tv Hearing Focuses on Flood Insurance Affordability CSPAN June 30, 2016 10:59pm-12:20am EDT
rising national flood insurance program premiums. business owners discuss the impact of escalating premiums for homeowners in low-lying areas and argued that private insurers might be able to offer lower rates. this is about an hour and twenty minutes. good morning, everyone, and welcome. thanks for joining us today for our senate committee on small business and entrepreneurship hearing to discuss the need to avoid unaffordable flood insurance rate increases on small businesses. i want to begin by offering my condolences to the people of west virginia who are dealing
with the aftermath of truly devastating floods which early reports indicate left houses homeless and took at least two dozen lives. i offer my thoughts, prayers, and support to the citizen there is who are burdened with this disaster and encourage the federal agencies involved to continue their hard work to get these people the resources and assistance they desperately need. this hearing is an important step to begin a conversation in the senate about the national flood insurance program well in advance of the september 30, 2017, deadline for reauthorization. we're going to flare two panels of experts and stakeholders to examine the details of nfip and i want to thank all of our witnesses for being here today. >> in my role, i'm making every
effort to help shape policy that promote stability in the marketplaces so businesses can operate with the long-term certainty they need to make strategic decisions. i believe it's important for congress to work to avoid lapses in coverage bypassing a long-term reauthorization of the national flood insurance program well before next year's deadline. as many of us here remember, the lapses in coverage in 2010 had major negative effects on the economy. it's extremely important for congress to thoroughly examine the program and carefully consider all potential legislative changes with plenty enough time for this body to take action and prevent any unintended consequences like huge rate increases from hurting the economy.
to fully understand the issues that the nfip has created, it's important to have a basic understanding of the changes in our country's flood policy. currently there are nearly 5.1 million flood insurance policyholders across the nation, which represents a decrease over the last several years. after the flood insurance reform act was sign in into law to make the program solvent after hurricane sandy, many of these people, certainly many of my constituents in louisiana, were outraged at unaffordable increases in their premiums or the threat of that in the near future. rates were so dramatic in some cases that some folks faced ten times the price of their previous premium or even higher. it's not unheard of to hear stories of families paying $20,000 to $30,000 for a policy that had previously been $2,000
or less all on a modest middle-class home. i met with many people from louisiana about this, including with folks from bayou gauche who asked me to hand deliver copies of their house keys to fema's headquarters because of these drastic rate increases, they would not afford their mortgages. further more, fema's mishandling in some cases of the act implementation resulted in inaccurate rate hikes that placed the viability of the entire nfip at risk and caused real turmoil in real estate markets. not only did in some cases fema public inaccurate flood maps but these inaccurate maps could have completely wiped out the life savings of many middle-class homeowners and small business owners.
a resident of plaquemine parish lives in a home constructed at or above the nfip required elevation at the time of construction this person wrote me that his premium was increase from $600 to $28,544 for an insurance policy worth $250,000. this is one of the many nightmare scenarios that we heard about on a regular basis and that was fuelled largely by information from fema going directly to policyholders. it was clear the nfip needed a fix to prevent small businesses from truly unaffordable rate increases. in 2010, the nfip expired four times for a total of 53 days,
adding uncertainty to an alreadiage from skbril housing market and delaying or cancelling more than 1400 home closings everyday of that expiration. one of the major reasons for passi ining biggert-waters in t first place was to ensure no lapses in coverage. fema's fale implementation of this law actually priced policyholders with excessively high rate increases that would have created lapses in coverage for other reasons so congress acted in a bipartisan fashion to pass a permanent ledgety fgislax that provided by relief to homeowners. unfortunately, fema was not as quick to implement these reforms but under congressional oversight devised a plan to give overpayments back to policyholders as mandated by the new law. going forward, we need to find a
way to deal with the solvency of the nfip in a responsible way but at the same time not place this burden on the back of policyholders in an it's important to see how fema pays into the system.the nfip. it's important to see how fema pays into the system. i hope we can talk about providing stability for small businesses trying their best to a rate amidst rate increases and a track record of policy changes and executive orders, now let's get today's conversation started, again, i want to thank everyone for being here and participating. as always, we will invite any other members to commit opening statements for the record, that will be made a full part of the record but we as always want to get to our witnesses and hear from them and have plenty of
time for questions and discussion. our first panel is one witness, roy wright, the deputy associate administrator for insurance and mitigation at fema. in this capacity mr. wright is responsible for fema's risk management mitigation and insurance programs which includes the national flood insurance program. welcome, mr. wrights. good to work with you for several years. thanks for your ongoing work. we look forward to your testimony and to questions and discussion following your testimony. >> good morning and thank you, chairman vitter and members of the committee. it's good to be with you this morning. thank you for the opportunity to testify about fema's efforts to strengthen the national flood insurance program or the nfip and reduce the financial loss from damaged property caused by floods. after a disaster, it is crucial for a community's recovery to get local businesses back up and
running. these businesses are at the heart of a community. often where the residents work and get their resources. following a flooding disaster, having adequate insurance is a key part of a business's recovery. it's a powerful tool and often the only tool available to home and small business owners. some reports suggest that nearly 40% of small businesses don't reopen after a flood because they don't have the capital to rebuild, restock, or survive a sustained disruption. the nfip serves as the foundation for national efforts to reduce the loss of property from floods which are the most costly and frequent disasters in the united states. mr. chairman, as you know very well, flood insurance is a lightning rod in these halls. it is an imperative to so many citizens and the cost of insurance premiums hit the wallets of homeowners and small
business owners directly. the attention from congress brought about the passage of the biggert-waters flood insurance reform act of 2012 and the homeowners flood insurance affordability act of 2014. these acts direct fema to make changes to major components to the nfip. both biggert-waters '12 and homeowners flood in 2014 took on the prices of our grandfathered and subsidized premium rates. while each approached the sensitive subject in different ways, they both laid out congressionally mandated reforms, including reducing subsidies for existing policies for both resident shltd and non-residential policyholders until they reflect the true risk rate. about 6.8% of our current policyholders are non-residential, which includes businesses, nonprofits and houses of worship. nfip non-residential policies provide up to $500,000 for
building property coverage and $500,000 for business-related contents. the nfip policy allows a property owner to transfer their financial risk so that they can enable their recovery. before you can transfer the risk, you need to know you have a risk and the greatest single way to inform on risk is with a pricing signal. all this said, there's been a stickiness to the criticism of the national flood insurance program in recent years. since assuming the overall leadership for insurance and mitigation program last summer we've laid out priorities to change that in terms of how we change -- how we serve the customer and the product that we offer, improving how they understand their risks, reducing risks through effective mitigation, engaging private insurers and continuing to implement legislative reforms. given the attention to rates and our financial footing, let me highlight one of those elements.
the nfip's current $23 billion outstanding liability has resulted from premium subsidiei colliding with catastrophic events. so fema is exploring reinsurance as a way to improve theable if stability of the flood insurance program. we are working with the rey insurance industry on catastrophic flood modeling, gathering quotes to pilot insurance for the nfip and exploring how to build the cost of reinsurance into the program. we are also engaging private insurers on the primary market as we move forward. flooding disaster survivor cans recover more quickly and fully when they are assured against those losses whether they've purchachased that insurance fro the national flood insurance program or the private market. our priority is to ensure that as many citizens as possible are covered for flood damage, to that end, the coverage on the
private market must be comparable to what we offer through national flood and we need to be mindful of turning the nfip into the insurer of last resort without the resources needed to map the risk in the nation, support proper land use concerning flood hazards and have sufficient revenue to play claims. as directed by recent legislation, we are collecting data to begin assessment in film reforms and their impact on policyholders including small businesses. these data will feed into our work to design an affordability framework for the program due back to congress next summer. we continue to work with congress to implement a program that meets the needs of individuals, businesses and communities to protect themselves and their property from the most common costly disaster in the united states while being transparent about their true risk to support community resilience. i thank you for the opportunity to testify and i look forward to the questions from the committee. >> great, thank you very much
deputy administrator, i'll get started with discussion and questions. as you know, a perennial issue and problem in the program is the fact that historically something like only 60% of folks required to have flood insurance have flood insurance. obviously that makes a huge difference in terms of the financial soundness of the program. we've been talking about this for several years with other members i've been asking what are we going to do differently to get that way up well above 90%, in general the answer i've heard is, well, we're increasing the penalties for non-compliance. that always struck me as inadequate just to increase penalties on a piece of paper, most people are never going to hear about that.
what else has been going on and what is the actual record say over the last two years of the percentage of properties that have to be insured under law, being insured? >> a couple of points. what's important about this penetration rate and why it's so important is the higher that penetration rate goes the more people covered will help bring prices down. that's so imperative as we look at this. so we look at who is mandated under the law. it's those who have a federally backed mortgage. just the residential portion who have the federally backed mortgages. so we looked at the ranges -- i've looked at a number of studies. fema doesn't have a definitive number of structures we can count this against. we've done studies and the ranges can go from the 40s to 70% penetration rate so we start asking questions well, who's not covered? well, many businesses who
outright own their properties. people who own their properties outright aren't required as well as folks who have their mortgage not federally backed, some kind of state or local business. under the flood insurance act the responsibility for that enforcement explicitly does not reside with the federal emergency management agency. it belongs with the lending regulators. and we have provided by data to them, we have collaborated with them. when i talk with them, they say well, this is the standard part of the audit. i've spoken to bankers and lenders who tell me it is part of what goes on. yet i look at the penetration rates and they are insufficient. you speak about the penalties, those are implemented by the regulators instead of fema. i think to the degree that i've seen surges in people's insurance purchasing it's a point by which risks are understood, local government officials particularly help us
advance this and we see the synergy with the private sector. just last year some of it was tied to the pieces related to the potential for el nino flooding. we saw an increase of policyholders of more than 30% in the state of california because relined those three pieces together. so we have to make sure the product is there to buy and continue to work with the regulators. >> i don't want to cut you off but as you suggested, this is a big deal in terms of the solvency of the program in terms of pricing. >> no question. >> so has fema figured out a way to track whether there's been an increase over the last two years, three years, five years, what is the record over the last several years? is there substantial improvement or not in terms of those properties that have cob covered under law being covered?
>> so we somewhere anecdotal evidence that says that -- >> let me stop you right there -- >> that's off we have. >> i don't want to be rude but this is such a big deal why are we merely talking about anecdotal evidence and guessing? this is a huge factor in terms of the solvency of the program? why don't with have a meaningful way to track this to see if we're getting much better or not and if we're not -- which i'm certain is the answer -- do something about it? we are maintaining -- over the last year we've seen some growth in the mandatory purchase areas. much of the -- you spoke about the decrease in policies, much of that happened in the areas that were the mandate was not in effect and some of that is tied to the $250 surcharge that was included. >> just to be clear all i'm talking about now is mandatory. so what's the percentage within
mandatory of compliance? >> i understand your point. when we went to the national academies of science and asked them to look at this question for us they showed us a range. i am committed to see the numb gersh go up and the actions we can take there and we will redouble our efforts to give you better numbers. >> you mentioned you're not in charge of compliance far. >> correct. >> in this reauthorization do you want power to make that happen? because it sure as heck affect things you have to deal with like solvency of the program. >> i think fema needs to have a -- has a role to play in this space. it comes from a pure enforcement perspective i do not have a team of auditors who go across the country looking at the lending books whereas the regulators already do. i think that's why it's always been assigned to them but it's not producing enough of the outcome so some adjustments need to be made and we are willing to
collaborate with those other regulators. >> can fema think about specific suggestions beck potentially put in a reauthorization to get this well above 90%? i don't know exactly what those are, they may involve the present regulators, fema, others but thus a huge problem. >> it's already on my radar screen. i will take this back as something we need to deliver better for you. >> great. senator scott? >> thank you, mr. chairman, thank you, mr. rigwright for be here. south carolina had a thousand-year flood in october and we certainly appreciated the response of fema. i had the opportunity to go into parts of south carolina that have traditionally not been hit by flood challenges and go to door in communities and see the devastation firsthand and certainly appreciate having a fail-safe -- a position by the government to help out when necessary. i think it does, however,
highlight chairman vitter's concern about the fact that we have a disaster assistance program that doesn't compel or incent people to participate in some premium, some offset of what they anticipate as the federal government's response. very problematic, number one. so i would love to hear what you think would be positive or constructive ways to incent folks to do something that obviously they have no incentive to do, number one. number two, i spent about 25 years in the insurance business and 18 to 20 years selling flood insurance. when you talk about a premium going from $633 to $23,000, there's probably an issue of the original program 633 and without question a bigger issue of the premium of $23,000. so the process of rerating communities is an important
consideration but maybe it was improperly rated initially. case in point, myrtle beach, south carolina. here's a community that during the 1,000 year flood there were thousands of homes that were not impacted by a thousand-year flood that according to the new maps coming out there will be 35,000 homeowners required to buy flood insurance in areas where there hasn't been a flood so it brings into question how we're mapping, where we're mapping and is it accurate? and in the 90-day period to respond it seems to me that a
longer period to dispute what the nfip comes to as a conclusion would be helpful. >> let me start with south carolina. i spent a lot of time with your insurer following the event. i think there are interesting corollaries we learned in south carolina. a hundred thousand households registered for individual assistance under the stafford act programs, 32,000 of them qualified. we paid flood insurance claims on 5,200 households. that's a big gap that it was there and it wasn't because the maps didn't show the area at risk. and i spent some time in the communities in the homes as we were going through this and many of the neighborhoods in that area around columbia were rental properties. there was no mortgage. the landlord didn't have flood insurance and the renter didn't
by contents insurance. but here's the fundamental difference. the average payment on individual assistance in south carolina was $4,500. while that gives a hand, it does not put anyone back. the average on the flood insurance claim was $25,000, you can rebuild things, you can put them back, so we get in this kind of space where i saw the power of it and we're working with commissioner farmer in terms of ways to see the insurance takeup rates move and i became particularly interested in the renters who didn't have coverage in this instance. you talk about the rating element and the two extremes related to those prices. the original rate would have been one of those subsidized or grandfathered rates. that's how they have something sitting in that 600 range. and we can debate the 23,000, but one of the provisions in
biggert-waters legislated an actuarial practice which is something i think we need to be leery of doing and it required us to concentrate the risk as opposed to mutualize it which is the way that insurance normally works. and so we awe those extreme rates begin to play out. well, let's talk about the maps. as i've sat with some of the scientists -- i'll take the thousand-year event first. the hydrologist i worked with, we apply that to what columbia area experienced. i don't know the area in myrtle beach experienced that level of flow simply because myrtle beach would hit much more a coastal event theirs was a lower return interval. their maps in south carolina are done by the state of south carolina. we provide the funding to the state who leads that mapping
effort in concert with the local communities so they have to meet our engineering standards but those dollars were put in the state to do the work to make sure that we had the best data, drive towards accuracy and throughout the process, you highlight the last 90 days which is codified but the mapping process with the communities lasted for than four years with a series of public meetings. i don't know that we always get the right people in those meetings and we are working to make sure that just across the board how do we get -- not only just local elected but business leaders in the community engaging with us. if there are better answers, i want to know about them. but those maps are done in a way so that we do have something that is credible when it's done. >> last point before -- >> thank you, tom. >> thank you, mr. chairman. on the point of reinsurance. you guys are going through the process of engaging hopefully successfully in finding
reinsurance which to me seems to be a no brainer and a necessity, something that could have been, should have been hopefully in the past considered. i'm a little surprised to say it kindly that we have not had that process previously. >> i can't speak to why my predecessors did not pursue reinsurance, what i can tell you in both -- particularly in the homeowners flood bill we were clearly directed to get to this, which we did and i'm on a course -- i'm sending a lot of time with the reinsurance community. i can never afford reinsurance to the full level of what i may experience. >> and no insurance company ever does. >> exactly. but i began to look at these pieces about if i have my premiums on hand, we have about $3.5 billion a year worth of premiums that are brought in, we
have expense wes pay for out of that. i have a we serve fund in place by the end of this year, we should be close to $2 billion in that and then put a reinsurance layer on top of that, it would be inappropriate for me to influence the markets on the front side of that but you can imagine a layer of $4 billion to $7 billion that would sit there initially. if i had that in place i would have not borrowed money after sandy. i would have had the layers in place and there's clearly dollars available in the reinsurance markets today, there's an eagerness in to come into this place. there are a series of legal procedures i have to walk through but i have publicly said and i will say here it is my aim to be able to have reinsurance placed and secured in calendar year 2016. >> the taxpayers will benefit tremendously from that notion
given the true cost savings and the number of catastrophic occurrences around the nation and the definition of a flood zone today be so expansive, the ability to find that reinsurance is a real cost savings to the taxpayers and policy holder. >> i have to make sure i have the means that -- i have to build that into the price so that we can afford that reinsurance. >> mr. chairman, that's a conversation we should have at some point in the future since my time is up. but the difference between the price of something and the cost of something can be different. >> understand, i would be happy to engage in that way. >> thank you, senator. senator rubio. >> thank you, mr. chairman, i'm sure you're aware that florida is no stranger to floods. i think at last count nearly 40% of the national flood insurance program policies come from florida. i think it's the largest state contributor to the program. in fact, people in florida pay four times more into the program than they receive in claim payments. they have numerous businesses,
insurers, constituents, local governments are expressing a tremendous amount of concern over not knowing how fema determines actuarial premium rates. what are fema's plans for updating disclosure and transparency and how it determines the determination of the basis for risk premium rates. >> so it is true that to date florida has received payouts at the level they have paid premium. that was also true in new york and new jersey prior to 2012. so you know very well if a large hurricane hit miami-dade, hit the tampa area, there would be profound payments that would well exceed the kind of payments we saw in the sandy scenarios. i have been working with recently departed insurance commissioner there in florida because there's been an interest in how are we setting our rates
and some of them have asked me to disclose my loss history and what i've had to do is work under the privacy act. i can't hand all of that data over so i have sat with a number of the folks from florida and have begun to lay out a path given this reinsurance piece by which how can i go through the modeling in a way by which i can provide the data they want to see. we have released our actuarial practices guide but folks want to see more inside that on a policy-by-policy basis and we are working in tandem with this reinsurance effort to provide more data about the policies, payouts and pricing. >> you mentioned the office of insurance regulation and you remarked that fema is constantly reviewing and refining its rate setting method. so while you continue to refine this methodology, how will we
guarantee middle-class floridians and others who bear the brunt of these increases that their rates are not excessive, inadequate or unfairly discriminatory. what exactly is fema going to do to complete its guarantee of fair and equitable rates for the state of florida. >> if i set aside the part of my book that is the grandfather to subsidized rates, there's congressionally mandated subsidies and discounts i put in place. if i look at the actuarial part of the book we look at an entire class and we do meet the standards and we've been audited and review to say yes, these are actuarially based rates. what i have taken on this spring is an effort to take pieces that the national academy of sciences gave me last year and look at the risk rating methodology which i believe is antiquated, most of it rooted in the '80s and says we've got to advance
down this path. over the next two years i think we'll be able to demonstrate recognizable progress on that and i believe you'll see elements of transparency as part of that. >> well, one more point. pinellas county in particular which is in the tape region, it has more nfip policyholders than 43 states. it recently received an award for an initiative. they created an app that uses open data to better map the area's parcels with flood zones in order to save property owners potentially millions of dollars on premiums so that's an example of the kind of innovative solution that localities have the ability to create. how does fema plan to empower these initiatives such as the one we saw in pinellas county? >> i'm familiar with that. it's based on some data we put forward. we're moving the technology side at a national level and ensuring our data is open sourced. and you're talking about the flood risk data so that at a
local level they can push it forward through our mapping effort which is congress we appreciate has restored us back to the higher levels of funding that we had not had in the proceeding five years. we're making more of those investment ins the technology in the data. i'm particularly interested in ways by which i can take those data and set them soup that app developers can move them in the ways that best meet the needs of locals. >> okay, thank you. mr. wright, i want to have plenty of time for our second panel but i want to highlight three areas that we'll send you for the record and you can submit responses for the record. one is the north carolina program of putting the state in charge of mapping and they've used lydar among other technology and according to the national academies that's produced more accurate maps at
lower cost. i want to ask you what you think that says about what fema should be doing more broadly with regard to empowering states and/or locals as senator rubio said and lydar and new technology in particular and where fema will be moving with that. number two, in 2004 congress passed legislation to make icc grants available before a flood where there's an offer of pre-flood mitigation and as i understand it that's not being implemented by fema now so the question is why not and when is that going to be properly implemented? and number three i want your assurance about giving proper credit to all flood control features in an area which did
not happen in the recent past, certainly in louisiana. are we doing that now? we're ensuring all actual features on the ground whether it addresses hundred-year risk or lower is given proper credit in mapping? . appreciate that, sir, and we'll make sure we get back to you on all three of those points. >> great, thank you very much. now i'd invite our second panel of stakeholders to the witness table as they get settled, i'll introduce them. mr. kevin robles is coo in florida. he has experienced working for both private and public builders. he's held numerous roles within the tampa and florida home builders association including serving as president of the tampa bay builders' association
in 2011. lucille strauss serves as chair of the association of state flood plain managers sand the minnesota state flood plain manager from st. paul, minnesota. ms. strauss has been involved with the flood plain program since 2002 as a hydrologist in the twin cities area. mr. david mckey is broker and owner of coldwell banker one in baton rouge, louisiana. he's been a licensed realtor since 1992 working in the baton rouge market. he served as president of the louisiana association of realtors and is currently the vice chair of the national association of realtors insurance committee and mr. randy no noelle serves as the
vice chairman for the national association of home builders in new orleans. mr. noelle founded reeve in 1985 and has built more than 1000 custom homes in the greater new orleans area. he has more than 30 years of experience in the residential construction industry. thanks for your participation. you will skr five minutes to testify and any written material will be made part of the record. with that we're start with mr. roble robles. >> chairman vitter, ranking member shaheen and members of the committee, thank you for the opportunity to testify today. i'm a builder from the tampa bay, florida, market. my name is kevin robles. i'm here to discuss how drastic rate increases in flood insurance have affected the housing affordability and my company's ability to meet the housing needs of my communitily
specifically address the flood insurance rate maps and their impact on the housing industry, most of which are small businesses. in 2012, the passage of the biggert-waters brought on dramatic rate increases that have impacted home sales, rates doubled and tripled and homeowners were stuck paying for policies they could not afford. homeowners and builders saw the unintended consequences of the legislation, specifically on the grandfathered or pre-firm properties. these rate increases took place when the housing market was still in recession. florida, my home state, was one of the hardest hit. housing prices in florida fell 44% outpacing the national decline of 10%. today's housing prices remain 22% below normal. any negative changes have long-term unintended consequences for florida's economy. as a small business owner with
at least a quarter of my customer base as active or retired military i'm reminded of the need to keep housing prices affordable in florida for every 1,000 increase in the home pricing leads to a pricing out over 8,000 households. thankfully, congress have pass ed and fix misdemeanor of the problems and grandfathered premiums no longer immediately increased upon the sale of the home and fema is required to refund homeowners whose rates have increased. also, fema is required to notify the community affected and their congressional delegation before updating the new mapping models and they are required to reimburse policyholders or communities for successful challen challenges in maps. although there are many positive changes that have risen i would like to discuss the problems that builders and small business owners face when dealing with
flood insurance rate maps and their impacts on affordability. in florida there are large special hazard flood areas. it's difficult to avoid building in these flood plains. it can take months and cost hundreds of thousands of dollars to change the flood maps or elevate a property. inaccurate maps are problematic for builders, one of my builder colleagues owned a plot of land for years only to realize the land has been incorrectly mapped into a flood plain however this builder had an in-house engineer, funds to pay for the work and a staff who could fill out the application and work with fema. small business owners, particularly those trying to start their business don't have staff and funds at their dispose toole go through the labor intensive application and often complex application process. there have been cases of fema neglecting to factor in privately funded struck a which you ares or drawing in rivers and streams where none exist.
homeowners are being mapped into flad plains and fored to purchase flood insurance. it typically takes years for these mistakes to be fixed often requiring a process for the community builder and homeowner. thankfully florida has a year-long construction season but states with shorter construction seasons experience devastating costs and delays waiting for fema to approve their request. i would like to thank the chairman and the committee with the opportunity to testify today, the increasing costs of flood rates and lack of affordability and inaccuracy in mapping have long-term problematic effect. we need to ensure that the next nfip reauthorization is done thoughtfully to prevent the affordability concerns we have seen. >> thank you very much, mr. robles. now we'll turn to ms. strauss. welcome. >> good morning, chairman vitter and members of the committee. i'm glad to be here today.
first and foremost we must understand the national flood insurance program, or nfip, is far more than an insurance program. it also includes flood risk mapping, flood plain management regulations and a mitigation component to help reduce damage to older at risk buildings. this is a multifaceted multiple objective program, a four-legged school it's often referred to. long term, these four components of the nfip work together to reduce future flood damage and associated costs for businesses and land owners as well as taxpayers. the adoption of flood plain management standards by more than 22,000 nfip participating communities results in $1.7 billion in flood losses avoided annually affording to fema data. the mitigation program within the nfip, the incost compliance andicc and flood mitigation assistance have mitigated on
average 1850 buildings annually between 2010 and forty. the ithe nfip program needs to updated. we encourage making the program more fiscally sound, give bizes and homeowners more accurate messages about their risk and promote mitigation but flood insurance affordability was largely ignored in the previous two reform bills and must be addressed now. there are numerous innovative ideas to address flood insurance affordability and we will need to bring all of the tools, including those from outside the nfip to bear on this issue. affordment subsidies should support mitigation rather than subsidize insurance premiums only. our written testimony details the other priorities for the 2017 reauthorization. meanwhile legislation to promote
the growth of a private market is making its way through congress. asfpm recognizes the valuable contributions private sector brings to the table. in fact, the changes congress made in 2012 to promote private flood insurance market is working and we are seeing an emerging but vigorous private market that is interest and able to write first dollar flood policies. we have concerns with the proposed bill s-1679. in addition to other unintended consequences the two main issues are, one, the lack of a fee equivalent to the nfip's federal policy fee on private policies. this fee pays for flood mapping and flood plain management elements of the nfip. elements the private sector also depends on and, two, the lack of a provision to assure private policies for mandatory purchase would only be sold in nfip
communities. asfpm is strongly opposed to schemes that regular gait the nfip to a residual market or market of last resort. floods are the nation's most frequent and costly natural disasters. the recovery from major flood disasters often takes years and affects homeowners, businesses, schools and others, impacting local economies and social kr l resilience. small businesses which are the economic engines for most communities need immediate access to funds for repairs, replacement of inventory and/or equipment as well as mitigation of future disaster losses. analysts report that of small businesses affected by floods that cannot reopen within a month, 50% will never reopen. as flood losses increase, the nation will continue to need a
rebowes fiscally strong n ffip reduce flood risk. thank you and i would be happy to answer questions. >> now we'll turn to mr. mckey, welcome. >> thank you, chairman vitter and thank you for the opportunity to be here today. my name is david mckey, i am the managing broker of coldwell banker one in baton rouge, louisiana, your home state. i'm here to represent the views of 1.1 million members of the national association of realtors. as voice chair of the insurance committee, 2013 president of louisiana realtors and a small business owner i bring a unique perspective on the need for flood insurance. sha chairman vitter, realtors appreciate your hard work last congress, you were one of the original team of senators and house members that drafted the
own owner flood insurance affordability act. i'm pleased to report the affordability act has succeeded in reining in the most inaccurate rate increases across the country. while the act resolved the most immediate and pressing issues, a few remain we'd like to bring to your attention. the affordability act claire nice that small business rates will increase no more than 25% a year. even at property sale. this resolved some ambiguity in the biggert-waters law and provided by clarity fema did not. since then, nfip rates have been gradually increasing. however the market has calmed and real estate transactions are moving. the law did not, however, eliminate the threat of $30,000 flood insurance. under the affordable act, rates keep escalating 25% eacheer until property owners reach the
full-cost rate. the problem is property owners have to prove the full cost before they can get off the escalator. some small businesses may be stuck paying too much already. most are not being informed they could pay less if they provide an elevation certificate. some are afraid they will pay a hundred or thousand dollars for an elevation certificate and either their rates will not change or they may possibly go up. what's worse, we don't know how many small businesses or r facing extreme flood insurance rates at the top of the escalator. fema does not collect elevation data on structures built before the first flood insurance rate maps. without this data, we do not know the scope of the affordability issues in the program or funding needed to solve the program, nar as several recommendations i would like to share with you.
congress needs to act before september, 2017 when the nfip sunsets. nar urges congress to reauthorization the program on time for a minimum of five years, shorter term extensions only exacerbate the market uncertainty and will disrut property sales where flood insurance is required for a federally funded mortgage one million nfip insured properties are not yet paying full cost, the more these properties that are mitigated, the lower the nfip rates will be and the less the taxpayers will be exposed to future borrowing. while the federal government already provides substantial mitigation assistance, most property owners cannot assess that assistance until after the property floods when costs go up and funds won't go as far.
nar encourages congress to look government wide at all mitigation programs too find ways to pool resources, allow access before flooding and head off unaffordable nfip premiums while there's still time and the lower cost options are available. realtors believe private insurance alternatives can provide a complement to a strong and vibrant nfip. the combination of private market options and a strong nfip will insure flood insurance remains available in all market at all times. we urge the senate to take up and pass hr-2901, the flood insurance market modernization act and allow consumers to shop around for comparable coverage. fema's attempt to publish reasonably accurate flood maps based on available resources -- fema attempts to public
reasonable and accurate insurance maps based on their resources, the agency relies on property owners and communities to spot inaccuracies, appeal maps and provide the data and analysis needed to support corrections. the state of north carolina, on the other hand, uses lydar collect that data so property owners won't have to buy elevation certificates. based on the information nar has gathered so far. using lydar to map the nation would take a modest investment by congress to produce benefits that are four to five times the cost. with that data, not only would fewer property owners have to appeal but also it would give congress the elevation data it needs to determine and address affordability issues and next year's reauthorization bill. i do want to thank you for the opportunity to testify today
. realtors look forward to working with you and congress to get the renewal of the insurance program before september 30 of 2017. this is incredibly important for my state of louisiana and i think very important for the country. thank you. >> thank you very, very much mr. mckey. now we'll turn mr. randy noelle. >> thank you chairman vitter and senator rubio for the opportunity to testify today. my name is randy noelle, a home builder from la place, louisiana, i'm also the chairman. nahb has a long history of support for the nfip. many thought biggert-waters would ensure the fiscal soundness of the nfip. however there were major
consequences to the housing industry. biggert waters impacted the sale of prefirm and grandfathered properties by triggeri ining an immediate shift to full risk rates. with premiums increasing by 25% of the full risk rate each year. across the country, builders witnessed how drastic rate increases were negatively affected home sales and saw rates increase 10 fold over what homeowners were previously paying. one louisiana buyer bought a home only to realize flood insurance rates increased from $400 to the full risk rate of $13,000. this problem wasn't only affecting home owns, i had a friend of mine who had a small home building business in louisiana and his insurance rate on his office building went from $400 -- $4,000 to $40,000. one neighborhood near my home in st. charles parish became
devalued because of flood insurance rate increases, they were required to build 11 feet above the ground because they had a privately constructed levee for 70 years that never flooded. however the levee wasn't maintained by the corps and had been there for 70 years, mema wouldn't have credited the levy. after bw-12 was enacted, home oerns in tha owners were paying between $12,000 and $17,000. they couldn't sell their homes, they couldn't make their payments. the community mailed fema the keys to their homes. they told fema to keep their keys because the homes were worthless. the rate increases from v a direct impact on small business home builders. although the brunt of the effects are inexperienced by those who purchase older propertys the trickle down effects prevent move-up buyers
from purchasing newly constructed homes that are more resilient and build to higher building standards. if buyers aren't able to sell their properties and move into the newly constructed homes it puts home builders businesses in jeopardy. 2. rate increases also affected homeowners who wanted to make renovations the. substantial improvement threshold was decreased from 50% to 30% of the market value of the structure. this provision represented a major deterrent for grandfather property owners located within the special flood hazard areas such as adding energy efficient updates or strengthening homes against wind mitigation. at the risk of paying significant premium increases. once they reached the threshold, they were required to raise the home to comply with the base flood elevation. under your leadership, congress acted quickly to change the many unintended consequences of biggert-waters.
the homeowners flood insurance affordability act no longer triggered the immediate increase for prefirm or grandfathered properties and fema was required to provide refunds to eligible profits whose nfip rates increased. ie diggsly, the important substantial improvement threshold was restored giving homeowners the ability to make needed renovations without risking increasingses on their flood insurance rates. nhb estimated in 2014 there are $755 million more in new construction and $361 million a year in additional remodeling. just recently housing was reported to represent 15% of the gdp. it's critical that this industry stay in business. home builders live and work in their communities. we see the effects of flood insurance rates in our personal and professional lives. i would like to thank the
chairman and senator rubio for the opportunity to testify. hearings give us the opportunity to learn from mast mistakes. we've long supported common sense changes to the nfip, we urge congress to consider any reforms to be done thoughtfully so the program can protect small business owners and homeowners from the exorbitant rate hikes we've seen as a result of biggert watters. >> thank you. senator rubio has another commitment so he will start the questions and diskugsz. >> thank you, mr. chairman, appreciate the indulgence. mr. robles, thank you for being here. mr. roebls is a floridian, he came up to washington to testify on? important topic. let me ask you, were flood insurance premiums as high today when you first started your business, would your business have been able to grow the way it did? >> certainly not. certainly not. spes leshl why when you have a
limited amount of resources. the home building business is very entrepreneurial in nature and very cash intensive and anything that's a threat to the afford kt of housing is a threat to the essence of what we do so no it would not be able to. >> and being in the tampa bay region you have a unique perspective that you bring to this panel and that's your business's work in constructing homes for the active duty service members that are there in the different facilities. what kind of challenges have you seen these -- america's servicemen and women face due to these premiums? >> it's a very unique challenge. we do 25% to 30% of our business among teasehe active and retire military. there happens to be mcdill air force base located geographically which attributes $6 billion to the local economy. however there's a housing crisis within the air force base, based upon its uniqueness of being
attached into an urban setting and unfortunately for the active military who work off of base housing allowance, any increase in the flood insurance rates severely impact their ability to find housing within that area and fundamentally it's a double edged sword for them because if they're not a candidate for a home purchase even the rental market is further exacerbated because obviously rents go up quite significantly and they pass that cost on the the active servicemen. and some have requirements they been within x distance of the military base, based upon what their particular assignments are. so it's especially oppressive for active military. >> you mentioned the cost of elevating a property or making a change to a flood map. how do inaccurate maps affect afford snblt. >> well if i could equate every
eight inches -- in my particular business every eight inches of inaccuratesy would equate to almost $6,000 in hard costs. >> mr. mckey, one of your recommendations for reforming the nfip was encouraging the expansion of the private market options. so i'm a co-sponsor of the flood insurance market parity and modernization act.