Extension of the NFIP--And meaningless measures?

IN sixteen days the NFIP authority to issue new policies or renew policies expires. I am predicting despite passage of bills in both House and Senate that a relatively clean 5 year extension will take place. Most of the measures could now occur by administrative actions but for almost two decades the NFIP managers have largely allowed Congress to dictate any changes to the NFIP administrative structure. Those measures have largely been repudiated by actual flooding events and the new ones are likely to do so also.

Despite a highly publicized effort to gather comments from many sources on NFIP reform [I myself submitted over 25] as far as I know the Administration submitted no recommendations on suggested legislative action.

In summary again the program has left behind the current managers and the competence of the Congressional staffs and lobbying interests to reform the NFIP and now it is at its highest risk ever as all begin to realize it did not impact disaster outlays from Hurricane Irene and Tropical Storm Lee in particular in Vermont, NY, and New Jersey.

Well time will tell whether my crystal ball is clouded.

NFIP Reform Suggestion!

Here is suggestion that many might disagree with who are in favor of strong effective floodplain management. Yet it is based on the long run which is the way the NFIP should be evaluated. 42 years still too short a period of record to determine the programs efficacy in accomplishing its purposes. And if flood walls in NOLA had not collapsed due to federal, States and their local governments negligence the NFIP would not be so far in debt. So here is the proposal:

The NFIP is composed of several statutes all codified at 42 USC Section 4001 and following. All are part of Chapter 50 of TITLE 42 captioned "National Flood Insurance"!

Current section 4023 reads as follows:

"No new flood insurance coverage shall be provided under this Chapter for any property which the Director finds State or local zoning authority, or other authorized public body, to be in violation of STATE or local laws, regulations, or ordinances which are intended to discourage or otherwise restrict land development or occupancy in floodprone areas"


Here is my suggested rewrite (and note this could be done administratively by delegation of NFIP authority to each Governor thereby avoiding a need for legislation):

NO NEW FLOOD INSURANCE OR RENEWAL OF FLOOD INSURANCE SHALL BE PROVIDED BY THE ADMINISTRATOR FEMA FOR ANY PROPERTY REPORTED TO FEMA BY ANY GOVERNOR THAT HAS BEEN DECLARED BY THAT GOVERNOR OR HIS OR HER DELEGATE TO BE IN VIOLATION OF STATE OR LOCAL LAWS, REGULATIONS, OR ORDINANCES THAT ARE INTENDED TO DISCOURAGE OR OTHERWISE RESTRICT HAZARDOUS DEVELOPMENT OR OCCUPANCY OF FLOODPRONE AREAS."

Over time FEMA and the states would be able to determine what states and their local governments are worthy of federal subsidy for existing structures in return for restrictions on future hazardous development.

Today's Senate NFIP Hearing!

There were some signs of intelligence from the panel of outsiders briefing the Senate Banking Committee tomorrow. But no real concensus except for a lengthy NFIP statutory extension. Not much in the way of intelligence expressed by the Senators themselves. Clearly the fact that the flood insurance program is drive by science and engineering and land use not insurance principles continues to escape most of the Committee.

And the NFIP officials continue to waste legislative opportunities to strengthen the NFIP. The GAO witness was equally unhelpful and wondering how this important federal program escapes from sophisticated analysis. Senator Vitter of Louisiana of course begged that this crucial program for Louisiana's survival be extended and made cheaper and broader as a relief program for that clueless state.

I now see why so few real reforms came out of the financial meltdown. This Senate Committee is just not smart people and a drag on the future of the USA.

Even the Homebuilders rep made nothing but special pleading trying to avoid tough enforcement by the feds, the states and the locals as if the developers had not been almost totally responsible for development of housing in substandard areas.

So the NFIP will be extended from its September 30th expiration and most of the effort to modify will be to study it more as if its problems are unknown to one and all.

The bottom line of course is that flood insurance and disaster outlays will be increasing not decreasing as STATES and their local governments continue to be grossly negligent in allowing unwise development.

There are solutions to the NFIP's problems but few understand them enough to articulate them and see their implementation. One key one of course would be to void all policies issued ab initio when determined post claim to be in violation of flood plain management regulations but give innocent homeowners the right to sue their community for damages for allowing such a violation to occur.

How Flowage Easements may end the NFIP?

Flowage easements allow the USACOE to periodically innundate not just agricultural land but also improved real estate and are designed to allow preservation of levees and other flood control structures during high water. The issue of prohibiting the issuance of NFIP insurance on flowage easements was addressed by me during my time in FEMA--1979-1999 and even before in HUD from 1974-1979! Not only was I opposed by those adminstering the NFIP but even the USACOE opposed such a prohibiton. As with areas behind levees, the NFIP maps never showed flowage easements. Now like Hurricane Katrina and its collapsed floodwalls in NOLA many claims may well be paid on insured real estate and further undermine the NFIP solvency.

Those who have followed my blogs and suggestions for NFIP reform know that I have continuously suggested that areas containing unmapped hazards have NO AVAILABILTY of NFIP insurance.

Since the NFIP by law is prohibited from subsidizing structural protection works means that the NFIP should send the bill for any payments to the USACOE as part of the costs of the USACOE opening the Bird's Point Floodway Levees and the Morganza Spillway.

Clear documentation of my efforts exist in NFIP rulemaking files because the exclusion for flowage easements actually made it into proposed rulemaking even though not finally adopted.

Another case where I would argue that program administrators had no real understanding of the NFIP or the fact that it is a LANDUSE program not an INSURANCE program.

And sympathy to those impacted by the opening of the various spillways and levee systems.

I also understand the Old River Control Structure has been partially opened to protect that structure. Time will tell but all should know that in the last 5000 years the actual outlet of the Mississippi river has wandered/meandered from the TEXAS border to the Mississippi STATE border.

NFIP REFORM TESTIMONY

FEMA Adminstrator W. Craig Fugate is scheduled to give testimony on Friday next of NFIP reform.  His prefiled testimony from March 11th was postponed by the Japanese earthquake and tsuanami.

I have taken the liberty of rewriting that prefiled testimony and wondering what readers of this blog think about my rewrite? If you like it write to your Congressional members and if not ignored it.  

Here it is:

VLG Version

I. Introduction

Good afternoon Chairwoman Biggert, Ranking Member Gutierrez, and distinguished Members of the Subcommittee. My name is Craig Fugate, and I am the Administrator of the Federal Emergency Management Agency (FEMA). It is an honor to appear before you today on behalf of FEMA to discuss the National Flood Insurance Program (NFIP).

The National Flood Insurance Program serves as the foundation for national efforts to reduce losses of property from flood disasters, reduce free disaster relief expenditures, and has been estimated to save the nation $1.6 billion annually in avoided flood losses. By encouraging and supporting mitigation efforts, the NFIP leads our nation in reducing the impact of flood disasters that are 80% of all disasters declared by the President. In short, the NFIP saves money.[note that no study ever indicated the NFIP saved lives.] While the NFIP has experienced significant successes since it was created 42 years ago, there are a number of challenges currently facing the program. The most significant challenge is making the program fiscally supportable.. The NFIP must continue to offer available and affordable insurance in the absence of a private market that will properly identify those at risk and provide them adequate coverage, while reducing the need for taxpayer-financed disaster assistance. Those who occupy the flood plain should bear the full costs of that occupancy including environmental costs which should be fully documented and understood.

In my testimony today, I will provide a brief history and overview of the NFIP and discuss critical changes FEMA or Congress have made to the program over the years. I also plan to discuss the recent efforts of FEMA’s NFIP Reform Working Group, which is developing  policy recommendations for comprehensive NFIP reform for the Secretary of Homeland Security. It is important to note, however, that the Administration has not taken a position on the preferred course of action for NFIP reform and that these are currently draft proposals from the NFIP Reform Working Group. Congress has been a valuable partner in all of our NFIP efforts, and we appreciate your attention to this important matter.

One major recent decision on the NFIP was made in full consultation with Congress and that is to credit levees that may never be built for lower rates for policy coverage. This decision may be challenged by Environmental groups in the federal courts and does not promote fiscal soundness.

II. Overview of the National Flood Insurance Program

The NFIP is designed to insure against, as well as minimize or mitigate, the short and long-term risks to property from the effects of flooding, and to reduce the escalating cost of flooding to taxpayers. Flooding can occur along river banks, or result from weather-related coastal hazards, such as cyclonic storms, related storm surge, tsunamis,, flood related erosion or mudslides. More than half of the U.S. population lives in coastal watershed counties or floodplain areas. Flooding was the most costly and prevalent natural hazard in the United States in the last century.

History of the NFIP

Major flood disasters in the United States in the 1920s and 1930s led to federal involvement in the effort to protect lives and property from flooding. Even though Congress enacted the 1936 Flood Control Act to reduce the overall risk of flooding, there were still significant at-risk communities that lacked insurance. In the 1950s, it became evident that private insurance companies could not provide flood insurance at an affordable rate. At that time, the only relief available to flood survivors was disaster assistance through the Federal Disaster Assistance Program. In 1968, Congress established the NFIP to make affordable flood insurance available to the general public, and to protect communities from potential damage through floodplain management, which is the implementation of corrective and preventive measures to reduce flood damage.

When Tropical Storm Agnes struck the Nlorth Eastern US and in particular the Lycoming and the Cheaspeake Bay tributaries in June 1972, many communities were either unaware of the serious flood risk they faced or were unwilling to take the necessary measures to protect residents of the floodplain. Very few of the communities affected by the storm had applied for participation in the NFIP. Even in participating communities, most owners of flood-prone property opted not to purchase flood insurance; instead, they chose to rely on federal disaster assistance to finance their recovery. As a result, Congress enacted the Flood Disaster Protection Act of 1973 to establish a mandatory flood insurance purchase requirement for structures located in identified Special Flood Hazard Areas (SFHAs) that have a federally backed insurance or mortgages.

The next year, Congress enacted the Disaster Relief Act of 1974, Public Law 93-288, reflecting passage of the
Flood Disaster Protection Act of 1974. that contained several preparedness and mitigation provisions to reduce disaster-related losses. The Flood Mitigation Assistance program (FMA)  was created as part of the National Flood Insurance Reform Act of 1994 to reduce NFIP claims. This law established a FMA Grant Program to assist states and communities to develop mitigation plans and implement measures to reduce future flood damages. It also authorized the ICC coverage under the NFIP. This Increased Cost of Construction provision was a rider so those rebuilding in place post flood could mitigate future losses.

The federal government is underwriter of the NFIP, meaning that it determines what risks will be covered and the price of the premium to be paid for assumption of those risks. The private WYO companies that sell and service NFIP policies do not underwrite the program. And with the inherent risk that it assumes, the NFIP requires mitigation actions designed to break the cycle of repeated disaster damage and reconstruction. To mitigate against repeated losses and damage to properties associated with flooding, Congress established two programs in the Flood Insurance Reform Act of 2004 – the Severe Repetitive Loss program and the Repetitive Flood Claims program.

Today, more than 21,000 communities in 56 states and territories participate in the NFIP, resulting in more than 5.6 million NFIP policies providing over $1.2 trillion in coverage. However, only 8,000 communities have detailed Flood Insurance Risk Maps and many do not have designated floodways. Coastal communities are mapped with different mapping models for riverine/inland communities. Some communities do have both hazards.  To directly respond to the flood-risk reduction needs of communities, FEMA has produced digital flood hazard data for more than 88 percent of the nation’s population. This effort was largely based on improved contour interval data including that derived from LIDAR. The NFIP floodplain management standards in each participating community if correctly adopted and enforced can help to reduce flood losses in newly constructed buildings by more than 80 percent.

Prior to 2003, more than 70 percent of FEMA’s flood maps were at least ten years old. These maps were developed using what is now outdated technology, and more importantly, many maps no longer accurately reflected current flood hazards. Over the last eight years, Congress has provided over $1 billion to update and digitize our nation’s flood maps so we better understand the risks that our nation faces from flooding. Since the start of FY 2009, we have been implementing the Risk Mapping, Assessment, and Planning (Risk MAP) program, which not only addresses gaps in flood hazard data, but uses that updated data to form a solid foundation for risk assessment and floodplain management, and to provide state, local, and tribal governments with information needed to mitigate flood-related risks. Risk MAP is introducing new products and services extending beyond the traditional digital flood maps produced in Flood Map Modernization, including visual illustration of flood risk, analysis of the probability of flooding, economic consequences of flooding, and greater public engagement tools. FEMA is increasing its work with officials to help use flood risk data and tools to effectively communicate risk to citizens, and enable communities to enhance their mitigation plans.

This past fiscal year, the NFIP reduced potential flood losses by an estimated $1.6 billion and increased flood insurance policies by 47,992. FEMA also initiated 600 Risk MAP projects affecting 3,800 communities and addressed their highest priority engineering data needs, including coastal and levee areas.

As the Agency moves forward with our mapping program, we remain mindful of the challenges that flood mitigation efforts can pose for many families and communities. To that end, FEMA has used the flexibility it has under the NFIP to implement several important reforms that recognize these challenges. Two of the most notable of these reforms are the creation of Preferred Risk Policies and Scientific Resolution Panels.

Scientific Resolution Panels

Flood hazards are constantly changing. For that reason, FEMA regularly updates Flood Insurance Rate Maps (FIRMs) to reflect those changes. When changes to the FIRMs are met with conflicting technical and scientific data, an independent third-party review of the information may be used to ensure the FIRMs are updated correctly.

FEMA’s new Scientific Resolution Panel (SRP) process, established in November 2010, serves as an independent third party in order to work with communities to ensure the flood hazard data depicted on FIRMs is built collaboratively using the best science available. A community, tribe or political entity that has the authority to adopt and enforce floodplain ordinances for its jurisdiction can request that FEMA use the SRP when conflicting data are presented.

The SRP is composed of technical experts in engineering and scientific fields that relate to the creation of Flood Hazard Maps and Flood Insurance Studies throughout the United States. Based on the scientific and technical data submitted by the community and FEMA, the SRP renders a written recommendation that FEMA either deny the community’s data or incorporate it in part or in whole into the FIRM. For an appeal or protest to be incorporated, the community’s data must satisfy the NFIP standards for flood hazard mapping. The SRP process is reflective of the value FEMA places on the importance of community collaboration to create accurate and credible flood maps.

Preferred Risk Policy

In 2003, with the support of Congress, FEMA began to implement several initiatives to update our flood maps, especially in those areas that are subject to a high risk of flooding. These initiatives include the Flood Map Modernization program (called MapMod), risk mapping, assessment and planning (by way of Risk MAP), and the Provisionally Accredited Levee (PAL) program.

These flood map updating efforts have yielded maps that more accurately calculate the flood risk. As a result of these efforts, many buildings that were previously considered low-risk have been designated as Special Flood Hazard Areas (SFHAs). The flood risk is real and many property owners now find themselves in high-risk areas, and subject to a flood insurance purchase requirement. Notably, approximately the same number of structures have been removed from the SFHAs as have been added as a result of FEMA’s updated mapping program.

While these map changes provide a more accurate reflection of a community’s flood risk and will minimize the long-term risks and costs to people and property from the effects of flooding, FEMA recognizes the financial hardship that SFHA designation may place on individuals in newly identified SFHAs. Consequently, last year, FEMA announced a policy that went into effect on January 1, 2011, extending eligibility of low-cost preferred risk policies (PRPs) for individuals newly mapped into an SFHA.

Pursuant to the new PRP eligibility extension, owners of buildings newly mapped into an SFHA on or after October 1, 2008, and before January 1, 2011, are eligible to receive a reduced premium for up to two policy years beginning January 1, 2011 through December 31, 2012. Owners of buildings that will be added to an SFHA because of a map revision on or after January 1, 2011, are eligible to receive up to two policy years of reduced premiums after a map revision.

Eligibility extension of PRPs should help to ease the financial burden on affected property owners in this difficult economic environment. With this change, property owners should also have adequate time to understand and plan for the financial implications of the newly communicated flood risk and the mandatory purchase requirement. Finally, this two-year extension provides more time for the affected communities to upgrade or mitigate flood control structures to meet FEMA standards and reduce the flood risk. This reduces the financial impact on residents and businesses in the long term while making their communities safer and stronger.

The NFIP has successfully reduced flood risk across the United States since its inception in 1968. Evidence of its success can be seen in the more than 21,000 participating communities, more than 5.6 million flood insurance policy holders, a modernized flood hazard data inventory, and a suite of incentives driving risk reduction across the nation. Clearly, the program has improved the resistance of existing and new construction to flooding through building standards, and has helped individuals and businesses recover more quickly from flooding through the insurance process. However, after 42 years of program operation, concerns about the program remain.

III. NFIP Reform Working Group

After more than a decade of seeking input, identifying issues, and undergoing studies, FEMA believes that the time has come to undertake a critical review of the NFIP. As Members of this Subcommittee and others in Congress consider NFIP reform, the Department of Homeland Security (DHS) and the Administration is prepared to assist those efforts as appropriate.

In 2009, I asked staff to begin a comprehensive review of the NFIP. This review has involved three important phases designed to elicit policy recommendations and engage a broad range of stakeholders, including floodplain managers, emergency managers, lenders, the insurance industry, the environmental community, federal agencies and private non-profit organizations. With so many diverse interests, stakeholder engagement has been a critical foundation of the review process.

Phase I of the NFIP review effort began in November 2009 with a listening session designed to capture and analyze stakeholder concerns and recommendations. The session included more than 200 participants and resulted in nearly 1,500 comments and recommendations from stakeholders.

Phase II began in March 2010, when FEMA formally established the NFIP Reform Working Group, tasked with identifying the guiding principles and criteria for potential proposals to reform the NFIP. This internal Working Group is comprised of a cross-section of FEMA’s NFIP staff. As a means to conduct the analysis, FEMA chose a participatory policy analysis framework to guide the NFIP review effort. This Phase II effort incorporated the recommendations and themes resulting from the NFIP listening session and web comments. The NFIP Reform Working Group concluded this phase in May 2010 and released a final report entitled “NFIP Reform: Phase II Report.” The results of both Phases I and II are now available on FEMA’s website.

As part of Phase III, which is ongoing, the NFIP Reform Working Group is reviewing a comprehensive body of work offering a critique of the NFIP, including reports by the Government Accountability Office, the Congressional Research Service and the DHS Office of the Inspector General; testimony before Congressional committees; proceedings of various policy meetings; policy papers published by industry, advocacy and professional associations; and review and analysis of scholarly works. We have been reaching out and coordinating our reform efforts with other federal agencies. One example is through The Federal Interagency Floodplain Management Task Force which is comprised of twelve federal agencies and whose purpose is to promote the health, safety, and welfare of the public by encouraging programs and policies that reduce flood losses and protect the natural environment.

Based on this research and stakeholder input, the NFIP Reform Working Group drafted a number of policy options for deliberation and public comment. In December 2010, FEMA held two public meetings and initiated a public comment period in order to solicit input from stakeholders on the policy options. Public input from these efforts served as a source for the refinement of the policy alternatives. Over 150 stakeholders attended the public meetings and we received 84 additional comments on specific policy options.

The NFIP Reform Working Group has identified several important issues that Congress may wish to address in the context of reform. They include, but are not limited to, actuarial soundness and program solvency, cost and affordability of flood insurance, mandatory purchase requirements, accuracy of mapping, economic development and environmental protection. I would like to briefly discuss each of these issues.

Actuarial Soundness and Program Solvency

Current subsidies reflect the challenge to implementing the NFIP under the legislative mandate that flood insurance “is available at reasonable terms and conditions to those who have need.”1While the current program collects more than $3 billion in premium revenue annually, estimates indicate that an additional $1.5 billion in premium revenue is foregone due to the current subsidized rate policy. This annual premium shortfall has at times required FEMA to use its statutory authority to borrow funds from the Treasury. These funds were used to pay flood damage claims to policyholders. Although payments have been made to reduce this obligation, $17.75 billion in debt remains and FEMA is unlikely to pay off its full debt, especially if it faces catastrophic loss years. The NFIP review effort is exploring fiscal soundness by analyzing inherent program subsidies and examining potential methods to further reduce the loss of life and property. Mandatory Purchase Requirement, Affordability and Cost The cost of an NFIP policy, and the affordability of flood insurance, is a topic of frequent discussion. In some communities, the introduction of updated flood hazard mapping results in new requirements for the purchase of NFIP policies. These premiums represent an unbudgeted and often unanticipated expense to property owners. To some, the insurance is unaffordable. While FEMA has implemented some measures to address affordability concerns – including the Preferred Risk Policy – the program offers no means-based test that prices premium to income level. Affordability concerns are explored in the NFIP review effort with a variety of measures examined, ranging from credits and vouchers to high-deductible policies. Accuracy of Mapping When the new and more accurate map expands the flood hazard area based on the latest science and information on flood risks, property owners newly added to this area, and thus required to purchase an NFIP policy, are understandably concerned. In some instances, this concern leads to questions about the scientific credibility of our mapping process. As noted above, we have created Scientific Resolution Panels to resolve these questions. And while FEMA is committed to working closely with communities to develop the most accurate flood maps possible, the current “in or out” nature of the SFHAs (one is either in an SFHA or not) has left the program with a perceived credibility problem, as there is no gradation of risk identified within a flood zone.

Economic Development and Environmental Protection

1 Title 42 USC Chapter 50 4001(a)

The impact of the NFIP on economic development is another matter of debate among stakeholders. Areas prone to flooding may have unique resource advantages such as proximity to waterborne transport, as well as environmental or recreational value. However, these advantages, which may be revenue positive for a property owner or community in the short term, may become liabilities during a severe flooding event. As written by the Association of State Floodplain Managers: “[l]and use decisions are made by communities and tend to be based on local short-term economic factors in the form of community growth and resultant increases in the local tax base. These decisions often favor using floodplains for economic development, with the fact that the area is subject to flooding being a much lower priority in the decision.”2The challenge of balancing economic development with floodplain management and risk reduction is explored in Phase III of the review effort. The extent to which the NFIP encourages or accelerates floodplain development, and the adverse environmental consequences that often result from that development, remains a significant source of concern. Recently, a number of Endangered Species Act (ESA) lawsuits have been filed across the country based on the Agency’s implementation of the NFIP. Several environmental groups have alleged that FEMA incentivizes and encourages development in floodplains that jeopardizes the continued survival of endangered species and results in the adverse modification of critical habitat. These lawsuits allege that FEMA has failed to adequately assess and address the potential effects of the NFIP on endangered species and habitat, and that FEMA has failed to use its authority to carry out programs to preserve certain species, as required by the ESA. ESA litigation against the agency based on implementation of the NFIP is currently ongoing in several states. As a result, concerns about the impact of the NFIP on the environment are a prominent element of the public debate about the program. Of course, these are not the only near-term issues that comprehensive NFIP reform should address. The NFIP Reform Working Group is examining other issues, which include certification of levees, properties that incur repeated loss and damages that significantly drain the NFIP, subsidies, insurance ratings, building standards, and incentives and disincentives for mitigation.

IV. NFIP Reform Policy Alternatives In January 2011, FEMA’s NFIP Reform Working Group completed the refinement of policy alternatives and began the policy evaluation phase. The policy options are intentionally provocative and designed to represent the broadest range of policy options. The four policy alternatives moving forward to the evaluation phase each represent a unique policy theme. I would like to briefly discuss each policy option. The Administration has not taken a position on the preferred course of action for NFIP reform. These are currently draft proposals from the NFIP Reform Working Group. At this time, I view our role as helping to facilitate a needed conversation on identifying an effective path forward.

Community Based Insurance Policy Option

2 Association of State Floodplain Managers Whitepaper, Critical Facilities and Flood Risk; November 10, 2010.

The NFIP uses two mechanisms for implementing the floodplain management, mapping, and insurance elements of the program. States and communities administer floodplain management requirements, including permitting and regulating land use. Communities also adopt Flood Insurance Rate Maps. However, the insurance element of the program is administered by “Write Your Own” insurance companies that participate in the program or by FEMA directly. Thus, while the community issues permits for construction in the floodplain, the policyholder bears the cost of insuring against flood risk through the payment of an annual flood insurance premium. Community land-use decisions do not account for the full cost of flood risk.

Based on what we have heard from stakeholders, we are exploring community-based flood insurance, whereby risk assessments would be performed on individual buildings and the insurance premium payment would be made by the community. As part of this option, the federal government would continue to back flood insurance contracts in exchange for the adoption and enforcement of minimum floodplain management standards and would provide an assessment and calculation of flood risk. The sum in dollars of the risk assessment for all buildings in the community would constitute the required premium. Incentives could be structured to encourage communities to implement flood mitigation measures in order to reduce their overall premium assessment.

Privatization Policy Option

The NFIP was created in 1968, in part because of the absence of any substantive means, by insurance or otherwise, to mitigate the risk of flood hazards on the private insurance markets. Many hurdles stood in the way at the time: areas prone to flood hazards and the likelihood of flooding had not been identified; building practices and codes that mitigate the flood hazard were neither known nor enforced; and the financial risk of insuring properties with the potential for large catastrophic losses posed an unmanageable threat to the solvency of insurers.

In the more than 40 years since NFIP was created, a number of our stakeholders have indicated that the landscape has changed: flood risk has been digitally mapped and identified for 88 percent of the population; private and public sector modeling tools are available to model riverine and coastal flooding; the 21,000-plus communities participating in the NFIP have adopted building codes and practices to mitigate flooding; and the insurance and financial markets have developed a variety of means to spread risk from traditional reinsurance to more recent innovations of catastrophe bonds, risk markets, and financial derivatives.

Historically, the private insurance market has taken the position that flood is either un-insurable or prohibitively expensive. With that in mind, in January 2011, we brought in Chief executives from several Write-Your-Own companies to discuss the optimal balance in flood coverage between the private and public sectors. This preliminary discussion served to initiate the conversation with the private flood industry to better understand what’s possible in the future.

Federal Assistance Policy Option

Under the federal assistance option, we are exploring a new framework for flood loss reduction in which the federal government would provide financial assistance through all federal flood management programs only in communities in which specific flood mitigation and preparedness measures have been enacted. Failure of a community to enact such measures would result in a significant reduction in federal flood-related disaster assistance, ineligibility for pre- and post-disaster grants for floodplain relocation, and could include limitations for flood control works.In this option, the program could create a rating system similar to the NFIP’s Community Rating System. The community rating could correspond to a cost share structure for federal flood disaster and mitigation programs. Communities with higher ratings could be given more favorable cost share arrangements, whereas those with lesser rating could receive a significantly reduced cost-share from NFIP.

Optimization of Current Program Policy Option

The NFIP optimization policy option outlines potential enhancements to the existing program to address programmatic weaknesses and current challenges while optimizing the existing achievements, strengths, and benefits of the program. The options for modification address many areas of the program such as Pre-FIRM subsidies, grandfathering, rating freedom, properties that are a significant drain on the NFIP (e.g. repetitive loss properties), coverage limits, mandatory purchase, assistance to low-income citizens, floodplain management standards, levees, flood hazard data, mitigation programs and grants, natural and beneficial functions of floodplains, and the NFIP debt.

These four policy proposals present a broad spectrum of the options available to enact comprehensive NFIP reform, but they are not the only ones. All policy options, however, acknowledge that even an extremely successful flood mitigation effort cannot eliminate flood risk. Flooding will continue to cause economic loss, which begs the question: who should bear that loss? The NFIP Reform Working Group heard varying opinions on this matter, which are reflected in the four draft policy options. Economic loss from flood could be borne by local economies, charitable organizations, individuals who experience the flood loss, taxpayers through disaster relief and individual assistance programs, or the private insurance market.

FEMA believes that the nature of the NFIP demands that it be looked at holistically for reform rather than piecemeal; as changing one facet impacts other aspects of the reform process. A successful outcome of NFIP reform will include a multi-year reauthorization of the NFIP to provide program stability, and a reform proposal that addresses short term issues; considers expert judgment and best practices; establishes the long term program direction; and incorporates the incremental reforms necessary to achieve that target state. The single most effective overall reform step that could be taken is to allow only those in mapped 1% annual occurrence flood plains to buy NFIP coverage leaving to the STATES, their local govenments, and the private business of insurance coverage for the flood peril outside of the so-called hundred year flood plain. Also FEMA and the NFIP should have a clear statutory mandate that no hazard unmapped should be covered under the NFIP unless specifically authorized in statute.

V. Conclusion

FEMA uses the NFIP to help communities increase their resilience to disaster through risk analysis, risk reduction, and risk insurance. The NFIP helps individual citizens recover more quickly from the economic impacts of flood events, while providing a mechanism to reduce exposure to flooding through compliance with building standards and encouraging sound land-use decisions.

While the NFIP has been an extremely successful program through its 42 years of existence, we know we can do better. Through the NFIP Reform Working Group, we have engaged stakeholders of various disciplines from across the nation to help us guide the NFIP review11 effort. We look forward to sharing the findings from this on-going effort with you as we continue to work together to ensure a strong NFIP.

Thank you again for the opportunity to appear before you today. I am happy to answer any questions you may have.

National Flood Insurance Program Reform

House Moving Forward on Flood Insurance Reform

The House Financial Services Subcommittee overseeing Insurance will hold a hearing on April 1 to obtain the views of FEMA on the legislative proposals to reform the National Flood Insurance Program. The panel’s only witness will be The Honorable Craig Fugate, Administrator of FEMA.

Fugate will present FEMA’s strategy for improving the NFIP, including its flood map modernization plan. He will also report on the preliminary findings of FEMA’s three phase NFIP Reform Working Group that began in 2009 and is set to conclude in 2011. 

The same House subcommittee has scheduled April 6 to vote on Chairman Biggert’s NFIP Reform proposal. NAMIC supports this proposal and has been instrumental in the inclusion of several important provisions including actuarially sound rates, updated flood plain maps and incentives for pre-disaster mitigation through building codes. NAMIC Chairman Sandy Parrillo presented these views at a March 11 legislative hearing.

After subcommittee markup on April 6, the full House Financial Services Committee is expected to consider the bill in early May. It is the goal of Chairman Biggert and her Republican colleagues to pass a bill out of the House by Memorial Day so the Senate may begin consideration well in advance of the September 30 expiration date of the NFIP. 

 

I will be posting the testimony of Craig Fugate with my analysis on http://www.vacationlanegrp.wordpress.com in the next few days. 

FEMA Administrator Fugate Mandates Further Insolvency for the NFIP

One day before a hearing in the Congress on NFIP reform held largely to address solvency issues for the NFIP and the drain on the federal fisc, Administrator Fugate of FEMA issued the following mandatory directive to the NFIP mapping staff and its contractors:



FEMA ADMINISTRATOR AGREES TO COCHRAN & WICKER REQUEST

TO END “WITHOUT LEVEE” ANALYSIS IN NEW FLOOD MAPS



Agency to Account for Existing Levees, Flood Control Structures in Assessing Risks







"NEWS RELEASE - FOR IMMEDIATE RELEASE

March 10, 2011



WASHINGTON, D.C. – U.S. Senators Thad Cochran (R-Miss.) and Roger Wicker (R-Miss.) today praised the Federal Emergency Management Agency (FEMA) decision to end its current policy of disregarding some levees and flood control structures in the process of updating Flood Insurance Rate Maps (FIRMs).



FEMA Administrator Craig Fugate today informed the Senators that he has directed his agency to discontinue the practice of using “without levee” modeling in the FIRM modernization process. Early last month, Cochran, Wicker, and U.S. Senators Dick Durbin (D-Ill.) and Mark Pryor (D-Ark.) spearheaded a letter to Fugate that was signed by 27 Senators—14 Republicans and 13 Democrats in all—asking that “without levee” modeling be terminated because it completely wiped some flood control structures off the map instead of more precisely determining their effectiveness.



“I appreciate Administrator Fugate’s common sense decision to use modeling methods that more accurately reflect existing flood protection around the country. Recent heavy rains in Mississippi remind us that flood risks are real and that the flood map modernization process is a necessary part of protecting ourselves. Those at risk should purchase flood insurance,” Cochran said. “This is just the beginning of our effort to find more practical solutions that protect communities and jobs as Congress considers a broad reauthorization of the National Flood Insurance Program.”



“I am glad that FEMA was willing to work with us and take another look at the methodology so all communities receive fair treatment in determining their flood zone status,” said Wicker. “It makes sense to take existing flood control structures into account. This should be a significant help to residents in areas that faced higher insurance rates.”



In correspondence delivered to Senators today, Fugate announced that he has directed FEMA staff to end the use of the “without levee” standard, agreeing with the Senators that his agency has the technical ability to affordably and efficiently produce more accurate flood maps.



“In order to increase the credibility of our Flood Insurance Rate Maps in areas where levees are not accredited, I have directed my staff to replace the ‘without levee” modeling approach with a suite of methodologies that are technically-sound, credible and cost-effective,” Fugate wrote. “The approach will better meet the needs of our citizens while providing more precise results that better reflect the flood risk in areas impacted by levees.”



Fugate also indicated that FEMA “will temporarily withhold issuing final determinations for those communities whose levees do not meet accreditation requirements and would clearly benefit from this new approach.”



FEMA indicated that mapping will be delayed by a matter of months in these situations as it determines the methodologies and policies it will have to put in place to replace the “without levee” approach. As it moves forward in making these determinations, FEMA has said it would engage the public to ensure the new approach is suitable for those affected.



The FEMA Administrator’s decision addresses the concerns raised by the Senators, who argued that discounting the existence of uncertified levees and flood control structures ignored actual flood protection and could require property owners in those areas to purchase National Flood Insurance Program policies unnecessarily.



If FEMA determines an area has a 1 percent annual chance of flood, property owners in that area are required to purchase National Flood Insurance Program coverage to protect against such hazards if their mortgage is backed by the federal government. Communities across the country have complained that FEMA and the Army Corps of Engineers have disregarded locally-funded flood control projects and repairs that may provide some level of actual protection in the development of the new flood maps.



Cochran, Durbin, Pryor and Wicker have joined forces to continue to seek out bipartisan, responsible and cost-effective solutions to the challenges facing communities protected by flood control infrastructure.



In addition to Cochran, Durbin, Pryor and Wicker, the February 3 letter to Fugate was also signed by Senators Lamar Alexander (R-Tenn.), John Boozman (R-Ark.), Roy Blunt (R-Mo.), Mike Crapo (R-Idaho), Mike Enzi (R-Wyo.), Kirsten Gillibrand (D-N.Y.), Tom Harkin (D-Iowa), Kay Bailey Hutchison (R-Texas), Mike Johanns (R-Neb.), Mark Kirk (R-Ill.), Amy Klobuchar (D-Minn.), Mary Landrieu (D-La.), Frank Lautenberg (D-N.J.), Claire McCaskill (D-Mo.), Jeff Merkley (D-Ore.), Jerry Moran (R-Kan.), James Risch (R-Idaho), Pat Roberts (R-Kan.), Charles Schumer (D-N.Y.), Jon Tester (D-Mont.), David Vitter (R-La.), Jim Webb (D-Va.) and Ron Wyden (D-Ore.).


An identical letter from the House of Representatives to Fugate on Feb. 18 was signed by 49 Members of Congress."


This mandate directly undermines Congressional efforts to reform the NFIP and limit taxpayer exposure to the NFIP.

Personally after a cursory review of the Administrators position I find no legal basis in the NFIP statutory scheme for such a decision. See 42 U.S.C. 4001 et seq.

If I am correct this direct undermining of program objectives should be thoroughly reviewed by the WHITE HOUSE and other impacted federal agencies. During my time in FEMA 1079-1999 OMB understood the NFIP and made sure that NO, repeat NO credit was taken in advance for structural protection works that were substandard, non-federal, and only projected to be completed some day. Once again FEMA's failure to understand federal water policy and the Principles and Standards that guide water resource issues has reared its ugly head.

Since I no longer in the practice of Law and have not been since October 1, 1999, I can champerously recommend a massive declaratory injunctive action against FEMA and DHS and permanent injunction against this decision by Administrator Fugate.

It would be interesting to see the adminstrative record behind this decision, lack of public comment, internal dissents, legal opinions etc in the administrative record. If none of the above the decision may be a classic arbitrary and capricious decision by a high school grad with EMT background that has no understanding of the NFIP or administrative law.

To all those who may well drown or suffer loss from incomplete substandard levees credited by the NFIP I am so sorry in advance for your suffering.

Follow-up To NFIP Hearing

The NFIP was unusally substantive but without many answers. Almost no discussion of mapping issues except that maps need to be accurate. What is fascinating is that the day before Craig Fugate issued a decision on crediting levees that I believe is Ultra Vires, meaning he had no authority to issue such a decision. It directly undermines the whole philosophy of the hearing which was focused on fiscal solvency of the NFIP.

The hearing record is open for 30 days while Members questions are answered for the record. Many of those questions appear substantive.

One note is that it looks like a heavy year for spring runoff and the New York City area and New England is already experiencing heavy flooding.

I thought the ASFPM witness did a good job but she also apparently earns her living off of the NFIP as did several other members of the panels, although some may well be de minimus and of course Frank Nutter of the RAA [Reinsurance Association of America] does not since no portion of the NFIP risk portfolio is laid off with reinsurance coverage, a strategy that is already legal IMO. The international reinsurance capacity however looks like it will be heavily compromised due to flooding and earthquakes for at least the next several years so doubtful that strategy will be utilized by the NFIP in next few years.

Craig Fugate scheduled to testify did not due to the Japanese events.

NFIP Hearing FRIDAY in HOUSE OF REPRESENTATIVES--CORRECTION

ON Friday the Banking Committee will hold an oversight hearing on the subject of reform of the NFIP [National Flood Insurance Program] that has a statutory sunset date of September 30, 2011. The driver for reform is claims outlays.

But it appears the hearing is turning into a lobbying effort by groups who benefit directly or indirectly from the NFIP's current methods of administration.

I have posted on this issue before but when asked for some nuggets of real reform provided the following:

"First confine federal flood insurance only to FIRM mapped V and A zones.
Second, force the states to use the entirety of state premium taxes for FPM!
Third, turn over all coastal zone flood mapping to NOAA.
Fourth, turn over insurance aspects of the program to Treasury which already sets the policy for last three administrations for NFIP and all federal insurance programs and
policy!
Fifth: Allow public flood adjusters.
Sixth: Allow STATE and LOCAL governments to sell NFIP insurance.
Seventh: Charge full actuarial rates for all repetitive loss structures and eliminate the so-called emergency program.
Eighth: Make void ab initio all NFIP policies in violation of FPM ordinances and building codes at time of loss--Yes allow post claim underwriting by the program.
Ninth: Train whomeever it takes to adjust flood claims including determination of FPB compliance and whether prior losses aggregating ACV.
Tenth: Eliminate all coverage for hazards not mapped."

Note that I submitted 25 suggestions to the NFIP reform website.
What most don't understand is that the NFIP is a highly difficult land use program to administer, not really an insurance program. Scientists and engineers should have been the key administrators of the program but instead mostly lawyers with some insurance background have administered the program. This faulty reform effort will be documented by the few Scientists and Engineers who will be giving testimony on the NFIP on Friday. Correction--Key testimony by ASFPM will be presented by an Professional Engineer. And of course the Committee itself is the wrong committee to be holding NFIP reform hearings even thought it has technical oversight. The Science Committees in both houses of Congress should in fact be the oversight committees. So instead of helping to cut back on "free" federal disaster outlays as the NFIP was intended to do, the NFIP has to some degree become a recklessly administered "fake" insurance program where risk reduction, moral hazard issues, and other true spreading of risk principles including avoiding cross subsidization have been ignored.

But hey some think the NFIP is a terrific program. And while reforming how about eliminating all coverage for installed or uninstalled coverage that averages as much as 10-25% of claims outlays?

The witness list is now public and will check for any Scientists or Engineers or other technical disciplines, even actuaries! Initial inspection shows many Craig Fugate former fire fighter and lots of lawyers.

Witness List

Panel One

The Honorable Craig Fugate, Administrator, Federal Emergency Management Agency

Orice Williams Brown, Managing Director, Government Accountability Office

Sally McConkey, Vice Chair, Association of State Flood Plain Managers and Manager, Coordinated Hazard Assessment and Mapping Program, Illinois State Water Survey
Panel Two


Stephen Ellis, on behalf of the SmarterSafer Coalition, and Vice President, Taxpayers for Common Sense, Washington D.C.

Terry Sullivan, Chair, Committee on Flood Insurance, National Association of REALTORS® and Owner, Sullivan Realty, Spokane, Washington

Spencer Houldin, Chair, Government Affairs Committee, Independent Insurance Agents and Brokers of America and President, Ericson Insurance Services, Washington Depot, Connecticut

Franklin Nutter, President, Reinsurance Association of America, Washington D.C.

Sandra G. Parrillo, Chair, National Association of Mutual Insurance Companies and President and CEO of Providence Mutual Fire Insurance Company, Warwick, Rhode Island

Donna Jallick, on behalf of the Property Casualty Insurers Association of America, and Vice President, Flood Operations, Harleysville Insurance, Harleysville, Pennsylvania

Barry Rutenberg, First Vice Chairman, National Association of Home Builders, Washington D.C.

The Condensed Version of NFIP Reform

The National Flood Insurance Program [NFIP] apparently is going to have statutory changes this year. It is almost never amended substantively in any election year reflecting the fact that it is a program that favors those who have property in the flood plain and want insurance to cover that proeprty preferably subsidized by the taxpayer.

The reform movement is driven by claims payments during Hurricane Katrina and in particular the area in and around NOLA {New Orleans/Orleans Parish]. The driver is that no one knows what NFIP costs will be over the next 40 years and whether the last 40 since it started in 1969 is prologue. The period of record is just too short to determine probability.

So after suggesting over 25 "reform" items to the program manager I have resolved to condense that list into a single item. It may seem a simple or even minor change but believe me it would have huge repercussions for the entirety of the NFIP including the mapping effort.

Here is the suggestion: NO NFIP INSURANCE FOR ANY AREA NOT ALREADY OR TO BE DESIGNATED THE FLOOD PLAIN FOR THE 1% ANNUAL OCCURRENCE FLOOD [the so-called 100-year flood] that are depicted as "V" and "A" zones on the NFIP maps. I have written several members of Congress and there is some interest in this change. I did point out that total elimination of the NFIP would drastically increase "free" disaster outlays and destroy mitigation efforts nationally.

So I will let readers mull over the impacts of this suggested change and its costs and benefits and political liklihood of success. Looking forwards to the analysis of many others!

FISCAL YEAR 2011

Of course we are actually in FY 2011 of which over 4 months has already elapsed. But the CR expires on March 4th so what happens the rest of the year.

Well it looks like these cuts will be mandated:

house 11 proposal http://www.rules.house.gov/Media/file/PDF_112_1/legislativetext/2011crapprops/AppropCRFinal_xml.pdf


Lots of cuts and interesting NFIP language


"SEC. 1632. Notwithstanding section 1101, in fiscal
year 2011, funds shall not be available from the National
Flood Insurance Fund under section 1310 of the National
Flood Insurance Act of 1968 (42 U.S.C. 4017) for oper-
ating expenses in excess of $110,000,000, and for agents’
commissions and taxes in excess of $963,339,000: Pro-
vided, That notwithstanding section 1101, for activities
under the National Flood Insurance Act of 1968 (42
U.S.C. 4001 et seq.) and the Flood Disaster Protection
Act of 1973 (42 U.S.C. 4001 et seq.), the level shall be
$169,000,000, which shall be derived from offsetting col-
lections assessed and collected under 1308(d) of the Na-
tional Flood Insurance Act of 1968 (42 U.S.C. 4015(d)),
of which not to exceed $22,145,000 shall be available for
salaries and expenses associated with flood mitigation and
flood insurance operations; and not less than
$146,855,000 shall be available for floodplain manage-
ment and flood mapping, which shall remain available
until September 30, 2012."

IF put into effect this numbers will make a difficult remainder of the fiscal year for administration of the NFIP.

Leadership of the NFIP

A story has appeared in the MSM [main stream media] that a former DC Insurance Commissioner/regulator had been vetted by the Obama Adminstration for leading the NFIP in FEMA as head of its Mitigation and Insurance operation. It may be the reverse but you get the idea. Apparently he did not clear on grounds of Conflicts of Interests with prior clients.

Probably because the Banking Committees rule on the NFIP and oversight and confirmation of the appointee leading the NFIP is with the Senate Committee dealing with Finance and Banking and some other items since the first Administrator of FIA George K. Bernstein, a former Deputy in the New York Insurance Department, became Federal Insurance Administrator a person with insurance background has run the program. Perhaps with the rejection of this new nominee who apparently had represented clients that were involved with the WYO program the WH was not willing to give him a waiver although the DHS Ethics Officer was willing to do so.

But here is a new suggestion and more appropriate leader for what is a LAND USE program not really an insurance program. Perhaps one of the STATE FLOODPLAIN MANAGEMENT leaders or even a conservationist/environmentalist who understands land use and mitigation. After all the insurance aspects are not rocket science it is the land use impacts and mitigation impacts of the program and their tradeoffs and cost benefits that should be more difficult to understand for normal insurance types that come into run the program.

I can remember explaining [painfully often] to the attorneys that worked for me and the various FEMA GC's when I ran the NFIP litigation that I would manage it to support the floodplain aspects of the program, not as a normal insurance claims practice. A couple of them understood but most did not. And in particular few understood that the subrogation program I ran while running the litigation for the NFIP was a form of enforcement of flood plain management.

It happens that the best floodplain management lawyer ever in FEMA is tan, rested, and ready and in retirement from a highpaying corporate counsel position and the guy who personally drafted the Coastal Zone Barrier Island Act! Why not someone like him? Time for the NFIP to be run by someone who understands and not someone with an insurance background who does not understand the stakes of having the NFIP succeed or how it operates in the context of ensuring that the natural and beneficial impacts of the floodplain are preserved. That individual left FEMA to work on the HILL for a HOUSE Committee and certainly understnds the politics of the program very well. Good Luck to you John but time to get back to the real work of helping the country. I am not being facetious in this post. You can also still see the CAPS play occassionally. After 40 years time for an environmentally savy person to prevent the NFIP from becoming another government bailout program. After all it was originally concieved as an effort to reduce federal disaster outlays. Please Mr. President do something different from the past and do what is needed.

Preemption and the Insurance Aspects of the NFIP

Preemption, the NFIP and some analysis

1. Government and WYO arguments in litigation that Preemption of State law are in error. Reason there first of all are no federal concepts of insurance law in the property and casualty arena. Second all concepts of property and interests in property are determined by reference to STATE law as there is no federal definition of property or insurable interest in property.
A. Preemption is a legal doctrine largely associated with the supremacy of federal laws in the event of a direct conflict between a federal statute and state law affecting Interstate Commerce. The Constitutional foundation of the National Flood Insurance Program (42 U.S.C. 4001 et seq.) [Hereinafter NFIP] is the so-called Tax and Spend Clause of the Constitution (Article I, Section 8). This is confirmed by the case upholding the Constitutionality of the NFIP Texas Landowners Rights Assoc. v. Harris 453 F. Supp. 1025 (D.C. 1978), aff’d, 598 F.2d 311 (D.C. Cir. 1979), cert. Denied,100 S. Ct. 267 (1979).
B. There is no direct conflict between federal law and state law in the NFIP statutes because there is no express or implied reference to preemption.
C. The NFIP is a voluntary program and does not regulate Interstate Commerce pursuant to the Commerce Clause of the Constitution.
D. No federal administrator of the NFIP has ever argued that the NFIP preempts State law and in fact as a matter of comity, state premium taxes are authorized to be paid from premium income to all the states and the insurable interests of the insured or potential insureds are determined by application of state law concerning interest in and ownership of property.
E. All courts that have determined that the NFIP either impliedly or expressly preempts state law have done so based on analysis of what is best for the program and in that instance is so-called judicial legislating that has not been approved, condoned, studied, authorized or ratified by Congressional action.

2. Federal courts have properly determined that the original and exclusive language added to Sections 4053 and 4071 in 1981 was reinforcing the need for uniformity of decision on the terms of coverage under the NFIP. Nothing more. Because of niceties of the removal process and the potential that remand back to state courts would cause the loss of uniformity in the judicial review of NFIP issued policies of insurance the modification was required. There was no implied or express preemption of state law in this jurisdiction grant to the federal courts. It also assured that claims for money damages under the so-called TUCKER ACT would not somehow become the prevailing federal judicial oversight of NFIP policies.

3. In the first significant appellate review of a flood claim under policies issued by the NFIP, West v. Harris, 573 F.2d 873 (5th Cir. 1978), cert.denied, 99 S. Ct. 1424 (1979) the court ruled that fashioning a federal common law relying on insurance principles and looking to state law for guidance but not binding precedent was appropriate. This rule has been followed by all federal circuits. But again it is judicial legislating.

4. The distinctions between Part A and Part B operation of the program are completely erroneous. The US Supreme Court has ruled in various statutory construction cases that the headings of sections and parts in federal statutes have no legal significance. This is now black letter law. In fact rather than just four options for administration of the NFIP, often erroneously discussing the 1969 (first policy issued June 1969) to 1978 period when the National Flood Insurers Association was the servicing agent as reinsurance which it was not, there are probably many permutations and combinations of program elements authorized by Congress in the NFIP. What has remained constant is that the federal government is both the underwriter of the NFIP (determines both risks to be covered and the price of that coverage) and the ultimate insurer to the extent that premium income does not cover various administrative overhead costs, various expenses concerning issuance and sales of policies and loss adjustment expense and losses themselves. The program does not have a full actuarial sound mandate but must also consider other factors such as affordability. The objective of course is primarily to substitute the insurance mechanism for what otherwise would be “Free” disaster relief outlays for covered events.
5. All entities not in direct privity of contract with the federal government cannot avail themselves of protection under the Federal Tort Claims Act which makes certain tortuous conduct not involving so-called Bivens or Constitutional torts to be within a waiver of so-called sovereign immunity of the federal government. That statute makes the federal government the exclusive defendant and both representation of and liability of federal employees and agents under the direct control and supervision of the federal government on a day to day basis is provided by the United States Department of Justice and recovery is against the so-called judgment fund of the United States, in essence an indefinite and continuing appropriation. The DOJ must determine of course that the tortuous action was taken while the employee or agent was acting within the official scope of employment, the representation must be requested in writing by the employee or agent if sued individually, and at times the DOJ will give representation but if during the course of the case or depending on the judgment will them proceed back against the employee or agent of the amount of the judgment and interest. Thus, the guarantee of representation may not in fact guarantee freedom from personal liability.
6. Based on a ruling by the Solicitor General of the Department of Labor WYO companies are not considered federal contractors for purposes of application of standard federal contractor requirements concerning DOL requirements primarily equal opportunity and anti-discrimination provisions. Nonetheless, in all other respects they are federal contractors and have represented themselves in litigation as “FISCAL AGENTS” of the federal government. There is a mandate in the NFIP statutes to operate the program as a government controlled corporation pursuant to the Government Controlled Corporation Act. This requirement has been consistently ignored except by the Government Accountability Office in auditing the program and in many years financial statements could not be prepared and were qualified. The term “FISCAL AGENT” is a term of art and implies the highest fiduciary standards. It is currently unknown as to whether WYO companies meet this standard but what is known is that their day to day operations are not under either the direct control or supervision of either the federal government or any entity within DHS, including the OIG. These WYO companies are in all other respects federal contractors and are in privity of contract with DHS by virtue of their annual signing of the WYO agreement.
7. Federal courts have widely varied as to their fashioning of federal common law with respect to determination of coverage under the policy or compliance with procedural predicates such as filing a so-call PROOF-OF-LOSS form. The requirement to file such a form has often been waived or extended but its filing is a predicate to the running of the one-year statute of limitations for filing a suit to recover under a policy. The requirement to do so has reflected the statutory mandate and increased cohesion in the judiciary as to the requirement largely relying on US Supreme Court estoppel cases such as Federal Crop Insurance v. Merrill, (1947).
8. The so-called TUCKER ACT has NO application to the NFIP.

All of the above conclusions should be reviewed for statutory modification in the current efforts to reform the NFIP.

The Ultimate Reform of the NFIP-Termination?

Quoting from the NWF (National Wildlife Federation) letter of January 25, 2011 to the NFIP Deputy Adminstrator for Mitigation:

"FEMA has proposed four “straw man” proposals that largely focus on changes in rate structure.
These proposals are: (1) optimize the existing NFIP framework; (2) privatize all or part of the
NFIP; (3) move to community-based insurance policy options; and (4) switch to federal
assistance policy options. However, many critical measures are either not adequately included or
excluded from these “straw man” proposals that would achieve many of the needed reforms in
the NFIP without relying primarily on changes in rate structures. Many of these measures can be
implemented by FEMA now and will have immediate positive impacts in protecting floodplain
resources, safeguarding people and communities from floods, and saving tax dollars.
These comments will detail problems with the current NFIP and changes that are needed."

Both the NWF and the American Rivers organizations submitted lengthy and detailed comments and all are worthy of conideration by the program. My slant is somewhat different.

I believe given fiscal constraints and environmental developments including climate change dictate that the NFIP be terminated. Thus, the program should completely sunset by 2021. I would however also argue that this 40 year experiment in federal landuse regulation and indemnification of STATES and their LOCAL governments negligence could be continued after that date if these important changes in the NFIP were adopted in the next decade. They are designed to reverse the moral hazards and adverse selection of the program, restore insurance principles, minimize outlays, and give incentives to those who want the mapping to continue to provide disclosure of flood hazards to continue.

So these are my proposals to allow NFIP continuation beyond 2021:
1. No community can join the NFIP and participate to get any NFIP insurance for its citizens unless they entirety of the community is willing to mandate every structure within the 1% annual occurrence flood, A or V zone has bought flood insurance and maintains it is force. The community could itself sell and collect premiums for the NFIP if it so choose. Properties can be exempted by the community from purchase only on presentation of scientific or technical evidence including elevation without any fill that they are above the 1% annual occurrence flood. Outside of such a mapped participating community no flood insurance will be offered by the NFIP. If private entities wish to provide it and State Insurance regulatory agencies allow it then it can be provided.
2. All STATE and LOCAL structures must buy and retain flood insurance from the NFIP when located in the communities in number 1 above.
3. All coastal V zones on NFIP maps will contain the assumption that a one (3) meter sea-level rise this century will occur. This is a political compromise between the known for certain one (1) meter rise and the possible eleven (11) meter rise some have suggested. It is recognition by the Congress of a political compromise but necessary to protect construction of structures after 2021 that may be inundated by sea-level rise.
4. No federal NFIP insurance will be provided anywhere where a structural protection work is in place and may or may not fail by design exceedence or structural failure. This exposure will be left to the private insurance business and the STATES and their LOCAL governments.
5. Flood Mapping in all Coastal counties in the US participating in the CZM managed by NOAA will be mapped by NOAA with new NOAA maps being issued by 2021. Flood mapping in all inland/riverine flood areas will be conducted by the STATES and their LOCAL governments with a block grant from the federal government based on river miles and stream miles as currently depicted on base maps of the NFIP. The STATES will also support reestablishment of the non-statutory River Basin Commissions disestablished by the REAGAN Adminsitration.
6. All FEMA activities including flood mapping, disaster relief, reconstruction of water resource projects and other related activities will incorporate to the extent possible the Principles and Standards for Water Resource Projects, either as currently concieved or amended.
7. The administrative oversight by me of the omission of the Endangered Species Act in the 1975 proposed and 1976 FINAL Rulemaking will be immediated corrected by formal rulemaking.
8. 50% of all NFIP premium taxes paid to the STATES will go to STATE floodplain management programs, or alternative no premium tax will be given to the STATES on NFIP policies.
9. The existing so-called emergency program will be ended by FY 2016.
10. Any residential property in the US not now having flood insurance in force and not otherwise required to maintain NFIP insurance, and for which NO claim has ever been paid on the property will be given a free flood insurance policy and with that free policy a disclosure that no further federal disaster assistance or relief for that property will be provided as of the effective date of that policy. The disclosure will also indicate that after each paid claim an appropriate adjustment will be made in the premium for that property based on assessment of its risk. Property owners will be informed of increased costs of construction should the property be brought up to current FPM standars and given the option of purchasing such coverage.
11. All federal mapping of inland/riverine flooding would end and as of the end of FY 2021 STATES and their LOCAL governments or preferably a River Basin Commission technical staff would conduct that mapping.

Since I doubt that any of the above will be adopted NFIP insurance should in fact terminate with appropriate policy runoff at the end of FY 2021.

Structural Modifications of the Floodplain-Levees

Congress in 2007 mandated a comprehensive study of levee safety. The draft report can be found at: National Committee on Levee Safety website. Or just go to my other blog at
http://vacationlanegrp.wordpress.com/

What I have recently learned is that USACOE and the Levee Safety Committee has no intention of finalizing the report but is using 20 interface with interested parties meetings to come up with a new legislative proposal.

So USACOE has another reprieve in their decades long effort to prevent oversight and modification of their levee activities by Congress or the WH. And note how strictly defined "levee" is by USACOE to avoid contaminating their efforts on "Hurricane Projects and Levees" and "Flood Wall"!

There benefit cost analysis has been demonstrated to be makebelieve but FEMA is even worse by not using any benefit cost analysis or the P&S in their massive outlays to repair water resource projects built by the USACOE and others and in particular levees.

Hey the beat goes on! Congressman Darrell ISSA won't be issuing subpoenas to USACOE. After all is he from California.
The agricultural levees masquerading as flood control levees in the Sacremento River area and also the Salton Sea are problematic for any major effort without federal assistance. As some realize the development of the 20th century of the US was largely an interaction with energy, WWII, and then federal post-WWII programs with California receiving the most federal disaster dollars, often on a repetitive basis since WWII.

More on NFIP Reform

The departure of Carol Browner who led EPA for eight years under President William Jefferson Clinton and has headed the WH Oceans and Energy slot since the start of the Obama Administration should not really be news since we know that the Republican House of Representatives takeover kills any climate legislation for the next decade. That even while announcements are made almost daily that the Greenland glaciers, most over land not water, shrunk more in 2010 than any year recently. Poor Polar Bears.
Well where can the President make an environmental statement. It does increasingly look like the NFIP will be statutorily modified this session of Congress. Essentially a land use not an insurance program clearly its insurance aspects have attracted numerous followers, and it is life and death in the NOLA and HOUSTON and perhaps some Florida areas. Reform is being driven by claims payments during Hurricane Katrina where many in NOLA although not mapped as flood prone were smart enough to buy very cheap insurance coverage.
So my leading reform would be that NO FEDERAL FLOOD INSURANCE IS PROVIDED OUTSIDE THE DESIGNATED 1% ANNUAL OCCURRENCE FLOOD DESIGNATED AREAS TYPICALLY "A" AND "V" zones. This would give an additional incentive to not contest the new maps being issued by the NFIP that because the technical data is overlayed on better contour interval data often are expanding the designed "100-year" flood plain by up to 30% causing political headaches for the program, which frequently is delaying map adoption and enforcement for political reasons.

This does not help in the reduction of "FREE" federal disaster outlays which was also a prime purpose of the NFIP as the Disaster Relief Act of 1974 (P.L 93-288) and the Flood Disaster Protection Act of 1973 (largely effective December 1994)adjusted to the events of Tropical Storm Agnes where once again the NFIP in its early stages had not resulted in widely spread purchase of insurance. In fact between program inception in June 1969 when the first policy was issued until December 1977 the premium income roughly equaled claims payments with some adjustment for expenses.

The NFIP is too big and too important an effort to be left to the whims of DHS/FEMA and a WH coordinator who really understands the impacts on the environment, water policy and resources, the building industry and future community development should be leading a multiagency approach to reform.
This person could start by leading the effort to update based on technical and scientific knowledge developed since their first issuance, Executive Order 11990 on WETLANDS and Executive Order 11988 on FLOOD PLAIN MANAGEMENT. Both could be made much more effective than presently.

President Obama still does not seem to understand that the American people will vote in 2012 on results not promises. And Harry Truman as President had it right in stating "THE BUCK STOPS HERE!"

Technical Uncertainty and Flood Mapping

Soon to be almost 30 years since the publication of the article:
Baram & Miyares,
Managing Flood Risk: Technical Uncertainties in the National Flood Insurance Program , 7 COLUM. J.
ENVTL. L. 129 (1982)

And little academic literature or litigation dealing with what as head of HUD Flood litigation for the FIA and then FEMA from July 1, 1974 to July 1, 1986 I feared the most difficult challenge to the NFIP. Well I guess mission accomplished.

To focus more clearly on my concern I quote [with footnotes deleted] from the article:

"Legal challenges to the FIS can be expected to arise, at least in part, because technical uncertainty inevitably results in some divergence between results and objective reality. If the party challenging a floodplain management decision is successful in overcoming the usual judicial deference to agency expertise and secures judicial invalidation of the challenged decision, this can reduce or
destroy the credibility of the underlying FIS.
However, in the few reported decisions thus far concerning
NFIP, courts have shown much solicitude for the difficulty of the Agency's mission, and somewhat less for incidental injury to landowners. The court in Roberts stated: "factual certainty is not necessary, and an agency may regulate even though facts do not illuminate a clear path." The question of whether a single number (or elevation) can be the basis of regulation when, because of unavoidable
technical uncertainty, only a range of numbers can be
supported by the underlying studies has been considered by courts in other contexts."

I reviewed this language closely when the article was in draft and firmly believed then and now that it put those impacted and benefited from flood maps issued by the NFIP on notice.
What I have lost track of over the years as to whether better and more accurate mapping methods exist or have been developed to resolve any technical uncertainties or promote scientific correctness.
And my understanding of the very expensive efforts of the program to remap the country by first a consortium led by Michael Baker and also IBM and now a more extended array of contractors was doing anything more than providing updated contour interval data for the underlying display of the 1% annual occurrence flood plain. Notable exceptions for the maps from designation have in the past been areas behind the levees, dams, floodwalls, etc that at least in theory provide protection from the so-called 100 year flood. That standard by the way which I worked hard to incorporate in the NFIP regulations and even the statute and survive a study of its appropriateness mandated by Congress in the 80's was a compromise between the annual spring runoff and the flood of record. Note the STORM of record is never mapped. Also a ferocious efforts to reduce the mandatory insurance purchase reqirement to the 50 year flood standard was launced while the program was still in HUD. Instead some have argued for mandatory purchase in the 500 year flood plain.

When the program started mapping little of the country had 1Ft contour maps. Some of the country had 10ft contour maps and some had 100ft contour maps, all produced by the USGS. These all relied on calibration points of the NGVD control markers that unfortunately often are in flood prone areas in which soil subsidence makes them inaccurate sometimes up to several feet. NOLA and Houston are two good examples of such areas.
Efforts at reform of the NFIP are underway and most if not all do not consider mapping issues. I argue that the time has come to minimize conflict over the maps by having federal flood insurance policies, typically issued by the WYO companies, only issued where there is a designated 100 year (1% annual occurrence flood) and V zones which are Coastal High Hazard areas and largely mapped using different methodologies.
Still overall hoping someone will take on a discussion of mapping uncertainty and its actual application today as opposed to the early years of the NFIP.

NFIP REFORM COMES TO BAT!

Driven by the huge outlays in Hurricane Katrina that have yet to be fully analyzed either by program officials or academicians or interested parties such as the ASFPM (Association of State Flood Plain Managers), GAO or others including Congress and its committees it looks like the NFIP has reached the launch pad for reform. Whether that happens of course will perhaps await the addition of fuel to the rocket. So here is some fuel that is repetitive in part with past posts but breaks some new ground.

First, the program must never, repeat NEVER, pay claims for any hazards it does not map. I believe this is already the statutory hurdle for claims but apparently the program continues to believe it can offer cheap coverage for flood-related structural failures, flood-related mudslides, flood-related erosion and on and on without mapping these hazards. WRONG IMO.
Second! No offer of federal flood insurance outside of designated V zones, or A zones on NFIP maps. Leave that to the private insurance business and STATES and their local governments.

Third! Enhance mandatory compliance by lenders by forcing all properties in all coastal counties as designated by the CZMA to have flood insurance whether mapped or not. This would force the in and out of the flood insurance determination industry and agents to stop playing games with the program. Yes there is some high ground in the coastal counties and perhaps unfair but these counties represent the major risk to the program now even with the total collapase of the real estate market in some areas.
This would help with forecasts of sea level rise, climate change and other factors and as all should know the NFIP needs the rest of this century to prove that it is a better approach than free federal disaster relief, administered without real environmental restraints, and increasingly politicized from any cost benefit analysis standpoint. But hey am reforming the NFIP not the federal disaster program which seriously needs both study and reform.
Fourth! Take all coast flood plain mapping away from the NFIP and its contractors and staff and give it to NOAA with its much vaster capability in storm surge analysis, SPLASH and SLOSH modeling and expertise. FEMA has destroyed its own technical mapping staff and its knowledge base long ago and even newly appointed Sandra Knight, PhD would recognize how week her staff is technically. Even the contractors seldom put first tier engineers and scientists on NFIP mapping efforts anymore.

Okay folks that is for a start!

National Flood Insurance Program

Some of the readers of this blog or my CV know that I was one of the principle lawyers for the National Flood Insurance Program authorized by 42 USC 4001 and following from July 1, 1974 to July 1, 1986. I have not posted previously on this blog on that subject but that restraint is now ending as we face the "reforms" that probably will be considered in the 112th Congress. The premise of the program is that existing mistakes of development in the nation's flood plains will be insured in return for wiser future development of those flood plains. Also the program had as one of its primary purposes the reduction of "free" federal disaster relief.

An argument can be mounted cogently that both aims of the program failed. But remarkably there is really not much that is studied as to what would have happened or might have happened without the program. The leading challenges to the program are because post-Katrina the program hovers with $20B in claims payments that had to be largely covered with appropriated funds.

Well this first post will be short but much more later. A first principle of the statutory scheme is that only disclosed hazards on the programs maps will be covered by insurance. This has never occurred and in Katrina, largely unmapped areas subject to localized flooding from non-mainstream rivers of oceans were flooded and costly. So I would renew this principle and make sure that in no event was a property with an unmapped 100 year flood [really the 1% annual occurrence flood] was covered by the federal government. This would encourage local governments to accept the maps and development restrictions and incentivize disclosure not non-disclosure.
Another suggestion is that all mobile and manufactured housing be excluded from coverage. The definitions vary but in fact most of these homes are located on developed lots that often are grandfathered into the future with no zoning or building code enforcement. Also physical damage coverage available from the private insurance sector is better coverage and cheaper than the NFIP.
ALSO, historically losses for installed and uninstalled carpets have amounted to in excess of 15-25% of losses and thus carpets however defined should be excluded from coverage. This is also a subject area of fraud since the NFIP has never required flooded carpet to be documented as to its total loss and as a result much is cleaned and reused while the program pays for new carpet.

A final suggestion is that definition A-2 of the term "flood" should be eliminated from the policy and in addition application and policy language added [as it once was] that any property found in violation of existing flood plain management regulations at the time of the loss would be VOID AB INITIO.

These seemingly minor changes are not minor at all an in fact would reform the program drastically.

Another suggestion would be that flood insurance would be free and handed out to all unmapped occupant owners of houses and they would be notified no more disaster relief ever. Also after each loss they would gradually begin paying premiums to cover expected aggregate losses in the areas flooded. And only the equity portion of the owned property would be federally insured. All mortgagee interests would have to be privately insured.

And finally the insurance aspects of the NFIP should be transferred to the Department of the Treasury and the mapping, mitigation, and land use aspects transferred to NOAA and those later aspects of the program should be under the oversight of the Science Committees of the House and Senate not the Banking Committees which has directed the program largely to benefit lenders who constantly argued the program was a burden on them. And NO MORTGAGE generated from the nation's flood plains should be allowed to be securitized and exempted legally or illegally with actual ownership of the property and recordation in local property records not accomplished. This would give incentives to disclosure bigtime.

What Happened to Floodplain Management

The concept of floodplain management meaning the human adjustment to the natural processes of the meterology and hydrology of the flood plain is largely attributed to the Thesis of Dr. Gilbert F. White, PhD in Geography at the University of Chicago. [See http://www.colorado.edu/hazards/gfw ] Calling for other approaches rather than structural approaches to riverine flooding such as dams, levees, and channelization of rivers to improve the efficiency of drainage flows, Dr. White launched a lifetime effort that was largely dedicated to the mission of flood plain management although as his biography demonstrates had many other achievements including the Presidency of Swathmore College.
After proposed rulemaking in April 1975 and over a year of collecting comments and hold public hearings, the Federal Insurance Adminstration adopted a final rule reflecting Congressional mandates and program experience with the then relatively new federal flood insurance program. The first policy had been issued in June 1969 in Monroe County Florida.

Perhaps that policy being issued for a coastal structure was indicative that a program well designed for inland/riverine flooding would have to accomodate far different scientic and technical issues. That stated, it is a principle of the statutes governing the NFIP that no insurance should be provided for any type of flooding that is not identified using the best scientific and technical information. Thus, definition A-2 should be removed from the policy and in addition the original application for insurance returned to including the statement that any property insured in violation of a state or local flood plain management ordinance or restriction would be void ab initio. This restriction was removed from the policy application over my strong objection in the early 80's and never reinstated. It was one reason why I determined to cease being one of the principal lawyers for the NFIP which I had been since July 1, 1974. These small reforms could assist greatly in returning the program to compliance with Congressional statutory intent and abrogate failed efforts to treat the program as a de facto insurance program utilizing insurance principles. The federal government is the "underwriter" of the program and determines both what risks will be covered and the price for coverage of those risks. It is erroneous and pure fiction that the private business of insurance is in fact the underwriter of the program. The program as currently administered is filled with conflicts of interests by those who benefit from it financially including insureds, and program participants. The NFIP really needs tough oversight and that would include the principal of "follow the money."