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New York City, N. Y. The committee met, pursuant to recess, in room 110, United States District Courthouse, at 10 a. m., Senator Herbert H. Lehman, presiding.

Present: Senators Lehman, Ives, and Bush.
Also present: Representative Thompson of New Jersey.

Senator LEHMAN. The hearing will come to order. I am going to make a short statement to bring the press and others up to date as to what we have done so far in these hearings.

We have had 2 full days of hearings in Washington. At those hearings, we heard, I believe, exclusively from representatives of the administration—the Department of Commerce, Department of the Interior, the Director of the Budget, the Housing and Home Finance Agency, and several others. They were very interesting hearings, and we, of course, have kept a very voluminous record of them.

In our meeting here today, the witnesses are to be the Governor of New York; Congressman Frank Thompson, Jr, of New Jersey; Mr. Frank Crystal, an insurance expert ; Maj. Gen. Robert Condon, Director of Civil Defense, New York City; Rev. Roger C. Stimson, head of the flood-control committee, Stroudsburg, Pa.; and Mr. Joseph Cully, president of the Staten Island Flood Control Association; and maybe one or two others will appear a little later.

I have a telegram which I wish to read for the record. This is from J. V. Herd, chairman of the committee to study floods and flood damage of the American Insurance Association:

NEW YORK, N. Y., November 2, 1955. Pursuant to your telephone suggesiion and referring to your telegram of October 28 it would now appear unnecessary for me to testify Thursday, November 3. The subject matter is still under study. Would appreciate it if scheduled appearance before committee could be deferred until future date.

J. V. HERD. I also have a letter from the Governor of New Jersey, Robert B. Meyner. I will read it for the record :



Trenton, N.J., November 2, 1955. Hon. HERBERT H. LEHMAN, Acting Chairman, Banking and Currency Committee,

Federal Court Building, Foley Square, New York, N. Y. DEAR SENATOR LEHMAN: I have a copy of your proposed bill to provide insurance against national and manmade disasters, and also your invitation to me to testify at the hearing to be held on November 3 at New York City.



I regret that I will be unable to attend the hearing, but I want to express my intense interest in a program of insurance. At the moment, I feel I need additional information, not presently available to me, to reach a view with respect to a workable plan, but the numerous press reports to the effect that private insurance companies cannot furnish coverage at rates within the reach of our citizens makes it imperative that the Federal Government participate significantly in providing assurance against these losses.

Some interests can survive such havoc. Utility companies may recapture the cost of repair or replacement. Governmental units may spread the loss through their taxing powers, although, even there, small communities may sustain injury beyond the ready capacity of its taxpayers. But, in good conscience, the individual citizen should not be asked to bear the demoralizing, economic impact of the major ravages of nature against which he is utterly helpless.

It is tragic to witness the sudden destruction of the accumulated resources and hopes of a homeowner or small-business man, with only mortgage indebtedness remaining to evidence the initiative and faith that once were his. Even larger business interests cannot absorb these setbacks. The necessity for prompt, forthright, and wholehearted attack upon this problem cannot be questioned. Sincerely,

ROBERT B. MEYNER, Governor. I want to explain that there is no definitive or final bill before this committee. Bills have been drafted by a number of the Members of the Senate. There is one bill drafted by Senators Kennedy and Saltonstall, of Massachusetts. There is another bill drafted under the direction of Senator Carlson. There is a bill which was prepared by me, and by others who were consulted, which is now also before the committee. I believe that you, Senator Bush, also directed that a bill be drafted for submission to the committee. All those bills are before the committee.

I want to explain also that this hearing is not being held by a subcommittee of the Banking and Currency Committee, but by the main standing Committee on Banking and Currency. I was directed to serve as chairman of these hearings. I am very glad indeed to know that a number of my colleagues have attended the hearings and are here today.

We are going to have further hearings tomorrow upstate, then in Boston, Providence, and Hartford, and a little later on in North Carolina or South Carolina, where there was also very great damage because of the floods in that area.

Governor Harriman, who was to be the first witness this morning, has not yet arrived, so I think I am going to call on Mr. Frank Crystal to testify.

However, before he testifies--you all know my colleague, the senior Senator from New York, Senator Ives, so he needs no introduction. But I am very glad to introduce the Senator from Connecticut, Senator Bush.

Now, Mr. Crystal.


STATEMENT OF FRANK CRYSTAL, NEW YORK, N. Y. Mr. CRYSTAL. With your permission, I would like to read my statement, if I may.

I am Frank Crystal. My office is at 61 Broadway, New York City.

Senator LEHMAN. Are you representing any State, community, or organization?

Mr. CRYSTAL. No, sir; I am just in the insurance business.
Senator LEHMAN. You may proceed.


Mr. CRYSTAL. Today the increasing frequency of floods and droughts in many of the 48 States presents almost as great a problem to our Nation as the danger from a nuclear explosion. Because of the immediacy of the need for some form of indemnification, my emphasis here is on flood damage.

Specifically, the problem is the danger of economic chaos which would result from extensive property damage when a catastrophe occurs. It is the danger of destruction of billions of dollars' worth of property without means of obtaining funds to rebuild. It is the danger that homeowning citizens face of having their homes destroyed, with no resources to replace those homes. It is the danger our lending institutions face of having their mortgage assets dangerously depleted, and also reducing to possible poverty many prudent individuals who have entrusted their savings to these fine institutions.

These dangers exist because at present there is no purchasable insurance protection which could possibly cover potential catastrophes. Our many financially strong insurance companies, either individually or collectively could not begin to meet the claims resulting from these recurring floods or from a possible large-scale surprise attack with nuclear weapons.

There is a solution. It is for the new United States Congress to enact legislation immediately so broad in scope that all owners of homes, commercial structures, industrial plants and other facilities in the Nation will be indemnified by the Federal Government in the event of a "defined catastrophe loss." This definition is subject to careful determination at a later date, and to some limitation as to the amount allowed for each loss, bearing in mind also that this is for catastrophic or disastrous losses and not planned as reimbursement for small individual holdings of so-called personal property.

How would the Government be reimbursed for its possibly very large outlay of money for the indemnification of any catastrophe loss? One suggested method is: After the financial outlay is calculated, the amount is prorated to the amount of income-tax return from individuals and corporations, and the percentage basis per dollar is determined. It may be one-quarter or one-half or one-tenth of 1 percent. But each citizen and each corporation pays his prorated share. It is added on to the income-tax return—and I do not believe you will hear many voices raised against this particular tax levy. But next year it may be your turn or my turn to need immediate indemnification from our Government for a disastrous loss.

When the income-tax returns reach the Treasury, it is simply a bookkeeping matter to list the special disaster taxes from each return and for the Treasury to reimburse itself for funds already disbursed as indemnification.

If desired, the Treasury could issue interim bonds which would be redeemable on collection of this tax. It would of course be understood that issuance of such interim bonds would not increase the public debt. Prompt indemnification is the important factor, rather than the method of recovery.

Protection of civilians and of the national economy is a primary purpose of Government. Monetary payment for uninsurable catastrophe losses should be a part of our Nation's operations in peacetime just as are munitions and maintenance of the military during peace or war. In reality, flood is a war by the elements.

For this reason, every person in the Nation should be called on to contribute to the cost of protecting civilian property, should catastrophe losses occur, in the same way that they contributed to the cost of our wars.

No section of the United States can be considered immune today from flood catastrophe or global warfare. Even a nonmilitary atomic or hydrogen explosion could wreak untold havoc, and without some equitable form of indemnification could create economic difficulty for years to come.

In addition to the fact that such losses should be regarded in the same light as losses on the battlefield, where the financial cost is distributed over the entire citizenry, is the fact that there is no method of determining insurance premiums for catastrophes whose extent cannot be forecast.

During World War II, the War Damage Corporation was formed as a branch of the Federal Government to provide indemnity for real-estate losses incurred by enemy action within the United States and its possessions. Basically, it was a giant insuring agency. Nominal premiums of $1 per $1,000 were paid by property owners who wished to be insured. The theory was that the premiums collected would create a fund sufficient to meet any anticipated losses.

Luck was with us. A total of $256 million was collected in premiums. Losses were negligible, and $210 million was turned in to the United States Treasury after the payment of all claims and administrative expenses.

However, floods such as those recently experienced, or one nuclear explosion, could cause damage far in excess of that $256 million. The potential loss to our citizens and to our business economy is so great and so impossible of determination that no plan such as that followed in World War II would be practical. Only 8,700,000 policies were then issued. Many other millions of properties had no damage protection.

Blanket indemnification by the Federal Government is imperative. In my opinion, it would not be necessary to set up active machinery in advance for this purpose. The insurance industry as presently functioning is adequate for the handling of catastrophe claims, and would, I believe, extend their good and able cooperation as they did during World War II.

If and when catastrophe losses do occur, a suggested procedure would be the setting up of a valuation commission composed of local insurance brokers and agents in each community. These, in cooperation with the companies, would pass upon the claims, compile all necessary information, and handle the required paperwork for a predetermined fee. In my opinion, insurance companies who are unable to provide such coverage would not expect to receive more than their out-of-pocket expenses in adjusting claims.

The idea of industry cooperating with Government is not new, since our National and State banks and our savings institutions have for many years been cooperating with the Government in the sale and redemption of United States savings bonds.

If legislation along these lines is enacted, it will be an important step in the Nation's economic security program. There would then be no need for hasty emergency legislation after a catastrophe occurred. Also, the Government would have the benefit of trained and

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