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will always be our major weapon for preventing flood damage. Limits also need to be placed on the use of the flood plains, through State and local zoning laws, wherever the cost of complete protection from floods would be prohibitive. But flood insurance will always be necessary to protect people against the financial losses which may be caused by unexpected and catastrophic floods which it is im. possible to prevent.

"The attached draft legislation would authorize the Reconstruction Finance Corporation to provide either insurance or reinsurance against losses resulting from floods. If private insurance companies wish to do so, under this bill they could write insurance against floods and could then reinsure themselves against excessive loss by paying appropriate premiums to the Reconstruction Finance Corporation. Or, alternatively, the Corporation would be authorized to issue insurance policies directly. The Corporation, of course, should not compete with private insurance companies. The draft bill would prohibit the issuance of Federal policies in cases where private insurance is available at reasonable rates. In addition, it would require the Corporation to work through private insurance companies in administering the program.

“The draft bill would authorize insurance to be made available for homes, for business and farm properties, and for agricultural commodities. It would also establish a maximum amount of insurance for any one person or business of $250,000. While this would not cover some of the large losses in a flood, it would take care of the homeowners, businessmen, and farmers who are least able to afford flood losses because their total assets are small. As experience is gained, it may be desirable to change this maximum amount.

“Furthermore, the bill would limit the insurance payment on any given property to 90 percent or less of the loss sustained. Such a limitation will preserve the incentive for the property owner to do what he can to protect his own property.

"I believe that this flood-insurance program should be set up on a basis that is designed to permit the Government to break even. To do so, it will be necessary that rates be set high enough to cover all expenses, including a proper reserve for losses.

“However, since there is only limited experience upon which to rely in determining such rates, it will be necessary to start the program on an experimental basis, both with respect to rates and areas covered. Accordingly, the draft legislation provides for limitations on the total amount of insurance to be written in each of the first 3 years, and for a report to the Congress by the Corporation before the end of that period, making recommendations concerning the nature and extent of the program thereafter.

"In addition, the draft legislation authorizes Federal agencies that make or guarantee loans to require borrowers to purchase flood insurance where it is available. Thus the Reconstruction Finance Corporation, for example, might require its borrowers to carry flood insurance, where appropriate, just as it now requires them to carry fire insurance.

"All in all, I believe this draft legislation represents a sound and workable approach, and I heartily recommend it to the consideration of the Congress. I strongly believe that legislation along these lines is most urgently needed. There is no reason whatever for continuing to rely on inadequate and emergency relief programs to take care of the thousands of people every year who suffer extensive flood damage to their homes and farms and businesses.

"We can and we should provide a businesslike system of insurance to finance the restoration of such losses. I hope the Congress will enact such a system without delay.


“A BILL To provide for National Flood Insurance, and for other purposes "Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the 'National Flood Insurance Act of 1952'.

"DECLARATION OF PURPOSE "SEC. 2. It is the purpose of this Act to promote the national welfare by alleviating the widespread economic distress suffered from time to time within the United States, its Territories and possessions, as a result of floods, and the attendant impairment of the free flow of interstate and foreign trade and commerce, by providing direct governmental insurance against certain flood risks or by making insurance against such risks available through private insurance companies by means of governmental reinsurance.

"FUNCTIONS "SEC. (a) To carry out the purposes of this Act, the Reconstruction Finance Corporation (hereinafter referred to as “the Corporation' is authorized to provide either insurance or reinsurance, or both insurance and reinsurance, against loss resulting from damage to or loss of real or personal property (including agricultural commodities, and property owned by the State or local governments) due to flood as defined by the Corporation occurring within the limits of the United States, its Territories, and possessions: Provided, That no insurance or reinsurance shall be issued for losses resulting from (A) any hostile or warlike action by (i) any government or sovereign power (de jure or de facto) or any authority maintaining or using military, naval, or air forces, or (ii) an agent of any such government, power, or forces, or (B) any action taken by any Federal, State, or local government agency in hindering, combating, or defending against any such hostile or warlike action (whether actual, impending, or expected), or (C) disorder or other lawlessness accompanying the collapse of civil authority determined by the President to have resulted from any action referred to in clause (A) or (B) or from control by enemy forces.

"(b) The Corporation shall from time to time prescribe (1) premium rates for each type of insurance and/or reinsurance which it shall make available under authority of this Act, and (2) the terms and conditions under which and the areas and subdivisions thereof within which each rate shall be applicable. All such rates shall be based upon consideration of the risks involved and shall be adequate, in the judgment of the Corporation, to cover all administrative and operating expenses arising under this Act, as well as reserves for probable losses. The Corporation may receive from or exchange with any State or territorial insurance commission or agency or with any private corporation or association engaged in the writing of insurance against property loss within the United States such loss experience information as may be necessary for the establishment of such premium rates.

"(c) The Corporation shall by regulation provide for the determination of (1) the types and location of property with respect to which insurance and/or reinsurance shall be granted, (2) the nature and limits of loss or damage in any area or subdivisions thereof which may be covered by such insurance or reinsurance, (3) rates, terms, and conditions of such insurance or reinsurance, and (4) such other matters as may be necessary to carry out the purposes of this Act. The Corporation may decline such applications and risks and may establish from time to time such regulations with respect to the classification, limitation, and rejection of risks as it shall deem advisable for the purposes of this Act.

"(d) In providing insurance and/or reinsurance, the Corporation may by contract arrange for the financial participation of private insurance companies or other insurers in the underwriting of risks assumed, and for their proportionate participation in premiums and in any profits or losses realized or sustained. The Corporation shall utilize the facilities and services of other public agencies, of private insurance companies, and of established insurance agents and brokers and established insurance adjustment organizations to the maximum extent which the Corporation shall deem practicable and consistent with minimum cost of providing insurance protection.

"(e) The aggregate amount of insurance issued by the Corporation in favor of any person or State or local government shall not exceed $250,000. No claim shall be approved in an aggregate amount which exceeds the actual cash value or the cost of replacing, repairing, or rebuilding the damaged property with material of like kind and quality (less depreciation at the time of damage) whichever is lower: Provided, That the approved amount of any claim shall be reduced by $300 plus 10 per centum of the remainder, or by such larger amount of percentage as may be prescribed by the Corporation in the insurance contract. The Corporation shall prescribe such regulations applicable to reinsurance as it may deem appropriate to give effect to the intent of the limitations in this subsection. The Corporation may from time to time prescribe such regulations regarding coverage available to subsidiary and affiliated corporations as it shall deem appropriate to effectuate the purpose of this subsection.

“(f) The Corporation, on and after the first day of the sixth month following the enactment of this Act, may provide insurance or reinsurance in an aggregate amount not to exceed $500,000,000 outstanding and in force at any one time, which limit may be increased, with the approval of the President, by further amounts of $500,000,000 each on July 1, 1953, and July 1, 1954.


"Sec. 4. (a) In carrying out the functions authorized in this Act, the Corporation shall consult with other agencies of the Federal Government and interstate, State, and local agencies having responsibilities for flood control and flood damage prevention in order to assure that the insurance facilities offered are consist. ent with the programs of such agencies.

" (b) No insurance or reinsurance shall be issued (1) for risks eligible for insurance provided by other Federal programs, or to the extent that coverage is available on reasonable terms from other private or public sources, or (2) for properties whose use is in conflict with State or local flood-zoning laws.

"(c) Any department or agency of the Federal Government engaged in making direct loans or advances, or in participating in, insuring or guaranteeing loans made by private lending institutions, for the construction, moderization, repair, or purchase of property eligible for insurance under this Act may require as a condition for such future financial assistance that such property be insured against flood damage to the extent such insurance is available.


"SEC. 6. (a) To carry out the functions authorized by this Act, there is authorized to be established in the Treasury of the United States a National Flood Insurance Fund (referred to hereinafter as the 'fund'). The capital of the fund shall consist of such amounts as may be advanced to it from appropriations. Such sums as may be required are authorized to be appropriated without fiscal year limitations for the purposes of the fund.

*(b) Advances shall be made to the fund from the appropriations made therefor when requested by the Corporation. The Corporation shall pay into miscellaneous receipts of the Treasury at the close of each fiscal year, interest on such advances at a rate determined by the Secretary of the Treasury, taking into consideration the average rate on outstanding interest-bearing marketable public debt obligations of the United States.

"(c) Premiums paid to the Corporation for insurance and reinsurance under this Act, interest earned on investments of the fund, and receipts from any other operations under this Act shall be credited to the fund. The fund shall be available for the payment of liabilities under such insurance and reinsurance and for payment of all expenses of the Corporation under this Act.

“(d) Whenever any capital in the fund is determined by the Corporation to be in excess of its current needs, such capital shall be credited to the appropriation from which advanced where it shall be held for future advances. After liquidation of all outstanding advances, any cash in excess of current beeris may be invested or reinvested by the Corporation in interest-bearing obligations of the United States or in obligations guaranteed as to interest and principal by the United States. The proceeds from the sale or redemption of the obliga. tions held by the Corporation pursuant to this Act shall be credited to the fund.


"SEC. 6. (a) The Corporation (1) shall appoint an advisory committee, con. sisting of not less than three individuals experienced in the writing of insur. ance against property loss, to advise the Corporation with respect to the execu. tion of its functions pursuant to this Act, and (2) may also employ such part. time consultants and advisory personnel as the Corporation may deem necesaan in carrying out the purposes of this Act. Persons so employed who, while si serving, hold other offices or positions under the United States shall receive no additional compensation for such service. Other persons required under the provisions of this subsection may be employed as authorized in section 15 of the Act of August 2, 1946 (5 l'. S. C. 55a), but at rates for individuals not in excess of $50 per diem.

(b) In order to carry out the purposes of this Act, the Corporation is hereby authorized, subject to the procedures prescribed by section 505 of the Classifi. cation Act of 1949, to place not more than five positions in grade 16, 17, or 18 of the general schedule established by said Act, and such positions shall be in addition to the number authorized by said section.


"SEC. 7. (a) Under such regulations as the Corporation may prescribe, it shall adjust and pay valid claims either directly or through agents for losses covered by insurance and reinsurance under this Act. The Corporation shall collect from participating insurance companies such amounts as they may be obligated to contribute toward such losses.

"(b) Upon disallowance of any claim against the Corporation or upon refusal of a claimant to accept the amount allowed by the Corporation, the claimant, within one year after the date of mailing notice of disallowance or partial disallowance by the Corporation, may institute an action against the Corporation on such claim in the United States district court for any district in which the insured property or a part thereof is situated. Exclusive jurisdiction is hereby conferred upon such courts, sitting without juries, to hear and determine such actions without regard to the amount in controversy.


“SEC. 8. (a) The Corporation shall make a comprehensive annual report of its operations under this Act for the fiscal year ending on the preceding June 30 to the Congress as soon as practicable in each year, but in no case later than the third day of the following January.

“(b) The Corporation shall make a study and investigation of (1) the work, activities, personnel, and functions authorized under this Act, for the period from the enactment of the Act to June 30, 1954, and (2) the practicability of providing insurance or reinsurance for loss resulting from business interruption due to floods. It shall report to the Congress the result of the study and investigation, and make such recommendations as it may deem appropriate, on or before January 3, 1955.

"SUCCESSION “Sec. 9. The powers, functions, duties, and authority arising under this Act shall be exercised and performed by the Reconstruction Finance Corporation while that Corporation has succession, and thereafter by such officer, agency, or instrumentality of the United States as the President may designate: Provided, That for the purposes of carrying out this Act by any such officer, agency, or instrumentality the authority granted to the Reconstruction Finance Corporation in section 3 of the Act of January 22, 1932, as amended (15 U. S. C. 603), shall be available to such officer, agency, or instrumentality, notwithstanding dissolution of the Reconstruction Finance Corporation."

On May 9, 1952, Senator Maybank, as then chairman of this committee, introduced by request the bill suggested by the President in his message. It became S. 3146 and was referred to this committee. A companion bill was introduced in the House of Representatives by Congressman Bolling as H. R. 7726.

It was referred to the House Committee on Banking and Currency.

Under S. 3146 the Reconstruction Finance Corporation would have been authorized to provide insurance or reinsurance against loss or damage to real or personal property, including farm commodities and property owned by State or local governments, due to floods occurring within the United States, its Territories or possessions. War-risk coverage would have been expressly excluded. RFC would have been authorized to prescribe premium rates by type of insurance and the terms and conditions of the policy. Premium rates would have been computed on a basis, considering the risks, intended to cover operating expenses as well as loss reserves.

RFC' would have been authorized to determine the types and locations of property covered and the nature and limits of loss or damage in any area eligible for insurance or reinsurance as well as the rates, terms, and conditions of the policies. RFC would have been expressly authorized to decline particular applications and risks. The maximum limit of insurance to any one person or State or local government would have been fixed at $250,000. No claim would be paid in excess of the cash value or repayment cost (less depreciation) of the property damaged. A loss deductible clause would apply to each claim, amounting to $300 plus 10 percent of the remainder or any larger amount prescribed by RFC in the policy. RFC could regulate the issuance of policies to affiliated corporations.

No insurance or reinsurance could have been issued for risks eligible under other Federal programs or to the extent of coverage available on reasonable terms from other public or private sources ; nor for property used in conflict with flood zoning laws. Private insurance companies or other insurers would have been authorized to participate financially in the underwriting of risks. RFC would have been directed to use the facilities and services of public agencies and private insurance companies, agents, brokers, and adjustment organizations to the maximum practicable extent consistent with the minimum cost of providing insurance protection.

Any federally aided property could have been required prospectively to carry flood insurance.

The maximum liability of RFC under the bill would have been limited to $500 million outstanding at any one time after the beginning of the sixth month following passage of the bill. With Presidential approval cumulative increases of a half billion each could have been made on July 1, 1953, and July 1, 1954. The bill would have created a national insurance fund in the United States Treasury, its capital to consist of amounts advanced from appropriations authorized without fiscal year limitations. Advances to the fund would have been made as requested by RFC, which would have been required to pay the Treasury the average rate of interest on marketable United States public debt obligations. Into the fund would go premiums collected by RFC plus interest earned on invest. ments of the fund in United States obligations and receipts from other obligations under the bill. The fund could be used both to pay insurance liabilities and expenses of operations of the program.

RFC would have appointed an advisory committee of three persons experienced in writing property insurance to advise concerning execution of functions under the bill.

Claims would have been adjusted and paid by RFC directly or through agents, and RFC would have collected the necessary shares from participating companies. Judicial review in a United States district court would have been permitted for disallowance of claims or refusal to accept a partial allowance.

RFC would have been required to study the program under this bill to June 30, 1954, and the practicality of providing against business interruption due to floods. RFC would have reported to Congress on or before January 3, 1955.

Pressing consideration of amendments to the Defense Production Act by this committee made it impractical for it to hold early hearings on S. 3146. On July 1, 1952, the House Committee on Banking and Currency held an open hearing on H. R. 7726, but took no further reported action on the measure. The draft bill progressed no further in the 82d Congress.

No bill dealing with flood insurance was introduced either in the 83d or, to date, in the 84th Congress.

Renewed interest in legislation of this nature arose following the disastrous loss and damage caused by hurricanes and floods in August 1955.

On August 23, 1955, Senator Bush in a telegram to Senator Fulbright, chair. man of this committee, requested staff action on a study of the practicability of Federal disaster insurance looking toward action on possible legislation as soon as the Congress shall reconvene.

On August 28, 1955, Senator Lehman's office announced he would introduce an omnibus bill providing for Federal disaster insurance and empowering the Federal Civil Defense Administration to meet the effects of manmade (atomic) and natural disaster.

Similar evidences of interest in arranging for consideration of appropriate legislation were received from several other Members of the Congress, including Senator Carlson, Senator Ervin, Senator Green, Senator Johnston of South Carolina, Senator Kennedy, Senator Pastore, Senator Payne, Senator Purtell, Senator Saltonstall, and Congressman Dodd.

Senator LEHMAN. I understand the Members of Congress from Connecticut who are here today are willing to defer to Mr. Ellsworth Bunker, the very distinguished president of the National Red Cross.

Mr. Bunker came here from New York and is anxious to return as soon as possible to help carry on the great work in this area and other areas in which the Red Cross is engaged.

Mr. Bunker.

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