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Goshen, Ń. Y. The committee met, pursuant to recess, in the surrogate court, Goshen, N. Y., at 10 a. m., Senator Herbert H. Lehman presiding.

Present: Senators Lehman and Ives.

Senator LEHMAN. The hearing will come to order. The first witness is the New York State superintendent of insurance.

Senator Ives. Mr. Chairman, before the witness is heard, I would like to make a statement which I am sure will meet with your approval and with the approval of the good people of Orange and Ulster and the other counties that are affected by this terrible calamity that hit here in August and again last month.

I understand on very good authority that this hearing has political overtones. I think if that be true, and I do not question but what it may be, that is entirely outside of what you and I desire in holding these hearings. Anything as tragic as a flood and the great damage that floods do and have done here, in this particular area, should be kept entirely out of politics, partisan politics, at that. It seems to me, Mr. Chairman, in the light of what appears to be the situation, and in view of the fact that we have a very long list of witnesses that I doubt we will have time to hear during the day-it would be well to eliminate all who are candidates for public office, but who are not now holding public office, and who might be able, thereby, to enhance their prestige from the standpoint of advantage in the election next Tuesday.

I know that this hearing was never arranged at this particular time with the thought that it was coming just before the election and might help somebody at election time.

T'he hearings thus far have had nothing whatever to do with partisan politics—nothing to do with politics at all.

I think, sir, the thing to do now is to keep this entirely out of politics, and eliminate those witnesses who are candidates but are not now public officials.

Senator LEHMAN. Well, Senator Ives, I want to point out that in my opinion there has never been a set of hearings that has been further removed from any political overtone. We have called witnesses, and asked witnesses to come and volunteer to testify, without regard in the slightest degree to politics.

This is the fourth hearing we have had. We have had hearings lasting for 2 days in Washington. I believe of the 20 or 25 witnesses that we had before us, virtually all were Republicans. Senator Ives. And all of them were Government officials, too.

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Senator LEHMAN. They were all Government officials, who are supposed to know as much or more about the matters which we are considering now than almost anybody else.

In New York City, where we had our third hearing yesterday, it is true the Governor was a Democrat—a Democrat, by choice of the people.

Senator Ives. But he is the Governor.

Senator LEHMAN. He was the Governor, and therefore was certainly not only entitled to be present, but should have been present.

I have no idea what the political complexion was of those who testified in New York yesterday. I have not the slightest idea of the political complexion of those who have been invited or who have volunteered to testify here today. I can only say that these hearings have been held meticulously free of any political considerations or bias.

On the list today we have a Representative in Congress, Mrs. St. George. She comes because she is the Representative in Congress of this district, just as Mr. Thompson testified yesterday in behalf of the district in which he lives in New Jersey, which suffered the greatest loss.

We have the mayors and supervisors of many of the important communities here. We have the mayor of Port Jervis. I have not the slightest idea whether he is a Democrat or Republican. We have the mayor of Middletown. I have not the slightest idea-or I did not have until I got here today-whether he is a Democrat or Republican. We have the mayor of Monticello. Again, I have not the slightest idea whether he is a Democrat or a Republican. We have the mayor of Ellenville. Again, I have no knowledge whatsoever of his politics. We have a supervisor of the town of Rochester, and we have a supervisor of the town of Chester. We have a great many people in addition to those. Those men will testify in their capacity as executives of either cities or towns.

In addition to that, we have a substantial number of property owners, merchants, farmers and others. Again, I wish to state I have not the slightest idea what their politics are.

I cannot conceive that anybody could possibly gain politically by testifying in this matter. I take it quite for granted that the witnesses who will testify will tell us honestly, without bias, what the actual situation is as a result of the floods and make their recommendations or suggestions, which you and I and the other members of the committee will carefully study, and to which we will give very careful consideration.

I am not going, if you will permit me to say, into the question of politics. I am not going to say because a man is or may be a candidate for office that he is going to be ruled out here, particularly as the people we have called have been invited to be here or have volunteered to appear here in their official capacity. And I shall not, unless I am overruled by the committee, make any changes.

Senator Ives. Well, Mr. Chairman, I do not think I am in any position to overrule you. You have 8 votes and I have 7. So I do not think I can do that. But I do want to emphasize again that where anybody has been invited who is a candidate and not a public official, I think that is a mistake, to have him here in this particular type of

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hearing. It does give it a political overtone which I do not approve of in any way, shape, or manner.

The names that you mentioned are all proper, they are all leading public officials in the counties in which they live. But beyond that point I do not think we should go.

Senator LEHMAN. Senator Ives, this is the fourth hearing, as I have already stated, and we will have further hearings in Boston, in Providence, in Hartford, and a little later on in North or South Carolina. I am just not going to examine into the politics of the people who come here, any more than I considered the politics of the people who appeared before us in Washington, or yesterday in New York.

Senator Ives. Mr. Chairman, I do not want to carry this any further, but I would like to point out that I would be opposed to Republican candidates appearing here just as much as any other candidates appearing here who are not public officials. I think that is the test.

Senator LEHMAN. All I can say is we have been more than punctilious in this thing. It has been kept entirely above any political considerations. I think nobody has sought to gain political advantage from this thing. I am not going to put it on a political plane by refusing to hear testimony that is being given, just because a man may be a Democratic or Republican candidate. I think we would be lowering the tone and the high intent of this inquiry.

I am very glad to welcome you here, Mr. Holz. I know that you were present yesterday in New York. We would be very glad indeed, Mr. Superintendent, to hear from you. We know that you will give us testimony that is of great usefulness. STATEMENT OF LEFFERT HOLZ, SUPERINTENDENT OF INSURANCE,

STATE OF NEW YORK Mr. Holz. Mr. Chairman and gentlemen, I wish to express my appreciation for the opportunity to be present this morning, and I trust that what I have to say, which will all be factual, may be of some help to the commitee in its deliberations. I might add hurriedly that if I omit anything in the presentation which I prepared, I will be very happy to answer any questions that may come to your mind, and if any subject comes up after these hearings, please feel free to call on me. My staff and I will be happy at all times to cooperate.

Senator LEHMAN. Thank you very much.

Mr. Holz. The matter of flood insurance has been the subject of deep concern to and extensive study by the Insurance Department of the State of New York. Since damage from floods has always been more or less with us and is not fully controllable, it would appear that some forms of insurance might have been devised to spread the loss. It is necessary to explore why existing coverages are limited and do not meet the need; what are the obstacles to writing complete flood insurance; and what has been the experience of insurers attempting to do so.

The insurance industry's experience with flood insurance as a separate line of business has been entirely unsatisfactory in the past. A company organized to sell flood insurance in the Mississippi Valley in the 1890's became insolvent within 3 years. Other companies both here and abroad that sold flood insurance on a selective basis gave up the attempt in a few years. A number of authorized companies offered the line as recently as the 1920's and 1930's but no company does

so now.

Such coverage as now exists against flood damage is limited to losses occasioned to automobiles and personal property covered by transportation policies. While it is impossible to estimate the extent of such coverage, my best guess would be that it does not exceed 10 percent and in all likelihood is nearer 5 percent of the total value of properties subject to damage.

The extended coverage endorsement which frequently is attached to fire-insurance policies, while covering many risks other than fire, expressly excludes floods. There is one exception, however, to this extended coverage exclusion. Two groups of companies writing extended coverage do not exclude flood insurance in their all-risk endorsements but those companies write only very selected risks and in such small amounts as to be practically negligible. Furthermore, one of those groups does not offer this all-risk endorsement in the State of New York. It is also pertinent to note that the cost of the all-risk endorsement which does not exclude flood damage is about 24 times the cost of ordinary extended coverage.

The trend to package and broad form residence policies has led to considerable dissatisfaction after storms when assureds discover that losses due to wind-driven rain or seepage are not covered. The discontent is increased when it is found that like claims denied by some companies are paid by others, either on the basis that the wind first caused a breach in the building or because the language of the exclusion mentioned “surface waters" and did not definitely exclude seepage or backing up. This has brought about added pressure for true all-risks forms.

The principal obstacles to writing flood insurance have remained the same since Noah's day: lack of interest when there are no floods; adverse selection when the rains begin. The theory underlying other forms of property insurance generally is that the contributions of the many who may be exposed to loss reimburse the few who actually suffer the loss. There is a broad base and, essentially, the pool of premiums collected each year takes care of the claims of that period except for the small catastrophe factor in the rate. Infrequent catastroph are provided for from an accumulation of that portion of the premium in a company's reserves and surplus funds.

In the case of flood insurance, the market is almost exclusively among valley and shore residents who are subject to high water. Thus there is no broad base. Upon recurrence of flood conditions almost every assured in the area becomes a claimant. Every flood is a catastrophe. The premium cost must be necesarily high, but still insufficient for a peak loss year except by averaging over a good many years. There may be active demand for a while after a disaster, but

a when a couple of years go by without loss and the danger seems remote, the tendency is to drop the high-cost protection. Insurers, then, cannot build up reserves to make the line self-sustaining.

Another serious deterrent to the writing of flood insurance is the high cost of instituting a system of scientific rating of properties subject to damage. The steps required are detailed in the April 1952

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