I

103D CONGRESS

1ST SESSION H. R. 935

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

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

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 17, 1993

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

Committees on Banking, Finance and Urban Affairs and Science, Space,

and Technology

MAY 13, 1993

Additional sponsors: Mr. HASTINGS, Mr. RANGEL, Mr. MCCOLLUM, Mr.

MCDERMOTT, Mr. MILLER Of California, and Mr. JEFFERSON

A BILL

To provide for a Federal program of insurance against the

risk of catastrophic earthquakes, volcanic eruptions, and

hurricanes, and for other purposes.

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

3 SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

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

5 ‘‘Earthquake, Volcanic Eruption, and Hurricane Hazards

6 Insurance Act of 1993’’.

7 (b) TABLE OF CONTENTS.—
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Sec. 1. Short title and table of contents.

Sec. 2. Findings.

Sec. 3. Definitions.

TITLE I—PARTICIPATION BY STATES IN ADOPTION OF HAZARD

REDUCTION MEASURES

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

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

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

Sec. 104. Self-Sustaining Mitigation Fund.

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

Sec. 106. Requirement to purchase primary insurance.

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

Sec. 108. Coordination with other programs.

Sec. 109. Report to Congress.

Sec. 110. Regulations.

TITLE II—PRIMARY INSURANCE PROGRAM

Sec. 201. Basic authority and program organization.

Sec. 202. Scope of program.

Sec. 203. Terms and limitations of insurance coverage.

Sec. 204. Establishment of actuarial premium rates.

Sec. 205. Chargeable premium rates.

Sec. 206. Insurance mitigation incentives.

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

Sec. 208. Residential Property Insurance Fund.

Sec. 209. Borrowing from Treasury.

TITLE III—NATIONAL EARTHQUAKE, VOLCANIC ERUPTION, AND

HURRICANE EXCESS LOSS REINSURANCE PROGRAM

Sec. 301. Reinsurance program.

Sec. 302. Lines of insurance.

Sec. 303. Rates.

Sec. 304. Reinsurance contracts.

Sec. 305. Reinsurance Fund.

Sec. 306. Borrowing from Treasury.

1 SEC. 2. FINDINGS.

2 The Congress finds that—

3 (1) the catastrophic and unpredictable nature

4 of earthquakes, volcanic eruptions, and hurricanes

5 prevent individual private insurers from offering the
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1 necessary insurance against these perils without the

2 participation of the Federal Government;

3 (2) in the absence of an adequate system for in4 suring against losses from earthquakes, volcanic

5 eruptions, and hurricanes, the Federal Government

6 and State governments will bear excessive and avoid7 able costs of disaster relief and the commerce and

8 economy of the Nation would be seriously desta9 bilized;

10 (3) the existing systems of private insurance,

11 reinsurance, and government disaster relief are inad12 equate and should be improved and better coordi13 nated;

14 (4) a reasonable method of providing insurance

15 against such losses is to create a Federal earth16 quake, volcanic eruption, and hurricane insurance

17 and reinsurance program, to assist in making insur18 ance against such disasters widely available and af19 fordable to the general public; and

20 (5) in providing such insurance, the Federal

21 Government should work constructively with the

22 States and localities to assist and require, if appro23 priate, the development, adoption, and enforcement

24 of hazard reduction measures, including building
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1 codes, land-use planning, and strengthening of new

2 and existing structures.

3 SEC. 3. DEFINITIONS.

4 For purposes of this Act:

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

6 and loss adjustment expense payments for earth7 quake, volcanic eruption, and hurricane coverage is8 sued pursuant to title II that exceed the accumu9 lated amounts in the Residential Property Insurance

10 Fund.

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

12 or reinsurer organized or incorporated in a country

13 other than the United States.

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

15 hurricanes’’ means schools and structures essential

16 to emergency services necessary for post hurricane

17 recovery (including hospitals, fire and policy facili18 ties, temporary shelters, and emergency operating

19 and preparedness centers) that—

20 (A) have unreinforced masonry bearing

21 walls, tilt-up construction, nonductile concrete

22 frame construction, or other construction, as

23 determined by the Director, that makes them

24 susceptible to damage from hurricanes; and
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1 (B) are located in hurricane zones within

2 hurricane-prone States.

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

4 the Federal Emergency Management Agency.

5 (5) The term ‘‘earthquake’’ means any shaking

6 or trembling of the crust of the earth caused by un7 derground seismic forces or by breaking and shifting

8 of rock beneath the surface.

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

10 and hurricane coverage’’ means insurance issued

11 pursuant to title II.

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

13 a State determined by the Director pursuant to sec14 tion 101 to have an exposure to the earthquake

15 peril.

16 (8) The term ‘‘Federal agency’’ means any de17 partment, agency, corporation, or other instrumen18 tality of the executive branch of the Federal Govern19 ment, and includes the Federal National Mortgage

20 Association and the Federal Home Loan Mortgage

21 Corporation.

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

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

24 the Real Estate Settlement Procedures Act of 1974,
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1 except that the term does not include any loan de2 scribed in subparagraph (B)(iv) of such section.

3 (10) The term ‘‘fires associated with an earth4 quake’’ means any fire proximately caused by an

5 earthquake.

6 (11) The term ‘‘fires associated with a volcanic

7 eruption’’ means any fire proximately caused by a

8 volcanic eruption.

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

10 a State determined by the Director pursuant to sec11 tion 101 to have an exposure to hurricane peril.

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

13 within a State identified and classified by the Direc14 tor under section 101(a) as subject to major hurri15 cane risk.

16 (14) The term ‘‘Insurance and Reinsurance Ad17 visory Committee’’ means the Earthquake, Volcanic

18 Eruption, and Hurricane Insurance and Reinsurance

19 Advisory Committee established under section 207.

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

21 Residential Property Insurance Fund established

22 under section 208.

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

24 private insurers and private reinsurers.
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1 (17) The term ‘‘large building’’ means any

2 nonresidential structure that has more than 1 story

3 or more than 5,000 square feet per story.

4 (18) The term ‘‘Loss Mitigation Advisory Com5 mittee’’ means the Earthquake, Volcanic Eruption,

6 and Hurricane Loss Mitigation Advisory Committee

7 established under section 102.

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

9 the criteria for earthquake, volcanic eruption, and

10 hurricane loss mitigation established by the Director

11 under section 103.

12 (20) the term ‘‘Primary Insurance Program’’

13 means the national earthquake, volcanic eruption,

14 and hurricane insurance program under title II.

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

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

17 licensed or admitted to write property and casualty

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

19 branch of an alien insurer or reinsurer that is en20 tered through and licensed by a State to conduct in21 surance or reinsurance business. In the case of an

22 insurance exchange or group of unincorporated un23 derwriters, the term means an underwriting syn24 dicate, notwithstanding the licensed or admitted sta-
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1 tus of the insurance exchange or group of unincor2 porated underwriters.

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

4 Reinsurance Fund established under section 305.

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

6 the national earthquake, volcanic eruption, and hur7 ricane excess loss reinsurance program under title

8 III.

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

10 any (A) 1- to 4-family residential structure (includ11 ing mobile or manufactured homes) and the personal

12 property therein, and (B) personal property of occu13 pants of residential structures (including condomin14 iums, cooperatives, and apartment structures).

15 (25) The term ‘‘residential property insurance

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

17 insurance that provide indemnity, in whole or in

18 part, for the loss, destruction, or damage of residen19 tial property and other eligible property as deter20 mined by the Director.

21 (26) The term ‘‘seismically hazardous critical

22 facilities’’ means schools and structures essential to

23 emergency services necessary for post earthquake re24 covery (including hospitals, fire and policy facilities,
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1 temporary shelters, and emergency operating and

2 preparedness centers) that—

3 (A) have unreinforced masonry bearing

4 walls, tilt-up construction, or nonductile con5 crete frame construction; and

6 (B) are located in seismic zones within

7 earthquake-prone States.

8 (27) The term ‘‘Self-Sustaining Mitigation

9 Fund’’ means the Fund established under section

10 104.

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

12 within a State identified and classified by the Direc13 tor under section 101(a) as subject to major seismic

14 risk.

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

16 generated by underwater disturbances in the earth’s

17 crust, primarily earthquakes and submarine volcanic

18 eruptions.

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

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

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

22 and other natural substances through an opening in

23 the crust of the Earth.

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

25 means a State determined by the Director pursuant
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1 to section 101 to have an exposure to the volcanic

2 eruption peril.

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

4 within a State identified and classified by the Direc5 tor under section 101(a) as subject to major volcanic

6 eruption risk.

7 TITLE I—PARTICIPATION BY

8 STATES IN ADOPTION OF HAZ9 ARD REDUCTION MEASURES

10 SEC. 101. IDENTIFICATION OF EARTHQUAKE-PRONE, VOL11 CANIC ERUPTION-PRONE, AND HURRICANE12 PRONE STATES.

13 (a) INITIAL IDENTIFICATION OF STATES.—The Di14 rector, in consultation with the United States Geological

15 Survey, other relevant Federal entities, and seismic, vol16 canic, and meteorological experts in the private sector,

17 shall identify States having an exposure to earthquake

18 perils, States having an exposure to volcanic eruption

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

20 which shall include any State subject to major or moderate

21 seismic, volcanic eruption, or hurricane risk, as appro22 priate. The Director shall also identify and establish any

23 areas, within such States, that are subject to major seis24 mic, volcanic eruption, or hurricane risk as seismic zones,

25 volcanic zones, or hurricane zones, as appropriate. The Di-
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1 rector shall identify such States and zones before the expi2 ration of the 1-year period beginning on the date of the

3 enactment of the Earthquake, Volcanic Eruption, and

4 Hurricane Hazards Insurance Act of 1993, and shall

5 cause a listing of such States and zones to be published

6 in the Federal Register and in widely circulated local

7 newspapers in the applicable States before the expiration

8 of such 1-year period.

9 (b) FINAL NOTIFICATION.—Each State identified

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

11 this Act to be an earthquake-prone, volcanic eruption12 prone, or hurricane-prone State, as appropriate, upon the

13 expiration of the 6-month period beginning upon the expi14 ration of the period under subsection (a). The Director

15 shall notify the chief executive officer of each State identi16 fied under subsection (a) in writing, before the expiration

17 of such 6-month period, that the State is an earthquake18 prone, volcanic eruption-prone, or hurricane-prone State,

19 as appropriate, for purposes of this Act.

20 (c) ONGOING IDENTIFICATION AND NOTIFICATION.—

21 Based upon any additional seismic, volcanic, and meteoro22 logical information that from time to time becomes avail23 able, the Director may identify States (not identified

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

25 volcanic eruption, or hurricane perils. Any such States
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1 shall be considered to be an earthquake-prone, volcanic

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

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

4 executive officer of the State, in writing, of the identifica5 tion of the State as such a State.

6 (d) APPEAL.—Any State aggrieved by a final deter7 mination as an earthquake-prone, volcanic eruption-prone,

8 or hurricane-prone State pursuant to subsection (b) or (c),

9 may, after exhausting administrative remedies, appeal

10 such determination to any United States district court for

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

12 after receipt of notice of such determination. The scope

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

14 7 of title 5, United States Code. During the pendency of

15 any such litigation, all determinations of the Director shall

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

17 stayed by the court for good cause shown.

18 SEC. 102. EARTHQUAKE, VOLCANIC ERUPTION, AND HURRI19 CANE LOSS MITIGATION ADVISORY COMMIT20 TEE.

21 (a) ESTABLISHMENT.—There is established an inde22 pendent advisory committee within the executive branch

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

24 Hurricane Loss Mitigation Advisory Committee (in this

25 section referred to as the ‘‘Committee’’). The Committee,
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1 its members, and its functions shall be separate from the

2 Insurance and Reinsurance Advisory Committee estab3 lished under section 207. To the extent not contradicted

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

5 subject to the provisions of the Federal Advisory Commit6 tee Act.

7 (b) MEMBERSHIP.—

8 (1) APPOINTED MEMBERS.—The Committee

9 shall be composed of 7 members appointed by the

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

11 Senate. The members shall be chosen from among

12 citizens of the United States who are respected ex13 perts in the fields of earthquake, volcanic eruption,

14 and hurricane loss mitigation, who shall include—

15 (A) 1 individual who is employed by a

16 State government as an emergency planner;

17 (B) 1 individual who is knowledgeable re18 garding local community building codes;

19 (C) 1 individual who is employed as a seis20 mic engineer;

21 (D) 1 individual who is employed as an ex22 pert in the field of volcanic eruptions; and

23 (E) 1 individual who is employed as an ex24 pert in the field of hurricanes.
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1 (2) EX OFFICIO MEMBER.—Notwithstanding

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

3 Reinsurance Advisory Committee under section 207

4 shall serve as an ex officio member of the Committee

5 under this section.

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

7 be filled in the manner in which the original appointment

8 was made.

9 (d) CHAIRPERSON.—The President shall designate a

10 chairperson of the Committee from among members se11 lected for appointment to the Committee.

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

13 date of the enactment of the Earthquake, Volcanic Erup14 tion, and Hurricane Hazards Insurance Act of 1993, the

15 President shall submit to the Senate nominations for ap16 pointment to the Committee.

17 (f) FUNCTIONS OF THE COMMITTEE.—The Commit18 tee shall review the loss reduction criteria (including the

19 specific loss-reduction measures) established under section

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

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

22 Committee shall submit to the Director written comments

23 and recommendations for any changes to the criteria.

24 (g) RESPONSIBILITIES OF DIRECTOR.—The Director

25 shall fully cooperate with the Committee and provide the
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1 Committee with access to personnel and information and

2 may request assistance from relevant Federal agencies (in3 cluding the National Institute of Standards and Tech4 nology) as the Committee considers necessary to carry out

5 its functions.

6 SEC. 103. ESTABLISHMENT OF CRITERIA FOR LOSS-REDUC7 TION MEASURES.

8 (a) DEVELOPMENT OF CRITERIA.—

9 (1) IN GENERAL.—On the basis of research car10 ried out under this title, the Director shall develop

11 comprehensive loss-reduction criteria for State and

12 local land use and management ordinances, building

13 codes, and other loss-reduction measures consistent

14 with the requirements under subsection (b). The Di15 rector shall periodically update such criteria to re16 flect technical advances designed to reduce losses

17 from earthquakes, volcanic eruptions, and hurri18 canes.

19 (2) COORDINATION.—The Director shall de20 velop the loss-reduction criteria in coordination and

21 consistent with the earthquake hazards reduction

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

23 Stafford Disaster Relief and Emergency Assistance

24 Act (and Executive Order 12699 of January 5,

25 1990). In developing the loss reduction criteria, the
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1 Director shall consult other affected Federal entities

2 (including the National Institute of Standards and

3 Technology), the Building Seismic Safety Council,

4 the Interagency Committee on Seismic Safety in

5 Construction, the National Oceanic and Atmospheric

6 Administration, representatives of State and local

7 governments, regional earthquake, volcanic eruption,

8 and hurricane preparedness organizations, model

9 building code organizations, and insurance industry

10 groups.

11 (3) SUBMISSION OF DRAFT TO ADVISORY COM12 MITTEE.—Not later than the expiration of the 9-

13 month period beginning on the date of the enact14 ment of the Earthquake, Volcanic Eruption, and

15 Hurricane Hazards Insurance Act of 1993, the Di16 rector shall submit a draft of the loss-reduction cri17 teria to the Loss Mitigation Advisory Committee es18 tablished under section 102. Before issuing any final

19 regulations under paragraph (4), the Director shall

20 consider any recommendations made by such Advi21 sory Committee regarding the draft criteria.

22 (4) REGULATIONS.—Not later than the expira23 tion of the 18-month period beginning on the date

24 of the enactment of the Earthquake, Volcanic Erup25 tion, and Hurricane Hazards Insurance Act of 1993,
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1 the Director shall issue regulations establishing the

2 loss-reduction criteria under this section, subject to

3 the provisions of subchapter II of chapter 5 of title

4 5, United States Code. In issuing final regulations

5 under this paragraph, the Director shall cause to be

6 published in the Federal Register a description of

7 any differences between the recommendations of the

8 Loss Mitigation Advisory Committee and the final

9 regulations (including the applicability of loss-reduc10 tion measures to States and localities) developed by

11 the Director. The description shall contain, for each

12 such difference, an explanation of why the rec13 ommendations of the Advisory Committee were not

14 included in the final regulations.

15 (b) CONTENT OF CRITERIA.—The Federal loss-re16 duction criteria established under this section shall include

17 measures for the reduction of losses from future earth18 quakes, volcanic eruptions, and hurricanes, as follows:

19 (1) MANDATORY INCLUSION.—The Director

20 shall include in the loss-reduction criteria the follow21 ing loss-reduction measures:

22 (A) Minimum seismic and hurricane build23 ing standards applicable to new residential

24 property and other buildings located in earth25 quake-prone States and hurricane-prone States.
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1 (B) Community-based building codes appli2 cable to new residential property, which shall

3 meet or exceed any minimum provisions relat4 ing to seismic or hurricane hazards contained in

5 (i) the most recent edition of the National

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

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

8 recent edition of the Uniform Building Code.

9 (2) DISCRETIONARY INCLUSION.—Consistent

10 with reports submitted to Congress pursuant to sec11 tion 104(a)(2) of the Earthquake Hazards Reduc12 tion Act of 1977 and section 947 of the Cranston13 Gonzalez National Affordable Housing Act, the Di14 rector shall consider and may include in the loss-re15 duction criteria established under this section, any of

16 the following additional loss-reduction measures:

17 (A) Community-based building codes which

18 contain minimum seismic or hurricane provi19 sions (including restrictions on new

20 unreinforced masonry construction) for new res21 idential property that is located in a seismic or

22 hurricane zone, as appropriate, not currently

23 covered by any of the building codes referred to

24 in paragraph (1)(B) but identified by the Direc-
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1 tor as being located in earthquake-prone or hur2 ricane-prone States, as appropriate.

3 (B) Geotechnical techniques to minimize

4 the effects of ground failures for new large

5 buildings in high-risk fault, landslide, site am6 plification, and liquefaction zones identified in

7 earthquake-prone States and, to the extent

8 practicable and cost-effective, application of the

9 same geotechnical techniques to existing large

10 buildings in the same zones.

11 (C) Measures to control construction of

12 buildings in high-risk fault, landslide, site am13 plification, liquefaction zones, and volcanic

14 zones identified in earthquake-prone or volcanic

15 eruption-prone States.

16 (D) To the extent practicable, retrofitting

17 of seismically hazardous critical facilities and

18 critical facilities vulnerable to hurricanes.

19 (E) Securing of building parapets and ex20 ternal ornamentations of existing buildings lo21 cated in earthquake-prone States or hurricane22 prone States.

23 (F) Bracing of gas water heaters and other

24 measures to reduce the risk of earthquake-in-
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1 duced fires in residential property located in

2 earthquake-prone States.

3 (G) Inspections before transfer of residen4 tial property in earthquake-prone States and

5 hurricane-prone States (and provision to buyers

6 of inspection reports) regarding the adequacy of

7 the anchoring of the residential structure to the

8 foundation, the presence of unbraced or braced

9 cripple walls for woodframe structures, and the

10 bracing of gas water heaters to the walls for all

11 structures, as appropriate based on risk of

12 damage by earthquakes or hurricanes.

13 (3) RECOMMENDED MEASURES.—The Director

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

15 of the following earthquake and hurricane prepared16 ness and planning measures:

17 (A) Expanded research and development

18 by the National Institute of Standards and

19 Technology and other government and private

20 sector entities of new cost-effective building

21 technologies for new construction and retro22 fitting of existing buildings.

23 (B) Educational and promotional cam24 paigns to encourage additional voluntary miti25 gation.
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1 (C) Reward-based fiscal incentives, such as

2 lower property tax assessments, no reassess3 ments for retrofitting which results in increased

4 property values, or other tax incentives to en5 courage use of state-of-the-art mitigation tech6 nology.

7 (D) State or community-based efforts to

8 assist low- and moderate-income households to

9 purchase needed earthquake, volcanic eruption,

10 or hurricane insurance and to adopt cost-effec11 tive loss-reduction measures.

12 (E) Improvements in long-term earthquake

13 and hurricane construction practices, including

14 the training and licensing of earthquake and

15 hurricane design professionals as well as public

16 and private building inspectors.

17 (F) Institutional support, training in

18 earthquake and hurricane engineering tech19 nology and other disciplines, and staffing to en20 sure compliance with the community-based

21 building codes.

22 (G) Minimizing damage to public utilities,

23 including sewer, gas, electrical and water sys24 tems, and other lifelines.
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1 (c) STANDARD.—Any mitigation measures included

2 in the loss-reduction criteria established under this section

3 shall be practical, cost-effective, workable, and directly re4 lated to the risk of loss from earthquakes, volcanic erup5 tions, or hurricanes in areas where residential property is

6 located.

7 (d) TECHNICAL ASSISTANCE.—The Director, in con8 sultation with the National Institute of Standards and

9 Technology, shall coordinate with and provide technical

10 assistance to States, interstate, and local officials and

11 agencies to encourage adoption and enforcement of State

12 and local actions that incorporate and support the loss13 reduction measures and preparedness goals developed by

14 the Director under this section.

15 SEC. 104. SELF-SUSTAINING MITIGATION FUND.

16 (a) IN GENERAL.—A percentage of the annual earth17 quake, volcanic eruption, and hurricane insurance and ex18 cess reinsurance premiums collected under the Primary

19 Insurance program under title II, as the Director shall

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

21 known as the Self-Sustaining Mitigation Fund. The per22 centage may not exceed 5 percent, unless the Director de23 termines that the amounts in the Insurance Fund are suf24 ficient to provide for any probable expected losses from

25 future earthquakes, volcanic eruptions, or hurricanes. In-
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1 terest on amounts in the Fund shall be credited to the

2 Fund.

3 (b) USE.—Amounts in the Self-Sustaining Mitigation

4 Fund shall be available, to the extent provided in appro5 priations Acts, to the Director to provide assistance to

6 support the earthquake, volcanic eruption, and hurricane

7 hazard reduction activities, as follows:

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

9 (2) Assistance to provide earthquake, volcanic

10 eruption, and hurricane education pursuant to sub11 section (c).

12 (3) Assistance for research and development

13 supported by the National Institute of Standards

14 and Technology on construction techniques to reduce

15 costs of new construction and retrofitting of existing

16 buildings.

17 (4) Low-interest loans or grants for the retro18 fitting of seismically hazardous critical facilities and

19 critical facilities vulnerable to hurricanes.

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

21 educational programs authorized under title I, the Direc22 tor shall provide assistance under this section to support

23 programs educating the general public on the national di24 mensions of the seismic, volcanic eruption, and hurricane
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1 risk and on methods for homeowners to reduce the haz2 ards resulting from future earthquakes and hurricanes.

3 SEC. 105. STATE IMPLEMENTATION OF LOSS-REDUCTION

4 MEASURES.

5 (a) DEFINITION OF COMPLIANCE STATE.—An earth6 quake-prone, volcanic eruption-prone, or hurricane-prone

7 State shall be considered a compliance State for purposes

8 of this title if—

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

10 beginning upon the promulgation of final regulations

11 under section 103 establishing loss-reduction cri12 teria—

13 (A) the counties and municipalities located

14 in all seismic, volcanic, and hurricane zones

15 within the State have adopted and are enforcing

16 minimum applicable mitigation measures re17 quired under the loss-reduction criteria; and

18 (B) the chief executive officer of the State

19 has designated an administrative authority to

20 coordinate the development and enforcement of

21 earthquake, volcanic eruption, and hurricane

22 implementation plans for the State, which plans

23 are equivalent to or exceed the loss-reduction

24 criteria; and
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1 (2) the State is certified under section 105(b)

2 as a compliance State.

3 (b) DETERMINATION OF COMPLIANCE.—

4 (1) STATE SUBMISSION OF CERTIFICATION.—

5 Before the expiration of the 2-year period referred

6 to in subsection (a)(1), each earthquake-prone, vol7 canic eruption-prone, or hurricane-prone State shall

8 submit a certification to the Director stating wheth9 er the State has substantially adopted and is sub10 stantially enforcing the applicable mitigation meas11 ures under the loss-reduction criteria. In providing

12 such certification, each State may consult with rel13 evant private-sector accreditation and rating organi14 zations approved by the Director. The Director shall

15 issue regulations not later than 18 months after the

16 date of the enactment of the Earthquake, Volcanic

17 Eruption, and Hurricane Hazards Insurance Act of

18 1993 describing the criteria to be used in making

19 and reviewing such State certifications.

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

21 review each certification submitted under paragraph

22 (1) to determine whether it is an accurate mani23 festation of the submitting State’s substantial com24 pliance with, and enforcement of, the applicable

25 mitigation measures under the loss-reduction cri-
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1 teria. If the Director determines that the State cer2 tification is substantially accurate and the State has

3 adopted and is enforcing the applicable mitigation

4 measures, the Director shall certify the State for

5 purposes of subsection (a). Using the criteria estab6 lished under paragraph (1), the Director shall review

7 the compliance with, and enforcement of, the appli8 cable mitigation measures by each compliance State

9 meeting the requirements of subsection (a) not less

10 than once every 2 years and shall renew compliance

11 certificates as appropriate.

12 (3) NONCOMPLIANCE STATES.—If an earth13 quake-prone, volcanic eruption-prone, or hurricane14 prone State fails to submit a certification under

15 paragraph (1) or the Director determines under

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

17 an inaccurate certification, has not adopted or en18 forced minimum applicable mitigation measures, or

19 has failed to have its compliance certification re20 newed, the Director shall certify the State as a non21 compliance State for purposes of this title and shall

22 promptly prepare and publish proposed regulations

23 setting forth the minimum mitigation measures ap24 plicable to the State.
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1 (4) REVIEW OF NONCOMPLIANCE.—A State cer2 tified as a noncompliance State pursuant to para3 graph (3) may at any time after such certification

4 request the Director to revoke its noncompliance cer5 tification and to certify the State pursuant to para6 graph (2).

7 (c) ASSISTANCE TO PROMOTE COMPLIANCE.—The

8 Director shall provide assistance to each compliance State

9 from amounts in the Self-Sustaining Mitigation Fund

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

11 assistance are made available under appropriations Acts.

12 The amount of such assistance provided to each State

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

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

15 the amount of earthquake, volcanic eruption, and hurri16 cane insurance premiums collected in that State under the

17 Primary Insurance Program, and the State’s risk of fu18 ture earthquakes, volcanic eruptions, and hurricanes. Such

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

20 development and implementation of its mitigation plan, in21 cluding education, enforcement, and mitigation economic

22 incentives, such as low-interest loans for seismic retro23 fitting.
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1 SEC. 106. REQUIREMENT TO PURCHASE PRIMARY

2 INSURANCE.

3 (a) CONNECTION TO FEDERALLY RELATED MORT4 GAGE LOANS.—After the expiration of the 2-year period

5 beginning upon the promulgation of final regulations

6 under section 103 establishing loss-reduction criteria, no

7 federally related mortgage loan secured by residential

8 property located in an earthquake-prone, volcanic erup9 tion-prone, or hurricane-prone State may be made, in10 creased, extended, or renewed unless the property securing

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

12 hurricane insurance coverage available under title II or

13 equivalent insurance from a private insurer, in the amount

14 required under section 203(a)(6). The Director shall de15 termine, in cooperation with the appropriate Federal agen16 cies, the methods by which such mortgagors shall be re17 quired to present proof that they have obtained an insur18 ance policy consistent with the provisions of this title.

19 (b) EXEMPTION FOR STATE PROPERTIES.—Notwith20 standing the other provisions of this section, earthquake,

21 volcanic eruption, and hurricane insurance coverage shall

22 not be required on any State-owned property that is cov23 ered under a State policy of self-insurance adequate in the

24 determination of the Director. The Director shall publish

25 and periodically revise a list of States to which this sub26 section applies.
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1 SEC. 107. EFFECT OF NONCOMPLIANCE WITH STATE MITI2 GATION PROGRAM.

3 Each Federal agency or instrumentality responsible

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

5 banks, savings and loans associations, or similar institu6 tions shall, by regulation, prohibit such institutions from

7 making, increasing, extending, or renewing a federally re8 lated mortgage loan secured by improved real estate or

9 a mobile home located or to be located in an earthquake10 prone, volcanic eruption-prone, or hurricane-prone State,

11 if—

12 (1) the State has been determined to be a non13 compliance State pursuant to section 105; and

14 (2) a presale inspection of the property securing

15 the loan—

16 (A) indicates that the property does not

17 meet the minimum mitigation measures applica18 ble to the property under the loss-reduction cri19 teria; or

20 (B) has not been conducted.

21 SEC. 108. COORDINATION WITH OTHER PROGRAMS.

22 In carrying out this Act, the Director shall consult

23 with other departments and agencies of the Federal Gov24 ernment, and with interstate, State, and local agencies

25 having responsibilities regarding earthquakes, volcanic

26 eruptions, and hurricanes to ensure that the programs of
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1 such agencies and the Primary Insurance Program under

2 title II are mutually consistent.

3 SEC. 109. REPORT TO CONGRESS.

4 The Director shall submit an annual report under

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

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

7 carried out under this title and evaluate any progress

8 achieved in such activities during the preceding fiscal year.

9 SEC. 110. REGULATIONS.

10 (a) DIRECTOR.—The Director may issue any regula11 tions necessary to carry out this Act, pursuant to the pro12 visions of subchapter II of chapter 5 of title 5, United

13 States Code.

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

15 instrumentality responsible for the supervision, approval,

16 regulation, or insuring of banks, savings and loan associa17 tions, or similar institutions, shall, in cooperation with the

18 Director, issue any regulations necessary to implement the

19 responsibilities of such agency under this Act, pursuant

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

21 United States Code.
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1 TITLE II—PRIMARY INSURANCE

2 PROGRAM

3 SEC. 201. BASIC AUTHORITY AND PROGRAM ORGANIZA4 TION.

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

6 this Act, the Director shall establish and carry out a na7 tional earthquake, volcanic eruption, and hurricane insur8 ance program to provide insurance against loss resulting

9 from physical damage to or loss of real property or per10 sonal property related thereto, in the United States, aris11 ing from any earthquake, volcanic eruption, or hurricane,

12 including any fire associated with a volcanic eruption.

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

14 Insurance Program under this title, the Director shall ar15 range for participation, on other than a risk-sharing basis,

16 by private insurers, insurance agents and brokers, insur17 ance adjustment organizations, and other persons. The

18 Director may take any actions reasonably necessary and

19 appropriate to carry out this title, including the making

20 of contracts, the employment and compensation of per21 sons, and the acquisition of real and personal property.

22 (c) INSURANCE PRACTICES.—Any actions of the Di23 rector under this title shall be consistent with standard

24 insurance practices and generally accepted accounting, ac25 tuarial, and underwriting principles.
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1 (d) SUITS.—Any lawsuits by or against the Director

2 (or employees of the Federal Emergency Management

3 Agency) in connection with activities under this title shall

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

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

6 insurer or reinsurer against the Director (or employees of

7 the Federal Emergency Management Agency) shall be

8 brought in the United States District Court for the

9 District of Columbia.

10 (e) PLAN OF OPERATION.—

11 (1) DEVELOPMENT.—The Director shall de12 velop a plan of operation under this subsection to

13 ensure the fair, reasonable, and equitable adminis14 tration of the Insurance Fund, the Reinsurance

15 Fund, and other activities under this title and title

16 III.

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

18 forth the specific policy and programmatic details

19 for operating the Primary Insurance Program and

20 the Reinsurance Program, and shall include—

21 (A) all guidelines, criteria, definitions,

22 clarifications, and procedures necessary to carry

23 out this title;

24 (B) procedures for implementing the miti25 gation incentives under section 206; and
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1 (C) standards for insurers to retain ex2 pense allowances from premiums collected

3 under this title.

4 (3) STUDY OF LOW-INCOME RATES.—In devel5 oping the plan of operation, the Director shall con6 sider options for charging less than actuarial rates

7 for residential property occupied by low-income pol8 icyholders and may include in the plan any such op9 tion the Director considers necessary, appropriate,

10 and practicable, subject to the requirements under

11 section 205(c).

12 (4) ESTABLISHMENT.—

13 (A) SUBMISSION OF DRAFT TO ADVISORY

14 COMMITTEE.—Not later than the expiration of

15 the 12-month period beginning on the date of

16 the enactment of the Earthquake, Volcanic

17 Eruption, and Hurricane Hazards Insurance

18 Act of 1993, the Director shall submit a draft

19 of the plan of operation to the Insurance and

20 Reinsurance Advisory Committee established

21 under section 207. Before issuing any proposed

22 regulations under subparagraph (B), the Direc23 tor shall consider any recommendations made

24 by such Advisory Committee regarding the

25 draft plan of operation.
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1 (B) PROPOSED REGULATIONS.—Not later

2 than the expiration of the 18-month period be3 ginning on the date of the enactment of the

4 Earthquake, Volcanic Eruption, and Hurricane

5 Hazards Insurance Act of 1993, the Director

6 shall issue proposed regulations establishing the

7 plan of operation under this section, subject to

8 the provisions of subchapter II of chapter 5 of

9 title 5, United States Code. In issuing proposed

10 regulations under this paragraph, the Director

11 shall cause to be published in the Federal Reg12 ister a description of any differences between

13 the recommendations of the Insurance and Re14 insurance Advisory Committee and the final

15 regulations (including the guidelines, criteria,

16 definitions, clarifications, and procedures under

17 the plan) developed by the Director. The de18 scription shall contain, for each such difference,

19 an explanation of why the recommendations of

20 the Advisory Committee were not included in

21 the proposed regulations.

22 (C) COMMENTS.—After the regulations

23 have been issued under subparagraph (B), the

24 Director shall request comments from the In-
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1 surance and Reinsurance Advisory Committee

2 regarding any changes to the regulations.

3 (D) SUBSEQUENT CHANGES.—Any

4 changes to the plan of operation contained in

5 final regulations shall be made pursuant to reg6 ulations issued in the manner provided in sub7 paragraphs (B) and (C).

8 SEC. 202. SCOPE OF PROGRAM.

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

10 Primary Insurance Program, the Director shall make

11 earthquake, volcanic eruption, and hurricane coverage

12 available only for residential property. The Director shall

13 make such coverage available in earthquake-prone States,

14 volcanic eruption-prone States, and hurricane-prone

15 States.

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

17 basis of studies and investigations undertaken and carried

18 out and information received or exchanged under section

19 204, and such other information as may be necessary, the

20 Director determines that it would be feasible to extend the

21 Primary Insurance Program to cover other properties, the

22 Director may recommend to Congress that earthquake,

23 volcanic eruption, and hurricane coverage under this title

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

25 (1) other properties in residential areas;
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1 (2) small business properties that are owned or

2 leased and operated by small business concerns;

3 (3) religious properties;

4 (4) agricultural properties;

5 (5) properties occupied by primary nonprofit or6 ganizations; and

7 (6) properties owned by State and local govern8 ments and agencies thereof.

9 SEC. 203. TERMS AND LIMITATIONS OF INSURANCE COV10 ERAGE.

11 (a) TERMS.—Pursuant to the plan of operation es12 tablished under section 201 and after consultation with

13 the Insurance and Reinsurance Advisory Committee, the

14 Director shall establish, by regulation, the general terms

15 and conditions of insurability for properties eligible for

16 residential property insurance coverage under section 202.

17 Such regulations shall meet the requirements of this sec18 tion and may include—

19 (1) the type and locational classification of such

20 eligible properties;

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

22 by such insurance;

23 (3) appropriate minimum premiums;
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1 (4) appropriate loss-deductibles including vari2 able deductibles based on the existence of loss-reduc3 ing measures that affect the risk of loss;

4 (5) appropriate limits on coverage for each clas5 sification of eligible properties;

6 (6) appropriate minimum coverage amounts

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

8 eligible properties, which may not be less than the

9 outstanding principal balance of the mortgage loan

10 securing the property or the maximum coverage

11 limit for the property under paragraph (5), which12 ever is less; and

13 (7) any other terms and limitations relating to

14 such residential property insurance coverage that

15 may be necessary to carry out the purposes of this

16 title.

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

18 and hurricane coverage under this title shall cover—

19 (1) any damage to covered eligible property

20 proximately caused by—

21 (A) an earthquake, volcanic eruption, or

22 hurricane;

23 (B) a tsunami associated with an earth24 quake, volcanic eruption, or hurricane;
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1 (C) a fire associated with a volcanic erup2 tion; and

3 (2) coverage for debris removal and additional

4 living expenses incurred as a result of direct damage

5 to the premises by—

6 (A) earthquake, volcanic eruption, or hur7 ricane;

8 (B) a tsunami associated with an earth9 quake, volcanic eruption, or hurricane; and

10 (C) a fire associated with a volcanic erup11 tion.

12 The coverage shall not include coverage for any fires asso13 ciated with an earthquake.

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

15 issuing residential property insurance coverage in any

16 earthquake-prone, volcanic eruption-prone, or hurricane17 prone State may provide the coverage under this title, on

18 behalf of the Federal Government, to residential property

19 policyholders of the insurer. Any private insurer electing

20 to participate in the Primary Insurance Program shall

21 make coverage available to all residential property policy22 holders of the insurer in earthquake-prone, volcanic erup23 tion-prone, or hurricane-prone States. Any private insurer

24 electing to purchase the excess reinsurance coverage pur25 suant to title III shall make the coverage available, on be-
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1 half of the Federal Government, or at equivalent coverage

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

3 policyholders of the insurer.

4 SEC. 204. ESTABLISHMENT OF ACTUARIAL PREMIUM

5 RATES.

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

7 Director may undertake and carry out such studies and

8 investigations and receive and exchange such information

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

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

11 territorial, or other appropriate basis, actuarial premium

12 rates for types of classes of property eligible for residential

13 property insurance coverage and the terms and conditions

14 under which such rates apply.

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

16 such studies, the Director shall consult with the Loss Miti17 gation Advisory Committee and the Insurance and Rein18 surance Advisory Committee and may enter into contracts,

19 agreements, or other arrangements to utilize the services

20 of the United States Geological Survey and other relevant

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

22 persons.

23 (c) CONSIDERATIONS.—The Director shall establish

24 actuarial rates under this section based on—
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1 (1) considerations of the risks involved, includ2 ing—

3 (A) the severity and frequency of earth4 quakes by seismic zone and States in which the

5 insured property is located, including known

6 differences in risks from active faults and

7 known susceptibility to landslide, site amplifi8 cation, and liquefaction;

9 (B) the risk of damage associated with a

10 volcanic eruption by volcanic zone and States in

11 which the insured property is located, including

12 proximity to known lava flows;

13 (C) the severity and frequency of hurri14 canes by hurricane zone and States in which

15 the insured property is located;

16 (D) the value of the insured property;

17 (E) the age of the structures located on

18 the insured property;

19 (F) the construction type of the structures

20 located on the insured property, including

21 woodframe, masonry, and masonry veneer;

22 (G) the architectural type of the structures

23 located on the insured property, including soft

24 first floor, box construction, and split level;
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1 (H) earthquake or hurricane loss-reduction

2 measures, including measures described in sec3 tion 103, followed in the construction or subse4 quent retrofitting of residential property struc5 tures; and

6 (I) any other relevant criteria; and

7 (2) application of accepted actuarial and rate8 making principles that reflect the risks involved, an9 ticipated insurance related administrative and oper10 ating costs and loss and loss-adjustment expense

11 payments, and provide for adequate reserves.

12 (d) LIMITATION.—Any rate classification system

13 used by the Director to establish actuarial rates under this

14 section shall be cost-effective and shall not impose costs

15 for the initial establishment or the subsequent administra16 tion of the rate plan that are disproportionate to the size

17 of the insurance premiums.

18 SEC. 205. CHARGEABLE PREMIUM RATES.

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

20 rates established under section 204 and such other infor21 mation as may be necessary, the Director shall from time

22 to time, and after consultation with the Loss Mitigation

23 Advisory Committee and the Insurance and Reinsurance

24 Advisory Committee, establish and prescribe, by regula25 tion—
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1 (1) chargeable premium rates for any types and

2 classes of properties eligible for earthquake, volcanic

3 eruption, and hurricane coverage; and

4 (2) the terms and conditions under which such

5 rates shall apply.

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

7 the maximum extent practicable, such chargeable rates

8 shall be actuarial rates over an extended period of time

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

10 reasonably reflecting the risk of damaging earthquakes,

11 volcanic eruptions, and hurricanes in total and for each

12 subclassification of policyholders. In setting and adjusting

13 chargeable rates under this section, the Director shall pro14 vide that, over an extended period of time, expected ex15 penditures from the Insurance Fund under section 208(c)

16 do not exceed expected receipts of the Fund under section

17 208(b).

18 (c) LOW-INCOME RATES AND MITIGATION INCEN19 TIVES.—The Director may, pursuant to the plan of oper20 ation under section 201, establish chargeable rates under

21 this section for (1) residential property occupied by low22 income residents, and (2) residential properties described

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

24 established under section 204, but only to the extent that
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1 such rates do not prevent compliance with the last sen2 tence of subsection (b).

3 SEC. 206. INSURANCE MITIGATION INCENTIVES.

4 In carrying out the Primary Insurance Program

5 under this title pursuant to the plan of operation, the Di6 rector shall provide for the following insurance mitigation

7 incentives:

8 (1) Charging lower deductible amounts for any

9 residential property meeting the seismic and hurri10 cane building standards under the loss-reduction cri11 teria.

12 (2) Requiring under earthquake, volcanic erup13 tion, and hurricane coverage that repairs to residen14 tial property sustaining earthquake damage in ex15 cess of the deductible include, at a minimum, an16 choring the dwelling to the foundation and the addi17 tion of bracing to cripple walls.

18 (3) Requiring under earthquake, volcanic erup19 tion, and hurricane coverage that repairs to residen20 tial property sustaining hurricane damage in excess

21 of the deductible include such structural or other re22 pairs as the Director considers appropriate to miti23 gate against future hurricane damage.

24 (4) Requiring under earthquake, volcanic erup25 tion, and hurricane coverage that residential prop-
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1 erty suffering damage in an amount greater than 50

2 percent of the replacement value of the property

3 shall be rebuilt to at least the minimum standards

4 under the loss-reduction criteria under section 103

5 and applicable to the State.

6 (5) Charging lower premiums or deductible

7 amounts for any residential property located in a

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

9 hurricane zone in a hurricane-prone State that

10 passes an earthquake or hurricane inspection that is

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

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

13 (6) Charging lower premiums or deductible

14 amounts for new residential property not con15 structed in volcanic zones in a volcanic eruption16 prone State.

17 SEC. 207. EARTHQUAKE, VOLCANIC ERUPTION, AND HURRI18 CANE INSURANCE AND REINSURANCE ADVI19 SORY COMMITTEE.

20 (a) ESTABLISHMENT.—There is established an inde21 pendent advisory committee within the executive branch

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

23 Hurricane Insurance and Reinsurance Advisory Commit24 tee (in this section referred to as the ‘‘Committee’’). The

25 Committee, its members, and its functions shall be sepa-
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1 rate from the Loss Mitigation Advisory Committee estab2 lished under section 102. To the extent not contradicted

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

4 subject to the provisions of the Federal Advisory Commit5 tee Act.

6 (b) MEMBERSHIP.—

7 (1) APPOINTED MEMBERS.—The Committee

8 shall be composed of 5 members appointed by the

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

10 Senate. The members shall be chosen from among

11 citizens of the United States and shall include—

12 (A) 2 individuals who represent the inter13 ests of private insurers;

14 (B) 1 individual who represents the inter15 ests of private reinsurers;

16 (C) 1 individual who represents the inter17 ests of insurance agents; and

18 (D) 1 individual who is a State insurance

19 regulator.

20 (2) EX OFFICIO MEMBER.—Notwithstanding

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

22 Advisory Committee under section 102 shall serve as

23 an ex officio member of the Committee under this

24 section.
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1 (c) VACANCIES.—A vacancy in the Commission shall

2 be filled in the manner in which the original appointment

3 was made.

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

5 chairman of the Committee from among members selected

6 for appointment to the Committee.

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

8 date of the enactment of the Earthquake, Volcanic Erup9 tion, and Hurricane Hazards Insurance Act of 1993, the

10 President shall submit to the Senate nominations for

11 appointment to the Committee.

12 (f) FUNCTIONS OF THE COMMITTEE.—The Commit13 tee shall review the draft plan of operation established

14 under section 201. Within 120 days after receiving the

15 draft plan of operation, the Committee shall submit to the

16 Director written comments and recommendations for any

17 changes to the plan. After final regulations establishing

18 the plan of operation have been issued, the Committee

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

20 days to the Director and the Congress evaluating the oper21 ation of the Federal earthquake, volcanic eruption, and

22 hurricane insurance and reinsurance programs under this

23 title and making recommendations for any actions relating

24 to such programs. The Committee shall respond as soon
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1 as practicable to all requests of the Director made pursu2 ant to subsection (g) or section 201(e)(4)(C).

3 (g) RESPONSIBILITIES OF THE DIRECTOR.—The Di4 rector shall fully cooperate with the Committee and pro5 vide the Committee with access to personnel and informa6 tion as the Committee considers necessary to carry out

7 its functions. The Director shall request comments from

8 the Committee on any questions regarding operation of

9 the Federal earthquake, volcanic eruption, and hurricane

10 insurance and reinsurance programs established under

11 this title.

12 SEC. 208. RESIDENTIAL PROPERTY INSURANCE FUND.

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

14 Treasury of the United States the Residential Property

15 Insurance Fund for the purpose of carrying out the

16 Primary Insurance Program under this title.

17 (b) CREDITS OF FUND.—The Insurance Fund shall

18 be credited with—

19 (1) insurance premiums received by the Direc20 tor under the Primary Insurance Program (less any

21 amounts credited to the Self-Sustaining Mitigation

22 Fund under section 104) and interest earned on pre23 miums, as provided in subsection (e) of this section;

24 (2) any amounts borrowed under section 209;
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1 (3) any amounts appropriated to the Insurance

2 Fund; and

3 (4) any interest earned on amounts invested

4 under subsection (d).

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

6 Fund shall be available for—

7 (1) payments for losses and loss adjustment ex8 penses under subsection (f);

9 (2) payments for insurance company expense

10 allowances paid (including agents’ commissions,

11 State premium taxes, and companies’ administration

12 expenses);

13 (3) administrative expenses of the Primary In14 surance Program; and

15 (4) interest payments on amounts borrowed

16 under section 209 for additional losses, if any.

17 (d) INVESTMENT OF AMOUNTS.—The Director may

18 request the Secretary of Treasury to invest any amount

19 in the Residential Property Insurance Fund in obligations

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

21 considers appropriate.

22 (e) INSURANCE PAYMENTS TO FUND.—Private insur23 ers issuing earthquake, volcanic eruption, and hurricane

24 insurance coverage shall remit the premiums collected, less

25 the insurers’ expense allowances (as provided for in the
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1 plan of operation), to the Director on a quarterly basis

2 30 days after the end of the quarter, according to the pro3 cedures prescribed in the plan of operation. Such private

4 insurers shall maintain a separate, interest-bearing ac5 count for the premiums to be submitted to the Director.

6 The interest collected on this account shall be forwarded

7 to the Residential Property Insurance Fund with the

8 premiums on a quarterly basis.

9 (f) REIMBURSEMENT OF INSURERS.—

10 (1) REQUIREMENT AND PROCEDURE.—The Di11 rector shall reimburse private insurers providing

12 earthquake, volcanic eruption, and hurricane insur13 ance coverage pursuant to this title from amounts

14 made available from the Insurance Fund. Reim15 bursement for all claim payments up to and includ16 ing the policy limits of coverage and for all loss ad17 justment expenses paid as a result of earthquake,

18 volcanic eruption, and hurricane shall be made as

19 follows:

20 (A) The Director shall reimburse insurers

21 for all claim payments and loss adjustment ex22 pense payments made pursuant to the Federal

23 Government’s obligations. To the extent that

24 reimbursement is obtained by private insurers

25 for losses also covered under the Reinsurance
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1 Program, the insurer shall reimburse the Resi2 dential Property Insurance Fund accordingly.

3 (B) If the gross reimbursements exceed

4 amounts available in the Residential Property

5 Insurance Fund, a combination of amounts bor6 rowed from the industry under subparagraph

7 (C) and amounts borrowed from the Treasury

8 of the United States under section 209 shall

9 cover the additional losses.

10 (C) The industry share under subpara11 graph (B) shall be equivalent to 10 percent of

12 the additional losses. Private insurers issuing

13 earthquake, volcanic eruption, and hurricane

14 coverage shall be assessed for the industry par15 ticipation in the additional losses based upon

16 the proportion that each insurer’s written pre17 miums for this coverage in each State in which

18 the earthquake, volcanic eruption, or hurricane

19 events occurred bear to the total written pre20 miums for such coverage from all insurers in

21 each State in which the same events occurred,

22 based on the most recently published annual re23 port of the Federal Emergency Management

24 Agency. Assessments under this subparagraph

25 may be reinsured under title III.
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1 (2) REGULATIONS.—The Director may issue

2 regulations establishing the general method or meth3 ods by which proved and approved claims for losses

4 may be adjusted and paid for damages covered by

5 the earthquake, volcanic eruption, and hurricane

6 coverage issued under this title. The claim practices

7 of the Insurance Fund shall be subject to and con8 form with any applicable State insurance unfair

9 trade practices statutes. Judicial review of a decision

10 of the Director regarding reimbursement of a private

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

12 (g) OBLIGATIONS.—All earthquake, volcanic erup13 tion, and hurricane insurance coverage provided through

14 the Primary Insurance Program under this title shall con15 stitute obligations, in accordance with the provisions of

16 this title, of the United States. The full faith and credit

17 of the United States is pledged for the full payment and

18 performance of such obligations, subject to the provisions

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

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

21 liability for the earthquake, volcanic eruption, and hurri22 cane coverage provided through the program except as

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

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

25 deposit in the Insurance Fund shall be exempt from all
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1 taxation now or hereafter imposed by the United States,

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

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

4 except that the insurance policies issued by or in conjunc5 tion with the Federal Government pursuant to this title

6 shall be subject, where applicable, to State insurance pre7 mium taxes.

8 SEC. 209. BORROWING FROM TREASURY.

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

10 assets, including any return on investments, in the Resi11 dential Property Insurance Fund are insufficient to pay

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

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

14 obligations to cover the insufficiency; except that the

15 amounts of such obligations outstanding at any one time

16 shall not exceed—

17 (1) $25,000,000,000 (or such greater amount

18 as may be approved by the President); and

19 (2) such sums as the Congress may provide act20 ing upon the recommendation of the Director.

21 (b) INTEREST RATE.—Obligations under subsection

22 (a) shall bear interest at a rate determined by the Sec23 retary of the Treasury, taking into consideration the cur24 rent average market yield on outstanding marketable obli25 gations of the United States of comparable maturities.
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1 (c) DEPOSITS.—Any amounts borrowed by the Direc2 tor under this section shall be deposited in the Residential

3 Property Insurance Fund.

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

5 section shall be recouped, including interest on the bor6 rowed funds, in future chargeable rates for earthquake,

7 volcanic eruption, and hurricane coverage pursuant to the

8 plan of operation. The Secretary of the Treasury shall lib9 erally grant extensions in repayment schedules that the

10 Director advises the Secretary are necessary.

11 TITLE III—NATIONAL EARTH12 QUAKE, VOLCANIC ERUP13 TION, AND HURRICANE EX14 CESS LOSS REINSURANCE

15 PROGRAM

16 SEC. 301. REINSURANCE PROGRAM.

17 (a) AVAILABILITY.—

18 (1) INITIAL.—Upon the issuance of final regu19 lations establishing the plan of operation under sec20 tion 201, the Director shall make available, to any

21 private insurer participating in the Primary Insur22 ance Program under title II or any private reinsurer

23 which reinsures any such private insurer, excess re24 insurance coverage for direct and indirect losses that

25 are not eligible for insurance coverage under title II
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1 and arise from an earthquake, a volcanic eruption,

2 or a hurricane.

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

4 year period beginning upon issuance of the regula5 tions referred to in paragraph (1), the Director shall

6 make available, to any private insurer or private re7 insurer, excess reinsurance coverage for direct and

8 indirect losses that are not eligible for insurance cov9 erage under title II and arise from an earthquake,

10 a volcanic eruption, or a hurricane. Each private in11 surer or reinsurer participating in the Primary In12 surance Program under title II shall purchase the

13 excess reinsurance coverage under this title.

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

15 shall be offered as follows:

16 (1) INDUSTRY.—The Reinsurance Fund shall

17 be liable with respect to such reinsurance in the

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

19 hurricane after the insurance industry has incurred

20 losses and loss adjustment expenses from the single

21 event that are covered under the lines set forth in

22 section 302(a) and that exceed 8 percent of the in23 dustry countrywide subject net written premium, as

24 determined by the Director.
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1 (2) FEDERAL GOVERNMENT.—After the insur2 ance industry has sustained losses described in para3 graph (1), the Federal Government shall be liable to

4 an individual private insurer or private reinsurer for

5 95 percent of qualifying losses in excess of 8 percent

6 of the private insurer’s or private reinsurer’s coun7 trywide subject net written premium.

8 (c) QUALIFYING LOSSES.—For the purposes of sub9 section (b), the term ‘‘qualifying losses’’ means losses and

10 loss adjustment expenses incurred by a private insurer or

11 private reinsurer from an earthquake (including losses and

12 loss adjustment expenses from foreshocks and aftershocks

13 attributable to the same event and including separate

14 earthquakes occurring within a 12-month period encom15 passing the event described in subsection (b)(1) whose in16 curred losses and loss adjustment expenses exceed 2 per17 cent of the private insurer’s or private reinsurer’s country18 wide subject net written premium), a volcanic eruption,

19 or a hurricane, reduced—

20 (1) by any collectible reinsurance recoverable;

21 and

22 (2) if the percentage of uncollectible reinsur23 ance arising from the event, as compared to total re24 insurance (other than earthquake, volcanic eruption,

25 or hurricane excess catastrophe reinsurance pur-
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1 chased from the Federal Government) with respect

2 to the event is—

3 (A) more than 0 but not more than 5 per4 cent, by 0 percent of such uncollectible reinsur5 ance amount;

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

7 than 15 percent, by 33.33 percent of the

8 uncollectible reinsurance amount above 5 per9 cent;

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

11 than 25 percent, by—

12 (i) the amount determined under sub13 paragraph (B); and

14 (ii) 66.66 percent of the uncollectible

15 reinsurance amount above 15 percent; and

16 (D) more than 25 percent, by—

17 (i) the amount determined under sub18 paragraph (C); and

19 (ii) 100 percent of the uncollectible re20 insurance amount above 25 percent.

21 (d) OTHER ELIGIBILITY.—

22 (1) IN GENERAL.—Notwithstanding the re23 quirements of subsections (b) and (c), a private in24 surer or private reinsurer shall be eligible for excess

25 reinsurance coverage and reimbursement from the
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1 Federal Government if the insurer or reinsurer has

2 incurred losses, prior to any reinsurance coverage,

3 from a single event that are included in the lines

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

5 of their countrywide subject direct written premium

6 or their countrywide subject net written premium,

7 whichever is greater.

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

9 private reinsurer has sustained losses described in

10 paragraph (1), the Federal Government shall be lia11 ble for 95 percent of qualifying losses, as defined in

12 subsection (c), in excess of 20 percent of the private

13 insurer’s or the private reinsurer’s countrywide sub14 ject net written premium.

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

16 the Federal Government under this subsection shall

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

18 countrywide subject direct net written premium and

19 600 percent of the private reinsurer’s countrywide

20 subject assumed net written premium. In the event

21 a company is both a private insurer and a private

22 reinsurer, the liability limits shall be 200 percent of

23 their subject direct net written premium and 600

24 percent of their subject assumed net written pre25 mium. Intracompany or intragroup reinsurance ar-
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1 rangements or contracts shall not be considered as

2 reinsurance in the calculation of insurance and rein3 surance subject direct or subject assumed net writ4 ten premium under this subsection.

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

6 (1) The term ‘‘subject assumed net written pre7 mium’’ means premiums received from other insur8 ance companies for reinsurance less ceded reinsur9 ance, for all lines of coverage listed in section 302.

10 (2) The term ‘‘subject direct net written pre11 mium’’ means the aggregate amount of recorded

12 originated premiums, other than reinsurance, issued

13 during the year whether collected or not at the close

14 of the year (plus retrospective audit premium collec15 tions) after deducting all return premiums and ceded

16 reinsurance premiums, for all lines of coverage listed

17 in section 302.

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

19 means direct and reinsurance premiums received by

20 private insurers and private reinsurers, less pre21 miums paid for ceded reinsurance, for all lines of

22 coverage listed in section 302.

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

24 reinsurance proceeds due and payable in accordance
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1 with the terms of the reinsurance contract which are

2 not paid within 12 months of the due date.

3 SEC. 302. LINES OF INSURANCE.

4 (a) COVERED LINES.—The Director shall provide re5 insurance coverage to private insurers for all of the follow6 ing lines of insurance appearing in the National Associa7 tion of Insurance Commissioners Fire and Casualty An8 nual Statement filed with the applicable State department

9 of insurance:

10 (1) Fire.

11 (2) Allied Lines.

12 (3) Farmowner’s Multiple Peril.

13 (4) Homeowner’s Multiple Peril.

14 (5) Commercial Multiple Peril.

15 (6) Ocean Marine.

16 (7) Inland Marine.

17 (8) Earthquake.

18 (9) Workers Compensation.

19 (10) Other Liability.

20 (11) Aircraft (All Perils).

21 (12) Glass.

22 (13) Burglary and Theft.

23 (14) Boiler and Machinery.

24 (15) Reinsurance.
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1 Reinsurance coverage must be purchased for all covered

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

3 hurricane rating zones in earthquake-prone, volcanic erup4 tion-prone, or hurricane-prone States with the rates for

5 such coverage set by the Director, pursuant to section

6 303.

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

8 provide reinsurance coverage to private reinsurers for all

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

10 well as other lines of insurance appearing in the National

11 Association of Insurance Commissioners Fire and Cas12 ualty Annual Statement, as determined by the Director

13 in the plan of operation and in consultation with the

14 Insurance and Reinsurance Advisory Committee.

15 SEC. 303. RATES.

16 (a) ESTABLISHMENT.—The Director shall establish

17 the rates for the excess reinsurance coverage and adjust

18 the rates when necessary using generally accepted actuar19 ial principles. To the maximum extent practicable, such

20 rates shall be actuarial rates which produce a minimum

21 degree of cross-subsidization over an extended period of

22 time consistent with the infrequency of catastrophic earth23 quakes, volcanic eruptions, and hurricanes. In setting and

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

25 an extended period of time, expected expenditures from
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1 the Reinsurance Fund under section 305(c) do not exceed

2 expected receipts of the Reinsurance Fund under section

3 305(b).

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

5 rates, the Director shall also provide for a minimum de6 gree of cross-subsidization among classes of reinsureds by

7 reasonably reflecting the differences in risk of and vulner8 ability to loss from earthquakes, volcanic eruptions, and

9 hurricanes that would be subject to payment from the

10 Reinsurance Fund, by giving due consideration to the

11 following:

12 (1) The premium volume of the reinsured by

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

14 volcanic, and hurricane zone or State in which the

15 risks insured or reinsured by the reinsurer are lo16 cated.

17 (2) The proportion of the total expected amount

18 of payments for qualifying losses and loss adjust19 ment expenses by line of insurance under section

20 302(a) by seismic, volcanic, and hurricane zone or

21 State expected for each reinsured.

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

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

24 and shall not impose costs for the initial establishment or
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1 the subsequent administration of the rating plan that are

2 disproportionate to the size of the premiums.

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

4 Reinsurance Fund for reinsurance coverage under this

5 title shall be paid on a quarterly basis and shall be accu6 mulated in the Reinsurance Fund, to be managed pursu7 ant to section 305.

8 SEC. 304. REINSURANCE CONTRACTS.

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

10 Federal Government pursuant to this title shall contain

11 terms and conditions similar to those generally used in

12 private catastrophic reinsurance contracts.

13 (b) JUDICIAL REVIEW.—Judicial review of a decision

14 of the Director regarding payment of claims shall be made

15 available pursuant to section 201(d).

16 (c) OBLIGATIONS.—All reinsurance contracts issued

17 under this title shall constitute obligations, in accordance

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

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

20 for the full payment and performance of such obligations.

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

22 reinsurance companies under the same ownership or man23 agement, as determined under the plan of operation, shall

24 be considered a single entity for purposes of this title.
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1 SEC. 305. REINSURANCE FUND.

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

3 Treasury of the United States the Reinsurance Fund for

4 the purposes of carrying out the excess loss reinsurance

5 program under this title.

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

7 shall be credited with—

8 (1) any reinsurance premiums received by the

9 Director under the excess loss reinsurance program;

10 (2) any amounts borrowed under section 306;

11 and

12 (3) any amounts earned under subsection (d).

13 (c) USE OF FUND.—The Reinsurance Fund shall be

14 available to the Director for—

15 (1) payments for qualifying losses and loss ad16 justment expenses under the excess loss reinsurance

17 program under this title;

18 (2) administrative expenses of carrying out the

19 program; and

20 (3) interest payments on amounts borrowed

21 from the Treasury under section 306, if any.

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

23 Secretary of the Treasury to invest any amounts in the

24 Reinsurance Fund in obligations issued or guaranteed by

25 the United States, as the Director considers appropriate.
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1 (e) STATUS OF FUNDS.—Any reinsurance premiums

2 collected for deposit in the Reinsurance Fund shall be ex3 empt from all taxation now or hereafter imposed by the

4 United States, by any territory, dependency or possession

5 thereof, or by any State, county, municipality, or local tax6 ing authority, except that the insurance policies issued by

7 or in conjunction with the Federal Government pursuant

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

9 insurance premium taxes.

10 SEC. 306. BORROWING FROM TREASURY.

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

12 assets, including any return on investments, in the Rein13 surance Fund are insufficient to pay claims and expenses,

14 the Director shall issue, from time to time, to the Sec15 retary of the Treasury, notes and other obligations to

16 cover the insufficiency; except that the amounts of such

17 obligations outstanding at any one time shall not exceed—

18 (1) $25,000,000,000 (or such greater amount

19 as may be approved by the President); and

20 (2) such sums as the Congress may provide act21 ing upon the recommendation of the Director.

22 (b) INTEREST RATE.—Obligations under subsection

23 (a) shall bear interest at a rate determined by the Sec24 retary of the Treasury, taking into consideration the cur-
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1 rent average market yield on outstanding marketable obli2 gations of the United States of comparable maturities.

3 (c) DEPOSITS.—Any amounts borrowed by the Direc4 tor under this section shall be deposited in the Reinsur5 ance Fund.

6 (d) REPAYMENT.—Any amounts borrowed pursuant

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

8 borrowed funds, in future rates for excess reinsurance cov9 erage pursuant to the plan of operation. The Secretary

10 of the Treasury shall liberally grant extensions in repay11 ment schedules that the Director advises the Secretary are

12 necessary.

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