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If we find an agency already existing which can do the job, it is all right with me.
I have stressed the fact that we ought to utilize private business to the fullest extent in the carrying out of this program. We should make use of private insurance companies, as I have already said, and make use of private lending agencies.
I have tried to draw the proposal to avoid any competition between the Government and private insurance companies and private lending agencies. There are probably places where that can be broadened, but that has been the intent.
Finally, Senator Lehman, I am particularly interested in your bill. which I have not had an opportunity to study adequately, because I have been away, but I have been in touch with it through my office. I suggest here that some study be carried on by this corporation with respect to other types of risk loss, such as are included in your bill. Maybe we should include them all, as you do. About that I am not prepared to give much helpful advice or knowledge, and certainly you know much more about it than I do, but I would like to see it as comprehensive as we can make it. I think your bill is the most comprehensive that I have seen.
AÎl I want to stress and point out, Senator Lehman, is that it is not really a proposal I would ask you to accept in lieu of your own, but rather a suggestion you might find helpful as you struggle with this problem of legislation in your committee.
Once again I say I am grateful to you for permitting me to appear here. I have learned a good deal this morning, and I expect to learn more from your hearings. I would like to leave this statement, which I have partially read from. I have not read it all, but parts of it.
Senator LEHMAN. Without objection, the full text of your statement will be inserted.
Mr. Dond. Also may I submit to you the proposal as part of that statement ?
Senator LEHMAN. Without objection, the full statement and the bill itself will be included in the record.
(The prepared statement and proposed bill by Mr. Dodd follow :)
STATEMENT ON PROPOSED DISASTER INSURANCE BILL SUGGESTED BY CONGRESSMAN
THOMAS J. DODD, OF CONNECTICUT
I. NEED FOR DISASTER INSURANCE LEGISLATION
After the terrible destruction of this year's August flood a great numler of people in Connecticut and other Northeastern States were most anxions to purchase some form of flood or disaster insurance to protect their economie wellbeing in the event of another flood.
There was obviously a large market for flood insurance, but private insurance companies were unable to offer the necessary protection due to the enormous risk factor.
Less than 2 months after the August disaster another devastating flood struck the same area, and again no insurance was in effect to lessen the terrible lin suffered by so many homeowners and businessmen through no fault of their own.
It is apparent that private citizens and private enterprise cannot for long ses tain such great economic losses without it having an extremely detrimental effect on the overall economic condition of some of the Nation's most productive areas. However, private insurance companies are not to be considered delinquent in failing to offer insurance contracts that would cover floods or other natural disasters. Private insurance institutions, although sympathetic to the needs of the country, cannot accept risks that might bring about bankruptcy and destroy the protection against other losses presently being given existing policyholders. It is not the nature of Americans to be content with the mere hope that in the event of disaster the Government will furnish relief. It is rather their nature to sustain their economic position by insuring against loss by paying a fair and reasonable premium rate for insurance protection.
Now that it is apparent that private enterprise will not be able to undertake a program of either flood or natural disaster insurance and the recent floods have pointed out the great need for such protection, it is clearly the responsibility of the Federal Government to meet the need of its people by undertaking a disaster insurance program.
II. BASIC PROBLEMS CONCERNED WITH DISASTER INSURANCE
The risk factor involved with flood insurance or disaster insurance cannot be accurately determined at this time due to the lack of adequate actuarial information. Due to the imponderable risk factor, private insurance companies are reluctant to offer a flood insurance policy to the public, and if they were willing to accept the risk it is realized that the premium rate might necessarily be prohibitive.
Because the Federal Government is obligated to promote the general welfare of its people, it does not work under the same criteria as private insurance institutions do. When the Government undertakes a program such as disaster insurance it obviously would not be doing so with the intent of making a profit. Rather than hoping to make a profit, the Government in meeting a need of its people would expect to expend funds to meet that need.
The problen, however, is how much money should the Government spend on a disaster-insurance program, or whether or not in promoting the general welfare, Federal funds could be better spent on flood-prevention measures. Of course, as more food-prevention measures are put into effect the risk factor will be diminished, and when the risk is lowered to a reasonable degree, it can be experted that private insurance institutions will be able to offer flood or disaster insurance policies in the same way that they presently offer life or fire insurance.
The problem is basically to find a solution to the problem of how the Federal Government can offer some degree of economic protection against natural disasters to all its people and still do so without expending large Federal subsidies.
It must be realized that no panacea to this problem will be found. When a disaster such as a flood strikes, a great economic loss is inevitable. It is my belief that the bill I am presenting for consideration will furnish a means by which that loss can be equitably shared. The bill cannot be expected to solve all the problems, but it is hoped that it will furnish the legislative means by which many of the problems can be lessened.
III. FEATURES OF THE DODD DISASTER-INSURANCE PROPOSAL
(a) Direct disaster insurance and reinsurance to be made available
This proposed disaster-insurance bill is designed to provide a means by which an individual or a businessman may insure his property against destruction by such natural disasters as floods and tidal waves in the same way that he can presently purchase insurance protection against fire. Thus the bill provides for a type of policy in which the insured party, in the event of disaster, would be reimbursed in cash to the extent of the face value of his policy.
This type of insurance would provide complete protection, but unfortunately in the absence of large Federal subsidies the risk factor is so great that for most people the premiums would prove too expensive. With limited Federal subsidies, and because the Government would be operating on a nonprofit basis, it is expected that such insurance could be offered at premium rates considerably lower than private insurance companies would be able to offer it, although not low enough for the average homeowner or businessman.
By offering insurance against all natural disasters, it is believed that a wider base can be established, which in turn will result in lower premium rates.
This proposal provides for both direct insurance and reinsurance. Reinsurance in which private companies offer their own policies and contract with the Government to lessen their risk is to be stressed because it affords a more acceptable means of eventually converting the program into one entirely run by private enterprise,
(6) Contracts in which the Government will enable the insured to obtain, in the
event of disaster, a long-term loan, without interest, and without regard to traditional credit rating requirements
This bill offers a new solution to the dilemma of finding some form of insurance against floods and other natural disasters which can be offered to the public at a low premium rate without large Federal subsidies.
Briefly, the plant that offers this solution provides that a party can purchase a policy at a low premium rate in which the Government would give the policy. holder an absolute promise of a long-term, non-interest-bearing loan in the event of loss through natural disaster.
The absolute right to obtain such a loan would give the person holding such a policy the means by which the destroyed property could be promptly restored, The primary loss would ultimately lie on the person whose property was destroyed, but through the loan plan the loss could be spread out over a long period of time.
In order that the Government will not unduly enter into the banking business, the bill provides that the money shall be borrowed from private lending agencies, with the Government acting as guarantor and paying all interest. If the loan, for some unforeseen reason, cannot be had through a private lending agency the Government will make the loan directly, and, of course, charge no interest.
Thus under this plan a man owning a small factory or business concern which was destroyed by a flood and left with only goodwill and know-how would be provided as a matter of contractual right with the means to promptly put these two remaining assets back into operation. The repayment of the loan could be made over an extended period of time, and the burden could be spread out in the same way as depreciation.
The only risk that the Government would be taking under such a plan would be the obligation to pay the interest on loans that would be made under the contracts, and in its capacity as guarantor to make good on any defaulting loans. It is anticipated that these expenses will be paid from the premiums taken in under the plan. (c) Combination of plans offered in sections (a) and (b)
Under the provisions of this bill, combinations of the usual insurance plan where reimbursement is made in cash as discussed in section (a) and the loan plan discussed in section (b) are to be offered. Under the plan a great variety of policies will be made available in which part of the reimbursement in the event of loss would be made in cash and part in a non-interest-bearing loan.
Thus an individual or business concern that could only pay a small premium rate could enter into a contract that would provide reimbursement in the form of a loan. For example, another party not willing to accept the burden of such a loan, and still unable to pay a substantial premium rate, could take out a policy which would provide him with 30 percent in cash and 70 percent in a non-interest-bearing loan, and with a slightly higher premium rate.
The premium rate would largely depend on what percentage of reimbursements would have to be paid in cash. A person who wishes to be completely reimbursed in cash would pay a maximum premium rate.
The exact type of policy to be offered, and premium rates are matters to be determined at a later date in accordance with administrative discretion. (d) Federal corporation to be set up
It is the concept of this proposed bill that a separate Federal agency should be established for the exclusive purpose of offering to the public and administering insurance against certain risks for which there is a national need, and which is not obtainable through private enterprise. The immediate type contemplated is national disaster insurance, but other types such as war damage insurance might be added. Eventually this proposed Federal corporation might be used to administrate many of the existing insurance programs presently offered by the Government. (e) Private enterprise to be utilized to the fullest extent
This bill provides that in the administration of the proposed disaster-insurance program, private insurance companies will be used as agents of the Government in selling policies, investigating claims, and in the general handling of insurance functions of the plan.
The bill provides that private lending agencies will be given the opportunity to make the loans and generally conduct the administration of the plan's lending functions.
This proposal makes it clear that the Federal Government is not to be in competition with private insurance and lending institutions. It is further provided that the Government is to engage in this field of insurance only until such time as private enterprise is capable and willing to take over the responsibility. (f) Personal as well as real property to be insured
The question of what types of property should be insured is a problem that confronts all those attempting to find a solution to this overall matter. To limit the disaster insurance only to real property such as homes and factories is avoiding some of the fundamental ills that disaster-insurance legislation should be expected to cure. The problems of what personal property should be insured, and how it can be properly inventoried and how depreciation can be accounted for, may be difficult to solve, but these problems can be solved by an agency set up to administrate the offering of insurance.
Whatever legislation evolves should provide a means by which a person can be assured that he can replace his possessions such as furniture, cars, and general household belongings, and a businessman can replace his inventory if it is destroyed by flood or other natural disaster. (9) Study and report to be made on other types of insurance by Corporation
Among the primary functions of the Disaster Insurance Corporation will be to gather all possible information on the public's need for, the possibility of, and the proper means of administering other types of insurance not presently being offered by private insurance institutions. One of the first things that the Corporation would be directed under the bill to study and report to Congress on is wardamage insurance. It will be the responsibility of the Corporation to present all the necessary facts, and propose solutions to problems where the people of this Nation have a need and desire to insure against certain risks and are unable to do so with private insurance companies.
DRAFT OF PROPOSED LEGISLATION PRESENTED BY CONGRESSMAN THOMAS J. DODD,
CONNECTICUT, FOR CONSIDERATION PRIOR TO THE RECONVENING OF CONGRESS
A BILL To provide for national disaster insurance, and for other purposes
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. This Act may be cited as the "National Disaster Insurance Act".
CONGRESSIONAL DECLARATION OF PURPOSE
Sec. 2. The Congress hereby declares that it is the purpose of this Act to promote the general welfare and further the national interest by providing a means by which the people of the United States can insure real and personal property against certain losses caused by unpredictable and widespread disasters for which no reasonable insurance protection is presently offered by private enterprise. Through this Act the Congress establishes a body corporate which shall be empowered to enter into contracts of direct insurance, contracts of reinsurance, and contracts making available loans at low premium rates. It is further the purpose of this Act to direct the aforesaid body corporate to utilize private insurance institutions and private lending institutions as its agents in carrying out the functions of this Act whenever possible as determined by the duly appointed directors of the aforesaid body corporate. The purpose of the insurance contracts or the non-interest-bearing Government guaranteed loan contracts shall be to offer economic protection against the capriciousness of nature which has resulted, from time to time, in meteorological and other disasters such as floods, hurricanes, earthquakes, tornadoes, and tidal waves. It is further the intent of the Congress that the aforesaid body corporate shall conduct a study of war damage and other types of insurance not generally made available through private enterprise and for which, in the national interest, there is or may be a need and to report the results of such study to the Congress for such future legislative action as may be deemed necessary.
DEFINITION OF NATURAL DISASTER
SEC. 3. As used in this Act, the term “natural disaster" means any flood, tidal wave, hurricane, tornado, blizzard, dust storm, hailstorm, or other severe storm, earthquake, landslide, snowslide, severe freeze, heat wave, volcanic eruption, or other like catastrophe or disaster occasioned by weather changes.
CREATION OF CORPORATION
SEC. 4. (a) To carry out the purposes of this Act, there is hereby created as an agency of the United States a body corporate to be known as the "National Disaster Insurance Corporation” (hereinafter referred to as the “Corporation”). The principal office of the Corporation shall be located in the District of Columbia, but agencies or branch offices may be established elsewhere in the United States under rules and regulations prescribed by the Board of Directors.
(b) The Corporation shall have a nonassessable capital stock of $50,000,000 subscribed by the United States of America. There is hereby authorized to be appropriated to the Secretary of the Treasury not more than $50,000,000 for the purpose of subscribing to such stock. Receipts for payments by the United States of America for or on account of such stock shall be issued by the Corporation to the Secretary of the Treasury, and shall be evidence of the stock ownership by the United States of America. Sums so received by the Corporation shall be deposited to its credit in the National Disaster Insurance Fund established by this Act.
CORPORATION MANAGEMENT AND PERSONNEL Sec. 5. (a) The management of the Corporation shall be vested in a Board of Directors (hereinafter called the “Board”) consisting of five persons appointed by the President of the United States by and with the advice and consent of the Senate, one of whom shall be designated by the President as Chairman of the Board. Not more than three members of the Board shall be members of the same political party. Each such appointment shall be for a term of six years, except that (1) of the directors first appointed two shall be appointed for terms of two years each, two for terms of four years each, and the Chairman for a term of five years, and (2) whenever a vacancy shall occur other than by expiration of term, the person appointed to fill such vacancy shall hold office for the unexpired portion of the term of his predecessor. The Chairman shall receive a salars at the rate of $17,000 per annum, and other directors at the rate of $16,500 per annum.
(b) Each director shall devote his time principally to the business of the Corporation. No person shall hold office as a director of the Corporation while holding any office, position, or employment in any privately or publicly owned insurance company.
(c) So long as there shall be three members in office, vacancies shall not impair the powers of the Board to execute the functions of the Corporation, and three of the members in office shall constitute a quorum.
(d) Within the limitation of appropriated funds, the Board shall (1) select, appoint, employ, and fix the compensation of such officers, attorneys, experts, employees, and agents as shall be necessary for the transaction of the business of the Corporation, (2) define their authority and duties, (3) delegate to them such of the powers vested in the Corporation as the Board may determine, and (4) obtain and procure bonds, in accordance with law, for such of them as the Board may designate.
Sec. 6. The Corporation
(1) shall have succession in its corporate name until dissolved by or pursuant to an Act of Congress;
(2) may adopt, alter, and use a corporate seal, which shall be judicially noticed ;
(3) may adopt, amend, and repeal bylaws, rules, and regulations for the conduct of its business and the exercise of the powers granted to it by law :
(4) may make contracts and purchase, lease, hold, and dispose of such real and personal property as may be necessary and incident to the conduct of its business ;
(5) may sue and be sued in its corporate name in any State or Federal court of competent jurisdiction;