[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]





 
                   REAUTHORIZATION AND REFORM OF THE


                    NATIONAL FLOOD INSURANCE PROGRAM

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

                             HYBRID HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON HOUSING,
                         COMMUNITY DEVELOPMENT,
                             AND INSURANCE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 25, 2022

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 117-87
                           
                           
                           
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 



                           
                           
                          ______                       


             U.S. GOVERNMENT PUBLISHING OFFICE 
47-882PDF           WASHINGTON : 2022                           
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York           BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            ANN WAGNER, Missouri
ED PERLMUTTER, Colorado              ANDY BARR, Kentucky
JIM A. HIMES, Connecticut            ROGER WILLIAMS, Texas
BILL FOSTER, Illinois                FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio                   TOM EMMER, Minnesota
JUAN VARGAS, California              LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey          BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas              ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida                   WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam            TED BUDD, North Carolina
CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
RITCHIE TORRES, New York             JOHN ROSE, Tennessee
STEPHEN F. LYNCH, Massachusetts      BRYAN STEIL, Wisconsin
ALMA ADAMS, North Carolina           LANCE GOODEN, Texas
RASHIDA TLAIB, Michigan              WILLIAM TIMMONS, South Carolina
MADELEINE DEAN, Pennsylvania         VAN TAYLOR, Texas
ALEXANDRIA OCASIO-CORTEZ, New York   PETE SESSIONS, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts

                   Charla Ouertatani, Staff Director
                  Subcommittee on Housing, Community 
                       Development, and Insurance

                  EMANUEL CLEAVER, Missouri, Chairman

NYDIA M. VELAZQUEZ, New York         FRENCH HILL, Arkansas, Ranking 
BRAD SHERMAN, California                 Member
JOYCE BEATTY, Ohio                   BILL POSEY, Florida
AL GREEN, Texas                      BILL HUIZENGA, Michigan
VICENTE GONZALEZ, Texas              LEE M. ZELDIN, New York
CAROLYN B. MALONEY, New York         TREY HOLLINGSWORTH, Indiana
JUAN VARGAS, California              JOHN ROSE, Tennessee
AL LAWSON, Florida                   BRYAN STEIL, Wisconsin, Vice 
CINDY AXNE, Iowa, Vice Chair             Ranking Member
RITCHIE TORRES, New York             LANCE GOODEN, Texas
                                     VAN TAYLOR, Texas
                                     
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 25, 2022.................................................     1
Appendix:
    May 25, 2022.................................................    27

                               WITNESSES
                        Wednesday, May 25, 2022

Kousky, Carolyn, Executive Director, Wharton Risk Center, 
  University of Pennsylvania.....................................     5
McHugh, Karen, Missouri State NFIP Coordinator, and Region 7 
  Director, Association of State Floodplain Managers (ASFPM).....     7
Nutter, Franklin W., President, Reinsurance Association of 
  America (RAA)..................................................    11
Rivera-Miranda, Ariel, Founder and Agency Principal, Deer 
  Insurance Agency, on behalf of the National Association of 
  Professional Insurance Agents (PIA)............................     8
Wright, Roy E., President and CEO, Insurance Institute for 
  Business & Home Safety (IBHS)..................................    10

                                APPENDIX

Prepared statements:
    Kousky, Carolyn..............................................    28
    McHugh, Karen................................................    38
    Nutter, Franklin W...........................................    57
    Rivera-Miranda, Ariel........................................    74
    Wright, Roy E................................................    84

              Additional Material Submitted for the Record

Cleaver, Hon. Emanuel:
    Written statement of the American Academy of Actuaries.......    91
    Written statement of the American Bankers Association........    94
    Written statement of the Anthropocene Alliance...............    95
    Written statement of the Credit Union National Association...    98
    Written statement of the National Association of Federally-
      Insured Credit Unions......................................   101
    Written statement of the National Association of Mutual 
      Insurance Companies........................................   102
    Written statement of the National Association of REALTORS....   107
    Written statement of Robert G. Rash, CEO and Chief Engineer, 
      St. Francis Levee District of Arkansas.....................   109
Hill, Hon. French:
    Written statement of the American Property Casualty Insurance 
      Association................................................   127
    Written statement of the National Multifamily Housing Council 
      and the National Apartment Association.....................   131
    Written statement of the SmarterSafer Coalition..............   136
Sherman, Hon. Brad:
    Written statement of the Independent Insurance Agents & 
      Brokers of America.........................................   140
Waters, Hon. Maxine:
    Written responses to questions for the record from Carolyn 
      Kousky.....................................................   145
    Written responses to questions for the record from Karen 
      McHugh.....................................................   147
    Written responses to questions for the record from Ariel 
      Rivera-Miranda.............................................   151
    Written responses to questions for the record from Roy Wright   155


                       REAUTHORIZATION AND REFORM

                         OF THE NATIONAL FLOOD

                           INSURANCE PROGRAM

                              ----------                              


                        Wednesday, May 25, 2022

             U.S. House of Representatives,
                           Subcommittee on Housing,
                             Community Development,
                                     and Insurance,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 12:01 p.m., in 
room 2128, Rayburn House Office Building, Hon. Emanuel Cleaver 
[chairman of the subcommittee] presiding.
    Members present: Representatives Cleaver, Velazquez, 
Sherman, Beatty, Axne; Hill, Posey, Huizenga, Zeldin, Rose, and 
Steil.
    Ex officio present: Representative Waters.
    Also present: Representative Casten.
    Chairman Cleaver. We are here today in the shadows of the 
murder of 19 kids, most of them under 10 years of age, and I 
don't think it would be appropriate for us to begin this 
hearing without at least acknowledging what happened. And I am 
sure everybody here, like me, is concerned about their children 
or grandchildren, and that concern has to actually be turned 
into some kind of way in which we can stop this carnage that we 
are experiencing around the country.
    And it is hard to go any further, but I now call the 
Subcommittee on Housing, Community Development, and Insurance 
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 are authorized to 
participate in today's hearing.
    Today's hearing is entitled, ``Reauthorization and Reform 
of the National Flood Insurance Program.''
    I now recognize myself for 4 minutes to give an opening 
statement.
    This hearing is a continuation of efforts to get a 
bipartisan, I want to say again, a bipartisan agreement on a 
long-term reauthorization of the National Flood Insurance 
Program (NFIP). Flooding is the most frequent severe weather 
threat and costliest natural disaster facing the nation. Ninety 
percent of all natural disasters in the United States involve 
flooding, and high-risk flood areas are not the only ones at 
risk; about 25 percent of flood insurance claims come from 
moderate- to low-risk areas.
    Several factors contribute to the cost of flood disasters, 
including increased exposure of assets and the number of assets 
at risk, vulnerability of assets and the location of those 
assets, and frankly, the impact of climate change. In 
particular, some data indicates that climate change is 
supercharging the frequency and intensity of certain types of 
extreme weather events. Most notably, the potential for 
extremely heavy rainfall is becoming more and more common and 
exacerbating hurricanes and flooding areas.
    As highlighted by the United States Environmental 
Protection Agency's report, ``Climate Change and Social 
Vulnerability,'' the impacts of climate change fell broadly to 
differing degrees, but racial and ethnic minority communities 
are particularly vulnerable to the greatest impacts of climate 
change. It is often the case that people least able to prepare 
and cope with flooding events are disproportionately exposed. I 
am in my office here in Kansas City, Missouri, and only maybe 
50 yards from Brush Creek, which came over its bank a few years 
ago and drowned 25 people, and then a year-and-a-half later, 
another 10 individuals. So, flood insurance is critical to 
safeguarding the financial stability of American investments 
and ensuring that American families, businesses, and 
communities can recover from these unfortunate events.
    In times of significant loss, insurance companies are set 
up as financial first responders in helping customers recover 
from significant loss and achieve greater financial stability, 
so they must be affordable and accessible for those who need 
it. The NFIP is the principal provider of primary flood 
insurance in the United States, covering nearly 5 million 
households and businesses across the country, for a total of 
over $1.3 trillion in flood insurance coverage. Today, 
communities participate in them, and they cover an estimated 93 
percent of the United States population.
    And we all are aware that the last long-term 
reauthorization of the NFIP occurred when Congress passed the 
Biggert-Waters Flood Insurance Reform Act of 2012. I was here 
at the time and looked at that and marveled over the fact that 
Representative Biggert, a Republican, and Representative 
Waters, a Democrat, were able to get together to create this 
reform, which was subsequently amended by the Homeowner Flood 
Insurance Affordability Act of 2014.
    Since the end of Fiscal Year 2017, the NFIP has had 19--
19--short-term reauthorizations and has even experienced brief 
lapses in the program, leaving American families unprotected. 
When NFIP is then unable to enter into new flood insurance 
contracts, the housing marks phases without widespread market 
instability due to the stalling of mortgage processing for 
homes that are statutorily required to have flood insurance.
    According to estimates from the National Association of 
REALTORS, around 40,000 home sales are lost or interrupted 
every month that the NFIP's authority lapses. The NFIP 
authorization is currently set to expire on September 30, 2022. 
However, the NFIP is not just an insurance program. The program 
does provide a list of primary flood insurance, but also seeks 
to mitigate and reduce the nation's comprehensive flood route. 
The NFIP accomplishes this through floodplain management, 
floodplain mapping, and flood mitigation. Given compounding 
flood risks, there is an increased need to focus on where we 
build, how we build, and how we invest in infrastructure that 
is designed for the 21st Century climate.
    On November 15, 2021, President Joe Biden signed the 
Infrastructure Investment and Jobs Act, which included $3.5 
million for flood mitigation and $500 million in grants to 
States for revolving loans, for hazard mitigation through a new 
risk program called Safeguarding Tomorrow through Ongoing Risk 
Mitigation. Under the bold leadership of our Full Committee 
Chair, Chairwoman Maxine Waters, on November 19, 2022, the 
House passed the Build Back Better Act.
    I am going to stop, because I am going over my time.
    I now recognize the ranking member of the subcommittee, Mr. 
Hill, for 5 minutes.
    Mr. Hill. I thank my friend, the chairman, and if I need a 
minute-and-a-half later today, I hope you will yield it to me.
    Chairman Cleaver. Yes, sir.
    Mr. Hill. Let me share in the heartfelt concern you 
expressed about this horrible tragedy in Uvalde, a wonderful 
community, a place I have visited many times. All of our most 
prized assets are kids, and it is heartbreaking. So, I hope we 
can continue to find ways to support our schools, and support 
our families, so thank you for mentioning that, Mr. Chairman.
    I appreciate you holding this hearing on a topic that we 
know is important, but we never seem in this Congress to ever 
want to discuss, and that is, how do we fix the National Flood 
Insurance Program?
    Since I first came to Congress back in 2015, under Chairman 
Hensarling's leadership, we worked in a bipartisan way on 
strengthening the flood mitigation programs and how to 
strengthen and make more realistic and appropriate our national 
flood programs. In fact, under Chairman Hensarling, the 
committee held flood-related hearings in June 2015, November 
2015, twice in January of 2016, twice in March of 2017, and 
then again in 2017.
    And that makes sense, because it is a well-known fact that 
floods are the most common, as you noted, Mr. Chairman, and 
most expensive natural disaster that communities face here in 
our country. What is less well-known is that floods are also 
the deadliest natural disaster in the U.S., responsible for 57 
deaths in 2020, and an average of 94 deaths each year over the 
past decade. And that is unacceptable for our country and a 
real challenge to our families in our communities.
    And that is why I am pleased that the Majority started 
things off on the right foot under Chairwoman Waters with the 
first flood reform hearing that we held back in March of 2019. 
Sadly, since that time, that, unfortunately, was the last flood 
reform hearing we had until today, more than 3 years and 2 
months later. Quite frankly, that is just not going to cut it 
if we are really serious about bipartisan legislative reform. 
The other reason why we don't talk about flood is that this 
committee is not even really in control of NFIP's 
reauthorization process anymore.
    Instead of doing the hard work here on a bipartisan basis, 
and reforming and reauthorizing the National Flood Insurance 
Program to ensure its long-term, financially-sustainable 
position, the Majority has left the program on autopilot 
through a series of short-term extensions in appropriations 
bills. This is to the detriment not only of NFIP policyholders, 
but American taxpayers and members of this committee from both 
sides of the aisle. Since the last full NFIP reauthorization 
expired back in September of 2017, the program has been 
extended on a short-term basis a shocking 21 times, every time 
without a single reform attached. That includes an incredible 
11 times under Chairwoman Waters, who has yet to take an NFIP 
reform bill to the House Floor under her tenure.
    More importantly, the appropriators have carried out 
authorizations so often on their legislative vehicles, that I 
am surprised they are not charging us a freight charge. All of 
this, of course, is a shame because there was a time when it 
looked like we were on the verge of a breakthrough, when this 
committee unanimously reported a 5-year reform and 
authorization bill in June of 2019, let me remind our 
listeners, a unanimous vote in committee. But Chairwoman Waters 
never got that bill to the House Floor, and then abandoned the 
good faith efforts and bipartisan work product by including now 
partisan flood reforms with zero Republican input that were in 
the Build Back Better bill, and we know how that ended.
    So, fixing the NFIP is not easy, but it is important, and 
that includes supporting FEMA's Risk Rating 2.0 methodology by 
providing greater private flood insurance options for 
policyholders. The best way to deliver lower flood insurance 
rates is to lower flood risk, and Risk Rating 2.0 is the only 
reform that lowers annual premiums by matching rates to the 
actual risks faced by individual policyholders. Policyholders 
who disagree with those changes deserve to have options other 
than NFIP, which is why I have been a large supporter of making 
sure that we have better rates, and better terms from non-
governmental flood insurance providers.
    There are many areas in which Democrats and Republicans can 
agree, like supporting enhanced pre-flood mitigation, ending 
discounts for properties each and every year, eliminating fraud 
in the claims process, and considering a targeted means-tested 
affordability program that helps out low-income policyholders. 
There is a lot of room for bipartisan work, and I look forward 
to working with my friend, Mr. Cleaver, and I yield back.
    Chairman Cleaver. Thank you, Ranking Member Hill.
    The Chair now recognizes the Chair of the Full Committee, 
the gentlewoman from California, Chairwoman Waters. Is the 
Chair available at this time?
    [No response.]
    Chairman Cleaver. We may have to come back at a later 
moment.
    Today, we welcome the testimony of our distinguished 
witnesses: Carolyn Kousky, who is the executive director of the 
Wharton Risk Center; Karen McHugh, who is the NFIP coordinator 
for the State of Missouri; Ariel Rivera-Miranda, who is the 
founder and agency principal of Deer Insurance; and Roy Wright, 
who is the president and CEO of the Insurance Institute for 
Business and Home Safety.
    Witnesses are reminded that their oral testimony will be 
limited to 5 minutes. You should be able to see a timer that 
will indicate how much time you have left. I would ask that you 
be mindful of the timer so that we can be respectful of both 
the witnesses' and the committee members' time.
    And without objection, your written statements will be made 
a part of the record.
    Dr. Kousky, you are now recognized for 5 minutes to give an 
oral presentation of your testimony.

 STATEMENT OF CAROLYN KOUSKY, EXECUTIVE DIRECTOR, WHARTON RISK 
               CENTER, UNIVERSITY OF PENNSYLVANIA

    Ms. Kousky. Chairman Cleaver, Ranking Member Hill, and 
esteemed members of the committee, thank you for the invitation 
to speak to you today. I am the executive director of the 
Wharton Risk Center at the University of Pennsylvania. The 
National Flood Insurance Program has long been a focus of work 
at the center and my own research, and it is this work and that 
of my colleagues which informs my testimony today.
    Prior research has found that lower-income groups suffer 
disproportionately from disasters like floods and recover less 
quickly. A key driver of these inequitable recoveries is the 
lack of access to necessary financial resources for repairs and 
rebuilding. Severe floods take a huge financial toll on 
households. As they work to repair and rebuild, most Americans 
struggle with the needed funds, they don't have sufficient 
savings, credit can be burdensome or impossible to access, and 
Federal assistance is typically insufficient and too delayed. 
That leaves insurance, yet many at-risk households are 
uninsured against flooding. This is problematic because prior 
research has found that if individuals have insurance, they 
recover better and faster. When households have the needed 
funds for repairs and rebuilding, they can more quickly resume 
normal economic activities and have less need for public sector 
assistance programs. Yet, the people who need insurance the 
most are the least able to afford it.
    Last month, FEMA completed the rollout of Risk Rating 2.0. 
This new pricing methodology harnesses modern data and modeling 
tools to better price flood risk at a given property. While 
there are certainly still some adjustments that are no doubt 
warranted, this modernization of rate setting is long overdue. 
It will undo many cross-subsidies across flood zones. It will 
also take a small step in improving affordability by undoing a 
regressive cross-subsidy from lower-valued to higher-valued 
homes because previously, the program did not adjust pricing 
for the value of the home or the share that was insured. While 
this is an important change, it is not a means-tested 
assistance program for flood insurance, and the need for such a 
program has been recognized for a decade and studied by many 
groups and it is time to enact it.
    I will raise just a couple of design points. First, I would 
urge the committee to consider a tiered program that would 
provide assistance on a sliding scale and prevent there being 
an abrupt cut off to benefits.
    Second, draft legislation has suggested limiting access to 
existing policyholders only. But as suggested in FEMA's 
Affordability Framework report, there are many households right 
now at risk of flooding who are not current policyholders 
precisely because they cannot afford to purchase a policy. 
These are the very households we should wish to help. As such, 
I believe the assistance program should offer help to any 
qualifying household regardless of current policy status. That 
will allow households that have been locked out of the program 
because of affordability concerns to access the financial 
benefits of insurance.
    One possible objective is perverse incentives to build more 
safely or move into high-risk areas. And I do think that if we 
were considering rate suppression across all policyholders, 
that would be an important concern. There is not much evidence 
though, that when we limit our look at low-income populations, 
that premium support would have this perverse impact. Many of 
these households are trapped in risky locations and in unsafe 
housing because they can't afford the necessary retrofits or to 
move to safer ground. I think we need to couple risk-based 
pricing to send those signals to the market with explicit means 
testing for assistance. We also need to do more to promote the 
needed investments and risk reduction, and pricing alone won't 
achieve that.
    One problem is a lack of risk awareness. Some NFIP rules 
are currently hindering full information on flood risk from 
reaching markets. Only current policyholders can request 
information on prior claims. There is nowhere to quickly look 
up premiums, and potential homebuyers are never told if a home 
they are purchasing is about to become a repetitive loss 
property. A simple online tool should provide all that 
information and more. It is financially material, and I don't 
think it should be kept hidden. Of course, for current 
homeowners in risky areas, we also need to make it easier for 
them to get help reducing their risk, to maintain property 
values, and lower insurance costs.
    While the NFIP has many laudable initiatives to reduce 
flood losses, there is still more to do, and buyouts is one of 
those areas. The timing of buyouts take too long to get to 
homeowners. Households, especially those of limited means, 
can't wait the years it takes. Many will have to begin 
rebuilding to make their home safe for habitation using partial 
or full flood insurance payouts, only to have the home 
demolished months or years later in a buyout, and that is just 
wasted funds. So, a critical reform would be making Federal 
dollars available immediately after a flood for buyouts or to 
reimburse local governments that do this. And this could be 
tied to incentives for local communities to engage in pre-
disaster planning to speed the buyout process on their end.
    I will end by noting that risk reduction is a complement to 
insurance. As we lower disaster risk, we make it easier and 
cheaper to insure against them.
    Thank you so much for the opportunity to speak with you 
today, and I look forward to your questions.
    [The prepared statement of Dr. Kousky can be found on page 
28 of the appendix.]
    Chairman Cleaver. Thank you very much, Ms. Kousky.
    Ms. McHugh, you are now recognized for 5 minutes to give an 
oral presentation of your testimony.

STATEMENT OF KAREN McHUGH, MISSOURI STATE NFIP COORDINATOR, AND 
  REGION 7 DIRECTOR, ASSOCIATION OF STATE FLOODPLAIN MANAGERS 
                            (ASFPM)

    Ms. McHugh. Good afternoon, Chairwoman Waters, Chairman 
Cleaver, Ranking Member Hill, and members of the committee. I 
am Karen McHugh, a regional director of the Association of 
State Floodplain Managers (ASFPM) and the NFIP coordinator for 
the State of Missouri. I am honored to be testifying today 
about a program that our organization and our members consider 
essential to our nation's flood loss reduction efforts: the 
National Flood Insurance Program. Our written statement 
identifies over 20 reform ideas for your consideration.
    I have worked nearly 30 years in the world of floodplain 
management regulation, and it has given me a personal 
perspective on several of ASFPM's reauthorization and reform 
priorities. It is of paramount importance that NFIP-
participating States have authorizing legislation to provide 
full flood risk disclosure for all property transactions prior 
to closing on sales or signing rental contracts.
    This is of particular significance to me. Too many times, I 
have listened to homebuyers sobbing on the phone, who were 
surprised to learn at the closing table that their new house is 
in a high-risk floodplain and they don't know how they will pay 
for the required flood insurance. Even more distressing, some 
property owners have shared with me that they do not learn 
about their flooding risk until their home has already been 
flooded.
    In 1993, I was working as a floodplain administrator when 
Increased Cost of Compliance (ICC) coverage was first included 
in the National Flood Insurance Reform Act of 1994. ICC gives 
added coverage to structures located in FEMA-mapped special 
flood hazard areas to anyone who has an active flood insurance 
policy. I saw firsthand how the added coverage helps homeowners 
and communities recover after a flooding event.
    Since the program became effective, I have witnessed 
buildings relocated to higher, safer ground. I have seen homes 
elevated safely above the water surface so that during the next 
flooding event, there was no damage to the building whatsoever. 
In our small towns, dry floodproofing historic structures is 
the only way that these beautiful buildings can be saved, since 
the integrity of historic buildings is harmed by repeated 
flooding. The limit of liability coverage was raised 20 years 
ago to $30,000 from the previous limit of $20,000. The average 
cost to lift the house and replace the foundation is now 
pushing $100,000. Increasing the ICC limit to at least $90,000 
is long overdue. To allow adequate funding for structures to be 
brought out of harm's way by elevating or being removed from 
the high-risk flood area has been proven to save lives and 
property and taxpayer costs from the devastating effects of 
flooding.
    It is my great pleasure to work with socially or 
economically disadvantaged communities to deliver NFIP 
education, training, and outreach so that crucial NFIP 
principles can be conveyed with maximum efficiency to assure 
equitable program delivery. My staff and I provide compliance 
solutions to our underserved communities in Missouri by 
performing community assistance context visits, offering 
technical assistance, offering one-on-one help with substantial 
damage terminations before and after flooding events, and we 
will continue bringing NFIP workshop training to economically-
disadvantaged populations. The Federal Government's 
authorization of the Community Assistance Program, including 
providing annual funding at a minimum of $20 million, will 
ensure a support mechanism for building State capacity to 
efficiently and effectively assist communities in managing and 
mitigating their flood risks.
    In closing, I would like to state that NFIP reauthorization 
is an opportunity for Congress to take bold steps to reduce the 
program's complexity and strengthen the NFIP's financial 
framework so the NFIP can continue protecting individuals and 
property from the devastating and unfortunately growing impacts 
of flooding.
    Thank you very much for giving me the opportunity to speak.
    [The prepared statement of Ms. McHugh can be found on page 
38 of the appendix.]
    Chairman Cleaver. Thank you, Ms. McHugh, for your 
testimony.
    Mr. Rivera-Miranda, you are now recognized for 5 minutes to 
give an oral presentation of your testimony.

     STATEMENT OF ARIEL RIVERA-MIRANDA, FOUNDER AND AGENCY 
  PRINCIPAL, DEER INSURANCE AGENCY, ON BEHALF OF THE NATIONAL 
       ASSOCIATION OF PROFESSIONAL INSURANCE AGENTS (PIA)

    Mr. Rivera-Miranda. Good afternoon, Chairman Cleaver, 
Ranking Member Hill, Chairwoman Waters, Ranking Member McHenry, 
and members of the subcommittee. Thank you very much for 
holding this hearing and for inviting me to be a part of it. My 
name is Ariel Rivera-Miranda, and I am the founder and agency 
principal of Deer Insurance Agency, which is an independent 
insurance agency located in Jacksonville, Florida. And I am 
currently the secretary of the National Association of 
Professional Insurance Agents, also known as PIA.
    I was born and raised in San Juan, Puerto Rico, and have 
over 18 years of experience in the insurance industry. I have 
been an independent insurance agent since I was 22, which is 
when I started my first agency. In my time as an independent 
agent, I have founded and operated insurance agencies in Puerto 
Rico and in Florida. In my current capacity, I sell flood 
insurance products through both the National Flood Insurance 
Program and the private market. I am here on behalf of PIA, but 
my remarks today represent my personal views and not 
necessarily those of PIA as an organization.
    I would like to begin by talking about the vital role of 
the independent insurance agent in the marketing, sale, and 
service of NFIP policies. Independent agents are the face of 
the program. We are the, ``first responders,'' to both clients 
and carriers who adequately serve our customers. We must remain 
up-to-date on ever-changing laws and regulations governing 
flood insurance requirements, and, historically, we have also 
had to keep pace with constant changes to the program involving 
maps, flood zones, and relevant community participation.
    Agents explain this complicated program to consumers and 
interpret changes to the program as needed for the 
policyholders and prospects. They also assist with home 
closings and ensure, to the best of their ability, that policy 
renewals are completed on time. Agents stake their reputation 
on customer service, and the NFIP has always been a challenging 
program. When consumers are confused about how the program 
works, they call the agents. When they become frustrated over a 
lapse or prospective lapse, when a policy or requirement 
changes, or when mapping issues arise, consumers call their 
agents. And most importantly, when consumers face a loss, they 
call their agents.
    We are also on the front lines of Risk Rating 2.0. We 
strongly support Risk Rating 2.0 because it will help the NFIP 
move towards solvency while also providing policyholders with 
more accurate information about their property's flood risk. 
With better information, we hope property owners will learn 
more about their risk of flood, engage in mitigation efforts 
when needed, and ultimately purchase and retain flood insurance 
that matches the risk. As independent agents have gained 
experience with explaining Risk Rating 2.0 to policyholders, it 
has become clear that we need more information about how the 
new rating factors combine to produce a Risk Rating 2.0 rate.
    Risk Rating 2.0 is fully underway. Every policy reading and 
renewal from now on will be rated using it. What we need now is 
greater public understanding, which will be bolstered by 
increased transparency in the system. Greater transparency will 
also make it easier for agents to explain to our customers why 
their rates are changing. While FEMA continues to release 
helpful explanatory material, it remains difficult to explain 
some rate increases, even though it has been nearly 8 months 
since the new rating system began.
    Last, but certainly not least, the reauthorization of the 
NFIP is critically important. The NFIP has now been extended 
about 20 times since 2017, and will expire again on September 
30, 2022. In the past 5 years, the program has been extended 
for days or even weeks at a time. I cannot overstate the 
detrimental effects of short-term extensions on the program 
overall. Every short-term extension is another chance for a 
lapse. The theoretical lapse leaves everyone involved in the 
program in a terrible position. Homebuyers and sellers look to 
their insurance agent and all those involved in their 
transaction to solve a problem over which they have no control. 
During a lapse, consumers are unable to renew existing policies 
or even purchase new ones, and lapses may disrupt real estate 
transactions, especially if they involve properties in 
mandatory purchase areas. Prior lapses are estimated to have 
disrupted over 1,000 homes a day, and the longer the lapse, the 
greater the impact.
    Additionally, needed updates to the program are long 
overdue with support reforms, like a continuous coverage 
provision, the continuation of progress towards full risk rates 
to keep the program solvent, and, at the same time, the 
creation of an affordability framework to minimize potential 
attrition from the program, the creation of an agent's specific 
advisory council or with council within FEMA, and increased 
transparency for policyholders. I urge Congress and the 
subcommittee to build on the progress made in 2019 when the 
Full Committee unanimously passed a long-term bipartisan 
reauthorization and reform package. We support many of the 
provisions of the bills listed today.
    Thank you for having me, and I would be happy to answer any 
questions.
    [The prepared statement of Mr. Rivera-Miranda can be found 
on page 74 of the appendix.]
    Chairman Cleaver. Thank you, Mr. Rivera-Miranda.
    Mr. Wright, you are now recognized for 5 minutes to give an 
oral presentation of your testimony.

   STATEMENT OF ROY E. WRIGHT, PRESIDENT AND CEO, INSURANCE 
          INSTITUTE FOR BUSINESS & HOME SAFETY (IBHS)

    Mr. Wright. Thank you, Chairman Cleaver, Chairwoman Waters, 
Ranking Member Hill, and members of the subcommittee. I 
appreciate the opportunity to rejoin the reauthorization 
dialogue. In the spring of 2017, when I led FEMA's National 
Flood Insurance Program, I testified before the Full Committee. 
I have enjoyed the relationship with both sides of the aisle, 
so I appreciate this opportunity to rejoin the conversation. 
Congress was wrapping up 6 years of reauthorization, but you 
delivered those 6 years in 21 small chunks. Congress must pass 
long-term reauthorization that provides the program with 
stability.
    There are four key thoughts I want to highlight today. 
First, breaking the cycle of loss. FEMA's repetitive loss, home 
acquisition programs of these buyouts, they take years. In that 
time, the NFIP could have paid to rebuild a house at least 
twice and then paid to demolish it. I don't have time to retell 
it here, but my written testimony speaks about a policyholder 
named Edith, who called me during Hurricane Harvey seeking help 
with an immediate buyout. She didn't want a third claim paid. 
She wanted to start over. The recently-introduced Casten-
Blumenauer bill offers a clear way forward, offer the buyout at 
the point of the catastrophic claim. At the very time Edith 
called me seeking help, you can plow the indemnified claim 
value into the acquisition project. That will reduce the 
overall cost, and it expedites the recovery time line for the 
impacted family.
    Second, inflation. We must address the real impacts 
inflation has on the NFIP. There are two sets of homeowners: A, 
those who cannot afford the premiums due to the increases in 
costs of other goods and services; and B, those who cannot 
afford to rebuild within the limited insurance claim, the 
$250,000 set in existing law, and I want to speak to that 
second group.
    The average sale price for homes in this country has 
increased by more than 300 percent since 1944, but NFIP policy 
limits remain at $250,000. Here is the impact of Congress' 
inaction. When hurricanes make landfall in the United States 
this year, Americans who did the right thing and bought flood 
insurance will learn the consequences of being underinsured. 
When the cost of rebuilding their home comes in at $370,000 and 
they only have $250,000 available in coverage, they will be 
underwater for the second time. Many will blame inflation, but 
while not unrelated, the principal fault for the protection gap 
in their coverage will reside with Congress, because Congress 
continues to limit the amount of insurance homeowners are 
permitted to buy.
    Inflation will also negatively impact the fiscal 
underpinning of the program. The debt held by the NFIP is about 
to get walloped by rising interest rates. While I do 
acknowledge there is not a bipartisan legislative path today to 
resolve the outstanding debt, I must warn you, this will come 
back to haunt you, FEMA, and those who depend on the NFIP. Last 
year, FEMA paid $350 million to service its debt, almost 10 
percent of its premium revenue. When FEMA is paying $700 
million, $800 million, or even $1 billion a year in interest on 
the NFIP's residual debt, those funds will come and take away 
from the ability to pay valid claims, all because of Hurricane 
Katrina's impacts some 17 years ago.
    Two important things as I close, Risk Rating 2.0, simply, 
it is delivering on its objectives, a fair approach to setting 
insurance premiums that resembles underwriting practices used 
for other perils. Ironically, the criticisms I have heard of 
Risk Rating 2.0 have little to do with the actual risk 
measurements themselves, the data methods and accuracy. 
Instead, the criticisms focus on the difficulty of living with 
the knowledge of the risk, the cost of their flood risk.
    On the other side of the coin, nearly two-thirds of 
policyholders are seeing those incremental increases that 
resemble their past trajectory, and then nearly a quarter of 
all NFIP policyholders are seeing price decreases, sometimes 
$200 or even $1,000 per year about that. In a time of high 
inflation, the cost of material and labor is soaring, these 
policyholders are experiencing a cheaper price.
    Finally, affordability. I do encourage this Congress and 
FEMA to identify ways to assist low- and moderate-income 
households to lessen the financial burden of flood insurance. 
Yes, I think Congress has to decide how much money it wants to 
invest into an affordability program each year. The NFIP cannot 
pay for such a program inside of its premium revenue. That 
would be inequitable and really undermine the financial 
stability of the program.
    With that, I look forward to your questions.
    [The prepared statement of Mr. Wright can be found on page 
84 of the appendix.]
    Chairman Cleaver. Thank you, Mr. Wright, for your 
testimony.
    I now recognize Mr. Franklin W. Nutter, president of the 
Reinsurance Association of America, for 5 minutes to make an 
oral presentation of his testimony.

    STATEMENT OF FRANKLIN W. NUTTER, PRESIDENT, REINSURANCE 
                  ASSOCIATION OF AMERICA (RAA)

    Mr. Nutter. Chairman Cleaver, Ranking Member Hill, 
Chairwoman Waters, and distinguished members of the committee, 
thank you for this opportunity to testify. The Reinsurance 
Association supports a long-term reauthorization of the 
National Flood Insurance Program, encourages certain reforms, 
and appreciates the committee starting this formal conversation 
about both.
    Today, the NFIP remains on GAO's high-risk list, is $20.5 
billion in debt, and continues to have policies that distort 
risk assessment by builders, local officials, property buyers, 
and the NFIP policyholders themselves. Subsidized rates and 
statutory caps on rates may be popular with some beneficiaries, 
but they increase the cross-subsidy from low- or no-risk 
persons and taxpayers to those living in high-risk flood areas. 
Starting in 2011, Congress took steps to address the 
fundamental flaws in the NFIP and toward removing inequitable 
and unjustifiable rate subsidies. The NFIP today is on a path 
toward a stronger financial framework and resiliency to pay 
claims.
    The RAA encourages Congress to avoid retreating from this 
progress and to enact reforms that will improve the program to 
the benefit of those facing flood risk and taxpayers alike. To 
that end, I encourage flood reform legislation to strengthen 
NFIP's financial framework and resiliency by preserving the 
National Flood Insurance Program's successful reinsurance 
program as well as Risk Rating 2.0.
    In 2017, the Reinsurance Program's first year, FEMA 
collected over a billion dollars from the private sector to 
help pay Hurricane Harvey-related claims. The program 
successfully renewed the following year and has over $2.5 
billion available to collect from the private sector after a 
qualifying 2022 loss event. Risk Rating 2.0, FEMA's new pricing 
methodology, more precisely reflects property-specific flood 
risks with more advanced actuarial tools and catastrophe 
models. Based on FEMA's data, the RAA developed a Risk Rating 
2.0 analytical tool, which shows that 89 percent of policy 
premiums will decrease or remain stable, and premiums will 
decrease for almost half-a-million NFIP single family 
residential policies. I have noticed that zero percent of the 
premiums would have decreased under FEMA's previous pricing 
methodology, and under Risk Rating 2.0, higher premium 
increases are no longer attaching to lower-value properties.
    To address the problem of the significant underinsured and 
uninsured but at-risk population, reauthorization legislation 
should facilitate the development of a private flood insurance 
market by preserving Risk Rating 2.0, removing impediments to 
consumer choice by enacting Representatives Castor and 
Luetkemeyer's continuous coverage bill so consumers can leave 
the NFIP, secure a private flood policy, and later reassume an 
NFIP policy without penalty. And increase insurance options for 
consumers by enacting Representative Luetkemeyer's amendment 
that would provide FEMA additional tools to strengthen the 
public-private insurance partnership with private insurers and 
explore risk-sharing opportunities.
    Flood reform legislation should aim to close the flood 
insurance gap by requiring the development of a comprehensive 
strategy and address the natural disaster insurance protection 
gap in the U.S. and the risk it poses to property insurers, 
taxpayers, and businesses by aligning Federal housing agencies' 
private flood regulations with those issued by Federal lending 
institutions.
    And lastly, flood reform legislation should create 
resilient and insurable communities. Several suggestions, such 
as those by the SmarterSafer Coalition and the BuildStrong 
Coalition, of which the RAA is a member, are included in my 
written testimony. The RAA has also developed a proposal called 
the Community Disaster Resilience Zone, or CDRZ, which would 
improve resilience in communities that are most in need and 
most at risk of natural disasters including flooding. Initial 
bipartisan, bicameral legislation, the CDRZ Act of 2022 is 
supported by a diverse coalition of 30 national organizations.
    We look forward to working with the committee to further 
develop the CDRZ proposal. The RAA's members welcome the 
opportunity to work with you on the long-term reauthorization 
and reform legislation, and thank you, again, for this 
opportunity to testify.
    [The prepared statement of Mr. Nutter can be found on page 
57 of the appendix.]
    Chairman Cleaver. Thank you very much, Mr. Nutter.
    The Chair now recognizes the Chair of the full Financial 
Services Committee, Chairwoman Waters, for a statement, and to 
begin our questioning. Chairwoman Maxine Waters, you are now 
recognized.
    Chairwoman Waters. Thank you so very much, Mr. Cleaver, for 
holding this most important and timely hearing.
    The National Flood Insurance Program is a key part of the 
Federal Government's strategy to be better prepared in the 
phase of climate change which is causing natural disasters in 
increasing frequency and magnitude. I have worked for decades 
to strengthen the NFIP and to stress the importance of mapping 
and mitigation to avoid the damage that flooding causes in the 
first place, rather than waiting until it is too late and 
paying for this after-relief effort.
    The last time that Congress passed a long-term 
reauthorization of the NFIP, as has been said several times, 
was in 2012, when I worked across the aisle with Representative 
Judy Biggert to get it done. A decade after we passed the 
Biggert-Waters Flood Insurance Reform Act, Congress must 
institute reforms that improve the long-term stability of the 
program.
    Mr. Wright, FEMA has made significant progress in analyzing 
the affordability challenges of its policyholders and has 
submitted an affordability framework to Congress. FEMA prepared 
this framework specifically in response to legislation that 
Congress passed in 2014, which was meant to address higher 
premium costs that policyholders had paid.
    Now, my draft bill to reauthorize the NFIP would stand up a 
pilot program to offer means-tested assistance for low- and 
moderate-income households to help them afford flood insurance. 
Is this enough? Would this be an effective first step in 
tackling the affordability challenges that FEMA has laid out, 
or should we be thinking bigger instead of a pilot program? 
Could you help me out with your thoughts about that?
    Mr. Wright. Thank you, Chairwoman Waters. As you know, I 
was at FEMA when that study was done and sent forward. The 
Agency has done more work since I departed, and so I can't 
speak definitively for where those pieces are at, but something 
needs to move. Ultimately, we need to find the right balance so 
that it really helps those in need. There has to be caps on 
where it is available. I think a pilot program may be too small 
at this point, but I do think that we have to start 
incrementally, knowing that we will learn things, because the 
Agency has never done something like this before. And so, some 
kind of way that allows that to aim at the need and continues 
to scale and improve as it is implemented.
    Chairwoman Waters. Thank you very much, because I, too, am 
worried that a pilot program may be too small, a little bit too 
late maybe, and we need to be thinking bigger. And I would hope 
that you, with your background, and your experience, would feel 
free to help us out in any way that you could with any 
suggestion that you may have.
    I want to now turn to Risk Rating 2.0, which went into 
effect on April 1st of this year. Ms. Kousky, FEMA's new test 
rating methodology is intended to modernize the way that NFIP 
prices its policies so that they better reflect the risk 
associated with the properties they cover. Many Members of 
Congress were concerned that Risk Rating 2.0 would result in 
sharp increases in premiums for their constituents. However, 
that array kept in current statutes that prevent premiums from 
going up over a certain percentage each year. And FEMA also has 
discretion to manage those increases and rarely maxes out those 
rate caps. Moreover, many policyholders are seeing decreases, 
not increases, in their premium.
    Dr. Kousky, in the 2 months that Risk Rating 2.0 has been 
in effect, what can you tell us about the kinds of increases in 
premiums that policyholders are seeing? Do you think current 
statutory rate caps and discretion to set rates have been 
sufficient to prevent sharp increases in premiums from year-to-
year?
    Ms. Kousky. Yes. Thank you for the question. I think the 
caps on rates are important to have a glide path for 
policyholders into full risk rates, so I think that is 
important to maintain. I think that what we are seeing so far, 
though, is that the places of very high risk are the places 
where there are going to be high rates, and those are 
concentrated in certain communities and amongst certain 
households even within communities. And those are really 
important areas to be targeting mitigation along with this as 
the antidote to increasing rates.
    Chairwoman Waters. Thank you very much. Mr. Chairman, I 
can't see the time clock here. Do I have any more time left?
    Chairman Cleaver. Yes, you do. I want to apologize to the 
ranking member; earlier, I was not able to see the clock. But, 
Chairwoman Waters, why don't you proceed? We have to try to get 
backups so that we can all see a clock.
    Chairwoman Waters. How much time do I have left? I don't 
have a timer here.
    Chairman Cleaver. There is a magical minute left.
    Chairwoman Waters. That is okay. I am going to yield back 
my time so everybody will get an opportunity to get their 
questions in, and I hope someone is going to talk about debt 
forgiveness. Thank you so much, Mr. Chairman, and I yield back.
    Chairman Cleaver. Thank you, Madam Chairwoman.
    The Chair now recognizes the ranking member of the 
subcommittee, the gentleman from Arkansas, Mr. Hill, for 5 
minutes.
    Mr. Hill. Thank you, Mr. Chairman, and I thank Chairwoman 
Waters for her comments as well on this topic. This is a topic 
that she has been keenly engaged in for many years, and so, as 
I said to you, Mr. Cleaver, I am glad that we are finally, in 
this Congress, getting into a detailed conversation about this. 
Thank you.
    I will say that Mr. Nutter, in his testimony on page 3 
says, ``As it currently operates, the NFIP is not an insurance 
program,'' and I found that an interesting and provocative 
statement. It always concerns me about government programs that 
are set up for one reason, but they are, just as they are like 
insurance, in name only instead of really functioning right, 
and that is why I support Risk Rating 2.0 as a small step in 
the right direction for the program. But the Majority has 
noticed a couple of bills that I think go backwards on that, 
and one of them was referenced. It would actually cut the 
annual NFIP premium rate hike cap from 18 percent to 9 percent. 
And while I could not agree more, it is more important that we 
keep flood insurance affordable for low-income policyholders 
than for those who are facing high premiums. It is absolutely 
the wrong approach to impose an across-the-board rate cap like 
that bill would do. And there is another bill noticed by the 
Majority that would essentially exclude adverse information as 
to the underwriting.
    Mr. Nutter, let me turn to you. If we do rate caps or we 
exclude underwriting information, aren't we weakening the, 
``insurance program?''
    Mr. Nutter. Thanks for the question, Representative Hill. 
Yes, I agree with that. The rate cap, I think Ms. Kousky 
references correctly, that allows a glide path, but to reduce 
the rate cap from 18 percent to 9 percent as proposed 
effectively is a blunt instrument, and one of the side effects 
of that is it would go across-the-board for single-family 
homes. It could be residences. It could be single-family 
residences. It could be in areas most in need and most at risk, 
if you will, socially or economically vulnerable. It would also 
affect the Risk Rating 2.0 as it relates to second homes, 
vacation properties. It seems like a blunt instrument that is 
actually counter to what is being done to put this program on a 
fiscally-sound basis.
    Mr. Hill. Thanks, and I appreciate that. Director Kousky, 
you have made a very interesting comment in your testimony that 
homeowners, potential homebuyers, are not notified if their 
house is about to kick into a repetitive loss situation or of 
higher risk there. Is that something that State law should deal 
with? How would a homeowner be notified about that, if there 
was a missing comment?
    Ms. Kousky. Thank you. Yes. I think there is important 
flood risk information that is currently not making its way to 
homeowners, and I think it is a two-fold policy solution and 
that we need to be working with States for improved flood 
disclosures. But there are also some changes that are needed so 
that the NFIP can release important data on flood risk to 
prospective homebuyers and not just the current owner.
    Mr. Hill. Yes. I think that was a key point in Sean Duffy's 
proposals earlier about increasing transparency on this, making 
community maps more transparent. Thank you for that. Now, we 
have the NFIP to really protect mortgage holders on single-
family homes, let's say. But in my experience in building 
houses after Katrina, we have a huge problem where people don't 
have a mortgage lien, and, therefore, they don't have any 
protection against flooding, and we had a lot of misallocation 
of mitigation money. Director Kousky, how should Congress look 
at insisting on true accountability that mitigation money 
actually be sent to raise a home, for example?
    Ms. Kousky. I think we need to be doing more to target 
mitigation dollars where they are most needed and most 
effective. If the question is one of sort of misappropriation 
of funds and fraud, that is not something that I know much 
about or can speak to. I can speak to the fact that we do need 
to do more to be better spending our mitigation dollars in 
those areas, at most.
    Mr. Hill. Thank you. I am going to ask Mr. Wright the same 
question. Mr. Wright, how do we achieve better accountability 
so that mitigation dollars are not squandered?
    Mr. Wright. I think that, again, the fraud pieces, which 
there are great ways to go after. I look at the point that 
goes, how do you make sure the mitigation dollars go to where 
they are going to be most impactful, and reduce future losses. 
And I do think that at that point, we need to target the places 
of repetitive loss and then focus on communities where wide 
swaths of homes can all be mitigated so the community is going 
to be able to rebound. It is not just going to be a few folks 
who survive and the others who are left filled with water.
    Mr. Hill. Thank you, Mr. Wright. And, Chairman Cleaver, 
thank you, and I yield back.
    Chairman Cleaver. Thank you, Mr. Hill. I now recognize 
myself for 5 minutes.
    I want to focus on what the Chair of the Full Committee, 
Chairwoman Waters, started discussing. Dr. Kousky, and Ms. 
McHugh, the NFIP is currently $20.5 billion in debt, and every 
year, policy providers pay approximately $400 million in 
interest to service that debt. Do you both believe, or let me 
know what you believe, as it relates to the debt, should 
Congress do something or should it be ignored? What should we 
do as it relates to the debt?
    Ms. McHugh. Thank you for the question. I believe the 
current NFIP debt should be forgiven, and some form of 
sufficiency standard must be adopted as an automatic long-term 
mechanism within the NFIP. This should ensure that in certain 
thresholds of catastrophic events, the debt will be paid by the 
U.S. Treasury. Thank you for the question.
    Ms. Kousky. I agree that needs to be repaid.
    Chairman Cleaver. Ms. Kousky, I'm sorry, I didn't get your 
response.
    Ms. Kousky. Sorry. I agree that needs to be forgiven. I 
don't think that the program is going to be able to repay it on 
its own.
    Chairman Cleaver. I know there is criticism about the Build 
Back Better Act, but the chairwoman and others on our committee 
did, in fact, make that a part of Build Back Better, which 
would put us on a level where we don't enter into a situation 
where all we are doing is increasing the amount of money we are 
paying on the interest and leaving a huge indebtedness. But do 
you think it makes good sense for policyholders, who may 
already be suffering from affordability challenges in a cash-
strapped program, to pay $4 billion just in interest payments 
on debt? The NFIP will never ever, ever repay. I would like to 
ask Mr. Nutter for your response to my question.
    Mr. Nutter. Chairman Cleaver, the RAA has not taken a 
position with regard to payment or repayment of debt. That is 
obviously a matter for the committee and the Congress to 
decide. Representative Hill made reference earlier to my 
comment that the National Flood Insurance Program is not an 
insurance program, but it could be. But certainly, its overall 
financial structure needs to be put on this glide path that 
Risk Rating 2.0 provides, as well as its successful use of the 
private sector reinsurance to support the financial integrity 
of the program.
    Chairman Cleaver. I know you are just speaking for 
yourself. And so, since we realize that you are not speaking 
for the RAA, you are just speaking as an observer, as a 
knowledgeable person about the NFIP, do you support the 
cancellation of NFIP debt?
    Mr. Nutter. I appreciate the follow-up question, 
Representative Cleaver. I do speak today on behalf of the RAA, 
and we really have taken no position on it. It is important 
that the program be fiscally sound. We do feel that more 
reliance on the private reinsurance sector would help support 
that and reduce the exposure that the taxpayers have to the 
debt of the program.
    Chairman Cleaver. Okay. Editorially, I just think it makes 
no sense whatsoever for us to walk around with a $20.5 billion 
indebtedness. And with that, I will yield back.
    Mr. Posey, you are now recognized for 5 minutes.
    Mr. Posey. Thank you very much, Chairman Cleaver. Mr. 
Nutter, again, if we are moving the National Flood Insurance 
Program to actuarial premiums and fiscal soundness, should we 
also consider taking action to transition a program of flood 
insurance in the private sector?
    Mr. Nutter. We certainly support the complement or 
supplement, if you will, that the private sector can bring to 
the program. The National Flood Insurance Program policy 
account is largely plateaued at around 5 million policies. One 
percent of the properties that are outside the program account 
for a significant amount of the flooding risk that we have in 
this country. The reinsurance sector stands ready to support 
private sector flood insurance, and we have offered several 
proposals in our testimony about how the committee could act to 
encourage that.
    Mr. Posey. Thank you. Why do you think FEMA isn't fully 
disclosing to the public the data and computations that they 
are choosing to compute estimated flood insurance premiums?
    Mr. Nutter. If you are directing that to me, Representative 
Posey, I can't speak for FEMA's motivation. What I can say is 
that we have done a lot of data analytics regarding the release 
by FEMA, like 40 years, 45 years of claim and premium data. We 
have also used the public release of the Risk Rating 2.0 data 
to look at communities and the impact on communities and 
individuals that this is having. It would be valuable for FEMA 
to release more granular data, largely because what has been 
released is so involved that you can distinguish single-family 
homes that are principal residences from second homes, vacation 
properties, and investment properties. And it is difficult to 
distinguish the commercial side of this as well. So, more 
granular data would allow the program and other government 
programs to target mitigation as well as to understand better 
who is paying what and in what communities, particularly those 
that are most socially and economically vulnerable.
    Mr. Posey. Thank you. I couldn't agree more. Shouldn't the 
National Flood Insurance Program establish premiums and methods 
for premiums with rulemaking and comments consistent with the 
Administrative Procedure Act?
    Mr. Nutter. Again, Representative Posey, if you are 
directing that to me, perhaps Mr. Wright would have more 
insights about the use of the Act. FEMA has been relatively 
good about releasing large swathes of data related to the 
program and made them publicly available. We have used that 
data, but it is very difficult, particularly for consumers and 
individuals, to do that, whether or not they should be using 
the Administrative Procedure Act. I just am not knowledgeable 
about that.
    Mr. Posey. Mr. Wright, what do you think?
    Mr. Wright. I think it is well-known that FEMA is very, 
very slow to do things through the rulemaking process. I do 
know as rates are being set and established each year, under 
the current laws and regulations, those are individual policy 
decisions that are made and published each year. They are 
published and follow the spirit of the Administrative Procedure 
Act. That is helpful for the rulemaking process.
    Mr. Posey. Now, the implementation of Risk Rating 2.0 has 
severed the premium-setting process for flood insurance rate 
maps and kept policyholders from an appeals process for 
premiums. Shouldn't FEMA take action to make it possible for 
policyholders to actually appeal their premiums, to get access 
to the information they need to do that? Back to Mr. Nutter, 
again.
    Mr. Wright. Sir, I don't believe so. There has never been 
an ability to--
    Mr. Posey. Mr. Nutter, do you think they should?
    Mr. Nutter. Mr. Posey, I am not familiar with the appeal 
process in a way that might be helpful.
    Mr. Posey. Don't you think people who are paying the 
premium should at least have the advantage of knowing how the 
premiums are set?
    Mr. Nutter. Actually, Mr. Rivera-Miranda made the point in 
his comments about the people relying upon the insurance 
agents, such as themselves, for insights about the premium-
setting process. There is no question that transparency 
benefits everyone, both the consumer as well as people looking 
to understand the consequences of the rating process and the 
impact that it has.
    Mr. Posey. Yes, and, of course, the agents don't have the 
information either. NFIP is not transparent enough to give the 
agent the information they need to really inform the customer. 
Lack of transparency, I think, harms everyone. And I see my 
time has expired. Mr. Chairman, so I yield back. Thank you.
    Chairman Cleaver. Mr. Sherman, you are now recognized for 5 
minutes.
    Mr. Sherman. Thank you. I would like to take a moment to 
submit for the record a letter from the Independent Insurance 
Agents & Brokers of America, which states that they support the 
passage of a long-term NFIP, and it notes that those who are 
insured recover from a disaster much more quickly. And it says 
that FEMA needs to do more to make the rating process 
transparent.
    Chairman Cleaver. Without objection, it is so ordered.
    Mr. Sherman. Now, Mr. Wright, in the State of California, 
we have strong real estate disclosure requirements, including 
prior property damage due to flooding. But I understand that 
when you are buying a home, constituents can't gain access to 
the property's National Flood Insurance Program claims history 
unless the seller formally requests and obtains the report, all 
within a 30- to 45-day window. I understand that the reason 
FEMA won't provide this information directly to buyers or 
lessees is because of the Federal Privacy Act. If there have 
been repeated NFIP flood claims on a home for some reason, and 
the seller doesn't disclose it, the buyer doesn't find out. 
Should buyers and lessees have access to this information 
directly from the Flood Insurance Program?
    Mr. Wright. Mr. Sherman, there must be a way for us to 
provide that information. As you know, real estate disclosures 
are almost entirely driven by State law, and so, some States, 
like California, make more of that available. Many States do 
not have that requirement. Ultimately, I think we have to find 
a path, likely through the NFIP, to put the right kind of 
nudging requirement in,that if a State is going to participate 
in the NFIP, this kind of transparency needs to be included in 
their State's disclosures.
    Mr. Sherman. That would be helpful. And certainly, if a 
seller opens escrow to sell a property, the buyer named in that 
escrow wants to have access to the information before the 
transaction closes.
    Mr. Wright. Great.
    Mr. Sherman. I will point out that both the Chair of the 
Full Committee and I represent the greatest city in America, 
which happens to have been built in a desert, and we are 
experiencing a drought. But flood insurance is important to 
this entire country, and that is why I am glad we are having 
this hearing.
    Mr. Wright, you point out in your testimony that for the 
past 6 years, Congress has passed 21 stopgaps. We have heard 
about this. By some estimates, approximately 1,330 home 
closings are delayed or canceled for every day the program 
lapses. What I think is not captured by that statistic is the 
harm done even if it is about to lapse. As people get 
concerned, can they sell their homes? Should they be looking 
for another home? Can they take a job in another city? Can they 
buy a larger home and sell theirs? And this lapse doesn't save 
the Federal Government a penny. It is just a loss to our 
society. Chairwoman Waters now has put forward a bill to 
reauthorize the program for 5 years. We should commend her for 
that. Could you speak to the benefits to homebuyers, to home 
sellers in the market in general, to be provided by a long-term 
reauthorization of the program?
    Mr. Wright. Yes, absolutely. I think that the marketplace 
in the real estate world needs certainty that there are so many 
other economic factors going on in flood insurance, and whether 
or not it will be available on the day of closing should not be 
part of their concern. Now, whether or not they are at flood 
risk, should be, but the availability of that insurance--these 
increments are highly disruptive. They create a tremendous 
amount of work to turn, particularly when you get to lapses 
that play out to turn the program on and to turn it back off 
again.
    And I do think that the House deserves to be complimented. 
You have collectively put through bipartisan pieces that work. 
So much about flood insurance is geographic, and we have to 
find a pathway. And it may be a narrower set of reforms that 
gets us not just a bipartisan, but that otherwise addresses 
those geographic concerns that often, at least in my 
estimation, have been what have kept us from getting the 
reauthorization.
    Mr. Sherman. Thank you. I yield back.
    Chairman Cleaver. Thank you. The gentleman yields back.
    The gentleman from Michigan, Mr. Huizenga, is now 
recognized for 5 minutes.
    Mr. Huizenga. Thank you, Mr. Chairman. I appreciate the 
opportunity, and I am going to go into this with Mr. Wright. I 
am going to have a question for you, but I am going to bring 
back some of my colleagues. Going back a couple of years, 
former Committee Chair Jeb Hensarling used to highlight and 
talk about repetitive loss properties, and the story he told 
was this. There was a property outside of Baton Rouge, 
Louisiana, and don't get me wrong, I love our friends from 
Louisiana, but it was a modest home that was worth about 
$60,000, which had flooded over 40--4-0--times, and taxpayers 
had paid over half-a-million dollars for that property to be 
rehabbed. In other words, taxpayers in areas that are not prone 
to flooding, obviously subsidized homes that are at risk.
    And I come from Michigan. Near the coast, we have a place 
called the Grand River. It is grand. It is a big river, and it 
floods. And we recently, in the last couple of years, had 
finally had a county effort to buy out some properties along 
the banks of the Grand River. There are others along here. And 
we have to ask ourselves, when are we going to make sure that 
these things are addressed?
    And so, Mr. Wright, kind of to you, is this scenario of our 
former colleague, what he discussed, is that still taking place 
under the current NFIP, or is it even still possible?
    Mr. Wright. It is still possible today. When I was in the 
program, we actually did analysis to find out how many of the 
properties of the nearly 5 million policies, and it was less 
than 500 of them that were in that most egregious group. But we 
put proposals in a number of years ago, and I believe FEMA 
continues to do this, to create something called extreme 
repetitive loss. And once you hit a certain threshold, your 
only option is to be mitigated, or you will have to buy your 
insurance on the private market. You should not be able to stay 
inside the NFIP and continue that cycle.
    Mr. Huizenga. And is it a number of incidents, or is it a 
dollar amount?
    Mr. Wright. Because there is such variance in terms of the 
value of properties that are there, I think some of the best 
thinking on it was looking at either the third or fourth claim 
by which the value of those claims had exceeded more than 
$200,000. And again, you don't want to push someone out who 
really could rebuild, but you have to put a line in there and 
stop that cycle.
    Mr. Huizenga. I know we had talked about 3 strikes and you 
are out on this committee various times, but do we know how 
much the program has spent to rebuild those properties?
    Mr. Wright. I don't have those numbers. I will tell you 
when I did that analysis, a number of years it goes about 500. 
And so the overall value was not anywhere near the scale of 
some of the other financial problems in the program, but it 
sends the wrong message. And particularly with inflation, I 
think more homes are going to get into that group.
    Mr. Huizenga. Yes. We can talk about inflation, but it does 
seem to me that we are perpetuating keeping people in harm's 
way of flooding.
    Mr. Nutter, in your testimony, you said, ``FEMA 
successfully administered its NFIP reinsurance program that 
transfers risk from the NFIP to the capital markets.'' Do you 
think it makes sense to concentrate so much of the entire 
country's flood risk on the NFIP's balance sheet alone? And how 
do programs like NFIP's reinsurance program help deflect those 
risks and mitigate it?
    Mr. Nutter. Thank you for the question, Representative 
Huizenga. The National Flood Insurance Program's Risk Transfer 
Program is fairly common among government insurance programs to 
transfer risk into the private sector, and the reinsurance 
sector has been very supportive of the program. It is a way to 
diversify that risk and not as concentrated as it is in the 
National Flood Insurance Program. It is a common insurance 
company practice. I would say that, as I mentioned earlier, 
that the development of a private flood insurance market that 
allows consumers to access that and come back into the program 
if they choose not to stay in it, would supplement the 
relatively plateaued number of National Flood Insurance Program 
policies, which is about 5 million.
    Mr. Huizenga. Because you need numbers to spread that out, 
it is just actuarial tables?
    Mr. Nutter. Yes, that is correct. And, of course, what the 
program has is the most, what we call, adverse selection. 
Largely, the highest-risk properties are likely to be those in 
the National Flood Insurance Program.
    Mr. Huizenga. I will let you touch on this briefly, Mr. 
Wright, maybe the rest of my time, on inflation. My family is 
in construction. I know what has been happening with the 
availability of materials and then the cost of those materials. 
What is that doing to the program as it is having to go in and 
rebuild properties?
    Chairman Cleaver. Just one second. The gentleman's time has 
expired, but at the beginning of the hearing, I did go over 
quite a bit. With the agreement of the ranking member, Mr. 
Huizenga, you will be recognized to complete your questioning.
    Mr. Huizenga. Okay. Thank you, Mr. Chairman. Sorry. I 
wasn't keeping track of the time.
    Mr. Wright. Thank you, and I will be very, very quick, 
Congressman. Risk Rating 2.0 is actually addressing a big piece 
of inflation because of the actual cost of repairs, the actual 
cost of reconstruction, and so I think that piece is in place. 
But the flip side of it is that because there is only $250,000 
worth of coverage allowed under law, as home prices have gone 
up, most homeowners don't go buy a secondary policy. So, as we 
have seen that escalation, I am absolutely convinced there will 
be people who are submitting flood claims this year, who 
realize that they have $370,000 worth of damage and they are 
only getting a $250,000 check. And I think that piece plays. I 
think there is a related element related to the debt because it 
is going to drive up interest rates, but I know that is not the 
centerpiece of what the consumer is going to experience.
    Mr. Huizenga. I appreciate it. Thank you for the additional 
time, Mr. Chairman. I yield back.
    Chairman Cleaver. Thank you. The gentleman yields back.
    The gentleman from Tennessee, Mr. Rose, is now recognized 
for 5 minutes.
    Mr. Casten. Mr. Cleaver, am I next?
    Chairman Cleaver. You are next.
    Mr. Casten. Sorry to interrupt. This is Sean Casten. I 
thought we are doing a [inaudible], but I was just--
    Mr. Hill. Mr. Chairman, this is Congressman Hill briefly 
for just a parliamentary inquiry. As I have to step out of the 
hearing, I have asked Mr. Rose of Tennessee to represent the 
Minority, and I thank the chairman.
    Chairman Cleaver. Thank you, Mr. Hill. Mr. Rose, we are 
here on--
    Mr. Rose. Thank you. But I do believe Mr. Casten should be 
up next.
    Mr. Casten. Thank you, Mr. Rose. Mr. Chairman, with your 
discretion, I will jump in here. Thank you all for this 
hearing. I want to follow up on some of the comments Mr. 
Huizenga was making, and I think we are thinking along the same 
lines around this issue of repetitive loss properties. And, Mr. 
Wright, I want to thank you for giving a shout out to the bill 
I have with Mr. Blumenauer to try to address these issues.
    I wonder, Mr. Wright, if you could start? You explained 
this briefly in your testimony, but I wonder if you could 
expand on it. We have all seen this FEMA data which says that 
for folks and repetitive loss properties, you are kind of 
waiting up to 5 years to get a buyout. And of course, as 
climate change keeps accelerating, in those 5 years, you are 
increasingly likely to be flooded again and get stuck there. 
Can you explain, sort of as simply as you can, what it is about 
the current process that makes it so hard for people to get a 
claim on and through the program, and the degree to which this 
shifting to a buyout in lieu of claims methodology might 
address that problem?
    Mr. Wright. Yes. Thank you. And I appreciate the work you 
are doing on this bill. What happens today if someone is on 
multiple claims? If I want to do a buyout, they have to raise 
their hands, submit to a local community, who then submits to 
the State, who then submits to FEMA, whenever the next window 
is there, at which point they can be selected and then it is a 
peer back and forth. And there may be other people who have 
been waiting longer, and so you may not get in your first year 
based on the amount of money.
    I spoke about in my testimony--it was after Hurricane 
Harvey that a lady named Edith called me, and she had a loss in 
2015 of more than a $100,000 claim paid, and a loss in 2016 of 
more than $100,000 paid. And in the summer of 2017, she said, 
``Mr. Wright, instead of paying my claim, can you just make my 
buyout happen now?'' And the answer was, no, I couldn't. We 
tried to get some authorities in the emergency supplemental in 
the fall of 2017. And I think that what you are proposing in 
this place will help solve this because it saves money, because 
in the case of Edith, her third claim, you would subrogate 
another $100,000 worth of claims damage towards the Buy Act. 
Otherwise, you are going to give them that money, they are 
going to rebuild, and then 3 years later, they are going to 
come in and you are going to demolish.
    I will go one step further. For the family who was 
devastated by that event, they just want to start over, and 
they don't want to live in the mental health morass of figuring 
out how to live in a decrepit place in hopes that they will 
someday get to move on. It saves the program money, and it is 
much better for the survivor in the insurance.
    Mr. Casten. Yes. I think all of us, even in the Midwest, we 
all have these flood zones, and we hear those same stories and 
you do feel powerless. I want to ask the fiscal question, and I 
know Mr. Huizenga asked this. I want to ask this in a slightly 
different way, but if you don't have an answer, that is okay. 
The idea we are trying to do is say not only is it a buyout, 
but we move you out of the flood zone, so now you are in a 
different area. Do you have some sense, when you look at the 
claim history of NFIP when you were there, if we could get rid 
of those claims and these repetitive loss areas in the flood 
zone? Do you have even just a ballpark sense of what that does 
to the solvency of the program? What portion of the claims 
would we be essentially taking out of the future liabilities of 
the program if we did this?
    Mr. Wright. GAO has done a couple of studies on this, and I 
don't have the numbers right off the top of my head. But I 
spoke with Mr. Huizenga about kind of these crazy cases that 
are out there, they are 14 times over, but these places were 2 
or 3 claims. At one point, that was something like more than 40 
percent of the payouts had been just in those places that had 
come back for multiple bites at the apple, which is why FEMA 
has long held that these acquisitions on repetitive loss are to 
the benefit of the National Flood Insurance funds. They are 
better off over the long haul for making those acquisitions.
    Mr. Nutter. Mr. Casten, this is Frank Nutter. I do have the 
GAO number in front of me. Their report was that the repetitive 
loss properties from 1978 to 2019 accounted for $22.2 billion 
of the $69.7 billion in claims, so nearly one-third.
    Mr. Casten. One-third. As my old head of engineering in my 
last life was fond of saying, it is bigger than a breadbasket.
    Mr. Nutter. Yes.
    Mr. Casten. I thank you for your time. We could go into a 
lot more detail. Mr. Huizenga, if you are still on--you may 
have dropped off--we would love to work with you and try to 
finalize this legislation, or any others on the committee, and 
I'm really grateful for your expertise. I yield back.
    Chairman Cleaver. The gentleman yields back.
    Mr. Rose of Tennessee, you are now recognized for 5 
minutes.
    Mr. Rose. Thank you, Chairman Cleaver, and I want to thank 
Ranking Member Hill, who had to drop off, for holding this 
important hearing. I also want to thank our witnesses for your 
time today and for being a part of our first hearing on flood 
insurance in this Congress. As my time is limited, I am going 
to go ahead and dive right in.
    Mr. Nutter, in your testimony, you mentioned reforms to 
create resilient and insurable communities. Can you please 
discuss those, including the Community Disaster Resilience 
Zones proposal?
    Mr. Nutter. Representative Rose, thank you for the 
question. We call it CDRZ, if you will, as a typical Washington 
acronym. What it would do is it would take FEMA's National Risk 
Index and put it in a statutory state, essentially expecting 
and requiring that Federal programs, like FEMA's programs and 
HUD programs, would direct the mitigation dollars toward 
communities that have been identified as these community 
disaster resilience zones and prioritize those communities that 
are both at risk of natural disasters, but also socially and 
economically vulnerable.
    The proposal in its fullest context will also provide 
Federal assistance to local communities to issue bonds focused 
on resilience efforts in those communities, as well as private 
sector bonds that would get the benefit of the tax exemption. 
The proposal largely is designed to enhance the ability of 
communities to identify what they see as being appropriate 
resilience measures but with the assistance and support of the 
Federal Government.
    Mr. Rose. Thank you. And, Mr. Nutter, in February 2019, 
regulators issued a final rule clarifying how lending 
institutions may accept private flood insurance policies. Since 
that time, has private flood insurance increased its market 
share?
    Mr. Nutter. Representative Rose, it really has not. The 
private flood insurance market, unfortunately, competes if you 
will, with the National Flood Insurance Program, with the 
subsidized rates and the assistance that goes there. We have 
been working with State insurance commissioners to facilitate a 
process at the State level to get companies to encourage 
companies to be part of that. But we do feel that some things 
need to be done at the Federal level, and one of those is 
Representative Luetkemeyer's proposal for continuous coverage 
that would allow policyholders in the National Flood Insurance 
Program to access the private market. And if they choose not to 
take that option, they can come back into the program without 
losing their status. So, there are things that can be done, but 
the private flood insurance market is still very nascent.
    Mr. Rose. Aside from just the competitive disadvantage that 
the private market may be at--you may have referred to one of 
those--what are the other governmental barriers that prevent 
the private flood market from expanding and offering better 
options to consumers?
    Mr. Nutter. One has been dealt with: Risk Rating 2.0. That 
is, that Risk Rating 2.0 is now focused on individual 
properties, as well as Mr. Wright has mentioned the replacement 
cost. It is more akin to the way insurance companies look at 
risk and evaluate risk. So, I would expect Risk Rating 2.0 to 
have the residual value, if you will, encouraging private 
companies to see where the rating is, those ratings are, and 
then to see whether they can compete either on service or price 
with all that.
    Mr. Rose. And then, shifting again, Mr. Nutter, what are 
some of the ramifications of being suspended from the NFIP for 
not following proper floodplain management guidelines?
    Mr. Nutter. I am not sure that I am the best one to address 
that. Maybe Mr. Wright can address that. But obviously, it is 
an important feature of the program to deal with both 
floodplain management, if you will, and mitigation as well as 
the insurance component of it. It is a partnership between 
those two features. I would encourage Mr. Wright to address 
that if he would like to.
    Mr. Wright. Sure.
    Mr. Rose. Mr. Wright, if you don't mind?
    Mr. Wright. Very simply, it is a quid pro quo when you join 
the National Flood Insurance Program. You have to put those 
pieces in place. Ms. McHugh actually leads that program in 
Missouri, where it is her job to make sure that people follow 
through, and that is how insurance is made available. If 
anything seems very, very patient, it takes a long, long path 
before you ever get to the fully suspended line.
    Mr. Rose. And what impact, if any, does this have on 
private insurance, the private insurance market for flood in 
the areas where--
    Mr. Wright. If anything, once you have been suspended, the 
private market is the only place you can get insurance.
    Mr. Rose. Okay. Chairman Cleaver, I see my time has 
expired. I yield back.
    Chairman Cleaver. The gentleman yields back.
    The Chair now recognizes Mr. Steil. Is still with us?
    [No response.]
    Chairman Cleaver. Then, Mr. Timmons, you have 5 minutes.
    [No response.]
    Chairman Cleaver. I don't think Mr. Timmons is with us 
either, in which case I would like to thank all of the 
witnesses for their testimony today.
    The Chair notes that some Members may have additional 
questions for these witnesses, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    I have a submission for the record, a letter from the 
National Association of Mutual Insurance Companies urging 
Congress to provide a long-term reauthorization of the NFIP 
that contains reforms designed to create more certainty for 
policyholders by putting the program on a path towards 
solvency.
    This hearing is now adjourned. Thank you all.
    [Whereupon, at 1:26 p.m., the hearing was adjourned.]

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                              May 25, 2022