Second Annual Windstorm Insurance Conference

Remarks by Howard Leikin,
Acting Federal Insurance Administrator
Wednesday, February 14, 2001
Orlando, Florida

On behalf of everyone at Mitigation Division, I want to thank the Windstorm Insurance Network for holding this conference and, more important, for the exceptional work you have done in just the short time since this organization was formed. We're proud that Jim Shortley, our Claims Director, sits on your board. And we're ready to help you pursue your mission in any way we can.

My topic today is "New Directions for the National Flood Insurance Program with the Insurance Industry." "With" is the operative word in that title. It's the one I hope you remember. Because I believe we're stronger -- NFIP is stronger, the insurance industry is stronger, and the people we serve are safer -- when we work together.

But there's another important word in the title of this speech too. And that's "new." Because "new" is a word we're using a lot at NFIP these days.

Most obviously, we're looking forward to new leadership at FEMA. We expect to have a new director in place soon. And we at FEMA know better than anyone how much new leadership can challenge and improve an agency.

As many of you know, last year we launched the first comprehensive review of our program. After 30 years in existence, we decided it was time to dig deep and find out what worked, what didn't, what could work better and how. And, later this year I hope that we'll be taking a fresh look at how the insurance component should support the mitigation component of the NFIP.

We undertook a business process improvement effort as well. A Blueprint for the Future emerged from that process, and I'm going to discuss a few highlights of it with you.

But before I tell you how much is changing, I thought I'd take a moment to tell you what's going to stay exactly the same.

Top-notch customer service is going to remain our top priority.

Our commitment to an insurance program that provides protection from risk and an incentive to prevent losses won't change either.

And most important, we're going to continue working with each of you -- insurers, adjusters, local policymakers and more -- as partners. Because we believe our solutions are more robust when we work together. The Write Your Own program is evidence of that. And as we move from our Blueprint for the Future to building that future, we think you'll see further proof of our commitment to work closely with you.

This Blueprint begins at the very top, with a new mission statement for the NFIP. And I want to begin by reading it to you: "NFIP educates U.S. property owners about the risks of floods and provides flood insurance to accelerate recovery from floods, mitigate future losses, and reduce the personal and national costs of flood disasters."

We developed a three-tiered vision statement to go along with that mission. We want our services to be delivered to our customers and partners efficiently and seamlessly. We envision communities not only meeting, but also exceeding floodplain management standards. And we want to build a program that's financially sound both as an agent of change in how floodplains are used and as a long-term insurance solution.

Next, building on our mission and these visions, we've set five specific goals: First, to increase the number of policies. Second, to ensure that information, policies and technical assistance are delivered to our stakeholders quickly. Third, to more clearly define the role of insurance in mitigation. Fourth, to be financially sound. And fifth, to review our underwriting results and incorporate new risk information as it relates to the financial soundness of the program.

Pretty simply said. Not so simply done.

For starters, we understand the need to balance the business goals of our partners with the public policy goals of our program. That's a sometimes-tricky balance. But it's also one we have a long track record of striking. And we're all the more confident because we know you're in this business for the same reason we are: to make Americans safer. We envision an America in which a flood policy is a backup measure to the most effective action of all: flood loss prevention. And that means we've got to change the way Americans look at our flood plains, not just their flood insurance policies.

If our review produced one single conclusion, it was this: To achieve these goals, we need each other. Let me give you a few examples of how we envision working together to achieve this mission.

A key part of our mission is education.

Now, my main work experience in the NFIP has been in the actuarial area. And as an actuary, I know the most valuable tool in the insurance business is information. That's what we're trying to get to the American people by working with you to market flood policies through the Write-Your-Own program.

We launched our Cover America II campaign about a year-and-a-half ago. It includes a new brand for the NFIP -- "Be Flood Alert." We've produced and placed national ads on television and in the newspaper. We've undertaken media tours, produced a web site and run Public Service Announcements -- all with the goal of making Americans more aware of their flood risk and flood insurance and encouraging them to contact either us directly or their insurance agent or company.

The materials we provide enable insurance companies and agents to leverage the value of their own marketing campaigns by tying them to ours. Our co-op advertising program can save WYO companies and agents up to 50 percent. In fact, more than 1,900 of our partners have placed more than 9,000 ads for flood insurance through this program -- and we've reimbursed them for more than $2 million of their costs.

We're also committed to getting input on how the program can help us, the WYO companies, and agents better serve our customers. Working with the Institute for Business and Home Safety, we're exploring how we can establish new subcommittees devoted exclusively to that purpose. Perhaps this might wind up being on a somewhat informal basis, but there are claims, underwriting, systems, and financial issues in our operation of the NFIP with our WYO partners that require our ability to tap into industry expertise. I would also like to see us jointly exploring how best to employ new technologies that are being developed so rapidly in this day and age.

Through these efforts, we hope to educate Americans about flood risk, convince them of the value of insurance and, through those strategies, to increase the number of people insured.

Next, the core of NFIP's dual mission of providing insurance and encouraging prevention is the commitment of local communities to uphold NFIP building requirements, and the Community Rating System, which provides breaks on flood insurance for communities that go beyond the minimum standards for floodplain management. The CRS was modeled and developed after the Public Protection Grading System for fire. And I want to update you on a couple of changes we've made in the CRS program.

First, the best loss control is building smart -- especially when it comes to development in flood-prone areas.

Building officials and floodplain administrators are our front-line partners in ensuring safe development. Floodplain zoning and ordinances achieve better results in communities with strong building departments that follow sound building codes.

That's why, a couple of years ago, we decided to seek a standard for building safe and give our CRS partners credit for meeting it. We have married the Community Rating System with the "Building Code Effectiveness Grading Schedule," or BCEGS. Under the BCEGS, both the building codes in a community and how they're enforced are assessed by the Insurance Services Office. We now require that, in order to achieve higher classifications, CRS communities must also attain certain BCEGS class ratings as well.

So, there is now a direct linkage between enforcement of codes that address other perils with enforcement of ordinances that address flooding. Communities with strong codes that are vigorously enforced suffer less damage - and get a break on their flood insurance rates.

Beginning next year, we will take that commitment a step further by providing credits for communities that adopt the new International Building Code and International Residential Code. These codes go beyond the NFIP requirements to include state-of-the-art seismic and wind resistance technology. They standardize the best practices to guard against all hazards -- seismic, winds, floods and the like -- in an integrated, consistent fashion.

Another important part of NFIP's Blueprint for the Future is looking at the financial and customer service challenges that the program could face in the next five years and what we need to meet those challenges. We need to make sure that we are prepared for a large-event scenario -- with flood losses alone perhaps as high as $2 billion. And we know that's a concern you share.

We will be reviewing with our WYO partners what it will take for us to respond to an event that will likely entail responding to and adjusting losses involving flood and wind, as well as other insurance coverages. We are planning on convening a forum of WYO companies and adjusting firms to begin what will likely be a series of discussions to sort out how we will all be able to provide top notch service to our policyholders with the finite resources available to all of us.

Now, let me emphasize that we feel completely prepared to meet whatever disaster scenario comes our way. The purpose of these projections is to ensure we're ready in the future too. And here's how the landscape look.

The FEMA director has authority to borrow up to $1.5 billion from the Treasury to cover periods of high losses. The good news is that policy sales are growing. But we also need to make sure that borrowing authority keeps up with policy growth. We'd like to see borrowing authority set at a percentage of total coverage rather than being pegged to an artificial number that doesn't reflect the number of policies in force. We're exploring that possibility and other alternative financing mechanisms in the event that Congress wants to smooth its obligations by spreading risk through other financial market and reinsurance mechanisms.

Another concern we share with you is using technology to serve our customers better. In the age of e-commerce, customers expect better service, even instant service. They're right to expect it of us, and we're right to expect it of ourselves. We hope to work with you to identify strategies for using technology -- in our work with you, in our work with the customer and, just as important, in those all-important transactions, like ratings, that the customer depends on but never sees.

This past December, we convened a Forum to solicit ideas on developing and operating a new e-system that will make it even easier for consumers and insurance agents to buy and sell flood insurance through the NFIP. We invited representatives from major high-tech firms - map information, engineering and information technology companies - to share their ideas and become involved in this innovative effort.

Many adjusters are already online in the field, and we hope to accelerate our use of technology to serve policyholders -- and each of you -- better.

Finally, we're excited about your work to improve the awareness and accessibility of wind insurance. Mitigation Division already works with the more than 20 state wind pools. We think the Single Adjuster Program, which allows one adjuster to handle both the wind and flood losses on a structure, improves customer service from both the flood policy and wind coverage perspectives. And I'm eager to hear how we can help you achieve your mission in other ways as well.

I've hit just a few highlights of the exciting changes we're working on at Mitigation Division. But in truth, I came here to listen as much as to speak. The success of our work depends every bit as much on your input as our ideas.

So let me close -- and seek your thoughts -- on this note: A lot is changing at the Mitigation Division. But what's changing isn't nearly as important as what will always stay the same.

Top-notch customer service will always be our top priority. A safer, more vibrant future along America's floodplains will always be our top goal. And our top strategy for reaching it will always be our partnership with you -- the agents, insurers, adjusters, policymakers and others working on the front lines to make Americans safer. Together, we're stronger -- and together we'll accomplish so much more.

Thank you.