If the average premium is $300 and all 11 million structures at risk were insured, the yearly premiums would total 3.3 billion dollars. I submit no storm event would ever deplete this fund. However, this bill does make improvements to enforce compliance and that's encouraging. It doesn't take a rocket scientist to see that by increasing the pool, we'll spread the risk and keep the program solvent. Florida's policy holders comprise 43 percent of the entire program, well over a million policies. We know and understand the value of flood insurance. Not only that, but for every dollar paid out in claims, we have paid in $1222! This has been an extraordinary return on a very good investment. It's a fact, that Florida's premiums have paid the claims for a large share of the other policy holders. To a great degree, Florida is the NFIP. We have willingly paid out these premium dollars because it is an insurance program. Now, with S. 1405 we are shocked at the attempt to turn a viable and selfsupporting insurance program into a Federally-backed land grab. Make no mistake. If this bill is passed with its highly controversial and scientifically unreliable erosion zones, it will be a disaster for our tax base. How can this be? Well, virtually all of Florida's coastal properties will be in the 30-60 year zone and because of their high real estate values they generate enor mous tax revenues. Legislation like S. 1405 that impacts the tax base resulting in the ultimate loss of a coastal property's insurability will cause a corresponding loss of the property's market value and ability to be mortgaged. This bill denies flood insurance to new construction and will cause the ultimate removal of insurance to existing structures in the 30-60 year zones, in which, I remind you, virtually all of Florida's coastal properties exist. This will cause their value to plummet, and with no market value, property assessments will also go south. Florida is the original condominium State. This bill and its restrictions pose insurmountable problems for our condos. If one first or second floor owner receives the limit in claims and his flood insurance is denied, the entire master policy for the building will be cancelled. Without insurance, all FDIC mortgages will be called. Many retirees will suffer dearly, all because of these zones. Also, how does a condo comply with the regulations to elevate and be "readily movable" following storm damage? It's interesting to note that our property appraiser, Mr. David Nolte, has determined that the coastal properties of Indian River County generate over $48 million dollars in tax revenues. This is over 43 percent of our entire county budget. This money funds our fire and police protection and constitutes 26 percent of our entire school budget. In our small county alone, he has estimated that the cost in lost tax dollars would have the same effect as a Hurricane Andrew each and every year! If this income is no longer generated, everyone on the Mainland will have to make up the difference. I submit that this bill far exceeds its intent if it ends up raising taxes on everyone who doesn't live on the coast. Because Florida has the greatest amount of policyholders and an excellent, non repetitive claim record (unlike the riverine areas), we feel that the intrusion, no, the violation of our property rights by the Federal Government mapping these 30-60 year zones will guarantee significant and time delaying litigation. Let's examine mapping the 30-60 year erosion zones. All coastal engineers agree on one thing: that erosion is neither predictable nor standard. Furthermore, it's proposed to use a baseline reference feature from which to measure erosion that's not even fixed. It makes no sense to use a physical landmark like a dune crest or vegetation line that's subject to shifting by wind or water. We suggest that spending 25 million dollars of our premium money on a mapping program that's not scientifically valid is wasteful. Enter now the 30 year zone of erosion. Why 30 years and not 18 or 22 years? Because that's been the life of a traditional mortgage. Thirty years has no scientific basis as an erosion factor yet this bill is arbitrarily using that number and then doubling it to penalize virtually all of Florida's coastal tax base. We see no place in a successful insurance program for such a land management intrusion, especially in Florida, the leader in coastal zone management and establishment of construction setbacks. In fact, our enforcement of coastal building standards have resulted in these structures experiencing 78 percent less damage than those not built to the same specifications. Mr. Chairman, we heartily applaud: • The new banking regulations to mandate compliance, But we strongly oppose the arbitrary and scientifically unsubstantiated creation of erosion zones that will destroy property values, tax bases, and property rights of the hundreds of thousands of Americans living on our coasts. In view of the current Mississippi flooding, the financial consequences of this proposed legislation cry out for further review and study. We are very worried that if a storm doesn't get us, the government will. We urge you to not let the government do us more damage than a storm. Mr. Chairman and Members of the committee, the National Association of Professional Insurance Agents is one of the largest national trade associations representing independent insurance agents, brokers, and their employees throughout the United States. PIA National members own and operate their own agencies. PIA members sell and service all kinds of insurance, specializing in coverage for autos, homes and businesses. As independent business people, PIA members can provide consumers with coverage from several insurance companies. PIA National is a member of the Flood Insurance Producers National Committee (FIPNC) which is composed of independent agents from PIA, the National Association of Casualty and Surety Agents (NACSA) and the Independent Insurance Agents of America (IIAA). Mr. Chairman, we commend you for introducing and conducting this hearing on S. 1405, "The National Flood Insurance Reform Act of 1993." This measure certainly sets a new precedent as the most extensive overhaul of the National Flood Insurance Program since 1973. It also is the first measure ever to include substantive penalty language to the regulatory requirements. GREATER COMPLIANCE WITH FLOOD INSURANCE MANDATORY PURCHASE REQUIREMENTS From 1968 until the adoption of the Flood Disaster Protection Act of 1973, the purchase of flood insurance was voluntary. Unfortunately, despite the availability of the insurance, after major flooding disasters in 1972, it became evident that relatively few flood victims had purchased flood insurance. From the standpoint of the Federal Government, the question has not been whether the Federal Government would be called upon to provide relief, but rather, through what mechanism would Federal funds be made available. There are two very important provisions of the 1973 Act that set the debate for review of the National Flood Insurance Program. First, the Act required the purchase of flood insurance as a condition of receiving any form of Federal or Federally related financial assistance from any Federal office or agency for acquisition or construction purposes with respect to any building or mobile home located in any area that has been identified as a special flood hazard area, within any community participating in the National Flood Insurance Program. Secondly, the Act required Federal Financial Regulatory Agencies or Federal Instrumentalities to direct lenders subject to their regulatory jurisdiction to require borrowers, whose security consists of buildings or mobile homes located in a special flood hazard area in a participating community, to purchase flood insurance. Although we agent groups have not conducted research to determine the exact percentage of non-compliance within the lending institution of property portfolios, we do know it exists. That is why we are so very pleased with Title II of S. 1405, the section entitled Compliance and Increased Participation. We have always shared the view that greater compliance with flood insurance mandatory purchase requirements should apply to lending institutions insured or regulated by the Federal Government and should include the secondary market. With a majority of mortgages being sold or resold to the secondary market, this is an area where we are seeing real challenges to the compliance requirements. Again, we are very pleased to see that these provisions are dealt with in the language of Title II, section 204. Without a doubt, the major weakness of every comprehensive flood insurance measure has been the lack of stringent civil and criminal penalties or liabilities for non-compliance. PIA National has worked for many years to add these types of provisions to flood insurance reform proposals, and we support the imposition of civil penalties contained in section 207 of Title II. Not only are these provisions imperative to a successful flood insurance program, but the oversight of these compliance requirements are also vitally important. In reviewing the language on compliance in S. 1405, we think it is imperative to raise our concerns with compliance language contained in two bills introduced on August 4, 1993, by Senator Inouye (D-HI), as S. 1350, and in the House by Representative Mineta (D-CA), as H.R.2873, entitled the "Natural Disaster Protection Act of 1993." In it, the responsibility for enforcing the mandatory purchase requirements-which currently rests with the regulatory agencies supervising the lending institutions-would shift onto the shoulders of independent insurance agents and brokers. It is our belief that this language has clearly not been thought out, and would impose requirements on an industry who clearly has no direct financial interest. Through our involvement with FIPNC, we raised these concerns, and are currently working to amend this specific legislative language. Another area which concerns us is the issue of waiving the flood insurance requirement. Recent proposed legislation specifically prohibits this practice for any reason. We agree with this policy, and think it should be included in S. 1405. While the argument can be made that laws cannot be waived, in the lending community, it is not uncommon to waive required insurance coverages such as Collateral Protection for consumer loans. By doing this, the lender has assumed the risk through self-insurance. This is not an option for flood insurance, nor has it ever been. It is PIA's belief that we need a legislative clarification of this problem for lenders. NOTICE REQUIREMENTS/SUGGESTED LANGUAGE A more important decision under S. 1405 is really not whose responsibility it is to notify borrowers (because the Flood Disaster Protection Act of 1973 specifically places it on lenders) but on why there is minimum compliance to the mandatory purchase requirement. PIA has always recommended that all lenders in addition to informing clients up front about the need for flood insurance, also use language in their settlement procedures and papers which allow them review and adjustments in the future on secured properties. A large number of lenders' closing material specifically state that the property in question is not in a floodplain/zone and does not require flood insurance coverage. Such definitive statements may very well cause problems for lenders in the portfolio reviews both in terms of passing the costs on to the borrower in question and subsequently placing an additional condition on said borrower for the property in question (a condition which is in conflict with the specific language of the loan papers). Here is sample language that would provide the lender with more flexibility and the borrower more clarity: At this time you have been advised that your property is not in a Special Flood Hazard Area (SFHA). Therefore, you will not be required to secure a flood insurance policy as a condition of your loan. However, as a regular practice, this lending institution conducts periodic reviews of its loan portfolio book to determine if any errors in property /hazard assessments/evaluations have been made and/or if any conditions relative to the property's interests have changed. Such cost of review, should your property be included, will be charged to your escrow account. Further, should conditions relative to the insurance requirements of this loan change, you will be notified x number of days from the date of portfolio review; the changed conditions shall be specified with instructions as to how these conditions can be met, and a period of x number of days will be given to you in order to comply. Such language allows the initially misrated property to be picked-up and allows properties which at origination, were properly rated but because of community action may now have a flood exposure, to also be applied. For the mutual benefit of lenders and insurance agents, PIA recommends that lenders should have the same account number for the borrower's loan in all insurance policies that are required by that lender. INCREASED HAZARD MITIGATION AND EROSION MANAGEMENT PIA fully supports the termination of the erosion-threatened structure program or the so-called "Upton-Jones Amendment." We have always supported Representatives Upton and Jones in their efforts to achieve pro-active and effective floodplain management, rather than relying solely on municipal action which in the past has been defective. They have attempted to provide the incentives directly in the hands of individual property owners. While we encourage the Federal Government to become more involved in pre-flood damage reduction measures, we are glad to see the drafters of S. 1405 realized that the program is unworkable and has not accomplished its goal of relocation. NFIP statistics show that nationwide, homeowners chose demolition rather than relocation. There is also a significant risk of fraud with the Upton-Jones. The provision is not insurance per se. Those that buy a flood policy for the coverage are in fact people who will need to use it. Insurance is a transfer and protection for the potential loss, not a known and impending one. COMMUNITY RATING SYSTEM PIA is pleased to see the inclusion of the Community Rating System (CRS) in S. 1405. CRS is a unique Federal-State initiative which provides greater protection against flooding while reducing flood insurance premiums for policyholders. It is a major tool in NFIP's goal of actuarial soundness. Flood insurance rates will more accurately reflect the risk of flood damage to individual buildings. The CRS community classification reflects the flood loss potential of communities and by increasing |