, on and
on and on?
I would like to say to the chairman of this committee, who
is sitting here, that we need to have a special task force on
flood insurance alone so that you would be able to take the
agency apart, working with the members of the special task
force to understand how you come up with your calculations. And
I think that if we started out anew with these premium
policies, we could correct a lot of things.
There have been problems with mapping historically. And my
staff just brought me a copy of a press release that we did
about a mapping area in Los Angeles that I got involved in, in
2010, where we worked with FEMA.
And FEMA changed because when they took a look at what the
citizens were complaining about and the whole area, and the
fact that it had never had a flood, on and on and on. When they
gave consideration to all of these things, they changed their
mind about the way that mapping had taken place.
The other thing that I discovered in working on this issue
was I know that you send the notices or information to the
cities. And the cities have an opportunity to raise questions,
to talk with the community, but oftentimes they don't do
anything.
You send that information to the cities and it just goes
into a file somewhere and the citizens don't get an opportunity
to really have the cities working with them to bring their
concerns to you.
And so for all of these reasons, I think that we really do
need to have this change, this big change, this revolution.
Now, on top of all of my concerns and even what we did,
after we changed our minds about Biggert-Waters and we came up
with the repeal, we didn't treat those small businesses right.
And everybody on this committee claims to be concerned
about our small businesses, but yet when we take a look back at
what we did and what their responsibility is in terms of
premium cost, it really must be corrected.
Now on top of that--you had nothing to do with this--to
fund the border wall, the Trump Administration weighs cuts to
Coast Guard, airport security.
Your name is not in the headlines but the proposal drawn by
the Office of Management and Budget would also slash the budget
of the Federal Emergency Management Agency, which provides
disaster relief after hurricanes, tornadoes, and other natural
disasters.
The Coast Guard, $9.1 billion in 2017 would be cut, 14
percent to about $7.8 billion. The TSA and FEMA budgets would
be reduced about 11 percent each to $4.5 billion and $3.6
billion. This is outrageous and unconscionable.
And so Mr. Chairman, I hope that you are listening and you
are going to take this into consideration. You can pound all
you want. Be--
[laughter]
Chairman Duffy. You are over your time, Ranking Member
Waters.
Ms. Waters. The ranking member would respectfully request
unanimous consent for 30 more seconds?
Chairman Duffy. Without objection--
Ms. Waters. Thank you so very much.
Chairman Duffy. --because you are so compelling.
Ms. Waters. I just wanted the 30 seconds to say that you
now have a big responsibility, and you asked the question of
Mr. Wright when he came in about what he was going to do to
reduce the debt.
I hope that you have paid attention so that you know that
all he can do is continue to pay that $4.0 billion every year
on this outrageous debt. And I hope that you are hearing some
of us when we ask you to take consideration for eliminating
this debt.
This is natural disasters and our taxpayers deserve better.
And I don't intend to sit here and work on any increased
premiums. Thank you so much, Mr. Chairman.
Chairman Duffy. To the ranking member, thank you. It was
only a minute and 38 seconds over your time.
Ms. Waters. Thank you for that.
Chairman Duffy. I have been trying to be generous to let
Mr. Wright finish his questions if he is over, but to you the
exception goes, Ranking Member Waters. With that, your time has
definitely expired.
The Chair now recognizes the gentleman from Michigan for 5
minutes.
Mr. Trott. Thank you, Mr. Chairman.
Just a point of clarification, Mr. Wright, and thank you
for being here. The ranking member has mentioned a couple of
times in her questioning and in the opening statement how
unfair, and I believe she means $400 million in interest a
year, not $4 billion, but how unfair it is that we are
collecting this interest and it is how it is costing the
program and that is the reason for the inability to repay the
$24 billion, and it should be forgiven.
Just a point of clarification. It is really not costing the
program $400 million a year. It is costing the taxpayers $25
billion at the moment. Isn't that a correction that needs to be
made? It is the taxpayers, right? That is what I am talking
about.
Mr. Wright. The taxpayers have loaned us $24.5 billion.
Mr. Trott. Okay.
Mr. Wright. The policyholders are paying $400 million of
their premium toward servicing that debt.
Mr. Trott. So let's talk about your solution. In your
opening statement you talked about the need to have the private
sector play a greater role. And so I assume that you believe
that the private sector would step in to fill this need if we
remove some of the barriers and maybe figure out a way to
better share the data. Is that a fair assumption?
Mr. Wright. I think that is an element of it. I think time
would have to show what the private sector would do. Over the
last 49 years, the National Flood Insurance Program has been, I
don't know that those markets have flourished.
I would note that there already are private markets selling
the excess coverage, as well as in some States there are flood
riders that are particularly used for areas outside the high-
risk area.
Mr. Trott. Right. And so I am concerned about as we move
towards a long-term solution as part of any reauthorization,
kind of the sticker shock issue. Allegedly, one of the
unintended consequences of Biggert-Waters was the sticker shock
that some of the homeowners experienced.
So do you believe there is a way, over a period of years,
to implement a solution that greater involves the private
sector that would allow for actuarial sound premiums to be put
in place where homeowners wouldn't lose their homes?
Mr. Wright. Congressman, Congress is going to need to make
some choices for me about that, and I can implement them. In
this instance, what I will tell you is there is no more
effective risk communication tool than a pricing signal.
And I was in communities, actually sat next to Members
doing town hall meetings in the intervening time between
Biggert-Waters and the Homeowners Flood Insurance Affordability
Act, where I heard the outcry in terms of the impact from an
affordability.
So there is a push-pull--
Mr. Trott. And could that been avoided? Is that something
we could have avoided, in hindsight? If there is part of any
solution we don't want to have that happen again, right?
Mr. Wright. I would assert that all of us would be better
off if we didn't have that happen again.
Mr. Trott. None of us wants that. So is there a solution
that you can envision? Is it possible to avoid that scenario?
Mr. Wright. The first step that we are already taking under
Section 28 of the Homeowners Affordability Act is to clearly
communicate risk. And so this is the first year that we are
pushing out a notification that says, here is your premium but
this is what the full risk rate would be, or at least the range
of what your full risk rate would be.
We still are implementing escalations in the policies that
move us there. I think the 2014 Act put a much longer time
horizon on it whereas the 2012 bill did it quite quickly.
Mr. Trott. Okay. So part of the problem, as I understand
it, is approximately 1.6 percent of the 5.1 million
policyholders account for 24 percent of the claims. At least
that is the statistic that was shared with me yesterday.
So how does the solution in your mind address that problem?
Because that seems to be the crux of the issue is we have
85,000 policyholders who are accounting for the vast--an
inordinate number of claims.
Mr. Wright. I think when you look at the insurance realm,
it is not unusual to have a small segment that is occupying a
good bit of the claims payments.
For me what is highlighted, and this is not always popular,
but I think we have to look at those repetitive loss properties
because under the statute today, I am required to continue to
offer them coverage.
And there may be a point that we should draw that says if
your total payouts of claims exceeds 200 percent of your policy
limits, or some other number, I offer that hypothetically to
you--
Mr. Trott. Right.
Mr. Wright. --we are in a position by which you need to get
your insurance through another means. You need to have lost the
ability to have those cheaper rates.
I think we have to look at that. I would point us back to
some things learned from 2004's reauthorization, where there
was an attempt at a ``three strikes and you are out.'' I don't
think that worked as effectively, but we could find a way to
draw that line.
Mr. Trott. Thank you. I agree with your comments, and while
my time is running out, I come from Michigan, the Great Lakes
State.
What is the status on sharing the data that is being
collected by Sea Storm in terms of the flooding patterns for
the lakes, because they are much different, obviously, than the
coastal areas? And when can that be available to my
constituents? And does the same privacy concern hold you up
from doing that?
Mr. Wright. The privacy concern only deals with address-
specific claims data. The work that we are doing on the Great
Lakes today is ongoing. We will work with your office to make
sure that is made available to them.
We are partnering with the State of Michigan and the
communities to share that data. As you know, the lakes have
been on a downward trajectory, and I think you will see that
reflected in the update of the maps.
Mr. Trott. Thank you for your time.
Chairman Duffy. The gentleman's time has expired.
The Chair now recognizes the gentleman from Nevada for 5
minutes.
Mr. Kihuen. Thank you, Mr. Chairman.
And thank you, Mr. Wright, for your presentation and for
being here this morning. I have a couple of questions relating
to climate change. Climate change is a real threat. And I think
we are going to start seeing folks get washed out more and more
often.
I believe we will see more Superstorm Sandy's, which will
cost the program billions and billions of dollars. Are you
taking climate change into account while you are doing your
mapping?
And secondly, if we see an acceleration in extreme weather
events, wouldn't this add further debt to the NFIP? And is this
something we should be concerned about as we work towards
reauthorization?
Mr. Wright. There are a number of future risks that we have
to consider in the National Flood Insurance Program. Climate
variability, climate change is one of those.
In 2012, Congress directed us to use our Technical Mapping
Advisory Committee--it has been a very beneficial group for
us--to specifically look at this. They have delivered a report
to us related to future risk and future conditions and how we
would map that.
I do think that we could benefit from showing that risk to
communities in a more forward way, but let me draw two
important distinctions. When we are charging insurance
premiums, we should do it based on today's risk.
I should inform the built environment based on our
understanding of the future, but I shouldn't be charging a
premium based on a risk that has not yet arrived.
The second piece that I would highlight is, and we released
a report in 2013 to this end, as you look at the changes that
we anticipate between now and 2100, there are changes in
climate. But a third of that change in risk is wholly
attributable to changes in the built environment.
Essentially, where do the next 50 million people live?
Where do we build their homes and their condos and their
apartments? Where do those pieces sit, and how is that sited?
Because frankly, every time we keep building, if we don't do it
intelligibly on the way in, we exacerbate those flood risks.
Mr. Kihuen. Thank you, Mr. Wright. My other question has to
do with rural America, and my district is for the most part
very rural. On the one hand, we saw in the aftermath of
Hurricane Sandy that there were serious concerns about
engineers not having the proper expertise to be handling flood
claims.
But on the other hand, it can be difficult to find a
sufficient number of qualified professionals in the area in the
aftermath of a storm this size. That was in New York and New
Jersey.
My district includes Las Vegas, but it also goes all the
way up, almost to Reno. For my East Coast colleagues, that is
the same distance between Washington, D.C., and Boston or
Atlanta. I have a number of constituents who reside in rural
counties.
And though we definitely don't have the flood issues some
of my colleagues do, these counties do have thousands of NFIP
policies that have paid out hundreds of thousands of dollars in
claims.
What is FEMA doing to ensure that we have a sufficient
number of qualified professionals handling claims in the
aftermath of a storm, especially in rural counties?
Mr. Wright. Let me take the rural county piece first, and
then I will broaden out to the broader piece. As we look at
rural counties, we see flooding go on most weeks of the year in
some rural county across America.
The number of claims we would see in those instances are
low enough by which I can get enough adjusters and the like on
the ground pretty readily, which allows us to close out those
claims and get them paid in a very timely way.
It is usually in an urban context, think more of your Las
Vegas context, by which I start seeing tens and hundreds of
thousands of claims. And that is the point that stresses the
system.
So what have we been doing to address the stresses on the
system? We have been working with the companies to ensure that
we are building out more capacity for adjusters.
We are also looking at technology. Technology first of all
to do the quality control to ensure that there is not
sloppiness, there aren't inadvertent errors being made.
But also ways that I can imagine in the years to come for
claims being able to be adjusted by people taking pictures on
their smartphone. And when this is a smaller scale, this is a
$10,000 or $20,000 claim, I can imagine them taking pictures,
uploading those to us, and us adjusting this remotely, which
saves a tremendous amount of time and we would be able to get
those dollars paid far quicker.
Mr. Kihuen. Thank you, Mr. Wright.
I yield back the remainder of my time, Mr. Chairman.
Chairman Duffy. The gentleman yields back.
The Chair now recognizes the chairman of the full Financial
Services Committee, the gentleman from Texas, Mr. Hensarling,
for 5 minutes.
Chairman Hensarling. Thank you, Mr. Chairman, and thank you
on behalf of the full committee for holding this hearing.
Mr. Wright, I just want to follow up on a couple of items
that you have already testified on, and particularly I want to
follow up first on the question from the gentleman from
Michigan, Mr. Trott, which has to do with the repetitive loss
properties.
I don't quite recall the term of art, whether it was
``severe repetitive loss'' or simply ``repetitive loss,'' but
approximately 2 percent of the properties are accounting for
roughly 24 percent of the losses historically.
You mentioned the 2004 effort, kind of a ``three strikes
and you are out.'' So could you give us a few other thoughts
and approaches on how FEMA is thinking about these repetitive
loss properties, and any different approaches you would bring
to the committee's attention?
Mr. Wright. Right. There are some nuances to the 2004
piece, but overplayed 3 claims of $1,000 apiece would strike
you out, and I don't think that was ever quite the intent we
are looking at.
And so the first thing I think we need to do is actually
move the threshold of what we consider the repetitive loss.
Where is the big money going as opposed to some things that may
just be some nuances that were applied?
As I have thought about it, and we have begun going through
the data, and my team hasn't finished on this point yet, there
is a point by which we have to draw a line that says if you
exceed--is it 150 percent or 200 percent of your policy
limits--at least we need to take the subsidies and
grandfathering away from you and you need to be paying at its
face value, actuarial premium. Or we should tell you to get
that on the private market.
There is the other side of that coin by which some of these
are in places where the homeowners are of less means and
wouldn't be able to actually take that on. And so I think we
have to look at that dimension of it.
But the face of it is in any other kind of insurance piece
that third, that fourth time to the well, we change the rules
somehow. And I think it would be wise for us to do so.
Chairman Hensarling. Mr. Wright, if I could suggest that
your staff prioritize analyzing--
Mr. Wright. We will do so.
Chairman Hensarling. --this particular data? I share your
goal of having a long-term reauthorization--
Mr. Wright. Right.
Chairman Hensarling. --and maybe September 30th is looming
large, but this is an important part.
You also, I guess fairly early on in your testimony, spoke
of mitigation, and one or two other Members also spoke of it.
So I think the grant program is a relatively small portion--
Mr. Wright. Yes.
Chairman Hensarling. --of the FEMA budget today. But could
you expound upon your thoughts, and again, other matters you
would bring to the committee's attention in the mitigation
space?
Mr. Wright. The mitigation investments pay off over and
over again. I have three different grant programs that I am
accountable for. One of them is funded by the Stafford Act
after events. That is where there is anywhere between $700
million and $1 billion a year spent in that space.
Congress then also created a Pre-Disaster Mitigation Fund,
which averages about $100 million a year. And then inside the
National Flood Insurance Program, we have a Flood Mitigation
Assistance Program. That is paid for by the premiums of
policyholders. So $175 million, which is not enough to actually
mitigate risk.
And I kind of look at these upper limits of $26 billion or
$45 billion worth of risk that I could assume in any given year
and what do those pieces look like?
The limited pot I have today I prioritize on repetitive
loss, severe repetitive loss properties all moved to the top
because that benefits the fund.
I think we would do more to help communities if we started
taking on projects that were a bit larger at a community scale.
So rather than do three houses on that block, what does it mean
to actually take that entire block out of harm's way?
The question is where do the resources come from? Where do
the resources come from to pay those bills? I don't know how
much more policyholders can bear, and I don't know what the
appetite is for that to come out of general authorization.
Chairman Hensarling. In the seconds I have remaining here,
you have indicated a desire to open up greater space to the
private market. The committee shares that particular goal. I
know we have had a fulsome dialogue between your office and
this committee. But is there any barrier to entry, as you
understand it, that has not been brought to our attention?
Mr. Wright. I think there is a reality that when these
markets stand up, they are going to be subject to State
regulation, appropriately so, McCarran-Ferguson gives that
responsibility there. And they need to be able to price a
product.
But I think what is keeping us from actually seeing it
broaden up is what does it mean to actually establish, they
will guard against concentrations, which I don't today. They
will have to make sure that their rates are affordable and that
they don't push and pull out.
But I really see that we need to move to an appetite,
because one of the things I have pushed the private markets on
is today I am responsible for assessing a surcharge of $250 on
any second home. I look at properties outside the mandatory
purchase, the preferred risk, and I am putting a $250 tax on
top of a $350 premium.
And I have told the private markets that this is a perfect
place where I have a competitive disadvantage. You should be
coming in and filling this space. This is cheap, insurable
risk.
Yet, I am not seeing that expansion happen yet. And so
there needs to be some motivation that will keep pushing them
down that road. And I think that will be as a step-wise process
for us.
Chairman Hensarling. Thank you.
Chairman Duffy. The chairman's time has expired.
The Chair now recognizes the gentleman from Texas, Mr.
Green, for 5 minutes.
Mr. Green. Thank you very much, Mr. Chairman. And if my
friend, the Chair of the full committee, needs additional time
I will be honored to yield to him, without any questions I
might add.
Mr. Chairman, and Mr. Ranking Member, I thank you for this
hearing. And Mr. Chairman, if I may say so, I want to
congratulate you on being promoted to this subcommittee, but I
will tell you that I enjoyed serving with you on O&I. We didn't
always agree, but I always enjoyed the opportunity to serve
with you.
Chairman Duffy. You were always agreeable.
Mr. Green. Thank you so much.
Mr. Wright, thank you for your appearance today. There are
some aspects of your job that are complicated by virtue of
things that we can do here in Congress and that we haven't
done. An example would be in Houston, Texas, wherein we have
floods that total $100 million and it is not unusual.
We had the Memorial Day flood in 2015 which was about $100
million, and we had the tax day flood in 2016 which was about
$1.9 billion by some estimates. It depends on who is counting
and how you count.
People have lost their lives: in 2015, 8 people; in 2016, 9
people. FEMA paid out $57 million with reference to the
Memorial Day flood in 2015.
Now, I mention these circumstances because there are
projects that are on the docket of the Army Corps of Engineers
that if completed would eliminate some of the flooding and
mitigate a good deal of the flooding as well. These projects
total about $311 million. We are spending a lot of money after
the fact.
We spend millions after the flooding, after the damage, but
we could spend millions also before and mitigate and eliminate.
Would you care to comment on what I have just said, sir?
Mr. Wright. I think this investment before the disaster is
imperative. And while I cannot speak to the specifics of the
Corps' investments and budget, I can and I would highlight for
you a report and some findings by the Government Accountability
Office last year where they directed an interagency group that
I chair to develop a national mitigation investment strategy so
that we harmonize Federal investments, and we find ways to
incentivize more private investments in this space.
I would assert there are not enough Federal dollars to
eliminate all the risk across all the communities in this
country. We have to find ways to engage the private sector in
that, and I do think that we collectively could find a better
way to harmonize those programs. I expect some work later this
summer to be done to demonstrate the progress there.
Mr. Green. Thank you. With reference to our sharing risk,
you are well aware that at one time the insurance companies had
the entire market.
Mr. Wright. Yes.
Mr. Green. And we are in the market now because it became
too much for them to bear. Would you kindly explain to us the
consequences of the Federal Government moving to becoming the
insurer of last resort only and allowing the market to manage
the other aspects of these disasters?
Mr. Wright. Yes. In many ways, I would say we are the
residual market today because there is a limited amount that is
done through private flood.
And 49 years ago, there was a limited market, and where it
was, the prices were quite exorbitant. I think as we look at
these dimensions, we have to find the right balance.
Florida Citizens is often held up as an example for me to
look at and they still retain a half million policies through
their citizens program that the private market did not take up.
And so those policies would be there and so what would that
equivalent be inside the National Flood Insurance Program? It
is impossible to know precisely, but there could be 3 million
or more policies that we are left with.
Yet, those are the ones that would be at greatest risk with
greatest kind of concentrations of that risk, and where we
would pay those bills becomes difficult.
In the Florida example, they have a whole series of ways by
which all the taxpayers of Florida and all the rate payers in
Florida would contribute to pay those bills. We don't have
those mechanisms in the National Flood Insurance Program.
Mr. Green. Mr. Chairman, I know my time is up. May I
introduce some things into the record, please?
I have a resolution from the Commissioner's Court in Harris
County supporting our reauthorization. I would also like to
introduce H.R. 121, which is the bill that would allow us to
fund those projects that have been authorized by this Congress
that would help us mitigate in Harris County. I ask unanimous
consent to enter these documents into the record.
Chairman Duffy. Without objection, the documents will be
made a part of the record.
Mr. Green. Thank you, Mr. Chairman.
Chairman Duffy. With that, the gentleman's time has
expired.
The Chair now recognizes the gentleman from New Jersey, Mr.
MacArthur, for 5 minutes.
Mr. MacArthur. Thank you, Mr. Chairman.
We have talked about what I think should be our priorities
in this reauthorization--affordability, certainly mitigation is
critical. I want to focus for a few moments on accountability,
which I think needs to be a priority as well. And all of my
questions and comments come out of whom I represent.
I represent southern New Jersey, the epicenter of
Superstorm Sandy. On October 29, 2012, my district was
devastated: lives, homes, businesses, neighborhoods, and
communities. And we have all probably seen photos of the iconic
Jet Star rollercoaster sitting in the ocean. That is my
district.
Mr. Wright. Right.
Mr. MacArthur. We have seen photos of the house sitting on
a little island in the middle of a newly created inlet that
went right through an island. That is my district. Those are
the people I represent.
And you mentioned earlier, Mr. Wright, 144,000 flood claims
came out of that event. And of those 73,000, about half, were
in the State of New Jersey, and of those, 36,000 were in my
home county--50 percent of the claims in New Jersey were in my
home county.
Do you know how many people--I don't expect you probably
do--who are still out of their homes now, nearly 5 years later?
Mr. Wright. I don't, sir.
Mr. MacArthur. Thousands. Thousands of them. And might you
guess the leading cause for people to still be out of their
homes 5 years later?
Mr. Wright. No.
Mr. MacArthur. It is a gap. And it works like this. There
are resources from a flood policy, maybe resources from a FEMA
grant like a REM grant to lift a home. There are resources from
an SBA loan. There are private savings that people have put
away for retirement.
And they keep inching towards completion and they run out
of money, 95 percent there but they can't get a certificate of
occupancy.
Mr. Wright. Right.
Mr. MacArthur. So getting paid fairly at every step of that
chain is absolutely essential for my constituents. And that is
where I want to focus for a few moments. What percentage of the
underwriting risk does a Write Your Own carrier take?
Mr. Wright. Zero.
Mr. MacArthur. Zero. Would an engineer or an adjuster have
any financial incentive for depressing the amount of a claims
payment?
Mr. Wright. They should not.
Mr. MacArthur. They should not. I want to read to you
testimony, not testimony, but commentary from your predecessor
I believe, Brad Kieserman, who in February of 2015 said this on
60 Minutes, that he ``had seen evidence of fraud in reports
used to deny them, the policyholders, full insurance payouts.''
Again I am quoting: ``I am not going to sit here and
conceal the fact that it happened because in the last 3 weeks,
I have seen evidence of it,'' said Kieserman. He went on to say
that they had seen evidence in late 2013, a year after the
storm, but nothing had happened.
I am going to ask you, Mr. Wright, to look at the two
photos that are up on the wall. Do they look like the same
photograph to you, left and right? I assure you they are and
they came out of your files.
Mr. Wright. Okay.
Mr. MacArthur. I would ask you to read what is circled on
the photo on the left.
Mr. Wright. ``Floodwaters damage heater and boiler.''
Mr. MacArthur. Okay. And that was dated November 12th. Then
on the right side is the photograph that was sent to the
insured on 11/26 when their claim was denied. Can I ask you to
read what is in the circled box on the insured's photograph?
Mr. Wright. ``Floodwaters do not damage water heater and
boiler.''
Mr. MacArthur. I don't have time, unfortunately, to put up
a series of these very similar photographs, but I assure you
and I trust that you will accept that it is accurate, that they
all do the same thing.
You reopened thousands of claims under some pressure by me
and others. Can I ask how much you have paid from all of those
reopened and litigated claims in the latter part of the
process?
Mr. Wright. We have paid out an additional $350 million so
far.
Mr. MacArthur. I am going to stop you there because I have
only 30 seconds left, and I have to end with commentary.
Chairman Duffy. I would ask for unanimous consent to give
the gentleman 1 more minute of time.
Mr. MacArthur. I'm very grateful for that.
Chairman Duffy. Without objection, it is so ordered.
Mr. MacArthur. You were under pressure in FEMA, and I
recognize you weren't in the role then, but FEMA under pressure
allowed my constituents to reopen claims--50 percent of the
claims in my State, 25 percent of the claims in this entire
episode, you reopened them and you paid out $300 million you
just testified--$300 million that would not have come to my
State had you not been under pressure to reopen these claims.
Sir, I beg you, and I am telling you that when we
reauthorize, we will be watching to make sure that there is
accountability in the process. The McKinsey study that was
implemented by your company suggested that your adjusters ought
to pay within ranges. Is that correct?
Mr. Wright. So--
Mr. MacArthur. I don't have time to actually let you
answer. I know that is what it did because we have had plenty
of testimony that it did. We had five whistleblowers that I
have statements from, affidavits from. I will read you the
quote from two of them.
``We received instructions not to conduct a comprehensive
evaluation of claims. We were directed to tailor evaluations to
fall within a range even if we identified additional covered
damage.'' That was one of your employees who was a
whistleblower.
Another said, ``There was an elaborate process designed to
justify minimum payments to policyholders irrespective of the
actual merits of the claim.'' Mr. Wright, this is completely
unacceptable--$300 million of additional funds paid that would
have been denied but for the pressure that was on your agency.
You are charged with helping the very people who have
suffered the most, and my constituents got cheated. And so did
others across New Jersey and across New York, and you have to
fix that.
You have to fix that process so that people at least are
getting paid what they are owed and it doesn't create a gap
that keeps them out of their home for years after these events.
I yield back. Thank you.
Chairman Duffy. The gentleman's time has expired.
The Chair now recognizes the former Chair of this
subcommittee, who is now the current Chair of the Financial
Institutions Subcommittee, the gentleman from Missouri, Mr.
Luetkemeyer, for 5 minutes.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
And Mr. Wright, it's good to see you again.
Mr. Wright. Yes, sir. Likewise.
Mr. Luetkemeyer. I know that a number of the things that
were discussed today were happening and were consequential
prior to your taking over. I know that in working with you over
the last couple of years here you have done a pretty good job
under your leadership of improving the claims process.
As my colleague next to me here has pointed out, there were
a lot of mistakes made.
Mr. Wright. We are--
Mr. Luetkemeyer. And I know that the last two storms we had
this last summer, this past year, there were not that many
mistakes made--as many mistakes. Put it that way. I know that
as chairman, we wound up with a lot fewer complaints, and so I
congratulate you on improving your process. There's always room
for improvement, of course, but--
Mr. Wright. Agreed.
Mr. Luetkemeyer. --I think that you have also, improving
the process, going to advance payments has been a big help. And
so I think one of the things we have and one of the things that
is in our bill, in fact, is taking some of those improvements
and trying to put them into the statute. So we thank you for
that.
And obviously, one of the things that is a big concern to
my colleagues and myself is the reinsurance, trying to find a
way to take the taxpayers off the hook. Can you tell me what
the size of the two losses were last year? What was the size of
the two events?
Mr. Wright. The total loss last year was about $4.2
billion.
Mr. Luetkemeyer. Right.
Mr. Wright. And the largest was that Louisiana one alone
was $2.4 billion.
Mr. Luetkemeyer. $2.4 billion and $1.6 billion.
Mr. Wright. Yes.
Mr. Luetkemeyer. Okay. So if we would have had reinsurance
and would have kicked in at the billion dollar level, we would
have had $2 billion worth of reinsurance and you wouldn't have
had to increase the debt from $23 billion to $24.6 billion,
right?
Mr. Wright. So--
Mr. Luetkemeyer. Yes. I can do the math, Mr. Wright.
Mr. Wright. You can. So I learned quite a bit when I went
to the markets at the end of last year on the price points. And
the attachment that we bought at $4 billion was the place where
the optimization of the pricing began to kick in.
Pricing below--
Mr. Luetkemeyer. Well--
Mr. Wright. --at $4 billion--
Mr. Luetkemeyer. With all due respect, Mr. Wright, the
pricing of this is obviously important. But at the end of the
day, what you are talking about is the flood insurance program
and having the taxpayers be the backstop. Right now, the
taxpayers are the reinsurers of the NFIP program.
And the program is not structurally sound. It is not
actuarially sound, because obviously we have a loss of $24.6
billion sitting there.
And if we would have had reinsurance in place that would
have kicked in at the billion dollar level this past year, we
wouldn't have added another $1.6 billion to our debt.
Mr. Wright. That is true.
Mr. Luetkemeyer. And so I think the reinsurance, to me, is
the most important thing we can do because it takes the
taxpayers off the hook and we can finally begin to go down the
road of getting this program under control. And from there, we
can start working on getting the actuarial rates more sound and
work on things like that.
With regards to the data, I want to go quickly to that. I
know that there were a couple of questions with regards to the
data collection. What kind of information when you have a
policy, what information, personal data, is collected on a
policyholder when you do your application--name, address,
birthdate, Social Security number?
Mr. Wright. We do not take Social Security numbers any
longer, but--
Mr. Luetkemeyer. I see.
Mr. Wright. --name, address, birthdate, value of
structures, and ultimately we end up with loss history attached
to that.
Mr. Luetkemeyer. Okay. So when you gave the loss history to
the reinsurance folks, all of this data--the name, address,
personal data--was given over to them or not?
Mr. Wright. I created a derivative product based on zip
code that was sufficient for them to provide me pricing.
Mr. Luetkemeyer. Okay. So you didn't give individual--
Mr. Wright. They knew exactly how many--
Mr. Luetkemeyer. --addresses?
Mr. Wright. They knew exactly how many claims, the value of
each of those claims, but they were generalized at the zip code
level. They didn't get the street address. And that was--
Mr. Luetkemeyer. They didn't get the street address, didn't
get names--
Mr. Wright. Correct.
Mr. Luetkemeyer. --so the data of those people was
protected?
Mr. Wright. Correct.
Mr. Luetkemeyer. Okay. With regards to--
Mr. Wright. And those are the data, sir, that I have
recently released on FEMA's website that are now downloadable.
Mr. Luetkemeyer. Right. To me, the mapping is another very
important part of this. My information shows that last year you
had 25,000 letters of map amendment called LOMA letters at a
cost of $13 million. Is that accurate, or close to it?
Mr. Wright. Those numbers seem correct to me.
Mr. Luetkemeyer. Okay. So we have the maps that are off,
25,000 people around this country had to spend anywhere from
$300 to $500 and $700 to get themselves out of the program and
show that they didn't need to have that coverage. And one of
the things that I think is important is, can you get the maps
corrected every year?
Mr. Wright. I am constrained by the number of resources
that I have to spend on those maps.
Mr. Luetkemeyer. And the reason I ask the question is, how
often do you get to being able to remap?
Mr. Wright. I am required by statute to evaluate them at
least every 5 years and then resource-dependent drives the
amount of investment that I make.
Mr. Luetkemeyer. Are we lucky to do it every 10 years?
Mr. Wright. In most areas--
Mr. Luetkemeyer. I see you are smiling, so I am not too far
off.
Mr. Wright. No, no. In the risky areas--
Mr. Luetkemeyer. Okay. All right.
Mr. Wright. --and I have to be careful given the rural
nature of some parts of the country. The riskier the area, the
more policies I have there. I am basically on a 5- to 6-year
cycle. In other cases, it may be closer to 10 years before they
have an update.
Mr. Luetkemeyer. So my comment would be that one of the
things we are looking at trying to do is go to at least every 3
years.
If you are not able to go back and redo this, allow the
local folks, if they adhere to certain criteria, to be able to
do their own maps and then have them approved. Is that
acceptable to you?
Mr. Wright. And it is acceptable under today's authorities
as they exist today. I will take data from a community--
Mr. Luetkemeyer. Great.
Mr. Wright. --at any time from that provision.
Mr. Luetkemeyer. I am being timed out. I appreciate the
indulgence by the chairman.
Thank you very much, Mr. Wright.
Chairman Duffy. The gentleman's time has expired.
The Chair now recognizes the gentleman from Illinois, Mr.
Hultgren, for 5 minutes.
Mr. Hultgren. Thank you, Mr. Chairman.
And thanks for being here, Mr. Wright. My district is the
suburbs of Chicago, and the Fox River cuts directly through the
center of my district. It is bordered by towns and cities like
Fox Lake, Crystal Lake, Elgin, St. Charles, Oswego, Yorkville,
and Plano, not to mention the lakes in the northern part of my
district.
I believe we should maintain affordable access to flood
insurance, but we also must be fiscally responsible. I think
that has been a common theme today. First question, is it true
that FEMA is no longer able to even make interest payments on
its debt? Yes or no?
Mr. Wright. In January, I borrowed the resources necessary
to make the interest payment for March.
Mr. Hultgren. When will FEMA technically default on its
obligation or have they done so already?
Mr. Wright. I would not use that word in relationship to
this program. There are people who have purchased those
Treasury bills and they have the full faith and credit of the
United States behind them.
Mr. Hultgren. I am still very concerned with the delays of
payment and failure, well, we will see question marks on how
that will continue to be paid.
Certainly, I think all of us are concerned with the amount
of debt NFIP has accumulated. I can certainly understand some
risk in providing insurance, but there is also an expectation
that it should be properly managed, whether it is provided by
the public sector or the private sector.
However, in the case of the public sector, as we say,
taxpayers are left holding the bag. Your testimony states that
a quick succession in severe storms is the primary cause for
the NFIP being about $25 billion in debt.
Your testimony also states that conservatively, Hurricane
Katrina has a 2 percent chance of occurring in a given year;
Hurricane Sandy has a 5 percent chance; and the August 2016
storm in Louisiana has a 4 percent chance. Combined, the chance
of all three happening is extremely low, less than one-tenth of
1 percent.
Do you believe FEMA was doing a poor job of accounting for
the risk? Or do you believe they were collecting insufficient
premiums to account for this risk?
Mr. Wright. We were collecting the premiums generally
allowable under the statute. So nearly 80 percent of my book is
actuarially sound. The other 20 percent of it has statutorily
directed discounts and subsidies that I live within.
Mr. Hultgren. What changes should FEMA make to avoid ever
accruing this much debt again? Do any of these policies require
action by Congress to make sure the debt never gets this big
again?
Mr. Wright. Absolutely, sir. When I talk about a sound
financial framework and bringing transparency, we need Congress
on that front. We can look at the amount of premium and may
make adjustments in that.
We can look at kind of what is repayable debt, simple
liquidity that I might need in any given year, the use of
reinsurance, which we have a cornerstone and we will continue
to build. But there are tipping points based on events by which
only Congress will be able to help me solve those.
Mr. Hultgren. Let me get into a specific circumstance in my
district. I mentioned St. Charles. This is a city in my
district that had a significant amount of trouble working with
your agency last year to update the flood maps along the 7th
Avenue Creek.
There has been significant flooding here in recent years so
the City of St. Charles would like to undertake development
projects to manage the flood risk in this area, which has a
number of businesses and homes.
The problem is FEMA took an agonizingly long time to update
the maps, which caused significant uncertainty for the
community. It has now been resolved, finally, but I want to
know what steps FEMA plans to take to prevent this from
happening to other communities in Illinois and around the
country, this unacceptable delay?
Mr. Wright. First of all, I apologize for the delay. We
need to be efficient--we take in the data that communities give
us and process it to make sure it meets the standards. I think
as we look at the breadth of the mapping programs, one of the
improvements we are doing on the technical side is bringing far
more visibility.
There are nearly 1,400 projects going on across the
country. And ways by which we can see things that are falling
behind. I want to particularly find ways to understand where is
there an expectation from the community, particularly, which is
I believe the instance you are highlighting, the community made
the investment in the mapping update. Those need to go to the
front of the line and get processed.
Mr. Hultgren. Yes. That is what is so frustrating, that
they feel like they have done everything they are supposed to
do and their hands are tied waiting on bureaucracy.
Mr. Wright. Right.
Mr. Hultgren. Which is just unacceptable. But just wrapping
up, I have less than a minute, as you noted in your testimony,
FEMA removed the NFIP's financial assistance subsidy
arrangement with the Write Your Own companies from regulation.
You might remember that Chairman Luetkemeyer, Ranking
Member Cleaver, and I wrote you a letter last year expressing
some concerns about this decreasing accountability to the
public.
Your testimony also states, ``This process was time-
consuming and created a delay to make any administrative
updates or changes in regulation. Now, the process is
streamlined to improve the ability for FEMA and its industry
partners to negotiate operational adjustments and corrections
more quickly and efficiently.''
I agree it is important that we remove red tape and provide
some flexibility, but operationally, won't Write Your Own
partners be subject to program changes with potentially little
or no notice? And how do you plan to transparently communicate
such changes to these companies that, again, are just trying to
abide by the rules of the program?
Mr. Wright. I do think that removing the red tape was
essential. The contract with the companies had been codified
into regulation and hadn't been changed in 17 years. The
commitment we made going into this process is that any changes
will be publicized at least 6 months in advance.
I anticipate later this month publishing the arrangement
that will be in effect October 1st, so more than 6 months'
notice if a company wanted to make a different business
decision related to those pieces. And we are consulting.
And so we put out a series of principles. I have tried to
be transparent with the public as well as the companies about
where we are going while eliminating the red tape. But there is
a firm commitment, and frankly, a standard in the regulation
now. I cannot simply make the decision by fiat on my own.
Mr. Hultgren. My time has expired. I yield back. Thank you,
Mr. Chairman.
Chairman Duffy. The gentleman's time has expired.
The Chair now recognizes the Chair of the House Foreign
Affairs Committee, and a long-term member of this committee,
the gentleman from California, Mr. Royce, for 5 minutes.
Mr. Royce. Thank you very much, Mr. Chairman.
I wanted to ask Mr. Wright a question, sort of a follow-up
on the chairman's question concerning repetitive loss
properties.
Mr. Wright. Right.
Mr. Royce. I actually have bipartisan legislation with Mr.
Blumenauer from Oregon on this, and one of the things we seek
to do here is empower communities to tackle this problem. We
would like to work with you on that legislation.
But the precise numbers change from time to time. The
bottom line seems to be that a small fraction of policies, and
let's say it is roughly 1 percent of policies, seem to account
for 20 to 30 percent of the claims and losses.
In 2009, the Department of Homeland Security's Inspector
General said that an increase in new repetitive loss properties
was outpacing what we were attempting to do in terms of
mitigation by a factor of 10 to 1.
Now, that is a troubling number. Have our mitigation
programs begin to catch up? Have the numbers turned lately or
does it look like we are still growing the number of repeat
loss properties arithmetically here? And can you provide the
committee with the most up-to-date data on that?
Mr. Wright. I can get back to the committee on the
specifics on the data, and I look forward to the opportunity to
collaborate with you all as you look at potential legislation.
The number continues to rise.
Mr. Royce. Okay. And then the other point I would make is
just taking FEMA's current guidance document on the community
rating system as it relates to potential homeowners, and I
think it is pretty cogent here, most prospective buyers do not
take the time nor do they know how to investigate whether a
property is subject to a hazard.
In many cases, a property may not be near a shoreline or a
stream. Past flooding may have been minor or there may be no
history of flooding since the area was developed. As a result,
many people are caught by surprise when the properties are
flooded.
One of the best times to advise someone of a flood hazard
is when he or she is considering the purchase of that property.
Mr. Wright. Agreed.
Mr. Royce. So as I understand it, FEMA gives credit to
communities that are able to work with local REALTORS and the
community to push this sort of pre-closing flood disclosure.
Mr. Wright. We do. And we would offer discounts on the
premiums as a result of those activities.
Mr. Royce. And I think that is helpful, but my question is
what more could FEMA do or what more could Congress do to
ensure that the American people aren't in the dark when it
comes to flood history?
And won't we improve take-up rates for flood insurance and
strengthen individual and community mitigation if you better
inform communities and people about flood risks when they are
looking at potential properties or developing potential
properties?
Mr. Wright. This is a conversation that I have a couple of
times a year with the REALTORS who obviously have become that
first, that forward-leaning part of this conversation. And we
have had conversations with some of the private sector app
developers that we all know well, that provide data on the
values of homes and what is for sale.
I think greater disclosure about the risks on the front
side are very helpful. Some States require this. Most States do
not.
Mr. Royce. So there are steps that we could take that
uniformly would assure that there was more knowledge?
Mr. Wright. I think we would have to look at the
implementation--
Mr. Royce. For more mitigation presumably?
Mr. Wright. Yes. I would want them available. I think when
we push that out, we have to look at the implementation side of
that.
Mr. Royce. Right.
Mr. Wright. I don't have a relationship with every REALTOR
in the United States, and so I couldn't be the enforcement
mechanism for that.
Mr. Royce. No, no, I understand that. But as we look at
what different States are doing--
Mr. Wright. Agreed.
Mr. Royce. --we can get a feedback in terms of what seems
efficient, what seems easy and what is effective in getting to
this--
Mr. Wright. And I think there are some things to be
learned--
Mr. Royce. --solution?
Mr. Wright. --from your State of California that does have
some responsive requirements related to earthquake risk,
related to dam safety risk and the like. There are things that
we learn from there.
Mr. Royce. Yes. Well, thank you, and again, Mr. Wright, I
look forward to working with you on the Earl Blumenauer-Ed
Royce bill--
Mr. Wright. Yes.
Mr. Royce. --that we are moving forward on.
Mr. Wright. I look forward to collaborating with you.
Mr. Royce. I appreciate it.
Chairman Duffy. The gentleman yields back.
The Chair would now ask for unanimous consent to allow the
Chair and the ranking member to each ask one more round of
questions for 5 minutes each? Without objection? And I would
guess we may not take that full 5 minutes.
So with that, Mr. Wright, I have to get clarification from
you because in regard to the mandatory purchase properties and
the take-up rate, okay, we asked you this very question and
your liaison responded to Congress and told us that you have no
knowledge or data on this issue.
We asked the OCC and they said they don't have any data on
this issue. Okay? So you clearly have said I can't advise you,
Congress, we have no information. To which, the slide that I
have now put up a second time.
The picture that comes at the top of this slide, and it is
a very nice picture of you. Okay? Right there, great picture.
[laughter]
And here you are giving us different information. So I have
a slide from FEMA, and I have letters from the NFIP and FEMA
and they are conflicting. Can you clarify that for me? Do we
have data on the take-up rate on mandatory purchase properties
or do we not have data on it?
Mr. Wright. First of all, to the degree that my staff or I
have not given you the clearest information, you have my
apologies. And what I can assert is I am going to get you the
best data and information that I have.
I think that sometimes we get caught up on, is it data that
FEMA collected or did FEMA access it? Frankly, that sets aside.
You are after an outcome I would imagine, Mr. Chairman, and you
want to understand why we are not seeing a higher degree of
take-up.
I can collaborate with you on that. I know that the rates
are different across the country.
Chairman Duffy. Yes.
Mr. Wright. And--
Chairman Duffy. That is my concern. And I want to make sure
we are very clear because in the response from your liaisons,
January 30, 2017, to this very question, the response was,
``FEMA does not have knowledge on the compliance rate for
mandatory purchase properties as the managed purchase
provisions of the law are not under FEMA's purview.'' Okay?
That was the response, and so I then asked the OCC and they
gave me the same answer. But again, that was the email
response, but again, the data that was provided in a FEMA
document says you do have this information and the take-up rate
is about 50 percent. And if you don't know the answer today, I
understand that, but we need an answer.
Do you know or do you not know? You have to clarify that
for us. And for everybody else who says we have a take-up rate
of 50 percent? And we have a $24 billion debt or we are $1.5
billion short a year? Go for the people who are required to
purchase that aren't.
Mr. Wright. You are referencing the 2014 report--
Chairman Duffy. I am.
Mr. Wright. --that we did commission--
Chairman Duffy. Right.
Mr. Wright. --and asked for it to be collected. It is not
data that we keep up-to-date. We don't have a tracking element
for it. I will make sure you have the best information that I
have, Mr. Chairman, and I, like you, am committed to ensure
that we have everyone participating who needs to.
Chairman Duffy. I would just argue that if you don't have
up-to-date data, in your email response to me, you would say I
do have 2014 data that I can give you, but it is not current.
Mr. Wright. Sir, to the degree--
Chairman Duffy. You say I don't collect that data, that is
different than putting a--then we find this slide deck that
actually shows that this is what you are putting out there.
That is my rub on how you handled this.
Mr. Wright. Sir, to the degree that we were not clear in
our transmission of this and the provision of it I apologize,
and we will make right by it.
Chairman Duffy. All right. I would argue that you are not
clear when you have a slide deck giving one data from 2014 and
then an email that says we don't collect data. So I am pretty
clear on what you told me, and I think we have to work through
how we get on the same page.
I want to switch quickly again--$24.6 billion in debt. On
average we would say we bring in $3.5 billion in revenue, but
the cost of the program on average is $5 billion, and we run a
$1.5 billion deficit a year in the NFIP.
And we are paying 31 percent in compensation for the Write
Your Owns. Now, I am not passing judgment on that, but is it
fair to say that is almost $1 billion in compensation for the
Write Your Owns?
Mr. Wright. You are right on the amount of compensation.
The Write Your Owns retain a portion of that. And so first of
all I would tell you I want the price operating this program to
go down. I want it to go down across-the-board, whether that is
on my side of the books or what the companies are ultimately
doing.
When you look inside that, half of that compensation goes
to insurance agents, the independent agents who are small
business owners across the country. And we can begin to walk
through those elements.
Ultimately, we need to--
Chairman Duffy. But it--
Mr. Wright. --pay the actual expenses, put the right
incentives in place, and we need to drive down the costs.
Chairman Duffy. So just to be clear, this is roughly close
to $1 billion in compensation?
Mr. Wright. Yes, sir.
Chairman Duffy. And we roughly run a $1.5 billion deficit a
year. You would agree with that number, too, correct?
Mr. Wright. I would describe the deficit numbers
differently, but I appreciate how you came to those numbers.
Chairman Duffy. And again, there is no risk taken on by the
Write Your Owns?
Mr. Wright. There is none.
Chairman Duffy. And did you see any disparity in, because
we have had this conversation and those who are involved in the
program make the argument that it takes a lot of work to
educate homebuyers on what the program is and work it up--I get
that.
But oftentimes, you just have renewals year-over-year and
there is really no work in that, is there? It's pretty simple
stuff. And we don't have any distinction between the first year
the policy is written where there might be a little extra work,
but also the renewals that take place year-over-year-over-year
and there is virtually no work.
Mr. Wright. There are standards of practice in the
insurance industry in terms of how the compensation works. That
said, we need to drive down the cost. It is we are working--
Chairman Duffy. That does not--
Mr. Wright. Is it--
Chairman Duffy. --answer my question. A renewal is pretty
darn easy, right?
Mr. Wright. A renewal is usually easier than writing a new
policy. That is correct.
Chairman Duffy. There are circumstances where it is not?
Well, yes, they would give you one if the maps change and--
Mr. Wright. Exactly.
Chairman Duffy. Or--
Mr. Wright. So when maps change or there has been a change
in rates or surcharges, there can be conversations by which it
would be more work.
Chairman Duffy. And I know it is hard to compare apples-to-
apples in this, but outside of the NFIP, when we look at
commissions or compensation, I don't know that you are going to
find the industry paying 30, 31 percent.
Mr. Wright. I can speak to that. I think that today, and we
have been directed and we are working on the study to move away
from this, but today we would use the average of five lines,
including fire, homeowners, allied, and that average comes
together.
And then today we pay an additional one basis point because
of the complexity of the Flood Insurance Program. So,
homeowners sits at 27 percent, and fire sits at 28 percent,
which shows me there is an opportunity to bring those prices
down.
Chairman Duffy. And I would just add, this is an important
conversation we should have. It might be fair or it might be
unfair, but this is a big part of the cost of the program.
And I think it is important that we engage in the
conversation, and your 31 percent may be right. And it may be a
little too high.
Mr. Wright. So I think--
Chairman Duffy. That is a--
Mr. Wright. --my position is clear. I do think we can bring
those costs down. We need to look at them in terms of the Write
Your Owns. We need to look at it also in terms of the agents
and also the fact that at least 2.4 percent basis points of
that go to State taxes that just flow back through to the
States.
Chairman Duffy. Absolutely. And we know the agents do great
work in our communities, making sure these programs and these
policies get out.
With that, my time is well over, and I now recognize the
ranking member of the subcommittee, Mr. Cleaver, for 5 minutes.
Mr. Cleaver. Thank you, Mr. Chairman.
Mr. Wright, I just returned. I missed votes all week. I
have been in my district because we were hit by tornadoes--
Mr. Wright. Right.
Mr. Cleaver. --in small towns you have never heard of, Oak
Grove, Richmond. We had a tornado hit Orrick, a great vacation
spot if you are looking for a place to visit this summer. But
the problem is that we have this threshold that you have to
reach of $8 million in damage in order to get help.
So we are, unintentionally but for sure, hurting small
communities because Orrick has 800 homes in the whole town. And
so if all of them had been destroyed, we still wouldn't have
reached that threshold.
The same thing happened in Richmond, population 5,000, and
Oak Grove, population 7,700. Do you think that is something
that needs to be changed?
Mr. Wright. Mr. Cleaver, those standards are set in terms
of how FEMA implements the Stafford Act and there are per
capita standards that are in place. I am not an expert on those
various thresholds, but I would be happy to get the right folks
talking with you about them.
Mr. Cleaver. Okay. Because the people there think, we live
in a small town. No matter what happens to us, we don't get
help. But I would be happy to get that information because I am
going back up there Sunday and many people are just interested
in well, why is it that we can't get help?
I live in a small town, so, a small town never gets kicked.
And you have to live in the urban area before you get help from
your own government. So I would be very, very interested in
information.
The other thing that I am a little concerned about, and it
is tornado season so I hope there are no more tornadoes in the
country. That is a hope, but I don't think I am going to be
able to stop that with the hope.
And so we are going to end up before spring is over having
some more tornadoes. Hopefully, they won't be devastating to
the point where lives are lost, but they are going to happen.
With that in mind, and with the OMB slashing or proposing
to slash the FEMA budget by 11 percent, if that should happen,
does that mean that my people in my small towns have less of a
chance to get help?
Mr. Wright. Sir, I can't speak to the specifics of the
budget that is still under formulation. What I will tell you is
the disaster relief fund is where we pay these expenses to
communities, and we can walk you through more of those details
when we show you the elements related to the standards for
review on declarations.
Mr. Cleaver. Okay. All right. Thank you, Mr. Chairman.
Chairman Duffy. The Chair recognizes that the gentleman
from California has now arrived, and recognizes him for 5
minutes.
Mr. Sherman. Thank you. Yesterday, it was reported in the
Washington Post that the Trump Administration may slash FEMA's
budget in part to help find funds for other priorities. It was
reported that homeowners may face a surcharge on their flood
insurance policies, and I guess that would be to make up for
the lost revenue.
What impact would these cuts have on your ability to
properly administer the flood insurance program? Can you
elaborate on the flood fee, and what kind of surcharge we are
talking about?
Mr. Wright. Sir, I am aware of the reporting that you are
referencing. What I can tell you is that to the best of my
knowledge, the final decisions related to the President's
budget haven't been made. So it would be premature for me to
speak about specifics. I would refer you to the Office of
Management and Budget.
Once that proposal is available, I would be happy to
discuss how it would be implemented in our programs with you.
Mr. Sherman. But obviously if the budget is cut, homeowners
will be paying more, correct?
Mr. Wright. The related elements that are here deal with
when are there fees that are in place and surcharges and who
bears the costs of those elements? Again, I don't know that I
can speak to the specifics of that until I know what the
proposal says.
Mr. Sherman. Last Congress, the House passed the Flood
Insurance Market Parity and Modernization Act (FIMPMA)
unanimously. Although it did not receive a vote in the Senate,
the bill had bipartisan support.
As you will recall, the bill clarified the provision in the
Biggert-Waters 2012 Act allowing for private flood policies to
meet mandatory purchase requrements of the flood insurance
program.
Because there is some confusion that remains for insurers
and lenders causing the market to be slow in responding, the
FIMPMA would clarify this provision. In addition to some
suggestions for growing private insurance options, including
the removal of the non-compete clause from the WYO arrangement
and granting access to the NFIP's claim to loss data.
What is your opinion of this proposal? Do you agree with
the 419 Members of the House who voted for it?
Mr. Wright. I believe that the bill has important elements
in it, particularly as we bring clarity onto what satisfies
comparable coverage. And I think that we look forward to
working with the committee and its members on what that
provision would look like in this new Congress.
Mr. Sherman. What would the future of the NFIP look like if
perhaps as many as 80 percent of the current policyholders,
those with moderate or low risk, are recruited away by the
private flood carriers? What effect would that have?
Mr. Wright. Far less than 80 percent of our book of
business is low or moderate. I do believe to the degree the
private market comes in, that would be an obvious place for
them to start.
So today of my 5.1 million policies, 1.6 million of those
are preferred risk policies. Given the assertion you have made,
that might be a place where they would begin.
I am convinced, and this goes to the chairman's earlier
point about there are far more structures that need to be
insured. And so I am convinced a mutual gain approach is the
right way on here. And I think making space and encouraging the
private markets is a helpful way to ensure that more people are
covered for flood in this country.
Mr. Sherman. You noted that FEMA wants to see flood
insurance private or public increasing as we move forward.
Could you explain some more on what steps Congress can take so
more people are insured?
Mr. Wright. I think there are particularly some
programmatic and technical issues that are barriers for us to
giving folks the product that they want or need. It requires us
to look at the coverage limits. It also requires us to look at
things like basements and the like.
Today, the statute mandates that I put the terms and
conditions of the policy into the Code of Federal Regulations,
which is a very cumbersome process. My agency is very slow to
do rulemaking, and so in making these changes, I think one of
the elements I would assert to you is that it still should go
through notice and comment.
I should still be very transparent about it, but the idea
that I go through a full regulatory rulemaking to add a
coverage for someone that they are willing to pay for at an
actuarial rate, those are the kind of barriers that Congress
could help us remove.
Mr. Sherman. I am hoping you will propose statutory
language so that we understand what we can do to be helpful and
are very specific about that.
I yield back.
Mr. Wright. I would be happy to work with you on that.
Chairman Duffy. The gentlemen yields back.
The Chair has spoken with the ranking member and asks
unanimous consent to allow the gentleman from New Jersey 5
additional minutes.
Mr. Cleaver. No objection.
Chairman Duffy. Without objection, it is so ordered. The
gentleman is recognized for 5 minutes.
Mr. MacArthur. Thank you, Mr. Chairman, and Mr. Ranking
Member.
I want to just follow up a little bit on what we talked
about before. Mr. Wright, you and I have some things in common.
I think you know that I spent my business career in insurance,
a business I love very much, which I think can do an awful lot
of good for people.
I noticed in my business life that as things got bigger,
you have to manage them differently. And so when I had a small
company, it was one thing. When I had thousands of people, it
was very different.
And often when you are trying to understand how things are
going wrong, you only see the ripples at the top where the
causation is really beneath the water line. And it is not easy
to get to the bottom of things sometimes.
I am trying to understand something you talked about a bit
earlier. The Write Your Owns had zero incentive to underpay
claims. In fact, you might argue they had an incentive to pay
them quickly because they don't make more money by creating a
tortuous process. And yet, claims got delayed and there were
some pretty egregious errors made, some of them apparently
intentionally.
You testified that the engineers and the adjusters would
have no financial incentive to change a report to say something
was covered by flood and then a few weeks later send it to the
insured with a denial and say it wasn't covered.
Are you aware of any action within either the NFIP or FEMA
more broadly, any action either explicit or implicit, implied--
are you aware of anything that came out of NFIP or FEMA, either
verbally or in writing that would have suggested to various
Write Your Own companies, various engineers and adjusters, that
you wanted them to reduce claim payments?
Mr. Wright. Sir, as you well know and we have discussed, it
precedes me, but I have gone back and I have had the team
looking at this question. And I have seen no evidence of that
instruction being provided.
Mr. MacArthur. Does it strike you as just incongruous that
this could have happened this way without somebody directing
it?
Mr. Wright. The best I have been able to understand, is we
have looked through this: 19,000 of these claims came back for
reconsideration as we have moved through, and as you addressed.
I was brought in to finish fixing this given the problems that
were in place.
A few things have been made clear to me, and I have spent a
lot of time with some of the files myself looking at them,
including some of the ones with errors in them.
What I saw was a system that was overwhelmed without the
right controls in place. I saw a lot of sloppiness. That is
inexcusable, and we have to have the controls in place to be
able to see that and correct it.
When you have a size event as large as this one, you are
not going to play perfect ball. But we have to make sure that
we do that and so some of the changes I made, we changed the
appeals process because when people didn't think they got a
fair shake on it, they couldn't win through that appeals
process. That is changed.
The litigation oversight, the companies were fighting the
wrong battles on this. But more fundamentally I have to get to
the point by which we are not seeing changes made that are
except to improve the quality of the reports.
Mr. MacArthur. That is what I will be looking for. And I
don't doubt your motives and your good intentions about fixing
it, but we have to see something different in the actual
structure of NFIP the next time.
Actually, I only have a minute left, and I want to change
gears--
Mr. Wright. Okay.
Mr. MacArthur. --for a moment. ICC coverage, we have talked
about a little bit today. And I just want to ask you, assuming
actuarial adequacy, do you believe that increasing ICC limits
and increasing the actual payment of ICC funds would result in
avoidance of future losses?
Mr. Wright. It would help mitigate future losses. For me,
the key is finding out how to do it where--today it is $30,000.
Structures in your district largely are well in excess of a
half million. I know it is a diverse place, but there are high
property values. There are other parts of the country where the
property values are only $100,000.
We have to find the right way to tie that coverage or mini-
grant program to the structure in a way that understands it,
and then come to an understanding today we run a mini-grant
program that has helped to defray the cost of that increased
cost of compliance.
Are we trying to actually stand up something that provides
you full coverage, at which point we should price it and we
should mirror some things that go in other peril lines?
That is what I have been grappling with. It is not simple
and we have to do something that works in various geographic
contexts.
Mr. MacArthur. I appreciate it. My time has expired.
And I thank the chairman for his indulgence today.
Chairman Duffy. The gentleman yields back.
Mr. Wright, I want to thank you again for your testimony
today. We appreciate it. It is a way to inform our Members
about the way you are thinking about these issues.
Just as a notice to members of the subcommittee, we can
expect another NFIP hearing next week to get the community
perspective on this program. Both sides of the aisle have been
working together on that.
The Chair notes that some Members may have additional
questions for this witness, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to this witness and to place his responses in the record. Also,
without objection, Members will have 5 legislative days to
submit extraneous materials to the Chair for inclusion in the
record.
This hearing is now adjourned.
[Whereupon, at 12:28 p.m., the hearing was adjourned.]
A P P E N D I X
March 9, 2017
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