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insurance industry generally sells- personal property floater coverage which covers inside property in connection with floods. A number of coverages are available which are not very widely purchased.

I cite these examples merely to demonstrate that the availability of insurance and its success in eliminating economic loss depends upon the extent to which people buy it. And the memories of insurance buyers seem to be rather short when it comes to catastrophies.

That concludes the statement which I have, Mr. Chairman. I would be very glad to answer any questions if I could. I am sorry I haven't anything more to offer at this point. We would like to reserve the right to offer some comments at the hearing on some specific bills.

As far as the insurance approach is concerned, it seems to me personally that the idea of coinsurance or deductible is absolutely essential in offering any kind of coverage of this sort whether by private companies or through Government auspices. We stand ready to offer any assistance to your committee we can.

Senator LEHMAN. I want to ask you a few questions. The first question that I had ready to ask you I think is largely answered already by your statements in paragraphs 5 and 6 on page 3 of your statement. I will ask you anyhow so as to clarify the situation. Would the insurance companies with which you are acquainted be willing to put Government disaster risk insurance on their list of coverages and act as agents and adjustors for the Government for a fair fee?

Vr. Yount. Our companies are prepared to do that.

Senator LEHMAN. Would they be willing to sit on an advisory committee to help guide the Government in setting rates and, in general, policy and procedure?

Mr. Yount. Our companies are prepared to offer any such assistance.

Senator LEHMAN. Thank you very much.

What if any, coverage do your companies offer against flood damage?

Mr. Yount. We offer no coverage today against flood with respect to real property. As I pointed out, there are coverages available which cover personal property in connection with floods. They are not too widely sold. The ordinary form of automobile insurance which is usually purchased by a buyer, comprehensive coverage, does cover loss in connection with flood. But to the best of my knowledge no companies today are offering coverage on real property resulting from flood. And the specialty types of coverage such as wave wash which I mentioned are not now being offered although they may be again.

But that does not solve the basic problem of flood coverage, and I think the answer is no one is selling that form today that I know of.

Senator LEHMAN. Is tornado insurance available in all parts of the country?

Mr. YOUNT. To my knowledge. We write windstorm coverage, tornado coverage, freely wherever we do business.

Senator LEHMAN. Does the rate vary?

Mr. Yount. The rate varies widely. The city of Philadelphia has about the lowest rate, as I recall it, and down in Florida it gets pretty high. It gets up to the point of perhaps the

Senator LEHMAN. Could you give us some idea of what those rates are?

Mr. Yount. Well, I am not a property physical damage man and I am not as familiar with fire rates as I should be, but perhaps the relativity might be 5 cents in the lowest rates

Senator LEHMAN. That is for what?

Mr. Yount. Five cents per $100 of value. And it might be 75 cents in the highest rate or perhaps a dollar.

Senator LEHMAN. That would be out in the Middle West?

Mr. Yount. That would be more likely in the hurricane areas of south Florida.

Senator LEHMAN. If the Federal Government should adopt a plan for reinsurance on an excess loss basis for any catastrophe, would the private insurance company write insurance against floods !

Mr. Yount. I believe as I stated in my statement that some of them would immediately. Others would come along later. They would necessarily watch their lines and their limits pretty closely at the outset, and I doubt if they would write enough to solve the problem in the early years.

Senator LEHMAN. Well, if they did adopt that plan, would that plan, in your opinion, be preferable to a plan to limit individual claim exposure of a private insurance company to the middle portion of the risk, say from $1,000 to $50,000 ?

Mr. Yount. My view of the matter would be that at the outset whether it is Government insurance or private insurance there has to be a fairly low limit on any individual piece of property. Speaking strictly now as a private insurer, we would prefer to write the lines subject to those limits and merely buy an excess policy through Government reinsurance above some predetermined amount which would limit our total loss on the line.

In other words, we would not think very much of taking the middle portion, say between $1,000 and $50,000. We would prefer a straight excess contract.

Senator LEHMAN. I did not get that last part.

Mr. YOUNT. Well, as I understand your question, you were thinking in terms of private insurers limiting their lines, say to $50,000 and then providing Government insurance above that. I think that the problem has not been sufficiently thought through by our industry, but I believe they would prefer a scheme on which they would write the whole coverage available, up to whatever their line limit is, and purchase reinsurance through Government facilities which would limit their losses on that line in any 1 year.

I am not sure they would approach it that way, but I think they would rather do that than to have a split on the individual risk.

Senator LEHMAN. Senator Bush.

Senator Bush. This American Mutual Alliance, Mr. Yount, is confined to factories or industrial risks or does it get down to the home level?

Mr. Yount. The American Mutual Alliance companies write every form of fire and casualty insurance for which they can be licensed to write. In general, the companies in that group do not write the large sprinklered factory risks, which are normally written by the factory mutuals, a different organization, or by the factory insurance association, a stock company association.

Senator Busu. But these are, you might say, like the mutual sav. ings banks? That type of company? Is that right?

Mr. Yount. Well, we have all sizes of companies, Senator. Some are small, and some are large. Some limit themselves to fairly restricted areas. Some, like our own company, write in every State in the country with a great many branch offices. So our companies are quite diverse in their operation. Collectively they cover the whole field of property and casualty insurance.

Senator Bush. That is all I wanted to know.

Senator LEHMAN. If I recall Professor Harris' testimony, he stated that the Hoover Commission recommended, among its recommendations, that State and local governments assume responsibility for floodcontrol works. As one who has had considerable experience over a long period of years both in State and local government and in Federal Government, I would say that that suggestion is completely impracticable and unrealistic. In my opinion, and I feel very strongly about this, if there is anything which is a Federal responsibility it is flood control in navigable streams. Rivers and watersheds do not recognze State boundaries. This was quite evident in the recent flood where waters from Pennsylvania or from New Jersey flowed into New York and Connecticut.

I do not believe that flood-control works could possibly be considered on navigable streams, and that is all we are doing, a local or State responsibility. If we should ever come to that policy, I think there would be mighty few flood-control works undertaken.

Mr. Yount. Could I offer a comment, Senator? This is not my field, but our own experience here demonstrates that the flood problem goes beyond navigable streams, and if we are going to do something on preventing these things happening, it is probably desirable that these be joint efforts. But it would also seem desirable that some attention be paid to Mr. Harris' remarks about the distribution of Federal

Senator LEHMAN. I did not get that.

Mr. YOUNT. I say that some attention should be paid to Mr. Harris' remarks about the distribution and return of Federal funds and that the Federal Government would contribute rather measurably toward those nonnavigable streams. I am not sure that could be done under existing legislation.

Senator LEHMAN. I am inclined to agree with you on that. But I do want to point out that flood-control works in my opinion are a Federal responsibility. If we accepted this philosophy of the Hoover Commission I think flood-control works would almost completely cease. In view of the fact that we all are agreed that flood control is an essential feature, an essential necessity in the work of not only controlling floods but preventing damage, I think anything that would interfere with Federal construction of flood-control works would be a calamity for the country.

Senator Bush. Mr. Chairman, I do not want to disagree with your general premise, but there is an awful lot of flood-control work that has got to be done at the State and local level. Some of the worst damage that we have seen in our State as a result of these floods has been due to inadequate culverts, to encroachment in the steram by bridges where the buttresses are too close together narrowing the stream, to the building of parking spaces out into the natural bed of the river and closing off the possibility of water running out under bridges just below those streams. I am mentioning here in each case certain situations I have in mind.

So much could have been done to prevent flood damage if there had been adequate regulation of the building of bridges and other structures along some of these small streams which are not navigable streams.

I have not read what the Hoover Commission report said about this subject. I should and I will. But I do feel

Senator LEHMAN. Professor Harris testified

Senator Bush. Yes; I know what he said, but I do feel that if we are to get adequate protection for our homes and our businesses we have got to realize that the local towns and the States, too, must meet their responsibilities in connection with such matters as I have mentioned.

I agree with you that nothing should interfere with the implementation of the Corps of Engineers' plan for flood control in New England and elsewhere—in New York—but I do feel that we should not fail to recognize the responsibility of local and State governments in connection with these matters.

Senator LEHMAN. Oh, certainly, in relation to culverts and storm sewers there is no question that is a local responsibility.

Senator Bush. Yes.

Senator LEHMAN. But I am thinking about great potential dangers from flood like the Susquehanna River, the Connecticut River, the Delaware River. You can no more do that by local initiative than fly.

Senator Bush. I do not believe the Hoover Committee takes issue with that. They like the protective works on the Connecticut River and so forth.

Senator LEHMAN. Thank you very much indeed, Mr. Yount. May I ask you just one question?

Mr. YOUNT. Surely.

Senator LEHMAN. We have been trying to get a statement of the premium rates applied to various disaster insurance. Is such a table of rates available? Would you provide the record with it?

Mr. Yount. I would be very happy to provide it in such detail as you want. I can be quite detailed, as you probably appreciate. But the rates which we could furnish you would be the rates for extended coverage in different parts of the country, of which one hazard is windstorm.

Perhaps you had better let me see just what we can get together for you and send it along to you, and if you want something more we will be glad to try to dig that out. I am sure Mr. Herd's people will also be glad to.

Senator LEHMAN. We would like the low to high on the various kinds of disasters. (The information requested follows:)


Boston 17, Mass., November 19, 1955. Re Flood and disaster insurance statement on behalf of American Mutual

Senate Committee on Banking and Currency,

Senate Office Building, Washington, D. C.
DEAR SENATOR LEHMAN : At the hearing which you held in Boston on Novem-
ber 9, I presented a brief statement on behalf of the American Mutual Alliance.
In the course of the discussion I pointed out that the insurance industry gener-

ally writes coverage for natural disaster, such as windstorm, tornadoes, and hurricanes, freely in all portions of the country. I also pointed out that the rates for this coverage varied in accordance with the experience on the coverage. INSURANCE RATES FOR 80-CALLED EXTENDED COVERAGE (INCLUDING WINDSTORM,

TORNADO, AND HURRICANE) There is attached brief comparisons of extended coverage rates as promulgated by the various fire-rating organizations for different States for frame dwellings and for brick mercantile establishments. You expressed an interest in rate relativity in different parts of the country and these two classifications have been selected as typical for the homeowner and for the small-business establishment. There are other rates promulgated for other types of dwellings and for other types of mercantile and industrial establishments but for your purpose we believe this exhibit furnishes a fair index of rate relativity.

It should be understood that extended coverage rates apply to the full coverage of the extended coverage endorsement, which includes a number of other perils in addition to the windstorm or tornado hazards. However, the principal variation in rates is attributable to windstorms such as tornadoes or hurricanes. In connection with the dwelling rates, it will be noted that some States permit full coverage and a $50 deductible, in which case the rate is starred (*) for $50 deductible. The unstarred rate is the full coverage rate. In the State of Florida the deductible is usually $100, which may be removed for an additional charge, and there is also a minimum requirement of 50-percent coinsurance in order to prevent underinsurance. If a higher percentage of coinsurance is carried a corresponding reduction in rate is given.

You will note that the rates are expressed in dollars per $100 of value-for instance, 0.10 means 10 cents per $100 of value. Where coverage is purchased for 3 years the 3-year-term rate would be 2.50 times the annual rate, or a reduction of 1643 percent. Where coverage is purchased on a 5-year basis the 5-year-term rate is 4 times the annual rate, or a reduction of 20 percent. In addition to these term reductions, mutual companies—such as those which I represented at your hearing-customarily pay dividends. These dividends probably average about 20 percent, although they may be as high as 25 percent, or even 30 percent, and as low as 15 percent. Certain other companies use such rates as a departing point and write on what amounts to an advance discount basis substantially equal to an average dividend on the part of dividend-paying mutual insurance companies.

EARTHQUAKE AND VOLCANIC-ERUPTION INSURANCE There is a second exhibit attached showing so-called bureau rates on earthquake and volcanic-eruption insurance. These rates are also expressed in dollars per $100 of value; i. e., 0.04 equals 4 cents per $100 of value. You will notice that coverage is available in all areas of the country, although very little coverage is actually sold outside of the Pacific Coast States. This coverage is also written on a deductible basis in some States, usually 5 percent of value insured with respect to residence and 10 percent on mercantile buildings. Rates, except on the Pacific coast, are generally published subject to an 80-percent coinsurance clause being made a part of the policy. In most of the Pacific Coast States a 70-percent coinsurance clause is mandatory. The coinsurance clause is, of course, designed to prevent underinsurance and to restrict recoveries unless coverage equivalent to the coinsurance limit is actually carried. The rates shown for thees coverages may vary, depending on the circumstances of each risk, but we believe for comparative purposes they will serve your needs.


In the course of the hearing at Boston I pointed out that with respect to personal property a certain amount of insurance is already available under existing forms of coverage. It occurs to me that your committee might be interested in a little more detail on this phase of the problem.

The top exhibit attached lists some forms of insurance coverage now generally sold by all property insurance companies which protect personal property against most forms of water damage, including flood damage. The forms designed specifically for homeowners are multiperil or all-risk forms which are broader than the standard fire and extended coverage usually purchased by homeowners. The personal-property floater has been available for a good many years, and while substantial amounts of this coverage are sold by most property insurance companies it is probably fair to say that the purchasers are in a distinct minority.

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