Section 6-Property and loss limits Commissioner may determine types and location of property covered, nature and limits of loss in any area, and other necessary matters. Section 7-Risk classification (a) Preference granted to original applications over second applications for insurance. (b) Commissioner may regulate classification and limitation of risks. Section 8-Policy and program limits (a) Face amount of insurance issued by Commissioner limited to $10,000 on 1- to 4-family residence, including contents, and $100,000 on any other single piece of real property or personal property in any single location. Claim for loss not to exceed actual value of property or cost of replacing in prior condition, whichever is lower. Loss deduction clause of $100 or up to $200 as specified by Commissioner. (b) Total liability of Commissioner under insurance and reinsurance program not to exceed $1 billion originally, plus an additional $1 billion each on July 1, 1957, and July 1, 1958. Section 9-Reinsurance regulatory authority (a) Commissioner authorized to regulate reinsurance. (b) Premium rates, terms, and conditions of reinsured policy are subject to Commissioner's approval. (c) Commissioner to use best efforts to encourage private insurance companies to issue policies covering excess of loss above Federal policy limits. Commissioner to offer suitable program of reinsurance for this purpose. (d) Commissioner to encourage private insurance companies to insure against loss from floods; Commissioner to offer suitable reinsurance. Section 10-Nonduplication of available insurance (a) No insurance or reinsurance to be issued against risks if available on reasonable terms from public or private sources. (b) No insurance or reinsurance to be issued on property in violation of flood zoning laws. Section 11-Use of other public and private facilities (a) Commissioner to use private insurance facilities to maximum practicable extent and may pay reasonable compensation. (b) Commissioner may allow financial participation of private insurance companies in profit or loss under program. (c) Commissioner may use services of other public agencies for reasonable compensation. (d) Commissioner may exchange information with private insurance organizations and other public agencies. Section 12-Federally aided property Federal agency aiding construction, repair, or purchase of property may require it to be insured against natural disaster to the extent such insurance is available. Section 13-Claims payments and judicial review (a) Commissioner to arrange for prompt adjustment and payment of claims, collecting any share due from participating private companies. (b) Claim exempted from attachment, levy or garnishment and offset against other claims due the United States. (c) Dissatified claimant may sue Commissioner in United States district court within 1 year after receipt of notice of total or partial disallowance of claim. Section 14-Funds and Treasury borrowing (a) Commissioner to establish disaster insurance fund and disaster reinsurance fund. (b) Insurance premiums for insurance issued by Commissioner are to be deposited in disaster insurance fund. Reinsurance fees go into disaster reinsurance fund. (c) Moneys in each fund may be invested in United States obligations. (d) Salvage proceeds go to appropriate fund. (e) Commissioner may borrow up to $1.5 billion (or greater amount approved by President) from Secretary of Treasury; Provided, That before July 1, 1957, limit is $1 billion. Terms and conditions of evidences of indebtedness to meet approval of Commissioner and Secretary of Treasury. Interest rate fixed by Secretary of Treasury according to formula prescribed. Borrowed funds deposited in appropriate fund. (f) Disaster insurance fund and disaster reinsurance fund usable for (1) operating and administrative expenses, (2) payment of claims, and (3) repayment of Treasury borrowing. Section 15-Advisory committee Commissioner shall appoint advisory committee of 3 to 15 familiar with insurance or reinsurance problems. Section 16-Definitions (a) "Flood" includes flood, tidal wave, wave wash, high tidal water, hurricane, deluge, water component of severe storm, and landslide due to excess moisture. (b) "Natural disaster" includes flood, plus earthquake, volcanic eruption, severe freeze, blizzard, duststorm, hailstorm, snowslide, explosion, drought, smog, radioactive contamination, other air pollution, land subsidence, excluding fire or wind except where either occurs as result of or in conjunction with one of the listed perils. Section 17-Studies (a) Commissioner to study practicability of extending program to other natural disasters besides flood. (b) Commissioner to study reinsurance program to avoid need for flood insurance by Federal Government. (c) Commissioner to study feasibility of private insurance takeover of act's programs with or without Federal financial support. Section 18-Additional powers Commissioner may (a) sue or be sued; (b) enter contracts freely; (c) acquire real or personal property; (d) hire employees; (e) issue necessary rules and regulations; (f) exercise specific and necessary implied powers. Section 19-Reservation of rights Commissioner's acquisition of real property shall not take away State or local jurisdiction. Section 20-Taxation Act not to be construed to exempt from State or local taxation any real property acquired by Commissioner due to payment of claims. Section 21-Annual report Annual report by HHFA to President for submission to Congress shall report comprehensively (1) operation of act's programs; and (2) status of studies Annual report for under section 17, plus legislative recommendations, if any. calendar year 1961 to contain Commissioner's opinion regarding advisability of withdrawing in whole or in part Federal aid for insurance under act after June 30, 1962. Affirmative opinion to be accompanied by legislative recommendations. Until affirmative opinion is given, similar report should be made every fifth year. Section 22-Separability provision Comparative analysis of 3 bills on disaster insurance or indemnity, 84th Cong., 2d sess.1 By William F. McKenna, counsel Item S. 3137 (Senators Lehman and Kennedy) S. 2768 (Senators Kennedy and Saltonstall) 4. Ownership of property covered. Private, State and local government (sec. 4).. President names agency (sec. 3 (a)). S. 2862-Amendment in the nature of a substitute (Senator Bush) New commissioner in HHFA. Policy power Flood, hurricane, tides, tidal wave and high Indemnity: Flood, including rising water from tide, wind or rain. Administrator may Real property and business inventories (sec. Indemnity: Real property plus business in3 (a)). Private (sec. 3). ventories, stored farm commodities, house- Indemnity: Private, State and local govern- Reinsurance: No express limitation. Insurance: Per single piece of real property Indemnity: Per person limit on policies (secs. 3 (b) and 105). None. Indemnity: Adequate to provide claim reserve Indemnity: At least 60 percent of nonprofit Reinsurance: Insuring company (sec. 202). Administrator may decline any application or Reinsurance: Administrator's discretion (sec. 69096-56-pt. 2 See footnote, p. 982. Comparative analysis of 3 bills on disaster insurance or indemnity, 84th Cong., 2d sess.1-Continued By William F. McKenna, counsel Item S. 3137 (Senators Lehman and Kennedy) S. 2768 (Senators Kennedy and Saltonstall) $1 billion, plus $1 billion on July 1, 1957, and $1 Borrow up to $1.5 billion from U. S. Treasury 1 Each item applies to both insurance or indemnity and reinsurance unless otherwise noted. S. 2862-Amendment in the nature of a sub- Indemnity: $1.9 billion, plus $1 billion with Payable from appropriated funds (not a pro- No express provision regarding sharing of No formal committee beyond authority to Dissatisfied claimant may sue in United States United States (including District of Columbia), Report to President on or before Jan. 3, 1961, CRITIQUE OF S. 2862, WILLIAM F. MCKENNA, COUNSEL, JANUARY 9, 1956 The following observations are made in connection with S. 2862, National Flood Indemnity Act of 1956, introduced by Senator Bush for the administration on January 5, 1956. 1. Geographic limits.-Section 3 (e) and (f) of the bill in defining "United States" and "State" omit United States possessions. These could be included by defining the United States and States as the several States, Territories, and possessions, and the District of Columbia. 2. Personal property.—Section 101 expressly includes in "personal property" for the purposes of direct Federal flood insurance only business inventories, stored agricultural commodities and household effects. It leaves to the Administrator's determination other personal property to be included. By contra, section 201 dealing with reinsurance authorizes the Administrator to reinsure companies insuring against flood loss on "personal property," without expressly limiting the type covered. 3. Flood.-Section 101 in defining "flood" expressly includes "rising water caused by tide, wind, or rain." It leaves to the Administrator discretion to expand this definition by regulation. 4. Rates.-Section 102 requires indemnity contract fees to "be based on consideration of the risks involved and the desirability in the public interest of providing indemnity protection at reasonable cost" (a seeming combination of actuarial and subsidy approaches to the ratemaking task). However, the effect of this language is restricted by a proviso that in setting fees "the Administrator shall set up estimated rates which would be necessary to provide an adequate reserve to pay all claims for losses over a reasonable period of years" (a nonprofit, actuarial approach, excluding administrative expenses). The next proviso requires the insured to pay at least 60 percent of this nonprofit, actuarial rate, the remainder of 100 percent to be paid half by a State and half by the Federal Government. This leads to the conclusion that a reasonable cost for indemnity protection is never lower than 60 percent of the actuarial, nonprofit rate. Query whether this is always true in the light of testimony received by this committee in its disaster insurance hearings. At the Goshen, N. Y., hearing, testimony was given that in one instance Lloyds' of London quoted a rate of $250 per $1,000 value to cover certain real property against flood risk. It may well be that 60 percent of this ($150 per $1,000) would still be too high to form a practical rate at which to sell flood insurance. In other cases, Lloyds' would not insure against flood risk at any rate. It might prove desirable to allow the administering agency more flexibility in establishing rates in order to achieve a flood indemnity program that will truly provide protection to.those who need it. 5. Reserve buildup.-Section 102 requires loss reserves to be provided "over a reasonable period of years." Since section 403 contemplates a report to the Congress by January 3, 1961, on the feasibility of a transfer of the program to private insurance companies, presumably the assumption is that adequate reserves will have been built up by that date-roughly, a 5-year period. 6. Uniformity.-Section 102 contemplates uniform rates for similar risks, an acceptable concept in theory. This differs from a uniform national rate for all contracts on a given type of property. 7. State participation.-As worded, section 102 prevents the issuance of a single indemnity contract until the State in which the property covered is located has paid into a Federal fund the State's allotted portion of the fee due on the contract. This raises a question regarding workability of the entire direct indemnity program. Many State legislatures meet only biennially. Failure of a State to provide for its portion of each indemnity contract on property in the State would deprive all property in the State from protection under this program. Query whether a given State legislature will be willing to appropriate in advance such indefinite sums as may be needed to fulfill the obligation placed on the State under this bill. The bill gives the State no voice in the program, but only the obligation of paying for part of it. Taxation without representation is as abhorrent between governments as between a government and the governed. If State financial participation is desired, it would seem more practical to require the State to contract with the Federal Government to reimburse it annually for a fixed percentage of claims paid on property in the State during the preceding year; with authority to offset other moneys due the State from the Federal Government in the event of default on such contract. This would permit |