1212 in an unfavorable competitive position with other States which did not do so. This would in turn mean that the economy of the States in which taxes were raised would further suffer because of this unfavorable competitive position and thus their people would be even less able to absorb losses resulting from disasters. Natural disasters do not follow State lines. Where insurance coverage would not be available through participation of States, the Federal Government would, in all likelihood, give disaster aid. Indirectly this would penalize those States that participated in the program. It would be far better to treat all the citizens of the United States alike. In short, we believe that natural disasters are a national problem and that they can be properly dealt with only through a policy which results in uniformity to all citizens of all States. Senator LEHMAN. Thank you very much, Mr. Commissioner. Do you not think, in addition to the arguments you have advanced against the provision in the bill that requires the States sharing in the premium cost-and these arguments you have advanced are very convincing to me and parallel to a very great extent my own thinking—but in addition to that is it not a fact that in States that did not or were not willing to join in participating in the sharing of the premium costs, that the citizens of that State or those States would be prevented from taking out any insurance whatsoever? Mr. GOLD. Yes, sir. I think it would restrict the market. I might say this too: The definitions of flood-I think I am correct in thisin all of the bills that have been introduced include all natural disasters such as the term "inundation by water." It includes not only floods, in other words, but water damage and also includes landslides and I believe snowstorms, air pollution and other things. Maybe I am mistaken in that but I believe Senator Lehman's bill covered air pollution. Senator LEHMAN. We cover it to this extent. We cover immediate flood damage from flood waters. We do, however, direct the Administrator who will administer this act to make a study and report back with regard to the practicability or advisability of including additional natural disasters. It is not mandatory in this bill but it certainly is a declaration that we wish further studies to be made in the expectation that it may very well be that others will be included under this coverage. Mr. GOLD. Then if they were included it would provide a greater market and you would get an insurance spread as they call it. Senator LEHMAN. It would, but some of those natural disasters, of course, are covered by the insurance. Senator Bush, have you any questions? Senator BUSH. No. I think the Senator is right. It covers most any kind of water damage that can be caused by flood but not wind damage. Mr. GOLD. Of course, insurance against wind damage is provided by the private insurance industry. Senator BUSH. Yes. Mr. GOLD. As I understand it, and fortunately from my own standpoint, I do not think anyone wants the Federal Government to offer insurance that private industry is making available. Senator BUSH. That is right. Senator LEHMAN. The unfortunate thing is that insurance companies are unwilling or unable to write this insurance. I am sure they are acting in what they consider to be the sound interests of the policyholders whom they represent. But the fact remains that the poor fellow who has a home, or factory, cannot possibly get any insurance under present circumstances. Mr. GOLD. That is true, sir. Senator LEHMAN. He cannot get it even if he pays a prohibitive price for it. The only company that I know of that has been writing any amount of it has been Lloyd's of London and their premiums are way up in the sky. It voids the possibility of it being taken out. Are there any further questions? Senator BUSH. No, sir. Senator LEHMAN. Thank you very much, Mr. Commissioner, and please give my compliments to the Governor. Mr. GOLD. Thank you. Senator LEHMAN. Thank you for coming. Mr. EDELSTEIN. There is a telegram here from Governor Ribicoff. Senator LEHMAN. I have a telegram here from the Governor of Connecticut which I will read into the record. Hon. HERBERT H. LEHMAN, United States Senate, Washington, D. C.: My schedule is so overcommitted that it is impossible for me to come to Washington. I thought I made my position very clear before your committee when it was in Hartford. It is my hope that flood insurance will become a reality during this session of Congress. Because of the nationwide nature of disaster, this should be a Federal matter and the States should not be required to make a contribution. ABE RIBICOFF, Governor of Connecticut. I also have a letter dated February 20, 1956, from the National Association of Insurance Agents. I will put the whole letter in the record at this point, without objection. (The letter referred to follows:) Senator HERBERT LEHMAN, NATIONAL ASSOCIATION OF INSURANCE AGENTS, Chairman, Subcommittee on Security, Banking and Currency Committee, United States Senate, Washington, D. C. DEAR MR. CHAIRMAN: This statement is presented on behalf of the National Association of Insurance Agents, a voluntary, nonprofit organization of over 32,000 member agencies, engaged in the production and servicing of property and casualty insurance in every section of the United States and its Territories. This association is composed of affiliated associations in the 48 States, Hawaii, Puerto Rico, Alaska, and the District of Columbia, and approximately 1,200 local associations of insurance agents throughout the country. The members and officers of this association, because of their operations at the local community level, are acutely aware of the suffering and misery caused by the recent floods throughout the various sections of the United States. From time immemorial this association has resisted the entrance of Government into fields which impinge on the rightful activities of private business. While we would like at this time to reiterate our historic position in this regard, we nevertheless realize that you are attempting to solve a problem of unusual perplexity, difficulty, and urgency. Our underwriters, the private insurance companies, after lengthy study have concluded that the writing of specific flood insurance is not commercially feasible. Largely because of this, the Congress is considering certain plans and proposals to establish a plan of indemnity to provide the citizens of the United States with some relief in the event they suffer damage from catastrophic floods. 1214 While this association of producers regrets the apparent need for the Government to consider entering this field, we wish to state that in the event Congress adopts a program of flood indemnification, we will be pledged to full cooperation, as we did in the war damage insurance program. Sincerely, KENNETH Ross, President. Senator LEHMAN. I will just read the last paragraph now: While this association of producers regrets the apparent need for the Government to consider entering this field, we wish to state that in the event Congress adopts a program of flood indemnification, we will be pledged to full cooperation, as we did in the war damage insurance program. I have a letter here addressed to Senator Kuchel from Mr. Ken G. Whitaker of the Tennessee Valley Public Power Association. Senator Kuchel asked us to place this in the record. Without objection it will be made a part of the record at this point. (The letter referred to follows:) Hon. THOMAS H. KUCHEL,” United States Senator, TENNESSEE VALLEY PUBLIC POWER ASSOCIATION, Senate Office Building, Washington, D. C. Chattanooga, Tenn., January 25, 1956. DEAR SENATOR KUCHEL: Due to an enforced absence from the office, I have just seen your speech in the Congressional Record of Thursday, January 5, concerning flood disasters in California and in New England. I just wanted you to know that I am in complete and wholehearted sympathy with the recommendations you made in your speech to the Senate. The problem of flood control should not be allowed to become involved in a dispute between public and private power. Tragic consequences of a major flood make it seem almost callous to hold up on the building of proper flood control facilities until we determine just how the energy is going to be disposed of. I had not previously heard of the suggestion about the disaster insurance. This sounds like a very worthwhile idea. The Tennessee Valley Public Power Association will be more than glad to help in obtaining these worthy objectives. Sincerely yours, KEN G. WHITAKER, Information Committee. Senator LEHMAN. I have a statement from Governor Meyner, of New Jersey, which I will ask Mr. McKenna to read into the record. Mr. MCKENNA. The statement reads as follows: STATEMENT OF ROBERT B. MEYNER, GOVERNOR OF NEW JERSEY As Governor of the State of New Jersey, I wish to express to the Senate Committee on Banking and Currency the interest of the State of New Jersey in Federal flood-insurance legislation. I have stressed the urgent need for providing flood insurance at reasonable premiums. The floods of last year have again highlighted this serious hiatus in the insurance picture. Thousands of people have suffered tragic losses of property for which there has been no possibility of recovery. In many cases, homes were lost upon which mortgages must still be paid. Private insurance companies apparently cannot work out a plan to indemnify citizens against flood losses. I believe that it is imperative that the Federal Government devise appropriate means to do so. It is a mark of our social development that we have devised means of indemnifying the individual against most losses that he may incur in his lifetime. Losses sustained by floodwater remain one of the few major risks for which insurance is unavailable. The fact that this is a unique form of risk does not mitigate the harshness of the problems facing the residents of our river valleys. When the Delaware River and its tributaries overflowed their banks last August in the wake of Hurricane Diane, many homes in New Jersey were destroyed or substantially damaged and a large number of small businesses, which represented the life work and savings of the owners, were wiped out. Our neighboring States have suffered even greater losses as a result of that hurricane and to that extent New Jersey was fortunate as compared to other States such as Pennsylvania and Connecticut. Nonetheless, New Jersey has an important interest in having flood-disaster insurance made available. Traditionally, private underwriters have been skeptical of flood insurance, pointing out that it could not be placed on a self-sustaining basis without charging prohibitive rates. This view was summed up in the following passage of a report sponsored by the Insurance Executives Association after the devastating flood of 1951 on the Kansas and Missouri Rivers: "Because of the virtual certainty of loss, its catastrophic nature, and the impossibility of making this line of insurance self-supporting due to the refusal of the public to purchase such insurance at the rates which would have to be charged to pay annual losses, companies could not prudently engage in this field of underwriting." In my comments on the issue, I have expressed the conviction that if private companies are unable to justify the writing of flood insurance as practicable from the standpoint of their own operations, the Federal Government has an obligation to fill this gap in our insurance system. According to all present indications, it is highly unlikely that private underwriters will be able to provide this form of indemnity in the foreseeable future. Thus, it appears to me that the case for Federal action becomes axiomatic. I have read and studied S. 3137, H. R. 9074, and H. R. 7979. Although the bills may be subject to modifications, I strongly favor the general approach of these measures. One of the important merits of the proposed legislation is that it leaves the way open for private underwriters to participate in further insurance. The measures are designed to make certain that the availability of such coverage will not be taken as an invitation to build up exposed areas. The development of flood plains of rivers and streams must be discouraged if we are to prevent widespread flood damage, and it is of the highest importance that the administrator of any flood-insurance program be empowered to charge differential rates according to the location of the property. As to the actuarial soundness of the proposals, I have no basis for any final conclusions with respect to the probable long-term results in making flood indemnities available at reasonable premiums. The provision that rates shall be based insofar as practicable upon the risks involved and administrative costs appears entirely sensible. Rates certainly should be high enough to avoid staggering losses for the Federal Treasury but, on the other hand, they should not be so high as to discourage the purchase of flood insurance and to deprive the plan of any real meaning for the average citizen who desires coverage. The essential question is whether the Federal Government can permit the continuation of a situation wherein a large number of families have no way of safeguarding themselves against heavy financial losses, if not financial ruin. Losses sustained in such disasters must, in the final analysis, be borne by society at large through either charitable contributions or expenditures by governmental units at the municipal, county, State, and Federal levels. In addition, the community as a whole suffers the loss of facilities and employment opportunities which may not be replaced because of the cost involved. It would be a mistake to regard flood insurance as an alternative to effective flood-control works. Recent experience has demonstrated the necessity for more vigorous measures to harness our rivers and streams. Flood insurance remains nonetheless essential, however, because as a practical matter, it is manifestly impossible to install flood-control works that would eliminate any possibility of damage. Thus, on behalf of the people of New Jersey, I strongly and respectfully urge the Committee on Banking and Currency to recommend a Federal program of flood indemnities along the lines indicated. I also must express the hope that Congress will act on this matter as quickly as possible, making it possible for residents of our river valleys to insure their homes and other investments before the occurrence of another series of flood disasters. (The staff was requested to obtain more information on personal property "floater" policies for inclusion in the record :) Mr. JOHN F. NEVILLE, INLAND MARINE UNDERWRITERS ASSOCIATION, Associate Secretary, American Insurance Association, New York 38, N. Y. DEAR MR. NEVILLE: We appreciate your courtesy in sending us a copy of the letter addressed to you on March 8 by Mr. William F. McKenna, counsel, Committee on Banking and Currency of the United States Senate. We are pleased to give you the following information and views with respect to the several questions put by Mr. McKenna. We believe it is reasonable to assume from the general context of Mr. McKenna's inquiry that it refers primarily to personal lines of insurance as distinguished from personal property insured for commercial enterprises. Our comments are predicated upon that assumption. 1. Is there any minimum amount of coverage which is required? Generally speaking, no, unless one takes into consideration the fact that some of the policies are subject to minimum premiums which might be considered substantial. As an example, the minimum premium for the so-called personal property floater varies from $30 for a $25 or $50 deductible policy to as much as $120 for full coverage in four of the five counties of New York City. These are 1-year minimums and would be subject to the customary term rule for 3-year policies. 2. What deductible, if any, applies? |