Several people have told me their agent gave them conflicting information as to amount of and type of insurance available. In at least one case the agent said the person did not need flood insurance. In another case the agent sold "contents" coverage when such coverage was not available. In still yet another case there were conflicts as to what is a "basement" in regards to whether or not contents could be covered. In summary, I would encourage expanding S. 1405 to clearly place the burden on the consumer once the debt or the loan is paid down. There must be a "penalty" for not carrying flood insurance. This bill clearly takes care of those homes where debt is large enough to cover a loss. However, as the debt is paid off the flood risk is still there. If the consumer is not carrying the insurance as is necessary then. The public and our government should NOT carry the burden for someone who: (1) knows they are in a flood plain and (2) fails to continue insurance coverage after a loan is paid down/off. If a person wants to assume the risk they should be allowed to and therefore should be prohibited form any state/federal grant or aid in relationship to a flood loss. The government should spend its financial resources on those taxpayers who did not have the opportunity to insure an unseen loss. I can't think of any greater incentive than that to insure a person carry insurance. I hope these short comments are helpful to the Committee. Tommy Thompson National Association of Home Builders 1201 15th Street, N.W., Washington, D.C.. 20005-2800 The Honorable John F. Kerry Washington, D.C. 20510 Dear Senator Kerry: The National Association of Home Builders respectfully requests that this letter be entered into the hearing record on S. 1405, the National Flood Insurance Reform Act held by the Senate Subcommittee on Housing and Urban Development on September 14th and 15th. As you know, I testified at this hearing over which you presided. Following my testimony on S. 1405, you questioned NAHB's opposition to Title IV, section 406 of S. 1405. NAHB opposes this section of the bill which would deny flood insurance, through the National Flood Insurance Program (NFIP), in "erosion hazard areas" for new structures seaward of a 30-year erosion zone and for new structures or additions to existing structures not "readily moveable" between the 30- and 60-year erosion zones. You raised the concern that the Federal government should not subsidize flood insurance for new structures built in erosion zones because of the consequential threat to the NFIP's solvency. However, this concern appears to be based on the premise that all structures insured through the NFIP are subsidized. This is not the case. rates. I responded to your inquiring by noting that new structures built within the erosion areas as designated by S. 1405 would not be subsidized but would be insured at full risk premium This statement is supported by Federal Emergency Management Agency (FEMA) documents. According to FEMA, subsidized insurance is provided to NFIP policy holders that insure buildings constructed prior to the publication of FIA's Flood Insurance Rate Map (FIRM). However, insurance is currently provided for new construction at full risk premium rates. The same FEMA document defines "new construction" by statutory prescription as "any property, the construction or substantial improvement of which has been started after December 31, 1974, or the effective date of the community's initial FIRM (for the area in which such property is located), whichever is later." "Housing Makes a Difference" As further argument in favor of denying flood insurance coverage for certain structures within "erosion hazard areas", you alluded to a common perception that the greatest percentage of repetitive losses to the NFIP are from coastal states. This is not completely accurate. While the states responsible for the largest percentage of repetitive claims are first. Louisiana. and second, Texas, which are coastal states, the majority of claims within those states are from riverine areas, not coastal areas. Again, according to FEMA statistics, "Repetitive losses are primarily riverine and stormwater, even in coastal communities. With the recent Nor'easters that affected Massachusetts and New Jersey, the amount of coastal repetitive losses has increased, but again, most are riverine or stormwater. Percentages are not available." NAHB urges you to revise section 406 to make flood insurance available for all structures. We believe that section 406, as currently written, contradicts the very public policy purpose driving the Flood Insurance Program and Title II of the legislation, which is to increase participation in the NFIP. Sec. 406, with its varying policies on the type of structures eligible for coverage, coupled with the ever changing nature of erosion zones, will be a bureaucratic nightmare to administer. Indeed, FEMA's opposition to section 406 is consistent with the position of NAHB. As FEMA testified before the Banking Subcommittee on Housing and Urban Affairs on September 15, 1993, it is concerned about the provision that would deny insurance in identified erosion hazard areas. As FEMA notes: We believe the strength of the NFIP has always been the leverage in the agreement between the participating communities and the Federal government that communities would enforce sound land use management in exchange for the availability of flood insurance. Actuarial premiums charged in these areas, coupled with a stronger mandatory purchase provision will help discourage unwise development. While insurance denial may seem to be the simplest was to discourage development in these environmentally sensitive areas, we question how effective a deterrent this really is. Again, we urge members of the Senate Banking Committee to incorporate our recommendations before the bill advances. Sincerely, CC: Senator Alfonse D'Amato Thomas N. "Tommy" Thompson STATEMENT OF GERARD STODDARD CHAIRMAN, THE LONG ISLAND COASTAL ALLIANCE The Long Island Coastal Alliance, founded in 1989, comprises individual property owners, coastal property owner organizations and coastal villages dedicated to economically and environmentally sound and equitable coastal management. Needless to say, coastal property owners throughout the country have a strong interest in improving the National Flood Insurance Program (NFIP). S. 1405, if amended as indicated in this statement, can be the engine to accomplish the needed change. WITHHOLDING INSURANCE FOR NEW CONSTRUCTION Section 406 of the bill would deny flood insurance for new construction in erosion hazard areas. This would be a mistake. The NFIP was created to provide insurance to property in floodplains, if those properties were developed in accordance with sound construction principles for flood prone areas. Denial of insurance controverts the basic idea of the program. Although intended to discourage use of certain properties, the provision is more likely to result in improper use, while reducing the number of properties contributing to the NFIP reserve fund. It is, in any case, improper for the Federal Government to supplant coastal communities' control over local land use decisions. The incentives provided for elsewhere in the bill are appropriate; federal dictates are not. While loss of premium income should be reason enough to reject this provision, the impact on coastal communities' ability to maximize real estate tax revenues is equally significant. Tax revenues will decline as appraised values reflect the restricted use to which the property can be put. Coastal communities frequently provide up to 60 percent of their county's real property tax base. This supports the county schools, highways, libraries and other services. To the extent the properties are seasonally used only, there is little demand on county services by the owners. But the tax base pays for services that are provided year-round to the rest of the county. Coastal communities' construction and real estate industries depend on the development and redevelopment of properties. To the extent withholding insurance removes properties from either marketplace, those industries will suffer significantly. Finally, Section 406 effects a partial taking, and so contravenes the 5th Amendment to the U.S. Constitution. When property is designated as being subject to destruction in 30 or 60 years, there is an inherent diminution of value, and that diminution is not compensated. The implied restrictions on use will be reflected in the resale price of the property. Reasonable, investment-backed decisions will be circumvented. The property owner is entitled to be compensated for this. It is true there is no "right" to flood insurance. But it is also true that government cannot restrict reasonable use of property. Withholding flood insurance has that effect. MAPPING EROSION HAZARD ZONES Section 604 calling for identification of erosion hazard areas is likewise misguided. The NFIP does not and should not be expected to provide insurance for the risk of erosion, as opposed to flooding. If erosion is to be addressed it should be through the Coastal Zone Management Act; it is not a flood insurance matter. Coastal erosion is four-fifths caused by artificial maintenance of inlets, groinfields and other manmade coastal features. Both the causes and the cures are well known and can be addressed in other legislation. It is true that S. 1405 does not base regulations on the results of the proposed mapping, but simply requires that it be done. First, there is real concern that if the mapping is to be funded from the contributions of the insured property owners into the fund, the fund will be unable to meet the claims made against it. If the fund is continually raided to pay for things unrelated to insurance claims, the program will soon be bankrupt. Second, there is serious scientific question of whether erosion rates can be accurately mapped using present technology. Moreover, the bill requires that "critical" erosion areas be mapped first. These are known to be coastal erosion hazard areas, even though the bulk of the losses in the NFIP stem from riverine areas. From an insurance standpoint, the areas responsible for the greatest amount of current loss experience should be examined first. REPETITIVE LOSS STRUCTURES Repetitive losses should be addressed, but the formula in Section 102(a)(15)—two losses in ten years amounting on average to 25 percent each-does not reach the problem. The 42 percent of claims represented by the 2 percent of repetitive loss structures is a problem that should be studied. It is not two losses amounting to 50 percent, but numerous much smaller losses. The language does not seem to reach this problem by referring to "two" losses. It should be relatively simple to assign each insured structure an identity number and record all claims against it. Once the repetitive loss structures have been identified, a formula can be developed that would reduce this category of loss. The requirement for imposing "actuarial" rates for repetitive loss structures (Sec. 601(b)) should also be amended. "Accepted actuarial principles" includes administrative costs, specifically including the cost of mapping erosion hazard areas (Sec. 1307(aX1XBXiii)). This means the insureds can be charged anything the Director feels is needed to accomplish his mapping task and then use this higher administrative cost to justify higher "actuarial" premiums. Since there is a real question of the value or efficacy of erosion rate mapping, the bill should specifically exclude mapping costs from the administrative costs used in part to develop actuarial rates. INCREASED COST OF CONSTRUCTION Coastal property owners applaud the concept in Sec. 602 of providing additional coverage to comply with local land use measures for repetitive loss structures (if better defined than in the present bill) and structures damaged by more than 50 percent of pre-storm value. Properly administered, this provision will bring pre-FIRM structures into conformity with present building codes. Care must be taken, however, to phase this program in carefully. Premiums must remain affordable as the enabling legislation recognized. New efforts that would require major premium hikes have to be carefully addressed to avoid forcing individuals, who may perceive themselves at low risk, from opting out of NFIP coverage. If the changes suggested are accepted, the Long Island Coastal Alliance will enthusiastically endorse S. 1405. |