I

106TH CONGRESS

1ST SESSION H. R. 481

To provide for a Federal program of insurance against the risk of catastrophic

earthquakes, volcanic eruptions, and hurricanes, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 2, 1999

Mrs. MINK of Hawaii introduced the following bill; which was referred to the

Committee on Banking and Financial Services, and in addition to the

Committee on Science, for a period to be subsequently determined by the

Speaker, in each case for consideration of such provisions as fall within

the jurisdiction of the committee concerned

A BILL

To provide for a Federal program of insurance against the

risk of catastrophic earthquakes, volcanic eruptions, and

hurricanes, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act shall be cited as the

5 ‘‘Earthquake, Volcanic Eruption, and Hurricane Hazards

6 Insurance Act of 1999’’.

7 (b) TABLE OF CONTENTS.—

Sec. 1. Short title and table of contents.

Sec. 2. Findings.
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Sec. 3. Definitions.

TITLE I—PARTICIPATION BY STATES IN ADOPTION OF HAZARD

REDUCTION MEASURES

Sec. 101. Identification of earthquake-prone, volcanic eruption-prone, and hurricane-prone States.

Sec. 102. Earthquake, Volcanic Eruption, and Hurricane Loss Mitigation Advisory Committee.

Sec. 103. Establishment of criteria for loss-reduction measures.

Sec. 104. Self-Sustaining Mitigation Fund.

Sec. 105. State implementation of loss-reduction measures.

Sec. 106. Requirement to purchase primary insurance.

Sec. 107. Effect of noncompliance with State mitigation program.

Sec. 108. Coordination with other programs.

Sec. 109. Report to Congress.

Sec. 110. Regulations.

TITLE II—PRIMARY INSURANCE PROGRAM

Sec. 201. Basic authority and program organization.

Sec. 202. Scope of program.

Sec. 203. Terms and limitations of insurance coverage.

Sec. 204. Establishment of actuarial premium rates.

Sec. 205. Chargeable premium rates.

Sec. 206. Insurance mitigation incentives.

Sec. 207. Earthquake, Volcanic Eruption, and Hurricane Insurance and Reinsurance Advisory Committee.

Sec. 208. Residential Property Insurance Fund.

Sec. 209. Borrowing from Treasury.

TITLE III—NATIONAL EARTHQUAKE, VOLCANIC ERUPTION, AND

HURRICANE EXCESS LOSS REINSURANCE PROGRAM

Sec. 301. Reinsurance program.

Sec. 302. Lines of insurance.

Sec. 303. Rates.

Sec. 304. Reinsurance contracts.

Sec. 305. Reinsurance Fund.

Sec. 306. Borrowing from Treasury.

1 SEC. 2. FINDINGS.

2 The Congress finds that—

3 (1) the catastrophic and unpredictable nature

4 of earthquakes, volcanic eruptions, and hurricanes

5 prevent individual private insurers from offering the

6 necessary insurance against these perils without the

7 participation of the Federal Government;
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1 (2) in the absence of an adequate system for in2 suring against losses from earthquakes, volcanic

3 eruptions, and hurricanes, the Federal Government

4 and State governments will bear excessive and avoid5 able costs of disaster relief and the commerce and

6 economy of the Nation would be seriously desta7 bilized;

8 (3) the existing systems of private insurance,

9 reinsurance, and government disaster relief are inad10 equate and should be improved and better coordi11 nated;

12 (4) a reasonable method of providing insurance

13 against such losses is to create a Federal earth14 quake, volcanic eruption, and hurricane insurance

15 and reinsurance program, to assist in making insur16 ance against such disasters widely available and af17 fordable to the general public; and

18 (5) in providing such insurance, the Federal

19 Government should work constructively with the

20 States and localities to assist and require, if appro21 priate, the development, adoption, and enforcement

22 of hazard reduction measures, including building

23 codes, land-use planning, and strengthening of new

24 and existing structures.
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1 SEC. 3. DEFINITIONS.

2 For purposes of this Act:

3 (1) The term ‘‘additional losses’’ means claim

4 and loss adjustment expense payments for earth5 quake, volcanic eruption, and hurricane coverage

6 issued pursuant to title II that exceed the accumu7 lated amounts in the Residential Property Insurance

8 Fund.

9 (2) The term ‘‘alien insurer’’ means an insurer

10 or reinsurer organized or incorporated in a country

11 other than the United States.

12 (3) The term ‘‘critical facilities vulnerable to

13 hurricanes’’ means schools and structures essential

14 to emergency services necessary for post hurricane

15 recovery (including hospitals, fire and policy facili16 ties, temporary shelters, and emergency operating

17 and preparedness centers) that—

18 (A) have unreinforced masonry bearing

19 walls, tilt-up construction, nonductile concrete

20 frame construction, or other construction, as

21 determined by the Director, that makes them

22 susceptible to damage from hurricanes; and

23 (B) are located in hurricane zones within

24 hurricane-prone States.

25 (4) The term ‘‘Director’’ means the Director of

26 the Federal Emergency Management Agency.
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1 (5) The term ‘‘earthquake’’ means any shaking

2 or trembling of the crust of the earth caused by un3 derground seismic forces or by breaking and shifting

4 of rock beneath the surface.

5 (6) The term ‘‘earthquake, volcanic eruption,

6 and hurricane coverage’’ means insurance issued

7 pursuant to title II.

8 (7) The term ‘‘earthquake-prone State’’ means

9 a State determined by the Director pursuant to sec10 tion 101 to have an exposure to the earthquake

11 peril.

12 (8) The term ‘‘Federal agency’’ means any de13 partment, agency, corporation, or other instrumen14 tality of the executive branch of the Federal Govern15 ment, and includes the Federal National Mortgage

16 Association and the Federal Home Loan Mortgage

17 Corporation.

18 (9) The term ‘‘federally related mortgage loan’’

19 has the meaning given the term in section 3(1) of

20 the Real Estate Settlement Procedures Act of 1974,

21 except that the term does not include any loan de22 scribed in subparagraph (B)(iv) of such section.

23 (10) The term ‘‘fires associated with an earth24 quake’’ means any fire proximately caused by an

25 earthquake.
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1 (11) The term ‘‘fires associated with a volcanic

2 eruption’’ means any fire proximately caused by a

3 volcanic eruption.

4 (12) The term ‘‘hurricane-prone State’’ means

5 a State determined by the Director pursuant to sec6 tion 101 to have an exposure to hurricane peril.

7 (13) The term ‘‘hurricane zone’’ means an area

8 within a State identified and classified by the Direc9 tor under section 101(a) as subject to major hurri10 cane risk.

11 (14) The term ‘‘Insurance and Reinsurance Ad12 visory Committee’’ means the Earthquake, Volcanic

13 Eruption, and Hurricane Insurance and Reinsurance

14 Advisory Committee established under section 207.

15 (15) The term ‘‘Insurance Fund’’ means the

16 Residential Property Insurance Fund established

17 under section 208.

18 (16) The term ‘‘insurance industry’’ means all

19 private insurers and private reinsurers.

20 (17) The term ‘‘large building’’ means any non21 residential structure that has more than 1 story or

22 more than 5,000 square feet per story.

23 (18) The term ‘‘Loss Mitigation Advisory Com24 mittee’’ means the Earthquake, Volcanic Eruption,
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1 and Hurricane Loss Mitigation Advisory Committee

2 established under section 102.

3 (19) The term ‘‘loss-reduction criteria’’ means

4 the criteria for earthquake, volcanic eruption, and

5 hurricane loss mitigation established by the Director

6 under section 103.

7 (20) The term ‘‘Primary Insurance Program’’

8 means the national earthquake, volcanic eruption,

9 and hurricane insurance program under title II.

10 (21) The terms ‘‘private insurer’’ and ‘‘private

11 reinsurer’’ mean any insurer or reinsurer that is (A)

12 licensed or admitted to write property and casualty

13 insurance or reinsurance within a State, or (B) is a

14 branch of an alien insurer or reinsurer that is en15 tered through and licensed by a State to conduct in16 surance or reinsurance business. In the case of an

17 insurance exchange or group of unincorporated un18 derwriters, the term means an underwriting syn19 dicate, notwithstanding the licensed or admitted sta20 tus of the insurance exchange or group of unincor21 porated underwriters.

22 (22) The term ‘‘Reinsurance Fund’’ means the

23 Reinsurance Fund established under section 305.

24 (23) The term ‘‘Reinsurance Program’’ means

25 the national earthquake, volcanic eruption, and hur-
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1 ricane excess loss reinsurance program under title

2 III.

3 (24) The term ‘‘residential property’’ means

4 any (A) 1- to 4-family residential structure (includ5 ing mobile or manufactured homes) and the personal

6 property therein, and (B) personal property of occu7 pants of residential structures (including condomin8 iums, cooperatives, and apartment structures).

9 (25) The term ‘‘residential property insurance

10 coverage’’ means policies, riders, or endorsements of

11 insurance that provide indemnity, in whole or in

12 part, for the loss, destruction, or damage of residen13 tial property and other eligible property as deter14 mined by the Director.

15 (26) The term ‘‘seismically hazardous critical

16 facilities’’ means schools and structures essential to

17 emergency services necessary for post earthquake re18 covery (including hospitals, fire and policy facilities,

19 temporary shelters, and emergency operating and

20 preparedness centers) that—

21 (A) have unreinforced masonry bearing

22 walls, tilt-up construction, or nonductile con23 crete frame construction; and

24 (B) are located in seismic zones within

25 earthquake-prone States.
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1 (27) The term ‘‘Self-Sustaining Mitigation

2 Fund’’ means the Fund established under section

3 104.

4 (28) The term ‘‘seismic zone’’ means an area

5 within a State identified and classified by the Direc6 tor under section 101(a) as subject to major seismic

7 risk.

8 (29) The term ‘‘tsunami’’ means an ocean wave

9 generated by underwater disturbances in the Earth’s

10 crust, primarily earthquakes and submarine volcanic

11 eruptions.

12 (30) The term ‘‘volcanic eruption’’ means the

13 expulsion, as a result of natural causes, of molten

14 rock, rock fragments, gases, ashes, mud, lava flows,

15 and other natural substances through an opening in

16 the crust of the Earth.

17 (31) The term ‘‘volcanic eruption-prone State’’

18 means a State determined by the Director pursuant

19 to section 101 to have an exposure to the volcanic

20 eruption peril.

21 (32) The term ‘‘volcanic zone’’ means an area

22 within a State identified and classified by the Direc23 tor under section 101(a) as subject to major volcanic

24 eruption risk.
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1 TITLE I—PARTICIPATION BY

2 STATES IN ADOPTION OF HAZ3 ARD REDUCTION MEASURES

4 SEC. 101. IDENTIFICATION OF EARTHQUAKE-PRONE, VOL5 CANIC ERUPTION-PRONE, AND HURRICANE6 PRONE STATES.

7 (a) INITIAL IDENTIFICATION OF STATES.—The Di8 rector, in consultation with the United States Geological

9 Survey, other relevant Federal entities, and seismic, vol10 canic, and meteorological experts in the private sector,

11 shall identify States having an exposure to earthquake

12 perils, States having an exposure to volcanic eruption

13 peril, and States having an exposure to hurricane peril,

14 which shall include any State subject to major or moderate

15 seismic, volcanic eruption, or hurricane risk, as appro16 priate. The Director shall also identify and establish any

17 areas, within such States, that are subject to major seis18 mic, volcanic eruption, or hurricane risk as seismic zones,

19 volcanic zones, or hurricane zones, as appropriate. The Di20 rector shall identify such States and zones before the expi21 ration of the 1-year period beginning on the date of the

22 enactment of this Act, and shall cause a listing of such

23 States and zones to be published in the Federal Register

24 and in widely circulated local newspapers in the applicable

25 States before the expiration of such 1-year period.
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1 (b) FINAL NOTIFICATION.—Each State identified

2 under subsection (a) shall be considered for purposes of

3 this Act to be an earthquake-prone, volcanic eruption4 prone, or hurricane-prone State, as appropriate, upon the

5 expiration of the 6-month period beginning upon the expi6 ration of the period under subsection (a). The Director

7 shall notify the chief executive officer of each State identi8 fied under subsection (a) in writing, before the expiration

9 of such 6-month period, that the State is an earthquake10 prone, volcanic eruption-prone, or hurricane-prone State,

11 as appropriate, for purposes of this Act.

12 (c) ONGOING IDENTIFICATION AND NOTIFICATION.—

13 Based upon any additional seismic, volcanic, and meteoro14 logical information that from time to time becomes avail15 able, the Director may identify States (not identified

16 under subsection (a)) having an exposure to earthquake,

17 volcanic eruption, or hurricane perils. Any such States

18 shall be considered to be an earthquake-prone, volcanic

19 eruption-prone, or hurricane-prone State, as appropriate,

20 for purposes of this Act upon the notification of the chief

21 executive officer of the State, in writing, of the identifica22 tion of the State as such a State.

23 (d) APPEAL.—Any State aggrieved by a final deter24 mination as an earthquake-prone, volcanic eruption-prone,

25 or hurricane-prone State pursuant to subsection (b) or (c),
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1 may, after exhausting administrative remedies, appeal

2 such determination to any United States district court for

3 a district located within the State, not more than 60 days

4 after receipt of notice of such determination. The scope

5 of review by the court shall be as provided under chapter

6 7 of title 5, United States Code. During the pendency of

7 any such litigation, all determinations of the Director shall

8 be effective and final for the purposes of this title unless

9 stayed by the court for good cause shown.

10 SEC. 102. EARTHQUAKE, VOLCANIC ERUPTION, AND HURRI11 CANE LOSS MITIGATION ADVISORY COMMIT12 TEE.

13 (a) ESTABLISHMENT.—There is established an inde14 pendent advisory committee within the executive branch

15 to be known as the Earthquake, Volcanic Eruption, and

16 Hurricane Loss Mitigation Advisory Committee (in this

17 section referred to as the ‘‘Committee’’). The Committee,

18 its members, and its functions shall be separate from the

19 Insurance and Reinsurance Advisory Committee estab20 lished under section 207. To the extent not contradicted

21 by the provisions of this section, the Committee shall be

22 subject to the provisions of the Federal Advisory Commit23 tee Act.

24 (b) MEMBERSHIP.—
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1 (1) APPOINTED MEMBERS.—The Committee

2 shall be composed of 7 members appointed by the

3 President, by and with the advice and consent of the

4 Senate. The members shall be chosen from among

5 citizens of the United States who are respected ex6 perts in the fields of earthquake, volcanic eruption,

7 and hurricane loss mitigation, who shall include—

8 (A) 1 individual who is employed by a

9 State government as an emergency planner;

10 (B) 1 individual who is knowledgeable re11 garding local community building codes;

12 (C) 1 individual who is employed as a seis13 mic engineer;

14 (D) 1 individual who is employed as an ex15 pert in the field of volcanic eruptions; and

16 (E) 1 individual who is employed as an ex17 pert in the field of hurricanes.

18 (2) EX OFFICIO MEMBER.—Notwithstanding

19 paragraph (1), the Chairman of the Insurance and

20 Reinsurance Advisory Committee under section 207

21 shall serve as an ex officio member of the Committee

22 under this section.

23 (c) VACANCIES.—A vacancy in the Committee shall

24 be filled in the manner in which the original appointment

25 was made.
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1 (d) CHAIRPERSON.—The President shall designate a

2 chairperson of the Committee from among members se3 lected for appointment to the Committee.

4 (e) SELECTION.—Not later than 180 days after the

5 date of the enactment of this Act, the President shall sub6 mit to the Senate nominations for appointment to the

7 Committee.

8 (f) FUNCTIONS OF THE COMMITTEE.—The Commit9 tee shall review the loss reduction criteria (including the

10 specific loss-reduction measures) established under section

11 103. Not later than 180 days after receiving the draft of

12 the loss-reduction criteria under section 103(a)(3), the

13 Committee shall submit to the Director written comments

14 and recommendations for any changes to the criteria.

15 (g) RESPONSIBILITIES OF DIRECTOR.—The Director

16 shall fully cooperate with the Committee and provide the

17 Committee with access to personnel and information and

18 may request assistance from relevant Federal agencies (in19 cluding the National Institute of Standards and Tech20 nology) as the Committee considers necessary to carry out

21 its functions.

22 SEC. 103. ESTABLISHMENT OF CRITERIA FOR LOSS-REDUC23 TION MEASURES.

24 (a) DEVELOPMENT OF CRITERIA.—
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1 (1) IN GENERAL.—On the basis of research car2 ried out under this title, the Director shall develop

3 comprehensive loss-reduction criteria for State and

4 local land use and management ordinances, building

5 codes, and other loss-reduction measures consistent

6 with the requirements under subsection (b). The Di7 rector shall periodically update such criteria to re8 flect technical advances designed to reduce losses

9 from earthquakes, volcanic eruptions, and hurri10 canes.

11 (2) COORDINATION.—The Director shall de12 velop the loss-reduction criteria in coordination and

13 consistent with the earthquake hazards reduction

14 program under title I of this Act and the Robert T.

15 Stafford Disaster Relief and Emergency Assistance

16 Act (and Executive Order 12699 of January 5,

17 1990). In developing the loss reduction criteria, the

18 Director shall consult other affected Federal entities

19 (including the National Institute of Standards and

20 Technology), the Building Seismic Safety Council,

21 the Interagency Committee on Seismic Safety in

22 Construction, the National Oceanic and Atmospheric

23 Administration, representatives of State and local

24 governments, regional earthquake, volcanic eruption,

25 and hurricane preparedness organizations, model
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1 building code organizations, and insurance industry

2 groups.

3 (3) SUBMISSION OF DRAFT TO ADVISORY COM4 MITTEE.—Not later than the expiration of the 9-

5 month period beginning on the date of the enact6 ment of this Act, the Director shall submit a draft

7 of the loss-reduction criteria to the Loss Mitigation

8 Advisory Committee established under section 102.

9 Before issuing any final regulations under para10 graph (4), the Director shall consider any rec11 ommendations made by such Advisory Committee re12 garding the draft criteria.

13 (4) REGULATIONS.—Not later than the expira14 tion of the 18-month period beginning on the date

15 of the enactment of this Act, the Director shall issue

16 regulations establishing the loss-reduction criteria

17 under this section, subject to the provisions of sub18 chapter II of chapter 5 of title 5, United States

19 Code. In issuing final regulations under this para20 graph, the Director shall cause to be published in

21 the Federal Register a description of any differences

22 between the recommendations of the Loss Mitigation

23 Advisory Committee and the final regulations (in24 cluding the applicability of loss-reduction measures

25 to States and localities) developed by the Director.
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1 The description shall contain, for each such dif2 ference, an explanation of why the recommendations

3 of the Advisory Committee were not included in the

4 final regulations.

5 (b) CONTENT OF CRITERIA.—The Federal loss-re6 duction criteria established under this section shall include

7 measures for the reduction of losses from future earth8 quakes, volcanic eruptions, and hurricanes, as follows:

9 (1) MANDATORY INCLUSION.—The Director

10 shall include in the loss-reduction criteria the follow11 ing loss-reduction measures:

12 (A) Minimum seismic and hurricane build13 ing standards applicable to new residential

14 property and other buildings located in earth15 quake-prone States and hurricane-prone States.

16 (B) Community-based building codes appli17 cable to new residential property, which shall

18 meet or exceed any minimum provisions relat19 ing to seismic or hurricane hazards contained in

20 (i) the most recent edition of the National

21 Building Code, (ii) the most recent edition of

22 the Standard Building Code, or (iii) the most

23 recent edition of the Uniform Building Code.

24 (C) Community-based plumbing codes or

25 standards applicable to new residential property
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1 which shall meet or exceed any minimum provi2 sions contained in (i) the National Standard

3 Plumbing Code and the A40 Safety Standards

4 of the American National Standards Institute,

5 or (ii) such other similar codes or standards as

6 may be appropriate, as determined by the Di7 rector.

8 (2) DISCRETIONARY INCLUSION.—Consistent

9 with reports submitted to Congress pursuant to sec10 tion 8(a)(2) of the Earthquake Hazards Reduction

11 Act of 1977 and section 947 of the Cranston-Gon12 zalez National Affordable Housing Act, the Director

13 shall consider and may include in the loss-reduction

14 criteria established under this section, any of the fol15 lowing additional loss-reduction measures:

16 (A) Community-based building codes which

17 contain minimum seismic or hurricane provi18 sions (including restrictions on new

19 unreinforced masonry construction) for new res20 idential property that is located in a seismic or

21 hurricane zone, as appropriate, not currently

22 covered by any of the building codes referred to

23 in paragraph (1)(B) but identified by the Direc24 tor as being located in earthquake-prone or hur25 ricane-prone States, as appropriate.
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1 (B) Geotechnical techniques to minimize

2 the effects of ground failures for new large

3 buildings in high-risk fault, landslide, site am4 plification, and liquefaction zones identified in

5 earthquake-prone States and, to the extent

6 practicable and cost-effective, application of the

7 same geotechnical techniques to existing large

8 buildings in the same zones.

9 (C) Measures to control construction of

10 buildings in high-risk fault, landslide, site am11 plification, liquefaction zones, and volcanic

12 zones identified in earthquake-prone or volcanic

13 eruption-prone States.

14 (D) To the extent practicable, retrofitting

15 of seismically hazardous critical facilities and

16 critical facilities vulnerable to hurricanes.

17 (E) Securing of building parapets and ex18 ternal ornamentations of existing buildings lo19 cated in earthquake-prone States or hurricane20 prone States.

21 (F) Bracing of gas water heaters and other

22 measures to reduce the risk of earthquake-in23 duced fires in residential property located in

24 earthquake-prone States.
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1 (G) Inspections before transfer of residen2 tial property in earthquake-prone States and

3 hurricane-prone States (and provision to buyers

4 of inspection reports) regarding the adequacy of

5 the anchoring of the residential structure to the

6 foundation, the presence of unbraced or braced

7 cripple walls for woodframe structures, and the

8 bracing of gas water heaters to the walls for all

9 structures, as appropriate based on risk of

10 damage by earthquakes or hurricanes.

11 (3) RECOMMENDED MEASURES.—The Director

12 may recommend, in the loss-reduction criteria, any

13 of the following earthquake and hurricane prepared14 ness and planning measures:

15 (A) Expanded research and development

16 by the National Institute of Standards and

17 Technology and other government and private

18 sector entities of new cost-effective building

19 technologies for new construction and retro20 fitting of existing buildings.

21 (B) Educational and promotional cam22 paigns to encourage additional voluntary miti23 gation.

24 (C) Reward-based fiscal incentives, such as

25 lower property tax assessments, no reassess-
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1 ments for retrofitting which results in increased

2 property values, or other tax incentives to en3 courage use of state-of-the-art mitigation tech4 nology.

5 (D) State or community-based efforts to

6 assist low- and moderate-income households to

7 purchase needed earthquake, volcanic eruption,

8 or hurricane insurance and to adopt cost-effec9 tive loss-reduction measures.

10 (E) Improvements in long-term earthquake

11 and hurricane construction practices, including

12 the training and licensing of earthquake and

13 hurricane design professionals as well as public

14 and private building inspectors.

15 (F) Institutional support, training in

16 earthquake and hurricane engineering tech17 nology and other disciplines, and staffing to en18 sure compliance with the community-based

19 building codes.

20 (G) Minimizing damage to public utilities,

21 including sewer, gas, electrical and water sys22 tems, and other lifelines.

23 (c) STANDARD.—Any mitigation measures included

24 in the loss-reduction criteria established under this section

25 shall be practical, cost-effective, workable, and directly re-
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1 lated to the risk of loss from earthquakes, volcanic erup2 tions, or hurricanes in areas where residential property is

3 located.

4 (d) TECHNICAL ASSISTANCE.—The Director, in con5 sultation with the National Institute of Standards and

6 Technology, shall coordinate with and provide technical

7 assistance to States, interstate, and local officials and

8 agencies to encourage adoption and enforcement of State

9 and local actions that incorporate and support the loss10 reduction measures and preparedness goals developed by

11 the Director under this section.

12 SEC. 104. SELF-SUSTAINING MITIGATION FUND.

13 (a) IN GENERAL.—A percentage of the annual earth14 quake, volcanic eruption, and hurricane insurance and ex15 cess reinsurance premiums collected under the Primary

16 Insurance program under title II, as the Director shall

17 designate, shall be deposited in a separate fund to be

18 known as the Self-Sustaining Mitigation Fund. The per19 centage may not exceed 5 percent, unless the Director de20 termines that the amounts in the Insurance Fund are suf21 ficient to provide for any probable expected losses from

22 future earthquakes, volcanic eruptions, or hurricanes. In23 terest on amounts in the Fund shall be credited to the

24 Fund.
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1 (b) USE.—Amounts in the Self-Sustaining Mitigation

2 Fund shall be available, to the extent provided in appro3 priations Acts, to the Director to provide assistance to

4 support the earthquake, volcanic eruption, and hurricane

5 hazard reduction activities, as follows:

6 (1) Assistance to States under section 105(c).

7 (2) Assistance to provide earthquake, volcanic

8 eruption, and hurricane education pursuant to sub9 section (c).

10 (3) Assistance for research and development

11 supported by the National Institute of Standards

12 and Technology on construction techniques to reduce

13 costs of new construction and retrofitting of existing

14 buildings.

15 (4) Low-interest loans or grants for the retro16 fitting of seismically hazardous critical facilities and

17 critical facilities vulnerable to hurricanes.

18 (c) EDUCATION PROGRAM.—In coordination with the

19 educational programs authorized under title I, the Direc20 tor shall provide assistance under this section to support

21 programs educating the general public on the national di22 mensions of the seismic, volcanic eruption, and hurricane

23 risk and on methods for homeowners to reduce the haz24 ards resulting from future earthquakes and hurricanes.
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1 SEC. 105. STATE IMPLEMENTATION OF LOSS-REDUCTION

2 MEASURES.

3 (a) DEFINITION OF COMPLIANCE STATE.—An earth4 quake-prone, volcanic eruption-prone, or hurricane-prone

5 State shall be considered a compliance State for purposes

6 of this title if—

7 (1) before the expiration of the 2-year period

8 beginning upon the promulgation of final regulations

9 under section 103 establishing loss-reduction

10 criteria—

11 (A) the counties and municipalities located

12 in all seismic, volcanic, and hurricane zones

13 within the State have adopted and are enforcing

14 minimum applicable mitigation measures re15 quired under the loss-reduction criteria; and

16 (B) the chief executive officer of the State

17 has designated an administrative authority to

18 coordinate the development and enforcement of

19 earthquake, volcanic eruption, and hurricane

20 implementation plans for the State, which plans

21 are equivalent to or exceed the loss-reduction

22 criteria; and

23 (2) the State is certified under subsection (b)

24 as a compliance State.

25 (b) DETERMINATION OF COMPLIANCE.—
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1 (1) STATE SUBMISSION OF CERTIFICATION.—

2 Before the expiration of the 2-year period referred

3 to in subsection (a)(1), each earthquake-prone, vol4 canic eruption-prone, or hurricane-prone State shall

5 submit a certification to the Director stating wheth6 er the State has substantially adopted and is sub7 stantially enforcing the applicable mitigation meas8 ures under the loss-reduction criteria. In providing

9 such certification, each State may consult with rel10 evant private-sector accreditation and rating organi11 zations approved by the Director. The Director shall

12 issue regulations not later than 18 months after the

13 date of the enactment of this Act describing the cri14 teria to be used in making and reviewing such State

15 certifications.

16 (2) REVIEW BY DIRECTOR.—The Director shall

17 review each certification submitted under paragraph

18 (1) to determine whether it is an accurate mani19 festation of the submitting State’s substantial com20 pliance with, and enforcement of, the applicable

21 mitigation measures under the loss-reduction cri22 teria. If the Director determines that the State cer23 tification is substantially accurate and the State has

24 adopted and is enforcing the applicable mitigation

25 measures, the Director shall certify the State for
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1 purposes of subsection (a). Using the criteria estab2 lished under paragraph (1), the Director shall review

3 the compliance with, and enforcement of, the appli4 cable mitigation measures by each compliance State

5 meeting the requirements of subsection (a) not less

6 than once every 2 years and shall renew compliance

7 certificates as appropriate.

8 (3) NONCOMPLIANCE STATES.—If an earth9 quake-prone, volcanic eruption-prone, or hurricane10 prone State fails to submit a certification under

11 paragraph (1) or the Director determines under

12 paragraph (1) or (2) that the State has submitted

13 an inaccurate certification, has not adopted or en14 forced minimum applicable mitigation measures, or

15 has failed to have its compliance certification re16 newed, the Director shall certify the State as a non17 compliance State for purposes of this title and shall

18 promptly prepare and publish proposed regulations

19 setting forth the minimum mitigation measures ap20 plicable to the State.

21 (4) REVIEW OF NONCOMPLIANCE.—A State cer22 tified as a noncompliance State pursuant to para23 graph (3) may at any time after such certification

24 request the Director to revoke its noncompliance cer-
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1 tification and to certify the State pursuant to para2 graph (2).

3 (c) ASSISTANCE TO PROMOTE COMPLIANCE.—The

4 Director shall provide assistance to each compliance State

5 from amounts in the Self-Sustaining Mitigation Fund

6 under section 104, to the extent that amounts for such

7 assistance are made available under appropriations Acts.

8 The amount of such assistance provided to each State

9 shall be based on the State’s need for hazard reduction

10 as measured by the State’s lack of preparedness efforts,

11 the amount of earthquake, volcanic eruption, and hurri12 cane insurance premiums collected in that State under the

13 Primary Insurance Program, and the State’s risk of fu14 ture earthquakes, volcanic eruptions, and hurricanes. Such

15 financial assistance shall be used to support the State’s

16 development and implementation of its mitigation plan, in17 cluding education, enforcement, and mitigation economic

18 incentives, such as low-interest loans for seismic retro19 fitting.

20 SEC. 106. REQUIREMENT TO PURCHASE PRIMARY

21 INSURANCE.

22 (a) CONNECTION TO FEDERALLY RELATED MORT23 GAGE LOANS.—After the expiration of the 2-year period

24 beginning upon the promulgation of final regulations

25 under section 103 establishing loss-reduction criteria, no
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1 federally related mortgage loan secured by residential

2 property located in an earthquake-prone, volcanic erup3 tion-prone, or hurricane-prone State may be made, in4 creased, extended, or renewed unless the property securing

5 the loan is covered by earthquake, volcanic eruption, and

6 hurricane insurance coverage available under title II or

7 equivalent insurance from a private insurer, in the amount

8 required under section 203(a)(6). The Director shall de9 termine, in cooperation with the appropriate Federal agen10 cies, the methods by which such mortgagors shall be re11 quired to present proof that they have obtained an insur12 ance policy consistent with the provisions of this title.

13 (b) EXEMPTION FOR STATE PROPERTIES.—Notwith14 standing the other provisions of this section, earthquake,

15 volcanic eruption, and hurricane insurance coverage shall

16 not be required on any State-owned property that is cov17 ered under a State policy of self-insurance adequate in the

18 determination of the Director. The Director shall publish

19 and periodically revise a list of States to which this sub20 section applies.

21 SEC. 107. EFFECT OF NONCOMPLIANCE WITH STATE MITI22 GATION PROGRAM.

23 Each Federal agency or instrumentality responsible

24 for the supervision, approval, regulation, or insuring any

25 banks, savings and loans associations, or similar institu-
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1 tions shall, by regulation, prohibit such institutions from

2 making, increasing, extending, or renewing a federally re3 lated mortgage loan secured by improved real estate or

4 a mobile home located or to be located in an earthquake5 prone, volcanic eruption-prone, or hurricane-prone State,

6 if—

7 (1) the State has been determined to be a non8 compliance State pursuant to section 105; and

9 (2) a presale inspection of the property securing

10 the loan—

11 (A) indicates that the property does not

12 meet the minimum mitigation measures applica13 ble to the property under the loss-reduction cri14 teria; or

15 (B) has not been conducted.

16 SEC. 108. COORDINATION WITH OTHER PROGRAMS.

17 In carrying out this Act, the Director shall consult

18 with other departments and agencies of the Federal Gov19 ernment, and with interstate, State, and local agencies

20 having responsibilities regarding earthquakes, volcanic

21 eruptions, and hurricanes to ensure that the programs of

22 such agencies and the Primary Insurance Program under

23 title II are mutually consistent.
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1 SEC. 109. REPORT TO CONGRESS.

2 The Director shall submit an annual report under

3 this section to the Congress, within 90 days after the end

4 of each fiscal year. The report shall describe the activities

5 carried out under this title and evaluate any progress

6 achieved in such activities during the preceding fiscal year.

7 SEC. 110. REGULATIONS.

8 (a) DIRECTOR.—The Director may issue any regula9 tions necessary to carry out this Act, pursuant to the pro10 visions of subchapter II of chapter 5 of title 5, United

11 States Code.

12 (b) FEDERAL AGENCIES.—Each Federal agency or

13 instrumentality responsible for the supervision, approval,

14 regulation, or insuring of banks, savings and loan associa15 tions, or similar institutions, shall, in cooperation with the

16 Director, issue any regulations necessary to implement the

17 responsibilities of such agency under this Act, pursuant

18 to the provisions of subchapter II of chapter 5 of title 5,

19 United States Code.

20 TITLE II—PRIMARY INSURANCE

21 PROGRAM

22 SEC. 201. BASIC AUTHORITY AND PROGRAM ORGANIZA23 TION.

24 (a) ESTABLISHMENT.—To carry out the purposes of

25 this Act, the Director shall establish and carry out a na26 tional earthquake, volcanic eruption, and hurricane insur-
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1 ance program to provide insurance against loss resulting

2 from physical damage to or loss of real property or per3 sonal property related thereto, in the United States, aris4 ing from any earthquake, volcanic eruption, or hurricane,

5 including any fire associated with a volcanic eruption.

6 (b) IMPLEMENTATION.—In carrying out the Primary

7 Insurance Program under this title, the Director shall ar8 range for participation, on other than a risk-sharing basis,

9 by private insurers, insurance agents and brokers, insur10 ance adjustment organizations, and other persons. The

11 Director may take any actions reasonably necessary and

12 appropriate to carry out this title, including the making

13 of contracts, the employment and compensation of per14 sons, and the acquisition of real and personal property.

15 (c) INSURANCE PRACTICES.—Any actions of the Di16 rector under this title shall be consistent with standard

17 insurance practices and generally accepted accounting, ac18 tuarial, and underwriting principles.

19 (d) SUITS.—Any lawsuits by or against the Director

20 (or employees of the Federal Emergency Management

21 Agency) in connection with activities under this title shall

22 be brought in the district court of the United States with

23 jurisdiction over the action, except that any action by an

24 insurer or reinsurer against the Director (or employees of

25 the Federal Emergency Management Agency) shall be
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1 brought in the United States District Court for the

2 District of Columbia.

3 (e) PLAN OF OPERATION.—

4 (1) DEVELOPMENT.—The Director shall de5 velop a plan of operation under this subsection to

6 ensure the fair, reasonable, and equitable adminis7 tration of the Insurance Fund, the Reinsurance

8 Fund, and other activities under this title and title

9 III.

10 (2) CONTENTS.—The plan of operation shall set

11 forth the specific policy and programmatic details

12 for operating the Primary Insurance Program and

13 the Reinsurance Program, and shall include—

14 (A) all guidelines, criteria, definitions,

15 clarifications, and procedures necessary to carry

16 out this title;

17 (B) procedures for implementing the miti18 gation incentives under section 206; and

19 (C) standards for insurers to retain ex20 pense allowances from premiums collected

21 under this title.

22 (3) STUDY OF LOW-INCOME RATES.—In devel23 oping the plan of operation, the Director shall con24 sider options for charging less than actuarial rates

25 for residential property occupied by low-income pol-
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1 icyholders and may include in the plan any such op2 tion the Director considers necessary, appropriate,

3 and practicable, subject to the requirements under

4 section 205(c).

5 (4) ESTABLISHMENT.—

6 (A) SUBMISSION OF DRAFT TO ADVISORY

7 COMMITTEE.—Not later than the expiration of

8 the 12-month period beginning on the date of

9 the enactment of this Act, the Director shall

10 submit a draft of the plan of operation to the

11 Insurance and Reinsurance Advisory Committee

12 established under section 207. Before issuing

13 any proposed regulations under subparagraph

14 (B), the Director shall consider any rec15 ommendations made by such Advisory Commit16 tee regarding the draft plan of operation.

17 (B) PROPOSED REGULATIONS.—Not later

18 than the expiration of the 18-month period be19 ginning on the date of the enactment of this

20 Act, the Director shall issue proposed regula21 tions establishing the plan of operation under

22 this section, subject to the provisions of sub23 chapter II of chapter 5 of title 5, United States

24 Code. In issuing proposed regulations under

25 this paragraph, the Director shall cause to be
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1 published in the Federal Register a description

2 of any differences between the recommendations

3 of the Insurance and Reinsurance Advisory

4 Committee and the final regulations (including

5 the guidelines, criteria, definitions, clarifica6 tions, and procedures under the plan) developed

7 by the Director. The description shall contain,

8 for each such difference, an explanation of why

9 the recommendations of the Advisory Commit10 tee were not included in the proposed regula11 tions.

12 (C) COMMENTS.—After the regulations

13 have been issued under subparagraph (B), the

14 Director shall request comments from the In15 surance and Reinsurance Advisory Committee

16 regarding any changes to the regulations.

17 (D) SUBSEQUENT CHANGES.—Any

18 changes to the plan of operation contained in

19 final regulations shall be made pursuant to reg20 ulations issued in the manner provided in sub21 paragraphs (B) and (C).

22 SEC. 202. SCOPE OF PROGRAM.

23 (a) RESIDENTIAL PROPERTIES.—In carrying out the

24 Primary Insurance Program, the Director shall make

25 earthquake, volcanic eruption, and hurricane coverage
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1 available only for residential property. The Director shall

2 make such coverage available in earthquake-prone States,

3 volcanic eruption-prone States, and hurricane-prone

4 States.

5 (b) ADDITIONAL TYPES OF PROPERTIES.—If, on the

6 basis of studies and investigations undertaken and carried

7 out and information received or exchanged under section

8 204, and such other information as may be necessary, the

9 Director determines that it would be feasible to extend the

10 Primary Insurance Program to cover other properties, the

11 Director may recommend to Congress that earthquake,

12 volcanic eruption, and hurricane coverage under this title

13 be made available to cover any types and classes of—

14 (1) other properties in residential areas;

15 (2) small business properties that are owned or

16 leased and operated by small business concerns;

17 (3) religious properties;

18 (4) agricultural properties;

19 (5) properties occupied by primary nonprofit or20 ganizations; and

21 (6) properties owned by State and local govern22 ments and agencies thereof.
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1 SEC. 203. TERMS AND LIMITATIONS OF INSURANCE COV2 ERAGE.

3 (a) TERMS.—Pursuant to the plan of operation es4 tablished under section 201 and after consultation with

5 the Insurance and Reinsurance Advisory Committee, the

6 Director shall establish, by regulation, the general terms

7 and conditions of insurability for properties eligible for

8 residential property insurance coverage under section 202.

9 Such regulations shall meet the requirements of this sec10 tion and may include—

11 (1) the type and locational classification of such

12 eligible properties;

13 (2) the nature of damage that may be covered

14 by such insurance;

15 (3) appropriate minimum premiums;

16 (4) appropriate loss-deductibles including vari17 able deductibles based on the existence of loss-reduc18 ing measures that affect the risk of loss;

19 (5) appropriate limits on coverage for each clas20 sification of eligible properties;

21 (6) appropriate minimum coverage amounts

22 pursuant to section 106(a) for each classification of

23 eligible properties, which may not be less than the

24 outstanding principal balance of the mortgage loan

25 securing the property or the maximum coverage
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1 limit for the property under paragraph (5), which2 ever is less; and

3 (7) any other terms and limitations relating to

4 such residential property insurance coverage that

5 may be necessary to carry out the purposes of this

6 title.

7 (b) LIMITATIONS.—Earthquake, volcanic eruption,

8 and hurricane coverage under this title shall cover—

9 (1) any damage to covered eligible property

10 proximately caused by—

11 (A) an earthquake, volcanic eruption, or

12 hurricane;

13 (B) a tsunami associated with an earth14 quake, volcanic eruption, or hurricane;

15 (C) a fire associated with a volcanic erup16 tion; and

17 (2) coverage for debris removal and additional

18 living expenses incurred as a result of direct damage

19 to the premises by—

20 (A) earthquake, volcanic eruption, or hur21 ricane;

22 (B) a tsunami associated with an earth23 quake, volcanic eruption, or hurricane; and

24 (C) a fire associated with a volcanic erup25 tion.
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1 The coverage shall not include coverage for any fires asso2 ciated with an earthquake.

3 (c) ELIGIBILITY OF COVERAGE.—Any private insurer

4 issuing residential property insurance coverage in any

5 earthquake-prone, volcanic eruption-prone, or hurricane6 prone State may provide the coverage under this title, on

7 behalf of the Federal Government, to residential property

8 policyholders of the insurer. Any private insurer electing

9 to participate in the Primary Insurance Program shall

10 make coverage available to all residential property policy11 holders of the insurer in earthquake-prone, volcanic erup12 tion-prone, or hurricane-prone States. Any private insurer

13 electing to purchase the excess reinsurance coverage pur14 suant to title III shall make the coverage available, on be15 half of the Federal Government, or at equivalent coverage

16 and rates on their own behalf, to all residential property

17 policyholders of the insurer.

18 SEC. 204. ESTABLISHMENT OF ACTUARIAL PREMIUM

19 RATES.

20 (a) STUDIES AND ESTABLISHMENT OF RATES.—The

21 Director may undertake and carry out such studies and

22 investigations and receive and exchange such information

23 as may be necessary to establish, and shall from time to

24 time establish and prescribe, by regulation, on a State,

25 territorial, or other appropriate basis, actuarial premium
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1 rates for types of classes of property eligible for residential

2 property insurance coverage and the terms and conditions

3 under which such rates apply.

4 (b) ARRANGEMENTS FOR SERVICES.—In carrying out

5 such studies, the Director shall consult with the Loss Miti6 gation Advisory Committee and the Insurance and Rein7 surance Advisory Committee and may enter into contracts,

8 agreements, or other arrangements to utilize the services

9 of the United States Geological Survey and other relevant

10 Federal, State, and local governmental agencies, and other

11 persons.

12 (c) CONSIDERATIONS.—The Director shall establish

13 actuarial rates under this section based on—

14 (1) considerations of the risks involved,

15 including—

16 (A) the severity and frequency of earth17 quakes by seismic zone and States in which the

18 insured property is located, including known

19 differences in risks from active faults and

20 known susceptibility to landslide, site amplifi21 cation, and liquefaction;

22 (B) the risk of damage associated with a

23 volcanic eruption by volcanic zone and States in

24 which the insured property is located, including

25 proximity to known lava flows;
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1 (C) the severity and frequency of hurri2 canes by hurricane zone and States in which

3 the insured property is located;

4 (D) the value of the insured property;

5 (E) the age of the structures located on

6 the insured property;

7 (F) the construction type of the structures

8 located on the insured property, including

9 woodframe, masonry, and masonry veneer;

10 (G) the architectural type of the structures

11 located on the insured property, including soft

12 first floor, box construction, and split level;

13 (H) earthquake or hurricane loss-reduction

14 measures, including measures described in sec15 tion 103, followed in the construction or subse16 quent retrofitting of residential property struc17 tures; and

18 (I) any other relevant criteria; and

19 (2) application of accepted actuarial and rate20 making principles that reflect the risks involved, an21 ticipated insurance related administrative and oper22 ating costs and loss and loss-adjustment expense

23 payments, and provide for adequate reserves.

24 (d) LIMITATION.—Any rate classification system

25 used by the Director to establish actuarial rates under this
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1 section shall be cost-effective and shall not impose costs

2 for the initial establishment or the subsequent administra3 tion of the rate plan that are disproportionate to the size

4 of the insurance premiums.

5 SEC. 205. CHARGEABLE PREMIUM RATES.

6 (a) ESTABLISHMENT.—On the basis of actuarial

7 rates established under section 204 and such other infor8 mation as may be necessary, the Director shall from time

9 to time, and after consultation with the Loss Mitigation

10 Advisory Committee and the Insurance and Reinsurance

11 Advisory Committee, establish and prescribe, by

12 regulation—

13 (1) chargeable premium rates for any types and

14 classes of properties eligible for earthquake, volcanic

15 eruption, and hurricane coverage; and

16 (2) the terms and conditions under which such

17 rates shall apply.

18 (b) MINIMIZATION OF CROSS-SUBSIDIZATION.—To

19 the maximum extent practicable, such chargeable rates

20 shall be actuarial rates over an extended period of time

21 and shall result in a minimum of cross-subsidization by

22 reasonably reflecting the risk of damaging earthquakes,

23 volcanic eruptions, and hurricanes in total and for each

24 subclassification of policyholders. In setting and adjusting

25 chargeable rates under this section, the Director shall pro-
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1 vide that, over an extended period of time, expected ex2 penditures from the Insurance Fund under section 208(c)

3 do not exceed expected receipts of the Fund under section

4 208(b).

5 (c) LOW-INCOME RATES AND MITIGATION INCEN6 TIVES.—The Director may, pursuant to the plan of oper7 ation under section 201, establish chargeable rates under

8 this section for (1) residential property occupied by low9 income residents, and (2) residential properties described

10 in section 206(4), that are less than the actuarial rates

11 established under section 204, but only to the extent that

12 such rates do not prevent compliance with the last sen13 tence of subsection (b).

14 SEC. 206. INSURANCE MITIGATION INCENTIVES.

15 In carrying out the Primary Insurance Program

16 under this title pursuant to the plan of operation, the Di17 rector shall provide for the following insurance mitigation

18 incentives:

19 (1) Charging lower deductible amounts for any

20 residential property meeting the seismic and hurri21 cane building standards under the loss-reduction cri22 teria.

23 (2) Requiring under earthquake, volcanic erup24 tion, and hurricane coverage that repairs to residen25 tial property sustaining earthquake damage in ex-
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1 cess of the deductible include, at a minimum, an2 choring the dwelling to the foundation and the addi3 tion of bracing to cripple walls.

4 (3) Requiring under earthquake, volcanic erup5 tion, and hurricane coverage that repairs to residen6 tial property sustaining hurricane damage in excess

7 of the deductible include such structural or other re8 pairs as the Director considers appropriate to miti9 gate against future hurricane damage.

10 (4) Requiring under earthquake, volcanic erup11 tion, and hurricane coverage that residential prop12 erty suffering damage in an amount greater than 50

13 percent of the replacement value of the property

14 shall be rebuilt to at least the minimum standards

15 under the loss-reduction criteria under section 103

16 and applicable to the State.

17 (5) Charging lower premiums or deductible

18 amounts for any residential property located in a

19 seismic zone in an earthquake-prone State, or in a

20 hurricane zone in a hurricane-prone State that

21 passes an earthquake or hurricane inspection that is

22 required as a condition of sale, paid for by the seller,

23 and meets the requirements of section 103(b)(2)(G).

24 (6) Charging lower premiums or deductible

25 amounts for new residential property not con-
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1 structed in volcanic zones in a volcanic eruption2 prone State.

3 SEC. 207. EARTHQUAKE, VOLCANIC ERUPTION, AND HURRI4 CANE INSURANCE AND REINSURANCE ADVI5 SORY COMMITTEE.

6 (a) ESTABLISHMENT.—There is established an inde7 pendent advisory committee within the executive branch

8 to be known as the Earthquake, Volcanic Eruption, and

9 Hurricane Insurance and Reinsurance Advisory Commit10 tee (in this section referred to as the ‘‘Committee’’). The

11 Committee, its members, and its functions shall be sepa12 rate from the Loss Mitigation Advisory Committee estab13 lished under section 102. To the extent not contradicted

14 by the provisions of this section, the Committee shall be

15 subject to the provisions of the Federal Advisory Commit16 tee Act.

17 (b) MEMBERSHIP.—

18 (1) APPOINTED MEMBERS.—The Committee

19 shall be composed of 5 members appointed by the

20 President, by and with the advice and consent of the

21 Senate. The members shall be chosen from among

22 citizens of the United States and shall include—

23 (A) 2 individuals who represent the inter24 ests of private insurers;
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1 (B) 1 individual who represents the inter2 ests of private reinsurers;

3 (C) 1 individual who represents the inter4 ests of insurance agents; and

5 (D) 1 individual who is a State insurance

6 regulator.

7 (2) EX OFFICIO MEMBER.—Notwithstanding

8 paragraph (1), the Chairman of the Loss Mitigation

9 Advisory Committee under section 102 shall serve as

10 an ex officio member of the Committee under this

11 section.

12 (c) VACANCIES.—A vacancy in the Commission shall

13 be filled in the manner in which the original appointment

14 was made.

15 (d) CHAIRMAN.—The President shall designate a

16 chairman of the Committee from among members selected

17 for appointment to the Committee.

18 (e) SELECTION.—Not later than 180 days after the

19 date of the enactment of this Act, the President shall sub20 mit to the Senate nominations for appointment to the

21 Committee.

22 (f) FUNCTIONS OF THE COMMITTEE.—The Commit23 tee shall review the draft plan of operation established

24 under section 201. Within 120 days after receiving the

25 draft plan of operation, the Committee shall submit to the
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1 Director written comments and recommendations for any

2 changes to the plan. After final regulations establishing

3 the plan of operation have been issued, the Committee

4 shall submit a written report not less than once every 180

5 days to the Director and the Congress evaluating the oper6 ation of the Federal earthquake, volcanic eruption, and

7 hurricane insurance and reinsurance programs under this

8 title and making recommendations for any actions relating

9 to such programs. The Committee shall respond as soon

10 as practicable to all requests of the Director made pursu11 ant to subsection (g) or section 201(e)(4)(C).

12 (g) RESPONSIBILITIES OF THE DIRECTOR.—The Di13 rector shall fully cooperate with the Committee and pro14 vide the Committee with access to personnel and informa15 tion as the Committee considers necessary to carry out

16 its functions. The Director shall request comments from

17 the Committee on any questions regarding operation of

18 the Federal earthquake, volcanic eruption, and hurricane

19 insurance and reinsurance programs established under

20 this title.

21 SEC. 208. RESIDENTIAL PROPERTY INSURANCE FUND.

22 (a) ESTABLISHMENT.—There is established in the

23 Treasury of the United States the Residential Property

24 Insurance Fund for the purpose of carrying out the

25 Primary Insurance Program under this title.
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1 (b) CREDITS OF FUND.—The Insurance Fund shall

2 be credited with—

3 (1) insurance premiums received by the Direc4 tor under the Primary Insurance Program (less any

5 amounts credited to the Self-Sustaining Mitigation

6 Fund under section 104) and interest earned on pre7 miums, as provided in subsection (e) of this section;

8 (2) any amounts borrowed under section 209;

9 (3) any amounts appropriated to the Insurance

10 Fund; and

11 (4) any interest earned on amounts invested

12 under subsection (d).

13 (c) USES OF FUND.—Amounts in the Insurance

14 Fund shall be available for—

15 (1) payments for losses and loss adjustment ex16 penses under subsection (f);

17 (2) payments for insurance company expense

18 allowances paid (including agents’ commissions,

19 State premium taxes, and companies’ administration

20 expenses);

21 (3) administrative expenses of the Primary In22 surance Program; and

23 (4) interest payments on amounts borrowed

24 under section 209 for additional losses, if any.
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1 (d) INVESTMENT OF AMOUNTS.—The Director may

2 request the Secretary of Treasury to invest any amount

3 in the Residential Property Insurance Fund in obligations

4 issued or guaranteed by the United States, as the Director

5 considers appropriate.

6 (e) INSURANCE PAYMENTS TO FUND.—Private insur7 ers issuing earthquake, volcanic eruption, and hurricane

8 insurance coverage shall remit the premiums collected, less

9 the insurers’ expense allowances (as provided for in the

10 plan of operation), to the Director on a quarterly basis

11 30 days after the end of the quarter, according to the pro12 cedures prescribed in the plan of operation. Such private

13 insurers shall maintain a separate, interest-bearing ac14 count for the premiums to be submitted to the Director.

15 The interest collected on this account shall be forwarded

16 to the Residential Property Insurance Fund with the

17 premiums on a quarterly basis.

18 (f) REIMBURSEMENT OF INSURERS.—

19 (1) REQUIREMENT AND PROCEDURE.—The Di20 rector shall reimburse private insurers providing

21 earthquake, volcanic eruption, and hurricane insur22 ance coverage pursuant to this title from amounts

23 made available from the Insurance Fund. Reim24 bursement for all claim payments up to and includ25 ing the policy limits of coverage and for all loss ad-
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1 justment expenses paid as a result of earthquake,

2 volcanic eruption, and hurricane shall be made as

3 follows:

4 (A) The Director shall reimburse insurers

5 for all claim payments and loss adjustment ex6 pense payments made pursuant to the Federal

7 Government’s obligations. To the extent that

8 reimbursement is obtained by private insurers

9 for losses also covered under the Reinsurance

10 Program, the insurer shall reimburse the Resi11 dential Property Insurance Fund accordingly.

12 (B) If the gross reimbursements exceed

13 amounts available in the Residential Property

14 Insurance Fund, a combination of amounts bor15 rowed from the industry under subparagraph

16 (C) and amounts borrowed from the Treasury

17 of the United States under section 209 shall

18 cover the additional losses.

19 (C) The industry share under subpara20 graph (B) shall be equivalent to 10 percent of

21 the additional losses. Private insurers issuing

22 earthquake, volcanic eruption, and hurricane

23 coverage shall be assessed for the industry par24 ticipation in the additional losses based upon

25 the proportion that each insurer’s written pre-
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1 miums for this coverage in each State in which

2 the earthquake, volcanic eruption, or hurricane

3 events occurred bear to the total written pre4 miums for such coverage from all insurers in

5 each State in which the same events occurred,

6 based on the most recently published annual re7 port of the Federal Emergency Management

8 Agency. Assessments under this subparagraph

9 may be reinsured under title III.

10 (2) REGULATIONS.—The Director may issue

11 regulations establishing the general method or meth12 ods by which proved and approved claims for losses

13 may be adjusted and paid for damages covered by

14 the earthquake, volcanic eruption, and hurricane

15 coverage issued under this title. The claim practices

16 of the Insurance Fund shall be subject to and con17 form with any applicable State insurance unfair

18 trade practices statutes. Judicial review of a decision

19 of the Director regarding reimbursement of a private

20 insurer shall be available pursuant to section 201(d).

21 (g) OBLIGATIONS.—All earthquake, volcanic erup22 tion, and hurricane insurance coverage provided through

23 the Primary Insurance Program under this title shall con24 stitute obligations, in accordance with the provisions of

25 this title, of the United States. The full faith and credit
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1 of the United States is pledged for the full payment and

2 performance of such obligations, subject to the provisions

3 of subsection (f)(1)(C). The private insurers participating

4 in the program shall bear no risk and shall assume no

5 liability for the earthquake, volcanic eruption, and hurri6 cane coverage provided through the program except as

7 provided in subsection (f)(1)(C).

8 (h) STATUS OF FUND.—Any premiums collected for

9 deposit in the Insurance Fund shall be exempt from all

10 taxation now or hereafter imposed by the United States,

11 by any territory, dependency or possession thereof, or by

12 the State, county, municipality, or local taxing authority,

13 except that the insurance policies issued by or in conjunc14 tion with the Federal Government pursuant to this title

15 shall be subject, where applicable, to State insurance pre16 mium taxes.

17 SEC. 209. BORROWING FROM TREASURY.

18 (a) AUTHORITY.—To the extent that the accumulated

19 assets, including any return on investments, in the Resi20 dential Property Insurance Fund are insufficient to pay

21 claims and expenses, the Director shall issue, from time

22 to time, to the Secretary of the Treasury, notes and other

23 obligations to cover the insufficiency; except that the

24 amounts of such obligations outstanding at any one time

25 shall not exceed—
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1 (1) $25,000,000,000 (or such greater amount

2 as may be approved by the President); and

3 (2) such sums as the Congress may provide act4 ing upon the recommendation of the Director.

5 (b) INTEREST RATE.—Obligations under subsection

6 (a) shall bear interest at a rate determined by the Sec7 retary of the Treasury, taking into consideration the cur8 rent average market yield on outstanding marketable obli9 gations of the United States of comparable maturities.

10 (c) DEPOSITS.—Any amounts borrowed by the Direc11 tor under this section shall be deposited in the Residential

12 Property Insurance Fund.

13 (d) REPAYMENT.—Any amounts borrowed under this

14 section shall be recouped, including interest on the bor15 rowed funds, in future chargeable rates for earthquake,

16 volcanic eruption, and hurricane coverage pursuant to the

17 plan of operation. The Secretary of the Treasury shall lib18 erally grant extensions in repayment schedules that the

19 Director advises the Secretary are necessary.
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1 TITLE III—NATIONAL EARTH2 QUAKE, VOLCANIC ERUP3 TION, AND HURRICANE EX4 CESS LOSS REINSURANCE

5 PROGRAM

6 SEC. 301. REINSURANCE PROGRAM.

7 (a) AVAILABILITY.—

8 (1) INITIAL.—Upon the issuance of final regu9 lations establishing the plan of operation under sec10 tion 201, the Director shall make available, to any

11 private insurer participating in the Primary Insur12 ance Program under title II or any private reinsurer

13 which reinsures any such private insurer, excess re14 insurance coverage for direct and indirect losses that

15 are not eligible for insurance coverage under title II

16 and arise from an earthquake, a volcanic eruption,

17 or a hurricane.

18 (2) EXPANDED.—Upon the expiration of the 2-

19 year period beginning upon issuance of the regula20 tions referred to in paragraph (1), the Director shall

21 make available, to any private insurer or private re22 insurer, excess reinsurance coverage for direct and

23 indirect losses that are not eligible for insurance cov24 erage under title II and arise from an earthquake,

25 a volcanic eruption, or a hurricane. Each private in-
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1 surer or reinsurer participating in the Primary In2 surance Program under title II shall purchase the

3 excess reinsurance coverage under this title.

4 (b) LIABILITY.—Excess reinsurance under this title

5 shall be offered as follows:

6 (1) INDUSTRY.—The Reinsurance Fund shall

7 be liable with respect to such reinsurance in the

8 event of an earthquake, a volcanic eruption, or a

9 hurricane after the insurance industry has incurred

10 losses and loss adjustment expenses from the single

11 event that are covered under the lines set forth in

12 section 302(a) and that exceed 8 percent of the in13 dustry countrywide subject net written premium, as

14 determined by the Director.

15 (2) FEDERAL GOVERNMENT.—After the insur16 ance industry has sustained losses described in para17 graph (1), the Federal Government shall be liable to

18 an individual private insurer or private reinsurer for

19 95 percent of qualifying losses in excess of 8 percent

20 of the private insurer’s or private reinsurer’s coun21 trywide subject net written premium.

22 (c) QUALIFYING LOSSES.—For the purposes of sub23 section (b), the term ‘‘qualifying losses’’ means losses and

24 loss adjustment expenses incurred by a private insurer or

25 private reinsurer from an earthquake (including losses and
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1 loss adjustment expenses from foreshocks and aftershocks

2 attributable to the same event and including separate

3 earthquakes occurring within a 12-month period encom4 passing the event described in subsection (b)(1) whose in5 curred losses and loss adjustment expenses exceed 2 per6 cent of the private insurer’s or private reinsurer’s country7 wide subject net written premium), a volcanic eruption,

8 or a hurricane, reduced—

9 (1) by any collectible reinsurance recoverable;

10 and

11 (2) if the percentage of uncollectible reinsur12 ance arising from the event, as compared to total re13 insurance (other than earthquake, volcanic eruption,

14 or hurricane excess catastrophe reinsurance pur15 chased from the Federal Government) with respect

16 to the event is—

17 (A) more than 0 but not more than 5 per18 cent, by 0 percent of such uncollectible reinsur19 ance amount;

20 (B) more than 5 percent, but not more

21 than 15 percent, by 33.33 percent of the

22 uncollectible reinsurance amount above 5 per23 cent;

24 (C) more than 15 percent, but not more

25 than 25 percent, by—
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1 (i) the amount determined under sub2 paragraph (B); and

3 (ii) 66.66 percent of the uncollectible

4 reinsurance amount above 15 percent; and

5 (D) more than 25 percent, by—

6 (i) the amount determined under sub7 paragraph (C); and

8 (ii) 100 percent of the uncollectible re9 insurance amount above 25 percent.

10 (d) OTHER ELIGIBILITY.—

11 (1) IN GENERAL.—Notwithstanding the re12 quirements of subsections (b) and (c), a private in13 surer or private reinsurer shall be eligible for excess

14 reinsurance coverage and reimbursement from the

15 Federal Government if the insurer or reinsurer has

16 incurred losses, prior to any reinsurance coverage,

17 from a single event that are included in the lines

18 covered in section 302(a) and that exceed 50 percent

19 of their countrywide subject direct written premium

20 or their countrywide subject net written premium,

21 whichever is greater.

22 (2) LIABILITY.—After the private insurer or

23 private reinsurer has sustained losses described in

24 paragraph (1), the Federal Government shall be lia25 ble for 95 percent of qualifying losses, as defined in
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1 subsection (c), in excess of 20 percent of the private

2 insurer’s or the private reinsurer’s countrywide sub3 ject net written premium.

4 (3) LIMITATION ON LIABILITY.—The liability of

5 the Federal Government under this subsection shall

6 be limited to 200 percent of the private insurer’s

7 countrywide subject direct net written premium and

8 600 percent of the private reinsurer’s countrywide

9 subject assumed net written premium. In the event

10 a company is both a private insurer and a private

11 reinsurer, the liability limits shall be 200 percent of

12 their subject direct net written premium and 600

13 percent of their subject assumed net written pre14 mium. Intracompany or intragroup reinsurance ar15 rangements or contracts shall not be considered as

16 reinsurance in the calculation of insurance and rein17 surance subject direct or subject assumed net writ18 ten premium under this subsection.

19 (e) DEFINITIONS.—For purposes of this title:

20 (1) The term ‘‘subject assumed net written pre21 mium’’ means premiums received from other insur22 ance companies for reinsurance less ceded reinsur23 ance, for all lines of coverage listed in section 302.

24 (2) The term ‘‘subject direct net written pre25 mium’’ means the aggregate amount of recorded
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1 originated premiums, other than reinsurance, issued

2 during the year whether collected or not at the close

3 of the year (plus retrospective audit premium collec4 tions) after deducting all return premiums and ceded

5 reinsurance premiums, for all lines of coverage listed

6 in section 302.

7 (3) The term ‘‘subject net written premium’’

8 means direct and reinsurance premiums received by

9 private insurers and private reinsurers, less pre10 miums paid for ceded reinsurance, for all lines of

11 coverage listed in section 302.

12 (4) The term ‘‘uncollectible reinsurance’’ means

13 reinsurance proceeds due and payable in accordance

14 with the terms of the reinsurance contract which are

15 not paid within 12 months of the due date.

16 SEC. 302. LINES OF INSURANCE.

17 (a) COVERED LINES.—The Director shall provide re18 insurance coverage to private insurers for all of the follow19 ing lines of insurance appearing in the National Associa20 tion of Insurance Commissioners Fire and Casualty An21 nual Statement filed with the applicable State department

22 of insurance:

23 (1) Fire.

24 (2) Allied Lines.

25 (3) Farmowner’s Multiple Peril.
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1 (4) Homeowner’s Multiple Peril.

2 (5) Commercial Multiple Peril.

3 (6) Ocean Marine.

4 (7) Inland Marine.

5 (8) Earthquake.

6 (9) Workers Compensation.

7 (10) Other Liability.

8 (11) Aircraft (All Perils).

9 (12) Glass.

10 (13) Burglary and Theft.

11 (14) Boiler and Machinery.

12 (15) Reinsurance.

13 Reinsurance coverage must be purchased for all covered

14 lines of insurance and in all affected seismic, volcanic, and

15 hurricane rating zones in earthquake-prone, volcanic erup16 tion-prone, or hurricane-prone States with the rates for

17 such coverage set by the Director, pursuant to section

18 303.

19 (b) OTHER LINES.—The Federal Government shall

20 provide reinsurance coverage to private reinsurers for all

21 of the lines of insurance referred to in subsection (a) as

22 well as other lines of insurance appearing in the National

23 Association of Insurance Commissioners Fire and Cas24 ualty Annual Statement, as determined by the Director
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1 in the plan of operation and in consultation with the

2 Insurance and Reinsurance Advisory Committee.

3 SEC. 303. RATES.

4 (a) ESTABLISHMENT.—The Director shall establish

5 the rates for the excess reinsurance coverage and adjust

6 the rates when necessary using generally accepted actuar7 ial principles. To the maximum extent practicable, such

8 rates shall be actuarial rates which produce a minimum

9 degree of cross-subsidization over an extended period of

10 time consistent with the infrequency of catastrophic earth11 quakes, volcanic eruptions, and hurricanes. In setting and

12 adjusting the rates, the Director shall provide that, over

13 an extended period of time, expected expenditures from

14 the Reinsurance Fund under section 305(c) do not exceed

15 expected receipts of the Reinsurance Fund under section

16 305(b).

17 (b) CONSIDERATIONS.—In setting or adjusting such

18 rates, the Director shall also provide for a minimum de19 gree of cross-subsidization among classes of reinsureds by

20 reasonably reflecting the differences in risk of and vulner21 ability to loss from earthquakes, volcanic eruptions, and

22 hurricanes that would be subject to payment from the

23 Reinsurance Fund, by giving due consideration to the

24 following:
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1 (1) The premium volume of the reinsured by

2 line of insurance under section 302(a) by seismic,

3 volcanic, and hurricane zone or State in which the

4 risks insured or reinsured by the reinsurer are lo5 cated.

6 (2) The proportion of the total expected amount

7 of payments for qualifying losses and loss adjust8 ment expenses by line of insurance under section

9 302(a) by seismic, volcanic, and hurricane zone or

10 State expected for each reinsured.

11 (c) LIMITATION.—Any rate classification system used

12 by the Director under this section shall be cost-effective

13 and shall not impose costs for the initial establishment or

14 the subsequent administration of the rating plan that are

15 disproportionate to the size of the premiums.

16 (d) QUARTERLY PAYMENT.—Premiums paid to the

17 Reinsurance Fund for reinsurance coverage under this

18 title shall be paid on a quarterly basis and shall be accu19 mulated in the Reinsurance Fund, to be managed pursu20 ant to section 305.

21 SEC. 304. REINSURANCE CONTRACTS.

22 (a) TERMS.—The reinsurance contracts issued by the

23 Federal Government pursuant to this title shall contain

24 terms and conditions similar to those generally used in

25 private catastrophic reinsurance contracts.
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1 (b) JUDICIAL REVIEW.—Judicial review of a decision

2 of the Director regarding payment of claims shall be made

3 available pursuant to section 201(d).

4 (c) OBLIGATIONS.—All reinsurance contracts issued

5 under this title shall constitute obligations, in accordance

6 with the terms of such reinsurance, of the United States.

7 The full faith and credit of the United States is pledged

8 for the full payment and performance of such obligations.

9 (d) SINGLE ENTITIES.—Any private insurance and

10 reinsurance companies under the same ownership or man11 agement, as determined under the plan of operation, shall

12 be considered a single entity for purposes of this title.

13 SEC. 305. REINSURANCE FUND.

14 (a) ESTABLISHMENT.—There is established in the

15 Treasury of the United States the Reinsurance Fund for

16 the purposes of carrying out the excess loss reinsurance

17 program under this title.

18 (b) CREDITS OF FUND.—The Reinsurance Fund

19 shall be credited with—

20 (1) any reinsurance premiums received by the

21 Director under the excess loss reinsurance program;

22 (2) any amounts borrowed under section 306;

23 and

24 (3) any amounts earned under subsection (d).
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1 (c) USE OF FUND.—The Reinsurance Fund shall be

2 available to the Director for—

3 (1) payments for qualifying losses and loss ad4 justment expenses under the excess loss reinsurance

5 program under this title;

6 (2) administrative expenses of carrying out the

7 program; and

8 (3) interest payments on amounts borrowed

9 from the Treasury under section 306, if any.

10 (d) INVESTMENT.—The Director shall request the

11 Secretary of the Treasury to invest any amounts in the

12 Reinsurance Fund in obligations issued or guaranteed by

13 the United States, as the Director considers appropriate.

14 (e) STATUS OF FUNDS.—Any reinsurance premiums

15 collected for deposit in the Reinsurance Fund shall be ex16 empt from all taxation now or hereafter imposed by the

17 United States, by any territory, dependency or possession

18 thereof, or by any State, county, municipality, or local tax19 ing authority, except that the insurance policies issued by

20 or in conjunction with the Federal Government pursuant

21 to this title shall be subject, where applicable, to State

22 insurance premium taxes.

23 SEC. 306. BORROWING FROM TREASURY.

24 (a) AUTHORITY.—To the extent that the accumulated

25 assets, including any return on investments, in the Rein-
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1 surance Fund are insufficient to pay claims and expenses,

2 the Director shall issue, from time to time, to the Sec3 retary of the Treasury, notes and other obligations to

4 cover the insufficiency; except that the amounts of such

5 obligations outstanding at any one time shall not exceed—

6 (1) $25,000,000,000 (or such greater amount

7 as may be approved by the President); and

8 (2) such sums as the Congress may provide act9 ing upon the recommendation of the Director.

10 (b) INTEREST RATE.—Obligations under subsection

11 (a) shall bear interest at a rate determined by the Sec12 retary of the Treasury, taking into consideration the cur13 rent average market yield on outstanding marketable obli14 gations of the United States of comparable maturities.

15 (c) DEPOSITS.—Any amounts borrowed by the Direc16 tor under this section shall be deposited in the Reinsur17 ance Fund.

18 (d) REPAYMENT.—Any amounts borrowed pursuant

19 to this section shall be recouped, including interest on the

20 borrowed funds, in future rates for excess reinsurance cov21 erage pursuant to the plan of operation. The Secretary

22 of the Treasury shall liberally grant extensions in repay23 ment schedules that the Director advises the Secretary are

24 necessary.

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