Second, a fundamental question is whether the proposed insurance program should cover other natural or manmade disasters in addition to those caused by floods or high water. With respect to manmade disasters such as war damage, I have always favored the revival of the War Damage Corporation. Thus, I would prefer to see such legislation considered independently rather than be tied up in this question of flood insurance.

With respect to other natural disasters, it is my understanding that private insurance is presently offered-and the committee, of course, will be checking into this-for every natural catastrophe except floods and high water.

The definition of "flood" should be broadly interpreted to cover the entire insurance gap, including damage caused by hurricanedriven tides, tidal waves, and other high-water damage from either fresh or salt water.

Of course, this is particularly important to cities such as New Bedford, where the primary damage has been from hurricane-driven tides and salt water.

Third, the question of what agency would be appropriate. In the bill that Senator Saltonstalle and I introduced, we have designated the Small Business Administration, but this is at best tentative and was made primarily because that agency succeeded the RFC, under whose jurisdiction was placed the war-risk program and is the only agency presently in touch with both homeowners and businessmen in case of disaster.

But, of course, whatever decision the committee makes would be very satisfactory.

Fourth, insurance or reinsurance: One of the proposals most frequently made is that the role of Government should be restricted to that of a reinsurer protecting private insurance companies against excessive loss on flood-insurance policies sold to their customers. To the extent that broad, economical, and fair coverage could result, reinsurance would be the ideal way to provide flood insurance with the greatest amount of private enterprise, and this bill authorizes such a function.

But to restrict the Federal program to reinsurance alone and to prohibit it from providing insurance on its own makes the dangerous assumption that the insurance companies would be willing with Federal backing to underwrite flood risks at reasonable rates, providing the same protection to the same people who would be covered under a Federal program. Neither insurance nor reinsurance should exclude the other.

Under the Saltonstall-Kennedy bill, both insurance and reinsurance are authorized, and a high degree of flexibility is retained.

Fifth, the role of the insurance industry: The cooperation and participation of the private insurance industry are essential to the success of any Federal insurance program. I have stressed that we must not compete with private insurance, and, in addition to restricting the bill to flood property not now eligible for private insurance coverage, the bill specifically provides that insurance and reinsurance would not be available from the Federal Government except where they were not available from private sources.

Permanent or temporary? I have stressed from the beginning that this proposal is something in the nature of an experiment, much

as the initial programs of crop insurance and war-damage insurance were experimental. But I do not share the opinion expressed by the Budget Bureau, however, that any bill adopted should be temporary in nature with a life of perhaps 3 years, for the very nature of insurance, especially flood insurance, makes it necessary that costs and risks be calculated on a permanent, long-range basis from the beginning.

No. 7, retroactivity: The committee print on which no sponsor's name appears would provide under this program indemnification for losses already suffered during the current year because no insurance was taken or premiums paid. It might be well for the committee to examine whether it would not be wiser to consider if such a proposal should be independent of flood insurance.

No. 8, what kinds of property? The next fundamental question to be determined by your committee is the type of property to be covered under a Federal flood-insurance program. The SaltonstallKennedy bill covers only privately owned real property, including commercial, industrial, and residential property. It thus excludes all personal goods, business inventories, crops, detachable equipment, and property owned by State and local governments.

Since reading the testimony taken by your committee, I think that it would be proper to include business inventory in there, even though it is excluded in the original draft of the bill.

The primary reason for this admittedly narrow scope was my belief that an experimental bill of this nature would meet success only if strictly limited in terms of coverage and potential economic loss.

Although I would favor the broadest bill possible of enactment by Congress, to the extent that no duplication of private insurance efforts is found by this committee, the following should be kept in mind: Federal crop insurance should be expanded, but under its own program, not in this bill. Private insurance companies presently offer flood insurance on bridges, tunnels, and other types of publicly owned property, while other State and local governments look upon themselves as self-insurers, as does the Federal Government. Automobiles, jewelry, furs, and many other types of movable personal property are also covered by private insurance, and the administrative problems of paying insurance claims on other types of personal property are almost insurmountable.

No. 9, compulsory or voluntary coverage? Inherent in most of the bills before you is the principle of voluntary coverage. Such coverage, of course, would be limited, a problem we cannot ignore. It has been suggested that coverage be made universal by making it compulsory by automatically including premiums either in the property taxes paid in every State or in the premiums paid on private insurance policies for fire and extended coverage. Such a proposal violates the basic principles of insurance and distributes the cost of floods equally among all persons regardless of their exposure or their efforts to avoid damage.

No. 10, cost to policyholders and Government. Would a subsidy be necessary? No flood-insurance program should be financed entirely out of general revenues, for that would aagin violate the principle that those receiving protection should pay more than those who did not.

The bill we have introduced provides that premiums will be charged and that "rates shall be based insofar as practicable upon consideration of the risks involved and shall to the extent deemed practicable by the Administrator be adequate to cover all administrative and operating expenses arising under this act, as well as reserves for probable losses.

In order to carry out that objective, several provisions have been included in the bill:

(a) Coverage, both as to types of property and types of catastrophe, is strictly limited.

(b) The Administrator is empowered to establish such terms, et cetera, as are necessary to obtain this objective, and he may decline some applications and risks altogether.

(c) A "deductible" of at least $300 plus 10 percent of the remainder of the claim is required.

Senator LEHMAN. Will you read that again?

Senator KENNEDY. A deductible of at least $300 plus 10 percent of the remainder of the claim is required.

Senator BUSH. $300 deductible?

Senator KENNEDY. Yes.

Senator BUSH. And?

Senator KENNEDY. And 10 percent of the remainder of the claim. Senator BUSH. Is also deductible?

Senator KENNEDY. Yes. I think the 10 percent is provided in some of the other bills.

(d) No insurance or reinsurance shall be issued for properties in conflict with flood zoning laws, and the program shall be administered to prevent inducements for unwarranted acquisition of facili ties in obvious flood-danger areas.

(3) A broader base is made possible by authorizing other Federal agencies participating in the financing of real estate to require purchase of Federal flood insurance under this act.

No. 11, and lastly, the dollar amounts suggested in the bill with respect to both the aggregate amount of insurance covering any single piece of property and the total amount of insurance which can be issued were arbitrarily selected and tentative. We have suggested $250,000 as the limit. I understand that the bill introduced by the chairman provided $300,000, which would be perfectly satisfactory. The amount was fixed not only because of my previously expressed desire to offer a limited experimental bill but also because of a feeling that those whose real property alone exceeds that value are not those most in need of insurance.

The limit on the total amount of insurance provided under the bill begins at $500 million, increasing by that amount each year at the discretion of the President until it reaches $12 billion by 1958.

Although this might well be adequate for an experimental approach of the type I have expressed, particularly in view of the pessimistic predictions that there will be little demand for insurance once these floods have been forgotten, I would nevertheless be willing to accept the recommendations of the committee in this matter.

Lastly, speaking both for Senator Saltonstall and myself, we have introduced or propose to introduce this bill. The committee is going into this highly technical question. The more it is entered into I know the more conscious of the problems that are raised you are, and there

fore on any bill-we are not particularly interested in which draft is accepted-we will certainly cooperate in every way possible with the committee. We are most grateful for the chance to testify this morning.

Senator LEHMAN. Thank you very much indeed.

I am going to ask you a few questions.

Senator Bush, do you wish to ask any questions?
Senator BUSH. No.

Senator LEHMAN. It is a very clear statement.

I do want to ask

you this: Do you feel that this plan would necessarily have to be selfsupporting?

Senator KENNEDY. No. Of course, we hope-and there is tremendous discretion left to the Administrator under this bill-that he shall charge such rates as shall make it self-supporting. It may be that a subsidy will be required, though of course the aim should be to make it as self-supporting as possible.

My guess would be that there might have to be a subsidy especially at the beginning, and, of course, if a disaster came in the next year there would be a tremendous subsidy. But over a period of years it would be hoped that actually it could be balanced out so it could come out even. It would just depend on what luck we had with floods in the next few years.

Senator LEHMAN. I understood from your statement that you do not include crop insurance.

Senator KENNEDY. No, we do not, Mr. Chairman. We thought it would be better to expand it under the present insurance program rather than including it in this bill.

If it would make it more desirable and you feel that it would increase support and also increase the actuarial possibilities of balancing out the program, it perhaps could be done, though I think it would be sounder to include it in crop insurance rather than put it under this

bill.

Senator LEHMAN. Of course, some of the most tragic and heartrending testimony we have taken so far reflects the loss that farmers have suffered because of the loss of their crops.

Senator KENNEDY. Yes. Well, I don't know whether it would be confusing two insurance programs just to have flood under this program and then all other crop insurance under a different program or whether it would be easier to put all crop insurance, expand the present type of crop insurance, under that program rather than including it under this. It was for that reason I thought it would be better to do that rather than bring it under this bill.

Senator LEHMAN. Under the present law, while some provision is made for crop insurance, it is very limited.

Senator KENNEDY. That is right.

Senator LEHMAN. Only 800 counties in the entire country.

Senator KENNEDY. That is right, and it is directed to another problem rather than this problem of floods.

Senator LEHMAN. Yes.

Senator KENNEDY. Completely. But I do think it might be wiser to just expand the existing program rather than for it to be brought under these bills. But it might affect the payments and the soundness of the program. If it presented difficulties perhaps it could be

brought under new legislation. From the first look, it seemed to be better to bring it under the present program.

Senator LEHMAN. You testify that in your opinion this insurance should not become available to anyone who does not obey the local zoning laws.

Senator KENNEDY. Yes.

Senator LEHMAN. I have some doubt as to whether the Federal Government could pass legislation of that character. It seems to me that the zoning laws are purely local in character.

Senator KENNEDY. Well, under the bill the Administrator

Senator LEHMAN. I would be inclined to doubt it, though I am not a lawyer.

Senator KENNEDY. I don't know about the conflict of law there, but under the bill that we had introduced the Administrator was given the power to turn down insuring property where he thought the risk was excessive. I should think you could easily define it so there is a tremendous amount of discretion vested in him, which I think there has to be in a new program like this. It seems to me obvious he could turn down accepting insurance from any property which had not obeyed the local zoning laws.

Senator LEHMAN. You mean within his own discretion?

Senator KENNEDY. Yes. I don't know whether you could write that into the law or not.

Senator LEHMAN. There is no doubt that if you could enforce zoning laws, if localities did pass adequate zoning laws and they could be enforced, in the long run it would reduce flood damage tremendously because it would prevent the erection of additional factories and homes and businesses in the low-lying lands. It would go a long way. But I am not sure whether we have the legal right to do it.

Senator KENNEDY. The chairman may not feel that the Administrator should be vested with this power of turning down some of these. I think he really would have to be, especially at the beginning until we have experience. It seems to me under that power he could turn down without having it written into the law. He could set that up as one of his standards for acceptance of risk.

Senator LEHMAN. I think it is a fair statement that everybody agrees on that all the legislation proposed provides for a continuation of flood control. But in the testimony that we have thus far taken, the Chief of Engineers testified that even on those projects that have already been recommended by the Corps of Engineers, which are limited in scope, even in spite of that just those would take at least 22 years to carry out. That is a long time to wait, it seems to me. Senator KENNEDY. Yes, that is right.

Senator LEHMAN. I note, Senator, that your bill does not cover personal property.

Senator KENNEDY. No, Senator.

Senator LEHMAN. I wonder whether sometimes the hardship on little people in loss of their personal property is not almost as serious as the loss of their homes or serious damage?

Senator KENNEDY. Yes. There were two reasons. First, we thought the insurance companies could cover a lot of that themselves. And secondly, the problems of administration and depreciation, et cetera, which I think were discussed before your committee the first day, made