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ESTIMATE OF COST TO NFIP FOR 'CRITICALLY ERODING SHORELINE' FROM

1978 THRU 1992

Senator John F. Kerry's office disseminated a report titled "Answers to Commonly Asked Questions" on S. 1405 dated Aug. 4, 1993. The report sited a 1971 U.S. Army Corps of Engineers report that classified 3.2 percent of the coasts of the Atlantic, Pacific, Gulf of Mexico and the Great Lakes as 'critically eroding'. Later on the same report states. "inferences may be made that the V zone and the erosion zones would be one and the same'." Frank Reilly, recently retired Deputy Administrator of the NFIP, stated in a June 27, 1993, Boston Globe article that $4.3 billion has been paid in claims for the entire program since 1978. The Federal Insurance Administration stated in a June 22, 1993, information packet that the V zone (Coastal High Hazard Area) accounted for just 5.7 percent of the nationwide claims since 1978.

Our projections for the costs of erosion to the NFIP are based on the figures above.

Here is the math:

From 1978 thru 1992

5.7 percent of $4.3 billion

[blocks in formation]

3.2 percent of $245,100,000 = $7,843,200 Cost of 'Critically Eroding Shoreline' Our projection is based on the assumption that the entire 'critically eroding shoreline' designated in the 1971 U.S. Army Corps of Engineers Report of the National Shoreline Study eroded over the past twenty-two years.

RECOMMENDED EXPANDED REPETITIVE LOSS DEFINITION

We recommend expanding the definition of a 'repetitive loss structure' in S. 1405 by adding to the end of Sec. 102(a)(15) p. 12, line 2. .

We Will Supply Our Definition at a Later Date

It is important to note that classifying as a repetitive loss structure triggers the payment of mitigation monies from the NFIP fund. The definition of repetitive loss must strike a balance between mitigating for repetitive loss and weakening of the financial soundness of the fund by paying out too much mitigation money too fast. It is with this consideration in mind that we recommended that the expanded definition to include multiple smaller losses use the 100 percent criteria rather than the 50 percent criteria.

We would also note that our recommended definition does not address the potentially serious problem of large condominium complexes classifying as repetitive loss structures. Elevating condominium complexes to meet the FEMA guidelines for rebuilding after a loss will, in most cases, be structurally impossible. If the condominium complex falls out of compliance with FEMA guidelines, then cost of flood insurance for the owners would become unaffordable. The costs to the Nation's retirees, many of whom moved south and invested retirement funds in condominiums, would be devastating.

TESTIMONY OF ASSOCIATION OF STATE FLOODPLAIN MANAGERS, INC. INTRODUCTION

The Association of State Floodplain Managers, Inc. is the only national organization of professionals responsible for managing flood-prone areas of the Nation. We represent agencies and individuals who implement State and local floodplain management programs which are guided by minimum standards established under the National Flood Insurance Program (NFIP). Members are also active in flood hazard mitigation and other State and local programs to reduce and prevent flood damage. Including its 12 State and regional chapters, the Association represents over 1,800 professionals, consisting of State and local planning, engineering and emergency management staff, elected officials, consultants, academics and scientists. Congressional Interest in the National Flood Insurance Program

Significant Congressional and public attention has been focused on the National Flood Insurance Program and ways to strengthen, improve, and broaden it. Three major issue areas have been explored in detail:

(1) new and strengthened flood mitigation initiatives are needed, including mitigation insurance;

(2) additional efforts are needed to minimize future risks and losses due to flood-related events; and

(3) the Nation is underinsured against flood damage.

The Association congratulates Senator John Kerry on his active leadership in working with a large and diverse group of interests. Other members of Congress have contributed significantly to the legislation. The result is a well-developed legislative proposal that addresses the three major issue areas in order to strengthen, reform, and improve the NFIP, and to reduce flood hazard vulnerability of the citizens of the Nation.

The over-riding objective of the Association's recommendations to Congress has been to reduce the private and public economic impacts of flooding, while strengthening the National Flood Insurance Fund. It is also recognized that programs to accomplish these goals will go far towards ending the human suffering that flood disasters leave in their wake. We look forward to being an active partner in the development of initiatives. Our partnership with the Federal Insurance Administration will continue during the implementation of proposals to be formulated through this process.

SUMMARY OF SUPPORT FOR S. 1405

The Association of State Floodplain Managers Enthusiastically Supports S. 1405, the National Flood Insurance Reform Act of 1993

This legislation represents a progressive and aggressive approach to flood mitigation, loss reduction, and lender compliance. Enactment will move the Federal Government out of the traditional insurance program mode of "repair and restore" which results in continued exposure of buildings and citizens to floods, and continued exposure of Federal, State and local treasuries to flood-related expenses. SUMMARY OF How S. 1405 ADDRESSES MAJOR ISSUE AREAS Flood Mitigation Initiatives

Title IV of S. 1405 creates a well-designed mitigation assistance program for working with States and communities. The emphasis is clearly on community projects. Cost-shared grants for mitigation planning will encourage a comprehensive planning process to identify flooding problems and a range of effective alternatives. Implementation of mitigation projects will be stimulated by the availability of cost-shared grants.

Section 602 of S. 1405 creates a component within the flood insurance policy coverage to address mitigation. Inclusion in policy coverage of the cost of rebuilding flood damaged buildings in compliance with land use and control measures imposed by States and communities will lead directly to the reduction of risk from future floods. A consequent reduction in the probability of future claims against the National Flood Insurance Fund will follow. This measure would have been of great assistance to property owners along the Mississippi who suffered total loss or substantial damage since additional insurance payments would have paid for the cost of properly elevating or floodproofing reconstructed and restored buildings. Many of the people recently flooded were also flooded in 1973. Mitigation insurance is winwin: not only are owners helped to protect their property, but the cycle of paying disaster assistance (and insurance claims) over and over can be halted.

Recommendation: The Association of State Floodplain Managers agrees with targeting severely and repetitively flooded structures for implementation of mitigation efforts. However, as currently constrained, mitigation insurance may not be fully effective in dealing with some repetitive loss properties, those buildings that account for an inordinate number of claims. Some repetitively flooded buildings file numerous claims, each for relatively small dollar values, but cumulatively totalling large amounts of claim payments. The NFIP should be directed to establish criteria for determining which buildings present cost-effective mitigation opportunities. While those criteria clearly would include substantial damages and the newly defined repetitive losses, they must also allow flexibility in dealing with other properties where mitigation is determined to be cost effective.

Risk and Loss Reduction Initiatives

Title III of S. 1405 authorizes the Community Rating System, a program of incentives that leads to reduced cost flood insurance in communities that undertake progressive floodplain management activities. Authorization is important so these communities can be confident that their efforts will continue to be acknowledged.

Section 604 of S. 1405 will assure communities that their mapping needs will be evaluated on a 5-year cycle. While restudies and remapping will be dependent upon the budget, the documented need for such efforts will help assure proper consideration for sufficient funds to accomplish this important activity.

Title IV of S. 1405 contains provisions to create an erosion hazard component within the NFIP. Erosion rates will be determined through evaluation of historical

records and State and local data. The rates will be used to establish areas that are reasonably predicted to be subject to erosion over 30- and 60-year periods.

Section 406 of S. 1405 prohibits the issuance of flood insurance on certain new construction within erosion hazard areas. The NFIP is founded on the premise that flood insurance is available to citizens in communities that elect to recognize identified hazards by adoption of building codes and land management standards. Lender Compliance Initiatives

Title II of S. 1405 addresses a number of provisions designed to enhance compliance by regulated lenders and Federal agencies that function in that capacity. Of primary importance are provisions that require escrow of flood insurance premiums by lenders already collecting fees in escrow, and the creation and requirement to use a standard hazard determination form. Improved lender compliance will broaden the policy base and assure that more flood-prone citizens are financially protected for the next flood.

BACKGROUND-NATIONAL FLOOD INSURANCE PROGRAM

The NFIP is based on simple quid pro quo principles. The Federal Government identifies hazard-prone areas, offers flood insurance for structures located in those areas, and provides financial assistance after flood disasters. In return, local jurisdictions agree to adopt and enforce floodplain management and building code standards that are consistent with minimum performance standards established by the NFIP. The reason for this balance is important: because flood hazard areas can be reasonably defined, it is reasonable to expect local land management and use decisions to incorporate such information in order to protect public and private property and human safety.

Floodplain management, and the balancing component of flood insurance, is part of the Nation's total disaster management strategy. Flood insurance is not simply a business program of premiums versus claims. A simple look at the NFIP's "books" does not reveal the full benefits of the program. In the 25 years of the program, hundreds of thousands of land management and construction decisions have taken into account flood hazards. This means that hundreds of thousands of buildings are either situated in flood-free locations, or are constructed to minimize future damage. The Federal Insurance Administration has clear and convincing evidence of the effectiveness of the building standards.

Mitigation-Demonstration of Need and Benefits

The Federal Insurance Administration periodically summarizes data on flood insurance claims paid on both repetitively flooded and severely damaged buildings. According to a compilation of claims data since 1978, 63,000 NFIP insured buildings have received 2 or more claims. These repetitive losses accounted for $1.9 billion paid out of the National Flood Insurance Fund. For the period 1980-1990, about 18,000 buildings were damaged more than half their replacement value, accounting for claims of over $438 million.

Flood insurance claims data provide some insight into the potential cost-effectiveness of mitigation measures. In nearly every State, there are several structures that have received multiple flood insurance claim payments totalling more than $100,000. Clearly, investing now to implement mitigation projects will avoid such large cumulative payouts in the future. This will allow the National Flood Insurance Fund to build up reserves in order to be prepared for the inevitable major hurricane striking densely populated areas, the next catastrophic flood along the Mississippi or other major flood-prone areas of the country.

A mitigation program, including an insurance mechanism, designed to help prevent flood damage on buildings subject to repetitive and/or severe flooding, even if only half of them have feasible and cost effective opportunities, has tremendous cost savings potential and will help stabilize and protect the National Flood Insurance Fund. It is critical to realize that the financial benefits of mitigation are long-term benefits. These benefits will not be obvious until the next flood, whether a frequently occurring minor event or a rare, major flood. The social and economic benefits of reducing exposure of private property to flood damage are also apparent, since more homeowners and business owners will be able to maintain more viable properties that do not diminish in value after every flood.

A mitigation program offers another long term benefit to all flood-prone property owners. Through implementation of projects targeted on repetitive and severely flooded buildings, fewer flood insurance claims will be filed and paid. This will significantly reduce the pressure to raise the cost of flood insurance. For these reasons, the Association supports the creation of mitigation mechanisms within the NFIP. We support reducing the costs of flood disasters, rather than continuing to pay citi

zens and businesses to just patch up our communities and wait for disaster to strike again.

The Future of the NFIP and Floodplain Management—Mitigation

Mitigation is part of the Nation's total emergency management strategy. Mitigation is a systems approach to the identification of present risk exposure, and the avoidance and minimization of future hazards. To date, the NFIP has worked to accomplish identification (through floodplain mapping) and avoidance (through local land management efforts). The component that has received less attention is minimization, or addressing older flood-prone buildings that pre-date the adoption of building standards.

The Association of State Floodplain Managers has long maintained that new and expanded initiatives are needed to solve many of the Nation's recurrent and severe flood problems. Floods cause a full range of damage, from wet carpets to entire buildings swept off foundations.

Dams and levees contribute to the protection of many communities, but they are expensive to build, operate, and maintain. As clearly seen in the Midwest floods, if these flood control structures fail or floods greater than the design capacity occur, results are more devastating than the damages that would have been sustained in their absence. These measures also lend a false sense of security, encouraging additional development behind levees or below dams. The era of major structural works to keep the water away from people is past. The future direction will be to seek technically feasible and cost effective measures that can be implemented on a smaller scale.

Mitigation measures that have been proven feasible and effective include acquisition of severely flood-prone homes with dedication of the land to public open space, relocation of structures to flood-free areas, elevation of buildings in places where flood depths and velocities are not threats to safety, and a variety of floodproofing measures designed to prevent or reduce damage. While the cost of acquisition is the purchase price of the property, most mitigation measures can be implemented for much less.

The Role of the States in Floodplain Management

All States have designated State Coordinating Offices to provide technical assistance to local jurisdictions as they fulfill their responsibilities to the NFIP. Nearly half of the States have their own floodplain management laws and programs that complement or exceed NFIP minimum standards. States often provide engineering assistance with identification and mapping of floodplains, consideration of flood mitigation projects, and evaluation of post-flood situations. Many States work oneon-one with local permit reviewers when complicated permit applications are received. Under FIA's Community Assistance Program, most States perform evaluation visits to assure that local jurisdictions are fulfilling their responsibilities to the NFIP.

The Role of Local Jurisdictions in Floodplain Management

The quid pro quo of the NFIP places a significant responsibility at the local level. Land use decisions are made by counties, towns and cities. The NFIP simply requires that those decisions be based on performance standards designed to avoid and minimize future flood damage. Local jurisdictions often find it advantageous to zone flood hazard areas for open space or recreational, greenway, and park land development. Many use floodplains to help promote protection of wetlands and enhancement of aquatic and terrestrial habitats fringing waterways.

The Role of Lenders-The Nation is Still Underinsured

As of January 1993, the Federal Insurance Administration reported a total of nearly 2.6 million flood insurance policies. This represents an annual growth rate of 3.5 percent, a considerably lower rate than experienced in 1991. Just four years ago the policy count was 2.1 million, a number that had been virtually unchanged for the previous eight years. What small growth that has occurred can be attributed to at least three influences: significant floods during the last three years; marketing activities of FIA and insurance companies in the FIA's Write-Your-Own partnership program; and Congressional interest and investigation into the performance of mortgage lenders.

Growth in the policy base should and could have been significantly greater. Since 1973, Federally insured and regulated lenders must by law require flood insurance on mortgaged structures that are identified as within the floodplain. The requirements are imposed at loan origination, and are to be continued throughout the life of loans. Unfortunately, despite nearly two decades during which there were active periods of real estate purchasing and refinancing, the number of flood insurance

policies did not increase. A few years ago, data indicated that nearly 400,000 new policies were written each year yet the total number remained constant. Clearly, many policy holders were finding it easy to drop policies, and the lenders were not checking for compliance with the policy retention requirements.

It is estimated that only about 15 percent of the Nation's 9-11 million flood-prone buildings are insured. The recent nominal growth in the policy base of the National Flood Insurance Program must be strengthened and continued. The Association considers the escrow of flood insurance premiums to be the single most important proposed measure contained in S. 1405 to accomplish this objective.

Flood Insurance Rate Maps-Management Tools

Flood Insurance Rate Maps (FIRMs) are prepared by the Federal Insurance Administration to delineate special flood hazard areas that are predicted to be subject to flooding by the 100-year flood event. The Association considers the FIRMs to be the foundation of local land use and management efforts. The maps also support the flood insurance side of the NFIP, as well as a number of environmental enhancement initiatives at State and local levels. The only way local officials can effectively manage floodplains is by having credible and accurate maps.

Many communities need map revisions and updates, especially in areas of rapid growth. Remapping must keep pace with technology and development in order for the NFIP to effectively continue to reduce flood damage. Computerization of the maps is an essential step, but it should not be seen as the solution to all mapping concerns. The Federal Government should protect its multi-million dollar investment in the floodplain map database.

Erosion Hazard Area Management and Mitigation

The Nation's coasts and Great Lakes shorelines adjust to the dynamic coastal environment. Some areas accrete through the deposition of sand while others lose ground to erosion. Some shorelines are sandy beaches, others are high bluffs or rocky in character. Along rivers, erosion is a much more complicated process that is not as well understood. Each erosion-prone type of shoreline or riverfront responds differently to natural and manmade influences. Erosion's impact on man is affected by whether buildings are constructed close to the water's edge, and whether the edge is eroding to the point of endangering that development.

Land management in general is predicated on wise use of land, not prohibition of all uses. In hazard-prone areas, wise use must recognize and account for the hazards. To do anything else ignores government's fundamental role in protecting public safety and welfare.

Flood hazard management is founded on the ability to delineate hazard areas, as well as the common sense to avoid those areas or to factor in the risks in the planning and construction of development that occurs within the floodplain. Establishment of Federal minimum standards for floodplain development, paired with local implementation of land use and building codes, is part of the foundation of the National Flood Insurance Program. This complementary system approach to recognizing and dealing with property damage and public safety risks has been accepted for over 20 years.

The current "Jones/Upton" provision of the NFIP provides certain property owners whose buildings are subject to "imminent collapse" with insurance claim payments to relocate to safe areas, or to demolish their homes. This program is not balanced. It does not require any recognition or management of erosion hazards by local jurisdictions. While one property owner may receive a flood insurance claim to demolish a home, the neighboring property may be approved for new construction right along the eroding shoreline.

The Association believes the balanced quid pro quo must be maintained if the National Flood Insurance Program is to address erosion hazards. The NFIP should determine historic erosion rates and establish erosion hazard areas as called for in S. 1405.

CONCLUSION

A progressive and aggressive approach to flood mitigation is needed to enhance the Nation's flood loss reduction strategy. We must move out of the traditional mode of "repair and restore" which results in continued exposure of buildings to floods, and continued Federal exposure to flood-related disaster expenditures. A mitigation grant program should be created within the National Flood Insurance Program, and mitigation insurance must be included in flood insurance policy coverage. Erosion hazard identification should be undertaken, and lender compliance provisions should be strengthened. These measures will lead to containment of the rising costs of flood damage, flood insurance claims, Federal disaster assistance, and innumerable costs at the State, local and private levels.

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