Flood Insurance Reform and Modernization Act of 2007

Floor Speech

FLOOD INSURANCE REFORM AND MODERNIZATION ACT OF 2007 -- (House of Representatives - September 27, 2007)

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Mrs. CAPITO. Mr. Chairman, I yield myself as much time as I may consume.

Mr. Chairman, floods are amongst the most frequent and costly national disasters in terms of human hardship and economic loss. In fact, 75 percent of Federal disaster declarations are related to flooding.

Before I discuss the merits of the legislation, I would like to talk briefly about the process that is being considered. We are debating a huge expansion of an already struggling existing Federal program, and yet we have not been able to have our amendments out on the floor to have an open and frank discussion about this.

I would like to accept the chairman's offer to continue to work on the amendments that were not allowed to be offered, and I hope that we can see democracy being served by letting everybody's voice be heard.

In 1968, Congress established the National Flood Insurance Program, NFIP. The program is a partnership between the Federal Government and participating communities. If a community adopts and enforces a floodplain management ordinance to reduce future flood risk to new construction, the Federal Government will make flood insurance available to that community. Today, NFIP is the largest single-line property insurer in the Nation, serving nearly 20,000 communities and providing flood insurance coverage for 5.4 million consumers.

Mr. Chairman, recent events have underscored the need to reform and modernize certain aspects of the program. While the NFIP is designed to be actuarially sound, it does not collect sufficient premiums to build up reserves for unexpected disasters. Due to the claims resulting from Hurricanes Katrina and Rita, the NFIP was forced to borrow $7.6 billion from the Treasury, an amount it estimates it will never be able to repay. Consequently, NFIP sits on the GAO's High-Risk Programs list, which recommends increased congressional oversight. Additionally, the 2005 storms shed light on the problem of outdated flood maps, resulting in many homeowners in the gulf region being unaware that their homes were located in floodplains.

To address these and other concerns in 2006, the House overwhelmingly passed flood insurance reform legislation. Earlier this year, Chairman Frank and Representative JUDY BIGGERT introduced legislation identical to that bipartisan bill. That bill includes many reforms, including the phasing in of actuarial rates, but unfortunately, the flood insurance bill that the majority chose to move out of the Financial Services Committee was amended to incorporate legislation offered by the gentleman from Mississippi (Mr. Taylor) which expands the NFIP to include coverage for wind events.

Mr. Chairman, no Member of this House was more personally affected by the 2005 hurricanes than Congressman Taylor. I do not, and no one questions his sincerity or his commitment to assisting those who have lost everything they owned in these storms. While I share his concern over the rising costs and outright unavailability of homeowners' wind coverage in some areas, I have three principal objections to linking wind insurance to the reform of the National Flood Insurance Program.

First, expanding the program increases liabilities for taxpayers while decreasing options for customers or consumers. Properties located along the eastern seaboard and gulf coast represent $19 trillion of insured value. Shifting the risk on even a portion of these properties to the troubled NFIP could expose taxpayers to massive losses. The fact is that insurance will choose not to engage a competitor that does not pay taxes, has subsidized borrowing costs, and is not required to build a reserve surplus and is protected from most lawsuits, State regulation and enforcement.

Second, adding wind coverage to the NFIP will exacerbate the program's well-documented administrative problems. Both the Department of Homeland Security and GAO have criticized the NFIP for being understaffed, not having adequate flood maps and not collecting sufficient information on wind payments when claims were submitted for flood damage. Expanding the portfolio further before much-needed reforms are in place is premature.

Third, no consensus yet exists about the necessity or desirability of creating a Federal wind insurance program. In testimony before our committee, representatives of flood management groups, the insurance industry, environmental organizations, Treasury and FEMA all expressed agreement that a comprehensive study of the proposed wind insurance mandate should first be commissioned to provide Congress with a better understanding of the possible implications this expansion could have for consumers, NFIP and the market.

Mr. Chairman, we must not let the desire to meet every perceived problem with a new Government program drive us towards premature actions that yield unwanted consequences. The NFIP's mission should not be expanded, exposing taxpayers to massive new risks, until reforms are in place and adequate study has been conducted.

In addition to the above reservations, I have serious concerns with the effect the addition of wind coverage will have on communities that are now relying on NFIP. This program is already financially unstable, yet we are about to add $19 trillion of risk. Despite this fiscal instability, States like West Virginia, that I represent, will still rely on the program to provide assistance in the case of serious flooding. There have not been major problems this year, thankfully, but as recently as 2001, FEMA has declared counties in my State national disasters due to flooding and provided $17 million in assistance. These are serious needs across the Nation for the flood insurance program. We should be modernizing NFIP so it can become financially stable.

Mr. Chairman, I reserve the balance of my time.

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Mrs. CAPITO. Mr. Chairman, I yield myself such time as I may consume.

In listening to the debate over this amendment, my question becomes, if we move forward and make wind part of one of the insurable events under this program, and then we study, through the gentlelady's amendment, the effect this has on State insurance, and we find out, after it's already been put into effect, that it's too costly or it's damaging the insurability at the State level and other issues, what are we going to do then?

This is where it goes to my argument in the beginning that we're really entering into this prematurely, because we have so many unanswered questions.

Mr. Chairman, I reserve the balance of my time.

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Mrs. CAPITO. I would like to ask the author of this amendment a couple of questions just for my own clarification, if I could.

First of all, when you're directing FEMA to use the most up-to-date science on global climate change and weather-related issues, does FEMA currently have this technology available? Where does this technology exist for FEMA? And with what type of accuracy can you predict that FEMA will be able to predict? I know FEMA is in the business of declaring where floodplains are; it has a lot of science connected with this. Where is this technology coming from? What sophistication of the equipment exists, and how do you think these will be arrived at?

I yield to the gentleman from Oregon.

Mr. BLUMENAUER. Excellent question. Around the world, scientists are a part of this consensus, and we are refining tools. One of the problems with this administration is they've been trying to stifle, as you know, scientists within the administration speaking out on this, and we have undercut investment in these resources.

The fact is that there is better information now for climate change. I have no problem whatsoever of our being able to invest to increase it further, but there is a global scientific consensus, there is investment in NASA, there are already resources within the Federal Government. They are not currently used now by FEMA, the stuff that we've got now, let alone what we're going to have in the future.

Mrs. CAPITO. Well, my question would be, if that's available to FEMA now to be able to more accurately predict the ebb and flow of water across the United States and the coastal regions, why isn't that being used by FEMA right now, if that's available? Is it statutorial?

Mr. BLUMENAUER. As my friend, Mr. Baker, pointed out when he was arguing a few moments ago, they use a different pattern, a different model right now. What we're doing with this legislation is we are requiring them to change the model, use the information that's available right now by the Federal Government, hopefully the Bush administration won't try and stifle it, and use that for forecasting current and prospective. Right now they don't do it in their modeling, and there's no reason why they can't. This legislation would require it.

Mrs. CAPITO. Then going further from what you're saying, is what you're really saying changing the entire FEMA modeling perspective, or putting this on top of what is already existing at FEMA?

Mr. BLUMENAUER. What we're saying now is that we are in a world that everybody else acknowledges is rapidly changing. It looks like climate change, global warming is a reality, and just using straight-line extrapolation for FEMA to determine 100-year floodÐplains or 500-year floodplains doesn't work because it is changing much more rapidly than past patterns would expect.

So we ought to use the best available science here and around the world to look at what's likely to happen in the future. FEMA doesn't currently do that. They look at flat-line projections of past activity, not looking at using the best available science for what's going to happen in the future.

Mrs. CAPITO. Thank you. I have a lot of questions about the answer to the question I just asked; but at this point, I will yield 1 minute to the gentleman from Georgia (Mr. Kingston).

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Mrs. CAPITO. I think the gentleman's amendment has great merit, but I question the fact that he's already mentioned that the data that we're using in the future, the data that we're using to come about insurance rates in this flood bill, how can we then add on wind as another peril when we're not sure that the data that we're using to predict future weather forces is accurate at all?

Mr. Chairman, I yield back the balance of my time.

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Mrs. CAPITO. Mr. Chairman, I rise today in opposition to this amendment offered by the gentleman from Mississippi. The bill we are debating today is troubled, I think, because of the deeply in-debt flood insurance program, and now we are not debating, because we were unable to debate on the full floor of the House whether we should include wind in this. Wind is in this bill as a peril. But what this amendment does is further expand that coverage that is very debatable, I think premature, has been unstudied, and I believe this would be very unwise to include this amendment as a coverage expansion.

We have talked about the fact that the flood insurance program owes the U.S. Treasury $18 billion. We have talked about the fact that at a hearing in July on whether we should add wind to the NFIP, that the National Association of Insurance Commissioners, insurance experts, environmental groups, floodplain management groups, Treasury and FEMA all opposed the initial expansion. And suffice it to say they would certainly oppose, or they could certainly oppose, an even further expansion of this that this amendment represents.

I think that the wind insurance premiums are supposed to be actuarially sound, and the chairman of the full committee has made that point several times. The majority of the NFIP policies are supposed to be actuarially sound. And yet, the nonpartisan GAO says that they are not actuarially sound. We know that very few government insurance programs are ever actuarially sound.

Mr. Chairman, I urge my colleagues to oppose this amendment and to avoid a further expansion that this new mandate in this amendment represents.

Mr. Chairman, I reserve the balance of my time.

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Mrs. CAPITO. Mr. Chairman, I take heed to the gentleman's words from Michigan, and I tried to sort of recorrect my initial assumption that they would oppose the amendment. So I apologize for that.

Mr. Chairman, I would like to place in the Record letters from folks who do oppose the bill in general because of the wind addition. That would be: Friends of the Earth, National Wildlife Federation, U.S. Public Interest Group, America Insurance Association, Property Casualty Insurers, Financial Services Roundtable, Consumer Federation of America, Reinsurance Association of America.

September 26, 2007.
Re: Support For the Blumenauer-Gilchrest Global Warming Amendment to H.R. 3121 and opposition to provisions expanding the National Flood Insurance Program (NFIP) to include wind coverage

DEAR REPRESENTATIVE: We write to express our support for the Blumenauer-Gilchrest Global Warming Amendment to the Flood Insurance Reform and Modernization Act, H.R. 3121. This amendment would require that the Federal Emergency Management Agency, FEMA, consider the impacts of global warming on flood risks as it administers the National Flood Insurance Program, NFIP, Map Modernization Program. To adjust to the reality of global warming, Congress must require that the NFIP floodplain maps incorporate the best available climate science. Accurate floodplain maps will ensure that citizens are aware of the flood risks in their community and help prevent the loss of human life, property, and important wildlife habitat as we face more global warming-powered weather events.

Section 22 of H.R. 3121 provides much needed guidelines and ongoing mapping support for FEMA's map modernization effort. Flood insurance maps are the basic planning documents for the NFIP and provide a foundation for planning in developing communities. According to the Congressional Research Service, however, over 75 percent of the nation's 100,000 flood maps are at least 10 years old. Currently, H.R. 3121 fails to require FEMA to consider modern climate science when mapping floodplains. Under current methodologies, many of FEMA' s maps are already out of date and inaccurate when they are certified because they fail to take into account both critical new information beyond past flooding history, including the impacts of global warming. These outdated maps have resulted in more instances of storms with significantly greater flooding than predicted and give citizens a false sense of security that they will not be subject to flooding. This false sense of security is especially troubling as global warming's impacts become evident. Global warming will result in more flooding of coastal and riverine communities through intense hurricanes, reduced snow pack, and sea level rise.

The Blumenauer-Gilchrest Amendment would ensure that the FEMA Director consider impacts of global warming on our nation's flood risks and the potential future impact of global warming on the intensity of storms, storm surge modeling, sea level rise, and increased hurricane activity. Considerable experience exists in these areas, and the Blumenauer Amendment would ensure that FEMA incorporates the best available climate science into its mapping effort. We strongly support this amendment.

We urge Congress to oppose the multiperil, wind and flooding, insurance program in H.R. 3121, because it could overwhelm the NFIP, cost the taxpayers' billions, increase incentives to develop in hazard-prone and ecologically-sensitive coastal areas and floodplains, and place more lives, properties, and wildlife habitat at risk. We applaud Representative Taylor and other Members for raising the nation's awareness of the increasing risks associated with global warming-powered coastal storms. We are also sympathetic to citizens' desires to remove wind damage and flooding damage distinctions in homeowner's insurance policies in the aftermath of Hurricanes Katrina, Rita, and Wilma. Yet, we oppose adding a wind peril dimension to the NFIP because it would substantially undermine the program's already precarious financial position, would add greater risk and uncertainty especially for the taxpayers and the public, and would distract from the critical missions of the NFIP. Essentially, we must fix the NFIP before we expand it.

Hurricanes Katrina and Wilma have already driven the NFIP into the most dire financial condition in its history, now with a virtually insurmountable U.S. Treasury debt of approximately $18 billion. H.R. 3121 would mandate that FEMA begin the sale of a new federal wind insurance (multiple peril including wind and flood) beginning on June 30, 2008, right before the 2008 Hurricane Season and almost immediately increasing the exposure of the U.S. taxpayers to potentially billions of dollars in new claims. The chances of exposure of a catastrophic storm could swamp the national flood insurance program and leave it crippled forever. The rates of coverage are also significantly greater than those provided by current flood insurance alone: $650,000 for residential structures and contents and $1.75 million for commercial properties and contents. These coverage caps expose the taxpayers to considerable liability. In fact, recent insurance industry estimates show that costs of storms like Hurricane Katrina that were in the $15 to $20 billion range for the NFIP currently, could be three to five times or more, if wind perils were also included. Such costs could potentially overwhelm the program and the costs to taxpayers could balloon to staggering levels.

For these reasons, again, we support the Blumenauer-Gilchrest Global Warming Amendment, which will ensure that FEMA address the realities of global warming in its map modernization effort. We oppose the provisions within H.R. 3121 that expand the NFIP to include wind. These provisions threaten to overwhelm an already failing National Flood Insurance Program that needs substantial reforms to turn the corner on expanding flood risk and to accomplish its other purposes. Although many of the reforms contained within H.R. 3121 represent steps in the right direction, the proposed legislation will not go far enough in fixing the essentially bankrupt NFIP. Congress will have missed an historic opportunity to strengthen the NFIP if it passes this bill in its current form.

Please see the attached overview of our additional concerns with the bill.

Thank you for you attention to this matter.

Sincerely,

Erich Pica,

Director of Domestic Programs, Friends of the Earth.

Adam Kolton,

Senior Director, Congressional & Federal Affairs, National Wildlife Federation.

David Jenkins,

Government Affairs Director, Republicans for Environmental Protection.

Emily Figdor,

Federal Global Warming Program Director, U.S. Public Interest Research Group (PIRG).

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September 26, 2007.
Hon. NANCY PELOSI, Speaker,
Hon. JOHN BOEHNER, Minority Leader,
House of Representatives,
Washington, DC.

DEAR MADAM SPEAKER AND MINORITY LEADER BOEHNER: On behalf of the undersigned associations, we are writing to express our opposition to House passage of H.R. 3121, ``The Flood Insurance Reform and Modernization Act of 2007.'' While we are supportive of the reforms to the National Flood Insurance Program (NFIP) contained in the legislation, we strongly object to the provisions that would add the peril of windstorm to the NFIP.

The addition of wind coverage to the NFIP has the potential to dramatically increase the exposure of the NFIP and the federal government to catastrophic losses. The states along the Gulf coast and eastern seaboard contain more than $19 trillion in insured property values. The majority of these risks are currently insured in the private marketplace or in state residual market programs where the private insurance industry shares the potential losses. Writing a significant number of these properties in the NFIP would markedly increase the federal government's exposure to loss and, despite the provision that calls for ``actuarially sound'' rates for the windstorm portion of this coverage, the potential for a significant taxpayer subsidy. The bill also calls for the NFIP to stop writing and renewing multiple-peril coverage for these policyholders if it is required to borrow federal funds to pay its losses. This has already occurred at the state level, following the events of 2005, several state windstorm residual market plans, which are statutorily required to use ``actuarially sound'' rates, exhausted all of their available assets and had to fund these shortfalls by assessing the insurance industry and/or policyholders.

The policyholders most likely to buy this new federal coverage would be those living in areas that are highly exposed to wind damage, creating adverse selection, as happens with state residual market wind pools today. The amount of ``multiple-peril'' insurance that the NFIP would sell cannot accurately be determined at this time; thus, determining the unsubsidized premium for such coverage would be, even using the best actuarial science, a guess. Although the ``pay as you go'' (PAY-GO) rules require that the costs of the insurance program be unsubsidized by taxpayers, there is a real possibility that the program will not be self-sustaining, particularly in early years when the accumulation of premiums could be vastly exceeded by losses in the event of a hurricane of any significance.

Finally, nationalizing wind coverage under the NFIP, as proposed by this bill, will not resolve ``wind versus water'' disputes following a hurricane, and would do little to facilitate the resolution of these claims because many homeowners, even in flood-prone regions, do not purchase flood insurance--for example, fewer than 20 percent in coastal Mississippi prior to Hurricane Katrina. H.R. 3121 does not mandate the purchase of flood insurance and will not facilitate the resolution of claims for policyholders who do not purchase this coverage.

For these reasons, we strongly urge members to vote no on passage of H.R. 3121.

Respectfully,

AMERICAN INSURANCE ASSOCIATION.

National Association of Mutual Insurance Companies.

Property Casualty Insurers Association of America.

The Financial Services Roundtable.

REINSURANCE ASSOCIATION OF AMERICA,

Washington, DC, July 25, 2007.
Chairman BARNEY FRANK,
Ranking Member SPENCER BACHUS,
House Financial Services Committee, House of Representatives, Washington, DC.

DEAR CHAIRMAN FRANK AND RANKING MEMBER BACHUS: The Reinsurance Association of America (RAA) strongly opposes the inclusion of the Multiple Peril Insurance Act of 2007 to the flood insurance reform bill (H.R. 3121). The legislation would unnecessarily expand the scope of the National Flood Insurance Program (NFIP) to offer windstorm coverage that is currently being provided by private sector insurers, reinsurers, capital market participants and residual market programs.

The RAA, headquartered in Washington, D.C., is a non-profit trade association of property and casualty reinsurers and reinsurance intermediaries. RAA underwriting members and their affiliates write more than two-thirds of the gross reinsurance coverage provided by U.S. professional reinsurance companies.

A ROBUST PRIVATE MARKET FOR WIND COVERAGE ALREADY EXISTS

This legislation fundamentally alters who bears the risk of loss from wind. Instead of spreading this risk throughout the worldwide private insurance marketplace, this legislation puts the entire burden of deficits on the U.S. taxpayer. This fundamental shift is unnecessary. There is adequate wind capacity being provided by direct insurers and/or state residual markets. Moreover, there is a very robust global private reinsurance market for wind to help insurance companies manage their risk of loss. Over $35 billion of new capital has entered the private reinsurance capital markets to cover wind risk since Hurricane Katrina. RAA questions why Congress would want to shift the risk of loss to the U.S. taxpayers, rather than spreading this risk throughout the private insurance marketplace.

FEDERAL TAXPAYERS WILL SUBSIDIZE COASTAL INSURED'S

The RAA also has serious concerns that the NFIP will recklessly attract policyholders into buying wind coverage by suppressing the federal insurance rates. This has occurred in most state property insurance residual markets, which are under intense political pressure to maintain rates that are not sufficient to pay losses. Suppressing rates and loosening underwriting standards only places the U.S. taxpayer at further risk and encourages more development in high-risk areas.

THE NFIP IS NOT EQUIPPED TO OFFER WIND INSURANCE

The underwriting and pricing of flood and wind risk are fundamentally different. The Federal government has no institutional knowledge in these areas and it would be a daunting undertaking for them to develop such technical expertise. In addition to updating flood maps, FEMA would also have to develop wind maps for the entire United States. These tasks will only result in the creation of greater federal bureaucracy.

ALL STATE AND FEDERAL DISASTER INSURANCE PROGRAMS OPERATE AT AN EXPECTED LOSS

The NFIP is already $17 billion in the red. What if the NFIP had borne the wind loss associated with the 2004 and 2005 storms? The private marketplace paid $16.5 billion of wind insured losses in 2004 and over $60 billion of insured losses for the 2005 season. If this legislation were in place when these storms hit, the U.S. taxpayer would be paying greater deficits for these losses, rather than the private global insurance and reinsurance marketplace.

We urge you to oppose the inclusion of the Multiple Peril Insurance Act into H.R 3121 and support the Rep. Brown-Waite, Feeney and Putnam amendment to have the GAO conduct a study of this issue.

Sincerely,

Franklin W. Nutter,
President.

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