Special Message to the Congress Transmitting Proposed Legislation on a National System of flood Disaster Insurance.

To the Congress of the United States:

Last summer, following the great floods in Kansas, Missouri, and Oklahoma, I recommended that the Congress establish a national system of flood disaster insurance. As I said then, the lack of such an insurance system is a major gap in the means by which a man can make his home, his farm, or his business secure against financial loss.

In order to be of help to the Congress in its further consideration of this matter, I have had draft legislation prepared embodying the views of the Executive agencies concerned as to the best way to set up a sound and workable flood insurance system. A copy of this draft legislation is attached to this message, and the agencies that prepared it, particularly the Reconstruction finance Corporation, stand ready to give the Congress any further help they can.

The reasons for enacting such legislation are very clear. At present, insurance against flood damage is virtually unobtainable from private insurance companies, nor does it seem likely that the private companies, by themselves, will find it possible to write flood insurance at reasonable rates. The need for such insurance, however, is urgent. Homeowners, farmers, and businessmen may have their assets and their savings of years wiped out in a few hours if a disastrous flood strikes their property. We have seen it happen year after year.

To meet this situation, we can and should make available to those in potential flood areas the opportunity to protect themselves against the financial losses which such floods bring. I am sure that the great majority of the people concerned want to provide in advance out of their own resources for protection of their property against floods-just as they do now against fire and other hazards.

A Federal system of flood insurance is the logical answer. It would enable individual property-owners to pool their risks, and to meet a large part of their losses out of their common funds--rather than forcing them to rely upon emergency relief, as is too often the case now. It would provide funds needed to restore property damaged in floods, without requiring people to borrow heavily against their future incomes.

Insurance is especially important under present circumstances when our system of protection against floods is so incomplete. Flood insurance, however, has more than short-run significance. It is also necessary as part of our long-run attack on the flood problem. Dealing with floods at their source, by doing the necessary work on the land and in the stream beds to catch and hold flood waters, will always be our major weapon for preventing flood damage. Limits also need to be placed on the use of the flood plains, through State and local zoning laws, wherever the cost of complete protection from floods would be prohibitive. But flood insurance will always be necessary to protect people against the financial losses which may be caused by unexpected and catastrophic floods which it is impossible to prevent.

The attached draft legislation would authorize the Reconstruction finance Corporation to provide either insurance or reinsurance against losses resulting from floods. If private insurance companies wish to do so, under this bill they could write insurance against floods and could then reinsure themselves against excessive loss by paying appropriate premiums to the Reconstruction finance Corporation. Or, alternatively, the Corporation would be authorized to issue insurance policies directly. The Corporation, of course, should not compete with private insurance companies. The draft bill would prohibit the issuance of Federal policies in cases where private insurance is available at reasonable rates. In addition, it would require the Corporation to work through private insurance companies in administering the program.

This draft bill would authorize insurance to be made available for homes, for business and farm properties, and for agricultural commodities. It would also establish a maximum amount of insurance for any one person or business of $250,000. While this would not cover some of the large losses in a flood, it would take care of the homeowners, businessmen, and farmers who are least able to afford flood losses because their total assets are small. As experience is gained, it may be desirable to change this maximum amount.

Furthermore, the bill would limit the insurance payment on any given property to 90 percent or less of the loss sustained. Such a limitation will preserve the incentive for the property-owner to do what he can to protect his own property.

I believe that this flood insurance program should be set up on a basis that is designed to permit the Government to break even. To do so, it will be necessary that rates be set high enough to cover all expenses, including a proper reserve for losses.

However, since there is only limited experience upon which to rely in determining such rates, it will be necessary to start the program on an experimental basis, both with respect to rates and areas covered. Accordingly, the draft legislation provides for limitations on the total amount of insurance to be written in each of the first three years, and for a report to the Congress by the Corporation before the end of that period, making recommendations concerning the nature and extent of the program thereafter.

In addition, the draft legislation authorizes Federal agencies that make or guarantee loans to require borrowers to purchase flood insurance where it is available. Thus the Reconstruction finance Corporation, for example, might require its borrowers to carry flood insurance, where appropriate, just as it now requires them to carry fire insurance.

All in all, I believe this draft legislation represents a sound and workable approach, and I heartily recommend it to the consideration of the Congress. I strongly believe that legislation along these lines is most urgently needed. There is no reason whatever for continuing to rely on inadequate and emergency relief programs to take care of the thousands of people every year who suffer extensive flood damage to their homes and farms and businesses.

We can and we should provide a businesslike system of insurance to finance the restoration of such losses. I hope the Congress will enact such a system without delay.

HARRY S. TRUMAN