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tv   US Senate  CSPAN  January 13, 2016 2:00pm-4:01pm EST

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region. and i could not be under the president could not be prouder of our men and women in uniform. also want to thank the iranian authorities for their cooperation and quick response. these are always situations which, as everybody knows, has an ability if not properly guided to get out of control. and i'm appreciative for the quick and appropriate response of the iranian authorities. all indications suggest or tell us that our sailors are well taken care of, provided with blankets and food and assisted with their return to the fleet earlier today. and i think we can all imagine how a similar situation might have played out three or four years ago. in fact, it is clear that today
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this kind of issue was able to be peacefully resolved and officially resolved. and that is a testament to the critical role that diplomacy plays in keeping our country safe, secure, and strong. strong. >> later today live on c-span2 west virginia governor her rates homeland delivers his state of the state address from charleston. that will be at 7 p.m. eastern on c-span2. >> featured this week on american history tv on c-span3, saturday night at eight eastern on lectures in history, arizona state university professor rob simpson on the president's wartime role including wars waged without formal congressional declaration. >> it's the president's job to educate, to explain to educate great depression was a i know you don't understand this. there's a limit any reason you
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should have understood this. it wasn't a place that's what it was in a place far, far away with people who seek a different language, and so i'm going to explain to you what american interests are. when congress responds to the bible that opinion makers respond to that, i'm going to educate you and you can help make a decision. i'm going to ask you to do this. i'm going to explain to you why i think this is a course of action to pursue. >> sunday morning at 10 on road to the white house rewind, the 1996 campaign of former republican tennessee governor lamar alexander and his walk across new hampshire to greet voters. and later at 4 p.m. eastern on real america, the 1963 interview with reverend martin luther king, jr. on his nonviolent approach to civil rights, his comments on president kennedy civil rights bill et al. mahatma ghandi influenced his work. work. >> some years ago when i first
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studied the kantian philosophy and the methods of nonviolent resistance, i came to the conclusion that it was the most potent weapon available to a press people in their struggle for freedom and human dignity -- oppressed people. i would say this overall direct action movemen movement with its citizens and its stand-in's, it's neil ends, its mass marches and pilgrimages and all of the other alibis that into the struggle have been having a great deal after ghani's. for the complete american history tv we can schedule go to c-span.org. >> the national flood insurance program insurance more than 5 million homes mostly in texas and florida. the program is $23 billion in debt today the house financial services subcommittee on housing and insurance held a hearing
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looking at nongovernmental alternatives to the program. >> okay. let's call the committee to order. pictures authorized to declare a recess at any time. israel is entitled than 10 before begin today at like to thank the witnesses for appearing today. i look forward to your testimony. i now recognize myself or to a half minutes to give an opening statement. flooding has devastated large areas of my home state of missouri as well as neighboring illinois. tragically claimed lives and causing billions of dollars in damage. in the past of what we've seen similar situations from south carolina to southern california. unfortunately, these are not isolated incidents. flooding continues to be the most prevalent natural disaster in the country. as communities in missouri and
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across the nation begin to put their lives together, we examined flood insurance integral concert at the national flood insurance program. yesterday the subcommittee held and to discuss the state of flood insurance in america. last week i convened a roundtable discussion on the flood mapping. what has become evident its total reliance on insurance coverage is inadequate. members agreed across party lines policyholders, communities and taxpayers deserve better. one of the first steps towards reform is to allow policyholders to access market-based flood insurance policies. h.r. 2091, flood insurance act of 2015 introduced by the gentleman from florida and mr. murphy would allow for greater consumer choice and private market participation. it does, it does so under the close supervision of a state inch insurance commissioners, the system would work in the overall bipartisan fashion to
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protect. by removing the ambiguity about what qualifies as except of flood insurance property owners will be assured of the greater options and flexibility in the choice of policies. providing private competition to the public administered nfip will promote competition in markets which have been underserved. we have suffered from flood damage great program for flood insurance that stable, accessible and cost-effective. before i yield to the ranking member i ask unanimous consent to insert into the record on h.r. 2091 from the mdic, aia, napslo, the big guy, a national association for professional insurance agents and financial services roundtable, smarter see the coalition, the reinsurance association of america, financial soldiers over to come a national multifamily housing council. as you can see there is wide support across industry
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spectrum, this alternative to our present system. the chair now recognizes the ranking member, mr. cleaver for an opening statement for five minutes. >> thank you, mr. chairman. let me again thank you as i did yesterday for the very proactive steps you have taken toward dealing with the issue of insurance before it becomes caught up in a critical year where we are not going to have a lot of work days. and i think it is appropriate for us to continue as you have already begun the hearing, issues that relate to the flood insurance. and we discussed yesterday i think rather broadly the nfip program, and we highlighted areas where there is room for improvement discussing ways in
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which nfip could be reauthorized your today this is our second hearing on flood insurance, today we will be discussing the role of private insurers in the flood insurance market which is a significant issue any significant concern. we dealt with this yesterday but i think the key to this whole issue is whether or not the private sector is interested and willing to become into building involved in this program. we've attempted this over the years, program was greater in 1968 to provide flood coverage to consumers who were unable to get coverage from the very limited private market. the nfip is responsible not only for providing flood insurance but for developing flood maps and promoting mitigation activities. one of the things i think we've
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all come to see is flooding can occur anywhere. i grew up in a flat part of texas, the dallas area, on tort probably and take it to paula duro canyon around amaryl is just flat. and last summer in this flat land that was all kinds of flooding. and we do know that it can and does occur everywhere. and could have a devastating impact on our communities. but one of the things we've also learned is that when these major events occur like katrina, it pretty much decimates any private participation in the government has had to do a lot of backstopping, both for sandy and for katrina. and as we begin to discuss reauthorization of the program, i think we've got to ensure products remain affordable and
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available. our conversation must also focus on the importance of obtaining accuracy in our mapping which is a really big issue in the rural part of the fifth district which i represent in missouri. and has mapping and risk technologies since the creation of the nfip, the appetite for private insurers to reenter the flood market has grown. so i look forward to hearing from our witnesses today to discuss ways in which the private role in flood insurance could grow. thank you, mr. chairman. i yield back the balance of my time. >> with that the chair now recognize the gentlemen from florida for two enough minutes for an opening statement. >> thank you, mrstatement. >> thank you, mr. chairman. thank you very much for holding this important hearing about it issue to which i am dedicated as providing american homeowners more affordable consumer options and a flood insurance markopolos. i would like to thank our distinguished guest for their
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testimony today and represented patrick murphy for joining which will be discussing this morning. since joint house financial services committee i've urgently college to work with me to address the shortcomings of the current flood covered flood interest moment as the national flood insurance program. yesterday failed our first inches of hearings. and to explore solutions. floridians and americans across the country would greatly benefit from more choice when it comes to flood insurance policies and private competition of its market will lead to greater innovation and more affordable and comprehensive policies for consumers. unfortunately, regulatory barriers other biased regulators have prevented the develop of a private flood insurance markopolos. this is the intention, rather it was an unintended consequence. when florida homeowners in my i introduced h.r. 2901, the flood insurance market parity and modernization act. this legislation removing
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unnecessary regulatory barriers that are hindering consumers flood insurance options. as a private insurance regulator from my home state of florida i'm proud our commissioner has offered his full support of this legislation to i urge my colleagues on both sides of the aisle to join in and i think is commonsense bipartisan legislation that will encourage the expansion of the well-regulated more affordable private flood insurance option for homeowners. i yield back. >> with that we want to begin our testimony and we welcome all of the panelists today. we saw with ms. teres teresa mi, commission of pennsylvania state interest of our on behalf of the for national association of insurance commissioners. mr. steve bradshaw, executive vice president on behalf of the mortgage bankers association. mr. brad kelly -- brady kelley, national association of professional surplus lines offices, and mr. berenbaum, center for economic justice. justice. each other rekcus for five minutes to give oral presentation.
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without objection written statement will be made a part of the record. quick primer on the lighting system. green cisco. when you get to tell if you've got one minute to wrap up and when it says read on the has the last word. we will hopefully stop the shortly thereafter. with that i want to recognize the gentleman from pennsylvania, mr. rothfus, to introduce our first witness. you are recognized. >> thank you, mr. chairman. it's my privilege to welcome the pennsylvania insurance commissioner teresa miller to the committee today. commission and the was confirmed to a role in june of last year and the capacity she oversees the fifth largest insurance market in the country of the 14th largest in the world. entrance a premium on. this is a significant and challenging responsibility in our large and diverse state. commissioner miller brings years of experience to her new album at your subcommittee today. having served in oregon's insurance division as well as in the private sector.
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she will be speaking today not just as pennsylvania insurance commissioner but also as an active naic member. she serves on the federal advisory committee on insurance providing advice and recommendations to the insurance office on issues such as automobile insurance affordability and international insurance development. pennsylvania's future flooding and i'm going to think about the impact of flood insurance policy on its citizens i expect commissioner bill to provide welcomed insight into the future of impactful performers for the committee to consider. thank you again for coming, commissioner miller, and i yield back. >> with that, ms. miller you are recognized for five minutes. >> good morning. thank you, chairman luetkemeyer and ranking member cleaver come and thank you, congressman rothfus for your kind introduction. i appreciate the opportunity to testify today to provide state insurance regulators views on issues surrounding the development of a private flood insurance market. facilitating increased private sector involvement in the sale of flood insurance will help promote consumer choice and spur
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competition. it will provide homeowners necessary coverage. often the greatly reduced costs. in pennsylvania we are fighting in many cases private carriers are willing to offer comparable coverage at substantially lower cost than nfip. in one instance a property owner would have paid a $7500 annual premium with the nfip but found private coverage for little over $1400 another homeowner was quoted at $6000 annual premium by nfip but found a private policy for $900. like other types of new coverage is private flood is being developed and offered first by the surplus lines insurers. these insurers typically ensure unique or otherwise difficult to underwrite risk that the midmarket is a lease initially reluctant to ensure. is detailed in my written testimony we have significant authorities to ensure consumers and the surplus lines market are well protected.
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these authorities include capital, surplus and eligibility requirements on surplus lines carriers as well as the ability to will both the insurer and the broker responsible for any misconduct. as the private floo insurance mt grows and more companies offer coverage, our regulation will continue to evolve to meet the size and breadth of the market as well as the needs of consumers. however, more can be done to help facilitate the develop of this market, providing consumers more choices and more affordable coverage. one of the objectives of the baker's waters act was great opportunities for the growth of the private market as an alternative to the nfip. unfortunately the definition of the regulation environment surrounding private flood insurance is at odds with his objective. making it more difficult for insurance regulators to protect consumers and ensure availability of the flood
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insurance market parity and modernization act addresses these concerns which is why i'm here today to support it. specifically we find it troubling that the waters in part federal banking and housing regulators and the gses to apply their own requirements related to the financial solvency strength or claims paying ability of private insurance companies from which they will accept private flood insurance. this is highly problematic as banking and housing regulators even have the expertise and experience to regulate insurance companies for markets. moreover, they have regulatory objectives that while laudable are fundamentally different than interest consumer protection and fostering competitive insurance environments. they are simply ill-suited to regulate insurance that it's inappropriate for them to have the authority to substitute their judgment for those charged under the law with regulating insurance products and protecting policyholders. to address this h.r. 2901
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includes important language clarifying that state insurance regulators have the same authority and discretion to regulate private flood as they have directed other similar insurance products and markets. we very much appreciate these clarifications as they are critical for naic support for this legislation to another impediment for entrance into the market is that the vague definition of private flood insurance occlude. in order for private market to evolve come insurers need flexibility to tailor insurance products to meet consumer needs. it does not allow for innovation but rather focuses on ensuring policies don't deviate from which it criteria. this is despite the fact that private insurers may be able to offer additional coverage features or greater limits at a more affordable price. h.r. 2091 provides a clearer definition of private flood by clarifying the state insurance laws solely governed over the insurance transactions. it will ensure that state insurance regulators have the
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flexibility to approved by the flood insurance coverage and is responsive to the needs of their states and constituents while complying with her states regulatory requirements. these clarifications will assist in removing the restrictive and confusing language in current law to will prompt more insurers to enter the market if they are willing. in conclusion, state insurance regulars support efforts to further develop the private market to help consumers with access to additional options for private flood insurance product and coverage and potentially more affordable prices. we appreciate very much congressman ross penberthy's leadership on h.r. 2901 and look forward to continuing to work together as this bill moves forward. i appreciate the opportunity to be your on behalf of the naic. >> mr. bradshaw you are recognized for five minutes. >> good morning, chairman luetkemeyer, ranking member cleaver, and members of the subcommittee. i name is steve bradshaw and i appreciate the opportunity to
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testify today about by the mortgage bankers association. i am currently executive vice president of standard mortgage corporation, linda and service are headquartered in new orleans, louisiana. the company was founded in 1925 and currently services approximately 28,000 residential mortgage loans throughout the southeast. this past august marked the 10th anniversary of one of the most significant flood events in u.s. history, hurricane katrina. we experienced a massive devastation firsthand, fox with 3500 of our servicing customers sustained significant flood damaged to their homes. and on a more personal note, nearly two-thirds of our staff lost their homes. as a result of hurricane katrina and two other significant storms in the fall of 2005 more than 1 million housing units were damaged across five states. there's no doubt in national flood insurance program was a key component of the gulf coast
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recovery just as it has been for other communities across the country that have sustained major flooding or flooding today. but there's also no doubt that the nfip needs to be reformed. the program is now 23 billion in debt and simply not sustainable as it is. the federal government cannot and should not bear the full burden of post-disaster recovery. congress recognized went past biggert-waters that private-sector flood insurance must be allowed to develop in order to ensure a stable sustainable and affordable market. expanding flood insurance options will make it easier for more homeowners to obtaining flood insurance. a competitive flood insurance market will expand available insurance options, lower costs and increase the number of at risk properties that are insured. in other words, we are expanding the pool. for example, many homes that were destroyed in katrina were not located in a special flood hazard a.
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homes outside the zones are not required to the flood insurance. as a result mortgage servicers like us werlycos were liable fot windows zones were wiped out. the increased private sector public concern to shift some of the burden not all of the burden, some of the burden of post-disaster recovery away from the federal government and to the private sector. this will limit taxpayer exposure to future flood losses. in light of this we support h.r. 2091 the flood insurance market parity and modernization act. the bill provides to comport improvements to the nfip. first, the bill verifies what constitutes an acceptable private flood insurance policy by providing a clear definition of private flood insurance are disaffected easier for lenders to accept private policies to satisfy the mandatory purchase required. second, h.r. 2090 wha 2091 addrs lenders concerns regarding continuous coverage
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requirements. under current law it is not or whether someone praises are covered under an nfip policy who moves to a private sector policy would be eligible to return to nfip policy at their previous rate. we are pleased that h.r. 2091 eliminates this disincentive for consumers to choose a private policy. it does so by clarifying that private flood insurance satisfies the continuous coverage requirement. in summary in the eight supports 91 as a simple way to encourage the growth of competitive private flood insurance market. increased private sector involvement will hopefully expand available insurance options for borrowers, lower cost for consumers, reduce taxpayer exposure to flood losses over time. we are especially grateful for the leadership shown by denis ross and patrick murphy on this legislation and i urge the subcommittee to approve it.
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thank you again for the opportunity to testify today. mba commend your efforts to expand the private flood insurance marketer i look for to any questions you may have. >> thank you mr. bradshaw. mr. kelley is recognized for five minutes. >> good morning, chairman luetkemeyer, ranking member cleaver, chairman hensarling, and members of the subcommittee. my name is brady kelley, i'm executive director the national association of professional surplus lines offices based in kansas city, missouri. thank you for inviting here today to testify on 2901. surplus lines as a $40.2 billion market and napslo members broker and right a very high portion of that there are market often referred to as the don admitted market exist to provide insurance coverage for nonstandard and complex risks and to provide coverage. it is the states approach to regulating about martha which includes providing freedom that allows it to work as an
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effective supplement. this principle is part and parcel to its effective operation and regulation. consider for example, the impact of catastrophic losses that cost editors to either withdraw or significantly curtailed under riding in certain regions of the country or in certain lines of business. exhibit one tries illustrate that. market responses my mission to rates of which surplus lines prince has shifted either up or down over time in relations to total u.s. property-casualty preemie. you see events like the northridge earthquake, 9/11, hurricanes in 2005. they are followed by clear spikes and surplus lines premium, spikes that exceed the growth of the overall market and then you see the reverse being true in years following that our cat losses on the west of the standard market we adjust. without the safety net consumers would be left without coverage for the commercial risks and/or their personal assets. these things fund does apply in
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the case of private flood insurance. consumers flood insurance. consumers who fled risked not fit into the terms of nfip our cisco declined by the standard market will look to our market for the solution. it's important to point out that this is not new. why might that be? proper exposures may exceed the two and $50,000 limit within the nfip on a residential property. homeowners may want to replacement coverage rather than actual cash voucher for the property. they may want to ensure additional structures, list of the properties on what policy, they might need additional living expense, based in exposure and/or business interruption for entity. these examples coupled with communities or zones that are not eligible for nfip coverage means consumer alternatives are absolutely essential. our investments are some facts and figures about the size of the surplus lines flood insurance market and while you will see the represent a small proportion of the overall
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market. with out it consumes immediate would have no alternative. this is why we strongly support h.r. 2901. although our market is currently allowed to provide private flood insurance, the 2012 law created uncertainty for lenders and consumers. specifically lenders became uncertain about accepting surplus lines policies in light of the law's requirements and because it authorized federal banking and housing regulators to apply the requirements on private insurance companies. no relations have been developed since that time and it's prolonging is uncertainty. uncertainty is the problem but h.r. 21 is the fix. it ensures our markets continued role in solving unique and complex flood risk that exceed or differ from the options available to either the nfip or the standard market. h.r. 2091 maintained the authority and primacy of state insurance commissioners in regulating private flood insurance. because of their experience, strong track record, success in
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regulating his business we strongly support that. we provide a written test by describing other states regulate surplus lines market. let me simply reiterate the importance and degree of the states authority over both the insurance company and the surplus lines broker in a surplus lines transaction. as a result the 2015 am best report has an exemplary solvency record for our market. conclude as another exhibit in the desolate. h.r. 29 will solve the problems and concern shared by the insurance and banking industry. by preserving our markets ability to offer options to consumers. without it consumes immediate will have no alternative. legislate on both sides of the often expressed a desire to not just extend but also improve the nfip going forward. i think the witnesses over the last couple days agree with that. we believe h.r. 2091 is a
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positive step in that direction because it enables the private market to develop and allows the nfip to focus on those properties with repetitive losses in the goal of flood loss mitigation provision. we appreciate congressman ross and murphy for introducing the bill and we thank you for the opportunity to be here, look for to working with you as this bill moves forward. thank you. >> mr. birnbaum, you are recognized for five minutes. >> thank you, chairman luetkemeyer, ranking member cleaver and numbers at the subcommittee. my name is birny birnbaum. the availability and affordability of flood insurance is a critical issue for individual and committee wanting to economic development and resilient and sustainable future. i have worked on these issues for over 20 years as an insurance regulator consulting economist and consumer advocate. your invitation to testify asked whether the nfip as it is constitutive represents an ideal model for the effective protection of residential and commercial property owners from damages relating to flooding. ..
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there's no insurance mechanism, public, private or combo that confinements increasingly frequent or severe flooding and a focus on resiliency and sustainability means federal expenditures as investments to replace disaster relief expenditures tomorrow. the way forward, there's a great opportunity for greater reliance on private insurers and markets to provide flood insurance but
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2019 is not the approach to accomplish this. certainly not the approach to make a more financially sound or achieve greater resiliency and sustainability. the best approach for congress to achieve these goals is required that fled the provided in stated, residential and commercial property insurance policies and subject to the same studies regulatory framework that exist for homeowners and commercial property insurance today. the four key actions needed by 2017, 1, get the nfip out of the business of being a flood insurance company by requiring residential and commercial insurance company sold by private insurers cover the peril of flood. require insurance lead back to the stage where all property insurance products are regulated, a private insurers, catastrophe borrowers have capability and capital to provide coverage more comprehensively and efficiency in the federal government. 2, transition the nfip to a mega
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catastrophe reinsurer utilizing successful model of the terrorism risking assurance program. 3, address the affordability problem of flooding assurance with federal, state and local assistance outside the insurance system, no subsidies and insurance pricing with overwhelming emphasis on assistance for loss mitigation as the tool to create more affordable premiums and reauthorize the nfip during the period of transition. we have seen over the last decade congressional changes to the nfip evolve from experts that longer-term reform, response to current crises with response to current crises often contributing to better problems down the road. 29 to one is a response to a current issue, federal agencies promulgating rules regarding private flood insurance and surplus insurers seek opportunity to pick of nfip policies that are miss price due to a nfip rating practices. each are 291 will not address longer-term problems and nfip will not promote private market
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participation in salem flooding insurance and will create bigger problems in the future when a flood event occurs. it tends to encourage private floods by including surplus insurance for residential properties and by eliminating federal oversight, removing current consumer protection requirements for private flood, removing the authority of federal agencies to implement those requirements and removing the authority of government sponsored enterprise to establish standards for claims paying ability of insurers which they already do now for hazard insurance. surplus lines can be distinguished from committed insurers in the following ways. admitted insurers are licensed by state insurance department to sell certain types of insurance. these insurers are subject to regulatory requirements for the filing and approval this policy forms and raids, subject to state consumer protection laws regarding unfair trade practices and competition and importantly participate in the state guarantee fund which pays claims in the event did insurers become
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insolvent. in contrast applause lines insurers are not licensed by state insurance departments, rather the state department regulates surplus wine agents who are authorized to place coverage with the surplus might ensure on acceptable insurers, surplus lines policy forms and rates are not subject to regulatory oversight. and they did not participate in state guaranty funds. i understand the theory behind h.r. 2091 is they have surplus line insurers that would be certain requirements, ability with the claims settlement requirements to relax. the story continues that one surplus lines insurance offering private flood admitted insurers will be more comfortable. i obscene no empirical evidence to remotely suggests carriers will do as suggested. i have seen surplus lines insurance right business, admit insurers would not have written and seen personalized business migrate from the admitted market to surplus lines, and fewer consumer protection requirements.
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the actual results of these exchanges for supply lines insurers to cherry pick nfip policies that are overpriced due to the nfip's rod reading steam and loading for continuous reserves. surplus lines insurance pick a profitable low risk policy, the nfip will become even more financially vulnerable as its premium revenue will decline far faster than risk exposure. a h.r. 2091 will create financial problems for the nfip and said the table for more -- >> can you raptors it quickly? >> when a flood occurs. since states don't regulate policy these policies can explain exclusions that the regulator would never approve in a policy by insurers. in summary flood insurance markets in particular are not competitive so unregulated and shores on vulnerable consumers without federal oversight and meaningful state oversight as a recipe for disaster. thank you. >> thank you, i will recognize
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myself for five minutes. ms. miller, you made a comment awhile ago with regard to the pscs regulating insurance versus the private market, which would have to be overseen by you. can you explain what you are talking about a little bit? i think it is a key point what we're looking at with regard to regulatory oversight. >> thank you, chairman. banking and housing regulators have regulatory objectives that are simply fundamentally different than insurance consumer protection and promoting competitive insurance markets. our view is they are ill suited to regulate insurance and it is really inappropriate for them to be given the authority to substitute their judgment to those of us who got charged under the law with regulating insurance. state regulators have 140 years
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of regulating and surprising the business of insurance and protecting policyholders and balancing the ability of coverage with solvency. to put it bluntly, banking, banking regulators don't have that mandate of consumer protection. state regulators, that is what we do. that is the charge. >> you are saying the gsc is usurping or authority to qualify different policies of the private sector. is that what you are saying? >> that is correct. >> thank you. mr. bradshaw, utah with regards to some of the folks not covered by flood insurance especially in katrina and you sort of alluded to the fact that there is
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concern because lead affects beyond of flood plain, would you consider or alluding to the fact, everyone is required to have this, or lenders have more leeway in requiring people have flood insurance or did i misunderstand what you just said? >> with regard to requiring everyone to have flood insurance the answer to that is no. that is not the position of the mortgage bankers association. with regard to expanding the options for insurance coverage to be unavailable, standard mortgage is very interested in that. during katrina there were a number of people that were flooded. due to the nature of fha
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insurance as an example, if someone floods, if they are not in a flood zone, there's no flood insurance and if they then abandon their home, it is up to standard mortgage to repair the home in order to file the claim. said that puts us in the business of insuring fha. we believe with a new type of program that could be developed by private insurers the other people may be interested in obtaining insurance even when they are outside the zone. >> thank you. mr. kelly. surplices don't belong to guarantee associations of states, i understand it correctly? did you make that statement?
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>> that is a very key point from the standpoint, surplus lines are where you look to be able to provide flood insurance. is that the case? >> it is the case. surplus line insurers do not -- they're not backed by guaranteed funds but there is good reason for that. if you look at the types of coverage written in the surplus lines markets there are often not coverages that would fall into the general limits of the guaranteed funds that exist for the standard market? you have also got in the report the shows an incredible solvency record for the surplus lines market, and 11 years of no financial impairment compared to 207 impairment in the standard market over the same time period. look at the ratings surplus carriers, they are all in the excellent to good category compared to ratings in the standard site that are not quite
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as good. we tend to believe coverage is typically inadequate for size and limits of commercial policies covered by surplus line carriers. we believe they don't incentivize strong corporate financial operations and guarantee funds in our opinion would add an unnecessary burden to the surplus line consumer given some of financial strength of the industry. >> my time is an expired. recognize ranking member emanuel cleaver for five minutes. >> thank you, mr. chairman. yesterday i asked witnesses if any of them believed that we needed to end the nfip and there were no hands raised. so i am interested in whether this panel sees it the same way. i dare any of you who believe we
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need to eliminate the nfip? raise your hand if you do. >> we need to eliminate the nfip as a direct provider of insurance and tradition-transition along the model of terrorism risk insurance program because private market is in a better position to deliver coverage of mutt in the standard homeowners and commercial property insurance policies. and the "escape and control" -- nfip with the standard program. >> the consumer is now for the nfip? >> no. certainly for some but for the vast majority of consumers the rates would be less, the private market could deliver the coverage of flood more efficiently. there are fewer administrative costs because the second
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insurance policy. you eliminate a lot of claims settlement costs because you know longer have an insurance company and the nfip trying to decide who is responsible. we saw the problems with that after hurricane katrina which is whether the insurers responsible for claims were trying to say whether it is a claim that we cover or is it a flood coverage that the nfip will pay for? there are a lot of reasons the private market could introduce deficiencies that the nfip could not. the vast majority of consumers, the actual coverage, less expensive than the nfip and there still remains the issue is unaffordable. and it is still available for the nfip. >> do you agree? do you think there are consumers that would pay the full risk
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rate, to make the program work? >> i don't agree we need to eliminate the nfip entirely. i keep going back to this g a o 3 porche about subsidized properties, in the market. and i heard in the testimony as well, one -- all claims paid. the 1% category property, no one is attractive in insuring those properties, and to think you could come up with an actuarially sound rate that covers the risk of that property, i can't imagine a consumer having the ability to afford that. there is the need for the nfip as a backstop, but we can't
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focus on that risk. 2901 is going to shift to the private industry. private industry will have trouble ensuring the 1% category without a pretty reasonable rate. and focusing on their mission of mitigating flood losses, that in our opinion is a better focus of reform nfip. >> do you think shifting the exposure to the private sector is going to be too much for than to bear? we tried this before. we are talking about shifting more and more exposure to the private sector. do you think that would run away private sector participation? or would they be jumping for
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joy? >> we don't know. what the private sector is going to do. because they are not in that business on a large role today. so it is something to us that is worth trying. in louisiana we have a high concentration of risk, we are very eager to have as many choices in order to expand homeownership and provide an affordable option and to me there may be something akin to the relationship we have with the fha and gsps and thrift -- >> for my colleagues here, use another -- know, inside. go-ahead. >> pardon me for going on.
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we are interested in expanding options. we are interested in seeing flexibility for the consumer. >> i yield back and. >> the gentleman yields back. the gentleman from new mexico, mr. pierce. >> appreciate your testimony, thanks, your testimony is extraordinary and precise, recommend more flexibility is needed under bigger waters. could you describe that flexibility. can you flesh that out a little bit more? what would it look like? >> i think what we are looking for is a clear definition of private flooding assurance. at has been one of the bigger waters bill, the definition is
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not very clear. >> would you have a sentence to clarify that? >> that is what h.r. 2091 does. >> it completely does that? >> right. >> i needed reassurance. >> mr. kelly, your testimony seems to hint there is no reason for private market but that is in contrast to miss miller's -- do you not find the private market, she gave three example's a did three people get insurance is out there for everybody. do you not find examples of that or is this something specific to her state? >> i don't mean to suggest that. there are opportunities. what we try to specify and what we have to reiterate is the surplus market is generally not the market of first resort.
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it is a market that exists to supplement what the standard market is not willing or unwilling to underwrite. >> you heard her example. and her written testimony, this one went out and they got it cheaper. sitting up here not knowing nothing about insurance except i pay for it usually when my wife does, not knowing much more than that is confusing. i am trying to pick out anything like that. so you just didn't find, you don't find the private market as viable as she does, that is what i want to understand is >> i don't mean to suggest that. there was an example given by out member here, i think it was the property in florida, in the flood zone, the structure itself is way up on the hill. is never going to be water. the fact that our markets can
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come in and underwrite that property even though it is classified as specific way by the nfip, we know that structure is never going to flood. >> gave me the impression it is a specialty market for special circumstances. is that the case? these three examples were not just people going out and shot an off-the-shelf, these were examples where somebody specifically went and said we will ensure that. that is easy and not like the rest of the flood was a broader market? that is all i am trying to assess. >> it is a good question and i don't mean to suggest this is a big market even in pennsylvania. we are seeing increased interest by surplus line carriers in part to combat the examples i gave you are examples my department is aware of. this is a very limited market. frankly from my perspective i would like to see if we can grow it and make sure consumers know. >> many of us would like to see
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the same thing. miss another points out, she talking about making sure there is liability. mr. kelly has on page 9 of his report and i'm sure you dissect it as well, page 9, has the rating agencies, if you took time to watch the movie the big shark, you see, if you watch the circumstances play out, the financial industry have all the rating agencies and frankly they were rigging the game, aaas were not aaa at all and someone made a lot of money saying they're going to fail and they did. if we were going to look at the soundness of the ratings, the best ratings mr. kelly referred to, your experience with that told us those ratings are going to be adequate, are they -- is that game cooked too we just haven't found out yet? >> please open your microphone. >> it is not adequate. if you look at the way state insurance regulation deals with
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admitted carriers, there is expensive oversight of the financial condition of admitted carriers which is more extensive than surplus line carrier its but number 2, this whole idea that somehow bigger waters gives the gsc responsibility for financial regulation of insurance companies is a real mischaracterization. saying they can determine the claims paying ability means they can require that the insurer have a certain credit rating of b or more which is precisely what they do now for hazard insurance. so it doesn't give regulatory authority to the gse. it simply says you don't have to take any insurance policy that comes your way, you can require insurance policy where the insurer who demonstrated a claims paying ability by credit rating agency, rating of the or more or something along those lines. that is why it is important to keep that in bigger waters.
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>> thank you, mr. chairman. >> the to the gentlelady from california. >> thank you for holding this hearing. these hearings are very important, because we are dealing with a rather complicated issue of how to have national flood insurance program that serves our public well. let me apologize to everybody, and for many months, the unintended consequences, and if the bill passed, we helped to reduce the cost of the premiums, etc. etc..
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i want you to know i am very interested in whether or not we could have a private public operation that will do the best job for our constituents and i have been working with mr. murphy and mr. ross and i commend them for the attempts that they have made to have this bipartisan issue. this bill we are discussing today, 2901. i recognize there are some concerns and i think you have identified some of the same concerns that i have but i want to know from you, do you think it is possible to have this private, more private participation and involvement in the ways that mr. ross and mr. murphy would have it? do you think we can work this
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out? >> i think yes, absolutely. we can get more private market involvement and flood insurance but with respect i don't think h.r. 2091 is the way to go with that. one of the problems with nfip is various and conflicting requirements, make insurance affordable but not only have premiums that are sufficient to pay claims but payback all of the claims in the past that were far in excess of the revenues. when you have those conflicting things, how do you address that? what would happen with h.r. 2091 is surplus lines insurance would cherry pick certain policies and right now the nfip looks at a special arianna and has 30 different levels of risk with one being highest elevation and lowest risk and 30 being the lowest elevation and highest risk, they than average claim
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costs for that for everyone in that is surplus line insurers are going to take off everyone from 1 to 14 leaving the nfip with everyone in 15 to 30 with the result that nfip is stuck with no more revenue to deal with that. you deal with more financial problems down the road. the proposal we put forward full begins the private market not only the responsibility but the tools to price the product and utilize all of their names whether that is catastrophe modeling or reinsurance, all of the pricing tools that they can to get flooding assurance right. >> would you briefly describe your proposal? >> the proposal is congress or the states require that flood the part of a homeowners and
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commercial property insurance policies so remember these -- private insurers already providing property insurance, asking them to add the flood peril. what that would mean is you have far more efficient delivery of the coverage of flood because you would not have to have a second policy. you would have all the skills and tools of private insurers in pricing, access to catastrophe modelers to get the pricing right. and all of the catastrophe reinsurance and catastrophe bonds and alternative capital to support that. you then transition to a lot reinsured the same way terrorism risk insurance program works. that has been a successful model. this would accomplish so many things, not only would it delivered cost of flood more efficiently but it would expand flood coverage. it would give consumers the coverage they expect at the time of the event, instead of surprising that with there's a
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flood and i am not covered. more importantly how many times have we seen floods in areas that are not special flood hazard areas. this would mean everybody is covered even if they happen to the outside special flood hazard area. this would transform federal expenditures from massive disaster relief to investments in lost mitigation and reduce disaster relief expenditures down a road. this is the only long-term solution. >> if i may, mr. chairman, what you are indicating is mandatory insurance for everybody to participate. i agree with you, first of all, bigger what is attempted to address was just impossible. we could never paid that down. or take care of that. what would you say about constituents in the flood zone?
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or be responsible for those people who decide they want to live in places where it they know the risk, what would you say to a politician about that? >> the beauty of having the flood as part of the private market, private flood, homeowners or commercial property, insurers would price the coverage of flood according to the peril, ought so consumers who live in areas that don't have high exposure to flood they would pay little or next to nothing, consumers who live in a high flood risk area they would a lot more. the private market would reflect these risks a lot more responsibly than the nfip because the nfip is required to go through the link the process with the flood maps. so imagine if the same process were required for wind coverage the way homeowners insurance is sold today. that would be a disaster for
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providing wind coverage. by turning this over to the market everyone pays their fair share. instead of the system today which is a bunch of hidden subsidies. taxpayers are -- some taxpayers live in areas without much flood this end up paying for fled because the federal government has lent $24 billion to a nfip program that is not financially sound. there are subsidies they're not only from one set of nfip policyholders to is that subsidies from taxpayers to other taxpayers. >> i need you to wrap it up. >> by moving this to the private market, you would introduce a lot more equity in the price of flood insurance and make it a lot more transparent. >> thank you, i appreciate that and i am hopeful you can work with us as we tried to figure out what we are going to do to reform the national flood insurance program and have some private involvement in it, thank you, mr. chairman.
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>> recognize the gentleman from florida, mr. posey for five minute. >> i express my appreciation to blaine leutkemeyer in efforts to get ahead of this issue a little bit. national flood insurance program currently $23 billion in debt, that is the clearest indication we ever have that is not working in its present form. from the hearings will help so far, i am encouraged that at least every member seems to be able to agree on that. at one time, age 03 was said to be the broadest, most inclusive form of insurance ever written, standard homeowner's insurance policy not only covered a lot of perils such as fire and wind at
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one time, it had liability coverage and if you can shoot the neighbor with a bow and arrow, that provision is pretty broad. don't know if that is still the case, still considered the broadest but the question i have is a historic one if any of you could answer it. and that is if flood was ever included in standard property insurance policy before, homeowners or otherwise. can any of you answer that estion? >> not to my knowledge. >> can you repeat the question? >> yes. was the peril of flood ever before coverage by age 03 policies? was never covered? next question is when did it
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cease to be covered? >> basically congress created the nfip in 1968. that is when private industry came forward and said we are not willing to cover flood because the risk is concentrated in certain areas, we can't diversify it and we have a hard time identifying the risk because the flood maps, at one time it was covered. is a cover earthquakes in california? is that a standard cover? >> no, no. >> okay. what do you think would happen if there was a small sentence added to legislation which said if you cover any property which
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has mortgage insured by the federal government, you shall not exclude the peril of flood from the coverage. what do you think would happen? >> i think what would happen is private insurers would start offering the coverage of peril of lead in their homeowner's policies and if they didn't, then state residual markets would be providing that. so for example in florida, just as right now if the company is not willing to right wing it coverage and consumer would go to florida citizens so if a company were not willing to write fled, then the consumer would go to florida citizens but the ability for companies to write fled today is completely different than it was 40, 45 years ago. companies have access to catastrophe models, they have access to very distinct and clear and detailed iron is asian
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of risks, there is access to reinsurance and alternative capital that didn't exist 45 years ago. the opportunities are there, there just needs to be a nudge from government to do so. that nudge would be a requirement that they include it. >> i am not opposed to that concept for sure but i must say citizens put florida taxpayers on the hook greater than any other risk ever known to the citizens of florida. had citizens brought up coverage free 2004, and 2005 hurricane season as it does now, florida would probably be in the a better financial state. definitely not a real clear answer to have a government-owned insurance company be the largest one in the state. with never enough reserves when you live in a hurricane prone
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peninsula to cover innumerable losses. fortunately our states cannot just print more money and go into debt, they have on constitutional requirement to balance their budget and they can't fool the escapadpull the federal government can. >> chair recognizes joyce beatty for five minutes. >> first let me say that i support what ranking waters said in relationship in wanting to be able to look at a public/private operations so i am going to try to get through two quick questions, one that mr. bradshaw comments it relates to the
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national flood insurance, we certainly heard some interesting testimony here and i had opportunity to look through your written statement and one of the concerns i have is the area of moving away from the national insurance program to privatization. i am concerned, my colleagues on both sides of the aisle are concerned or should be concerned and i know fema is concerned when you look at the $23 billion in debt and so i guess my question is if we talk about as you stated joy we move away from privatization, move away from the way it is to privatization, what happens to the $23 billion in debts, certainly one would not expect fema or the taxpayers to be left holding the bag and when you recommend the national
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flood insurance program get out of the bid of being flood insurance provider and do the transition, i don't think i saw anywhere in there where you addressed what happens to the $23 billion in debt. did i miss it that or is there something there that you can share with us? >> short answer to your question is the same thing is going to happen would happen as is going to happen right now which is taxpayers are on the hook for the $23 billion. right now there is this belief that somehow the nfip is going to generate funds in the future sufficient to pay back the $23 billion. >> giving you are continuing to require the nfip to subsidize rates hands with h.r. 2091 you are going to put the nfip in a position of being even more financially vulnerable you are not only never going to payback of $20 billion through the nfip
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but you will create a larger requirement to borrow from the treasury so that answered to the question is that $23 billion is there. cut your losses and move to a system of sustainability. >> that makes it go away? >> doesn't make it go away but congress, congress has to pay the $23 billion because there is no way that the nfip is going to repay back overtime even under is the current requirements let alone under the requirements of h.r. 2091. >> what i am hearing and you are the expert is if congress is going to pay it to be privatized and congress is going to have to pay it to leave it the way it is, where is the in between of public and private in sharing in that cost? >> by moving to flood as part of the standard homeowners and
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commercial property insurance what happens then, stops being on the hook for flood insurance losses. it means the private market is responsible for accepting the exposures, pricing them appropriately and paying the claims. the bleeding stops and that is what is necessary at this point. you are accomplish several things by putting it with the the private market along the proposal we made. not only stopped the hemorrhaging of federal money but number 2, you get better pricing, more comprehensive coverage and get better opportunities for loss mitigation. you get private insurers now incentivized with loss medication in a way they carry they have no interest in doing. >> for the second time i will move on quickly to mr. bradshaw. can you tell me the value of the
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flood plain maps as it benefits lower and middle-income americans and first-time home buyers? >> certainly the value of the flood plain maps are significantly improved today as compared when i started in the business in 1971, when we received a big box role of maps and our objective or our assignment was to locate all the properties on the map so the digitization of the maps help to improve significantly, we believe, the underwriting of the flooding assurance risk. all that being said there are several places with the mapping that are incorrect and the private market will be able to identify those from using different approaches and hopefully that provides more
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choices, that provides more opportunities for our consumers to afford the flood insurance particularly the lower income and new home buyer. >> thank you. >> the gentlelady's time is expired, recognize myself for five minute. miss miller, you spoke in your testimony about some of the obstacles preventing you from being able to authorize private flooding assurance in the state of pennsylvania. are you seeing an influx of interest from the private market to want to write flood insurance in pennsylvania? >> we are not seeing an influx of interest. it is still a very limited market. we are seeing some increase interest, we're seeing more surplus policies, but still it is a very limited market. >> if h.r. 2091 were to pass to you think that would change things and allow more private capital in pennsylvania?
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>> that is my hope and why i am supporting it, i would like to see the private market grow and consumers have more options. >> if the private market does grow and they are assessing the risk based on their models that based on what they believe is appropriate for risk based analysis do you feel there may be an opportunity that they might only offer of lead, but also want to include it in an all perils policy since managing the risks? >> i think that is right. >> would that not lead to an opportunity where we have even more people listening other insurance commissioners across the country do as you do to include more people to -- private carrier can operate at a lower price? >> that is the hope. >> would that lead to an opportunity where you would see more and more policies include and they are all perilous, flood. but to keep it the way it is where we bifurcate nfip against an all perils policy won't help
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the situation, would you agree? >> yes. >> i have enjoyed listening, i agree and think you will too that when he states in his testimony consumer protection provided by the states are far greater than those that exist with nfip insurance would you agree? >> yes. have you had any problems, let me put it this way, do you feel comfortable continuing to allow surplus line carriers to write flood insurance in the state of pennsylvania? >> absolutely. >> brady kelley, surplus lines don't just right flood insurance. >> they don't just right for insurance. i appreciate that question. we heard here surplus lines are not regulated. we heard they are not licensed. >> if you would discuss those. >> simply incorrect. every surplus line insurer is licensed in a state. might not be licensed in every state but in order to be eligible as commisoner miller described, you have to be
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licensed in your state of domiciled. the regulation of that ensure from financial solvency, market conduct perspective, none of that varies between standard market and surplus lines market. >> surplus lines writing flood insurance policies right now. >> absolutely and here is why. not just because of the bigger waters act but because for decades you had consumer solutions not solved by limits of the -- >> under the law surplus line carriers can write policies and the number of policies growing overtime in flood insurance? is it growing? >> it is not significant. you have seen my testimony and i will recap here, we have six states for the biggest states that capture fleeting assurance data and those six states which represent 56% of the surplus lines market, $134 million in
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2014. >> with h.r. 2091 assistant facilitate the increase of policies available in being purchased. by consumers or flood. >> yes it would. >> we talked about mitigation yesterday and i think the overall goal of flood insurance policy as in many insurance policies to have the minimization of risk with the benefit of an affordable policy because if you don't focus on that we are providing is nothing but rallied and relief is not where we want to go because that creates fema and greater problems without any control. what benefit is there in making sure that we allow for incentives to mitigate the risk, and what benefit is being provided by right now by nfip for that mitigation, anybody want to take a stab at that? >> the key incentive for loss
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mitigation is proper pricing of the insurance product. >> you are talking about something not want to talk about. would not consumers benefit greater for having more of assessment of risks done in a granular fashion if the private carriers were involved to make sure they are protecting their investment on that risk and to the benefit of the consumer so we would have thought more affordable market with less risk of loss to the consumer. >> answer to that is yes if it were comprehensively done by the private market if you do just selective with cherry picking of h.r. 2091 you have some consumers who get that. >> i would suggest h.r. 2091 offers that transition to create the market of last resort which is what the panelists would like to see in the overall equation. my time is expired.
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recognize mr. rothfus from pennsylvania. >> thank you. i am going to talk a little bit about the surplus lines insurance, you mentioned in your testimony that there is a growing appetite and surplus lines market to provide flooding sure, private flood insurance coverage and pennsylvania has had some success with surplus line carriers offering flood insurance, taking a national perspective do you feel comfortable with surplus line carriers writing private flood policies? >> i do. in fact in pennsylvania one of the things we're trying to do as a department is figure out how we can do a better job letting consumers know this option exists, that is how comfortable i am with surplus policies. >> talk a little bit about the regulation of the surplus lines insurance. how do regulators monitor financial health of surplus
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lines insurance? >> absolutely. as mr. kelly indicated surplus lines carriers are licensed in the state of their domicile so in that state they are meeting the capital and surplus requirements the carriers are meeting. and so even though we talked earlier about the fact that the guarantee fund doesn't apply to surplus lines there is financial monitoring of surplus lines carriers and even -- there capital and surplus requirements on surplus lines carriers as well as carriers who are not domiciled in the u.s. so i am comfortable we have a lot of financial regulation, protection, but also we have in a state like pennsylvania if we have surplus lines carrier that is not domicile in pennsylvania we still have authority over placement of that insurance with surplus lines broker and opportunity to go after that broker if there is misconduct but we also have --
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>> what kind of misconduct by you talking about? >> in pennsylvania we have a requirement they notify policyholders that guarantee fund doesn't apply. if they misrepresent the policy somehow or if they place the policy with a non admitted or a non eligible surplus lines carrier we can go after that. >> these are basic consumer protection items. >> exactly. we also enforce requirements related to the eligibility of surplus lines carries to operate policies in our state so if we have concerns about the financial soundness of a surplus lines carrier, if they are not paying policies or not paying claims timely or if they are violating our laws, we can declare them ineligible to policies in our states. additionally, in pennsylvania we have what is called unfair insurance practices act. states have similar laws title the little differently.
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these again our consumer protection statutes. they make sure claims are paid appropriately and the insurer and roker are not misrepresenting policies and what is covered and this act applies to surplus line carriers like admitted carriers. >> you expressed concerning your written testimony about the level of regulation. sets the table for more problems for consumers to purchase surplus line policies when an event occurs. i point out to commissioner miller, five surplus line carriers have sold flooding insurance, a state closely monitors surplus wine business, what evidence do you have to show state insurance commissioners or state regulators have not protected consumers particularly with policies sold to non admitted carriers in surplus lines?
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>> with admitted carriers. >> what evidence you have where you can show me where this has been an issue? >> the evidence is regulators don't have a 42 approved forms or rates. commissioner miller issued a bulletin on price optimization telling insurers they can't use a consumer's willingness to pave paws to determine the price they charge the consumer. she has no authority to do the same thing for surplus lines insurance and is the same thing with other great >> and policy forum issues. to include a provision -- >> i'm looking for specific examples where it happened, what evidence, that is what i am looking for. >> the evidence from forced place insurance market, the largest writers of private flood insurance today are fourth place flood insurers and the largest of those are admitted terriers. private flood insurance can be
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written by an admitted carrier. of private flood insurers when they reason surplus lines were charging exorbitant rates that were far in excess of reasonable cost of providing the insurance so that has been reined in part because the federal housing finance authority and some state regulators have said you need to move that fled from surplus lines to the admitted market. >> state regulators don't have the authority to go after them. would state rather is have the authority? >> they have authority for financial condition but they don't have the same authority as they do over admitted carriers for things like policy forms and reads. if they have a great consumer protection in surplus lines with dozens of pennsylvania or every other state allow personal auto and homeowners to be written in surplus lines market? why is that admitted in the admitted market? they are more consumer protections in those markets. >> would you care to respond to
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that? >> surplus lines the way it works, for unique risks. that is why we have admitted carriers that rate the rest of personal line policies because we have laws in all the states about diligent search requirements and if you could buy a policy to the admitted market that is what you do. it is terp plus lines for unique risks that are not being written by the admitted market. >> yelled back, mr. chairman. >> the gentleman's time is expired, the chair recognizes the gentleman from kentucky for five minutes. >> i think mr. ross for his leadership on trying to tackle this complex issue, mr. murphy as well, thank you for your efforts in trying to deal with what is clearly a complicated issue and the huge potential liability for the taxpayer. and affordability issue for a lot of my constituents in wrote central and eastern kentucky. i appreciate what 2901 is trying
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to do in terms of clarifying state insurance regulators have the authority to regulate private flood insurance clarifying definition of private flood insurance but i want mr. bradshaw and mr. kelly to address the point of that i think is a pretty interesting and good point and that is there is this impediment to private insurance offering flood coverage based on the simple fact that they have to compete with subsidized rates of the nfip. what do we fundamentally do about this fundamental problem? about the competition with subsidized rates? >> that is a challenge. in terms of the future of nfip, we will be embarking this year,
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i know the reauthorization is coming up next year and sounds like there's a lot of interest in talking about ways to modify the program. we have not had conversations yet about potential recommendations for changes to that program but it was just an ounce i am chair of the property and casualty committee and i can tell you this is on our agenda for this year, we are looking at this and putting together our recommendations for ways that perhaps nfip could be modified going forward. from my perspective today i am here because i just want to see consumers have more options and i believe 2901 will provide more private market options for folks and i think that will be good for consumers. >> with regards to the affordability of the program, however this comes out, we are very interested in making sure that the consumer can afford the
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product. competition will bear that truth. we have the unique position in louisiana where we have such a high concentration of flood risk, very much of it is required, numerous customers are required to have flood insurance and the impact by nfip and a huge change in premium not only affects our consumers but property values and we have a high level of interest in. at the end of the day we are the guys protecting the investors. we are very interested in that. we would see that it is somewhat like the relationship with the general market of lenders and characters in the mortgage business, f h a has a role, looking back to the league 80s of the oil bust, it was tthe oi
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program in town. >> if he could enter two questions response to the testimony, in your view as an advocate of 2901, what is preferable about ross murphy to the trio model that mr. birnbaum is advocating? what is preferable to the surplus line solution to the model that mr. birnbaum is advocating and secondly could you respond to mr. birnbaum's contention that 2901 would give surplus line insurers the ability to cherry picker nfip policies that are overpriced and low risk making the nfip more financially vulnerable? i am interested in your thoughts on that. >> with respect to the concept of the trio model, 2901 does a
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very different job of pushing this coverage to the private market. the private market offers terrorism coverage businesses giving the private market the opportunity to get in and figure it out, invest in underwriting processes and get developed products. many standard companies i think over time will probably add to the policy like we talked about here. i think it will happen but it will take time. much of that experience will transpire out of what the surplus lines market is able to do. second question? >> the issue of cherry picking. >> issue of cherry picking. the issues you are trying to balance our affordability, availability, financial stability of flood insurance, terms like cherry picking, adverse elections, they have very negative for bias when it comes to private companies and business decisions based on actuarial data, capacity, risk
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appetite and experience, a private market financial stability is in all of our best interest making decisions about regions to write in, capacity to allocate to those regions, those are essential elements to maintaining a solvent viable market place. regardless which risky transfer, starts to transfer some of them and reduces long-term exposure to the subsidized federal government. >> i yield back. >> to the gentleman from texas, mr. williams. >> thank you for your witnesses today and participation. mr. birnbaum, you heard i am from texas. ..
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>> h.r. 2901 windows from biggert-waters the limitation that private flood insurance can be written by surplus lines for commercial policies. it opens the door to surplus lines for residential flood insurance. by doing so it means that private flood insurance basically moves out of the admitted market where there are far more consumer protections that in the surplus lines market. that's the basis for that
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assertion. >> number two, was your assessment of the state regular system in light of your statement on page 19 meaning do you have a lack of faith in the state regulatory process? >> no. oi'm a strong supporter of state-based regulation. it has not been in unqualified success but i'm so strong supporter of the. reason, i demonstrate that strong support by saying flood by being part of the standard homeowners and commercial property insurance then becomes the responsibility of state insurance regulators. what h.r. 2090 what does this creates, continues this apparatus of constricting the nfip giving them all sorts of requirements and constraints, giving the state-based regulators certain responsibilities but the overall thing makes no sense. if you want to get a sustainable future venue utilize the private
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market but give them the full responsibility overseen by state-based regulation. don't include this nfip that is required to provide sort of subsidized insurance which gives the private sector the opportunity to say we are only going to take this most proper business, leave the more risky and less profitable business to the federal government. you are privatizing profit and socializing the risk. that is exactly the thing that is outraging people all over the country. the type of crony capitalism that basically says look, we will give one group of people the government advantaged instead of trying to create a level playing field for everyo everyone. >> how would the state regulation of flood insurance differ from the process for homeowners or other insurance lines? >> right now for surplus lines what commissioner miller and others have said is they
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regulate the financial condition of the surplus lines insurer and they have some ability to regulate sort of marketplace to misconduct. but they don't have the ability to ensure that policy forms are not misleading or deceptive. they don't have the ability to ensure the rates are not unfairly discriminatory. more important bit of have the ability to make sure that the nfip needs its goals. you know, so you have federal requirements for flood insurance and you were essentially delegating part of the responsibility for ensuring that the state-based regulators. while on a big supporter of state-based regulation, there have been some notable failures. if we look at private mortgage insurers we saw and the financial collapse, private mortgage insurers fail. those were under the purview of state-based insurance regulators. we are not talking about a pristine record, but i faith in state-based insurance regulation
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if you give them a comprehensive tools to do it. not piecemeal approach of 2901. >> i may private sector guy. i'm in the retail business and i can tell you counties to represent we've got a lot of flood problems, and way to get right is turned over to the private sector. let the private sector can be. let the consumer drive the industry, not the federal government. i think you will see prices will be right, service will be better, and i'm happy to be on h.r. 2901. i yield back. >> gentleman yields back. with that, the gentlelady from new york ms. velazquez is recognized for five minutes. >> thank you, mr. chairman. i'm sorry i wasn't here to listen to your testimony but i was in a markup of come and the small business committee. we just finished u one of want o thank you all for being here. and i have just one question to
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mr. bradshaw. my district in new york city which ncompasses communities on new york city's lower east side were especially hard hit by superstorm sandy. in a january 2014 report published by the gao, some stakeholders noted that the rate increases associate with private-sector flood insurance could lower a home's market value at some stakeholders also expressed concern that hold communities were at high risk of floating, like those my district, could become economically untenable if increased premium rates make flood insurance unaffordable for too many residents. mr. branch off, how do we ensure premium rates on flood insurance do not rise to such a level that
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it causes homeownership rates to decline, particularly inconsolable communities? >> -- vulnerable communities. we've got some summer experience with hurricane katrina, and our part of the country in the gulf coast is very much at risk just as you, incirlik taking nothing away from the flooding that's taken place from the mississippi river and the missouri right now as well. people are in harm's way. we looked to committee such as this to make sure that those folks that need help in order to maintain their property values in order to continue to make a living, to continue to have access to homeownership, from that perspective there seems to me to be a parallel between what
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fha does in the whole mortgage business and what nfip does into the flood business. in our part of the country, one example, carries 25-34% of the petrochemical business from the gulf up to the mainland. there are reasons that that has to be there. people have to work there. so that very well may require some subdivision of premiums for people in that area. it's very important. i'm not sure i know how to do that. i know that what we have right has created $23 billion in debt, and that if we fail to plan for the next event, if there is an event, then we will merely read experience what we have today. so we are very eager to help protect the consumer. we are very eager to be very
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interested, preferable, to help protect the consumer. because without them it our business goes away. >> thank you. >> gentlelady yield spike. a gentleman from texas, mr. green. >> thank you very much, mr. chairman. i thank the witnesses and, of course, i always think the ranking member for her leadership on these issues. i lived through katrina, and it's inappropriate to cite i lived through it because i wasn't actually there. excuse me, this may be the president calling. [laughter] i wasn't actually there. it's not the president, okay. so i will take the call. i wasn't actually there, but i arrived shortly thereafter. and i saw the tragedy that was
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left behind. i went to sri lanka after the tsunami. i was in the philippines, and i know what this looks like, the aftermath. and it's not a pleasant sight to say the very least. i'm being very quite euphemistic. here is the question that i have for you, dear friends. are you indicating that if we have this system in place, pursuant to 2901, that we would not have expended the billions of dollars that we had to expand after katrina? that this would eliminate the necessity for the federal government to step in? is an important question for me and my constituents. if you would. >> so the attitude that is 2901 would not have prevented any of the problems that you just
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described, because 2901 would continue to lead the nfip with those policies at high risk areas. they will continue to be nfip charging inadequate rates. and continue to have subsidies for people who don't need them. so you would still have the same problem you what to take it as a matter of fact, it would be worse because the nfip instead of broadly averaging its rates and getting revenue per policies and lower risk areas it would not even have that revenue. the situation would be worse today if the 2901 had been a place. if our proposal of having the private sector provide the flood insurance, then the 23 billion would not be there today if our system had been in place. >> on the question of the billions that we currently find ourselves indebted to, i suppose to the treasury, would we still
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have that $23 billion debt if we had 2901 in place? >> well, yes. the 23 billion is not going to go away hundred existing situation, and it is really not going to go away under 2901. it's going to get worse under 2901 because the private sector is going to take the most profitable of the policies. remember i told you the nfip puts things into 30 risk categories with one being the lowest risk, 30 being the highest and then averages that. the private sector will come in and take one through 14, leaving the nfip with 15-30, the most risk. the nfip is one of almost just the same risk but much less revenue. the situation is going to get worse for the nfip. it's going to let the private sector cherry-picked the most profitable policies that are out
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there. what's needed is to give the private sector the responsibility to handle the entire problem, which is priced all of the policies. this was going to be an issue with affordability. there's just no way about it but you cannot affordabiaffordabi lity address to the insurance pricing system. when you underprice insurance you create incentives for people to invest badly. you invest in areas where it's not sustainable. it's trickled of risk based pricing. it's also critical to the financial assistance delivered in the form of lost medication. instead of giving people a grant to pay for the insurance, give them money to mitigate their home so they're less exposed to blood. reduce the cost of flood insurance by reducing the exposure. that's what the target of federal expenditures should be. the delivery of the insurance should be in the private sector. >> thank you. i yield back the balance of my time.
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>> gentlelady yield spike. mr. murphy is right justified spectrum one. thank you ranking member cleaver and ranking member waters take you for leadership on this and mr. ross was no left, thank you as well for his cooperation working by personnel to make some progress here. i very much appreciate the input of all the panelists today, the witnesses for the support discussion hearing all your comments and thoughts. bottom line is how can we provide more affordable flood insurance options for people all across the country? this legislation we are discussindiscussin g the flood insurance market parity and modernization act which i spot a with my good friend and fellow floridian mr. ross aims to do just that. this act would provide more choice, greater competition and less cost in the flood insurance market. it would accelerate development of more flood insurance options by allowing policies accepted by
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the state to satisfy mandatory coverage requirement under the nfip. when congress passed the national flood insurance back its intention was that insurance companies would provide flood insurance coverage for the american people. and when the legislation that was recent update under the ticker -- biggert-waters reform act of 2012 that intention was, in fact, reaffirmed. however, due to the lack of legal clarity on the particulars of insurance policies, allowed into the program, most lenders have not accept a private flood insurance to meet mandatory coverage requirement. this bill would solve this problem by providing a simple and clear definition of private flood insurance except that for the mandatory coverage under the program consistent with the successful regulation of other forms of insurance in the marketplace. that which is issued by
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insurance company license come admitted or otherwise approved to engage in the business of insurance in the state in which the property is located. i believe there will always be a need for the nfip program not there is more than blood risk after that can be written right now by the private insurers that are willing to do so. get a compass capability will not only continue to advance with the growth of new technology and modeling your ensuring access to private flood insurance choices will help reduce the risks to which taxpayers are exposed under the federal program, and especially because flood insurance coverage is mandatory in many areas, customers need more competition and options in a flat market to make more affordable. i ask my colleagues on both sides of the aisle support this legislation and give our people more choice, greater competition and ultimately less cost when it comes to flood insurance. i came to congress as did most
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of us here to work with everyone no matter what party affiliation and to solve problems. i think this legislation is one example of an area we can actually make some progress in this last year of this administration i urge my colleagues to do so. in my remaining time, question for mr. kelley. one of the topics of discussion we had in this conversation writing this legislation dealt with surplus lines and their role in this. approximately how many surplus lines between on the top of your head flood insurance policies in florida have been accepted for the purposes of nfip mandatory purchase? >> you know i've got the florida data here somewhere. i've got a combined with six states actually. in 2014, $130.4 million of premium written in those six big states, florida, california,
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texas, new york. 32.9 million, 24%, covers residential property. and that category only about 29% represents primary coverage. the balance in excess coverage on a personal residents. so it's still a relatively small share of the overall surplus lines more to come less than 1% of the $40 billion market nationwide. >> mr. berenbaum, in your opinion how does this differ from homeowners insurance? both seem to be intended for the same thing but that's protecting alone in an event of a disaster. how d.c. the difference? >> i don't. that's what our proposal is to require that a homeowners insurance policy cover the peril of flawed. that would deliver that coverage far more efficiently than through the requirement of a second policy. it would mean that everybody gets the coverage they expect
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and pay their fair share for the coverage, then under the current system. and private flood is already being provided by the admitted market to a greater extent than the surplus lines market. as i mentioned, force placed flood, there's more forced placed flood ridden by eddie medicaid and the surplus lines numbers that mr. kelley describe. it's not as if it's unfeasible for admitted carries to write flooded. it's feasible. the question is what's the best way to nudge the private market into this? and may be the best way is to require that coverage of flood in those homeowners and commercial property policies because that accomplishes a variety of things including problems with the nfip as well as fairness issues and promoting lost medication. the problem with respect, the problem with 2901 is it addresses a very narrow issue that can create problems in
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other areas of the flood program. >> thank you. >> the gentleman's time has expired. we will go for a second run. one or two questions that shouldn't be too long. we do of votes coming up shortly. with that we will go to the gentleman from kentucky, mr. barr, recognize for five minutes. >> thank you, mr. chairman. just to follow up on an issue, there's a pretty good consensus you that we need to incentivize more private participation in flood insurance. but beyond the ross-murphy approach to bring in more surplus lines, companies that write nfip policies currently have to sign a noncompete clause which pushes these companies to the sidelines in terms of developing and offering private flood insurance policies. for any other witnesses who are interested in this, would you support language in h.r. 2901 or
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other legislation that would eliminate this noncompete clause that is really required by fema? >> so the answer to the question is you can't eliminate the noncompete clause without doing anything else. because if you eliminate the noncompete clause then you have a situation where the company is selling policies for fema and also selling its own flood policy. some of the company will do is to make its evaluation of what the riskiest policies are, give those to fema, the most profitable ones are the least risky and keep those. what you have is essentially adverse selection. so there's a reason why there's a noncompete clause. that's an example of we will try to address one narrow issue with a look at the broader problem. you really need a comprehensive approach at the conference is approach is the private market provides flood is part of the
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residential and commercial property insurance subject to the standard state-based regulation. the nfip transforms a catastrophic reinsurer role. that enables all the players to participate, private markets, state-based regulators, alternative capital and put the federal government in a role of focusing on lost medication which is the long-term solution to addressing flood problems. >> i would love mr. kelley to respond but it seems like in advocating the treo model, you're avoiding this adverse selection cherry-picking issue but you still have a federal backstop and just wanted which is the better model, mr. kelley? >> just respond. i agree with your point. i think that is one barrier we are sitting to the standard market stepping in, if they are already involved in the writer own program.
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they can't offer their own standalone programs. we haven't taken a position on the. that's not an issue with focused on but it clearly is a barrier that a think would get more standard cares involved. >> congressman, we also are in the same position. the naic is not taken a look at this issue, one of the issues that we look at the nfip program and potential recommendations we would make to modify the program to this would be one of the things we look at but i think it's a very interesting issue to look at. from our perspective 2901 would be a great first step. ithaca do that quickly anything having a conversation about changes to nfip would make a lot of sense. >> one thing, let me follow up with one final question. mr. birnbaum is making the argument that the ross-murphy bill would actually exacerbate
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financial solvency problems of the nfip. i think we all agree we don't want to get the nfip and more financial distrust than it already is. so as advocates of them ross-murphy approach did any of you all, ms. miller, mr. branch are, mr. kelley, what do address that issue? >> i be happy to. i think the issue of cherry-picking is a concern and something that we would recommend we monitor going forward. right now as i've said, this market is very small. there's too little data i think at this point in the market is going to react going forward. from our perspective if this bill were enacted sooner rather than later i think it would give us a chance to get more data and observe how this market is going to perform going forward. i think it does a couple things.
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one, it gives us and all of us would look at the nfip program, it will give us more information to inform potential changes to the program but also from state regulators perspective if we had more data it will help us as we look forward and think about ways we might do to change our regulation to address this evolving market. i think from our perspective i wouldn't want concerns about cherry-picking to get in the wake of us providing more options for consumers in this market. >> and i think back to that 1% category of properties. we've got to admit no one is lining up to write those right away. the thought of actually adding those types of coverage is, flood peril to that homeowner policy, that will price them out of their own. in our opinion. so it'll can focus on at least shifting some of the burden out of the program, you at least reduce the overall risk. that leaves you with a category
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the highest risk properties that perhaps original market is there to figure out. in our might allow the nfip given focus on what you do about mitigating that risk is what you do do about preventing flood damage in those areas? >> i just need to jump in real quickly and say, it's absolutely crystal clear that this bill would allow surplus lines and encourage surplus lines and ensures to cherry-pick. it's obvious as the nose on your face. the only policies the surplus lines writers would you are the ones that they view as profitable. the nfip has a variety of policies ranging from less profitable to more profitable. what will happen is they will be left with the less profitable policies, the highest risk policies and less revenue to do it. there is no question this bill will lead to greater financial problems for the nfip. i'm really surprised that the
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other panelists are not acknowledging that. >> yield back. >> the gentleman's time has expired. with that we go to the ranking member, mr. cleaver for his follow-ups. >> thank you, mr. chairman. and begin before a close-up of what you think you for the vision of trying to get this done much earlier than we normally try to get critical legislation through. i just have one question. my son is in school outside of los angeles adequate and see all these houses built on cliffs, like i dare you to rein and wash my house down the cliff. because i'm on this committee i'm always angry driving through there and saying little words as i drive. but those are usually wealthy
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people. the chairman and i come and ms. waters, we were in the ninth ward just a few months ago, and ranking member waterston i was just a few weeks there after katrina. i had a son in college down there at the time. it was just decimated. the actor from missouri, brad pitt, raised a lot of money and they rebuild the ninth ward. most of the houses are not on stilts, but the people are still there. and these are not rich people. these are poor people. that ward was esther remains a low income ward, although people go to work everyday. so do we expect, would any of you believe that this practical
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to expect that poor residents, low income residents could actually pay the full risk rate for private insurance? or do they get left out? >> the answer to that is, they can't pay the full risk rate if there's no loss mitigation to get there in a high-risk area and their paint the full risk rate, then no, they're not going to be able to afford it spirit but it wouldn't able to afford a surplus lines policy either. but the question then is where do you want to spend your federal dollars? you spend your federal dollars to subsidize that policy or just danger federal dollars are lost mitigation that reduces the exposure for that homeowner and thereby reduces the premium? if you just simply subsidize the rate, and you set the table for repetitive claims to be the spend the federal dollars instead as an investment and
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lost mitigation and you reduced that exposure, reduce the claims, reduce the disaster relief. a model has got to be let's spend federal dollars on lost mitigation as a way to make the insurance more affordable. instead of subsidizing the rates. that's not a long-term solution. subsidy is not a long-term solution. lost mitigation investments are. >> that would be a fema issue and not miss this one that we would have to deal with, the mitigation issued. >> they go together. you can't tell the nfip to offer subsidized rates and then say invest in lost mitigation. >> they do in the real world that this ain't the real world. i mean, i would like for it to be but that's just not the way it is. i understand exactly what you say and i agree with what you are saying if we were in the

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