Mr. ROGERS. Well, in our bills-I don't know if you have read them

Mr. PENNY. No; I haven't.

Mr. ROGERS. In a couple of bills in which we define "natural disaster," we said flood, tidal wave, hurricane, tornado, blizzard, duststorm, hailstorm, other severe storm, earthquake, explosion, landslide, snowslide, severe freeze, drought, smog, radioactive contamination, air pollution, or volcanic eruption. That would just about cover everything; wouldn't it?

Mr. PENNY. I think you left out drought in there; didn't you?
Mr. ROGERS. No, drought is in there.

Mr. PENNY. Excuse me. Well, I think that would be a very broad, comprehensive coverage.

Mr. ROGERS. That is all I have, Mr. Chairman.

Senator LEHMAN. Mr. McKenna ?

Mr. MCKENNA. I have a few problems I would like to clear up if I can, Mr. Chairman.

I am a little surprised to hear Mr. Penny state you can't buy earthquake insurance in North Carolina. I wonder if there is any representative of the insurance companies here who could tell us if it is offered.

Mr. Gold, the State insurance commissioner?

Mr. GOLD. That coverage is available, and I think it's not sold very much. Perhaps that is why Mr. Penny was mistaken.

Mr. PENNY. I am speaking for the mutual companies, of course. Mr. MCKENNA. We had been given to understand that such coverage was available if anybody wanted it, but, naturally, if you haven't had an earthquake in a long time, maybe people won't be rushing out to buy it.

Mr. PENNY. As I stated, Lloyds of London possibly writes it, but I don't know of any mutual companies that write it; do you? Mr. GOLD. What is that? Earthquake?

Mr. PENNY. Yes.

Mr. GOLD. Well, I know it's available. There is a rate for it, and I think you can buy it. I'm sure some companies would be glad to sell it.

Mr. MCKENNA. Mr. Rogers is correct in saying we have had some difficulty in pinning down exactly what coverage is and is not available in various sections of the country. In general, it has been our impression from the national associations that you can acquire insurance at some premium against nearly all of these hazards we have been discussing with the exception of radioactive contamination, and they are working on that one now, and with the exception of what the insurance companies themselves generally refer to as flood damage, which includes floodwater, high tidal waves, and the high tidewater, and the water component of hurricane damage.

Those are not generally available, we understand, and it is in that area that we have been concentrating most of our discussion during the hearings, to see whether it is feasible to cover that particular area.

Can you tell me in current practice in North Carolina, Mr. Penny, is a minimum deductible required on the hurricane coverage and the wind coverage on hurricane under the extended coverage clause? Mr. PENNY. No, sir. I wish it was, but it is not.

Mr. MCKENNA. I think, Mr. Chairman, that just last week they announced in the vicinity of Maryland they are going to assess a minimum of $50 deductible as a matter of statutory or at least regulatory requirement in the future. Up until now there had been no such deductible as a minimum.

Mr. PENNY. That really does away with nuisance claims. It's just too expensive to fool with them.

Mr. MCKENNA. That's true.

One other phase and I think I will be finished. I wonder if on coinsurance you would agree with this sort of illustration. I am reading now from the war damage regulations. It seems to me we left the record a little confused on that point. I will read this-it is on page 310 of the staff study-and I will then ask you, Mr. Penny, if this represents what your idea of the coinsurance feature would be. This happens to be rule 29 of the particular rules I am reading from. It says:

The effect of the coinsurance clause is to assess equitably the cost of the insurance. The following is one illustration. Value, $10,000. Insurance required by 50 percent coinsurance clause, $5,000. Insurance actually carried, $5,000. Loss, $1,000. In this case the property owner has carried sufficient insurance to comply with the 50 percent coinsurance clause, and, therefore, the loss of $1,000 would be paid in full.

Mr. PENNY. That's correct.

Mr. MCKENNA (reading):

The following is another illustration. Value, the same, $10,000. Insurance required by a 50 percent coinsurance clause, the same, $5,000. Insurance actually carried, only $2,500. Loss, the same, $1,000. In this case, since the property owner has carried only one-half of the required amount of insurance, he would collect but one-half of his loss. The property owner would then recover only

50 percent of his loss, or $500.

In the case of a total loss under either illustration, the property owner would collect the face amount of the policy.

Mr. PENNY. That's correct.

Mr. MCKENNA. In other words, the general principle is that you have got to take enough of your own risk.

Mr. PENNY. That's right.

Mr. MCKENNA. Insure enough of it so you won't be playing a sure bet and collect on any little portion of the damage that may occur? Mr. PENNY. It only applies to partial loss. It does not apply to total loss.

Mr. MCKENNA. Yes, sir. I think if you agree with that it does straighten the record out.

Mr. PENNY. I fairly agree with it.

Mr. MCKENNA. Do you know from your own experience what results have occurred from settling hurricane damage claims in North Carolina? As I understand it, from your testimony, the only portion of that that is covered by the extended coverage is the wind peril. In other areas we have been told that companies have at times been liberal in assessing what was caused by wind peril. I wondered what the experience was in this particular area.

Mr. PENNY. I don't know that I can answer that intelligently. I do know that the companies were most liberal due to the pathos of the cases, we'll say, that were on our coast and paid a lot of claims that they didn't get a premium for. Of course they paid it under the extended-coverage coverage.

Mr. MCKENNA. Yes.

Mr. PENNY. Damage done by wind. My wife and I, unfortunately, were caught in Hurricane Hazel down at Myrtle Beach. It didn't last but about 50 minutes, and we went over on the beach, and there were so many people over there that own homes that were not aware that they had no coverage for this terrible catastrophe that there was really weeping and wailing and gnashing of teeth.

So I don't know. Sometimes you can tell people they have no coverage and they seem to thoroughly understand it until they have a loss, and then they think you misrepresented or you kept something back from them. That's a headache of agents, of course.

Mr. MCKENNA. Yes, sir. One other question. I noted in your testimony you stated that you understood the American Insurance Association had indicated for the stock companies that they were not yet ready to write insurance against flood loss. My last information on it from the association itself was that that matter is still under study. I believe Mr. Herd when he testified before our committee in Hartford, Mr. Chairman, indicated he would have some final conclusions to give us in January at our hearings in Washington. I wondered if you had any further later information than that. Mr. PENNY. No, that's the American Mutual Alliance. They are the head of all the mutual companies.

Mr. MCKENNA. The mutuals?

Mr. PENNY. Yes, sir. A lot of the companies think they can't write it. At one time they thought they couldn't write extended coverage.

Mr. MCKENNA. I understood you to refer to the stock companies before. That's what I was wondering.

Mr. PENNY. No; that was in my statement here.

Mr. MCKENNA. Yes, sir. The point I'm trying to make is, unless you have later information than we on the staff have, that matter is still under study by the stock companies as well.

Mr. PENNY. Yes.

Senator LEHMAN. Have you finished your questions, Mr. McKenna? Mr. MCKENNA. Yes, I have, Mr. Chairman.

Senator LEHMAN. Mr. Penny, I just want to make clear one point. When I asked you these questions a little while ago as to whether there was any one association, any one place to which the committee could go to obtain the point of view with regard to insurance from all the insurance companies, the mutuals and the stock companies and the others, I did not want to give the impression that I favored any insurance cartel any more than I favor any other cartel in American economy.

Mr. PENNY. I didn't get that impression at all, sir.

Senator LEHMAN. Thank you very much indeed.

Mr. PENNY. Thank you, sir.

Mr. EDELSTEIN. Mr. Chairman, Mr. Thomas Rivers, a consulting engineer of Greenville, N. C., I think has gone. He is going to submit a statement for the record.

(The prepared statement of Mr. Rivers follows:)

STATEMENT OF THOMAS W. RIVERS, GREENVILLE, N. C.

I am Thomas W. Rivers, consulting engineer, with office and home in Greenville, N. C.

My principal interest in the work of this committee is from the engineer's standpoint of protecting property to the degree that it can become an insurable risk. As an engineer I represent the owners of approximately 10 miles of ocean frontage on Bogue Banks, N. C. Of this amount, only 1 mile is incorporated (Atlantic Beach); approximately 2 miles is thickly developed (Ocean Ridge); and 7 miles is sparsely developed (Hoffman Beach and Salter Path) and is owned by the children of the late Gen. Theodore Roosevelt II.

Following the occurrence of the hurricanes of this year, the owners of this property authorized me to prepare plans and take definite steps for work that would minimize the effect of future storms. This work is now actively in progress. The project is being accomplished without any assistance to date from Federal, State, or local governments. The protection work currently underway consists of building a concrete bulkhead along the developed ocean front. The total plan calls for installation of groins along the entire beach and construction of a jetty at Beaufort Inlet.

The property owners are constructing the bulkhead at a cost of approximately $60 a foot and nearly 6,000 feet will be constructed at this time.

The development of the total project, including the groins and Beaufort Jetty, are essential to the success of the plan to rebuild the beach and prevent further erosion.

The Beaufort Jetty is considered to be of greatest importance. The lack of this jetty has materially increased the erosion of the beaches and has further resulted in high dredging and maintenance cost to the Corps of Engineers in maintaining the channel to the Morehead City harbor. Sands eroded from the coastline continually fill in the channel. The project has been authorized by Congress, but indefinitely deferred.

To further implement the total plan, groins are required to trap the sands and rebuild the beaches. Provision of these groins will protect private and public property and insure the State highways against damage.

It is my opinion that the first step in a disaster insurance program is to do everything feasible to minimize the effect of disaster if it occurs. This should be accomplished first by the Federal Government performing all items of work where their action or activity has tended to jeopardize private property; and second, when such corrective measure can be justified economically from the standpoint of their own operations.

The State government should perform similar projects that can be justified from other standpoints. In this instance groins to protect ocean highways, State parks, etc. The remaining protective work should be accomplished by the local government or individuals.

It is my theory that when all recognized precautions are taken and all justifiable construction accomplished that insurance can be resolved by engineering findings to a practical risk.

Mr. EDELSTEIN. The next witness then, Mr. Chairman, is Mr. S. Watson Dawes of Ocean Drive Beach, S. C., who is accompanied by several people from South Carolina.

STATEMENT OF S. WATSON DAWES, OCEAN DRIVE BEACH, S. C., ACCOMPANIED BY LLOYD B. BELL, MEMBER, SOUTH CAROLINA HOUSE OF REPRESENTATIVES; AND W. H. HUSSEY AND CHARLES T. TILGHMAN, OCEAN DRIVE BEACH, S. C.

Senator LEHMAN. Would you like your associates to sit at the table with you?

Mr. DAWES. Yes, Senator.

Senator LEHMAN. Do you have a statement?
Mr. DAWES. No, sir; I just have a few notes.

My name is S. Watson Dawes. The name of the beach is Ocean Drive Beach.

This is Mr. Hussey in the building supply business at Ocean Drive Beach. Mr. Lloyd Bell is a member of the House from Horry County where the beach is located. Mr. Charles T. Tilghman is in the insurance and building business both.

I think probably everyone here is aware of the extent of the disaster down in South Carolina. On our several beaches down there, there were just literally thousands of homes and businesses destroyed. There was some discussion a few minutes ago about the amount the general settlement would be, say, on this windstorm insurance we had, since the wave-wash was involved.

I think all the insurance people will agree that, as that was the first hurricane we had had in sixty-odd years, the insurance companies bent over backward to help the people. Settlements ranged anywhere from practically nothing to 80 or 90 percent. But there is no doubt that next time, if we don't have adequate protection, the insurance companies will only pay for the damage other than that the water did. In this case I think everybody agrees, at least on Hurricane Hazel, the insurance companies paid for a lot of damage that they weren't due to pay for under the terms of the policies, and they are not going to do that again.

We have nowhere near recovered from the hurricane as yet, and I think the reason is the fact that the insurance could not and did not pay off anywhere near the value of the policies. People suffered a loss. Some of them got back in business and built their homes and took their loss. Others didn't build back. We have lost businesses

by the scores. Houses aren't rebuilt; summer cottages that we get revenue from aren't there, because the people know that if we have a storm like Hazel again they will not be paid anything like the amount of their loss, assuming that there is a considerable wave damage, and that's what generally does the damage in a coastal hurricane. At least it seems to be that way.

So far as the exact program that the Government should set out, not being an insurance man I'm not an expert on such a matter, but I do think that if the Government will go ahead and work out some program that it will not cost the Government one dime more than these disasters

Senator LEHMAN. Will not what?

Mr. DAWES. That it will not cost the Government one dime more than these disasters are costing the Government at present. The civilian defense setup and the loans that the Small Business Administration had to make cost the Government literally millions of dollars, and if they can set up an insurance program, that will take care of the costs that the Government would otherwise have to bear.

I think that in the long run the Government wouldn't lose any money at all compared to what it spends now. At least they wouldn't lose any more money than they have been losing in the past because they have to take care of it one way or another, or at least they do it. There is one other matter about the premiums and the availability of insurance. I think you can probably get insurance for any kind of catastrophe or disaster in the world, but the premium has got to be reasonable or the people can't buy the insurance. If they can't but the insurance, there's just no point in having it.