I

104TH CONGRESS

1ST SESSION H. R. 1856

To amend the Robert T. Stafford Disaster Relief and Emergency Assistance

Act to provide for an expanded Federal program of hazard mitigation,

relief, and insurance against the risk of catastrophic natural disasters,

such as hurricanes, earthquakes, and volcanic eruptions, and for other

purposes.

IN THE HOUSE OF REPRESENTATIVES

JUNE 15, 1995

Mr. EMERSON (for himself, Mr. MINETA, Mr. EWING, Mr. BOEHLERT, Mr.

ABERCROMBIE, Mr. ACKERMAN, Mr. ANDREWS, Mr. BAESLER, Mr. BLILEY, Mr. BORSKI, Mr. BROWN of Ohio, Mr. BURTON of Indiana, Mr.

CALVERT, Mr. CANADY of Florida, Mr. CLYBURN, Mr. COLLINS of Georgia, Miss COLLINS of Michigan, Mr. CONDIT, Mr. COSTELLO, Mr.

CRAMER, Mr. CRANE, Ms. DANNER, Mr. DEFAZIO, Mr. DEUTSCH, Mr.

DIAZ-BALART, Mr. DICKS, Mr. DICKEY, Mr. DINGELL, Mr. DIXON, Mr.

DOOLITTLE, Mr. DORNAN, Mr. DREIER, Mr. DURBIN, Ms. ESHOO, Mr.

FALEOMAVAEGA, Mr. FARR, Mr. FAZIO of California, Mr. FIELDS of

Texas, Mr. FILNER, Mr. FORD, Mrs. FOWLER, Ms. FURSE, Mr.

GALLEGLY, Mr. GILLMOR, Mr. GORDON, Mr. GENE GREEN of Texas, Mr.

HALL of Texas, Mr. HASTERT, Mr. HAYES, Mr. HERGER, Mr. HOBSON,

Mr. HORN, Mr. HUTCHINSON, Ms. EDDIE BERNICE JOHNSON of Texas,

Mr. JOHNSTON of Florida, Mr. KIM, Mr. KNOLLENBERG, Mr. LAHOOD,

Mrs. LINCOLN, Mr. LATOURETTE, Mr. LAUGHLIN, Mr. LEWIS of California, Mr. LIPINSKI, Mr. LIVINGSTON, Mr. MATSUI, Mr. MANZULLO, Mr.

MCCOLLUM, Mr. MCDERMOTT, Mr. MCKEON, Mrs. MEEK of Florida,

Mr. MINGE, Mr. MOORHEAD, Mr. MYERS of Indiana, Mr. NEAL of Massachusetts, Mr. NEY, Mr. NUSSLE, Mr. OBERSTAR, Mr. PALLONE, Mr.

PASTOR, Mr. PAXON, Mr. PETERSON of Florida, Mr. POMEROY, Mr.

PORTER, Mr. POSHARD, Mr. QUILLEN, Mr. QUINN, Mr. RAHALL, Mr.

RIGGS, Mr. ROMERO-BARCELO ́, Mr. SCHIFF, Mr. SHAW, Mr. SKELTON,

Mr. SOLOMON, Mr. SPENCE, Mr. STEARNS, Mr. TALENT, Mr. THORNTON, Mr. TORRICELLI, Mr. TOWNS, Mr. TRAFICANT, Mr. TUCKER, Mr.

VOLKMER, Mr. WELDON of Pennsylvania, Mr. WHITFIELD, and Mr.

WISE) introduced the following bill; which was referred to the Committee

on Transportation and Infrastructure, and in addition to the Committees

on Commerce, Banking and Financial Services, and Ways and Means, for

a period to be subsequently determined by the Speaker, in each case for
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consideration of such provisions as fall within the jurisdiction of the committee concerned

A BILL

To amend the Robert T. Stafford Disaster Relief and Emergency Assistance Act to provide for an expanded Federal

program of hazard mitigation, relief, and insurance

against the risk of catastrophic natural disasters, such

as hurricanes, earthquakes, and volcanic eruptions, 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.

4 This Act shall be cited as the ‘‘Natural Disaster Pro5 tection Partnership Act of 1995’’.

6 SEC. 2. FINDINGS AND PURPOSES.

7 Section 101 of the Robert T. Stafford Disaster Relief

8 and Emergency Assistance Act (42 U.S.C. 5121) is

9 amended as follows:

10 (1) In subsection (a), by—

11 (A) striking ‘‘and’’ at the end of paragraph

12 (1);

13 (B) inserting ‘‘and’’ following the semi14 colon in paragraph (2);

15 (C) inserting the following new paragraph

16 before ‘‘special measures’’:
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1 ‘‘(3) because catastrophic natural disasters,

2 such as major hurricanes, earthquakes, volcanic

3 eruptions, and floods pose significant problems in

4 terms of substantial long-term consequences, ill5 equipped preparedness efforts, lack of hazard miti6 gation measures (such as enforced building codes),

7 and inadequate insurance coverage;’’;

8 (D) inserting ‘‘promoting hazard mitiga9 tion compliance and in’’ after ‘‘affected States

10 in’’; and

11 (E) inserting ‘‘insurance coverage,’’ after

12 ‘‘rendering of aid, assistance,’’.

13 (2) In subsection (b), by—

14 (A) inserting before the semi-colon in para15 graph (1) ‘‘by including State and community

16 disaster mitigation and expanded insurance and

17 reinsurance coverage to supplement insurance

18 available in the private market’’;

19 (B) inserting after ‘‘preparedness’’ in para20 graph (2) ‘‘, hazard mitigation, compliance,’’;

21 (C) inserting after ‘‘preparedness’’ in para22 graph (3) ‘‘, hazard mitigation, emergency first

23 response,’’;

24 (D) inserting after ‘‘insurance coverage’’ in

25 paragraph (4) ‘‘with premiums based on risk’’;
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1 (E) inserting before the semi-colon in

2 paragraph (4) ‘‘and by creating a private Natu3 ral Disaster Insurance Corporation which shall

4 provide primary insurance to homeowners and

5 reinsurance to State insurance pools and pri6 vate insurance companies’’;

7 (F) inserting before the semi-colon in para8 graph (5) ‘‘, adoption and enforcement of build9 ing codes, and improvement of first responder

10 capabilities’’; and

11 (G) inserting after ‘‘disasters’’ in para12 graph (6) ‘‘and establishing a funding mecha13 nism to help States and communities pay for

14 pre-disaster hazard mitigation’’.

15 SEC. 3. DEFINITIONS.

16 Section 102 of the Robert T. Stafford Disaster Relief

17 and Emergency Assistance Act (42 U.S.C. 5122) is

18 amended by adding at the end the following new para19 graphs:

20 ‘‘(10) The term ‘building’ means any structure,

21 fully or partially enclosed, used or intended for shel22 tering persons or property.

23 ‘‘(11) The term ‘commercial losses’ means

24 physical damage losses to insured commercial (other

25 than residential) property and other losses arising
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1 out of the effects of earthquakes, volcanic eruptions,

2 tsunamis, and hurricanes for the lines of insurance

3 appearing in the National Association of Insurance

4 Commissioners Fire and Casualty Annual Statement

5 as determined by the Natural Disaster Insurance

6 Corporation under section 902 and which shall, at a

7 minimum, include the following:

8 ‘‘(A) Commercial Multiple Peril.

9 ‘‘(B) Workers’ Compensation.

10 ‘‘(C) Allied Lines.

11 ‘‘(D) Fire.

12 ‘‘(E) Reinsurance.

13 ‘‘(F) Liability.

14 ‘‘(G) Earthquake.

15 ‘‘(H) Inland Marine.

16 ‘‘(I) Ocean Marine.

17 ‘‘(12) The term ‘critical facilities and lifelines’

18 means major public infrastructure, including high19 ways, roads, bridges, mass transit facilities, airports,

20 public buildings, water transportation and treatment

21 facilities, electric utilities, electric power and natural

22 gas transmission lines, and telecommunication facili23 ties.

24 ‘‘(13) The term ‘Director’ means the Director

25 of the Federal Emergency Management Agency.
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1 ‘‘(14) The term ‘earthquake’ means any shak2 ing or trembling of the crust of the Earth caused by

3 underground seismic forces.

4 ‘‘(15) The term ‘federally-related mortgage

5 loan’ has the meaning given the term in section 3(1)

6 of the Real Estate Settlement Procedures Act of

7 1974 (12 U.S.C. 2602(1)).

8 ‘‘(16) The term ‘first responder’ means fire9 fighting, police, and emergency medical personnel

10 who have the statutory authority to engage in and

11 provide immediate emergency response services.

12 ‘‘(17) The term ‘flood’ or ‘flooding’ means a

13 general and temporary condition of partial or com14 plete inundation of normally dry land areas from the

15 overflow of inland or tidal waters or the unusual and

16 rapid accumulation of runoff or surface waters from

17 any source.

18 ‘‘(18) The term ‘hurricane’ means a non-fron19 tal, warm core, low pressure atmospheric system

20 having a definite organized circulation with sus21 tained wind speeds of 74 miles per hour or greater

22 and officially declared to be a hurricane by the Na23 tional Hurricane Center, including any associated

24 windstorm events occurring within 168 hours before
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1 and after the hurricane first makes landfall within

2 a State.

3 ‘‘(19) The term ‘local community’ means a po4 litical subdivision of a State that has a department,

5 or similar entity, which oversees local zoning and

6 building code compliance efforts.

7 ‘‘(20) The term ‘natural disaster-prone State’

8 means a State determined by the Director pursuant

9 to section 804 to have an exposure to the earth10 quake, volcanic eruption, tsuanami, windstorm, or

11 hurricane perils.

12 ‘‘(21) The term ‘new’, when used in connection

13 with buildings, construction, or property, means

14 structures built pursuant to building permits issued

15 after the date of enactment of the Natural Disaster

16 Protection Partnership Act of 1995.

17 ‘‘(22) The term ‘ordinance or law coverage’

18 means insurance coverage for the increased cost of

19 construction to repair or rebuild buildings and the

20 cost of demolition due to the enforcement of any or21 dinance or law, such as building codes.

22 ‘‘(23) The term ‘primary insurance coverage’

23 means policies or supplemental contracts of insur24 ance insured in the name of the Natural Disaster

25 Insurance Corporation pursuant to section 911 that
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1 provide indemnity, in whole or in part, for the loss,

2 destruction, or damage of residential property.

3 ‘‘(24) The term ‘private insurer’ means any pri4 vate insurer or private reinsurer, including all relat5 ed affiliates or subsidiaries under the same owner6 ship or management consistent with the definition of

7 affiliated group under section 1504(a) of the Inter8 nal Revenue Code of 1986 (26 U.S.C. 1504(a)), that

9 is licensed or admitted to write property and cas10 ualty insurance or reinsurance within a State.

11 ‘‘(25) The term ‘rate’, when used in the context

12 of insurance, means the cost of insurance per expo13 sure unit assessed for the primary insurance cov14 erages under subtitle B of title IX and the reinsur15 ance coverage under subtitle C of title IX which

16 shall include the following:

17 ‘‘(A) The pure expected loss cost that is

18 actuarially based on the level of risk and rep19 resents the amount needed to pay expected

20 losses.

21 ‘‘(B) The loss adjustment expense.

22 ‘‘(C) A factor for the mitigation set aside

23 assessed under section 904(b).
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1 ‘‘(D) Administrative costs of the Natural

2 Disaster Insurance Corporation created under

3 section 901.

4 ‘‘(E) Compensation for private insurers’

5 costs, including administrative expenses, agent

6 commissions, and taxes.

7 ‘‘(26) The term ‘reinsurance coverage’ means

8 the contract provided by the Natural Disaster Insur9 ance Corporation under section 921 in which such

10 Corporation accepts and agrees to pay part of the

11 losses for certain catastrophic natural disasters cov12 ered by a private insurer or a State insurance pool.

13 ‘‘(27) The term ‘residential property’ means

14 any 1- to 4-family residential building (including mo15 bile or manufactured homes).

16 ‘‘(28) The term ‘standard residential property

17 insurance contract’ means the conventional policies

18 offered by a private insurer to its residential prop19 erty policyholders that provides indemnity, in whole

20 or in part, for the loss, destruction, or damage of

21 residential property.

22 ‘‘(29) The term ‘State insurance pool’ means

23 any State-authorized joint underwriting or joint re24 insurance association, risk pool, residual market

25 mechanism, or other type of State-sanctioned entity
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1 providing property insurance coverage against hurri2 canes, earthquakes, volcanic eruptions, or tsunamis

3 which meets minimum standards established by the

4 Natural Disaster Insurance Corporation under sec5 tion 902 regarding actuarially sound rates, use of

6 available local financing, and reasonable underwrit7 ing standards.

8 ‘‘(30) The term ‘subject net written premium’

9 means direct and reinsurance premiums received by

10 private insurers, less premiums paid for ceded rein11 surance, for residential property insurance and for

12 all covered commercial lines of insurance included in

13 the plan of operation under section 902(a)(4)(B).

14 ‘‘(31) The term ‘substantially modified building

15 construction’ means additions or improvements to an

16 existing building which constitute over an 18-month

17 period at least a 50 percent increase in the current

18 value of the building, as measured by the most re19 cent official property assessment.

20 ‘‘(32) The term ‘tsunami’ means an ocean wave

21 generated by underwater disturbances in the earth’s

22 crust, primarily earthquakes and submarine volcanic

23 eruptions.

24 ‘‘(33) The term ‘volcanic eruption’ means the

25 expulsion, as a result of natural causes, of molten
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1 rock, rock fragments, gases, ashes, mud, lava flows,

2 and other natural substances through an opening in

3 the crust of the Earth.

4 ‘‘(34) The term ‘windstorm’ means an atmos5 pheric disturbance marked by high velocity move6 ments of air, including a tornado, but does not in7 clude a hurricane.’’.

8 SEC. 4. FEDERAL SHARE OF FINANCIAL ASSISTANCE.

9 (a) Section 406(a)(1) of the Robert T. Stafford Dis10 aster Relief and Emergency Assistance Act (42 U.S.C.

11 5172(a)(1)) is amended by inserting following before the

12 semicolon: ‘‘if the State has paid, or agreed to pay, at least

13 $5 per each resident of the State, as determined by the

14 latest official census, for the repair, restoration, recon15 struction, or replacement of public facilities damaged or

16 destroyed by such major disaster in the State’’.

17 (b) Section 406(b) of the Robert T. Stafford Disaster

18 Relief and Emergency Assistance Act (42 U.S.C. 5172(b))

19 is amended as follows:

20 (1) Strike ‘‘MINIMUM’’ and ‘‘not less than’’.

21 (2) Insert following the first dash ‘‘(1) SHARE

22 AMOUNTS.—’’.

23 (3) Redesignate paragraphs (1), (2), and (3) as

24 subparagraphs (A), (B), and (C) respectively.
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1 (4) Add at the end the following new para2 graph:

3 ‘‘(2) WAIVER.—The Federal share percentages

4 described in paragraph (1), as may be modified by

5 section 914(a), shall be increased only upon the en6 actment of a joint resolution that shall not be des7 ignated as an emergency under section 251(b)(2)(D)

8 of the Balanced Budget and Emergency Deficit Con9 trol Act of 1985 (2 U.S.C. 901(b)(2)(D)).’’.

10 (c) Section 407(d) of the Robert T. Stafford Disaster

11 Relief and Emergency Assistance Act (42 U.S.C. 5173(d))

12 is amended as follows:

13 (1) Strike ‘‘not less than’’.

14 (2) Insert following the dash ‘‘(1) SHARE

15 AMOUNT.—’’.

16 (3) Add at the end the following new para17 graph:

18 ‘‘(2) WAIVER.—The Federal share percentage

19 described in paragraph (1), as may be modified by

20 section 914(a), shall be increased only upon the en21 actment of a joint resolution that shall not be des22 ignated as an emergency under section 251(b)(2)(D)

23 of the Balanced Budget and Emergency Deficit Con24 trol Act of 1985 (2 U.S.C. 901(b)(2)(D)).’’.
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1 SEC. 5. AMENDMENTS TO THE ACT.

2 The Robert T. Stafford Disaster Relief and Emer3 gency Assistance Act (42 U.S.C. 5121 et seq.) is amended

4 by adding at the end the following new titles:

5 ‘‘TITLE VIII—DISASTER

6 MITIGATION

7 ‘‘Subtitle Federal Emergency

8 Management Agency

9 ‘‘SEC. 801. SUPPORT PROGRAMS.

10 ‘‘The Director shall establish and carry out natural

11 disaster hazard mitigation programs that support the fol12 lowing purposes:

13 ‘‘(1) RESEARCH.—The Director shall undertake

14 research to strengthen building codes and promote

15 development of cost-effective building technologies

16 and other related hazard mitigation measures.

17 ‘‘(2) TECHNOLOGY.—The Director shall develop

18 hazard mitigation technology for States, local com19 munities, and architects, engineers, building contrac20 tors, and other persons responsible for implementa21 tion and enforcement of hazard mitigation measures.

22 ‘‘(3) EDUCATION.—The Director shall under23 take educational programs to enhance public aware24 ness of the risks and hazards associated with natu25 ral disasters and ways to mitigate losses from such

26 disasters.
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1 ‘‘SEC. 802. NEW FEDERAL BUILDING STANDARDS.

2 ‘‘Executive Order 12699 (55 Fed. Reg. 835 (January

3 5, 1990)) relating to earthquake design and construction

4 standards for Federally leased, assisted, or regulated

5 buildings shall have the effect of law.

6 ‘‘SEC. 803 STUDIES.

7 ‘‘(a) NATIONAL MINIMUM CONSENSUS BUILDING

8 CONSTRUCTION STANDARDS.—

9 ‘‘(1) STUDY.—The Director shall enter into an

10 arrangement with the National Academy of Sciences

11 to conduct a study of the advisability and feasibility

12 of establishing national minimum consensus building

13 construction standards for residential and commer14 cial building construction. The study shall be limited

15 to the use of national minimum consensus building

16 construction standards to minimize property damage

17 and reduce personal injuries that result from natural

18 disasters, such as hurricanes, windstorms, earth19 quakes, and floods.

20 ‘‘(2) NATIONAL ACADEMY OF SCIENCES.—The

21 study described in paragraph (1) shall be performed

22 by a panel of recognized experts appointed by the

23 National Academy of Sciences. The experts shall in24 clude representatives of building constructors, real25 tors, private insurers, building code officials from

26 the model building code organizations, organized
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1 labor, and other experts deemed relevant by the Na2 tional Academy of Sciences.

3 ‘‘(3) TRANSMIT TO CONGRESS.—The study de4 scribed in paragraph (1), with any recommendations,

5 shall be transmitted by the National Academy of

6 Sciences to Congress within 2 years of the date of

7 enactment of the Natural Disaster Protection Part8 nership Act of 1995.

9 ‘‘(b) RESIDENTIAL DISASTER INSPECTIONS.—

10 ‘‘(1) STUDY.—The Director shall enter into an

11 arrangement with the National Academy of Sciences

12 to conduct a study of the advisability and feasibility

13 of establishing standards for the training and licens14 ing of home inspectors and using home inspections

15 as a means to promote natural disaster hazard miti16 gation of residential property.

17 ‘‘(2) NATIONAL ACADEMY OF SCIENCES.—The

18 study described in paragraph (1) shall be performed

19 by a panel of recognized experts appointed by the

20 National Academy of Sciences. The experts shall in21 clude representatives of building constructors, lend22 ing institutions, local community officials, private in23 surers, homeowners organizations, organized labor,

24 and other experts deemed relevant by the National

25 Academy of Sciences.
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1 ‘‘(3) TRANSMIT TO CONGRESS.—The study,

2 with any recommendations, described in paragraph

3 (1) shall be transmitted by the National Academy of

4 Sciences to Congress within 2 years of the date of

5 enactment of the Natural Disaster Protection Part6 nership Act of 1995.

7 ‘‘SEC. 804. DESIGNATION OF NATURAL DISASTER-PRONE

8 STATES.

9 ‘‘(a) DESIGNATION.—Within 6 months of the date of

10 enactment of the Natural Disaster Protection Partnership

11 Act of 1995 and at the beginning of each new calendar

12 year thereafter, the Director shall determine which States

13 are deemed to have an exposure to the earthquake, vol14 canic eruption, tsunami, windstorm, or hurricane perils.

15 Based upon scientific risk data, such States shall be classi16 fied as natural disaster-prone for purposes of this Act.

17 ‘‘(b) SCIENTIFIC RISK DATA.—

18 ‘‘(1) SEISMIC PERILS.—The determination of

19 which States are deemed to have an exposure to the

20 earthquake, volcanic eruption, or tsunami perils

21 shall be based solely on seismic data provided by the

22 United States Geological Survey, or its designated

23 successor agency.

24 ‘‘(2) HURRICANE PERIL.—The determination of

25 which States are deemed to have an exposure to the
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1 windstorm or hurricane peril shall be based solely on

2 windstorm and hurricane data provided by the Na3 tional Oceanic and Atmospheric Administration, or

4 its designated successor agency.

5 ‘‘Subtitle B—State and Community

6 Programs

7 ‘‘SEC. 811. ADOPTION OF BUILDING AND SAFETY CODES.

8 ‘‘(a) MULTI-HAZARD BUILDING AND SAFETY

9 CODES.—At a minimum, each natural disaster-prone

10 State shall either—

11 ‘‘(1) adopt for all new and substantially modi12 fied building construction in that State building

13 codes that meet the appropriate hurricane, wind14 storm, earthquake, volcanic eruption, or tsunami

15 natural disaster hazard mitigation portions of the

16 newest edition of—

17 ‘‘(A) at least one of the following model

18 building codes which shall be applicable to re19 gions that are exposed to such natural disaster

20 perils:

21 ‘‘(i) the National Building Code,

22 ‘‘(ii) the Standard Building Code,

23 ‘‘(iii) the Uniform Building Code; and

24 ‘‘(B) other relevant building and housing

25 codes and standards, including the national
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1 consensus safety codes of the National Fire

2 Protection Association (specifically the National

3 Electrical Code, the National Fuel Gas Code,

4 the Flammable and Combustible Liquids Code,

5 and the Standard for the Storage and Handling

6 of Liquefied Petroleum Gases); or

7 ‘‘(2) certify that the State’s local communities

8 have adopted and are enforcing building codes that

9 meet the appropriate minimum natural disaster haz10 ard mitigation portions of any of the three model

11 building codes and other building and housing codes

12 and standards described in paragraph (1) for all new

13 and substantially modified building construction in

14 that State.

15 ‘‘(b) FLOOD PERFORMANCE STANDARDS.—At a min16 imum, each State that contains local communities des17 ignated as flood-prone pursuant to the National Flood In18 surance Act of 1968 (42 U.S.C. 4001 et seq.) shall ei19 ther—

20 ‘‘(1) adopt the relevant flood minimum per21 formance standards, flood-proofing, and other flood

22 protection measures authorized pursuant to the Na23 tional Flood Insurance Act of 1968, which minimize

24 flood damage for new and substantially modified
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1 building construction located in flood-prone local

2 communities; or

3 ‘‘(2) certify that all the State’s flood-prone local

4 communities have adopted and are enforcing the

5 minimum performance standards described in para6 graph (1) for new and substantially modified build7 ing construction.

8 ‘‘SEC. 812. DEVELOPMENT OF STATE MITIGATION PLANS.

9 ‘‘(a) GENERAL AUTHORITY.—Each natural disaster10 prone State shall either—

11 ‘‘(1) develop with active public participation a

12 mitigation plan which establishes the State’s plan

13 with accompanying schedules for improving the

14 State’s ability to reduce the hazards of future natu15 ral disasters, such as hurricanes, windstorms, earth16 quakes, volcanic eruptions, tsunamis, and floods; or

17 ‘‘(2) designate an existing mitigation plan

18 which includes the processes described in subsection

19 (b).

20 ‘‘(b) CONTENT OF STATE MITIGATION PLANS.—

21 Each State mitigation plan described in subsection (a)

22 shall include, at a minimum, a process for—

23 ‘‘(1) ensuring compliance with building and

24 safety codes, including those described in section

25 811;
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1 ‘‘(2) improving the emergency response to natu2 ral disasters which shall include capabilities for fire3 fighting, search and rescue, and the provision of

4 shelters, communications, and medical relief;

5 ‘‘(3) developing standards and guidelines for

6 the regular training of first responders for disaster

7 emergency mitigation;

8 ‘‘(4) enforcing local community land use and

9 management ordinances;

10 ‘‘(5) addressing further development in high11 risk, disaster-prone areas and the impact of such de12 velopment on life safety and the environment;

13 ‘‘(6) ensuring all builders, plumbers, elec14 tricians, and building inspectors are licensed or cer15 tified; and

16 ‘‘(7) identifying essential critical facilities and

17 lifelines and public facilities to be retrofitted within

18 a fixed time period.

19 ‘‘SEC. 813. TIME PERIODS FOR STATE DEVELOPMENT AND

20 IMPLEMENTATION OF BUILDING CODES AND

21 MITIGATION PLANS.

22 ‘‘(a) TIME PERIODS.—Each natural disaster-prone

23 State shall meet the following mitigation compliance mile24 stones within the prescribed time periods which shall be
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1 measured from the date of enactment of the Natural Dis2 aster Protection Partnership Act of 1995:

3 ‘‘(1) SUBMISSION OF STATE MITIGATION PLANS

4 TO FEMA.—Within 2 years, submit to the Director

5 its mitigation plan developed pursuant to section

6 812.

7 ‘‘(2) ADOPTION OF BUILDING CODES.—Within

8 3 years, certify to the Director that it has adopted

9 the building and safety codes identified in section

10 811 or certified that its local communities have

11 adopted them.

12 ‘‘(3) IMPLEMENTATION OF MITIGATION

13 PLANS.—Within 4 years, certify to the Director that

14 the processes of its mitigation plan as described in

15 section 812(b) are being implemented.

16 ‘‘(4) BUILDING CODE ENFORCEMENT.—Within

17 5 years, certify to the Director that the building and

18 safety codes identified in section 811 are being ade19 quately enforced.

20 ‘‘(b) NOTIFICATION AND OPPORTUNITY TO CURE.—

21 The Director shall promptly notify in writing those States

22 which fail to meet a compliance requirement described in

23 subsection (a). If after receiving such notification, the

24 State shall be subject to the provisions specified in section
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1 814 until such date as the Director determines that the

2 State has taken the necessary corrective action.

3 ‘‘(c) REGULATIONS.—Within 12 months of the date

4 of enactment of the Natural Disaster Protection Partner5 ship Act of 1995, the Director shall issue final Federal

6 regulations, pursuant to the provisions of subchapter II

7 of chapter 5 of title 5, United States Code, necessary to

8 carry out this section. These regulations shall include

9 guidance to States as to what constitutes adequate compli10 ance with the hazard mitigation measures of this subtitle.

11 ‘‘SEC. 814. FEDERAL SHARE OF FINANCIAL ASSISTANCE.

12 ‘‘(a) REDUCE FEDERAL SHARE FOR DISASTER

13 AID.—The Federal share of public assistance available to

14 States under sections 406(b)(1) and 407(d)(1) shall be re15 duced to 50 percent for any State which has not met, with16 in the prescribed time periods, the requirements of section

17 813.

18 ‘‘(b) NO MITIGATION FUNDS.—Funds from the Miti19 gation Account under section 815 shall be denied to any

20 State which has not met, within the prescribed time peri21 ods, the requirements of section 813.

22 ‘‘SEC. 815. MITIGATION ACCOUNT.

23 ‘‘(a) FUNDS TO STATES.—

24 ‘‘(1) AUTHORITY.—After the Director credits

25 premiums from the Natural Disaster Insurance Cor-
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1 poration under section 901, all of the funds appro2 priated to the Mitigation Account established by sec3 tion 1004 shall be allocated by the Director to

4 States at the beginning of every fiscal year following

5 the date of enactment of the Natural Disaster Pro6 tection Partnership Act of 1995, except that those

7 States subject to the provisions of section 814(b)

8 shall be denied such funds.

9 ‘‘(2) FORMULA.—The Mitigation Account funds

10 shall be allocated to a State based on a pro rata for11 mula of the primary insurance coverages and rein12 surance coverage premiums described in section 903

13 collected from that State. Within 12 months of the

14 date of enactment of the Natural Disaster Protec15 tion Partnership Act of 1995, the Director shall

16 issue final Federal regulations, pursuant to the pro17 visions of subchapter II of chapter 5 of title 5,

18 United States Code, describing the pro rata formula.

19 ‘‘(3) MINIMUM AMOUNT.—Notwithstanding the

20 formula established under paragraph (2), each State

21 shall receive annually at least 0.25 percent of the

22 amounts in the Mitigation Account or $250,000,

23 whichever amount is greater.

24 ‘‘(b) USE.—
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1 ‘‘(1) IN GENERAL.—The funds received by

2 States from the Mitigation Account shall be used to

3 support natural disaster hazard mitigation activities,

4 including providing assistance for—

5 ‘‘(A) first responders;

6 ‘‘(B) State revolving loan funds, if estab7 lished, to undertake financing, including the

8 leveraging of funds for various hazard mitiga9 tion activities;

10 ‘‘(C) low-income individuals and families to

11 help pay for the undertaking of hazard mitiga12 tion measures;

13 ‘‘(D) the dissemination of cost-effective

14 technologies to prevent or substantially reduce

15 damage caused by natural disasters and for the

16 establishment of geographically-dispersed and

17 duly-incorporated natural disaster damage pre18 vention and mitigation Centers for Protection

19 Against Natural Disasters to carry out such

20 dissemination;

21 ‘‘(E) addressing further development in

22 high-risk, disaster-prone areas and the impact

23 of such development on the environment; and

24 ‘‘(F) the construction of buildings to serve

25 as models for the advancement of public edu-
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1 cation about cost-effective hazard mitigation

2 technology in the design and construction of

3 buildings, such as the employment of fire sup4 pression and water catchment systems.

5 ‘‘(2) PRIORITY.—The States shall give priority

6 in using the funds received from the Mitigation Ac7 count to those hazard mitigation activities necessary

8 to bring the State into compliance with the building

9 and safety code requirements of section 811 and the

10 mitigation plan requirements of section 812.

11 ‘‘(c) LOCAL COMMUNITIES.—States shall transfer not

12 less than 25 percent of the funds received each year under

13 this section to local communities to support activities nec14 essary to ensure State compliance with the hazard mitiga15 tion requirements of this subtitle.

16 ‘‘(d) AUDITS.—The Director shall from time-to-time

17 conduct audits to ensure that States and local commu18 nities are using the funds received each year under this

19 section to support the hazard mitigation activities de20 scribed in this section.

21 ‘‘SEC. 816. NO UNFUNDED MANDATES.

22 ‘‘(a) IN GENERAL.—If a State documents to the Di23 rector that such State has not received adequate funds

24 from the Mitigation Account established by section 1004

25 to cover the costs of complying with a particular mitiga-
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1 tion requirement described in this subtitle, that particular

2 mitigation requirement shall not apply to such State.

3 ‘‘(b) EXCEPTIONS.—

4 ‘‘(1) ADEQUATE FUNDS.—Subsection (a) shall

5 not apply to mitigation requirements described in

6 this subtitle for which the State has failed to docu7 ment that it has received an inadequate amount of

8 funds from the Mitigation Account to fully cover the

9 cost of complying with such mitigation requirements.

10 ‘‘(2) NON-COMPLIANCE STATES.—Subsection

11 (a) shall not apply to States that are subject to the

12 provisions of section 814(b).

13 ‘‘(3) CONDITIONAL FEDERAL ASSISTANCE.—

14 Subsection (a) shall not apply to any duty imposed

15 by this subtitle that is a condition of any Federal as16 sistance provided by this Act.

17 ‘‘Subtitle C—Insurance Mitigation

18 Incentives

19 ‘‘SEC. 821. INSURANCE PRICING INCENTIVES.

20 ‘‘Each private insurer that participates as a member

21 of the Natural Disaster Insurance Corporation should be

22 encouraged to take natural disaster hazard mitigation

23 measures into account in setting rates and deductibles for

24 its property insurance.
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1 ‘‘TITLE IX—NATURAL DISASTER

2 INSURANCE

3 ‘‘Subtitle A—Natural Disaster

4 Insurance Corporation

5 ‘‘SEC. 901. ORGANIZATIONAL STRUCTURE.

6 ‘‘(a) CREATION.—As a condition of receiving Federal

7 loans under section 906(d), there shall be established a

8 non-governmental, not-for-profit membership corporation,

9 to be known as the Natural Insurance Corporation (here10 inafter in the Act referred to as the ‘‘Corporation’’), to

11 provide primary insurance coverages and reinsurance cov12 erage for hurricanes, earthquakes, volcanic eruptions, and

13 tsunamis.

14 ‘‘(b) MEMBERSHIP.—The members of the Corpora15 tion shall own shares in the Corporation and shall consist

16 of private insurers that participate as service providers for

17 the primary insurance coverages insured by the Corpora18 tion under section 911 and private insurers and State in19 surance pools that purchase the reinsurance coverage pro20 vided by the Corporation under section 921.

21 ‘‘(c) START-UP.—

22 ‘‘(1) ADMINISTRATOR.—

23 ‘‘(A) SELECTION.—A start-up adminis24 trator shall be selected by the Corporation’s
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1 members at the Corporation’s initial organiza2 tion meeting.

3 ‘‘(B) DUTIES.—The administrator shall

4 coordinate the following activities of the Cor5 poration:

6 ‘‘(i) Hiring of temporary staff.

7 ‘‘(ii) Obtaining office space.

8 ‘‘(iii) Contracting with consultants

9 and entities.

10 ‘‘(iv) Managing the election of the ini11 tial Board of Directors.

12 ‘‘(v) Collecting the start-up loans de13 scribed in paragraph (2).

14 ‘‘(C) TERMINATION.—The activities of the

15 administrator shall terminate when the Board

16 of the Directors for the Corporation has been

17 selected.

18 ‘‘(2) START-UP LOANS.—

19 ‘‘(A) IN GENERAL.—Start-up administra20 tive costs of the Corporation shall be paid from

21 loans received from the private insurers partici22 pating as members of the Corporation.

23 ‘‘(B) AMOUNT.—The amount of start-up

24 loans received from private insurers shall be in
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1 proportion to each participating insurers’ coun2 trywide subject net written premium.

3 ‘‘(C) REPAYMENT.—Within 36 months

4 after the Corporation is established under sub5 section (a), or such later time when sufficient

6 funds are available, all start-up loans received

7 from private insurers under this paragraph

8 shall be repaid with interest by the Corporation

9 from amounts in the trust accounts established

10 in section 906.

11 ‘‘(d) BOARD OF DIRECTORS.—

12 ‘‘(1) GOVERNANCE.—The Corporation shall be

13 governed by a 15-member Board of Directors (here14 inafter in this title referred to as the ‘‘Board’’).

15 Each Director of the Board shall have one vote and

16 the Board shall set policy and decide all matters by

17 a simple majority of the votes cast. The Board shall

18 develop and approve the plan of operation described

19 in section 902 and shall be responsible for the oper20 ation and management of the Corporation.

21 ‘‘(2) SELECTION OF DIRECTORS.—The 15 Di22 rectors of the Board shall be selected as follows:

23 ‘‘(A) INSURANCE DIRECTORS.—

24 ‘‘(i) IN GENERAL.—Nine insurance

25 Directors shall be elected by the members
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1 of the Corporation with each member hav2 ing one vote, except as provided in clause

3 (iii). The insurance Directors shall reflect

4 an equitable cross-section of the private in5 surers participating as members of the

6 Corporation in accordance with this sub7 paragraph. No private insurer may have

8 more than one of its employees serving on

9 the Board.

10 ‘‘(ii) SPECIAL CLASSES OF INSUR11 ERS.—For as long as the Corporation is in

12 existence, 3 of the Directors shall rep13 resent special classes of insurers. Each of

14 the following special classes of insurers

15 shall be represented:

16 ‘‘(I) Reinsurers which write pri17 marily reinsurance.

18 ‘‘(II) Small providers of direct in19 surance that write primarily in per20 sonal lines of insurance in less than

21 10 States.

22 ‘‘(III) Commercial insurers which

23 write primarily commercial insurance

24 lines throughout the United States.
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1 ‘‘(iii) ELECTION BASED ON PREMIUM

2 VOLUME.—Three insurance Directors shall

3 be elected based on the premium volume

4 weighting criteria described as follows:

5 ‘‘(I) For the initial election of the

6 3 Directors under this clause, the vote

7 of each private insurer serving as a

8 member of the Corporation shall be

9 weighted in proportion to such insur10 er’s countrywide subject net written

11 premium in relationship to the coun12 trywide subject net written premium

13 for all private insurers serving as a

14 member.

15 ‘‘(II) For the subsequent election

16 of the 3 Directors under this clause,

17 the vote of each private insurer serv18 ing as a member of the Corporation

19 shall be weighted as its proportion of

20 all premium collected by all participat21 ing providers of the primary insurance

22 coverages described in subtitle B and

23 the premium paid by all purchasers of

24 the reinsurance coverage provided by
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1 the Corporation pursuant to subtitle

2 C.

3 ‘‘(III) For each election held to

4 select any 1 of the 3 Directors elected

5 under this clause, private insurers can

6 cast their vote for only 1 candidate.

7 ‘‘(iv) AT LARGE ELECTION.—The re8 maining 3 insurance Directors shall be

9 elected at large by the private insurers

10 participating as members of the Corpora11 tion.

12 ‘‘(B) NON-INSURANCE DIRECTORS.—With13 in 180 days of the election of the insurance Di14 rectors under subparagraph (A), 6 non-insur15 ance Directors shall be nominated by the 9 in16 surance Directors and shall be elected by the

17 members of the Corporation. Each of the fol18 lowing interests shall be represented by at least

19 1, but not more than 2, of the 6 non-insurance

20 Directors elected:

21 ‘‘(i) Insurance agents or brokers.

22 ‘‘(ii) State insurance regulators.

23 ‘‘(iii) Risk assessment experts who are

24 members of the National Academy of

25 Sciences.
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1 ‘‘(iv) Consumers of property-casualty

2 insurance, including consumers of commer3 cial insurance.

4 ‘‘(v) Representatives of the banking or

5 real estate industry which are impacted by

6 property-casualty insurance.

7 ‘‘(C) VACANCIES.—A vacancy on the

8 Board shall be immediately filled with a new

9 Director selected in the manner described in the

10 plan of operation developed under section 902.

11 ‘‘(3) TERMS OF SERVICE.—All 15 Directors

12 elected under paragraph (2) shall serve staggered

13 terms for a maximum of 6 years as determined by

14 the Board at the time of election.

15 ‘‘(4) CHAIRPERSON.—The Board shall select a

16 chairperson from among its 15 Directors.

17 ‘‘(5) FIDUCIARY DUTY.—For carrying out the

18 purposes of this Act, the members of the Board,

19 once selected under paragraph (2), shall have a fidu20 ciary duty to the Corporation, not to their employer

21 or to the special interests they may represent.

22 ‘‘(e) POWERS.—

23 ‘‘(1) CONTROL.—The Corporation shall be pri24 vately owned by its members as described in sub-
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1 section (b) and under the direction of its Board of

2 Directors as described in subsection (d).

3 ‘‘(2) GENERAL POWERS.—Upon selection of the

4 9 insurance Directors described in subsection

5 (d)(2)(A), the Corporation shall be empowered to

6 take all necessary and appropriate actions to imple7 ment this title, including hiring staff, making con8 tracts, and paying the salaries and expenses of em9 ployees with funds from start-up loans described in

10 subsection (c)(2) and the trust accounts described in

11 section 906.

12 ‘‘(3) SPECIFIC POWERS.—Consistent with the

13 plan of operation developed under section 902, the

14 Corporation, under the direction of its Board, shall

15 have the power to—

16 ‘‘(A) provide the primary insurance cov17 erages described in subtitle B and provide the

18 reinsurance coverage described in subtitle C;

19 ‘‘(B) manage the trust accounts described

20 in section 906;

21 ‘‘(C) raise funds by issuing obligations in

22 the private market, provided that such obliga23 tions shall not carry the full faith and credit of

24 the United States; and
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1 ‘‘(D) take all other actions necessary and

2 proper to carry out the operations of the Cor3 poration.

4 ‘‘(4) EXCLUDED POWERS.—The Corporation

5 shall not—

6 ‘‘(A) exercise powers that are reserved to

7 the Federal Government as sovereign;

8 ‘‘(B) have the power to commit any sov9 ereign government financially; and

10 ‘‘(C) have as employees Federal employees

11 subject to title 5 of the United States Code.

12 ‘‘(f) TAX STATUS.—

13 ‘‘(1) IN GENERAL.—The Corporation shall be

14 subject to the Federal taxation applied to private

15 corporations, except as described in paragraph (2).

16 ‘‘(2) NET OPERATING LOSS CARRYBACK.—Con17 sistent with the section 172(b)(1) of the Internal

18 Revenue Code of 1986 (26 U.S.C. 172(b)(1)), a net

19 operating loss of the Corporation for any taxable

20 year shall be a—

21 ‘‘(A) net operating loss carryback to each

22 of the taxable years during the period—

23 ‘‘(i) beginning with the taxable year in

24 which the Corporation commenced oper25 ation, and
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1 ‘‘(ii) ending with the taxable year pre2 ceding the loss year, and

3 ‘‘(B) a net operating loss carryover to each

4 of the 15 taxable years following the taxable

5 year of the loss.

6 ‘‘(g) LIMITATIONS OF LIABILITY.—

7 ‘‘(1) INDIVIDUAL MEMBERS.—Individual mem8 bers of the Corporation, as defined in subsection (b),

9 shall not be liable, or in any way responsible, for the

10 obligations of the Corporation and the trust ac11 counts described in section 906.

12 ‘‘(2) UNDER FEDERAL LAW.—No action by the

13 Corporation or its Board pertaining to the plan of

14 operation described in section 902 or the rates de15 scribed in section 903 shall subject the Corporation

16 or the Board to liability under Federal law or any

17 law of a State if that action has been taken pursu18 ant to authority taken under this Act.

19 ‘‘SEC. 902 PLAN OF OPERATION.

20 ‘‘(a) ESTABLISHMENT.—

21 ‘‘(1) DEVELOPMENT.—The Board shall develop

22 a plan of operation (hereinafter in this title referred

23 to as the ‘‘plan’’) describing the administration of

24 the Corporation and the provision of the insurance

25 coverages provided by the Corporation.
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1 ‘‘(2) GENERAL CONTENTS.—The plan shall set

2 forth the specific policy and programmatic details,

3 including all guidelines, criteria, definitions, clari4 fications, and procedures necessary for the primary

5 insurance coverages described in subtitle B and the

6 reinsurance coverage described in subtitle C to oper7 ate under standard conditions of insurance which

8 shall be applicable in all States.

9 ‘‘(3) INSURANCE COVERAGE PARTICULARS.—

10 The plan, at a minimum, shall include the following

11 particulars regarding the insurance coverages issued

12 or provided by the Corporation:

13 ‘‘(A) The final rates, or adjustments there14 to, established under section 903.

15 ‘‘(B) The specific terms and conditions

16 which shall include—

17 ‘‘(i) coverage eligibility requirements;

18 ‘‘(ii) coverage limits;

19 ‘‘(iii) deductibles;

20 ‘‘(iv) quota-share amounts as de21 scribed in section 914(c); and

22 ‘‘(v) levels of retained losses as de23 scribed in section 923.

24 ‘‘(C) The specific insurance forms and pol25 icy contracts.
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1 ‘‘(D) The criteria for the settlement of in2 surance claims.

3 ‘‘(4) MISCELLANEOUS PLAN PROVISIONS.—The

4 plan, at a minimum, shall include the following mis5 cellaneous provisions:

6 ‘‘(A) The minimum financial viability

7 standards necessary for private insurers and

8 State insurance pools to qualify as eligible enti9 ties to purchase the reinsurance coverage under

10 section 921(b).

11 ‘‘(B) The commercial lines of insurance

12 which have a significant loss potential from

13 earthquakes, volcanic eruptions, tsunamis, and

14 hurricanes that will be used in determining

15 commercial losses.

16 ‘‘(C) The terms for the repayment of any

17 obligations issued in the private market pursu18 ant to section 901(e)(3)(C).

19 ‘‘(D) The conditions for private insurers to

20 withdraw from acting as service providers of the

21 primary insurance coverages pursuant to sec22 tion 906(d)(3)(C).

23 ‘‘(E) Appropriate limitations on private in24 surers acting as service providers of the pri25 mary insurance coverages under section 912(b)
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1 from withdrawing from offering property and

2 casualty insurance in the voluntary private mar3 ket in certain States.

4 ‘‘(F) Grievance procedures for resolving

5 disputes among members of the Corporation re6 sulting from the decisions of the Board.

7 ‘‘(5) PROPRIETARY INFORMATION.—To the

8 maximum extent practicable, the plan of operation

9 shall protect as proprietary specific information pro10 vided by private insurers necessary to develop the

11 rates and specific terms and conditions of the insur12 ance coverages issued or provided by the Corpora13 tion.

14 ‘‘(6) INSURER STABILITY IN THE INSURANCE

15 COVERAGES.—To the maximum extent practicable,

16 the plan of operation shall encourage stability with

17 respect to private insurer participation in the insur18 ance coverages issued or provided by the Corpora19 tion.

20 ‘‘(b) APPROVAL OF THE PLAN.—The plan described

21 in paragraph (a), and amendments thereto, shall be re22 vised and approved by the Natural Disaster Insurance

23 Board of Actuaries according to the process described in

24 section 904(c).
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1 ‘‘(c) ANNUAL REPORT.—The Board shall prepare a

2 written report annually on the overall operations of the

3 Corporation which shall be distributed to all members of

4 the Corporation and to the Independent Board of Actuar5 ies established in section 904.

6 ‘‘SEC. 903. PRICING.

7 ‘‘(a) ESTABLISHMENT OF RATES.—Using generally

8 accepted actuarial principles and consistent with section

9 904(d)(5), the Board shall develop and establish, and ad10 just when necessary, the rates for the primary insurance

11 coverages issued by the Corporation under section 911 and

12 rates for the reinsurance coverage provided by the Cor13 poration under section 921. Such rates, and adjustments

14 thereto, shall be based on historical aggregate losses sup15 plemented by natural disaster modeling techniques and

16 other scientific evidence and loss adjustment expenses cal17 culated to determine to their ultimate value and projected

18 through the utilization of trend analysis to a future point

19 of time.

20 ‘‘(b) ACTUARIALLY SOUND REQUIREMENT.—The

21 rates established or adjusted under subsection (a) shall be

22 actuarially sound by reflecting the risk of loss to the in23 sured property from the natural disaster perils covered

24 and shall satisfy the following two actuarial principles:
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1 ‘‘(1) MINIMIZE CROSS-SUBSIDIZATION.—The

2 rates established shall result in a minimum of cross3 subsidization between the geographic risk territories.

4 ‘‘(2) FINANCIAL SOUNDNESS.—The rates estab5 lished shall produce expected premiums which shall

6 be sufficient to pay for all claims, loss adjustment

7 expense, and all administrative costs due to the Cor8 poration for the two trust accounts established

9 under section 906.

10 ‘‘(c) APPROVAL OF RATES.—The rates, and adjust11 ments thereto, developed by the Board under this section

12 shall be reviewed and approved by the Natural Disaster

13 Insurance Board of Actuaries according to the process de14 scribed in section 904.

15 ‘‘SEC. 904. INSURANCE BOARD OF ACTUARIES.

16 ‘‘(a) ESTABLISHMENT.—There is established an inde17 pendent Natural Disaster Insurance Board of Actuaries

18 (in this section referred to as the ‘‘Independent Board’’)

19 to review and approve the plan of operation developed

20 under section 902 and the rates developed under section

21 903.

22 ‘‘(b) MEMBERSHIP.—

23 ‘‘(1) APPOINTMENT.—

24 ‘‘(A) INITIAL APPOINTMENT.—The Inde25 pendent Board shall be composed of 5 members
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1 appointed by the Secretary of the United States

2 Treasury (hereinafter in this title referred to as

3 the ‘‘Secretary’’) within 180 days of the date of

4 enactment of the Natural Disaster Protection

5 Partnership Act of 1995.

6 ‘‘(B) VACANCIES.—The Secretary shall im7 mediately appoint new members to fill any va8 cancies that arise on the Independent Board.

9 ‘‘(2) QUALIFICATIONS.—The members of the

10 Independent Board described in paragraph (1)—

11 ‘‘(A) shall be citizens of the United States;

12 ‘‘(B) shall not be employees of members of

13 the Corporation; and

14 ‘‘(C) shall be professional actuaries who—

15 ‘‘(i) are members of the Casualty Ac16 tuarial Society or the American Academy

17 of Actuaries and meet the Academy’s qual18 ification standards for public statements of

19 actuarial opinion, and

20 ‘‘(ii) have previous experience in set21 ting actuarially sound property and cas22 ualty rates.

23 ‘‘(3) CHAIRPERSON.—The Secretary shall des24 ignate a chairperson of the Independent Board from
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1 among members appointed to the Independent

2 Board.

3 ‘‘(4) TERMS OF SERVICE.—All members ap4 pointed under paragraph (2) shall serve staggered

5 terms for a maximum of 6 years as determined by

6 the Secretary at the time of appointment.

7 ‘‘(c) APPROVAL OF THE PLAN OF OPERATION.—

8 ‘‘(1) SUBMISSION OF DRAFT PLAN TO INDE9 PENDENT BOARD.—A draft plan of operation that

10 satisfies the requirements of section 902(a) shall be

11 submitted by the Board of the Corporation to the

12 Independent Board within 15 months of enactment

13 of the Natural Disaster Protection Partnership Act

14 of 1995.

15 ‘‘(2) APPROVAL OF THE PLAN.—The draft plan

16 submitted to the Independent Board under para17 graph (1) shall be deemed approved and shall be18 come final, except if within 90 days of receiving the

19 plan from the Board, the Independent Board dis20 approves it pursuant to the standard described in

21 paragraph (3).

22 ‘‘(3) STANDARD FOR DISAPPROVAL.—The Inde23 pendent Board may disapprove the entirety of the

24 draft plan described in paragraph (2) only if the
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1 plan, as a whole, is materially inconsistent with the

2 provisions of this title.

3 ‘‘(4) OPPORTUNITY TO CURE.—If the Independ4 ent Board disapproves the draft plan under para5 graph (2), the chairperson of the Independent Board

6 shall immediately return such plan to the Board

7 with written instructions of the changes required for

8 the plan to be materially consistent with the provi9 sions of this title. The Board shall modify the plan

10 consistent with the Independent Board’s instructions

11 and submit it back to the Independent Board for ap12 proval according to the process described in its sub13 section.

14 ‘‘(5) AMENDMENTS TO THE PLAN.—Any

15 amendments to the plan shall be developed by the

16 Board of the Corporation under section 902 and ap17 proved by the Independent Board according to the

18 process described in this subsection.

19 ‘‘(6) REPORT TO SECRETARY.—After reviewing

20 the draft plan of operation, and amendments there21 to, the Independent Board shall prepare and submit

22 a report to the Secretary of its finding regarding

23 such plan.

24 ‘‘(d) APPROVAL OF THE RATES.—
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1 ‘‘(1) SUBMISSION OF PROPOSED RATES TO THE

2 INDEPENDENT BOARD.—Rates developed by the

3 Board that are proposed to be established for the in4 surance coverages issued or provided by the Cor5 poration under section 903(a), including any meth6 odologies used in developing such rates, shall be sub7 mitted by the Board of the Corporation to the Inde8 pendent Board within 12 months of the date of en9 actment of the Natural Disaster Protection Partner10 ship Act of 1995.

11 ‘‘(2) APPROVAL BY THE INDEPENDENT

12 BOARD.—

13 ‘‘(A) PRIMARY INSURANCE COVERAGES

14 RATES.—The rates proposed for the primary in15 surance coverages submitted to the Independent

16 Board under paragraph (1) shall be deemed ap17 proved, except if within 90 days of receiving

18 such proposed rates, the Independent Board

19 disapproves such rates pursuant to the stand20 ard described in paragraph (3).

21 ‘‘(B) REINSURANCE COVERAGE METH22 ODOLOGIES.—The methodologies used in devel23 oping the rates proposed for the reinsurance

24 coverage submitted to the Independent Board

25 under paragraph (1) shall be deemed approved,
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1 except if within 90 days of receiving such meth2 odologies, the Independent Board disapproves

3 such methodologies pursuant to the standard

4 described in paragraph (3).

5 ‘‘(3) STANDARD FOR DISAPPROVAL.—The Inde6 pendent Board may disapprove the rates or meth7 odologies described in paragraph (2) only if compel8 ling and substantial actuarial evidence is presented

9 on the record that the rates or methodologies are

10 materially inconsistent with the actuarial soundness

11 requirement of section 903(b).

12 ‘‘(4) OPPORTUNITY TO CURE.—If the Independ13 ent Board disapproves any proposed rates or meth14 odologies under this subsection, the chairperson of

15 the Independent Board shall immediately return

16 such rates and methodologies to the Board of the

17 Corporation with written instructions of the changes

18 required to the rates and methodologies to satisfy

19 the actuarial requirement of section 903(b). The

20 Board shall modify the rates or methodologies con21 sistent with the Independent Board’s instructions

22 and submit them back to the Independent Board for

23 approval according to the process described in the

24 subsection.

25 ‘‘(5) APPROVAL OF RATES.—
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1 ‘‘(A) PRIMARY INSURANCE COVERAGES

2 RATES.—Once the rates for the primary insur3 ance coverages are approved by the Independ4 ent Board under this subsection, such rates as

5 proposed under paragraph (1) shall become

6 final and shall be included by the Board in the

7 plan of operation under section 902 for the pri8 mary insurance coverages issued by the Cor9 poration.

10 ‘‘(B) REINSURANCE COVERAGE RATES.—

11 Once the methodologies for the reinsurance cov12 erage rates are approved by the Independent

13 Board under this subsection, the rates proposed

14 under paragraph (1) for the reinsurance cov15 erage shall become final and shall be included

16 by the Board in the plan of operation under

17 section 902 for the reinsurance coverage pro18 vided by the Corporation.

19 ‘‘(6) ADJUSTMENTS OF THE RATES.—Any ad20 justment of the rates for the primary insurance cov21 erages and the methodologies used in developing the

22 rates for the reinsurance coverage shall be developed

23 by the Board of the Corporation under section 903

24 and approved by the Independent Board according

25 to the process described in this subsection.
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1 ‘‘(e) CONSULTATION.—The Independent Board shall

2 consult risk assessment experts at the United States Geo3 logical Survey (or its designated successor agency), the

4 National Oceanic and Atmospheric Administration (or its

5 designated successor agency), the National Academy of

6 Sciences, and similar public and private scientific groups

7 to ensure the accuracy of natural disaster risk models and

8 the geographic rating territories used in developing and

9 approving the actuarial rates under this paragraph.

10 ‘‘SEC. 905. PARTICIPATION OF STATE INSURANCE REGU11 LATORS.

12 ‘‘(a) INFORMATIONAL FILINGS.—

13 ‘‘(1) ITEMS TO FILE.—The Board shall file with

14 each State insurance regulator information copies of

15 the initial material and future revisions to the fol16 lowing items:

17 ‘‘(A) The rates charged for the primary

18 coverage issued by the Corporation under sub19 title B.

20 ‘‘(B) Any insurance forms or polices and

21 subsequent revisions that describe the terms or

22 conditions of the insurance coverages issued or

23 provided by the Corporation.

24 ‘‘(2) NOT SUBJECT TO APPROVAL.—Except as

25 provided in paragraph (3), none of the items submit-
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1 ted to the State insurance regulators under para2 graph (1) shall be subject to the approval of such

3 State insurance regulators.

4 ‘‘(3) FILING OF DEVIATIONS.—

5 ‘‘(A) GENERAL AUTHORITY.—Subject to

6 the limitation in subparagraph (B), private in7 surers participating as service providers of the

8 primary insurance coverages under section

9 912(b) may use rates which deviate from those

10 established by the Corporation.

11 ‘‘(B) DEVIATIONS LIMITED TO INSURER

12 COSTS.—The rate deviations described in sub13 paragraph (A) shall be based only on the pri14 vate insurers difference in cost from those used

15 by the Corporation for calculating that portion

16 of the rate filed by the Corporation under para17 graph (1)(A) which compensate the private in18 surer for its costs, including administrative ex19 penses, agent commissions, and taxes.

20 ‘‘(C) STATE REQUIREMENTS.—The rate

21 deviations described in this paragraph shall be

22 subject to any applicable State requirement for

23 the filing of property insurance rates.

24 ‘‘(b) CLAIMS SETTLEMENT.—Inquiries and com25 plaints dealing with claims settlement practices related to
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1 the insurance coverages issued or provided by the Cor2 poration, including those brought to the attention of a

3 State insurance regulator, are to be handled by the Cor4 poration in accordance with the plan of operation under

5 section 902.

6 ‘‘(c) STATE PREMIUM TAXES.—States may assess in7 surance premium taxes on the insurance policies issued

8 under section 911 by the Corporation, except that a State

9 shall not charge a premium tax greater than the premium

10 taxes assessed by the State for the standard residential

11 property insurance contracts charged by domestic private

12 insurers.

13 ‘‘(d) STATE FUNDS.—The Corporation shall not par14 ticipate in any State guaranty insurance fund or any State

15 insurance pool. Policyholders of the Corporation shall not

16 have claims against any State guaranty insurance fund for

17 purposes of the insurance coverages issued or provided by

18 the Corporation.

19 ‘‘(e) STATE REQUIRED DISASTER INSURANCE POLI20 CIES.—A private insurer acting as a service provider of

21 primary insurance coverages under subtitle B shall not be

22 required by any State to sell insurance coverages or par23 ticipate in any program which provides insurance for

24 earthquakes, volcanic eruptions, tsunamis, or hurricanes

25 in amounts greater than provided by the primary insur-
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1 ance coverages issued by the Corporation for which such

2 private insurer acts as a service provider.

3 ‘‘SEC. 906. TRUST ACCOUNTS.

4 ‘‘(a) PRIMARY INSURANCE COVERAGE TRUST AC5 COUNT.—

6 ‘‘(1) ESTABLISHMENT.—The Corporation shall

7 establish and maintain a primary insurance coverage

8 trust account (hereinafter in this Act referred to as

9 the ‘‘primary account’’) to hold funds in trust gen10 erated through the primary insurance coverages de11 scribed in subtitle B.

12 ‘‘(2) ACCOUNT DEPOSITS.—Except for the

13 amount set aside for the Mitigation Account under

14 section 1004(b), the portion of the premiums col15 lected by private insurers servicing the primary in16 surance coverage policies described in subtitle B

17 which is due the Corporation, plus any interest in18 come accrued on such premiums, shall be deposited

19 in the primary account.

20 ‘‘(3) PAYMENT OF CLAIMS.—From amounts in

21 the primary account, the Corporation shall only pay

22 qualifying claims and loss adjustment expenses, as

23 described in section 914(d), to private insurers act24 ing as service providers of the primary insurance

25 coverages
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1 ‘‘(b) REINSURANCE COVERAGE TRUST ACCOUNT.—

2 ‘‘(1) ESTABLISHMENT.—The Corporation shall

3 establish and maintain a reinsurance coverage trust

4 account (hereinafter in this Act referred to as the

5 ‘‘reinsurance account’’) to hold funds in trust gen6 erated through the reinsurance coverage described in

7 subtitle C.

8 ‘‘(2) ACCOUNT DEPOSITS.—Except for the

9 amount set aside for the Mitigation Account under

10 section 1004(b), the premiums paid by private insur11 ers which purchased the reinsurance coverage policy

12 described in subtitle C, plus any interest income ac13 crued on such premiums, shall be deposited in the

14 reinsurance account.

15 ‘‘(3) PAYMENT OF CLAIMS.—From amounts in

16 the reinsurance account, the Corporation shall pay

17 qualifying claims, as described in section 922(c), to

18 private insurers which purchased the reinsurance

19 coverage.

20 ‘‘(c) INVESTMENTS.—

21 ‘‘(1) GENERAL AUTHORITY.—The Board of the

22 Corporation shall invest amounts in the primary ac23 count and the reinsurance account not required to

24 meet current financial commitments as the Board

25 sees appropriate.
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1 ‘‘(2) DEPOSITS.—Any income generated from

2 the investments described in paragraph (1) shall be

3 deposited, as appropriate, into the primary account

4 or the reinsurance account.

5 ‘‘(d) FEDERAL LOANS.—

6 ‘‘(1) LENDING AUTHORITY.—To the extent that

7 the accumulated assets of the Corporation’s trust ac8 counts described in subsection (a) or (b), or funds

9 raised by issuing obligations in the private market

10 pursuant to section 901(e)(3)(C), are insufficient to

11 pay claims and expenses resulting from the primary

12 insurance coverages or the reinsurance coverage, the

13 Secretary of Treasury shall provide direct loans from

14 the Private Loss Account established by section

15 1002 in sufficient amounts to cover such shortfall in

16 accordance with this subsection.

17 ‘‘(2) CONDITIONS.—The following conditions

18 shall apply to any Federal loans provided to the Cor19 poration under this subsection:

20 ‘‘(A) The total amount of outstanding

21 loans at any given time shall not exceed the ca22 pacity of the Corporation to repay those loans

23 within 20 years.

24 ‘‘(B) All loans authorized by this sub25 section shall be made under terms and condi-
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1 tions so that the subsidy cost to the Federal

2 Government for purposes of title V of the Con3 gressional Budget Act of 1974 (2 U.S.C. 661 et

4 seq.) is zero at the time the loans are made.

5 ‘‘(C) All loans are subject to such extent

6 and in such amounts as are provided in appro7 priations Acts.

8 ‘‘(3) REPAYMENT.—

9 ‘‘(A) IN GENERAL.—Consistent with para10 graph (2), any amounts borrowed from, and to

11 be repaid to, the Federal Government under

12 this subsection shall be recouped, including in13 terest on the borrowed funds, in addition to fu14 ture rates, respectively, for the primary insur15 ance coverages issued under section 911 and for

16 the reinsurance coverage provided under section

17 921.

18 ‘‘(B) INTEREST RATES.—The borrowing by

19 the Corporation shall be at non-subsidized in20 terest rates determined by the Secretary, taking

21 into consideration the current average market

22 yield on outstanding marketable obligations of

23 the United States of comparable maturities.

24 ‘‘(C) PRIMARY COVERAGE REPAYMENT

25 TERMS.—The Corporation shall require under
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1 its contractual terms and conditions with pri2 vate insurers acting as service providers of the

3 primary insurance coverages under section 912

4 that such private insurers which receive reim5 bursements for qualifying claims under section

6 914(d) that consist of monies loaned from the

7 Federal Government or from private sources

8 under this subsection shall either—

9 ‘‘(i) continue acting as service provid10 ers of such primary insurance coverage at

11 levels which are at least as great as before

12 the receipt of such reimbursements until

13 such borrowed monies, including interest,

14 are repaid pursuant to subparagraph (A);

15 or

16 ‘‘(ii) opt to discontinue acting as serv17 ice providers of such primary insurance

18 coverages, provided such private insurers

19 satisfy the conditions of withdrawal set by

20 the Board of the Corporation in the plan

21 of operation under section 902(a)(4)(D).

22 ‘‘(D) REINSURANCE REPAYMENT TERMS.—

23 The Corporation shall require under its contrac24 tual terms and conditions with eligible entities

25 as defined in section 921(b) that such entities
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1 which receive payments for qualifying claims

2 under section 922(c) that consist of monies

3 loaned from the Federal Government or from

4 private sources under this subsection shall ei5 ther—

6 ‘‘(i) continue to purchase the reinsur7 ance coverage provided under section 921

8 at levels which are at least as great as be9 fore the receipt of such payments until

10 such borrowed monies, including interest,

11 are repaid pursuant to subparagraph (A);

12 or

13 ‘‘(ii) repay its portion of such bor14 rowed monies, including interest, within a

15 reasonable period established by the Cor16 poration.

17 ‘‘(4) MITIGATION PAYMENTS.—Failure of the

18 Corporation to pay natural disaster hazard mitiga19 tion funds and deposit such funds in the Mitigation

20 Account as provided in section 1004 shall render the

21 Corporation ineligible to obtain Federal loans under

22 this subsection.

23 ‘‘(e) NO CO-MINGLING.—The amounts in the pri24 mary account established in subsection (a) and the rein25 surance account in subsection (b) shall be kept separate.
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1 The Corporation shall not permit borrowing of monies be2 tween the 2 accounts.

3 ‘‘SEC. 907. NO FEDERAL FUNDS.

4 ‘‘Except for section 906(d), no Federal funds shall

5 be authorized or appropriated to fund any activity of the

6 Corporation.

7 ‘‘SEC. 908. GAO AUDIT.

8 ‘‘(a) INITIAL AUDIT.—12 months after the Corpora9 tion starts issuing primary insurance coverages under sec10 tion 911 and providing reinsurance coverage under section

11 921 the Comptroller General of the United States shall

12 audit activities of the Corporation and the Natural Disas13 ter Insurance Board of Actuaries established by section

14 904 to ensure both entities are complying with the provi15 sions of this Act.

16 ‘‘(b) FOLLOW-UP AUDITS.—Following the completion

17 of the audit described in subsection(a), the Comptroller

18 General of the United States shall conduct similar audits

19 at least every 3 years for as long as the Corporation issues

20 and provides insurance or reinsurance coverages.

21 ‘‘(c) SUBMISSION TO CONGRESS.—The Comptroller

22 General of the United States shall submit reports of the

23 audits performed under this section to the Congress.
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1 ‘‘Subtitle B—Primary Insurance

2 Coverages

3 ‘‘SEC. 911. SCOPE OF COVERAGE.

4 ‘‘(a) GENERAL AUTHORITY.—As a condition of re5 ceiving Federal loans under section 906(d), the Corpora6 tion shall issue primary insurance coverages which shall—

7 ‘‘(1) cover losses to the eligible property de8 scribed in subsection (b) resulting from the natural

9 disaster perils described in subsection (c); and

10 ‘‘(2) have the terms and conditions described in

11 section 914.

12 ‘‘(b) ELIGIBILITY PROPERTY.—The primary insur13 ance coverages provided by the Corporation shall insure

14 against physical damages and losses to residential prop15 erty, including debris removal, additional living expense

16 incurred as a result of direct damage to the residential

17 property, and ordinance and law coverages.

18 ‘‘(c) NATURAL DISASTER PERILS COVERED.—The

19 primary insurance coverages issued by the Corporation

20 shall cover any damage to the eligible property and related

21 coverages described in subsection (b) proximately caused

22 by—

23 ‘‘(1) an earthquake, except for any fire proxi24 mately caused by an earthquake;
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1 ‘‘(2) a volcanic eruption, including any fire

2 proximately caused by a volcanic eruption;

3 ‘‘(3) a tsunami associated with an earthquake

4 or volcanic eruption; and

5 ‘‘(4) a hurricane.

6 ‘‘SEC. 912. PROVISION OF COVERAGE.

7 ‘‘(a) TYPE OF POLICY.—The primary insurance cov8 erages described in section 911 shall be supplemental con9 tracts of insurance which shall be issued by the Corpora10 tion in conjunction with standard residential property in11 surance contracts issued by private insurers acting as

12 service providers.

13 ‘‘(b) PRIVATE INSURERS ACTING AS SERVICE PRO14 VIDERS.—Private insurers which are participating as

15 members of the Corporation under section 901(b) may act

16 as service providers by offering the primary insurance cov17 erages described in section 911 according to the terms of

18 this subsection.

19 ‘‘(1) SEISMIC PERILS.—Private insurers acting

20 as service providers shall offer the primary insurance

21 coverages on behalf of the Corporation for the earth22 quake, volcanic eruption, and tsunami perils, as de23 scribed in section 911(c), to all of its residential

24 property policyholders in earthquake, volcanic erup-
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1 tion, and tsunami-prone States as determined by

2 section 804.

3 ‘‘(2) HURRICANE PERIL.—Private insurers act4 ing as service providers may also elect to offer the

5 primary insurance coverage on behalf of the Cor6 poration for the hurricane peril, provided it is of7 fered to all of its residential property policyholders

8 in hurricane-prone States as determined by section

9 804.

10 ‘‘(3) QUOTA-SHARE AMOUNTS.—Any private in11 surer acting as a service provider shall agree to ac12 cept the quota-share amounts for each coverage as

13 described in section 914(c).

14 ‘‘SEC. 913. INSURANCE PURCHASE REQUIREMENT.

15 ‘‘(a) COVERAGE REQUIRED WITH FEDERAL MORT16 GAGES.—No federally related mortgage loan secured by

17 residential property located in an earthquake, volcanic

18 eruption, tsuanami, or hurricane-prone State shall be

19 made, renewed unless the property securing the loan is

20 covered by—

21 ‘‘(1) the primary insurance coverages insured

22 by the Corporation described in section 911, or

23 ‘‘(2) coverage insured by a private insurer

24 which has at least equivalent terms, conditions, and

25 rates as the primary insurance coverages for seismic
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1 perils as described in section 912(b)(1) and which

2 has at least equivalent terms and conditions as the

3 primary insurance coverage for the hurricane peril

4 as described in section 912(b)(2).

5 ‘‘(b) ESCROW INSURANCE PREMIUMS.—

6 ‘‘(1) ESCROW REQUIREMENTS.—If the lender or

7 other servicer of residential property mortgage loans

8 requires the escrowing of taxes, insurance premiums,

9 or any other charges, any premiums from earth10 quake, volcanic eruption, tsunami, and hurricane in11 surance for residential property acting as security

12 for a federally related mortgage loan shall be paid

13 to such lender or servicer of the loan. Such pre14 miums shall be paid in a manner sufficient to make

15 payments as due for the duration of the loan.

16 ‘‘(2) ESCROW ACCOUNT.—Upon receipt of the

17 premiums described in paragraph (1), the lender or

18 servicer of the residential property loan shall deposit

19 the premiums in an escrow account on behalf of the

20 borrower. Upon receipt of a notice from the private

21 issuer acting as a service provider or direct insurer

22 of the earthquake, volcanic eruption, tsunami, and

23 hurricane insurance that insurance premiums are

24 due, the lender or servicer shall pay from the escrow
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1 account to the provider of the insurance the amount

2 of the insurance premiums owed.

3 ‘‘(c) ELIGIBILITY REQUIREMENTS.—

4 ‘‘(1) RESIDENTIAL PROPERTY.—Residential

5 property owners in natural disaster-prone States

6 shall be ineligible to receive any financial assistance

7 provided under sections 408 or 411 or any other

8 similar disaster assistance provided by any Federal

9 Agency if—

10 ‘‘(A) the residential property was not in11 sured at the time of the natural disaster at cov12 erage levels which are at least as sufficient as—

13 ‘‘(i) the primary insurance coverages

14 provided under section 911; and

15 ‘‘(ii) the flood coverage provided

16 under the National Flood Insurance Act of

17 1968 (42 U.S.C. 4001 et seq.); provided

18 that the residential owner is required to

19 have such coverage under such Act; and

20 ‘‘(B) the annual household income of the

21 residential property owner exceeds $60,000 in

22 1995 dollars, adjusted annually in accordance

23 with the percentage change in the Consumer

24 Price Index.
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1 ‘‘(2) BUSINESS PROPERTIES.—Owners of busi2 ness properties in natural disaster-prone States shall

3 be ineligible to receive any financial assistance pro4 vided under sections 408 or 411 or any other similar

5 disaster assistance provided by the Small Business

6 Administration or any other Federal agency if the

7 business property was not insured at the time of the

8 natural disaster by disaster insurance that comports

9 with the coverages described in paragraph (1)(A).

10 ‘‘(d) CONDITIONS.—The provisions of subsections

11 (a), (b), and (c) shall not take effect until—

12 ‘‘(1) the Corporation described in section 901

13 has been established;

14 ‘‘(2) the terms and conditions of the primary

15 insurance coverages issued by the Corporation under

16 section 911 satisfy the provisions of section 914; and

17 ‘‘(3) the premiums written by the private insur18 ers participating as service providers of the Corpora19 tion described in section 912(b) represents, at any

20 given time, at least 51 percent of the private resi21 dential property insurance market in the natural dis22 aster-prone States.

23 ‘‘SEC. 914. TERMS AND CONDITIONS.

24 ‘‘(a) GENERAL AUTHORITY.—
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1 ‘‘(1) SETTING THE TERMS AND CONDITIONS.—

2 The Board of the Corporation shall set the terms

3 and conditions of the primary insurance coverages

4 provided under this subtitle. Such terms and condi5 tions, as may be modified from time to time, shall

6 be included in the plan of operation pursuant to sec7 tion 902.

8 ‘‘(2) GUIDING PRINCIPLE.—the terms and con9 ditions for the primary insurance coverage policies

10 shall be standardized and designed, to the maximum

11 extent practicable, to limit the financial exposure of

12 the primary account described in section 906(a) to

13 a manageable level given the probable maximum

14 losses for the natural disaster perils described in sec15 tion 911(c).

16 ‘‘(3) CONSIDERATIONS.—In setting the terms

17 and conditions of the primary insurance coverages,

18 the Board of the Corporation should give due consid19 eration to the following:

20 ‘‘(A) The rates, the scope and limits of

21 coverage, and the deductibles in the standard

22 residential property insurance contract for the

23 natural disaster perils described in section

24 911(c) available in the voluntary primary mar-
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1 ket on the date of enactment of Natural Disas2 ter Protection Partnership Act of 1995.

3 ‘‘(B) the viability of the Corporation to

4 maintain a financially prudent level of risk in

5 protecting against the exposure caused, in part,

6 by the insurance purchase requirement de7 scribed in Section 913.

8 ‘‘(b) SPECIFIC TERMS AND CONDITIONS.—The terms

9 and conditions for the primary insurance coverages shall

10 include the following:

11 ‘‘(1) Limits on the amount of coverage avail12 able.

13 ‘‘(2) Rates as determined under section 903.

14 ‘‘(3) Deductibles which may vary based on the

15 type of peril, geographic areas, and the existence of

16 loss-reduction measures that affect the risk of loss.

17 ‘‘(4) Any other terms and conditions that may

18 be necessary to carry out the purposes of the sub19 title.

20 ‘‘(c) QUOTA-SHARE AMOUNTS.—

21 ‘‘(1) IN GENERAL.—The primary insurance cov22 erages issued by the Corporation shall offer quota23 share amounts as described in this subsection that

24 private insurers participating as service providers

25 shall agree to retain, except that such private insur-
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1 ers have the option to retain higher quota-share

2 amounts.

3 ‘‘(2) SEISMIC PERILS.—The quota-share

4 amount offered by the Corporation for the earth5 quake, volcanic-eruption, and tsunami perils shall be

6 10 percent.

7 ‘‘(3) HURRICANE PERIL.—The quota-share

8 amount offered by the Corporation for the hurricane

9 peril shall be 50 percent.

10 ‘‘(d) PAYMENT OF CLAIMS.—

11 ‘‘(1) PAYING QUALIFYING LOSSES.—Private in12 surers acting as service providers of the primary in13 surance coverages under this subtitle shall pay quali14 fying losses to policyholders as determined by the

15 terms of the primary insurance coverage policies,

16 provided the Corporation certifies to the private in17 surers that sufficient amounts are available in the

18 primarily account, including any Federal loans avail19 able pursuant to section 906(d), to reimburse the

20 private insurers under the provisions of paragraph

21 (2).

22 ‘‘(2) REIMBURSEMENT OF INSURERS.—The pri23 mary account described in section 906(a) shall reim24 burse a private insurer within 90 days of the date

25 for any claim payments made and loss adjustment
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1 expenses incurred by such private insurer under the

2 terms of the primary insurance coverage policies.

3 ‘‘(3) NO LIABILITY FOR PRIVATE INSURERS.—

4 Private insurers acting as service providers of the

5 primary insurance coverages shall not be liable, or in

6 any way responsible, for the payment of claims for

7 which reimbursement under the terms of paragraph

8 (2) is not provided, except that such private insurers

9 shall be responsible for payment of claims resulting

10 from the quota share amounts such insurers agree

11 to retain under subsection (c).

12 ‘‘SEC. 915. FLOOD INSURANCE.

13 ‘‘(a) FLOOD INSURANCE STUDY.—

14 ‘‘(1) MEASURES TO INCREASE COVERAGE.—

15 Within 18 months of the date of enactment of the

16 Natural Disaster Protection Partnership Act of

17 1995, the Director and the Corporation shall jointly

18 submit a report to Congress of any additional sanc19 tions or other measures deemed necessary and ap20 propriate to assure policyholders purchase Federal

21 flood insurance provided pursuant to the National

22 Flood Insurance Act of 1968 (42 U.S.C. 4001 et

23 seq.).

24 ‘‘(2) ASSESSMENT OF PROPOSALS.—The report

25 described in paragraph (1) shall include an assess-
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1 ment of the advisability and feasibility of the follow2 ing two proposals:

3 ‘‘(A) INCLUSION IN THE PRIMARY COV4 ERAGE.—Adding the Standard Flood Insurance

5 Policy issued pursuant to the National Flood

6 Insurance Act of 1968 (42 U.S.C. 4001 et

7 seq.), or the content thereof, to the primary in8 surance coverage contracts issued by the Cor9 poration pursuant to section 911.

10 ‘‘(B) PRIVATIZATION.—Privatizing the en11 tire national flood insurance program managed

12 by the Director pursuant to the National Flood

13 Insurance Act of 1968 (42 U.S.C. 4001 et

14 seq.).

15 ‘‘(b) IMPROVED PARTICIPATION IN THE FEDERAL

16 FLOOD INSURANCE PROGRAM.—

17 ‘‘(1) WARNING STATEMENT REQUIRED FROM

18 ALL PRIVATE INSURERS.—Not late than 18 months

19 after the date of enactment of the Natural Disaster

20 Protection Partnership Act of 1995, all residential

21 property insurance contracts issued by private insur22 ers which exclude coverage for physical damage

23 caused by flooding shall bear the following warning

24 statement: ‘FLOOD INSURANCE WARNING:

25 This policy does not cover losses caused by flooding.
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1 However, if you have purchased a separate flood in2 surance policy, including one issued under the Na3 tional Flood Insurance Program, you have coverage

4 against physical damage caused by flooding. If your

5 property is located in a flood-prone area and you

6 have a mortgage from a bank or other lending insti7 tution regulated or insured by a Federal entity (as

8 most are), you may be required by that lending in9 stitution to have flood insurance. If this requirement

10 applies to you and you fail to have flood insurance

11 coverage, your eligibility to obtain Federal disaster

12 aid for flood losses could be subject to conditions.’.

13 ‘‘(2) ALTERNATIVE WARNING STATEMENT.—

14 ‘‘(A) If the private insurer is engaged in

15 the national flood insurance program as a

16 write-your-own company pursuant to section

17 1345 of the National Flood Insurance Act of

18 1968 (42 U.S.C. 4081) and the accompanying

19 Federal regulations, the following sentence shall

20 appear at the end of the warning statement re21 quired by paragraph (1): ‘For more information

22 about obtaining insurance to cover physical

23 damage caused by flooding, consult your insur24 ance agent, broker, or insurance company rep25 resentative.’.
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1 ‘‘(B) If the private insurer is not engaged

2 as a write-your-own company as described in

3 subparagraph (A), the following sentence shall

4 appear at the end of the warning statement re5 quired by paragraph (1): ‘For more information

6 about obtaining insurance to cover physical

7 damage caused by flooding, consult your insur8 ance agent, broker, or insurance company rep9 resentative or call the National Flood Insurance

10 Program.’.

11 ‘‘(3) LOCATION AND FORMAT OF WARNING

12 STATEMENT.—The warning statement required by

13 paragraphs (1) and (2) shall be located in a con14 spicuous and prominent place on the residential

15 property insurance contract. The statement shall be

16 displayed in legible type which contrasts by typog17 raphy, layout, or color with other printed materials

18 on the policy.

19 ‘‘(4) CONSEQUENCES OF NONCOMPLIANCE.—

20 Private insurers failing to comply with this section

21 shall be ineligible to participate as members of the

22 Corporation described in section 901.
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1 ‘‘Subtitle C—Reinsurance Coverage

2 ‘‘SEC. 921. SCOPE OF COVERAGE.

3 ‘‘(a) GENERAL AUTHORITY.—As a condition of re4 ceiving Federal loans under section 906(d), the Corpora5 tion shall make available excess reinsurance coverage

6 which shall—

7 ‘‘(1) provide coverage to eligible entities de8 scribed in subsection (b) for any direct and indirect

9 losses for the covered losses set forth in subsection

10 (c) that are caused by the natural disaster perils de11 scribed in subsection (d); and

12 ‘‘(2) have the terms and conditions described in

13 sections 922 and 923.

14 ‘‘(b) ELIGIBLE ENTITIES.—The following entities, as

15 members of the Corporation, are eligible to purchase the

16 excess reinsurance coverage described in subsection (a),

17 provided such entities meet the minimum criteria and fi18 nancial viability standards set by the Corporation in the

19 plan of operation under section 902:

20 ‘‘(1) Private insurers.

21 ‘‘(2) State insurance pools.

22 ‘‘(c) COVERED LOSSES.—The excess reinsurance cov23 erage described in subsection (a) shall insure against the

24 following losses:
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1 ‘‘(1) Residential losses, including quota-share

2 amounts retained by the private insurers under sec3 tion 914(c), not already insured by the Corporation

4 under the primary insurance coverage policies de5 scribed in section 911.

6 ‘‘(2) Commercial losses.

7 ‘‘(d) NATURAL DISASTER PERILS.—The excess rein8 surance coverage described in subsection (a) shall cover

9 losses that are proximately caused by the following natural

10 disaster perils:

11 ‘‘(1) Earthquakes.

12 ‘‘(2) Volcanic eruptions.

13 ‘‘(3) Tsunamis.

14 ‘‘(4) Hurricanes

15 ‘‘SEC. 922. TERMS AND CONDITIONS.

16 ‘‘(a) GENERAL AUTHORITY.—

17 ‘‘(1) SETTING THE TERMS AND CONDITIONS.—

18 The Board of the Corporation shall set the terms

19 and conditions of the reinsurance coverage issued

20 under this subtitle. Such terms and conditions, as

21 may be modified from time to time, shall be included

22 in the plan of operation pursuant to section 902.

23 ‘‘(2) GUIDING PRINCIPLE.—The terms and con24 ditions for the reinsurance coverage policy shall be—
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1 ‘‘(A) similar to those generally used in pri2 vate catastrophic reinsurance contracts; and

3 ‘‘(B) standardized and designed, to the

4 maximum extent practicable, to limit the finan5 cial exposure of the reinsurance account de6 scribed in section 906(b) to a manageable level

7 given the probable maximum losses for the nat8 ural disaster perils described in section 921(d).

9 ‘‘(b) SPECIFIC TERMS AND CONDITIONS.—The terms

10 and conditions for the reinsurance coverage shall include

11 the following:

12 ‘‘(1) Limits on the amount of coverage avail13 able.

14 ‘‘(2) Rates as determined under section 903

15 which shall take into account the private insurer’s fi16 nancial standing and its exposure to the natural dis17 aster perils described in section 921(d).

18 ‘‘(3) Any other terms and conditions that may

19 be necessary to carry out the purposes of this sub20 title.

21 ‘‘(c) PAYMENT OF CLAIMS.—From amounts in the

22 reinsurance account described in section 906(b), including

23 any Federal loans provided under section 906(d), the Cor24 poration shall pay the qualifying losses as determined

25 under section 923 of those private insurers which pur-
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1 chased the reinsurance coverage provided by the Corpora2 tion under section 921.

3 ‘‘SEC. 923. LEVELS OF RETAINED LOSSES.

4 ‘‘(a) INDUSTRY WIDE ELIGIBILITY.—

5 ‘‘(1) IN GENERAL.—Excess reinsurance cov6 erage under this subtitle shall be available to all pri7 vate insurers eligible for reinsurance pursuant to

8 section 921(b) in accordance with this subsection.

9 ‘‘(2) INDUSTRY RETAINED LOSSES.—

10 ‘‘(A) IN GENERAL.—The reinsurance ac11 count established under section 906(b) shall

12 provide excess reinsurance coverage when, as

13 determined by the Board of the Corporation

14 pursuant to the plan of operation under section

15 902, the insurance industry is likely to incur

16 gross losses covered under section 921(c) aris17 ing from hurricane, earthquake, volcanic erup18 tion, and tusnami events occurring during any

19 12-month period that exceed 15 percent of the

20 consolidated industry surplus as regards policy21 holders.

22 ‘‘(B) CALCULATION.—Only such separate

23 events that will likely result in industry gross

24 losses of at least $1,500,000,000, adjusted an25 nually in accordance with the percentage
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1 change in the Consumer Price Index, shall be

2 aggregated to reach the 15 percent level for

3 gross losses described in subparagraph (A).

4 ‘‘(3) INDIVIDUAL COMPANY RETAINED

5 LOSSES.—After the insurance industry has sustained

6 gross losses described in paragraph (2), the reinsur7 ance account established under section 906(b) shall

8 pay to a private insurer 95 percent of qualifying

9 losses in excess of 15 percent of the consolidated

10 surplus as regards policyholders of the private in11 surer.

12 ‘‘(b) INDIVIDUAL INSURER ELIGIBILITY.—

13 ‘‘(1) INDIVIDUAL INSURER RETAINED

14 LOSSES.—If subsection (a) is not applicable, a pri15 vate insurer shall be eligible for excess reinsurance

16 coverage and reimbursement from the reinsurance

17 account established under section 906(b) if the in18 surer has incurred gross losses from a single—

19 ‘‘(A) earthquake, volcanic eruption, or tsu20 nami event that is included in the lines covered

21 under section 921(c) and that exceeds 20 per22 cent of the consolidated surplus as regards pol23 icyholders of the private insurer; or

24 ‘‘(B) hurricane event that is included in

25 the lines covered under section 921(c) and that
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1 exceed 20 percent of the consolidated surplus as

2 regards policyholders of the private insurer, ex3 cept that losses in the workers’ compensation

4 and earthquake lines of coverage shall be ex5 cluded.

6 ‘‘(2) REINSURANCE ACCOUNT PAYMENTS.—

7 After the private insurer has sustained gross losses

8 described in paragraph (1), the reinsurance account

9 established under section 906(b) shall pay 95 per10 cent of qualifying losses in excess of 20 percent of

11 the consolidated surplus as regards policyholders of

12 the private insurer.

13 ‘‘(3) LIMITATION OF REINSURANCE ACCOUNT

14 PAYMENTS.—The payments by the reinsurance ac15 count under this subsection shall be limited to 200

16 percent of the consolidated surplus as regards pol17 icyholders of the private insurer.

18 ‘‘(c) STATE INSURANCE PROGRAMS.—Excess rein19 surance coverage under this subtitle shall be available to

20 each insurance pool eligible for reinsurance pursuant to

21 section 921(b) in accordance with the following:

22 ‘‘(1) STATE POOL LOSSES.—The reinsurance

23 account established under section 906(b) shall pro24 vide excess reinsurance coverage when, as deter25 mined by the Director pursuant to the plan of oper-
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1 ation under section 902, the State insurance pool is

2 likely to incur gross losses in the State served by the

3 eligible State insurance pool arising from hurricane,

4 earthquake, volcanic eruption, and tsunami events

5 occurring during any 12-month period that exceed

6 10 times the sum of the direct earned premiums for

7 that State insurance pool for the losses covered

8 under section 921(c) or $10,000,000,000, adjusted

9 annually in accordance with the percentage change

10 in the Consumer Price Index, whichever amount is

11 less.

12 ‘‘(2) MINIMUM LOSSES.—The lesser amount de13 scribed in paragraph (1) must equal at least

14 $500,000,000, adjusted annually in accordance with

15 the percentage change in the Consumer Price Index.

16 ‘‘(3) RETAINED LOSSES.—After the insurance

17 industry has sustained gross losses described in

18 paragraph (1), the reinsurance account established

19 under section 906(b) shall pay to an individual State

20 insurance pool 95 percent of qualifying losses in ex21 cess of the lesser amount described in paragraph

22 (1).

23 ‘‘(d) QUALIFYING LOSSES.—For the purpose of this

24 subtitle, ‘qualifying losses’ include—
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1 ‘‘(1) the losses and loss adjustment expense in2 curred by a private insurer or State insurance pool;

3 and

4 ‘‘(2) any assessments, surcharges, or other li5 abilities imposed by any State residual insurance

6 pooling program or guaranty account, attributable to

7 hurricanes, earthquakes, volcanic eruptions, and

8 tsunamis occurring during any 12-month period en9 compassing the events described in subsections

10 (a)(2) and (c)(1) or the event described in sub11 section (b)(1), reduced by—

12 ‘‘(A) any collectible reinsurance recover13 able, and

14 ‘‘(B) an appropriate percentage of any

15 uncollectible reinsurance arising from the event

16 as set in the plan of operation under section

17 902.

18 ‘‘(e) OBLIGATIONS.—All reinsurance contracts issued

19 under this subtitle shall constitute obligations, in accord20 ance with the terms of the reinsurance, of the Corporation.

21 ‘‘(f) DEFINITIONS.—In this section, the following

22 definitions apply:

23 ‘‘(1) The term ‘consolidated industry surplus as

24 regards policyholders’ means the consolidated sur25 plus as regards policyholders of the property and
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1 casualty insurance industry (excluding life insur2 ance) for the calendar year immediately preceding

3 the hurricane, earthquake, volcanic eruption, or tsu4 nami events described in subsection (a)(2) as deter5 mined by the National Association of Insurance

6 Commissioners or other credible source as deter7 mined by the Corporation.

8 ‘‘(2) The term ‘consolidated surplus as regards

9 policyholders’ means the surplus as regards policy10 holders of the private insurer (excluding life insur11 ance) based on financial data submitted to the Na12 tional Association of Insurance Commissioners or

13 other credible source as determined by the Corpora14 tion for the calendar year immediately preceding the

15 hurricane, earthquake, volcanic eruption, or tsunami

16 events described in subsections (a)(2) and (b)(1).

17 ‘‘(3) The term ‘direct earned premiums’ means

18 the direct earned premiums for certain lines of prop19 erty and casualty insurance coverage as published in

20 the National Association of Insurance Commis21 sioners Fire and Casualty Annual Statement filed

22 with the applicable State department of insurance

23 for the most recent calender year available preceding

24 the hurricane, earthquake, volcanic eruption, or tsu25 nami events described in subsection (c)(1).
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1 ‘‘(4) The term ‘gross losses’ means all losses

2 and loss adjustment expenses, before deduction of

3 any private reinsurance recoverables.

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

5 reinsurance proceeds due and payable in accordance

6 with the terms of the reinsurance contract that are

7 not paid within 12 months of the due date.

8 ‘‘TITLE X—NATURAL DISASTER

9 PROTECTION FUND

10 ‘‘SEC. 1001. ESTABLISHMENT.

11 ‘‘(a) THE FUND.—There is established within the

12 Treasury of the United States a trust fund to be known

13 as the Natural Disaster Protection Fund (hereinafter re14 ferred to in this title as the ‘Fund’), consisting of such

15 amounts as may be appropriated or credited to the Fund

16 as provided in this title.

17 ‘‘(b) ACCOUNTS.—There are established in the Fund

18 three separate accounts as follows:

19 ‘‘(1) A Private Loss Account as described in

20 section 1002.

21 ‘‘(2) A Public Loss Account as described in sec22 tion 1003.

23 ‘‘(3) A Mitigation Account as described in sec24 tion 1004.
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1 ‘‘(c) NO COMMINGLING.—The amounts in the three

2 accounts established in subsection (b) shall be kept sepa3 rate. The Secretary of the Treasury shall not permit bor4 rowing of monies between the three accounts.

5 ‘‘SEC. 1002. PRIVATE LOSS ACCOUNT.

6 ‘‘The Private Loss Account established in section

7 1001(b) shall provide direct Federal loans to cover short8 falls in the primary account described in section 906(a)

9 and the reinsurance account described in section 906(b),

10 subject to the lending authority, conditions, and repay11 ment terms of section 906(d).

12 ‘‘SEC. 1003. PUBLIC LOSS ACCOUNT.

13 ‘‘(a) IN GENERAL.—The Public Loss Account estab14 lished in section 1001(b) shall cover losses to, and retro15 fitting of, public facilities and critical facilities and life16 lines.

17 ‘‘(b) DESCRIPTION OF ACCOUNT.—

18 ‘‘(1) SOURCE OF FUNDS.—The Director shall

19 transfer and credit to the Public Loss Account

20 amounts specifically designated and appropriated—

21 ‘‘(A) annually pursuant to title IV for re22 pair and restoration of Federal facilities, public

23 facilities, and critical facilities and lifelines;

24 ‘‘(B) pursuant to any natural disaster

25 emergency supplemental appropriations Act en-
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1 acted after the date of enactment of the Natu2 ral Disaster Protection Partnership Act of 1995

3 and intended to be allocated to the Director,

4 the Department of Transportation, the Depart5 ment of Housing and Urban Development, and

6 other Federal agencies for the repair and res7 toration of critical facilities and lifelines and

8 public facilities; and

9 ‘‘(C) annually after the date of enactment

10 of the Natural Disaster Protection Partnership

11 Act of 1995 for the following public infrastruc12 ture programs or Federal entities:

13 ‘‘(i) the Highway Trust Fund (26

14 U.S.C. 9503),

15 ‘‘(ii) the Airport and Airway Trust

16 Fund (26 U.S.C. 9502),

17 ‘‘(iii) the Harbor Maintenance Trust

18 Fund (26 U.S.C. 9505),

19 ‘‘(iv) the grants for construction of

20 water treatment works under title II of the

21 Federal Water Pollution Control Act (33

22 U.S.C. 1281 et seq.),

23 ‘‘(v) the Soil Conservation Service (16

24 U.S.C. 590 et seq.),
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1 ‘‘(vi) the Economic Development Ad2 ministration (42 U.S.C. 3121 et seq.),

3 ‘‘(vii) the Corps of Engineers, and

4 ‘‘(viii) the General Services Adminis5 tration (40 U.S.C. 751 et seq.);

6 provided that such specifically designated amounts

7 under this paragraph shall be in addition to and not

8 in lieu of annual appropriations for these programs.

9 ‘‘(2) AMOUNT OF ACCOUNT.—The Public Loss

10 Account shall retain a reserve of funds sufficient to

11 cover the anticipated costs resulting from natural

12 disasters up to the annual 10-year historical average

13 of disaster relief provided by the Director.

14 ‘‘(3) AUTHORIZATION.—There is authorized to

15 be appropriated from the general fund such sums as

16 may be necessary to carry out this section.

17 ‘‘(c) PURPOSES OF ACCOUNT.—

18 ‘‘(1) REBUILDING GRANTS.—The Public Loss

19 Account shall provide grants to States for the repair

20 or restoration of critical facilities and lifelines, public

21 facilities, and infrastructure damaged or destroyed

22 by natural disasters.

23 ‘‘(2) PRE-DISASTER MITIGATION.—The Public

24 Loss Account shall provide grants to States for pre25 natural disaster hazard mitigation, including retro-
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1 fitting of critical facilities and lifelines and public fa2 cilities.

3 ‘‘(3) FEDERAL SHARE.—

4 ‘‘(A) COMPLIANCE STATE.—The Federal

5 share of the grants provided from the Public

6 Loss Account under this subsection shall be 75

7 percent if the State receiving such grants is in

8 compliance with the hazard mitigation time pe9 riods described in section 813.

10 ‘‘(B) NON-COMPLIANCE STATE.—Consist11 ent with the penalty described in section

12 814(a), the Federal share shall be 50 percent if

13 the State receiving grants under this subsection

14 is not in compliance with the hazard mitigation

15 time periods described in section 813.

16 (C) WAIVER.—The Federal share percent17 ages described in subparagraphs (A) and (B)

18 shall be increased only upon the enactment of

19 a joint resolution that shall not be designated

20 as an emergency under section 251(b)(2)(D) of

21 the Balanced Budget and Emergency Deficit

22 Control Act of 1985 (2 U.S.C. 901(b)(2)(D)).

23 ‘‘SEC. 1004. MITIGATION ACCOUNT.

24 ‘‘(a) PURPOSE OF THE ACCOUNT.—The Mitigation

25 Account established in section 1001(b) shall support the
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1 natural disaster hazard mitigation efforts described in

2 subtitle B of title VIII.

3 ‘‘(b) MITIGATION SET ASIDE.—

4 ‘‘(1) IN GENERAL.—The Corporation shall pay

5 a percent of the annual net premiums collected for

6 the primary insurance coverages described in subtitle

7 B of title IX and the reinsurance coverage described

8 in subtitle C of title IX for natural disaster hazard

9 mitigation purposes.

10 ‘‘(2) PRECISE PERCENTAGE.—The percent

11 amount described in paragraph (1) shall be 7.5 per12 cent or a percentage amount which totals on an an13 nual basis $200,000,000, adjusted annually in ac14 cordance with the percentage change in the

15 Consumer Price Index, which ever amount is less.

16 ‘‘(c) DEPOSITS.—The Director shall transfer and

17 credit on an annual basis to the Mitigation Account

18 amounts received from—

19 ‘‘(1) the percent set aside of the annual pre20 miums described in subsection (b); and

21 ‘‘(2) appropriations provided for pre-natural

22 disaster hazard mitigation activities under this Act.

23 ‘‘(d) AUTHORIZATION.—For the purposes of sub24 section (c)(2) only, there is authorized to be appropriated

25 annually amounts equal to the amounts provided annually
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1 from the percent set aside of premiums received pursuant

2 to subsection (b).’’.

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