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Senator LEHMAN. Of course, I am also at the moment working in a vacuum because I do not know what the administration would advise, and it is a great handicap. But it would be either insurance-company coverage with a reinsurance provision, or a subsidy, or a guaranty against loss; or, it would be a straight Federal insurance program. I do not know which it would be, if either.

Mr. HERD. If in the latter case, my answer to your question would be an unqualified "Yes." If it meant the private companies putting out their policies primarily and with a reinsurance arrangement with the Government, then I would want to qualify my answer.

May I have just one moment?

Senator LEHMAN. Surely.

Mr. HERD. As Mr. McKenna told you, I had a little something to do with the War Damage Corporation during World War II. From reading the testimony, some of the former witnesses claim identification with that program. However, I think it is interesting to note, based on 1942 property values, that the War Damage Corporation had liabilities outstanding under war damage policies, in New York City alone, of $21,700 million; and that the area from Canal Street down to the Battery had a liability under war-damage policies of $13 billion, and that did not include subways, streets, and sewers or city property, because they did not insure against it. That is just private improvements, plus tunnels and bridges of the Port of New York Authority, and the Triborough, and so forth.

If you commute those values of 1942 to the values of 1954 and 1955, the liabilities which could be outstanding under a private insurance company's policies could be very staggering; but if we were marketing a Government program, where the Government obligation was in the hands of the public, then again I say my answer to your question would be an unqualified "Yes."

Senator LEHMAN. I realize it would run into tremendous figures, of course.

Mr. HERD. Yes.

Senator LEHMAN. But the losses that have occurred over the last 25 years in natural disasters are very big also. Those fall entirely and exclusively on the corporations, businesses, and private owners or private citizens.

Mr. HERD. Yes. Our engineers in part I of the report which your committee has, estimate that the average annual property insurance loss is in the neighborhood of $400 million. That, of course, is an average over a great many years. That does not include indirect losses.

Senator LEHMAN. I do not understand a few things that you have said here:

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.

Then you go on to say:

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.

What do you mean by that? The Government has done it in many


Mr. HERD. I mean this, Senator: I believe some of the witnesses who appeared before you in earlier hearings of this committee, in answer to a specific question from you or Senator Bush, or some other members of the committee, indicated that had they had flood insurance available to them shortly preceding this flood, they probably would not have purchased it. So that our feeling on that is that human nature being what it is-and any of those plans we have seen suggested, or even heard discussed today, involving the outlay of money for a premium where it was an optional selection-that memories being as short as they are, when a few years rolled around and they decided that they could safely drop the insurance, they would.

I think Governor Ribicoff cited a case this morning where they had records going back 300 years in 1 plan in particular where they have never had an occurrence of this kind. If and when catastrophe strikes and there is a comparatively small amount of insurance outstanding in that area, we will be right where we are today as to relief and rehabilitation.

Or, I will put it another way: Would the Government say that inasmuch as disaster indemnity is available at, we will say, a reasonable premium, that failure of a person to buy such a policy would foreclose relief or rehabilitation being considered by Congress after the occurrence?

Senator LEHMAN. I am not sure our minds are meeting on this. As I interpret your statement you have a feeling that the Federal Government could not subsidize these things.

Mr. HERD. No, sir.

Senator LEHMAN. We are subsidizing right and left. Some of them are worthwhile and others I have a little question about, but certainly it is nothing very new.

Mr. HERD. I hasten to correct that. My feeling is just the opposite, Senator. First of all, I do not think it should be called insurance, I mean, in the generic concept; and, secondly, whatever you call it, it would assume the complexion of relief and rehabilitation after the occurrence. That is all.

Senator LEHMAN. I think these concepts of yours go pretty far. I mean, after all, you are objecting to the use of the term "insurance." I do not care what it is called so long as the people are protected. But we subsidize our merchant marine, and I think it is fine. I think we should. We certainly subsidize our air services. We subsidize agriculture by purchasing their supplies at certain prices. The use of subsidies for various groups is not an unknown thing in this country, and has not been certainly within my time. If they can do that, why can they not subsidize the fellow who lives at Woonsocket, or Torrington, the whole community, or the State, I mean?

Mr. HERD. We have no quarrel with that whatsoever, and I am sure that was not the intent of that section of the resolution.

Senator LEHMAN. I have just one other question.

Mr. HERD. May I add something?

Senator LEHMAN. Yes.

Mr. HERD. I am not presumptuous enough to pass on the legal or physical aspects of the subsidy when engaged in by the Federal Government; we are not presuming to take a position on that.

Senator LEHMAN. I noticed under paragraph No. 8 you say:

In our opinion, flood control and prevention (rather than insurance, indemnity, or relief) are of far greater importance * * *.

I have already mentioned that, but I want to emphasize that again. Mr. HERD. Yes, sir.

Senator LEHMAN. That is, while I believe most, if not all of the members of the committee, are strongly in favor of flood control, that is not within the province of this committee.

I have one final question: The mutual companies have agreed to supply us in this case with the types of insurance coverage that they offer in the disaster field and the range of premiums. Would you be willing to do the same for the stock companies?

Mr. HERD. Yes, sir. I am getting some of that ready for a staff member right now, and have it practically complete. (The information referred to follows:)



November 17, 1955.

Chief Clerk, United States Senate Committee on Banking and Currency,
Senate Office Building, Washington, D. C.


DEAR MR. YINGLING: Through General Counsel J. Raymond Berry, of the National Board of Fire Underwriters, I have received Mr. McKenna's oral inquiry regarding the current gross assets and net free assets (that is, surplus as regards policyholders) as to property insurance companies. The gross assets of all companies doing the business of insuring property (about 800 in number) as of December 31, 1954, the latest available data, were $10,450 million. The surplus as regards policyholders of such companies as of the same date aggregated $5,300 million.

You may recall that during the 1951 hearings, particularly that held on September 26, 1951, before the subcommittee of the House Committee on Appropriations (82d Cong., 1st sess.) I stated (p. 330) that the net free assets of stock, mutual and reciprocal property insurance companies as of December 31, 1950, was just in excess of $3 billion.

I might advise here that the principal contributions to assets and surplus as regards policyholders since December 31, 1950, have been, during the 5-year period, new capital subscriptions, new entries to the property-insurance field, appreciation in market quotations of securities held and investment income therefrom, and less than 20 percent as a result of gain from underwriting results from all kinds of property insurance written. The limited underwriting gain, on balance, in respect of all companies for the 5-year period has been due principally to the adverse impact of windstorm and hurricane claims occurring during that period. In this connection you will recall the adverse experience indicated on the chart recently furnished to you by me, especially in regard to the Atlantic Seacoast States northward from South Carolina throughout New England and including Pennsylvania, for the 5-year and 10-year periods ending with, but including, the year 1954.

I sometimes wonder whether the public is aware of the catastrophe losses suffered by property insurance companies in respect of headliners such as Carol, Edna, and Hazel, all of which occurred during the year 1954. As you know, it is our belief that insurable property values generally are protected under basic or extended coverage against all prominent insurable perils, thereby limiting the area of discussion generally to flood, high tides, and water perils which we consider to be uninsurable.

In April and September of 1944 windstorms in the New England area produced 170,000 claims, resulting in payments of approximately $24 million by stock companies. Automobile and inland marine losses are not included in this figure. In 1950 the windstorm which occurred about Thanksgiving time late in November produced 11⁄2 million claims, which resulted in stock companies paying out $165 million, not including those claims arising under automobile and inland marine policies.

In 1954 Carol, Edna, and Hazel produced a million and a half claims to stock insurance companies, resulting in payments of $200 million, not including those claims arising under automobile and inland marine policies.

The claims arising under automobile and inland marine policies are usually substantial in the aggregate. It is more difficult to collate these but as an example the stock insurance companies paid out approximately $25 million under automobile policies for claims arising thereunder as a result of Carol, Edna, and Hazel. To interpret these figures in respect of all property insurance companies, that is stock, mutual, and reciprocal, it would generally be appropriate to add 25 percent to the stock company figure inasmuch as the stock companies generally write about 80 percent of the total insurance in force on the kinds of property to which we are addressing ourselves.

You also inquired of Mr. Berry as to whether any figure might be available as to the aggregate exposure of all property-insurance companies under extended coverage. While I am not aware of any exact figures in this respect I believe a reliable estimate would place the current figures in respect of all such companies in the neighborhood of $400 billion throughout the United States. Such companies have, in addition, extensive exposures on motor vehicles, railroad rolling stock, goods in transit, and certain instrumentalities of commerce, such as bridges and tunnels where lien interest warrant the maintenance of insurance. Typical of the latter are properties of the Port of New York Authority, Triborough Bridge and Tunnel Authority, New York State Thruway Authority, Golden Gate Bridge, San Francisco-Oakland Bay Bridge, various Mississippi River toll bridges, Tacoma Narrows Bridge, Norfolk-Hampton Roads tunnel (when completed), and so forth. These motor vehicle and miscellaneous liabilities would add several billions of exposure to the above figure. Yours very truly,


Chairman, Committee To Study Floods and Flood Damage. Senator LEHMAN. Thank you very much. Mr. HERD. Thank you.

Mr. EDELSTEIN. Assemblyman Parsells.

Senator LEHMAN. Do you know whether the president pro tempore of the senate, Mr. Ward, is going to be here?


Mr. PARSELLS. I think he is, sir. I understood he was free and is coming over.

Mr. Chairman, by name is Norman Parsells. I am majority leader of the house of representatives in the Connecticut Legislature.

First, may I thank you for coming to Hartford to hear our problems, and hearing me out of turn. We are now in session and it is a great convenience.

I am sure in your travels about New England you have heard from many people as to the great need for flood insurance. All I can say is, I reiterate everything that has been said.

The very first thing our house of representatives did this week when we came into flood session was to pass a resolution memorializing Congress to devise a method of taking care of the problems of our people who lost their goods and property and their livelihood due to the floods. Your committee either has received or will receive a copy of that resolution.

Senator LEHMAN. We will insert that in the record, together with one from the State senate.

(The resolutions referred to follow :)



Special session, November 1955


Resolved by this assembly:

Whereas the Northeastern States have suffered an estimated uninsured loss of over 2 billion in real property alone as the result of flood damage in August and October 1955; and

Whereas the flood disasters reemphasize the need for flood insurance protection which cannot be provided by private insurance companies except at prohibitive cost to the policyholder: Now, therefore, be it

Resolved, That this general assembly in special session for the purpose of enacting a flood recovery program urges the Congress of the United States to explore the need for forms of flood insurance not now obtainable from private insurance companies and that Congress take the initiative in the field by enacting a Federal insurance disaster program; and be it further

Resolved, That a suitable copy of this resolution be sent to each House of the Congress of the United States and to the Senate Committee on Banking and Currency.


HARTFORD, CONN., November 9, 1955.



Clerk of the Senate. JOHN WASSUNG,

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Special session, November 1955


Resolved by the senate:

Whereas the problem of rehabilitating the people in the areas stricken by the two major floods is one of gigantic proportions requiring both State and Federal aid of an immediate major nature; and

Whereas most of the aid now available from either the State or Federal Government is in the nature of loans rather than grants; and

Whereas in many instances the people affected are in no position to burden themselves with debts in order to rebuild homes or reestablish their businesses or replace possessions which they have lost in the floods; and

Whereas this is particularly true of those who had to reestablish themselves by Government-sponsored loans following the first flood only to have the property obtained by such loans either seriously damaged or destroyed by the second flood: Now, therefore, be it

Resolved, That we urge the Congress of the United States to adopt measures providing direct grants to assist the people in the flood-stricken areas who have lost homes or businesses or possessions through these major disasters and that such aid be given as expeditiously as possible so as to prevent these people from being crushed by the heavy toll of losses they have suffered; and be it further Resolved, That copies of this resolution be sent to Senator Herbert Lehman and to Senator Bush and Senator Purtell, of Connecticut, and to all of the Connecticut Congressmen.


Clerk of the Senate. ALICE T. PETERSON, Deputy Secretary of State.

HARTFORD, CONN., November 21, 1955.

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