S. 3137 covers flood, tidal wave, wave wash, or other abnormally high tidal water, hurricane, deluge or the water component of any other severe storm, or landslide due to excessive moisture. It also directs a study of the feasibility of extending coverage to other forms of natural disaster. Arguments for broad definition of flood 1. It will make available protection to those who need it. 2. It will better enable the spreading of the risk. Argument against broad definition of flood 1. It will expand the risk exposure of the Government program by encouraging purchase of insurance by those having the highest risk from each form of flood. Arguments for coverage of other perils 1. It will enable a better spreading of the risk. 2. It will provide insurance against some perils for which no private insurance is available. Arguments against coverage of other perils 1. It will increase the Government's exposure to risk. 2. Since the greatest present demand is for flood insurance, it would be preferable to start with this and leave other forms of insurance to later development. VII. SHOULD FEDERAL AGENCIES ADVANCING AID TO PROPERTY BE PERMITTED TO REQUIRE RECIPIENTS TO PURCHASE FLOOD INSURANCE? S. 2768 and S. 3137 grant such authority to Federal agencies. S. 2862 contains no such provision. Arguments for 1. This will serve as a means of overcoming reluctance of prospective purchasers. 2. It is appropriate to afford flood protection to property receiving Federal aid. 3. It will help to spread the risk and include coverage on properties not subject to great risk exposure. Arguments against 1. It is not a true application of insurance principles, especially if the purchaser is not subject to the risk against which the insurance is bought. 2. It may have indirect adverse effects on the Federal programs granting such aid. 3. As a matter of administrative discretion purchase of flood insurance could be encouraged by such Federal agencies even without express statutory authority. VIII. SHOULD CLAIMS BE EXEMPTED FROM LEVY, ATTACHMENT AND SIMILAR LEGAL PROCESSES? S. 2768 and S. 2862, as amended, contain no provision on this subject although S. 2862, as originally introduced, did contain such a provision. S. 3137 contains a provision exempting claims from legal process. Arguments for the provision 1. It enables claimants to receive money sorely needed for rehabilitation. 2. The existence of the claim is purely a windfall as far as persons are concerned who would attach it or levy execution against it. 3. It would relieve the administering agency of administrative delay in settling claims. Argument against the provision 1. It grants a preference to a particular class of debtors who may be in no greater distress than other recipients of insurance claim proceeds resulting from other types of insurance. IX. SHOULD ADMINISTRATIVE EXPENSES BE MADE PART OF THE PROGRAM EXPENSES OR SHOULD THEY BE PAID FROM SEPARATE APPROPRIATED FUNDS? S. 2768 and S. 3137 both make administrative expenses a program expense payable from insurance funds. S. 2862 does not make administrative expenses a program expense, but instead provides they should be paid from appropriated funds. Arguments for making administrative expenses a program expense 1. This provides a direct yardstick of the commercial feasibility of the program, since a private insurance company would have to include administrative expenses in the premium charged. 2. It avoids the necessity of obtaining appropriations each year for this continuing insurance program. Arguments against including administrative expenses as a program expense 1. Since the program is intended to include a subsidy in ratemaking, it does not afford a true yardstick of commercial feasibility in any event. 2. It bypasses the Appropriation Committee's procedure. X. SHOULD THE ADVISORY COMMITTEE BE REQUIRED TO CONTAIN MEMBERS FAMILIAR WITH INSURANCE OR REINSURANCE? S. 2768 requires an advisory committee composed of six or more persons experienced in writing property insurance. S. 2862 contains no specific provision for the makeup of an advisory committee. It relies on a grant of authority in the Housing Act of 1954 for the appointment of advisory committees. It also authorizes the Administrator to consult with insurance industry representatives. S. 3137 requires the appointment of an advisory committee of 3 to 15 members familiar with insurance or reinsurance. Arguments for 1. This experimental program will require the expert advice of persons familiar with insurance practices and principles. 2. S. 3137, which uses as a test the requirement that members be familiar with insurance problems, allows a broader participation than does S. 2768, which requires members to be experienced in writing property insurance. Argument against 1. It is unnecessary to provide a statutory requirement for the makeup of the advisory committee, since the Administrator would be expected in any event to see that it contains people familiar with insurance problems. XI. SHOULD THE STATUTE PROVIDE FOR A NEW ADMINISTRATION WITHIN HHFA TO HANDLE THIS PROGRAM, LEAVING POLICY DECISIONS WITH A COMMISSIONER TO BE CONFIRMED BY THE SENATE? S. 2768 vests administration of the program with such agency as the President may name. S. 2862, as amended, places the power of policy decision within the Housing and Home Finance Administrator and permits him to name a Commissioner to handle the program. S. 2862, as originally introduced, established a new constituent administration within HHFA to handle the program. S. 3137 establishes a new constituent agency within HHFA to be known as the Federal Flood Insurance Administration. It reserves policy decisions for the Commissioner heading that Administration. It also requires that he be confirmed by the Senate. Arguments for 1. Since this is a new program, power of policy decisions should be granted to a Commissioner in a new constitutent agency within HHFA. 2. This will avoid confusion which arose concerning division of responsibility between the HHFA Administrator and the Federal Housing Commissioner during the investigation of windfalls under the housing programs. 3. It will assure the Senate a voice in the selection of a qualified person to head this new Administration. Arguments against 1. The Hoover Commission recommendations and recent Executive policies tend to vest policy decisions in the head of an agency. 2. Recent constituent units in HHFA, such as the Community Facilities Administration, have been constituted without Senate confirmation of the head of the agency. XII. WHAT TYPE OF PROPERTY SHOULD BE COVERED BY THIS PROGRAM? S. 2768 covers only privately owned real property and business inventories. S. 2862 covers real property and business inventories, stored farm commodities, household effects and other personal property designated by the Adminis trator, whether such property is owned by a private individual or organization or a State or local government. S. 3137 covers real or personal property whether owned by a private individual or organization or State or local government. Argument for covering all types of personal property 1. Floods hit hard on personal property owned by tenants as well as homeowners and business property owners. Arguments against covering all types of personal property 1. Due to the nature of flood damage, the exact amount of damage to personal property not destroyed may be difficult to ascertain. 2. It increases the Federal Government's exposure to loss. 3. Personal property "floater" policies are available from private insurance companies. 4. It adds to administrative expenses. Senator LEHMAN. Now Mr. Meistrell. STATEMENT OF FRANK J. MEISTRELL, DEPUTY ADMINISTRATOR; Mr. MEISTRELL. Mr. Chairman, I have a prepared statement which I would like to ask the privilege to read, and then at its conclusion answer any questions you may care to raise. Senator LEHMAN. Very well. Mr. MEISTRELL. Mr. Chairman and members of the committee, I appreciate the opportunity to appear before your committee and present the views of the Housing and Home Finance Agency on proposed legislation relating to flood indemnity, insurance, and reinsurance. It is well recognized that both public and private facilities are presently inadequate to protect flood victims against financial losses. This situation is of major importance to our Nation in terms of hardship to individual citizens and adverse effect upon our economy. Throughout our history floods have constituted perhaps the greatest natural disaster to man, and they continue to strike vast areas of our country. Notwithstanding the tremendous losses involved, there nowhere exists in our economy any method by which victims of these floods can substantially retrieve their losses. Although insurance coverage is available for almost every other form of natural peril, it is not generally available for flood losses. I will not dwell on the need for legislation in this field. Your committee has already obtained extensive information on the subject through hearings and staff studies. As one of the agencies assisting in relief following the recent floods in the Northeast, the Housing and Home Finance Agency began early last fall to study methods for relieving the plight of homeowners whose homes were destroyed or seriously damaged, as well as attempting to develop some method for avoiding similar hardships in the future. As part of this study the Housing Agency undertook to determine whether some form of insurance or indemnity program could give property owners financial protection against flood losses. For this purpose we held a series of meetings on the subject with representatives of casualty insurance companies and various lending groups, and these studies have continued in consultation with other agencies of the Federal Government. On the basis of our studies and consultation, we reached the conclusion that if this financial protection is to be afforded property owners, some form of Government participation is necessary. As you know, private insurance companes do not write flood insurance on real property of any kind, except for possibly a few isolated cases. They do underwrite flood risks in connection with personal property to some extent. In general, however, it may be stated that private insurance companies are unwilling to assume flood risks at this time. It is the considered opinion of insurance company underwriters that insurance against the peril of flood applicable to fixed property cannot successfully be written. They feel that the virtual certainty of the loss by flood, its catastrophic nature, and the impossibility of making this line of insurance self-supporting, prevents them from prudently engaging in this field of insurance. Also insurance companies have indicated that they have not entered this line of insurance because a flood disaster of considerable magnitude during the early years of any flood-insurance operation could bankrupt a company before sufficient reserves were accumulated. Accordingly, Government participation is required if the needed protection for property owners is to be made available. Therefore, we have undertaken to determine the most feasible program which can be developed, with maximum opportunity for participation by the private insurance industry and with the greatest opportunity for private enterprise to supplant the Government in this field of operation as soon as possible. In our judgment, necessary legislative authority for carrying out such a program would be provided by S. 2682, introduced on January 5 by Senator Bush on behalf of himself and 18 other Senators. We recommend the enactment of this bill, with an amendment in the nature of a substitute introduced by Senator Bush on January 18, and have been authorized to state that the bill as amended is in accord with the program of the President. With your permission I would like first to summarize briefly the major provisions of that bill. I will then comment upon the basic considerations involved and the relationship of the bill to other legislation on the same subject pending before your committee. These other bills before the committee are S. 3137, introduced on February 6 by Senator Lehman on behalf of himself and 10 other Senators, and S. 2768, introduced on January 5 by Senator Saltonstall for Senator Kennedy, himself, and 10 other Senators. FLOOD INDEMNITY AND REINSURANCE PROGRAMS UNDER S. 2862 The bill we are recommending, S. 2862, introduced by Senator Bush, makes provision for an experimental flood indemnity and reinsurance program on a voluntary basis. It would be administered by the Federal Government, acting through the Housing and Home Finance Administrator, who would be required to utilize private insurance facilities to the fullest extent possible in the operation of the program. 69096-56-pt. 2- -4 The indemnity program would require contributions from the person to be indemnified, the State, and the Federal Government. Senator ROBERTSON. May I interrupt, because I may not be able to stay for the full presentation. Senator LEHMAN. Yes, Senator. Senator ROBERTSON. If you require State contributions there would have to be State action, because I do not imagine any State has any law to underwrite this type of insurance at the present time. I would like to know if the whole thing in any State will hinge on whether you have to wait until the State acts, and if the State turns it down you would not have any program in that State? Congress, of course, cannot force a State to go into this. It might be quite desirable to have some State contribution, but I just do not see how you are going to have it as a practical thing; if they are going to do anything within the near future on this. I wanted you to comment on that phase of it. That was not in your original bill; was it? Senator BUSH. Mr. Chairman, may I comment? Senator BUSH. I see no reason why it should be any more difficult for the States to comply with their obligations under the bill than for the Federal Government to. We have an appropriation process here. We have appropriated funds in advance, the same thing as the States would be required to do. So I do not think there is any complication for the States any more than there is for the Federal Government. Senator ROBERTSON. I understood this was to be a continuing insurance program. Senator BUSH. I beg your pardon? Senator ROBERTSON. I understood what he was recommending was a continuing insurance program. Mr. MEISTRELL. That is correct. Senator ROBERTSON. From year to year over an indefinite period, and those who wanted to go into it would pay so much premium and the Federal Government would put in so much, and if the insurance company was willing to take part of the risk they could come into it. I wanted him to explain how he would bring the States in. Mr. MEISTRELL. We propose to make this program optional with the States. There are 45 State legislatures meeting between now and the early part of next year. Those States that choose to participate would in certain instances need legislative action. The financial aspect of the program would be a matter to be determined by each individual State. It is a fiscal problem and not unlike what we have in the Federal Government. Senator ROBERTSON. Yes; but I was just thinking about my home State. The legislature there is now in session. It will end its session about the 10th of March. They are not to meet again for 2 years. Will there be no insurance program in Virginia for over 2 years under this bill? Mr. MEISTRELL. I am not sufficiently familiar with your legislative processes in Virginia. Senator ROBERTSON. It is just a question of when, under our constitution and State laws, the legislature meets. It just does not meet after this year for 2 more years, unless there is a special session. |