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management agents and agree to comply with the disaster procedures, they too, should be reimbursed for expenses directly attributable to the disaster housing program.

I will be happy to supply any additional information that you may need. Sincerely,

K. C. CAVANAUGH, Acting Director.

Senator BAYH. Mr. Bernstein, you are recognized.

STATEMENT OF GEORGE K. BERNSTEIN, ADMINISTRATOR, FEDINSURANCE ADMINISTRATION, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Mr. BERNSTEIN. Mr. Chairman, I have a brief statement and then I would attempt to answer any questions you may have.

The adequate availability of private property insurance to those homeowners and small businessmen exposed to natural disaster hazards is of primary and vital concern to the Federal Insurance Administration of the Department of Housing and Urban Development. Exposure to one or more perils of natural disaster is common throughout the United States. Areas which are not exposed to floods and hurricanes tend to be exposed to earthquakes, or tornados, or some other major peril. The private property insurance industry, over a period of years, has provided protection against many of these perils by traditional insurance methods. It is their belief that the severity and frequency of these perils can generally be analyzed by actuarial techniques and that coverage can generally be marketed at prices the public can afford to pay.

Unfortunately, there are a number of hazards for which coverage has never been available or where markets have deteriorated in recent years to the point where protection is not readily available or can be purchased only at prohibitive cost.

It was for these reasons that Congress, in 1968, authorized the two insurance programs now administered by the Federal Insurance Administration of HUD-the National Flood Insurance Act and the Urban Property Protection and Reinsurance Act.

With respect to the flood insurance program, flood insurance was never available to the general public in the United States, for very basic reasons. Unlike such coverages as fire and automobile insurance, there was not even a potential spread of risk. The only persons interested in such coverages were those residing in areas characterized by ultra-high-risk exposure. Property owners on the gulf coast wanted flood insurance but those in the mountains saw no need for it. Thus, a fundamental principle of insurance-obtaining a sufficient premium base from which to pay claims, while keeping the premium cost to the individual policyholder low enough so that he could afford it was not fulfilled.

In addition, while flood-prone areas were commonly known, the frequency and severity of floods followed no pattern and the catastrophic potential increased the inability of insurance companies to set rates both sufficient to cover losses and within the reach of policyholders.

The National Flood Insurance Act, therefore, established a longrange program designed to make flood insurance eventually available

throughout the country. The act defined "flood" insurance to cover all kinds of rising waters-hurricane, tidal surges, tsunamis—as well as floods along rivers. As a prerequisite to the availability of such Federal insurance, Congress required the commitment of communities to meaningful land use and management, to reduce future flood damage.

The original enactment specified a period of 5 years within which to identify all areas in the United States "having special flood hazards"; but it specified a period of 15 years within which to make flood insurance available. The initial approach envisioned a careful study of each area exposed to special flood hazards, to evaluate the topography, the probabilities and magnitudes of potential floods, the types and classes of property endangered by flooding, and the multitude of other considerations which must be taken into account to establish actuarially sound premium rates. Recognizing that these actuarial rates would be prohibitively expensive in most cases, the act provided for lower, so-called chargeable rates, which are made possible by substantial Federal subsidies.

To many supporters of the initial act, the program was looked upon as an experiment to demonstrate whether or not any form of flood insurance would be feasible, and whether, given effective land use and management by the communities and the development of a broad-based insurance program which produced sufficient historical, hydrological, and statistical information, flood insurance could ultimately be written economically by private enterprise. It was not intended to be a crash program. It was rather, in light of the actuarial rate prerequisites and the restrictions placed upon aggregate insurance in force ($2.5 billion) and borrowing power to pay for losses ($250 million) a gradual and limited program.

Nevertheless, it became apparent, particularly after Camille, that the requirement that rates be established on an actuarial basis (even though the actuarial rate would rarely be charged the policyholder) might be theoretically desirable, but would prevent the program from getting off the ground within a reasonable period. If flood insurance were to be made available on a broad base in the foreseeable future, methods had to be found to shortcut some of the timeconsuming aspects of risk and rating studies of individual communities. Accordingly-and even before Hurricane Camille-we sought ways, to the extent permitted by the act, to simplify the rating procedures and to make insurance available much more rapidly than originally possible. Following Camille, Secretary Romney, in a letter to each Senator and Congressman on September 15, 1969, summarized the steps then being taken. I would like to submit a copy of that letter for the record.

Senator BAYH. Without objection, it will be placed in the record. (The letter referred to follows:)

THE SECRETARY OF HOUSING AND URBAN DEVELOPMENT,
Washington, D. C., September 15, 1969.

DEAR CONGRESSMAN: The recent disasters caused by Hurricane Camille have emphasized the potential significance of the National Flood Insurance Program. The Program, authorized by the National Flood Insurance Act of 1968, is administered by the Federal Insurance Administration of this Department utilizing the services of the private insurance industry. In light of the increas

ing number of inquiries we are receiving about the program, it may be useful if I summarize briefly its purposes and limitations, and indicate the actions we propose to take in response to such disasters.

Based upon a recognition by the Congress of the vast number of persons currently residing in flood-prone areas and the impracticality of their relocation, the Flood Insurance Act contemplates both a comprehensive program of land management for flood-prone areas and a nationwide program of Federal flood insurance in response to the fact that such coverage is generally unavailable from private sources. Thus, as a condition of Federal insurance, and in order to minimize future losses of life and property, a community must adopt appropriate land use and control regulations restricting unwise future utilization of its flood plain.

Because of the concentration of hazards in these flood-prone areas and the consequent inability of any insurer, private or governmental, to spread the risk and the cost of insurance, the actuarial rate for flood insurance would prove prohibitive to most affected persons. Therefore, the statute provides for Federal subsidization of the first $17,500 of flood insurance on single family structures, the first $30,000 on two-to-four family structures, and the first $5,000 on the contents of any dwelling unit. Similar coverage will also be made available for small businesses in the near future. At the present time, three communities in the United States have such Federal flood insurance available-Metaire, Louisiana; Fairbanks, Alaska; and Alexandria, Virginia. Many more commuities are now seeking this coverage, but as an outgrowth of the early history of the statute, detailed rate-making studies were initially deemed necessary for each community seeking the coverage. Such studies are extremely time-consuming and would unquestionably take many years to carry out. At present, only 40 such studies are underway or under contract by the Federal Insurance Admiinistration with such agencies as the U.S. Army Corps of Engineers and the Tennessee Valley Authority. Yet recent events have made abundantly clear the urgent need for flood insurance in many other flood-prone areas and communities throughout the United States.

In response to the obvious insurance needs of these other areas and to the increasing social and economic costs of unrestrained flood plain development, the Federal Insurance Administrator, Mr. George K. Bernstein, has been seeking new ways of accelerating the flood insurance program and expediting the provision of Federal flood insurance throughout the United States as rapidly as statutory limitations and our existing funds permit. Thus, in August he instructed the Corps of Engiineers and other agencies that all pending and future studies should be made on a zone rather than a structure basis, which would significantly shorten the time required for the study. Economies of scale and any other time and money-saving methods will be sought wherever possible.

While we cannot promise results overnight, we hope to make significant new progress in this vital program during the next few months. Sincerely,

GEORGE ROMNEY.

Mr. BERNSTEIN. At about the same time, and perhaps reflecting the concern which we had expressed with the delays inherent in the program as enacted in 1968, Congress sought to amend the basic law to make Federal flood insurance more speedily available. An amendment, establishing an emergency program, introduced by Representative St Germain, of Rhode Island, was considered and enacted last December as part of the 1969 Housing and Urban Development Act. In its comments on this bill, the Department pointed out that any significant acceleration of the flood insurance program was not possible under the then existing law and that the proposed amendment-while retaining the long-term safeguards built into the basic program, such as the commitment by communities to appropriate land-use and management measures as a prerequisite to eligibility could dramatically shorten the time required to make flood insurance widely available.

We are now seeing the results of these actions-those of the Department in introducing more efficient rating procedures and those now possible under the emergency program. At the time of hurricane Camille, there were only three communities in the United States in which flood insurance was available: Fairbanks, Alaska, a small section of Metairie, La., and the Four Mile Run area of Alexandria, Va. Beginning in February, two areas were added, in March, nine more, seven so far in April, with three more definitely scheduled before the end of the month. We have a total of 45 communities scheduled by May 15, and by June 30 of this year, we will be able to make flood insurance available in 130 areas if those communities meet their responsibilities under the act-specifically, their commitment to the adoption of meaningful and effective land-use and management measures, designed to reduce future flood damage. By June 30, 1971, we will be able to provide flood insurance to some 330 communities in the United States.

Furthermore, under the emergency program, we have been able to expedite the availability of flood insurance for small businesses and such coverage can now be purchased in all eligible communities. The potentially widespread availability of flood insurance, now covering the hazards of inundation, wave-wash, and mud slides, will go far towards alleviating the suffering caused by natural disasters. But flood insurance alone does not cover such hazards as the wind damage caused by a hurricane. This absence of Federal coverage was not unintentional. When the Congress enacted the flood program in 1968, windstorm coverage was generally available and there appeared to be no need for Federal action in this area.

Unfortunately, since hurricane Camille, our office has received numerous indications that insurance companies are restricting their windstorm coverage in the Gulf areas, and that in some instances they have withdrawn completely. We had foreseen the danger of such action, and in an attempt to forestall it, sent a letter to each of the 400 insurance companies participating in the Federal flood and FAIR plan programs, urging them not to cancel insurance coverage in flood-prone areas. This letter was sent in August of 1969 and I would like to submit a copy of that letter for the record. Senator BAYH. Without objection, it is so ordered. (The letter referred to follows:)

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, FEDERAL INSURANCE ADMINISTRATION, Washington, D.C., August 21, 1969. To the chief executive officers of all insurance companies reinsured under the Federal flood or property insurance programs.

Re Cancellation of insurance coverage in flood-prone areas.

Since Hurricane Camille, this office has received a number of inquiries concerning the possibility of insurance companies cancelling coverage in those areas struck by the recent hurricane and which may be affected by other such disasters. Coupled with these inquiries have been questions concerning an incerasing Federal role through new registration to assure the continuation of insurance coverages.

We are hopeful that no insurance company will react in such a way as to intensify the recent tragedy inflicted by Hurricane Camille by irresponsibly cancelling any insurance coverage currently in effect.

Sincerely,

GEORGE K. BERNSTEIN, Federal Insurance Administrator.

Mr. BERNSTEIN. This communication was intended to discourage companies from acting irresponsibly, but our office has no legal authority to prevent such cancellations. It is now apparent that many companies have chosen to restrict their writings on the Gulf Coast. As a result of this situation and as a partial response to the unmet need, we have publicly urged that the States take advantage of the other Federal insurance program established by the Congress in 1968 -the Urban Property Protection and Reinsurance Act.

Under this act, Federal reinsurance against excess riot losses is offered to private property insurance companies which are members of State pools-(or FAIR plans). These FAIR plans make fire and extended coverage insurance available to all insurable applicants. Senator DOLE. What is FAIR?

Mr. BERNSTEIN. It stands for Fair Access to Insurance Requirements. These FAIR plans are under the supervision of the State Insurance Commissioner. Although the enactment of the FAIR Plan legislation was the direct result of the insurance companies' reluctance to write in urban areas following the disastrous riots of 1967, it also reflected the Congress' recognition of the increasing lack of availability of fire insurance in urban areas in recent years.

Although initially conceived as a method for providing a market for basic property insurance, particularly fire and extended coverage in urban and riot-exposed areas, the State FAIR plan, or any State-regulated, assigned-risk type pool, is a means which can be used by any State to solve insurance market problems of many kinds, including windstorm coverage which is already included in the extended coverage endorsement. We have cooperated, for example, with those concerned with the availability problem in Mississippi, and were happy to note that State recently enacted a so-called "beach plan" under which insurance companies are required to provide windstorm coverage on the coastal areas.

There are presently 25 States, plus the District of Columbia and Puerto Rico, in which FAIR plans as such are in effect. These jurisdictions represent 75 percent of both the national population and insurance premium volume. As of December 1, 1961, approximately $7 billion worth of fire and extended coverage, including windstorm insurance, had been written through FAIR plans in these jurisdictions.

It is reasonable to assume that very little of this coverage would have been written if it were not for the existence of FAIR plans. We are intensifying our efforts at public education, as well as to work with the State insurance commissioners to assure that the FAIR plans are doing the best job possible. In this respect, we have recently proposed regulations requiring the FAIR plans to provide vandalism and malicious mischief coverage where such insurance is otherwise unavailable and to eliminate delay in the attachment of coverage following application for insurance.

On the basis of the progress we have made recently in speeding up the flood insurance program, and because of the ability of the States to form FAIR plans or other pools which can require insurance companies to write needed fire insurance and windstorm coverage, we now believe that a reasonable package of disaster protection can be made available to the public in the foreseeable future.

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