Page 2 We hope you strongly consider our recommendations and incorporate them into your debate and ultimately, the legislation, so that a mechanism is finally put in place that effectively protects America's property owners against the disastrous losses caused by flooding. Sincerel David K. Meehan President Flood Insurance Servicing Companies Association of America, Inc. WRITTEN TESTIMONY OF THE FLOOD INSURANCE SERVICING COMPANIES ASSOCIATION OF AMERICA, INC. INTRODUCTION FISCAA was organized in May, 1992, with the explicit purposes of protecting and enhancing the ability of the flood insurance industry to provide necessary coverages and services to the public through educational seminars, regular Association publications, and other planned activities by: (a) Advising the Congress, the Federal Insurance Administration and the National Flood Insurance Program of the concerns and needs of the insurance companies writing and servicing flood insurance. (b) Establishing a source of factual information for the general public, news media, and other interested groups. (c) Informing the public, consumers, the Federal Insurance Administration, the constituencies of the National Flood Insurance Program, and the Congress of the beneficial contributions of the flood insurance industry through a public awareness program. (d) Apprising member companies of the attitudes of the public, news media, and public officials toward the flood insurance industry. FISCAA is comprised of thirteen member companies representing approximately 700,000 or nearly 30 percent of the flood insurance policyholders in the Program. Both policyholders and company members live and do business throughout the United States, its territories and possessions. As the saying goes in the world of retailing, there are three factors which determine the success or failure of a store. They are "location, location, and location." In our view, the three factors which will determine the success or failure of the National Flood Insurance Program as envisioned by the original drafters must be “COMPLIANCE, COMPLIAŇCE, COMPLIANCE." As you know, the Federal Government estimates that only 15 percent of those properties who should be protected with flood insurance are. The recent tragedy in the Midwest brings home these statistics dramatically. The under utilization of flood insurance has cost our country dearly. For example, of a population of 11,500,000 in Illinois, there are less than 30,000 flood insurance policyholders. With a population of over 5,000,000, Missouri has fewer than 15,000 policyholders (and as of September 1, 30 percent had submitted flood claims, a very high percentage for a single State). The story in Kansas and Iowa is the same. Only 8,200 policies in Kansas for a population of 2,500,000, and 6,700 policies in Iowa for a population of 2,800,000. You are well aware of the cost to the U.S. Treasury for the disaster. Much of it would have been averted if compliance had been achieved years ago. The coastal communities may get the publicity in this debate but we tend to forget the bulk of properties at risk are those primary homes that in most cases pre-date the NFIP. These aren't second homes and, they don't afford breath taking views of large bodies of water. They are in the thousands of towns and hamlets that followed the western expansion of Manifest Destiny as the Nation grew west. These homes were built on the highways of the time . . . the small rivers that drain to the Missouri and the Mississippi as well as the trading communities which grew to mighty cities on the banks of these rivers. People built towns and farms in these areas and they didn't even know they were in Special Flood Hazard Areas. They knew they flooded periodically but didn't know there was a special name for it. They continue to live there because their "home place" is their roots. Whether it is the Florida coast ravaged by the fury of an Andrew, the small inland communities in South Carolina ripped apart by Hugo, the many towns and cities in Ohio and Pennsylvania hundreds of miles from the coast pummeled by Hurricane Agnes, or the farmlands of the Midwest, it is still "home" and the availability or lack of flood insurance is not the reason people stay. We strongly support your effort to clarify and enforce compliance with the original and amended legislation. As is obvious, insurance agents experience great difficulty in selling flood insurance even though the chance for flood during the life of a 30year mortgage for a structure in a Special Flood Hazard Area is one in four. It is only one in one hundred for fire yet fire insurance has become an accepted norm. No one questions its need anymore. We hope that the issue of flood insurance reaches this level of acceptance in the very near future. It has been said by many that "only God and lenders sell flood insurance." That is why we need meaningful legislative assistance to increase compliance. To that end, we offer the following comments and recommendations. TITLE II-COMPLIANCE AND INCREASED PARTICIPATION (1) Escrowing for flood insurance is critical if we are to prevent non-renewal of flood policies. It is the only way to quantify the renewals and be assured that the premiums are available at the time of renewal. As you know, in order to qualify for Federal disaster assistance if you are flooded and live in a Special Flood Hazard Area, you are required to buy flood insurance. Unfortunately, the majority of people drop their policies at renewal time, even when they bought their policy as a condition of getting a disaster loan or grant. (2) Recent proposed legislation specifically prohibited the waiving of the flood insurance requirement for any reason. This provision is not included in S. 1405 and should be. 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 in effect, assumed the risk through self insurance. This is not now nor has it ever been an option for flood insurance. We need legislative clarification because it causes many problems for lenders. (3) The existing Act requires lenders to notify the purchaser of improved property in a Special Flood Hazard Area that flood insurance is required on the property. The Act states this must be done in a "reasonable time," which the FIA interprets as 10 working days. S. 1405 does not address this issue. Without notification prior to closing, the applicant does not have an opportunity to get the needed coverage in time so the closing is delayed, or, the lender, in effect, waives the requirement by not even bringing it up. The consumer needs prior notification in order to make an informed decision. We strongly urge that notification requirements be retained in S. 1405. (4) Previous drafts of this legislation allowed lenders to pass on to the borrower a reasonable fee for flood zone determinations, notwithstanding Federal, State or local law. This provision is missing from S. 1405. As lending customs are quite consistent on what constitutes "closing costs," and flood zone determinations do not appear to meet any of these categories, the lender is placed in the position of having to pay for the determination or suffer the consequences of fines and related penalties. We recommend that a provision be included in the legislation that would allow the lender to be reimbursed for any reasonable costs associated with determining the flood zone status of an improved property. TITLE III-RATINGS AND INCENTIVES FOR COMMUNITY FLOODPLAIN (5) We wholeheartedly support the establishment in law of the Community Rating System (CRS). It has worked very well as introduced through rules and regulation to not only safeguard communities from the ravages of flood but reward their citizens with lower flood insurance premiums as a reflection of the new safeguards. A missing piece, however, is a greater public awareness program of the CRS. Now, one way for the community to earn credits is by publicizing the Program. There should be additional help or at least, this requirement could be prioritized as a mandated requirement for becoming a CRS community. TITLE IV-MITIGATION OF FLOOD AND EROSION RISKS (6) As insurance companies, we are in the business of selling insurance yet by mandating the denial of insurance you have eliminated the opportunity for all property owners to have access to coverage at actuarial rates. Because the risks in these areas of denial are unarguably higher, the premiums would be comparably higher. We strongly support an alternative provision which affords the ability to purchase insurance. One way to accomplish this is through the CRS mechanism. The Director would have the ability to deny insurance in certain situations of non-compliance much like other lines of insurance with specific underwriting guidelines for preferred business. We can reasonably assume that communities who voluntarily participate in the CRS program would equate to preferred risks in the insurance industry. This allows the communities to have some control of their rating structure. The non-participating communities would, in essence, be the non-preferred risks or the non-standard risks similar to those in the residual markets. Insurance would be available to all but the premium for the riзk would be actuarially sound. Should the Director deny insurance, the consumer property owner still has recourse. (7) We support the termination of the erosion-threatened structures program (Upton-Jones). It has never been considered an "insurance program" because it requires the NFIP to pay claims in anticipation of losses. Insurance doesn't work this way. TITLE VI-MISCELLANEOUS PROVISIONS (8) An increase in the available amounts of coverage has long been needed. We would request you even go higher in establishing the limits since the suggested increase doesn't begin to reflect the "inflation" in property values and building costs that have occurred since the last increase over fifteen years ago. The coverages should be realistic with today's market rates. From an underwriting perspective, high-valued properties generally constitute a better risk and historically a lower loss ratio. (9) In this same vein, we also recommend that you require replacement cost coverage rather than limiting coverage to the amount outstanding on the mortgage. For a homeowner who has nearly paid off his or her loan and consequently has minimum flood coverage, he or she is woefully exposed when the flood does come. (10) There is a concern that efforts by many States and local governments to impose taxes and levies upon NFIP flood insurance premiums collected by WYO companies, beyond the premium tax which helps States regulate insurance company solvencies and license insurance agents and brokers, may eventually lead to Congressional action which pre-empts all State and local taxation, including the premium tax which funds a very vital service. We recommend specific language that will limit the ability of the States to impose taxes on premiums collected for deposit in the National Flood Insurance Fund except for the aforementioned premium tax which the FIA and the WYO Flood Companies believe should be paid. We sincerely appreciate the opportunity to provide these comments and recommendations on what can be a landmark event in the history of the NFIP. Bankers Insurance Company/Bankers Life Insurance Company of Florida Paul Weech/Chris Warren Senate Banking 535 Dirkson SOB Washington, D.C. 20510 September 9,1993 Dear Mr. Weech & Ms. Warren: The enclosed position paper represents our written testimony on S. 1405, known as the "National Flood Insurance Reform Act of 1993". We, at Bankers Insurance Group, have been involved in the National Flood Insurance Program since the inception of the government arrangement with private sector insurance companies, known as the Write Your Own Program (WYO). Of the approximately 90 companies in the Program, we are the fourth largest in terms of flood insurance policies written and serviced through us by insurance agents. Although we strongly recommend a strengthening of the legislation in order to help safeguard the nation from the ravages of flood, and have so commented on in Titles IV and VI, we are most concerned with Title II and the effort to improve compliance with the National Flood Insurance Act of 1968. As you know, it proposes to solve this problem through additional requirements on the lending community. This is one of our areas of expertise as we work with lenders on this Program throughout the country on a regular basis. Bankers has been a very interested participant in the predecessors to S. 1405. As a matter of fact, I had the privilege of testifying last year on S. 2907. The attached not only represents our concerns but also those of representatives of the lending and zone determination industries with which we work. We are in complete agreement that the legislation is needed if we are to meet the laudatory goals of the drafters of the 1968 Act. As it is now worded, we don't believe S. 1405 meets that need. Hopefully, our concerns and recommendations will help us all get closer to the original goal. We appreciate the opportunity to submit this testimony. Sincerely, David K. Meehan PO BOX 15707/ ST. PETERSBURG, FLORIDA 33733-5707 / TELEPHONE TOLL FREE 1-800-627-0000 |