themselves, instead of making ends meet, in a dreadful financial condition for several years to come because of this natural disaster and this flood.

We wondered how many of the young people of New Orleans, the boys and girls, might not go to college the following year because this Hurricane Betsy had hit the New Orleans area.

And it became evident to the House Members, as it had, as I said, in three previous sessions of Congress to the Senate, there was need for a study to see whether or not the Federal Government can assist these people in some way.

I would like to note that this is not a case or a situation where the Federal Government or the Senate or the House of Representatives panicked because of some situation. We can look at the record and see that the U.S. Senate and you, Senator Williams, have been vindicated, because what Hurricane Betsy proved was that you were correct in what you had been stating for several years before in the 87th, 88th, and 89th Congresses.

So I am very happy and grateful that the bill was passed in the 89th Congress and that the legislation is being formulated by you. I believe that it is a great credit to you and to the others in the Senate who have led the way in this battle for many years.

I certainly can assure you that the Members of the House of Representatives are watching carefully and with great interest and with gratitude the activities of this subcommittee, and there will be a great deal of support for this legislation when it does reach the other body. I am sure that many, many people who live along coastal areas throughout the country will be grateful to you and your colleagues for the work that you are doing in holding hearings on S. 1985 and for the efforts that you are making in their behalf as you have so consistently done in the past.

I want to thank you again for permitting me to lend support to the work that you are doing, and I am anxiously awaiting this legislation in the House of Representatives and assure you that my colleagues and I will make every effort to match the work we know you will do here in the Senate.

Thank you very much.

Senator WILLIAMS. Your testimony has been very helpful, Congressman Howard.

I would like to introduce you to Senator Brooke, of Massachusetts. Senator BROOKE. Good morning, Mr. Howard.

Mr. HOWARD. I'm happy to meet you, Senator.

Senator WILLIAMS. I would always rather legislate before the fact than after the fact, but in this area of our concern I will say that the hurricane and the flood that hit us in March of 1962, particularly along the coast of New Jersey, led me to introduce legislation authorizing HUD to study this problem.

Even though we had a 1956 law, it was never implemented. We had testimony on that yesterday. The language was good, but the money was never appropriated.

So we had our study. The new Department of Housing and Urban Development has done a masterful job of studying this and recommending sound legislation.

They have presented this bill, S. 1985, which is our basic bill under consideration today.

It seems to me that it represents what we need in terms of an insurance program, a realistic insurance program, that brings together in partnership both the Government and private insurance companies. Senator Brooke?

Senator BROOKE. No questions. I am very pleased to meet you, sir. Mr. HOWARD. Thank you very much.

Senator WILLIAMS. Thank you very much.

We had hoped to hear from Congressman Clausen from California, but he is testifying on something that is very important-the redwood forests.

Without objection, I would like to insert in the record at this point a statement received from Congressman Don H. Clausen of California.

(The statement follows:)

STATEMENT BY DON H. CLAUSEN, U.S. REPRESENTATIVE FROM CALIFORNIA

Mr. Chairman, I am pleased to be able to appear before this Committee in support of legislation to establish a program of national flood insurance. I am strongly in favor of a program to assist in providing economically feasible insurance to those who have homes and businesses in areas of flood risk.

I have seen first-hand many times the devastation and suffering that can come from high waters. My Congressional District has severe flooding nearly every winter and a tidal wave just a couple of years ago wiped out the entire downtown business district of my hometown of Crescent City, California.

We are familiar with floods in our area and I have traveled throughout the country investigating flood damages as a member of the House Committee on Public Works. The losses to cattle, crops and property have been staggering over the past several years. The Congress is very much aware of the problem and demonstrated its concern with the enactment last year of the Disaster Relief Act of 1966.

I felt then, as I do now, that a disaster relief act was only a first step toward meeting the needs of those who have suffered disasters. I pointed out in our House Committee Report on the Disaster Relief Act that it is important to continue our efforts by completing the flood and disaster insurance program so that we can provide the ultimate in relief to the disaster victims of the country.

Finding a solution to the problem of adequate and valuable disaster insurance will not be easy. The proposed legislation on this subject that has been drafted by the Housing and Urban Development Department has only just been submitted to the Congress within the past few days. For that reason, I cannot comment upon the specifics it embodies until I have had the opportunity to study it in depth.

I do wish, however, to point out to this Committee the great need for this type of legislation and to endorse the philosophy of subsidizing insurance rates to the extent that actuarily sound rates exceed economically feasible rates.

Anyone who has seen, as I have, homes and property strewn across the landscape or who has seen thousands of head of cattle half buried in mud and silt or who has had to help rebuild entire areas after flood devastation will agree that some type of protection must be provided. Protection which will enable homeowners, farmers, ranchers and businessmen to get back on their feet quickly and with the least possible disruption to the local economy.

I sincerely believe that a national program of disaster insurance is the proper answer. Through it, the people who are actually endangered by flooding will be contributing their share to the rebuilding efforts. It will not be a matter of the federal or state government having to bear all the financial burden.

In addition, a sound flood insurance program can have the effect of discouraging those who are considering the construction of homes and businesses in areas of high flood risk by providing that subsidized flood insurance may not be granted to those who enter an area of high flood risk after the program is established. A program of national flood insurance, combined with an adequate effort toward the development of flood control and water conservation works, can provide the necessary protection and relief to many, many of our citizens whose lives have been, and will be, disrupted by flooding.

In closing, Mr. Chairman, I do not believe that we should confine ourselves to working toward assisting those who suffer from high waters. We must also

take into consideration those whose homes and property are damaged by other disasters such as earthquakes, forest fires and other such catastrophic acts of nature. Including such disasters would broaden the insurance base and reduce costs.

It is important that we proceed as rapidly as possible on this issue. I hope the Committee will be diligent in its study of the pending legislation and will report its recommendations to the Senate as soon as possible.

Thank you again, Mr. Chairman.

Now, Mr. Donald Garlock, second vice president of Travelers Indemnity Co., is with us I believe.

STATEMENT OF DONALD H. GARLOCK, SECOND VICE PRESIDENT, TRAVELERS INSURANCE CO.; ACCOMPANIED BY WILLIAM 0. BAILEY, VICE PRESIDENT, AETNA LIFE & CASUALTY; AND DEROY C. THOMAS, GENERAL COUNSEL, HARTFORD INSURANCE GROUP

Mr. GARLOCK. Yes, sir.

Senator WILLIAMS. You have with you Mr. William O. Bailey, vice president of the Aetna Life & Casualty, and Mr. DeRoy Thomas, general counsel, Hartford Insurance Group.

Isn't the Travelers out of Hartford? Isn't Aetna out of Hartford? Mr. GARLOCK. Yes, sir. We are all from Hartford.

Senator WILLIAMS. What is the Hartford Insurance Group? Mr. THOMAS. Perhaps I ought to answer that as general counsel. It is a group of companies headed by the Hartford Fire Insurance Co. and the Hartford Accident Indemnity Co.

Senator WILLIAMS. But you are all in the same Hartford Insurance Group?

Mr. GARLOCK. No, sir. We are in three different groups of companies. The Hartford Insurance Group, the Travelers Insurance Group, and the Aetna Life & Casualty Group.

Senator WILLIAMS. Maybe I ought to disqualify myself. I used to try cases for all of you.

Mr. GARLOCK. I trust successfully.

Senator WILLIAMS. That is so long ago it is ancient history.
Senator BROOKE. I used to try cases against them.

Mr. GARLOCK. Mr. Chairman, Senator Brooke, today I speak on behalf of the companies serving as the organization committee for the proposed association of flood insurers.

Also in this room are officers of many other companies in this group. This group of companies represents a major segment of the property insurance market in the United States and does business in all States and in all areas subject to flood damage.

Certain companies are members of the American Insurance Association, the American Mutual Insurance Alliance, the National Association of Independent Insurers, the National Association of Mutual Insurance Companies, and some are companies unaffiliated with any trade association.

The companies are both stock and mutual carriers, and they market insurance through agents as well as through salaried producers.

The companies working on this program share the conviction that, in partnership with Government, the hazard of flood can be underwritten on a sound basis. Out of this conviction, several companies began discussions and studies which led to the formation of the orga

nization committee and our cooperative efforts with the Department of Housing and Urban Development (hereafter referred to as HUD) to develop a workable flood insurance program.

While we will need Government assistance in certain areas, private insurers are planning to perform all of the functions normal to the writing of property insurance. Naturally, until the legislation is enacted and other details are more fully spelled out, it is premature for any company to make a final commitment.

However, the companies active on this committee have held several organizational meetings and have been working diligently to solve the underwriting, administrative, and legal problems attendant upon the formation and operation of a national flood insurance association. We are preparing a constitution which will provide for participation by any licensed insurer meeting certain minimum requirements which indicates a preparedness to participate as a risk bearer. It will also provide that nonrisk bearers may function as servicing agents for the association.

There is appended a list of committee assignments. The subcommittee to consider bylaws and other pertinent agreements is preparing the proposed constitution, while the actuarial-statistical-accounting and the product-marketing subcommittees have studied the considerable problems relative to implementation of a flood insurance program.

I detail this activity only to indicate that a large amount of time and effort has already been expended by the industry in the development of a flood insurance program.

Senator WILLIAMS. When did this activity begin? When did your considerations of flood insurance as a group begin?

Mr. GARLOCK. We have been considering the problem ever since the 1956 act in one form or another.

This work has been undertaken in advance of the introduction and passage of legislation, since we have recognized that the time schedule will require, in all probability, as much of a head start as possible.

The insurance industry traditionally has demonstrated its willingness to bear risk. For a premium, property owners may transfer to insurance companies the hazard of most of the perils that threaten to damage or destroy their property. It is this assurance provided by our industry that is the foundation of credit. Without this protection, lending institutions would be unwilling to risk their funds in the majority of cases.

A cooperative program as envisioned by the proposed bill is something of a departure for insurers since traditionally the insurance industry alone provides protection against risk of loss to property.

Private insurers cannot write flood insurance without the help of the Federal Government for three reasons:

1. The unusual and concentrated catastrophic potential of the flood hazard.

2. The unavailability of loss experience from actual insurance operations.

3. The indicated inability or unwillingness of the property owners in the high hazard areas to pay the full estimated risk premium.

On the other hand, only the private insurance industry can provide, through its vast marketing facilities, the necessary sales force to reach all members of the public in need of flood coverage. The insurance

industry also has the unique ability to service coverage afforded and the experienced personnel necessary to settle fairly and expeditiously claims which will arise.

The work of private insurers after Hurricane Betsy in September of 1965 is an example of the industry's ability to respond quickly to the thousands of claims which follow in the wake of a natural disaster. Yesterday Congressman Boggs referred to a billion dollars of losses in Hurricane Betsy. The insurance industry paid out in excess of $700 million as a result of Hurricane Betsy.

Senator WILLIAMS. Now, he mentioned I think a figure.
Mr. GARLOCK. I believe, sir-

Senator WILLIAMS. Betsy did damage in States other than Louisiana. Mr. GARLOCK. That's true. I believe the total loss was about a billion dollars.

Senator WILLIAMS. How much did the insurance companies pay out on Betsy?

Mr. GARLOCK. In excess of $700 million out of a billion in losses. Senator WILLIAMS. You know, it becomes sort of a fencing match whether it was wind or whether it was water. I have been through this too. I said it was wind; they said it was water during the 1955 storm. But even under present insurance policies as they are now, as they were during Betsy, you still paid out that kind of money?

Mr. GARLOCK. That is right.

Senator WILLIAMS. That was not flood insurance?

Mr. GARLOCK. No, sir. That was wind insurance and various other specific policies covering marine risks or transportation risks. Senator WILLIAMS. But it is still inadequate? The present

Mr. GARLOCK. It did not cover the entire loss.

Senator WILLIAMS. The present potential coverage you fellows can meet is still inadequate? Is that the point?

Mr. GARLOCK. It did not cover the entire loss from the hurricane.
Senator WILLIAMS. OK.

Mr. GARLOCK. Joint participation by the Federal Government and private casualty and property insurers, while not commonplace, is not without precedent in comparable situations. The nuclear energy insurance program and the foreign credit insurance program are examples of such cooperation.

Let us describe our understanding of how the Government-private insurance industry partnership would operate.

Our association of risk-bearing companies will directly assume obligations through the issuance of flood insurance contracts to the public. We will sell, service, and adjust losses arising out of these contracts. We and the Government will share losses and expenses emanating from flood insurance. The private insurers will assume losses and expenses in the proportion that chargeable premiums paid by policyholders bear to total estimated risk premiums.

In years of high flood losses, the Government would limit industry losses to its established capacity by means of excess loss reinsurance payments.

In years of relatively low flood losses, private insurers would pay a reinsurance premium to the Government for this excess of loss reinsurance protection.