impairments compared to 2007 in the same period -- 207 in the same time period. we tend to believe that coverage is typically inadequate for the size of policies covered by carriers. we believe they don't incentivize and guarantee funds add an unnecessary burden on the consumer given the stellar financial strength of the industry. >> thank you. my time has expired. recognize the ranking member mr. cleaver from missouri for five minutes. >> thank you, mr. chairman. yesterday, i asked your witnesses if any of them believed that we needed to end

the nfip. and there were no hands raised so i am interested in whether this panel sees it the same way. are there any of you who believe we need to eliminate the nfip? raise your hand. >> i think we need to eliminate the nfip as a direct provider of insurance and transition it to a mega reinsurer along the model of the terror risk program. the private market is in a better position to deliver the coverage of flood in the standard homeowners and commercial properties than the nfip with a separate flood insurance program. >> but wouldn't the rates be higher for the consumers than they are right now for the nfip? >> no, certainly for some.

but for the vast majority of consumers the rates would be less because the private market could deliver the coverage of flood far more efficiently. there are fewer administrative cost because you eliminate a second policyment you eliminate a lot of claims settlement cost because you no longer have an insurance company and the nfip trying to settle a claim and see who is responsible for that. we saw problems with that after hurricane katrina which is whether the insurers responsible for the claims was saying it is a claim of wind or flood coverage that the nfip will pay for. there are a lot of reason the private market could introduce efficiency that the nfip couldn't. the coverage of flood would be less expensive than the coverage from the nfip. there is still the issue of it

being unfoaffordable for some people. >> mr. kelly, do you agree? do you think we would have consumers who actually would pay the full risk rate in substantial numbers enough to make it work? >> i don't agree we need to get rid of the nfip entirely. but it needs to be reformed. i keep going back to the note making about the repeated losses. one percent of all nfip count for 30% of all claims paid. that 1% category of property, no one is attracted in insuring those properties. to think you could come up with

a sound rate that covers the risk of that property, i cannot imagine a consumer having the ability to afford that. so we believe there is the need for the nfip to service some level of back stop but focus on that category of risk. >> so a hybrid? >> maybe. i think 2901 is going to shift as much business as possible to the private industry. but let's face it. private industry is going to have trouble insuring that one percent category without a reasonable rate. if you focus on that one percent category, maybe focus on the mission of mitigating flood losses, that in our opinion, is a better focus of reformed nfip. >> mr. bradshaw, do you think if shifting exposure to the private sector is going to be too much for them to bear -- we have

tried this before. so, you know, we are talking about shifting more and more exposure to the private sector or would they be jumping for joy? >> we don't know what the private sector is going to do because they are not in that business on a large role today. it is something to us that is worth trying. of course in louisiana, we have a high concentration of risk and we are very eager to have as many choices in order to expand many choices and provide an affordable option and to me there may be something akin to the relationship we have with the fha and the gse's and the

thrifts and everybody -- >> i am out of time so here another -- no, go ahead. >> pardon me for going off, but we are interested in expanding options and seeing flexibility for the consumer. >> i will yield back the balance of my time. >> the gentlemen from mexico, mr. pearce is recognized. >> thank you, mr. testimochairm. appreciate your testimony, ms. miller, it was clear and precise especially in your recommendations. you recommend that more flexibility is needed under big waters. can you describe that a little

more? what would it look like? >> congressman, we are looking for a clear definition of private flood insurance. that has been one of the biggest difficulties with the bigot waters bill is the definition is just not very clear. >> if we were to ask you would you have a sentence that would clarify that? >> i think that is what hr-2901 does. >> do you think it completely does that? >> right. >> okay. i needed reassurance. my friend mr. ross has to be branded to make sure. and mr. kelly, your testimony seems to hint there is not much reason for private market. but that is pretty much in contrast to ms. miller's. do you not find the private market -- she gave three examples. if three people get insurance it is almost out there for everybody. do you not find examples of that? or is this specific to her

state? >> no, i don't mean to suggest that. i think there are opportunities. what we tried to specify and what we have to go back and reiterate is the surplus lines market is not the market of first resort. it exist to supplement what the standard market isn't willing to underwrite. they are not approved to write it. >> you heard her examples. she gave them and in the written testimony she said this one, this one went out and got it cheaper. sitting out here not knowing anything about insurance except i pay for it it is confusinconf. that is what i am trying to solve. not trying to pick at you. so you just don't find the private market as viable as what she does? >> i am confusing you. i don't mean to suggest that. i think her examples are good

ones. there was an example given by a member here yesterday i think a property in florida with part in the flood zone but the structure on the hill is never going to see water. the fact that our surplus market can come in and specifically underwrite that property even though it is classified a specific way by the nfip we can say we know that structure is never going to flood. >> okay. so that gives me the impression it is a specially market for special circumstances and ms. miller, again, is that the case these three examples you gave were not people shopping off the shelf but examples where someone said we will insure that. or was it a broader market? that is all i am trying to assess. >> congressman, that is a good question. i don't mean to suggest this is a big market even in pennsylvania. we are seeing increased interest by surplus lines carriers in

particular but the examples where gave you are examples are my department is aware of. but this is still a limited market. from my perspective i would like to see if we could grow it. >> i think many of us would like to see that same thing. mr. birnbaum, ms. miller points out adequately and she is talking about making sure there is viability, though mr. kelly on page nine of his report, and i am sure you dissected it as well as i did, on page nine he has the rating agencies, if you took the time to watch the movie the big shorts you see -- and if you watched the circumstances play out the financial industry had the rating agencies and were rigging the game. people made a lot of money saying they will fail and they did. if we were to look at the soundness of the ratings, the best ratings mr. kelly referred to, in your experience would that tell us those ratings are

adequate or is that game cooked to and we just haven't found it out yet? >> first, no, it is not adequate. if you look at the way state insurance regulations deals with admitted carriers there is extensive oversight of the financial condition of admitted carriers which is far more extensive than over surplus lines carriers number one. but number two, this whole idea that somehow the bigger waters is the gse's somehow responsibility for financial regulation of insurance companies is a real mischaracterization. saying they can determine the claims paying ability means they can require that the insurer have a certain credit rating of b or more which is precisely what they do now for hazard insurance. so the bigger waters doesn't give regulatory authority to the gse's. it simply says you tonigdon't ho

take any insurance policy that comes your way. you can use either the credit rating or something along those lines. that is why it is important to keep that in bigget waters. >> i yield back. >> with that we go to the the ranking member of the full committee. >> thank you mr. chairman for holding these hearings. these hearings are very important because we are dealing with a rather complicated issue of how to have a national flood insurance program that serves our public well. let me apologize for the waters bill. i have been apologizing for many months and helping everybody to understand the unintended

consequences of waters and we tried to straighten that out with the bill we passed that helped to reduce the cost of the premiums to your consumers etc, etc. i want you to know i am very interested in rather we can have a private-public operation that will do the best job for our constituents. i have been working with mr. murphy and mr. ross and i commend them for the attempts they have made to try to have this a bipartisan issue; this bill we are discussing today -- 2901. i recognize there are concerns. i think mr. birnbaum you have identified some of the same concerns that i have. but i want to know from you do

you think it is possible to have this more private participation and involvement? >> i think yes. but with respect i don't think hr-2901 is the way to go. one of the problems with the nfip is had various and conflicting requirements. make insurance affordable but not only have premiums that are suspigs -- sufficient. when you have those conflicting things how to you address that? what would happen with hr-2091 is the surplus line insurers

would cherry pick policies. the nfip looks at a specialized flooding area and has 30 risk areas one being there highest elevation and lowest risk and 30 being the highrest risk and lowest elevation. they will pick off everyone from 1-14 and leaving the nfip with every everyone from 15-30 with the nfip stuck with the worst and most risky claims but no more revenue to do that so it will create more financial problems for nfip down the road. the proposal we put forward gives the private market the responsibility but also the tools to price the products and utilize their means to get flood

insurance right. >> and so would you just briefly describe your proposal? >> the proposal is congress or the states require that flood be part of the homeowners or property insurance policy. remember, private insures that are providing property insurance so you are asking them to add the peril of flood. so you would have the far more efficient delivery of the coverage of flood because you would not have a second policy. you would have all of the skills and tools of the private insurers who in pricing access the models to get the pricing right. and you would have all of the catastrophic insurance and bonds and alternative capitol able to support that. you would then transition the nfip to a mega reinsurer the same way the terrorism risk

insurance programs works. this would accomplish many things. it would deliver the cost of flood more efficiently, but it would expand flood coverage and give consumers the coverage they expect at the time of an event instead of surprising them with there is a flood and i am not covered. more importantly, how many times have we seen flood in areas that are not special flood hazard areas? this means that everybody is covered even if they happen to be outside of the special flood hazard area. this will transform federal expenditures from massive disaster relief to investments in loss mitigation. this is really the only long-term solution. >> well, if i may, mr. chairman, what you are indicating is mandatory insurance for everybody to participate? i agree with you, first of all, the depth that wait waters

attempted to address was impossible. we can never pay that down or take care of that. so what would you say about, you know, constiuents who say i don't live in a flood zone and i should not be responsible for people that decide they want to live in places where they know they are at-risk. what would you say to a politician about that? >> well, the beauty of having the flood as part of the private market, homeowners or the commercial property is insures would price the coverage of flood according to the peril. for consumers that live in areas without a high exposure for flood they would pay little to next to nothing. for consumers living in a high flood risk area would pay more. but the private market would reflect the risks more with more

responsibility than the nfip because the nfip is to go through the lengthly process with the flood maps. imagine if the same process was required for wind coverage the way homeowners' insurance is covered today. that would be a disaster. by turning it over to the market everyone pays their fair share. today some taxpayers live in area without much flood end up paying for flood because the federal government has lent $24 billion to an nfip program that is still not financially sound. there is subsidies there not only from one set of nfip policy holders to others but subsidies from taxpayers to other taxpayers. >> mr. birnbaum, i need you to wrap it up >> moving it to the private market you would introduce more

equ equity and make it more transparent. >> thank you. i am hopeful you can work with us as we reform the national flood program. >> the chair recognizes the gentlemen from florida, mr. posey. >> thank you. i would like to express my appreciation for chairman leutkemeyer holding these hearings. the national flood program, $23 billion in debt, currently. that is about the clearest indication we can have that it is not working in its present form. from the hearing we have held i am encouraged every member seems to agree on that. at one time, an ho-3 was said to

have been the broadest, most inclusive form of insurance ever written. the standard home owners insurance policy not only covered a lot of perils such as fire and wind at one time. >> p-- provision said are prett broad and i don't know if that is still the case. but the question i have is a historical one if anyone can answer. and that is if flood was ever included in a standard property insurance policy before homeowner or otherwise? can any of you answer that question? >> not to my knowledge.

>> can you repeat the in -- the question? >> was the peril of flood ever covered by a standard homeowners policy? was it ever covered? and the next question is when did it cease to be covered? >> when congress created the nfip in 1968, that is when private industry came forward saying we are not willing to cover flood because the risk is concentrated in certain areas, we cannot diversify it, and we have a hard time identifying the risk. >> so at one time it was covered? >> yeah. >> do they cover earthquakes in california? is that a standard covered? >> no. >> no. okay.

what do you think would happen if there was a small sentence added to legislation that said if you cover any property insured, which has mortgage insured by the federal government, you should not exclude the peril of flood from the coverage. what do you think would happen? >> i think what would happen is private insurers is they would offer the peril of flood in their homeowner policy and state markets would provide that if they didn't. in florida, just as right now, if a company isn't willing to write wind coverage and the consumer goes to florida citizens. if the company wouldn't write flood, the consumer goes to florida citizens. but the ability for companies to

write flood today is completely different than it was 40-45 years ago. companies have access to catastrophic models and very clear and detailed itemization of risk. there is alternative capital that didn't exist 45 years ago. the opportunities are there. there just needs to be a nudge from the government to do so and that judge is a requirement they include it. >> i am not opposed to that concept for sure but i must say that citizens put florida taxpayers on the hook every known to citizens of florida had citizens had as broad of coverage pre-'05 hurricane

season as it does now florida would be in as bad of a state as detroit probably. there is never nfip -- enough flood coverage when you live on a peninsula. our states can't just print more money and go into the debt. they have to actually have a constitutional requirement to balance their budget. they cannot pull the escapades that the federal government can. i assume my time is expired. >> the chair now recognizes ms. beatty from ohio. >> thank you to the chairman and the panel today. i support what ranking waters said in relation to wanting to

look at a public-private operation. i will try to get through two quick questions. one to you mr. birnbaum and one to you mr. bradshaw as it relates to the national flood insurance program. to you mr. birnbaum, we heard interesting testimony and i had an opportunity to look through your written statement. one of the concerns i have is the area of moving away from the national flood insurance program to private models. i am concerned, and i know fema is concerned when you look at the $23 billion in debt. i guess my question is if we talk about, as you stated mr. birnbaum, that we move away from

p priviatizing, what happens to the $23 billion in debt? certainly one would not expect fema or the taxpayers to be left holding the bag? when you recommend that the national flood insurance program get out of the business of being flood insurance provider and do transition i don't think i saw anywhere in there where you addressed what happens to the $23 billion in debt. did i miss that? or is there something there you can share with us? >> no, the short answer to your question is that the same thing is going to happen, would happen as is going to happen right now which is taxpayers are on the took for the $23 billion. there is this belief that somehow the nfip is going to generate funds in the future sufficient to pay back that $23

billion. given you are going to require the nfip to subsidize rates and this puts you in a position of being vulnerable you will never pay back the $23 billion but you will create a larger requirement for the nfip to borrow from treasury. so the answer to the question is that $23 billion is there. cut your losses and move to a system of sustainable. >> when you say cut your losses it makes it go away? >> it doesn't make it go away but congress is going to have to pay that $23 billion because there is no way that nfip is going to be able to repay that over time even under the current requirements let alone under the requirements of hr-2901. >> i guess what i am hearing and you are the expert is if congress is going to pay for it

to be made private and congress will have to pay it to leave it the way it is. where is the in between of public and private in sharing in that cost? >> well, by moving to flood as part of the standard homeowners and commercial property insurance, what happens then is that the federal government stops being on the hook for flood insurance losses. it means that the private market is responsible for excepting the exposu exposures and pricing them appropriately and paying the claims. the bleeding stops and that is what is necessary at this point in time. you accomplish several things by putting it with the private market along the proposal we made. you are not only stopping the hemorrhaging of the federal money number one. but number two, you get better pricing, more comprehensive coverage and better opportunities for litigation.

you get private insurers now incentivized in a whey they currently don't have. >> for the sake of time i will move on quickly to you mr. bradshaw. can you tell me the value of the flood plain maps as it benefits lower and middle income americans and first-time home buyers? ...

the private market will be able to write to those from different approaches and hopefully that provides more choices that provide more opportunities for consumers to afford the flood insurance, particularly the lower income and the new homebuyer. >> okay, thank you. >> the gentlelady times expired. i now recognize myself for five minutes. mr. miller, you spoke in your testimony about some of the obstacles the bigger waters that are preventing you from being able to authorize private insurance in the state of pennsylvania. argues the end and flux of interest from the private market to want to write but insurance in pennsylvania? >> chairman, we are not being influx of interest here we are

seeing some increase. we see more surplus lines policy. still, it's a very limited market to >> is h.r. 29 a one were to pass, would that change things to allow for more private capital to commend and take the risk of pennsylvania? >> that is my hope. i would like to see the private market grow and make to see consumers have more option. >> the private market does grow in their assessing risk big on their models and what they believe is appropriate. you feel there may also be an opportunity that these carriers may not only offer the flood, but also included and it policies and they have managing the risk. >> that is right. >> would that not lead to an opportunity where we may have more people assuming other insurance commissioners across the country do as you do to include more people to participate because they can offer them a lower price good >> that's the hope.

>> without not lead to an opportunity as ms. heard birny birnbaum says with more policies include flood, but to keep the way it is now where would bifurcate is not going to help the situation. would you agree? >> yes. >> i've enjoyed listening. i agree with him and i think you will do. but testimony, consumer protection is far greater than those that exist. would you agree? >> yes. >> have you had me problems? t. feel comfortable continuing to allow surplus carriers in the state of pennsylvania? >> absolutely. >> thank you. they don't just read flood insurance, today? >> they don't just read but insurance. i appreciate the question. we have her surplus lines are not regulated.

we have heard they are not licensed. >> if we would discuss those simply incorrect. >> every insurers licensed in the state. it may not be licensed in every state but to be eligible to write it plus insurance as commissioner miller described, you have to be licensed in your state of domicile. so the regulation of the insurer for my financial solvent the market conduct respect their common man of letters between intermarket and surplus lines market. >> surplus funds are writing flood insurance policies now. >> absolutely. here is why. not just because of the bigger waters act, but because for decades we've had solutions that were solved by the limits of dns ip for the standard market action. the mac under the law, they can write policy and is the number of policies growing over time? i doubt significantly, but is it growing?

>> it is not significant. using in my testimony and i will recap here. we've got about escape the capture flood insurance data. a robe 100 dirty 4.1 million in 2004. >> what h.r. 2901 assist and facilitate an increase of policies available being purchased by consumers? >> yes, it would. >> thank you. we talked about mitigation yesterday. i think the overall goal of a flood insurance policy is in an insurance is to have minimization of risk with the benefit of an affordable care he appeared if you don't focus on maxima what you provide is nothing but relief and that creates greater problems without any control. what benefit is there in making sure that we allow incentives to

mitigate the risks and what benefit is being provided or incentives provided right now by nfip for the mitigation? anybody want to take it out? >> sure. the key incentive for loss mitigation is proper pricing of the insurance product. >> i apologize. i've only got a couple seconds, the consumers benefit greater from having more assessment of risk it down and make regular fashion of the private carriers were involved to make sure they are protecting investment on the rest in the benefit of his numerous that we would have an affordable market with less risk of loss to the consumer. >> the answer is yes if they were comprehensively done by the market. if you do like, you'll have some consumers to get that.

>> clearly h.r. 29 to one offers the transition to create nfip, which is what the panel would like to see in the overall equation. now recognize mr. rock with her 15 minutes. >> ms. miller, i wanted to talk about the surplus times. there is a growing appetite to ensure private flood insurance coverage and that pennsylvania has had some success with surplus lines carriers, often flood insurance, taken in national active comity so comfortable with surplus carriers writing flood policies? >> congressman, i do. in pennsylvania, one of the things we're trying to do is

figure out how we can do a better job of letting consumers know that the option at this. that is how comfortable i am. >> can you talk a little bit about the regulation of the surplus lines insurance? how do they monitor the financial health and surplus lines? >> absolutely. as mr. kelley indicated, carriers are in the state of domicile. they are meeting the capital surplus requirements that the carriers by meeting. so even though we talked about earlier the fact the guaranty fund doesn't apply a surplus line, there is financial monitoring as carriers and even capital surplus requirements on surplus lines carriers as well as carriers that are not domiciled in the u.s. i'm comfortable we have a lot of financial regulation protection, but also in a state that

pennsylvania is where the surplus carrier that is not domiciled in pennsylvania, we still have authority over the placement of the insurance of the surplus rocher and the opportunity to go after the broker if there is misconduct. >> what kind of misconduct are you talking about? >> in pennsylvania we have a requirement that they notify policyholders that the guaranty fund doesn't apply. if they misrepresent the he somehow or if they replace lebanon and they did for a non-eligible surplus carrier, we can go after that. >> these are consumer protection items. >> exactly. we also enforce requirements related to the eligibility of operating policy centers eight. if we have concerns about the financial soundness of the carrier, if they are not -- not patent claims or if they are

violating laws, we can declare them in eligible to sell policy centers day. additionally we have the unfair insurance practices act. states have similar laws titled a little bit differently. these again are consumer protection statutes. they make sure claims are paid appropriately and that the insurer and broker not misrepresenting policies and what is covered. this act applies to carriers just like it applies to admit a carriers. >> mr. birnbaum can you express concern about the level of regulation and -- ms. murphy sets the table for more consumers at the surplus lines policy when that occurs. i will point out commissioner miller for my own date have sold flood insurance with a thousand

policies what evidence and state regulators have not with policies carriers -- >> sure. what evidence? what evidence do you have where you can show me what this has been an issue? >> the evidence is regulators don't have authority to approve forms are raised. commissioner miller has issued a bulletin on price optimization, telling insurers they can't use a consumer's willingness to pay to determine the price they charged. she has no authority to do the same thing for surplus insurers. same thing with other issues and policy farm issues. surplus line insurers can include a provision -- >> you say could. i am looking for specific examples where it's happening.

that's what i'm looking for from you. >> well, i will give you evidence from the insurance market. the largest writers of private flood insurance today are flood insurers than the largest of those are admitted carriers. private flood insurance can be written by a carrier. there have been issues for those private flood insurers in a recent surplus lines for charging overnight rate there were far in access of providing the insurance. so that has been reigned in part because the federal housing inet authority and some state regulators need to remove the flood from surplus lines to the admitted. >> regulators don't have the authority to go after it. under existing -- >> they have authority basically for financial condition but they don't have the same authority of a due for things that policy forms and raised.

if there were such great consumer protection and surplus lines, why doesn't pennsylvania for every others he allowed all personal auto and homeowners to be written? why do they require that to be written in the admitted market? as more consumer protections. >> would you care to respond to that? >> sure, surplus lines, the way it works is they are unique risks. that is why we have admitted carriers that write the rest of personal line policies because we have laws in august dates about coaches gave requirement and you can buy a policy through the admitted market and that is what you do. it is the unique risks that are being written by the admitted market. >> yield back, mr. chairman. >> adjustment time is expired. the chair recognizes the gentleman from kentucky, mr. barr for five minutes paired >> thank you, mr. ross for trying to tackle this complex issue. thank you for your efforts in

trying to deal with what is clearly a very complicated issue and a huge potential liability for the tax payers and affordability issue for a lot of >> issue and in rural, central and eastern kentucky. i appreciate what 29 no one is trying to do in terms of clarifying the state insurance regulators have the authority to regulate private and flood insurance clarifying the definition of flood insurance. but i want to have mr. bradshaw, mr. kelley addressed the point mr. trina levin is making him that is the impediment to private insurance offering flood coverage based on just the simple fact that they have to compete with a subsidized rate of the nsi p., even if 29 no one does move us in the right direction, what do we

fundamentally do about the fundamental problem? about the competition a subsidized rate. >> i think that is a challenge. in terms of the future, we will be embarking this year. i year. kind of the reauthorization is coming up next year and it sounds like there's a lot of interest in talking about ways we can modify the program. we've not had conversations that about potential recommendations for changes to the program, but it was just announced a venture of the property-casualty committee and i can tell you this is on our agenda for this year. we are looking at this and putting together a recommendations for ways that perhaps nfip can be modified. today i am here because i just want to the consumers have more option. i believe 29 no one will provide for more private market options for folks and that would be a

good thing for gamers. >> yes, sir. >> with regard to the affordability of the program, however this comes out as we are very interest paid and make sure the consumer can afford the product, who believe competition will bear that truth. we have a unique addition in louisiana where we have such a high come attrition of flood. very much of it is required. numerous of our customers are required to have flood insurance, so the impact by nfip in a huge change in the premium not only affects our consumers, but the property values which we have a high level of interest and because at the end of the day, we are the guys that are protecting the investors. we are very interested in now. free with me that it is somewhat like a relationship with fha and

the general market lenders and guarantors in the mortgage business as fha has a role. looking back in the late 80s oil bust as fha was the only program in town. so nfip does serve a significant long-term benefit. >> mr. kelley, if you could answer to specific question as we -- in response to mr. trina levin's testimony. as an advocate, what is preferable about ross murphy to the himelfarb model that mr. sharon 11 is advocating. what is applicable to the solution to the model that mr. mr. birnbaum is advocating. can you respond to mr. birnbaum's contention that 29 no one would give surplus

lines and ensures the ability to cherry pick nfip policies that are low risk and make nfip more vulnerable. >> i'm interested to hear your thoughts on that. >> thank you for that question. with respect to the can't do it, 29 no one does a very different job of pushing this coverage the private market and mandated the private market offer terrorism coverage given the private market the opportunity to get in and figure it out, invest in underwriting processes and experience to develop product. many standard companies over time will probably add flood to the standard homeowners policy like we talked about here. it's just going to take time. much of the experience will transpire out of what the market is able to do. second question. >> the issue of cherry-picking. the issues you are trying to

financial stability have flood insurance. terms like cherry-picking, they obviously have negative clients when referring to private companies based on sound financial models and the actuarial data, risk appetite and experience. the private market financial stability is in all of our best interest, making decisions and regions to reitman. those are essential elements to maintaining assault that marketplace. which was to transfer from the balance sheet stars to transfer some of them. >> thank you. i yield back. >> go to the gentleman from texas. thank you, mr. chairman. thank you for your witnesses for the patient today. you heard i am from texas and

your testimony, you specifically stay private insurers can offer flood insurance and can do so more efficiently and effectively i'm going to agree with you 100% on that and i believe the federal government has gotten way over his head on this issue like it does have a lot of things. you also state h.r. 29 no one which i am opposed unfair, proud to be one when not address the longer-term and promote private market participation in the sale of flood sure in in the flood of as well as an innate state regulatory oversight. three questions. number one, how can h.r. 29 no one totally eliminate state regulatory oversight? >> h.r. 29 no one removes from bigger waters the limitation that private flood insurance can be written by surplus lines for commercial policies.

it opens the door for residential flood insurance. a doing so, it means private flood insurance basically misguided the admitted market where there is far more consumer protection and surplus lines market. so that is the basis for that assertion. >> number two, what is your assertion in light of the lack of faith in the state regulatory process? >> now, i'm a strong supporter state-based regulation. it hasn't been an unqualified success over the years, but i am a strong supporter of the period the reason i demonstrate the strong support by saying the flood, by being part of the standard homeowners commercial property insurance then becomes the response ability of state insurance regulators. h.r. 29 no one continues this route goldberg apparatus of

concert and nfip, given him all sorts of requirements and constraints, giving the state-based regulators certain responsibilities. but the overall thing makes no sense. if you want to get to a sustainable future, utilize the private market, but give them the full responsibility overseen by state-based regulation. don't include this nfip that is required to provide service subsidized insurance, which gives the private sector the opportunity to say we have on the going to take the most profitable business. we are going to leave the more risky and less profitable business to the federal government. you are privatizing profit and socializing the risk. that is exactly the thing that is our preaching people all over country. the type of crony capitalism that basically says we are going to give one group of people, the government advantage and that is

trying to create a level playing field for everyone. >> told the state regulation of flood insurance differ from the regulatory process rather insurance lines? >> well, right now what commissioner miller and others have said is they regulate the financial condition of the insurer and may have some ability to regulate marketplace misconduct, but they don't have the ability to ensure policy forms are not misleading or deceptive. they don't have the ability to ensure they are discriminatory. more important, they don't have the ability to make sure nfip meets its goals. so you have federal requirements for flood insurance then you are essentially delegating part of the responsibility for ensuring that to the state-based regulators. i'm a big supporter, there have been some notable failures.

if we look at private mortgage insurers but we saw in the financial class private market insurers fail. those were the purview of state-based insurance regulators. we are not talking about a pristine record, but i have faith if you give them the comprehensive tools to do it, not piecemeal approach of 29 no one. >> i am a private sector guide. and in the retail business and i can tell you counties they represent, we have a lot of flood problems in the way to get it right is turn it over to the private sector. but the private sector compete. but the consumer drug industry,, not the federal government. prices will be right on the service will be better and i'm happy to be on h.r. 29 no one. i yield back my time. >> agenda manuals back. with that, the gentlelady from new york is recognized for five minutes. thank you, mr. chairman.

i am sorry i wasn't here to listen to your test the money -- testimony. i was in a mockup of the small business community. i want to thank you all for being here. i have just one question to mr. bradshaw. my district in new york city which encompasses communities on new york city's lower east side and redhook were especially hard hit by superstar and sandy. january 2014 report published by the gao, some stakeholders noted that the rate increases associated with private or flood insurance could lower the market value. some stakeholders also expressed concern that whole communities with the risk of floating like

those in my district could become economically unviable. if the increase in premium rates makes flood insurance unaffordable for too many recipients. how do we ensure premium rate on flood insurance do not drive to such a level that it causes homeownership rates to decline, particularly in vulnerable communities. >> certainly we have had similar it. with hurricane katrina in our part of the country in the gulf coast is very much at risk and certainly taking nothing away from the flooding that has taken place in the mississippi river in this area right now as well. people in harms way look to committees such as this to make sure that those folks that need

help in order to maintain their property values, in order to continue to make a living, to continue to have access to homeownership and from that is, there seems to me to be a parallel between what fha does in the home mortgage business and why it nfip does into the flood business. in our part of the country, one example carries 25% to 35% of the petrochemical business from the golf up to the mainland. there are reasons that has to be there. people have to work there, said that very well may require some subsidization of premiums for people in the area. it is very important. i know what we have right now is to create $23 billion in debt.

if we fail to plan for the next event, if there isn't a band, we will merely reexperience what we have today. so we are very eager to help protect the consumer. we are very eager to be very interested in verbal to help protect the consumer because without them our business goes away. >> thank you. >> the gentlelady that goes back. the gentleman from texas, mr. green. thank you, mr. chairman. i thank the witnesses that i always think the ranking member for leadership on these issues. i lived through katrina and its inappropriate to say of that thread because i wasn't actually

there. it is me, this may be the president calling. i wasn't actually there. it is not the president. so i won't take the call. i wasn't actually there, but i arrive shortly thereafter and i saw the tragedy that was left behind. i went to sri lanka after the tsunami. i was in the philippines after high hand. and i know what this looks like, the aftermath and it's not a pleasant sight to say the very least and i'm being quite day. here is the question that i have for you, dear friend. are you indicating that if we have this system in place pursuant to 29 no one that we would not have expended billions

of dollars that we had to expand after katrina, that this would eliminate the necessity for the federal government that didn't? it's an important question for being my constituents. >> said the answer to that is 29 no one would not have prevented any problem you just described because 29 no one would continue to leave nfip with those policies of high risk areas. they would continue to have nfip charging inadequate rates. it would continue to have subsidies for people who don't need them. so you would still have the same problem you at today. as a matter of fact, it would be worse because instead of broadly averaging rates and getting revenue for policies that lower risk areas, it would have even had the revenue. the situation would be worse today 29 no one had been in place. if our proposal had been a private sector provide the flood insurance, 23 billion would not be there today if our system had

been in place. >> on the question of the billions that we currently find ourselves indebted to the treasury, would we still have that $23 billion debt if we had 29 no one in place? >> well, yes. the 23 billion is not going to go away under existing situation and it certainly not going to go away under 29 no one. it is going to get worse because the private sector is going to take the most profitable of the policies. remember i told you earlier that nfip post things into risk categories with one being the lowest, 30 being the highest an average that. the private sector will take one through 14, leaving nfip with 15

to 30, the most risk. nfip will have just the same risk, but much less revenue. the situation will get worse and going to let the her cherry pick the most profitable policies that are out there. what is needed is to give the private sector the responsibility to handle the entire problem, which is price all of the policies. there's always going to be an issue with affordability. there's just no way about it. you can't have affordability addressed through the insurance pricing system. when you underprice insurance from you create incentives for people to an asp badly. you invest in areas that is not sustainable. it is critical to have risk based pricing. it is also critical to have it configured in the form of loss mitigation. instead of a grant to pay for the insurance, give them money to mitigate their homes so they are less exposed to flood.

reduce the cost by reducing the exposure. that is for the target of federal expenditures can be. they should be in the dirt. >> thank you good idea but the balance of my time. >> the gentleman yields back. mr. murphy, recognized for five minutes. thank you, mr. chairman. thank you, ranking member cleaver, thank you for your leadership and mr. ross has left. thank you for the bipartisan manner to make some progress here. i very much appreciate the input of panelists and witnesses for the important discussion in here in all of your comment and thoughts. how can we provide more affordable flood insurance for people across the country. the legislation we are discussing, the flood insurance market parity modernization act

which is sponsored with my good friend aims to do just that. this act would provide more choice, greater competition and less cost in the flood insurance market. it would accelerate development of more flood insurance options by allowing policies expected by the state to satisfy mandatory coverage requirements under nfip appeared when congress passed the national flood insurance, it was insurance companies would provide flood insurance coverage for the american people and with the legislation that was recently a dated under the flood insurance reform act of 2012, that intention was in fact reaffirmed. however, due to the lack of legal clarity on the particulars of the insurance policy is allowed into the program, most lenders have not accepted by the flood insurance to meet mandatory coverage requirements. this bill with this problem by

providing a simple and clear definition of private flood insurance accepted for the mandatory coverage under the program consistent with the successful regulation of other forms of insurance in the marketplace. that which is issued by insurance company, license admitted or otherwise approved to engage in the business of insurance in the state in which the property is located. i believe there will always be a need for the nfip program, that there is more than enough flood risk out there that can be written right now by the private insurers willing to do so. whose capabilities when i continue to read dance with the technology. ensuring access to private flood insurance will help reduce the risks to which taxpayers are exposed under the federal program and especially because flood insurance coverage is mandatory in many areas,

customers be more competition in options in the flood market to make it more affordable. i asked my colleagues on both sides of the aisle support the legislation to give our people, constituents more choice, greater competition and less cost when it comes to flood insurance. i came to congress as did most of us here to work with everyone no matter what the party affiliation and to solve problems. i think this legislation is one example of an area we can actually make some progress in the last year the administration and i urge my colleagues to do so. in my remaining time, the question for mr. kelley. one of the topic discussions we had a conversation and their role in this. how many surplus lines and policies in florida have been expected for the purposes of

nfip mandatory purchase. >> we've got the data somewhere. i've got a combined with six states. in 2014, $134.1 million of flood insurance premium written in the six big states are florida, california, texas, new york. 32.9 million of that, 24% covers residential property end of that category only about 29% represents primary coverage, the balance beam access coverage on personal residence. it is still a rest look to a small less than 1% up to $40 billion market nationwide. >> mr. birnbaum, in your opinion, how does this differ from how homeowners insurance and protect teen allowed in any event of a disaster, have you see the difference?

>> i don't. that's why our proposal is to require the homeowner's insurance policy cover the peril of flood. that would deliver the coverage far more efficiently than through the requirement of the second policy. it would mean that everybody gets the coverage that they expect and pay their fair share for that coverage in under the current system. private flood is already being provided by the admitted market to a greater extent than the surplus lines market as i mentioned earlier, force plays flood, there is more britain by admitted carriers in the surplus lines numbers mr. kelley described. so it is not as if it is unfeasible for many carriers to write flood. it is feasible. the question is what is the is t way to manage the private market into this end in my view, the best way is to require the

coverage of flood in those homeowners and commercial of thingsolicies because that including problems with nfip as well as fairness issues and promoting loss mitigation. the problem with respect -- the problem with 29 no one is it addresses a very narrow issue that can create problems in other areas of the flood program. >> thank you. >> pajamas time is expired. i think maybe one or two questions and with that we go to the gentleman of kentucky recognized for five minutes. thank you, mr. chairman. just to follow up on an issue, there's a pretty good consensus here that we need to incentivize more private participation of flood insurance obviously. but beyond the ross murphy approached to bring in more surplus lines companies that

write nfip policies currently have designed this noncompete clause which pushes these companies to the sidelines in terms of developing private insurance policies. for any witnesses interested in this, would you support language in h.r. 29 no one or other legislation that would eliminate this noncompete cause currently required by fema? >> so, the answer to the question is you can't eliminate the noncompete clause without doing anything else because if you eliminate the noncompete clause, then you have a situation where the company is selling policies for fema and also selling its own flood policies. what the company will do is make its evaluation of what the riskiest policies are, give those who fema, the most profitable are the least risky. so what you have is essentially at first election. so there is a reason why there's

the not compete clause. that is an example i will try to address one narrow issue without looking at the broader problem. you really need a comprehensive approach in the comprehensive approach is the private market provides flood as part of the residential commercial property insurance subject to the standard state-based regulation, nfip transforms to a catastrophic reinsurer role. that enables players to participate private market, state-based regulators, alternative capital and puts the government in the role of focusing a must mitigation, which is the one terms lucian to addressing flood problems. >> i would love mr. kelley to respond. it seems like in advocating the model, you were avoiding this cherry-picking issue, but you still have a federal backstop of

either model. which is the better model. mr. kelley, do you want to weigh in on that? >> i agree with your point. that is one barrier we are seeing to the standard architecting and if they are already involved in the program, they can't offer their own standalone program. we haven't taken an association position on that. it clearly is a barrier that would get more standard carriers involved if it weren't there. >> do you have any thoughts? >> we also are in the same position. nfip hasn't looked at this issue. the program and potential recommendrecommend ations we would make to modify the program would be one of the things we would look at. i think it is a very interesting issue to look at. from our good 29 no one would be a great first step in if they could do that quickly, having a

conversation about changes that make a lot of sense as well. >> the mages follow up with one final question. mr. birnbaum snake in the argument that the ross murphy bill would actually exacerbate the financial solvency problems of nfip. we all agree we don't want to get nfip more financial distress than it already is. so i've advocated by the ross murphy approached, do any of you well, mr. miller, mr. bradshaw, mr. kelley want to address that issue? >> i would be happy to. i think the issue of cherry-picking is certainly a concern and something we would recommend we monitor going forward. right now as i've said a few times, this market is very small. there's just too little data at

this point to know how the market is going to react going forward. or mark respect that, this bill were dead sooner rather than later it would give us a chance to get more data and observe how the market is going to perform going forward. i think it does a cup of things. one it gives all of us the program will give us more information to inform changes to that program, but also a state regulators for a had more data it will help out as we look forward in thinking about ways we might need to change our regulation to address this evolving market. from our perspective, i certainly wouldn't want concerns about cherry-picking to get in the way of us providing options for consumers in the market. >> and i think back to the 1% category of properties. got to admit no one is lining up to write those right away. the thought of adding those

types of coverage is to the homeowners -- general homeowners become it will price them out of the home in our opinion. if we can focus on shifting some of the burden under the program come you reduce the overall risk and that leaves you with the category of the highest risk properties that perhaps a residual market is there to figure out. it in our mind would allow nfip to focus on mitigating and preventing flood damage in those areas. >> so i just need to jump in real quickly and say it is absolutely crystal clear that this bill would allow surplus lines and encourage surplus lines to cherry pick. it is obvious as the nose on your face. the only policies the writers would do are the ones they view as profitable. nfip has a variety of policies ranging from less profitable to

more profitable and what will happen is they will be left with the less profitable policies the most revenue to do it. there is no question this bill will lead to greater financial problems and i am really surprised the other panelists are not acknowledging not. >> the gentleman's time is expired. the ranking member for missouri, mr. cleve used for follow-up. >> again before we close out, i want to thank you for the addition of trying to get this done much earlier than we normally try to get legislation through. one question. my son is in school in los angeles tonight a lot and see all these houses built on cliffs, like i dare you -- watch

my house down the cliff because i'm on this committee i am always angry driving through there and they were. those are usually wealthy people. the chairman and i, we were in the ninth ward just a few months ago and ranking member waters and i were there a few weeks after katrina. my son is in college there at the time. it is just yesterday that. the actor from missouri, brad pitt, raised a lot of money and most of the houses are now on stilts. but the people are still dare and these are not rich people.

these are poor people and that still remains a low income word. although people go to work every day. would any of you believe they expect the residents could actually pay the full risk free for private insurance or do they get left out? >> the answer to that is they can't pay the full risk rate if there is no loss mitigation. if they are high-risk area pay the full risk rate, they are not going to be able to afford it. but they wouldn't be able to afford a policy there. the question is where you want an federal dollars. spend your federal dollars to subsidize the policy where do you spend your federal dollars

on loss mitigation that reduces the exposure for the homeowner and thereby reduces the premium. if you simply subsidize the rate, you set the table for future repetitive claims. if you have the investment and loss mitigation, you reduce exposure, reduce claims down the road and disaster relief. so the model has got to be, but spend federal dollars a month mitigation as a way to make insurance more affordable instead of subsidizing the rate. that is not a long-term solution. subsidy is not a long-term solution. last mitigation investments are. >> that's a theme related issue and not one we have to deal with the mitigation issue. >> they go together. you can't tell nfip to offer subsidized rate and then say

investor must mitigation. >> well, they do in the real world. but this ain't the real world. i would like for it to be, but that is just not the way it is. i understand exactly what you say and i agree with what you are saying if we were in the real world. >> you have the power to create that real world. >> thank you. mr. bradshaw. >> area quickly, there's been a huge investment on the levee system in new orleans, which we appreciate significantly. there is a huge modernization of the levee system in new orleans. when you live behind the dam, you have to be always conscious, always vigilant if the dam starts leaking. the national flood insurance program is very important program in order to help those folks that do need help to

maintain affordable housing. we are very much in favor of that. >> thank you. >> the gentleman yields back. i've got just a couple of follow-ups. mr. kelley, during the course of discussion come you communicated we got 1% of the policyholders to create 30% of the loss. mr. birnbaum has been tacking about those guys. how do you adequately rate those folks? how do you fund them, not fund them? has suggested is to mitigation take 1% and reduce it down as much as you can i guess. my question is, today we talk about how we can shift from what we have now to a more private arcus solution. do you believe if you take 1%

outcome of the other 99% of policies can actuarially be structured so the 99% can afford the coverage and take care of 70% of the race? >> i wish i could answer that question. i'm not the actuary of the room. there's a large percentage of it that you can. what percentage i can't quote you. >> it would seem to me that would be a key point. if you got 1% causing 30% of the problems, that is the group that's your headaches. that is where your risk is. if you could take the other 70% of the risk and divided among the 99% of policyholders, it would appear to me to be able to find a way to fund this that would be affordable. my next question would be for someone who represent the industry is these opportunity, how long do you think the market

will transition from where we are to where they'd be willing to take this 99% of the policyholder risk on? >> when you start by saying it will take the transition to figure out how much the 99% can transition. >> how long do you think it would take? is there a willingness within your company is in the capacity to take a font in a two-year, five-year, 10 year, 20 year window? or would you anticipate something reasonable for the companies to be able to do their due diligence, get their mapping correct, they're modeling correct so they could see where they could come in, make it a part of the homeowner's policy and mr. birnbaum suggested that i like. how do long do you think it would take? if we are going to go from here to bear, we need an idea timewise in testimony today is

very important. i'm not going to hold you to do but it gives us a guys night to begin discussions. >> i would save there is capacity there. most of what we see transition out of nfip is to surplus lines carriers now. the various capital they are. there's a lot of capital, but long-term, we wouldn't expect that business with dad and surplus lines for a very long time. many types of coverages of all but a surplus lines into the standard market. that's how the market should work. >> eventually would go into mr. sub threes model without the homeowner policy itself. >> eventually as a standard market does their investment in technology in modeling and expertise for the rest, you will see many start to add the peril to their homeowner's policies. it is the time between now and then that are marketed acts as the residual market. >> thank you.

>> revealed to mr. garrett for five minutes. >> thanks for the panel would've been following senators in the office. just two playoff your points, software that mr. kelley and in some sense putting on the spot to the actuary of the room. those are the people that sound being a cpa was just too exciting. [laughter] in any event, the question is if he did it with a 1%, 99%, what with the situation look like? your answer is you couldn't exactly say for sure. but i'm guessing if you did it that way that for the 99%, anybody else can chime in on this. i'm guessing that it would need a more favorable rating structure for them right now. in new jersey, sim in the 99% right now, after the last go

around with the not so much have you, i see my rates go so high that i'm happy to sell my place because people back in jersey fine if he went to the situation, theoretically pay premiums might be more reasonable. >> is that true or not? >> you are the facts. 5.2 million nfip policies in well over a million that are subsidized. there's a bunch of policies not only preterm subsidized, but also grandfathered. so you are talking about who knows what% of the policies are subsidized. if we take out the 1%, somehow all of a sudden it's become affordable for the 20% or 30% currently subsidize, that is just not going to happen. you cannot create affordability strictly through the insurance

pricing mechanism. there is always a situation where sun can immerse can't afford a risk this price. you need assistance from outside the system. >> packets a second point of the question because i get back, but perhaps some of the people are living in areas that are maybe just an overly risky place to be of that has to be taken into consideration as well. but does anyone think there is a difference of 100% or 99% as far as the mitigation -- i heard some of my talk at the necessity for mitigation. is there a change in the processes on the private sector versus the public way we do it right now? >> absolutely, congressman. if the private sector were responsible for flood insurance of the homeowner's policy, they have an incentive for loss mitigation that they simply

don't have right now. he was chief exec partnership for loss mitigation. the loss mitigation is financed with a long paid for from the discounts. there's opportunities for innovation that simply aren't going to occur by saying let's hope the private sector gets involved and put the chosen the latter. >> with that i will yield back. >> mr. bradshaw, who would like to respond. >> of course, we now experience 5% insurance in my particular marketplace and so, we continue to have this risk is the lender to accept part of the rest and that is typically what we are seeing unless you buy than 2% -- not flood insurance, but that the hazard insurance. not much loss mitigation on hurricane. >> i think the chair. as a follow up comment, i think

if you wind up with the private insurers trying to figure out what to do with 1% and say you can incentivize that group by saying if you do these things, we will drop your premium and therefore have an impact in that way as well. it is the best conversation without this morning and i certainly want to thank all the witnesses. you answered a lot of the questions in the event is a lot of food for thought. you broaden our scope of what we of what we tried to find here and what we look to do to see how we restructure the program, what we can do, what the private sector is willing to do, how different innovations can be a part of this regulatory wise how this can be overseen to make sure consumers are they that there is adequate provision for policies that are meaningful. but that objection, all members will have five legislative days to submit questions for the witnesses to the chair.

i asked her witnesses to pleasers bond as promptly as a ripple. without objection, five legislative days and with that, the hearing is adjourned. [inaudible conversations] ..

thank you for being with us. >> good to be with you. this is becoming more popular polymer gains in political circles. what is it the senator wants? >> guest: it's not clear exactly the parlor game a year ago is will she get into the race. if she does will she eclipse and defeat hillary clinton. she chose not to run. but that's not a question of who ultimately will she support. six or eight months ago it wasn't that big a deal because it didn't seem like hillary clinton was one have a big challenger by now you've got bernie sanders who is running neck and neck in iowa and appears to be leading in most polls in new hampshire. so what has emerged as a viable threat. and a threat in the form of a guy who ultimately of the same

positions as spouses the same populist anti-wall street rhetoric that warned herself does. there's been a growing expectation among liberals or an anxiety for warren to kind of way in and endorsed sanders, yet shshe hasn't. >> host: it would seem ideologically should more closely aligned to senator sanders. >> guest: that's right and i think that's one source of frustration amongst his supporters to take a look at what elizabeth warren has done as a senator, she's been very careful in has been dating her political capital and very selective and now she uses a. has gone out and wait on every issue. she's been careful to kind of pick certain fights because i think she knows she's more effective if she only picks fights that she's going to win. so she's choosing to work within the system. gave a talk to warren's

supporters and allies, the people close to her, i think there two things going on. one is, warren doesn't want to cost her so political capital in washington. and another thing one of her close advisers told it is her overriding concern industries is that the democrats win the white house and succeed obama. she's not yet convinced that sanders strong enough to be that candidate. i think there's a good chance she could wind up endorsing hillary clinton which, of course, the clinton folks would love since sanders has been gaining. >> host: that endorsement did not come last month. we covered the event on capitol hill not far from our studios in which all of the feeble democratic senators except senator warren on stage with hillary clinton. >> guest: there was a glaring absence. and if you talk to people around warren what they will say is essentially as fallible as her endorsement would be to either

sanders or hillary clinton she doesn't stand to gain anything by endorsing right now. is, in fact, stands to lose quite a bit. if she were to come out and endorse you were clinton today, that would be a crippling blow to warren tennessee in places like iowa and new hampshire. but on the other hand, she goes out and endorses sanders and hillary goes on to win, she will cost herself potential switch and a future clinton administration. she's been very canny about, she hasn't been totally quiet. she's been on the sidelines but she will periodically way into praise the policies of both of the candidates, if they do something along the lines of what she likes. at the end of last year hillary clinton came out and said we are not going to let republicans attached letters to the budget bill that will weaken wall street reform. that's a big elizabeth warren issue and warren went out of his book and wrote a glowing testimony to clinton's bills. last week she went on twitter and unleashed a tweet store in

support of bernie sanders wall street reform speech. so she's basically been trying to kind of match candidates in the direction she wants him to go, using the threat of potentially endorsing one of their opponents to kind of incentivize them to support things that she would like the race to be about. i think to an extent she been effective in doing that. >> host: we should point your peace is available in the latest edition of bloomberg business week. based on the polling numbers you just indicated a while ago in iowa and new hampshire, how concerned are the clinton staffers in brooklyn? >> guest: i think every concerned. the arches signs of that in my mind. when is it just with some of the better public polls and especially the polling averages which tend to be more accurate, sanders has gone from being at the single digits in i would essentially being neck and neck with hillary, about 40%.

is trendline has been a clear and steady move out. if you look at new hampshire, sanders is leading in quite a few polls. while i don't think there's a lot of people who think hillary clinton is at risk of losing the nomination, even think about how an evitable clinton was thought to be in the cycle as the democratic nominee, bernie sanders would've come in and win iowa and new hampshire, that would be a real blow to clinton. and its ability would put pressure on elizabeth warren to come in and finally weighed in with an endorsement. i think the other sign that the clintons are getting nervous is you have chelsea clinton of all people come out today and attack of bernie sanders as a kind of crypto republican. it was a very strange line of attack and a strange surrogate outcome for the clinton campaign to use. nonpolitical a figure as it is chelsea clinton but i think that's a sign the word about stopping senators -- stands

moment and before he surpasses them and press ends up stealing iowa. >> host: based on that you think the field is set in secretary clinton loses iowa and new hampshire, hypothetically could we see senator warren or vice president biden or someone else into this race? >> guest: i sort i don't think so but i think it's probably too late at that point. if it really seemed like the party were kind of collapsing, you could envision a sort of scenario where the convention, i don't know, sanders became incapacitated or clinton couldn't serve, maybe in a far-fetched scenario would have a biden or a warren coming off the sidelines. i think realistically know, this'll be a race between hillary clinton and bernie sanders and i think that's why the potential of elizabeth warren endorsement hanging out there looms so large to both candidates. >> host: you can read the details on like that bloomberg

politics.com. joshua green national correspondent for bloomberg business week, thank you for your time. >> guest: thank you. >> after exploding a nuclear weapon on january 6, north korea claimed it tested a miniaturized bomb but many experts believe north korea exploded an atomic bomb rather than a more complicated hydrogen bomb. house foreign affairs subcommittee on asia yesterday held a hearing on north korea's most recent nuclear test. the subcommittee heard from former officials of the cia and the national security council. this is about one hour 45 minutes. >> subcommittee will come to order. on the evening of january 6 north korea likely conducted its fourth nuclear weapons test. north korean leader kim jong-un claimed that test was a fusion reactor hydrogen bomb. most experts are skeptical given

seismic evidence and north korea's penchant for overstatement but it's nonetheless incredibly concerning. reconvened singh today not only to join the international community in condemning the test but to work to find a feasible lasting solution to address the north korean nuclear threat. for many in the united states, if we think of north korea, it usually the butt of the joke, and referenced either the entity or team america movies. despite repeated calls from both respectable civilian thinkers and top military leadership citing north korea as the top threat in the pacific theater, north korea seems to have been off the obama administration's radar. instead they have dismissed the imminent threat by employing a so called strategy of patients, excuse me, strategic patients. for a allies in the region, north korean provocation means so much more. and it should for the united states as well.

history has proven north korea has every intention to continue dancing its nuclear program. in an effort to strengthen both domestic and international position, the united states has shown a willingness to negotiate with north korea if it is simply willing to first take steps towards denuclearization. north korea has shown no interest in doing so but it has successfully extracted food assistance and other foreign assistance from us by threatening nuclear activity. this is an unacceptable cycle that cannot continue. due to north korea's nuclear threat and proximity to our allies, south korea and japan, response options are limited but they largely fall into two categories, sanctions and information flow. some argue for united nations sanctions but others say that would exert little pressure on north korea largely due to china's lack of enforcement.

some speak of north korea as the most heavily sanctioned state in the world but that is simply not the case. for example, iran is subject to sanctions under 18 u.s. executive orders and north korea is subject to six. itablet chairman royce for his work on the north korea sanctions legislation which passed the house yesterday. i am proud to vote for that and i think it's a good start but i think much more to be done and that's why we are here today. china's relationships with north korea continues to be a problem. china favorite north korea's status quo over the demise of the kim regime which it fears could mean a unified united states allied korea as a neighbor and a sizable flood of refugees crossing their border. these vested interests are why china continues to prop up this pariah state with food, oil and assistance. i am deeply disappointed that

china continues to allow north korea to destabilize the region in this manner your china must tighten sanctions, and really enforce the sanctions that are in place and apply the pressure that only it, north korea's patron, can provide. while a nuclear test quickly cross the world's attention toward north korean leadership, we must remember that you are 24 million people living in this close off state, start a basic necessity. furthermore, citizens are brainwashed into believing that their leadership is actually helping them. the north korea human rights act of 2004 initiated radio broadcasting provide basic knowledge of the outside world to the people of north korea. 12 years has since passed and technological advances have been made and our policy should reflect that reality. i intend to introduce legislation that would update this program to provide greater

more useful information to inform and empower their citizens. in 2006, north korea was removed from a state sponsor of terrorism list in an attempt to bring it to the negotiation table and ultimately halt its nuclear program. congress has debated this issue and many members believe it should be put back on the lives. count me in that category. given thkevin the sony cyber at, showing a south korean ships, north korea's alleged ties to hamas, hezbollah and iran, and now this fourth nuclear test, perhaps nuclear should be placed back on the list. the leaders of north korea as well as china should understand that every pyongyang provocation will induce act of aggression response in an attempt to alter north korea's ways. there is calamity across the globe polling our focus at the obama administration's deployment of strategic patients comes i believe at our peril.

let's be done with strategic patients. it's time for strategic clarity. we must be proactive in our efforts and i look forward to this important discussion of any recommendations is to sandwich panel can offer. members present will be permitted to submit written statements to be included in the official in record and without objection during record will remain open for five calendar days to allow statements questions and extremes interest for the record subject to the length, limited in the rules. and i would like to turn the tide over to the ranking member for any comments you might make. >> thank you. north korea probably tested a hydrogen boosted device, one that made use of hydrogen isotopes but did not get its power from the fusion of hydrogen atoms. that being said, it's perhaps a decade or a decade before north

korea tests a genuine thermonuclear weapon. i'm sure our witnesses will be able to clarify and give us a more precise estimate. we have throughout this century, which is now in its 16th year, had a policy which has completely failed us as foreign policy, but has achieved what some would argue is the guiding force behind foreign policy which is meeting domestic political concerns. we have not, neither the last administration noticed administration has slowed down north korea's nuclear program for any significant time. and continuing this policy or repeating what we've done but only in a louder voice is not going to yield a different result, but our policy has

allowed us at times from various times to seem tough, and we've avoided offending wall street. these are important domestic political objectives which have been fully achieved. so if viewed from the standpoint of being popular domestically, our policy success is a success if we want to protect the world from north korea and nuclear weapons it's been a complete failure. in terms of what we could do if sounding tough wasn't important is we could make it clear to china that if there was a unified korea, american forces would not be north of the 38th parallel and might even be farther south. they would be less reason for them to be there. we do not have any military forces defending any other china neighbor from china. our troops in south korea are

there to protect south korea from north korea. we could offer north korea a package of eight. that's been done before but a nonaggression pact that they had asked for and we refuse to provide, because dick cheney imagine innovation, or at least didn't want to give up that opportunity sometime in the future. but the most important thing we need to do, everything we are least likely to do, is to make it clear to china that the access to u.s. markets depends upon them getting tough with north korea. wall street would be act asked if we actually did it, so we won't. so we are likely to continue to the current circumstance. china is indeed miffed by what north korea has done but is unwilling to change its policy and, of course, china has been

miffed by north korea many times in the past. china will not change its policy and less the reality changes, and the current reality is they have free access to u.s. markets, and that won't be changed if they choose to continue the policy that it continued throughout this century, which is to subsidize north korea. so if we want a policy that doesn't make domestic political objectives, simply maximizes the carrots and sticks on north korea, it would be a matter of nonaggression pact, 38th parallel, and the threat of fuel, of tariffs on chinese goods if china continues while always questioning it but continues the policy of subsidizing north korea.

so my guess is that we will simply continue to pull our hair out, obviously i've done more of that than most of the witnesses, being worried about north korea, but, and [talking over each other] , do nothing that offends wall street. and if you keep doing the same thing for now a 16 year-old century and get, and expect a different result, that is the definition of insanity. the final thing i would ask the witnesses to comment on is whether we would actually get somewhere if we consent, if we agreed that north korea could have a very limited number of atomic but not thermonuclear weapons, or is there a real prospect of getting him to be a nuclear free state? i yield back. >> just wanted to comment for the ranking member. i think many of the issues that

you've raised are thought-provoking and reasonab reasonable. i would like to extend a hand across the partisan divide to work with you in any way, shape, or form cannot just pull our hair out but actually get some results. added that offends some folks, some special interest, then so be it. i think the more important goal is to have success. i think all the world expects success. and so i just want to say that i think you've raised some legitimate issues that need to be explored, and i intend to work with you to do that. look forward to it. >> esther rohrbacher. >> thank you very much mr. chairman. and thank you for holding this hearing at a very significant moment. our relations with both koreas go back a long way, and i have a long memory. i still remember sitting right

here in this room when the clinton administration was proposing to us that we cannot a deal with north korea, that we would be providing them food and fuel for an agreement not to do what they apparently have been doing, which is, i don't care if you want to call it a hydrogen booster device or hydrogen nuclear weapon. the fact is they obviously have been spending the money on developing ways of mass murdering other people while we have been providing them the money for their food and fuel. to say that that is absolutely unacceptable is to put it mildly, and at that time i indicated, and several other republicans i might add, add a couple of other democrats as well i might add, pointed out

that that's what would happen. entered has, surprise, surprise. they have used their resources to develop weapons of mass destruction. we have subsidize them in using our money to provide them food and fuel. which they should be coming out outcome how do you say, hydrogen boosting device development budget. let me suggest that this nuclear explosion, and a continued, the obvious continue to work that north korea is doing on nuclear military devices, that should at least put us into a mindset that we have to do something different than what we've been doing. and let me note that president abe has made it very, very clear that there are threats to the pacific and i would applaud

president abe for reaching out to south korea at this moment. content of japan has gone the extra mile to address sensitivities in south korea that are left over way from world war ii. and needs to be applauded for that anti-needs to also be encouraged to rebuild japan's military strength so he can work with a united states of america in preserving the peace in that part of the world. instead of having to united states having to carry the entire load on our own. so with that said i would finish by saying, the other fact is, which the chairman mentioned, china. just as it was obvious that the north korean regime is corrupt and belligerent and as repressive as it is, we be using their money to develop weapons

while we provide them with food and fuel, it is just as evident that they have a relationship with beijing that puts beijing into a position of influence in north korea, if not dominance of north korea. so let us again come to the point that we applaud president abe for reaching out and policies that are going to ultimately bring more stability to that part of the world, let us condemn beijing for not using its influence in a way that would bring more stability and peace to that region. so we need to work together on this and, mr. chairman, thank you for calling this hearing. looking forward to hearing more specifics and information from the witnesses that will help us develop our policy now as we start into this new era. thank you. >> thank the gentleman from california. mr. barra. >> thank you, mr. chairman, thank you for the timeliness of this hearing. a few weeks ago i had a chance

to visit the republic of korea and visit with our troops and spent a few days around christmas with our troops also visiting with the korean foreign secretary's, national study folks, et cetera. also a chance to go up to the demilitarized zone and chat with our troops, see the republic of korea troops. the demilitarized zone is an oxymoron. this is one of the most heavily militarized zones in the world, and it is a constant reminder that we are in a cease-fire. we are not in a state of peace. listening to the remarks of my colleagues, i think it's important for us to learn from what we've tried in the past, but the conundrum is north korea is not easy and it will require partnership with the countries in that region. and in many cases we all laugh at the same place, that china really does have to take a leadership role fear.

china is one country that does have some leverage with north korea, but it will take a partnership between the chinese government, the russians, japan, our korean allies along with u.s. leadership in order to address this. it is in all of our interests to de-escalate tensions to try to bring north korea into the 21st century. and the of the cold that i think many koreans have seen reunification. it's not going to be easy. it will take world leadership. it will take the nation's along with the united states in that region working together, but it can be done if we put our minds to it. and we have to. there's an urgency now as indicated by the recent north korean nuclear test. it is complicated, and the president talked about the

threats that we face in the middle east. but those are not threats to our very system of the nation. north korea with a hydrogen bomb, with ballistic missile and icbm capability are a threat to world stability and we've got to direct others urgency now. tried to i look forward to working with you to try to navigate this path forward and it's incredibly important. >> thank you. mr. chabot. >> take it very much come and thank you, mr. chairman for holding this important hearing. there's no question that the world has had a problem for a long time with respect to north korea, particularly their leadership whether the grandfather of the father or the son now. they are equally as crazy i'm afraid, particularly the newest one. but their own people continue to suffer and to star trek the of the most politically isolated country on the globe, despite

that they continue to have, they have absolute contempt for most of the rest of the world, including their neighbors. and with this fourth now in the last number of years nuclear test that we have reason to believe it's hydrogen, although that hasn't been confirmed necessarily get it, but nonetheless it's terribly disturbing. i think every administration from the clinton administration to the bush administration to the obama administration has failed with respect to north korea, and that's most unfortunate. now with the increasing sophistication of their missile systems, a united states is at risk as well. but to countries that are even more at risk are obviously south korea and japan. as my colleague mr. rohrabacher

from california indicated, china is the key. china is it only country that has any real influence over north korea. and anything that's going to get china's attention is if those two countries, japan and south korea, seriously consider nuclear programs of their own. that's the only thing that's going to get china's attention. china, the last thing china wants. so i would urge those two countries to think seriously about this. i am not encouraging them to do it, but even thinking about it and discussing it i think we'll get china's attention, and maybe china will finally with the pressure on north korea necessary to get them to back off this insanity of one of the poorest countries on the world spending all the money on nuclear weaponry. to threaten the rest of the world. i yield back, mr. chairman. >> i thank the gentleman. is there anyone else who seeks recognition on the panel?

>> thank you, mr. chair for holding this hearing. i find this very interesting. i think the focus what you've heard a lot is china, one of the going to do to deal with china in terms of the pressure that china has. to meet our a couple of questions i'd like to understand before we get into what we have to do to pressure china to do anything else. that is, what does china want? where is china? not because of our pressure. number two, i've seen over the past year or so some articles especially in the "new york times" about chinese officials, former military officials, retired, talking about the unsustainability of the kim regime. .. aboutst