Mr. KELLY. No; they write what is called a comprehensive cover, which includes all risks, including flood, but there is no flood exclusion. In my own city of Providence, the losses suffered by the insurance companies on automobiles which were total losses as a result of the flooding of the city during the 1954 hurricane were very, very substantial.

Senator LEHMAN. Is this writing of comprehensive insurance on a selective basis, or can anybody come in and get it?

Mr. KELLY. No; it is not selective, Senator. As a matter of fact, it has come to the point where it is practically the only way against which physical damage to automobiles is insured. No one now would buy merely fire and theft coverage, which was the original coverage, because the difference in cost between fire and theft coverage and comprehensive coverage is very, very small. It has been found that if you can put this insurance or afford this insurance to everyone across the country and everyone buys it that the loss experience is well within the predictable limits and that it is possible for the business to handle this loss.

Senator LEHMAN. Well, that covers automobiles?

Mr. KELLY. Yes.

Senator LEHMAN. But how about residences? Would that be on a selective basis?

Mr. KELLY. In the residential field where you are, for example, writing the personal property floater, I think you will find that the companies are making some effort to underwrite their risks, and they would be a little reluctant to afford that insurance to a policyholder whose property was subject to regular, recurrent flooding.

Of course, Senator, I think that from an insurance standpoint, not thinking of it from the standpoint of your committee, it would definitely be the feeling that there are certain flood risks which are and will always be uninsurable. When I say that, the rate for such risks, because of the abnormal exposure to loss, would have to be so very high that no one would be willing to pay it.

There are certain risks which are uninsurable as far as fire is concerned for practical purposes. In other words, the risk represents such a loss exposure either by reason of its occupancy or its construction or the absence of any protection against fire loss that the rate has to be so high that such propery is seldom insured.

The same thing could very well be the situation, although our own studies have not come to the point where we can say "Yes" or "No" with reference to flood insurance. That does not mean that the person who owns that property is being discriminated against by the fact that he cannot secure either under a Government plan or a private plan insurance against that particular hazard any more than the man who cannot buy fire insurance because his house is in such bad shape or the occupancy is so hazardous need feel he is being discriminated against.

Senator LEHMAN. Do you not think that if you could-this is a little bit a vicious circle-set a rate within the means of people to pay that it would attract so many people and spread the risk so widely that a low rate could be obtained or even possibly improved?

Mr. KELLY. Senator, that is the $64 question. If our companies knew the answer to that one, we would be able to clarify our own thinking more than we have at the present time. We do not know.

We made a survey in 1951, and at that time, despite the very heavy losses that had been suffered, we found most of our policyholders were not seriously interested in flood insurance. We do not know whether if you offered them a program now they would be willing to pay even what you regard as a reasonable rate for it.

I am inclined to feel with you that if we set an actuarial rate based on our best calculations which might be higher than the rate you would think of as a reasonable rate the chance of selling the coverage would be reduced. But I do not know.

Senator LEHMAN. I gather from your statement that you feel that without a subsidy, Government subsidy, insurance against flood damage is impracticable?

Mr. KELLY. I do not, Senator. I may have seemed to hint in that direction. First of all, my companies are definitely against a subsidy in any program which might be adopted by the Government. We feel that there should be no subsidy. That is, we do not feel that, either by the Federal Government or the States, part of the cost of this coverage should be assumed by all of the taxpayers. We feel that the program should stand on its own feet and that the rates established should be over a long period of time.

You may say to me then: Does that not mean that most people will not buy it? I do not know. But our feeling and our position is simply this: If the rate is fairly set taking into account the fact that you do not expect to recover in a single year for the losses sustained in a major disaster, if you are dealing with a reasonable spread of risks geographically and in time, we feel that any program developed should carry its own weight, should pay its own way.

Senator LEHMAN. Well, what is the alternative? On the one hand you say that the insurance companies won't write insurance, won't give coverage against damage by floods, that the risk is too great, and on the other hand, you say that you are not in favor of any Government subsidies call it by whatever name you want, it would be a Government subsidy-in order to make insurance available to people who deserve and are entitled to coverage at a reasonable rate. Now, what is left to us except to let these poor devils remain without any coverage at all, without any protection?

That does not seem to be sound.

Mr. KELLY. Unless they were offered an opportunity to buy that protection.

The complaint has been that insurance is not available. It is not now available from the private carriers. We are still studying it. I am in no position to predict what we will come up with. You are now proposing that there be a Government insurance plan. The only difference between

Senator LEHMAN. Only if the insurance companies cannot

Mr. KELLY. Agreed, only if the private insurance carriers are not able to come into the picture. And so set up it would both encourage private insurance and would provide perhaps reinsurance facilities for them if they were willing to embark on it

Senator LEHMAN. That is right.

Mr. KELLY. With I think very fine provisions under which the whole program is reviewed at regular intervals to see whether we have now reached a position where the private carriers, having seen

a demonstration, can themselves come in and carry the loss. So far I do not think there is any substantial difference between us at all.

Now we come to this question of rate, and there we start going off, and perhaps the difference is more apparent than real. You feel that at the beginning of such a program, after an actuarial calculation of the proper rate has been made and I think we are in agreement that different risks located with different exposures to loss should have different rates-you then want an arbitrary amount of that to be undertaken by or to be taken off the shoulders of the policyholders and assumed by the Government. In other words, we are saying that the hazard of flood causes such widespread damage to our people, that it is imperative that people be able to insure against it at a price they can pay even if that price is not enough to spread the loss, and that we therefore are going to set up a program of this kind.

Senator, the same argument could be well advanced against every other hazard against which we now insure. We have had many very substantial windstorms in the United States in the past few years. Senator LEHMAN. But you can insure against them.

Mr. KELLY. Yes; but we insure against them on the basis where the premium paid over a reasonable period of time will pay the losses and the expenses of carrying on the program. There are some people who say that the cost of insuring against windstorm is now too great. I am told in my own New England that there are some people who are now dropping their windstorm coverage because they are unwilling to pay the premium.

I think that the argument which you have advanced—and this I would oppose and I think so would everyone else in the insurance business which you have made with reference to a single peril is equally applicable to loss from every other cause.

Senator LEHMAN. Well, I think it may be. That is why in my bill I provided for further study to see whether we should include other natural disasters.

At the moment we believe that flood damage insurance is the most pressing problem, and, therefore, we are concentrating on that. But we are certainly not closing the door to other matters.

Let me ask you this: You and some of our other witnesses are shrinking away from the use of the term "insurance. If this proposal was called something else than "insurance," would you still have an objection to a subsidy?

Mr. KELLY. I do not believe so, Senator. I think the real reason we are shrinking away from the use of the term "insurance" is that we hate to contemplate a plan under which a program labeled an “insurance program" is really not in that category and part of the cost is being made up by the Government. We think that if the term "insurance" is used someone might feel, as I have just been discussing with you, that the same basic principles could be applied to all other types of insurance and that in all of those other cases people who found it difficult to pay the premium required on an actuarial basis should also have the help of a Federal subsidy in paying the premium..

I think that if Congress wishes to enact a program-and I think several such programs have been discussed-under which there would be provision made for the relief of people who suffered flood damage, there could be no objection to it.

But there is one important point here which I am sure troubles you as it troubles me. Any such program has to be based on the assumption that the individual concerned is not able to look after himself.

You see, when we are discussing an insurance program-and let's just discuss it with reference to those people whom we do not insure, the residences, the homeowners. I heard Mr. Riley discuss and felt a great deal of sympathy for the position of his group, the workers in Connecticut whose houses-representing a substantial part of their means were swept away in the flood. But in the same block of houses you might have one that was owned by a man who is working in the foundry of American Brass at Naugatuck, another that is owned by someone who is perhaps an executive of the same company. You might have another one that is owned by a widow whose husband is dead and who is dependent entirely upon such insurance as he left her. And you might have another which is owned by, let us just say, a lawyer in town who has had a very good practice.

Those people are not in the same position with reference to their ability to pay insurance premiums.

I think the point that was discussed with reference to your bill when Mr. Riley was testifying is one that needs careful thought. If you are trying to determine what is a reasonable premium, what is a premium that these people can afford to pay, each one of them really falls in a different group.

Senator LEHMAN. Now you are getting into the field of individual differences, and that is not intended at all. We are taking the American public as a group.

Mr. KELLY. I agree with you.

Senator LEHMAN. Frankly, we are giving very careful consideration to this matter

Mr. KELLY. But there

Senator LEHMAN. May I finish?

Mr. KELLY. Surely.

Senator LEHMAN. We are giving careful consideration to the man of small-earning capacity and small means who just cannot possibly protect himself.

There is no thought in the mind of anybody in making a difference in the rate between John Smith at No. 10 Avenue B and Tom Brown at No. 12 or No. 14, regardless of the personal resources of those two men. It is on a broad basis. I mean I think there has been a lot of confusion on that point, and I think it is unfortunate that that point, which is completely unsupportable, has been raised in this thing Mr. KELLY. But, Senator, I

Senator LEHMAN. There is no such thought at all.

Mr. KELLY. Yes, sir.

Senator LEHMAN. We do, as I said a little while ago I imagine you may have heard me-make a difference in the rate based on the difference in the risk involved.

Mr. KELLY. Yes, sir.

Senator LEHMAN. That is sound, completely sound.

Mr. KELLY. No question about it.

Senator LEHMAN. But I do not care what the means of a man are or his ability to pay as an individual. Of course you cannot do that.

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Mr. KELLY. You see, that comes to my basic point. If we do this under the guise of an insurance program, all of those people whose property is there equally enjoy the Government subsidy, because their rate takes into account the fact of the risk to which their houses are exposed. Just to name a figure out of the air as was I believe in one of the bills, Senator Bush's bill, 40 percent of the cost would be paid by the Government. That means that I would enjoy it, the man down the block who has a smaller house, and perhaps whose means are not as great as mine would also enjoy it to the same degree. Because my house is more valuable than his, I would really get a bigger subsidy in dollars than he would.

On the other hand, if you set this up as a relief program and leave the insurance angle out of it, then you are in a position where you can give relief to those people who need it. And in that case, suppose that we both suffered $1,000 in damages as a result of a flood, myself and John Doakes down the block. That leaves me paying it and it leaves John in a position where if he needs help he can get help. I have no complaint with that at all.

Senator LEHMAN. Well, I gather that you object to the term "insurance"

Mr. KELLY. I am afraid most

Senator LEHMAN. For fear that it may affect the insurance business in other lines.

Mr. KELLY. Very definitely, sir.

Senator LEHMAN. I hope it never will, because I hope the insurance companies themselves will be able to do this business. But they are not able to do it. I say they are not able. Maybe they are not willing to do it. I do not know.

Mr. KELLY. I do not think we know quite yet.

Senator LEHMAN. But, at any rate, there is no insurance available. This proposal is not just a matter of relief or a gift. The man who takes out this insurance policy will still have to pay a premium, not necessarily the actuarial premium based on actuarial computations, but he nonetheless will pay a premium.

On the testimony of the insurance companies-some of them-it has been demonstrated that the rate would have to be very high. We feel that that could not be borne by the property owner, and, therefore, we say if necessary the Government will give a subsidy which will reduce the rate to reasonable dimensions.

Subsidies are nothing new in this country, you know. We give subsidies to a great many industries. You enjoy those, the benefit of those subsidies, and the fellow who is making $40 or $50 a week enjoys them too to a certain extent. But they are subsidies nonetheless. I think in many cases they were not only justified but necessary.

All we are proposing here is to give a subsidy. The amount of the subsidy is indefinite and it must be indefinite until this thing has been worked beyond purely an experimental basis for a year or two. But I have always said this cannot be done without Government subsidy, and it cannot be. I am more convinced than ever of that.

But I think that it is a subsidy that is justified for the protection of the citizens of the country. Nobody is forced to do this, to take out the insurance, but he can take it out. Sometimes the fellow may be surprised that disaster hits his area when he is not expecting it. He has the right to protect himself against that.