A last-minute legislative jam kept Congress from passing a flood insurance bill, different versions of which had been voted by the two Houses. The bill, which will now be carried into the second session, may provide significant help to occupiers of flood-prone areas and at the same time lead to a large ultimate reduction in annual flood damages. In view of the record with flood insurance to date, one must be cautious in judging what will happen, but the legislation is constructive in form.
In 1956, following the disastrous floods of 1955, Congress passed and the President signed an earlier flood insurance act (PL.1016, 84th Congress). A specific insurance program was soon worked out jointly between representatives of the executive branch and the private insurance companies, but the Congress refused to appropriate the necessary funds. Insurance rates would have largely been based upon average flood hazards within large watersheds, and the Congress judged that this would lead to serious adverse selection with all the high risks seeking insurance and the low risk properties going uninsured. The act remained law, but unimplemented. In 1956 a Disaster Relief Act, in addition to providing help to victims of Hurricane Betsy, directed the Secretary of the Department of Housing and Urban Development (HUD) to study and report within nine months upon the feasibility of flood insurance and other means for relief of flood victims.
On August 8, 1966, Secretary Robert C. Weaver transmitted to the President a report on "Insurance and Other Programs for Financial Assistance to Flood Victims." The report was published by the Senate Committee on Banking and Currency, and also by the House Committee on Public Works, but without the lengthy appendixes, which are on file with the committees and are available for public reference. With the assistance of other agencies, HUD prepared a bill to implement the report. Subsequently introduced in both Houses, the bill, with minor modifications, is a good bet to become the National Flood Insurance Act of 1968.
The proposed legislation calls upon the Secretary of HUD, in cooperation with other federal agencies, to identify within five years all areas in the United States, including the coastal areas, which have special flood hazards. Within 15 years, also in cooperation with other agencies, he is to establish flood risk zones within each flood-prone area, according to the seriousness of the flooding hazard. For each area or district of flood hazard, and for each flood risk zone, he is required to establish an actuarially sound flood insurance rate, taking into account the frequency and severity of flooding, and also considering measures which may have been taken to reduce flood damages.
The Secretary's 1966 report had indicated that well over half of all flood damage to dwellings arises from less than 2 percent of all dwellings and that, per $100 of property value, average annual flood damages to all residential properties was nearly $4 in the zone of highest flood risk, compared to 4 cents per $100 property value in the zone of lowest flood risk. With such extreme differences in average annual flood damages be- tween one property and another, it is apparent that actuarially sound flood insurance rates must be based upon the hazard of flood damage. Not only frequency of flooding, but depths of typical floods, type of building construction, special flood protection measures, and other factors affect average annual damages in any location.
The bill provides a mechanism for private insurance companies to establish flood insurance pools, with federal help in risk determination, in guarantee against catastrophic losses, and in other ways. If the industry is unable or unwilling to work out such a program, the act provides the mechanism for an all-federal flood insurance program—in which, however, private insurance companies and agencies might serve as agents to perform many functions for the government. In either case, provision is made for subsidized flood insurance for present occupants of high-hazard flood areas; however, such subsidies will not be available to new or reconstructed properties in these locations.
The legislation also provides for financial relief to flood victims for a single flood loss; after that, they must either relocate where flood hazards are less or must buy unsubsidized flood insurance if they're-build in the same location. Provisions are included whereby the Secretary may buy individuals' equities in flood-damaged properties to assist them to move to safer locations and as a means of changing the use of the land to one less hazardous. The Secretary is also directed to work closely with state and local governments in land use planning and zoning designed to reduce flood losses.
The manner in which the activities contemplated under the act would be financed remained in doubt as Congress adjourned. As proposed, the act was to give the Secretary borrowing power at the Treasury up to $500 million, to carry out the provisions of the act. As subsidies are paid on insurance premiums in high-risk areas or as extreme losses are made good to the insurance companies, this fund was to have been replenished by direct appropriation, with the Secretary having immediate authority and funds to proceed without further appropriation. But there is a good chance that in the final version Treasury borrowing will be replaced by congressional authorization of an order of magnitude adequate for the purpose and sufficient to allay any fears of the insurance companies about the program's permanence.
If the Flood Insurance Act is passed in 1968, it may well go down in the history of natural resource legislation as a landmark achievement. If actively, imaginatively, and courageously administered, it can achieve substantial reductions in average annual flood damages and gradual improvement in land use, while at the same time aiding those persons whose properties are now exposed to severe flood hazard.
