come, a mortgaging which many small homeowners already left with a debt and mortgage for which they have no house-simply cannot undertake. Certainly the insurance method of a small regular payment in advance of the disaster is to be preferred.

II. WHAT KIND OF FLOOD-INSURANCE BILL?

Early in September I proposed the draft Federal flood-insurance bill which is before your committee now. I was joined in this endeavor by my colleague, the senior Senator from Massachusetts, Mr. Saltonstall; and I have since received assurances of cosponsorship from Senators in every part of the country, including the senior Senator from Rhode Island (Mr. Green), the senior Senator from South Carolina (Jr. Johnston), the senior Senator from North Dakota (Mr. Langer), the junior Senator from Oregon (Mr. Neuberger), and the junior Senator from Maine (Mr. Payne). Numerous other Senators have indicated to me their interest in the bill.

The difference between this draft proposal and the other proposals contained in the committee prints before your committee points up a number of questions concerning the exact nature and details of any Federal disaster insurance bill. (1) Use of the term "insurance".-Representatives of private insurance companies have objected to the use of the term "insurance" in connection with these proposals. Personally I am willing to substitute the word "indemnity" or any other term if that would facilitate passage of the bill. But inasmuch as all of the proposals thus far envisioned, with or without a Federal subsidy, are based upon the basic principles of insurance, this objection would appear to merit little attention.

(2) Other disasters?—A more 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 which operated so successfully in previous years; but your committee knows of the many controversial problems which have prevented enactment of such legislation in recent times. Thus I would prefer to see such legislation considered independently, rather than risk the delay or defeat of a flood-insurance bill which is unrelated to those particular controversies.

With respect to other natural disasters, it is my understanding that private insurance is presently offered-and I hope your committee will check into thisfor every natural catastrophe except floods and high water. In the belief that no Federal program should compete with private industry, I limited my bill to floods alone. I realize that the inclusion of natural disasters more prevalent in other parts of the country is said to increase the potential support of such a bill; but this should not be necessary in view of the official figures on flood damage in every State in the Union during the last several decades.

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

(3) What agency?—The next fundamental question facing your committee is the location of responsibility for the administration of this program. I want to stress that the designation of the Small Business Administration in my bill is at best tentative; and was made simply because that agency (a) succeeded the RFC under whose jurisdiction was placed the war risk program, and (b) is the only agency presently in touch with both homeowners and businessmen in case of disaster. This year's floods point up a drastic need for improved coordination of our many disaster relief programs; and as chairman of the Subcommittee on Government Reorganization of the Senate Government Operations Committee I hope to look into this matter. Should an overall disaster agency be created, naturally it should administer this program. If not, and if the Government agencies involved feel that the FHA would be preferable to the SBA, I would be willing to accept that judgment and the judgment of this committee. A related question which I am also willing to leave to more expert determination is whether such a program should be administered by an independent Government corporation.

(4) Insurance or reinsurance?-One of the proposals most frequently made is that the role of the 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 insur

ance with the greatest amount of private enterprise; and my 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 or reinsurance should exclude the other. Under the Kennedy-Saltonstall bill, both insurance and reinsurance are authorized, and a high degree of flexibility is retained. It would be possible, for example, to handle the program entirely through the private insurance companies, including not only the use of their facilities and personnel but also their voluntary financial participation in the underwriting of risks and the sharing of losses and profits. Similarly, practically all of the other various proposals made for some kind of flood insurance would be possible under this bill; and I would prefer the adoption of such a broad and flexible plan, rather than a bill strictly limited to only one of these alternatives. (5) 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 my 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 when they were not available from private sources. As mentioned, the KennedySaltonstall bill also authorizes reinsurance for companies willing to insure flood risks on that basis; and the maximum use possible of their facilities, services, personnel, records and claims adjustment procedures, as well as their financial participation, is directed. Finally, the Kennedy-Saltonstall bill calls upon the administrator to exchange loss experience and similar information with private firms, and to appoint an Insurance Advisory Committee of members from the industry to assist in the administration of the act. It is my hope that this program of partnership with private insurance, not competition or duplication, will meet with the approval of the industry and the Congress.

(6) 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 experiments. For this reason I have attempted, as indicated, to make my bill flexible in nature, with most details left to its administrator. 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, particularly flood insurance, makes it necessary that costs and risks be calculated on a permanent long-range basis from the very beginning. Undoubtedly Congress will want to make changes in the program after its first few years of operation, as it did with crop insurance; but we should not write into law this restraint upon sound, long-range planning.

(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.

(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 Kennedy-Saltonstall 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. 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 will 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 offered coverage by private insurance, and the administrative problems of paying insurance claims on other types of personal property are almost insurmountable.

(9) Compulsory or voluntary coverage?-Inherent in the Kennedy-Saltonstall bill, and I believe in all 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. Those who were actually protected by the program would be paying the same amount for their protection as those who received no direct benefits under the program whatsoever. If a flood-insurance subsidy is necessary-as will be discussed momentarily-it should come from general revenues and supplement premium payments, thus requiring a larger contribution from those who will benefit than from those who will not, and distributing the burden equally over all taxpayers, not simply those who own property or insurance policies.

(10) Cost to policyholders and Government.-But would a subsidy be necessary? No flood-insurance program should be financed entirely out of general revenues, for that would again violate the principle that those receiving protection should pay more than those who do not. The Kennedy-Saltonstall bill 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, conditions, and limits as are necessary to attain 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. (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 facilities in obvious flood-danger areas. (e) 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. I have previously stated the financial advantages enjoyed by a Federal program of this nature. Of course, there will still be problems of maintaining a steady demand, broadening the base to avoid an adverse selection of risks, and selling policies with wide variations in rates dependent upon the location of property; but, as pointed out by the Hoover Commission task force report, these are questions which can be answered only by the initiation of a limited, experimental program. If a supplemental Federal subsidy should eventually be needed, it would still be a more efficient and less burdensome form of Federal assistance than the heavy relief grants now required and a not inequitable burden in view of other subsidies in order programs and areas.

(11) Amounts of insurance offered.-The dollar amounts suggested in the Kennedy-Saltonstall 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 intended to be tentative. I have suggested $250,000 as the limit on the amount of insurance to be written on any single property (but not for any single owner), an amount 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 such insurance. The limit on the total amount of insurance to be provided under the Kennedy-Saltonstall bill begins at $500 million, increasing by that amount each year until it reaches $1 billion by 1958. AIthough this might well be adequate for an experimental approach of the type I have expressed—particularly in view of the pessimistic predictions that there I will be little demand for such insurance once these floods have been forgotten-I would nevertheless be most willing to accept the recommendations of the committee on this matter.

(12) Conclusion. In reviewing some of the questions with which my staff and I were confronted, and with which this committee and its staff will be confronted, in drafting a bill for Federal flood insurance, I have set forth the rationale which lies behind many of the provisions contained in the KennedySaltonstall bill. But I want to stress to you, Mr. Chairman, that my chief concern is not whether my name will be on the bill finally enacted, or whether

it is a Democratic bill or a Republican bill; my chief concern is to obtain the best bill possible. I will be delighted to work with you, Mr. Chairman, and the members of your committee, to bring about the passage of such a measure; and I want to assure you again how deeply your efforts are appreciated in this State and region.

Senator LEHMAN. I have a letter from Senator Kennedy and Senator Saltonstall, which will go in the record.

(The letter referred to follows:)

UNITED STATES SENATE, Washington, D. C., October 14, 1955.

Hon. HERBERT H. LEHMAN,

United States Senate,

Washington, D. C.

DEAR SENATOR: It is our understanding that during the first 2 weeks in November you plan to conduct a series of hearings on the question of insurance for floods and other disasters which will take you to Rhode Island, Connecticut, New York, and North Carolina. Although we are reluctant to impose still further upon this heavy schedule, which we are delighted that you are undertaking, we feel that it would be most important and beneficial to hold hearings in Massachusetts. The floods of last August caused more property damage-not covered by insurance, of course-in our State than in any other save one; and, as you may know, we have joined in proposing a Federal flood-insurance program to alleviate this problem. Consequently we do feel that hearings in Massachusetts are both logical and desirable.

Such hearings could be held either at the Federal Building in Boston, or in one of the communities hard hit by the recent floods. We would be glad to cooperate with you in arranging this matter. Several Massachusetts businessmen, labor groups and other organizations have indicated their interest in this matter of insurance, and would undoubtedly have extremely valuable testimony to present to your committee. Hearings in Massachusetts would not only be more convenient for them but would permit your committee to receive a more comprehensive view of the problems in our State-a State which, in light of the heavy damage suffered last August, certainly should be included on your committee's itinerary.

We understand the difficulties facing you in scheduling these hearings, and will be appreciative for whatever cooperation you can give us in this matter. We join in the hope that these hearings wil produce the best flood-insurance bill possible.

Sincerely yours,

JOHN F. KENNEDY.
LEVERETT SALTONSTALL.

Senator LEHMAN. I am going to call on Governor Herter next.
Senator Kennedy, will you come up with us?

According to the memorandum that was given to me, Congressman Philbin and Congresswoman Edith Nourse Rogers were next, but they very kindly yielded to the Governor.

We are very glad indeed to have you here. We were afraid you might not get back from Europe in time to testify, and we are very pleased you are here.

STATEMENT OF CHRISTIAN A. HERTER, GOVERNOR, ACCOMPANIED BY RICHARD PRESTON, COMMISSIONER, DEPARTMENT OF COMMERCE, STATE OF MASSACHUSETTS

Governor HERTER. Do you want me to give my name for the record? Senator LEHMAN. Yes.

Governor HERTER. Christian A. Herter, Governor of Massachusetts. May I at the very outset thank you and members of the committee for your willingness to come here to hold this hearing.

We have had in the last 3 years

Senator LEHMAN. May I interrupt you, Governor, one moment? I note one of the witnesses here is the commissioner of the department of commerce, Mr. Commissioner Preston. Would you like him to sit with you?

Governor HERTER. Fine.

In the last 3 years the Commonwealth of Massachusetts has had the unhappy experience of having four separate and distinct disasters, of which the floods which have been the primary basis of discussion here this morning were the last.

The first one was a tornado, and a very serious one, in the Worcester area, completely unexpected, unprecedented in a way as far as our Commonwealth was concerned.

In the following 2 years we had 2 hurricanes accompanied by very considerable damage both on the shorefront and in the interior of the State, carrying right through.

And then, finally, this fall we have had first a very serious flood as far as we were concerned and then a secondary flood of less serious proportions, but a very difficult one from the State of Connecticut.

I have noticed in the hearing so far, at least as far as Senator Kennedy's discussion is concerned, that he was limiting himself entirely to flood damage. I am wondering if I am out of order if I broaden my few remarks to the question of natural disasters? I do not know to what extent the committee has gone into the question of the many natural disasters that can occur.

Senator LEHMAN. Well, we are considering it, and we hope that you will testify in the manner that seems most desirable to you.

Governor HERTER. In this particular case, and I am localizing the problem entirely as far as the Commonwealth of Massachustts is concerned, we have had these three entirely different types of disasters. The first one, the tornado, was primarily a terrifically strong wind not accompanied by any rain or water damage of any kind. The hurricanes had a combination of wind damage and water damage, particulary along the shorefront, of very considerable proportions, The more recent floods have been entirely a question of water damage. But we had three different types of natural disasters involved that have hit us in a very unprecedented fashion, and we hope that a pattern has not been set.

On the other hand, we have no idea what the future will bring, and for that reason are tremendously interested in some form of coverage, particularly for the individual propertyholders and industry who under our Constitution we cannot help ourselves, because we have a constitutional prohibition against aid to any private individual or

concern.

We are not as directly concerned with public property because there is a field in which we can help ourselves and where again the Civil Defense Act can be of assistance to us.

But it is with this field of personal property, and mostly real property and industrial property, that we are very seriously concerned because there neither the Federal Government, except through loaning operations, nor the State government under any existing legislation can be of assistance.

It is rather interesting to note that in 1938 we had a hurricane of some proportions that hit Massachusetts. As a result of that, hurri