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CSFI Testifies at Senate Banking Committee Hearing

On January 25, 2024, CSFI’s Michael Hecht provided testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs on the need to both reauthorize and reform the National Flood Insurance Program (NFIP).   The hearing was held ahead of a March 8 deadline to renew NFIP to avoid a lapse.

Hecht, President & CEO of Greater New Orleans, Inc. (GNO, Inc.), was joined by Steve Patterson, Mayor, City of Athens, Ohio, who was representing the National League of Cities, and Dr. Daniel Kaniewski, Managing Director, Public Sector at Marsh McLennan.   GNO, Inc. has led the national Coalition for Sustainable Flood Insurance (CSFI) since 2013, when it grew to represent over 250 national organizations, and led to the signing of the Homeowner Flood Insurance Affordability Act of 2014.  Current reform priorities for CSFI – to improve NFIP transparency, affordability, and mitigation investments – include:

  • Requiring a peer-review of NFIP’s Risk Rating 2.0 methodology and an analysis of Risk Rating 2.0’s economic impacts
  • Mandating FEMA’s transparency through the release of a public-facing rate calculator and establishment of a rating factor appeals process
  • Lowering annual premium increases from a cap of 18 to 9 percent
  • Enacting a means-tested assistance program with housing burden as a targeting factor
  • Forgiving NFIP’s debt or freeze interest payments, and redirecting these payments – nearly $620M per year – towards more productive use, such as mitigation measures, or buying out the 1% of severe repetitive loss properties that account for 30% of payouts

Senator Bill Cassidy (R-LA) introduced Hecht at the hearing.  Cassidy worked with Committee Chair Sherrod Brown (D-OH) to schedule the hearing and secure Hecht an opportunity to testify.  Senator Cassidy remarked, “A consistent theme throughout Mr. Hecht’s career is that he specializes in lifting up communities after tragedy strikes. Now in his current role at GNO, Inc., he continues that effort, bringing business and economic development back to New Orleans and Southeast Louisiana. Mr. Hecht’s testimony highlighted this need for serious NFIP reform. His knowledge and experience were an excellent resource for the committee.”

CSFI underscored NFIP’s original objectives and the importance of avoiding a lapse.  According to FEMA, NFIP’s flood management standards save the nation almost $2.4 billion annually in flood losses avoided.  Over a 50-year period, these savings will total $120 billion in flood losses avoided – for a net benefit to the American public of nearly $85 billion. Thus, NFIP works to serve working Americans in need of sustainable, reasonable flood insurance.  CSFI argued that NFIP should be reauthorized to fulfill its original objectives, and administered in a manner that respects these objectives.  Congress, in the National Flood Insurance Act of 1968, declared the purpose of NFIP: “a reasonable method of sharing the risk of flood losses is through a program of flood insurance which can complement and encourage preventive and protective measures… if such a program is initiated and carried out gradually, it can be expanded as knowledge is gained and experience is appraised, thus eventually making flood insurance coverage available on reasonable terms and conditions to persons who have need for such protection.”

CSFI described continued challenges with Risk Rating 2.0 transparency and continued concerns about the Risk Rating 2.0 methodology and data granularity.  CSFI wrote that, “policyholders do not have access to their property-level rating factor inputs, beyond the few listed on their declaration pages, which is made available only after purchasing coverage.  Furthermore, there is no public-facing, interactive Risk Rating 2.0 premium calculator.  So, it still isn’t clear to policyholders how modifying each of these factors (like elevation / first floor height) may affect their bottom-line premium at the property-level.  With Risk Rating 2.0, FEMA is communicating flood risk through price of flood insurance coverage. Alternatively, FEMA could now use its wealth of rating factors – procured through many vendors – to demonstrate how, where, and why policyholders are at risk, and how policyholders can most cost-effectively mitigate this risk.”

CSFI also emphasized findings and recommendations from the recent Office of the Flood Insurance Advocate report: “Policyholders, insurance agents and community officials expressed to OFIA that premiums rates do not seem to adequately reflect mitigation activities. For instance, they have indicated that they believe insufficient credit is given for certain mitigation techniques…This makes it harder for homeowners to take action to reduce their flood premiums, and harder for OFIA to advise customers of their mitigation options.”  OFIA says that FEMA “should consider establishing a process to allow agents and policyholders an opportunity to provide other sources of information” and “should explore ways to incorporate more data from communities into the catastrophe models.”

Senator John Kennedy, Banking Committee Member, commented on Risk Rating 2.0’s transparency.  Senator Kennedy’s Risk Rating 2.0 Transparency Act would mandate that FEMA “conduct public notice and comment rulemaking” regarding Risk Rating 2.0 and “complete and publish a comprehensive assessment of the economic and social impacts of implementing Risk Rating 2.0.”   Senator Kennedy affirmed, “I’m thankful to Mr. Hecht for his testimony at the Senate Banking hearing on the National Flood Insurance Program.  Of the 5 million Americans who rely on the NFIP, half-a-million are Louisianans who need it to cover their homes and businesses.  The program is not perfect, but it is an economic necessity for Louisianians.”

A key theme of the panel was the need for increased community mitigation to reduce risk of flooding, an emphasis of the proposed National Flood Insurance Program Reauthorization Act (NFIP-RE) of 2023 by Senators Cassidy and Menendez and Representatives Higgins and Pallone.  If passed, the NFIP-RE Act would implement a series of sweeping reforms to require that FEMA properly credit mitigation and mandate FEMA’s transparency of policy rates and risk determination.  Sec. 301 proposes forbearance on NFIP’s $620M of annual interest payments and using these saving for mitigation investments, after depositing savings into the National Flood Mitigation Fund.

Ranking Member Scott’s Repeatedly Flooded Communities Preparation Act was elevated at the hearing.  This legislation would encourage flood-prone communities to develop and implement community-specific plans for mitigating continuing flood risks to repeatedly damaged areas.  Ranking Member Scott said, “We have to recognize that the NFIP pays out 30% of its resources to about 1% of the properties that consistently and repeatedly are flood victims again, and again, and again.  1% of the exposure absorbs 30% of the resources – and that’s an opportunity for us to look to the local communities to create strategies to perhaps not rebuild there, and that will take a local engagement to mitigate that risk for the nation, for the program, and frankly for the communities where they happen. Comprehensive reform of the program is essential.”

Dr. Daniel Kaniewski of Marsh McLennan also addressed the importance of mitigation: “Flood risk in the US is systematically underestimated, contributing to gaps in the insurance coverage and the resilience measures that can help communities minimize and recover from losses.  Federal, state, and local officials need a clear vision that strikes a balance between addressing crises and fostering resilience. Insurance and risk transfer have an important role to play, but must be combined with a broader, coordinated resilience strategy that includes risk reduction measures.”

The full hearing recording and testimonies from witnesses, Chair Brown, and Ranking Member Scott can be viewed online.   Hecht’s full 12-page written testimony may be downloaded here.

Hecht concluded his written testimony with, “CSFI stands ready and willing to assist the Committee as we work to reauthorize the NFIP by March 8, and as we pursue long-term solutions that improve NFIP and our country’s sustainability.”  CSFI thanks Chair Sherrod Brown, Ranking Member Tim Scott, fellow Committee Members, Senator Cassidy, and Senate Banking Committee staff for the opportunity to testify and for recognizing the importance of NFIP reauthorization and reform for working communities across America.