NATIONAL FLOOD INSURANCE ACT OF 1967

MONDAY, JUNE 26, 1967

U.S. SENATE,

COMMITTEE ON BANKING AND CURRENCY,

SUBCOMMITTEE ON SECURITIES,

Washington, D.C.

The subcommittee met, pursuant to notice, at 10:05 a.m., in room 457, Old Senate Office Building, Senator Harrison A. Williams, Jr., presiding.

Present: Senators Williams and Brooke.

Senator WILLIAMS. We will start our hearings on flood insurance legislation. We have asked our witnesses to deal particularly with S. 1985, which can be considered the administration bill, which has been sponsored by 29 Members of the Senate and represents the final legislative expression of about 11 years of thought and deliberation on how we can bring to people who are in flood-prone areas a measure of property insurance.

Copies of the bills, S. 1985, S. 1797, and S. 1290 may be found at page 165.

Senator WILLIAMS. I have for some time been very much concerned about the extensive damages caused by floods and other severe storms to many of our river basins and seacoast areas.

There is evidence to show that these damages seem to be increasing, rather than decreasing, in spite of protective measures taken by the Government.

These losses may be particularly hard on a homeowner whose home is washed away but who still owes a mortgage, or a small businessman whose primary assets are tied up in his business. Many of these people never recover financially from a major disaster. Not only do flood losses cause a personal hardship on many of these individuals, but they also may have an adverse impact on the economic growth and development of many areas.

Private insurance companies have not been able to write flood insurance policies for damages caused by floods on an economically feasible basis.

Various Government agencies and other bodies have programs to provide assistance to flood victims, but these are generally not available unless a major disaster has occurred, and even then they may not be available in sufficient amounts to cover losses. It is for all of these various reasons that I have been interested in legislation to establish a national program of flood insurance.

Three flood insurance bills, S. 1290, S. 1797, and S. 1985, are now pending before the subcommittee. I have asked that witnesses at these hearings direct the emphasis of their comments to S. 1985, which is the proposal of the Department of Housing and Urban Development.

I am satisfied that the Department has come up with a workable and effective approach to provide insurance to victims of flood disasters. I have been very pleased at the cooperation that the private insurance industry has given to the Department in the development of this proposal. The National Association of Insurance Commissioners have also been very active in developing legislation in this field. I applaud them for their constructive efforts in this area.

The HUD proposal would authorize a program of flood insurance with significant risk participation on the part of the property insurance industry and carried out to the maximum practicable extent by the industry.

The Federal Government would assist the program by providing premium subsidies and reinsurance coverage when necessary. It is contemplated that the program will start slowly and would initially be restricted to those geographic areas where information is available upon which rates can be based. As data on the incidence and financial impact of flood in other areas is developed and correlated, the program will be extended to those areas.

The bill would authorize flood insurance to be made available initially for one- to four-family residential properties, but coverage could later be extended to include other types of properties.

There would be $15,000 aggregate liability for a single dwelling unit, and $30,000 for any dwelling structure with more than one unit. Liability for contents would be limited to $5,000 per dwelling unit.

Owners of existing property in flood-prone areas would be entitled to the Federal premium subsidy, but owners proposing to construct new properties in these areas would be charged full actuarial premiums. These provisions and others are designed to encourage State and local bodies to adopt and enforce sound land use controls, and to discourage construction and occupancy in high-risk areas.

I would also like to emphasize that the proposed flood insurance program would complement and not supplement the activities of other Government agencies that have responsibilities for flood plain management and protection.

I am particularly pleased to have a number of the members of the Banking and Currency Committee, including the chairman, Senator Sparkman, and the ranking minority member, Senator Bennett, join me as cosponsors in this legislation. With this kind of support, I am very hopeful that a flood insurance law can be enacted during this session of Congress. There is a real need in this country for this legislation.

The hearings tomorrow will be held in room 2221, New Senate Office Building, and on Wednesday, in room 4232, New Senate Office Building.

Without objection, I would like to insert in the record at this point a statement received from Senator Long of Missouri.

(The statement follows:)

STATEMENT OF EDWARD V. LONG, U.S. SENATOR FROM THE STATE OF MISSOURI

Mr. Chairman, I appreciate this opportunity to express my support for S. 1985, the proposed National Flood Insurance Act of 1967. The fact that one-third of the Senate has chosen to co-sponsor it indicates the widespread interest in this legislation. Many areas of Missouri have suffered severely from floods, and the enactment of legislation to reduce losses has long been of concern to me.

The support for a flood insurance program which has been indicated by representatives of both the Federal Government and the insurance industry since these hearings began is very encouraging. As a member of the Subcommittee, I sincerely hope that those areas of technical disagreement existing can be satisfactorily resolved so that the enactment of this important legislation can be secured.

It is recognized that private insurers cannot write flood insurance without Federal assistance. The catastrophic potential of flood hazards, the unavailability of loss experience, and the high risks premium payments required are insurmountable factors precluding the insurance industry operating alone to bear flood risks at this time.

The need for flood insurance has increased in recent years. With the expansion of urban areas into flood plains, property losses have risen. Congress has enacted special assistance measures in recent disasters, but this solution is not completely satisfactory. These relief measures do not encourgae improved land use to avoid future losses. In enacting the Southeast Hurricane Disaster Relief Act in 1965, Congress authorized a study of the feasibility of a flood insurance program which would consider the unique problems presented.

The report submitted by the Department of Housing and Urban Development indicates that a program of flood insurance is feasible as long as substantial Federal aid is available. The cooperation of Federal and private interests is not new. The cooperative approach has been used before for such purposes as war damage insurance, radiation hazard insurance, and foreign credit insurance. If a flood insurance program had been enacted last year, serious losses now being borne by residents along the Missouri River and its tributaries might have been reduced. The Missouri River which crested Tuesday at St. Louis was approximately 7%1⁄2 feet above flood stage, and I regret to report brought serious flooding to 36 Missouri counties. It is estimated that the damage will exceed $25 million.

Enactment of S. 1985 will provide insurance where there is none now available and will promote improved land use. I wholeheartedly support such action. Senator WILLIAMS. Senator Brooke, we are grateful that you are here this morning. Do you have a statement?

Senator BROOKE. I have no statement, Mr. Chairman.

Senator WILLIAMS. We are honored indeed that the Honorable Hale Boggs from Louisiana, who is in the position of high leadership over in the House of Representatives, be our first witness.

STATEMENT OF HALE BOGGS, REPRESENTATIVE FROM THE

STATE OF LOUISIANA

Mr. BOGGS. Mr. Chairman and members of the committee, I appreciate the opportunity of appearing before the committee. I shall only takes a few minutes. I do not intend to address myself to the provisions of the bill, which I am sure will be discussed in full by representatives of HUD who are present here and whom you have scheduled as witnesses. I am here because, like you, Mr. Chairman, I have been interested in this subject for a great many years. You may recall that, back in 1956-I think it was-Congress passed legislation in this field, but it was never implemented and probably because we had not at that time gone into the many difficulties of this kind of program.

Now, since that time, we have had a series of disasters, some more serious than others. I think that probably the most costly disaster that has hit our country in recent years was Hurricane Betsy, which was estimated to have cost well over a billion dollars in my part of the country in 1965. As a result of that disaster, we passed very hurriedly

a specific relief bill for the people who were affected by the disaster, and we wrote into that legislation a provision calling for a study in depth of flood insurance. That study was conducted, for the past 18 months, by the appropriate agencies of the Government, a joint venture on the part of several agencies, directed, of course, by the Housing and Urban Development. It is a very complete study. I am sure it will be part of this record. And the legislation which you have introduced, Mr. Chairman, and others, is a result of that very comprehensive study.

On the House side, at the beginning of this session, approximately 60 Members on both sides of the aisle introduced legislation of a general nature calling for the establishment of such a program.

Now, what has happened in the past is that each time we have sought to look at these things piecemeal. We have had ad hoc legislation, narrow relief programs, without any overall means by which people can protect themselves from natural disasters. The only way one can appreciate a disaster of this kind is to see it. The worst thing is to experience it. But if you see it right after it happens, you realize the enormity of the forces of nature and the unbelievable damage that they can bring about.

This hurricane that hit Florida, Louisiana, and Mississippi in 1965 was an indescribable disaster. You could go for miles and miles and miles and never see a house standing or one that was undamaged. The difficulty to the homeowner in this area is that there is no problem about securing insurance against other types of disasters-windstorm insurance, but no insurance against water. And, incidentally, it has been a great problem for the insurance industry in trying to make the distinction of whether the damage came from the wind prior to the coming of the water or the other way around.

It was estimated by the Corps of Engineers that the damage in the New Orleans district alone amounted to $371,960,000. Of this, tidal overflow accounted for $167,960,000, wind damage for $49,700,000, and from a combination of wind and flood losses that are inseparable, $154,300,000. This report covers only the nine most severely struck parishes. High tides resulting from Betsy covered 3,060,000 acres of coastal lands in southeastern Louisiana. In Florida, tidal overflow caused by Betsy did $125,100,000 worth of damage; and in Mississippi and Alabama, about $15 million worth.

Another way to estimate the loss due to flooding is to look at the number of Small Business Administration loans made for flood damage. Through 1966, 21,153 SBA loans out of a total of 27,504 were for flood damage in that section of the country. And the amount loaned for flood damage alone was almost $1 billion; to be exact, $99,653,000.

Is it possible for anyone to question the need for flood insurance? I do not think so. If anyone has any doubts, look beyond Betsy to the tremendous losses caused by floods in the country as a whole. In 1965, the latest year for which figures are available, loss of property in the United States from floods totaled $788,046,000; and in the year before that the total was $651,642,000. These figures, though staggering, do not begin to measure the human suffering associated with damage from floods or storms. In Louisiana, Hurricane Betsy directly affected over 160,000 families. And of course people were killed, 81 people died

as a result of this storm. In 1965, 119 persons lost their lives due to floods; and, since 1925 the average death rate in the United States is 78 a year.

Without flood insurance, the savings of thousands of people are wiped out in the wake of a major storm. Hurricanes involve wind damage and water damage. They are largely inseparable. And we must see to it that our people are able to protect themselves against both hazards. To offer protection only for damages attributable to high winds is like an insurance company telling a prospective client that it will pay his beneficiaries if he dies from a heart attack but not if he dies from some other ailment. Government subsidies to insurance companies to cover the cost of flood insurance are both logical and essential if we are to meet the challenges posed by the environment in which we live.

Mr. Chairman, as I said in the beginning, I do not intend to discuss the specific provisions of the bill. Suffice it to say that, in my judgment, there is absolutely no doubt about the fact that this legislation is very badly needed. We have tried for years to operate, as I said a moment ago, in this piecemeal fashion. It certainly costs the Government much more money than it could conceivable cost if we had a broad-based program of insurance. And I can tell you and the other members of the committee from experience that people want the opportunity to protect themselves. They do not want to have to be dependent upon relief agencies, Government agencies, and these special devices that are set up as a result of disaster; not that they do not do a wonderful job, because they do. But if we had this legislation-and it is my understanding that it would be worked out with the established insurance industry-then people all over our country would have a chance to protect themselves rather than be dependent upon private charity or Government largesse.

I appreciate the opportunity of coming here, Mr. Chairman.

Senator WILLIAMS. We are grateful to you, Congressman Boggs. The Small Business Administration has emergency procedures to deal with these disasters through loans to homeowners and commercial establishments?

Mr. BOGGS. Well, in the special legislation which Congress passed, I think unanimously in both bodies, we provided for loans at the discount rate that SBA enjoys, plus a forgiveness feature, in both the case of homeowners and small business establishments, up to $1,800. In addition to that, working through the Farmers Home Administration, similar loans were provided for farmers as a result of disaster with a similar forgiveness feature. But this was something quite unique in the law.

Senator WILLIAMS. What we have been doing is legislating after the fact.

Mr. BOGGS. Exactly.

Senator WILLIAMS. And, as you say, ad hoc under special circumstances. And it is not insurance. And your statement and philosophy is that we should have an orderly basis of insurance for this particular risk.

Mr. BOGGS. Well, Mr. Chairman, I would estimate that directly, either by way of forgiveness through SBA loans, through aid of one kind or another-housing, medicines, clothing, the providing of trail