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so that the entire population may be insured at a reasonable rate. That is how this flood insurance or disaster insurance must be done.

I have heard it said, is the fellow on the hill going to pay to insure the fellow in the valley? My answer is, "Yes," I think he should. I think it is for the good of the community that that be done.

Senator LEHMAN. You have been talking mainly about flood insurance. My bill covers disaster. You are in favor of disaster insurance, are you not?

Mr. CARMICHAEL. Yes, sir. Very much so. We run along the shoreline and are affected by floods and high water and tidal waves and hurricanes. We have been seriously affected by the floods.

If it would be of any value to the committee, I have a book of photographs to give you an idea of the damage and havoc that has been wrought by these floods.

Senator LEHMAN. Will you file it with the committee?

Mr. CARMICHAEL. Yes, I will.

Senator LEHMAN. We will place it in the files. We cannot print it, but it will be kept for the use of the committee, and we will study it. Mr. CARMICHAEL. Thank you.

Senator LEHMAN. Mr. J. Victor Herd, president of the American Insurance Association and former Executive Vice President of the War Damage Corporation. Mr. Herd.

I just want to explain for the audience and the press that we are going to listen to your statement here. We may or may not ask you questions. We will probably ask some. However, the relationship between the Government on this and the insurance companies is so vital that it may be necessary to ask you to appear before the committee again for more exhaustive questioning when we get the plans a little bit more formulated. It is so difficult without knowing just what is going to be recommended, really to ask intelligent questions. So our questions this afternoon probably will be limited. I hope you will be willing to appear before the committee again.



Mr. HERD. Senator, I hope you will invite us and, if you do not, we will probably ask to be heard.

Senator LEHMAN. All right.

Mr. HERD. In order to conserve your time and to present this to you in an orderly manner. I have just made a few notes here from which I will read, and I will be following that statement which is before you and Senator Bush.

My name is J. V. Herd. I appear before you today as chairman of a special committee to study floods and flood damage appointed by the American Insurance Association. The association embraces within its membership domestic and alien stock insurance companies licensed and admitted to do the business of fire, marine and casualty insurance in the United States, its Territories and possessions. Most members of the association are transacting a worldwide business. For your convenient reference, a list of company members is attached.

Incidentally, the memberships of the American Insurance Associa tion and of the National Board of Fire Underwriters include all Connecticut capital stock property insurance companies, some of whose

senior offices I see present here today. This record is being made for such Connecticut companies as well as for the other member companies who are domiciled elsewhere, but whose interest in and concern with this problem is shared equally by all stock property insurance company members.

The association property insurance companies transact probably more than 80 percent of the total insurance written by stock insurers in the United States and probably more than 65 to 70 percent of the total property insurance business transacted by all admitted property insurance companies, stock, mutual, and reciprocal.

I have been informed that your committee considers these hearings investigatory and primarily for the purpose of appraising the problem from the viewpoint of the public and communities particularly as to those areas most recently distressed by the floods of August and October of this year.

I have also been informed that your committee intends to hold hearings early next year, probably on specific bills, and that the insurance business will be afforded an opportunity to address itself further to the flood problem and to any such bills pending at that time. While the American Insurance Association would appreciate an opportunity to appear later before your committee on the commercial aspects of the flood problem, we would also like to have an opportunity to address ourselves specifically to proposed legislation which might be pending at a later date through the general counsel of the National Board of Fire Underwriters. I am presently president of the National Board of Fire Underwriters, which is a trade organization of capital stock fire-insurance companies. Among its many other functions the National Board of Fire Underwriters traditionally studies and addresses itself to specific legislative proposals affecting the interests of capital stock property insurance companies.

May I interpose here reference to the floods which devastated portions of eastern Kansas and western Missouri, particularly Kansas City, during 1951? Immediately following those floods, the stock property insurance companies, through the Insurance Executives Association (predecessor to the American Insurance Association), engaged the services of prominent engineers to restudy the problem of floods and flood damage and the feasibility of flood insurance as a self-sustaining insurance enterprise. The results of that restudy were incorporated in a report on Floods and Flood Damage, sections I and II, dated May 1952. A copy of each has been furnished to Staff Director Wallace of your committee.

During and shortly following the Kansas-Missouri floods of 1951 there were hearings before a subcommittee of the House Committee on Appropriations, 82d Congress, first session. A transcript of those hearings was printed and there were set forth at pages 318 through 340 certain views of stock property insurance companies, members of the National Board of Fire Underwriters (by General Counsel J. Raymond Berry) and of the now American Insurance Association, by myself as chairman of the special committee on floods and flood damage of Insurance Executives Association (predecessor organization to the American Insurance Association). As of now those views still prevail.

The membership of the American Insurance Association met on November 2 and adopted a resolution setting forth their present position. A copy is attached for the record of today's hearing.

I will read it or just attach it, as you see fit.

Senator LEHMAN. Is this the one dated today?

Mr. HERD. That is the one dated today.

Senator LEHMAN. I would be glad to have you read it, if you will. It might be more informative to the public. Mr. HERD. All right, sir. [Reading:]


New York 38, N. Y., November 14, 1955.


The American Insurance Association announced today that its member companies are prepared, together with their producers, to make their full facilities available to the Government and will cooperate should Congress see fit to enact a program of flood indemnity and request the aid of the industry in its administration.

The association has employed the firm of Parsons, Brinckerhoff, Hall & Macdonald to make an engineering study of the recent floods, supplementing a report the firm made for the stock companies in 1952. The completed report of the engineers has not been received and the association is continuing its current study of the subject. However, at a membership meeting of the association, it was the consensus that the following represents the present position of the companies, based on current knowledge and subject to the final conclusions of the study now being made:

1. If flood insurance could be written feasibly, insurance companies would be not only willing but eager to provide such coverage (examples of this are to be found in the broad coverages, which do not exclude the peril of flood, available for movable property, such as the various forms of marine, inland marine, and automobile comprehensive coverage, and certain floaters).

2. The companies believe that specific flood insurance covering fixed-location properties in areas subject to recurrent floods cannot feasibly be written because of the virtual certainty of loss, its catastrophic nature, and the reluctance or inability of the public to pay the premium charge required to make the insurance self-sustaining.

3. Any insurance program which does not cover areas subject to recurrent floods will not meet the public need.

4. The companies believe that it is impossible to tie in flood coverage with other coverage on fixed-location properties generally because, unlike other natural catastrophies which are unpredictable as to place of occurrence, floods can occur only where water flows or gathers and only those properties which are in the path of the flow or gathering have any need for it; competition would force the sale of coverage ex-flood and the buyers would make the adverse selection.

5. There is no way in which the purchase of flood insurance can be made mandatory (even by Government compulsion) consistent with our American concept of free government and competitive selection.

6. The companies believe that the Government would encounter the same obstacles if it undertook a program of specific flood indemnity by means of insurance on a self-sustaining basis.

7. Any Government promise of indemnity on a nonself-sustaining basis is relief under the guise of insurance. In our opinion, a direct program of relief and rehabilitation would be more effective and more equitable, particularly in restoring essential services and providing food and shelter, which are the first forms of necessary relief in the case of a major flood disaster.

8. In our opinion, flood control and prevention (rather than insurance, indemnity, or relief) are of far greater importance to potential flood victims, especially when the many forms or irremediable losses are also taken into consideration, such as death, bodily injury, loss of employment, and loss of income. 9. In view of the magnitude of Government expenditures which are involved in the event of a major flood disaster, it would seem prudent for the Government to avoid fixed advance commitments in order to be in a position to use available funds most expeditiously and to the best advantage when the emergency arises.

Going back to my memorandum, immediately following the August 1955 floods our engineers were requested to bring their 1952 report (sec. II) up to date. While they were so engaged the October occurrence intervened. Otherwise we should have had available today the engineers' supplementary report to their 1951-52 studies. It is expected that this addition will be available for study by the stock property insurance companies within the next few weeks. Following such study, any appropriate supplement to section I of the 1952 report will be made.

In view of our hope and expectation to appear later before your committee and that we will have had an opportunity to study the final supplementary report from our engineers, I shall refrain from further comment at this time except to be available for questioning, should you wish.

Your courtesies and those of your staff, especially Messrs. Wallace, Yingling, and McKenna, and, I understand. Mr. Edelstein, are appreciated.

Senator LEHMAN. Any questions?

Senator BUSH. No. I have no questions.

Senator LEHMAN. I want to ask you just a few questions. I appreciate your willingness to cooperate. The Government wishes to cooperate with the insurance companies, too.

Mr. HERD. I am not quite aware of that, sir.

Senator LEHMAN. But I am going to refer now to your memorandum of November 14, which was issued by the stock insurance companies regarding flood insurance. I will not pursue it in any great detail, because there are many questions raised which we must study very carefully, and we will have other witnesses on it. You say:

The companies believe that specific flood insurance covering fixed-location properties in areas subject to recurrent floods cannot feasibly be written because of the virtual certainty of loss, its catastrophic nature, and the reluctance of inability of the public to pay the premium charge required to make the insurance self-sustaining.

I realize the inevitable cost of flood insurance because of the limited coverage and limited number of participants, but assuming now that we can substantially broaden the base of those participating in it, would that not automatically very greatly reduce the cost of the insurance and the premium on the insurance, and thus make it practicable, not necessarily immediately without aid, but within the resources of the Government to take care of it?

Mr. HERD. Senator, I do not know what device you would use for broadening the attractiveness, let us say, of

Senator LEHMAN. If the Government passed a law-and I am going to limit it now for the sake of discussion by the committee and others later-although I do not want to limit it-but suppose we limit the discussion for the moment to natural disasters? If we included those in one blanket policy at an attractive premium, would that not go a long way to solve the situation?

Mr. HERD. I cannot recall at the moment any natural disaster other than tidal wave or excess of surface water or flood, against which insurance is not presently available.

Senator LEHMAN. It might be presently covered, but in order to cover all forms of natural disasters it is conceivable that we would 69096-56-pt. 1-49

include other forms of disasters, and, of course, it is hoped it would be possible to use the insurance companies as agents of the Government. For instance, coverage against hurricanes and tornadoes. Why could that not be included?

Mr. HERD. We today write, and in fact to my knowledge all private property insurance companies today are writing, hurricane and windstorm insurance. At the request of Mr. McKenna I conducted a little research on that recently. My own company has approximately $20 billion of liability under hurricane and windstorm policies from coast to coast. The insurance industry generally, property insurance companies, it is estimated has approximately $400 billion of liability under extended coverage endorsements, which include hurricane, windstorm, and tornado.

If your concept of a Government program is not to encroach on private business where insurance is available at a reasonable and a proper premium, then to wrap in to flood-insurance coverages for perils which are available in the private market would seem to me to run counter to that.

Senator LEHMAN. I have no concept on that. I do have this concept, that I certainly want the cooperation of the insurance companies. I am speaking only as an individual, because I am 1 of 15 members of the committee. We want their cooperation, and it is also hoped that the Government, if they went into this insurance business at all, would employ the facilities of the insurance companies just as they did in war-risk insurance, and use the insurance companies as agents of the Government at a reasonable fee.

It seems to me that this flood insurance is such a vital thing, not only to the New England and northeastern area, but to many other regions. If there is no other way of getting the rate down to a reasonable basis, then I believe that the Government would be justified in considering other means by which it could be done. What those means would be I am not prepared to say, and that is why I said we would certainly want to have many other talks with you.

I do not know what is in the mind of the President or in the mind of the administration, of course, either.

Mr. HERD. As stated in the cover statement, and also in the prepared statement setting forth the attitude of the companies, members of the American Insurance Association, facilities are available to you not only in your preliminary studies, but also in respect to any program you gentlemen in your wisdom might see fit to bring out.

Senator LEHMAN. Mr. Herd, to narrow the issue, I do not know whether you can answer this question or not, but I am going to put it to you.

Mr. HERD. If I cannot I will certainly tell you, sir.

Senator LEHMAN. Would the institutions 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 a fair fee? Would they be willing to sit on an advisory committee to help guide the Government in setting rates and general policies and procedures?

Mr. HERD. Most certainly, sir; if I understand the first question, it would not involve the private companies putting out their policies primarily. In other words, it would be a Government paper that they would market on behalf of the Government and as agents of the Government.

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