I

105TH CONGRESS

1ST SESSION H. R. 579

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 4, 1997

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

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

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

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

the jurisdiction of the committee concerned

A BILL

To provide for a Federal program of insurance against the

risk of catastrophic earthquakes, volcanic eruptions, and

hurricanes, and for other purposes.

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

3 SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

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

5 ‘‘Earthquake, Volcanic Eruption, and Hurricane Hazards

6 Insurance Act of 1997’’.

7 (b) TABLE OF CONTENTS.—

Sec. 1. Short title and table of contents.

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

TITLE I—PARTICIPATION BY STATES IN ADOPTION OF HAZARD

REDUCTION MEASURES

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

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

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

Sec. 104. Self-Sustaining Mitigation Fund.

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

Sec. 106. Requirement to purchase primary insurance.

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

Sec. 108. Coordination with other programs.

Sec. 109. Report to Congress.

Sec. 110. Regulations.

TITLE II—PRIMARY INSURANCE PROGRAM

Sec. 201. Basic authority and program organization.

Sec. 202. Scope of program.

Sec. 203. Terms and limitations of insurance coverage.

Sec. 204. Establishment of actuarial premium rates.

Sec. 205. Chargeable premium rates.

Sec. 206. Insurance mitigation incentives.

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

Sec. 208. Residential Property Insurance Fund.

Sec. 209. Borrowing from Treasury.

TITLE III—NATIONAL EARTHQUAKE, VOLCANIC ERUPTION, AND

HURRICANE EXCESS LOSS REINSURANCE PROGRAM

Sec. 301. Reinsurance program.

Sec. 302. Lines of insurance.

Sec. 303. Rates.

Sec. 304. Reinsurance contracts.

Sec. 305. Reinsurance Fund.

Sec. 306. Borrowing from Treasury.

1 SEC. 2. FINDINGS.

2 The Congress finds that—

3 (1) the catastrophic and unpredictable nature

4 of earthquakes, volcanic eruptions, and hurricanes

5 prevent individual private insurers from offering the

6 necessary insurance against these perils without the

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

3 eruptions, and hurricanes, the Federal Government

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

6 economy of the Nation would be seriously desta7 bilized;

8 (3) the existing systems of private insurance,

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

12 (4) a reasonable method of providing insurance

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

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

18 (5) in providing such insurance, the Federal

19 Government should work constructively with the

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

22 of hazard reduction measures, including building

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

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

2 For purposes of this Act:

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

4 and loss adjustment expense payments for earth5 quake, volcanic eruption, and hurricane coverage is6 sued pursuant to title II that exceed the accumu7 lated amounts in the Residential Property Insurance

8 Fund.

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

10 or reinsurer organized or incorporated in a country

11 other than the United States.

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

13 hurricanes’’ means schools and structures essential

14 to emergency services necessary for post hurricane

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

17 and preparedness centers) that—

18 (A) have unreinforced masonry bearing

19 walls, tilt-up construction, nonductile concrete

20 frame construction, or other construction, as

21 determined by the Director, that makes them

22 susceptible to damage from hurricanes; and

23 (B) are located in hurricane zones within

24 hurricane-prone States.

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

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

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

4 of rock beneath the surface.

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

6 and hurricane coverage’’ means insurance issued

7 pursuant to title II.

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

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

11 peril.

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

16 Association and the Federal Home Loan Mortgage

17 Corporation.

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

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

20 the Real Estate Settlement Procedures Act of 1974,

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

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

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

2 eruption’’ means any fire proximately caused by a

3 volcanic eruption.

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

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

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

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

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

13 Eruption, and Hurricane Insurance and Reinsurance

14 Advisory Committee established under section 207.

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

16 Residential Property Insurance Fund established

17 under section 208.

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

19 private insurers and private reinsurers.

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

22 more than 5,000 square feet per story.

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

2 established under section 102.

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

4 the criteria for earthquake, volcanic eruption, and

5 hurricane loss mitigation established by the Director

6 under section 103.

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

8 means the national earthquake, volcanic eruption,

9 and hurricane insurance program under title II.

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

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

12 licensed or admitted to write property and casualty

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

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

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

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

23 Reinsurance Fund established under section 305.
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1 (23) The term ‘‘Reinsurance Program’’ means

2 the national earthquake, volcanic eruption, and hur3 ricane excess loss reinsurance program under title

4 III.

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

6 any (A) 1- to 4-family residential structure (includ7 ing mobile or manufactured homes) and the personal

8 property therein, and (B) personal property of occu9 pants of residential structures (including condomin10 iums, cooperatives, and apartment structures).

11 (25) The term ‘‘residential property insurance

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

13 insurance that provide indemnity, in whole or in

14 part, for the loss, destruction, or damage of residen15 tial property and other eligible property as deter16 mined by the Director.

17 (26) The term ‘‘seismically hazardous critical

18 facilities’’ means schools and structures essential to

19 emergency services necessary for post earthquake re20 covery (including hospitals, fire and policy facilities,

21 temporary shelters, and emergency operating and

22 preparedness centers) that—

23 (A) have unreinforced masonry bearing

24 walls, tilt-up construction, or nonductile con25 crete frame construction; and
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1 (B) are located in seismic zones within

2 earthquake-prone States.

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

4 Fund’’ means the Fund established under section

5 104.

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

7 within a State identified and classified by the Direc8 tor under section 101(a) as subject to major seismic

9 risk.

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

11 generated by underwater disturbances in the Earth’s

12 crust, primarily earthquakes and submarine volcanic

13 eruptions.

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

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

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

17 and other natural substances through an opening in

18 the crust of the Earth.

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

20 means a State determined by the Director pursuant

21 to section 101 to have an exposure to the volcanic

22 eruption peril.
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1 (32) The term ‘‘volcanic zone’’ means an area

2 within a State identified and classified by the Direc3 tor under section 101(a) as subject to major volcanic

4 eruption risk.

5 TITLE I—PARTICIPATION BY

6 STATES IN ADOPTION OF HAZ7 ARD REDUCTION MEASURES

8 SEC. 101. IDENTIFICATION OF EARTHQUAKE-PRONE, VOL9 CANIC ERUPTION-PRONE, AND HURRICANE10 PRONE STATES.

11 (a) INITIAL IDENTIFICATION OF STATES.—The Di12 rector, in consultation with the United States Geological

13 Survey, other relevant Federal entities, and seismic, vol14 canic, and meteorological experts in the private sector,

15 shall identify States having an exposure to earthquake

16 perils, States having an exposure to volcanic eruption

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

18 which shall include any State subject to major or moderate

19 seismic, volcanic eruption, or hurricane risk, as appro20 priate. The Director shall also identify and establish any

21 areas, within such States, that are subject to major seis22 mic, volcanic eruption, or hurricane risk as seismic zones,

23 volcanic zones, or hurricane zones, as appropriate. The Di24 rector shall identify such States and zones before the expi25 ration of the 1-year period beginning on the date of the
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1 enactment of this Act, and shall cause a listing of such

2 States and zones to be published in the Federal Register

3 and in widely circulated local newspapers in the applicable

4 States before the expiration of such 1-year period.

5 (b) FINAL NOTIFICATION.—Each State identified

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

7 this Act to be an earthquake-prone, volcanic eruption8 prone, or hurricane-prone State, as appropriate, upon the

9 expiration of the 6-month period beginning upon the expi10 ration of the period under subsection (a). The Director

11 shall notify the chief executive officer of each State identi12 fied under subsection (a) in writing, before the expiration

13 of such 6-month period, that the State is an earthquake14 prone, volcanic eruption-prone, or hurricane-prone State,

15 as appropriate, for purposes of this Act.

16 (c) ONGOING IDENTIFICATION AND NOTIFICATION.—

17 Based upon any additional seismic, volcanic, and meteoro18 logical information that from time to time becomes avail19 able, the Director may identify States (not identified

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

21 volcanic eruption, or hurricane perils. Any such States

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

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

24 for purposes of this Act upon the notification of the chief
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1 executive officer of the State, in writing, of the identifica2 tion of the State as such a State.

3 (d) APPEAL.—Any State aggrieved by a final deter4 mination as an earthquake-prone, volcanic eruption-prone,

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

6 may, after exhausting administrative remedies, appeal

7 such determination to any United States district court for

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

9 after receipt of notice of such determination. The scope

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

11 7 of title 5, United States Code. During the pendency of

12 any such litigation, all determinations of the Director shall

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

14 stayed by the court for good cause shown.

15 SEC. 102. EARTHQUAKE, VOLCANIC ERUPTION, AND HURRI16 CANE LOSS MITIGATION ADVISORY COMMIT17 TEE.

18 (a) ESTABLISHMENT.—There is established an inde19 pendent advisory committee within the executive branch

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

21 Hurricane Loss Mitigation Advisory Committee (in this

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

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

24 Insurance and Reinsurance Advisory Committee estab25 lished under section 207. To the extent not contradicted
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1 by the provisions of this section, the Committee shall be

2 subject to the provisions of the Federal Advisory Commit3 tee Act.

4 (b) MEMBERSHIP.—

5 (1) APPOINTED MEMBERS.—The Committee

6 shall be composed of 7 members appointed by the

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

8 Senate. The members shall be chosen from among

9 citizens of the United States who are respected ex10 perts in the fields of earthquake, volcanic eruption,

11 and hurricane loss mitigation, who shall include—

12 (A) 1 individual who is employed by a

13 State government as an emergency planner;

14 (B) 1 individual who is knowledgeable re15 garding local community building codes;

16 (C) 1 individual who is employed as a seis17 mic engineer;

18 (D) 1 individual who is employed as an ex19 pert in the field of volcanic eruptions; and

20 (E) 1 individual who is employed as an ex21 pert in the field of hurricanes.

22 (2) EX OFFICIO MEMBER.—Notwithstanding

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

24 Reinsurance Advisory Committee under section 207
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1 shall serve as an ex officio member of the Committee

2 under this section.

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

4 be filled in the manner in which the original appointment

5 was made.

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

7 chairperson of the Committee from among members se8 lected for appointment to the Committee.

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

10 date of the enactment of this Act, the President shall sub11 mit to the Senate nominations for appointment to the

12 Committee.

13 (f) FUNCTIONS OF THE COMMITTEE.—The Commit14 tee shall review the loss reduction criteria (including the

15 specific loss-reduction measures) established under section

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

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

18 Committee shall submit to the Director written comments

19 and recommendations for any changes to the criteria.

20 (g) RESPONSIBILITIES OF DIRECTOR.—The Director

21 shall fully cooperate with the Committee and provide the

22 Committee with access to personnel and information and
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1 may request assistance from relevant Federal agencies (in2 cluding the National Institute of Standards and Tech3 nology) as the Committee considers necessary to carry out

4 its functions.

5 SEC. 103. ESTABLISHMENT OF CRITERIA FOR LOSS-REDUC6 TION MEASURES.

7 (a) DEVELOPMENT OF CRITERIA.—

8 (1) IN GENERAL.—On the basis of research car9 ried out under this title, the Director shall develop

10 comprehensive loss-reduction criteria for State and

11 local land use and management ordinances, building

12 codes, and other loss-reduction measures consistent

13 with the requirements under subsection (b). The Di14 rector shall periodically update such criteria to re15 flect technical advances designed to reduce losses

16 from earthquakes, volcanic eruptions, and hurri17 canes.

18 (2) COORDINATION.—The Director shall de19 velop the loss-reduction criteria in coordination and

20 consistent with the earthquake hazards reduction

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

22 Stafford Disaster Relief and Emergency Assistance

23 Act (and Executive Order 12699 of January 5,

24 1990). In developing the loss reduction criteria, the

25 Director shall consult other affected Federal entities
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1 (including the National Institute of Standards and

2 Technology), the Building Seismic Safety Council,

3 the Interagency Committee on Seismic Safety in

4 Construction, the National Oceanic and Atmospheric

5 Administration, representatives of State and local

6 governments, regional earthquake, volcanic eruption,

7 and hurricane preparedness organizations, model

8 building code organizations, and insurance industry

9 groups.

10 (3) SUBMISSION OF DRAFT TO ADVISORY COM11 MITTEE.—Not later than the expiration of the 9-

12 month period beginning on the date of the enact13 ment of this Act, the Director shall submit a draft

14 of the loss-reduction criteria to the Loss Mitigation

15 Advisory Committee established under section 102.

16 Before issuing any final regulations under para17 graph (4), the Director shall consider any rec18 ommendations made by such Advisory Committee re19 garding the draft criteria.

20 (4) REGULATIONS.—Not later than the expira21 tion of the 18-month period beginning on the date

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

23 regulations establishing the loss-reduction criteria

24 under this section, subject to the provisions of sub25 chapter II of chapter 5 of title 5, United States
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1 Code. In issuing final regulations under this para2 graph, the Director shall cause to be published in

3 the Federal Register a description of any differences

4 between the recommendations of the Loss Mitigation

5 Advisory Committee and the final regulations (in6 cluding the applicability of loss-reduction measures

7 to States and localities) developed by the Director.

8 The description shall contain, for each such dif9 ference, an explanation of why the recommendations

10 of the Advisory Committee were not included in the

11 final regulations.

12 (b) CONTENT OF CRITERIA.—The Federal loss-re13 duction criteria established under this section shall include

14 measures for the reduction of losses from future earth15 quakes, volcanic eruptions, and hurricanes, as follows:

16 (1) MANDATORY INCLUSION.—The Director

17 shall include in the loss-reduction criteria the follow18 ing loss-reduction measures:

19 (A) Minimum seismic and hurricane build20 ing standards applicable to new residential

21 property and other buildings located in earth22 quake-prone States and hurricane-prone States.

23 (B) Community-based building codes appli24 cable to new residential property, which shall
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1 meet or exceed any minimum provisions relat2 ing to seismic or hurricane hazards contained in

3 (i) the most recent edition of the National

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

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

6 recent edition of the Uniform Building Code.

7 (C) Community-based plumbing codes or

8 standards applicable to new residential property

9 which shall meet or exceed any minimum provi10 sions contained in (i) the National Standard

11 Plumbing Code and the A40 Safety Standards

12 of the American National Standards Institute,

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

14 may be appropriate, as determined by the Di15 rector.

16 (2) DISCRETIONARY INCLUSION.—Consistent

17 with reports submitted to Congress pursuant to sec18 tion 8(a)(2) of the Earthquake Hazards Reduction

19 Act of 1977 and section 947 of the Cranston-Gon20 zalez National Affordable Housing Act, the Director

21 shall consider and may include in the loss-reduction

22 criteria established under this section, any of the fol23 lowing additional loss-reduction measures:
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1 (A) Community-based building codes which

2 contain minimum seismic or hurricane provi3 sions (including restrictions on new

4 unreinforced masonry construction) for new res5 idential property that is located in a seismic or

6 hurricane zone, as appropriate, not currently

7 covered by any of the building codes referred to

8 in paragraph (1)(B) but identified by the Direc9 tor as being located in earthquake-prone or hur10 ricane-prone States, as appropriate.

11 (B) Geotechnical techniques to minimize

12 the effects of ground failures for new large

13 buildings in high-risk fault, landslide, site am14 plification, and liquefaction zones identified in

15 earthquake-prone States and, to the extent

16 practicable and cost-effective, application of the

17 same geotechnical techniques to existing large

18 buildings in the same zones.

19 (C) Measures to control construction of

20 buildings in high-risk fault, landslide, site am21 plification, liquefaction zones, and volcanic

22 zones identified in earthquake-prone or volcanic

23 eruption-prone States.
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1 (D) To the extent practicable, retrofitting

2 of seismically hazardous critical facilities and

3 critical facilities vulnerable to hurricanes.

4 (E) Securing of building parapets and ex5 ternal ornamentations of existing buildings lo6 cated in earthquake-prone States or hurricane7 prone States.

8 (F) Bracing of gas water heaters and other

9 measures to reduce the risk of earthquake-in10 duced fires in residential property located in

11 earthquake-prone States.

12 (G) Inspections before transfer of residen13 tial property in earthquake-prone States and

14 hurricane-prone States (and provision to buyers

15 of inspection reports) regarding the adequacy of

16 the anchoring of the residential structure to the

17 foundation, the presence of unbraced or braced

18 cripple walls for woodframe structures, and the

19 bracing of gas water heaters to the walls for all

20 structures, as appropriate based on risk of

21 damage by earthquakes or hurricanes.

22 (3) RECOMMENDED MEASURES.—The Director

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

24 of the following earthquake and hurricane prepared25 ness and planning measures:
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1 (A) Expanded research and development

2 by the National Institute of Standards and

3 Technology and other government and private

4 sector entities of new cost-effective building

5 technologies for new construction and retro6 fitting of existing buildings.

7 (B) Educational and promotional cam8 paigns to encourage additional voluntary miti9 gation.

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

11 lower property tax assessments, no reassess12 ments for retrofitting which results in increased

13 property values, or other tax incentives to en14 courage use of state-of-the-art mitigation tech15 nology.

16 (D) State or community-based efforts to

17 assist low- and moderate-income households to

18 purchase needed earthquake, volcanic eruption,

19 or hurricane insurance and to adopt cost-effec20 tive loss-reduction measures.

21 (E) Improvements in long-term earthquake

22 and hurricane construction practices, including

23 the training and licensing of earthquake and

24 hurricane design professionals as well as public

25 and private building inspectors.
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1 (F) Institutional support, training in

2 earthquake and hurricane engineering tech3 nology and other disciplines, and staffing to en4 sure compliance with the community-based

5 building codes.

6 (G) Minimizing damage to public utilities,

7 including sewer, gas, electrical and water sys8 tems, and other lifelines.

9 (c) STANDARD.—Any mitigation measures included

10 in the loss-reduction criteria established under this section

11 shall be practical, cost-effective, workable, and directly re12 lated to the risk of loss from earthquakes, volcanic erup13 tions, or hurricanes in areas where residential property is

14 located.

15 (d) TECHNICAL ASSISTANCE.—The Director, in con16 sultation with the National Institute of Standards and

17 Technology, shall coordinate with and provide technical

18 assistance to States, interstate, and local officials and

19 agencies to encourage adoption and enforcement of State

20 and local actions that incorporate and support the loss21 reduction measures and preparedness goals developed by

22 the Director under this section.
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1 SEC. 104. SELF-SUSTAINING MITIGATION FUND.

2 (a) IN GENERAL.—A percentage of the annual earth3 quake, volcanic eruption, and hurricane insurance and ex4 cess reinsurance premiums collected under the Primary

5 Insurance program under title II, as the Director shall

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

7 known as the Self-Sustaining Mitigation Fund. The per8 centage may not exceed 5 percent, unless the Director de9 termines that the amounts in the Insurance Fund are suf10 ficient to provide for any probable expected losses from

11 future earthquakes, volcanic eruptions, or hurricanes. In12 terest on amounts in the Fund shall be credited to the

13 Fund.

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

15 Fund shall be available, to the extent provided in appro16 priations Acts, to the Director to provide assistance to

17 support the earthquake, volcanic eruption, and hurricane

18 hazard reduction activities, as follows:

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

20 (2) Assistance to provide earthquake, volcanic

21 eruption, and hurricane education pursuant to sub22 section (c).

23 (3) Assistance for research and development

24 supported by the National Institute of Standards

25 and Technology on construction techniques to reduce
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1 costs of new construction and retrofitting of existing

2 buildings.

3 (4) Low-interest loans or grants for the retro4 fitting of seismically hazardous critical facilities and

5 critical facilities vulnerable to hurricanes.

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

7 educational programs authorized under title I, the Direc8 tor shall provide assistance under this section to support

9 programs educating the general public on the national di10 mensions of the seismic, volcanic eruption, and hurricane

11 risk and on methods for homeowners to reduce the haz12 ards resulting from future earthquakes and hurricanes.

13 SEC. 105. STATE IMPLEMENTATION OF LOSS-REDUCTION

14 MEASURES.

15 (a) DEFINITION OF COMPLIANCE STATE.—An earth16 quake-prone, volcanic eruption-prone, or hurricane-prone

17 State shall be considered a compliance State for purposes

18 of this title if—

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

20 beginning upon the promulgation of final regulations

21 under section 103 establishing loss-reduction cri22 teria—

23 (A) the counties and municipalities located

24 in all seismic, volcanic, and hurricane zones

25 within the State have adopted and are enforcing
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1 minimum applicable mitigation measures re2 quired under the loss-reduction criteria; and

3 (B) the chief executive officer of the State

4 has designated an administrative authority to

5 coordinate the development and enforcement of

6 earthquake, volcanic eruption, and hurricane

7 implementation plans for the State, which plans

8 are equivalent to or exceed the loss-reduction

9 criteria; and

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

11 as a compliance State.

12 (b) DETERMINATION OF COMPLIANCE.—

13 (1) STATE SUBMISSION OF CERTIFICATION.—

14 Before the expiration of the 2-year period referred

15 to in subsection (a)(1), each earthquake-prone, vol16 canic eruption-prone, or hurricane-prone State shall

17 submit a certification to the Director stating wheth18 er the State has substantially adopted and is sub19 stantially enforcing the applicable mitigation meas20 ures under the loss-reduction criteria. In providing

21 such certification, each State may consult with rel22 evant private-sector accreditation and rating organi23 zations approved by the Director. The Director shall

24 issue regulations not later than 18 months after the
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1 date of the enactment of this Act describing the cri2 teria to be used in making and reviewing such State

3 certifications.

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

5 review each certification submitted under paragraph

6 (1) to determine whether it is an accurate mani7 festation of the submitting State’s substantial com8 pliance with, and enforcement of, the applicable

9 mitigation measures under the loss-reduction cri10 teria. If the Director determines that the State cer11 tification is substantially accurate and the State has

12 adopted and is enforcing the applicable mitigation

13 measures, the Director shall certify the State for

14 purposes of subsection (a). Using the criteria estab15 lished under paragraph (1), the Director shall review

16 the compliance with, and enforcement of, the appli17 cable mitigation measures by each compliance State

18 meeting the requirements of subsection (a) not less

19 than once every 2 years and shall renew compliance

20 certificates as appropriate.

21 (3) NONCOMPLIANCE STATES.—If an earth22 quake-prone, volcanic eruption-prone, or hurricane23 prone State fails to submit a certification under

24 paragraph (1) or the Director determines under

25 paragraph (1) or (2) that the State has submitted
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1 an inaccurate certification, has not adopted or en2 forced minimum applicable mitigation measures, or

3 has failed to have its compliance certification re4 newed, the Director shall certify the State as a non5 compliance State for purposes of this title and shall

6 promptly prepare and publish proposed regulations

7 setting forth the minimum mitigation measures ap8 plicable to the State.

9 (4) REVIEW OF NONCOMPLIANCE.—A State cer10 tified as a noncompliance State pursuant to para11 graph (3) may at any time after such certification

12 request the Director to revoke its noncompliance cer13 tification and to certify the State pursuant to para14 graph (2).

15 (c) ASSISTANCE TO PROMOTE COMPLIANCE.—The

16 Director shall provide assistance to each compliance State

17 from amounts in the Self-Sustaining Mitigation Fund

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

19 assistance are made available under appropriations Acts.

20 The amount of such assistance provided to each State

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

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

23 the amount of earthquake, volcanic eruption, and hurri24 cane insurance premiums collected in that State under the
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1 Primary Insurance Program, and the State’s risk of fu2 ture earthquakes, volcanic eruptions, and hurricanes. Such

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

4 development and implementation of its mitigation plan, in5 cluding education, enforcement, and mitigation economic

6 incentives, such as low-interest loans for seismic retro7 fitting.

8 SEC. 106. REQUIREMENT TO PURCHASE PRIMARY

9 INSURANCE.

10 (a) CONNECTION TO FEDERALLY RELATED MORT11 GAGE LOANS.—After the expiration of the 2-year period

12 beginning upon the promulgation of final regulations

13 under section 103 establishing loss-reduction criteria, no

14 federally related mortgage loan secured by residential

15 property located in an earthquake-prone, volcanic erup16 tion-prone, or hurricane-prone State may be made, in17 creased, extended, or renewed unless the property securing

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

19 hurricane insurance coverage available under title II or

20 equivalent insurance from a private insurer, in the amount

21 required under section 203(a)(6). The Director shall de22 termine, in cooperation with the appropriate Federal agen23 cies, the methods by which such mortgagors shall be re24 quired to present proof that they have obtained an insur25 ance policy consistent with the provisions of this title.
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1 (b) EXEMPTION FOR STATE PROPERTIES.—Notwith2 standing the other provisions of this section, earthquake,

3 volcanic eruption, and hurricane insurance coverage shall

4 not be required on any State-owned property that is cov5 ered under a State policy of self-insurance adequate in the

6 determination of the Director. The Director shall publish

7 and periodically revise a list of States to which this sub8 section applies.

9 SEC. 107. EFFECT OF NONCOMPLIANCE WITH STATE MITI10 GATION PROGRAM.

11 Each Federal agency or instrumentality responsible

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

13 banks, savings and loans associations, or similar institu14 tions shall, by regulation, prohibit such institutions from

15 making, increasing, extending, or renewing a federally re16 lated mortgage loan secured by improved real estate or

17 a mobile home located or to be located in an earthquake18 prone, volcanic eruption-prone, or hurricane-prone State,

19 if—

20 (1) the State has been determined to be a non21 compliance State pursuant to section 105; and

22 (2) a presale inspection of the property securing

23 the loan—
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1 (A) indicates that the property does not

2 meet the minimum mitigation measures applica3 ble to the property under the loss-reduction cri4 teria; or

5 (B) has not been conducted.

6 SEC. 108. COORDINATION WITH OTHER PROGRAMS.

7 In carrying out this Act, the Director shall consult

8 with other departments and agencies of the Federal Gov9 ernment, and with interstate, State, and local agencies

10 having responsibilities regarding earthquakes, volcanic

11 eruptions, and hurricanes to ensure that the programs of

12 such agencies and the Primary Insurance Program under

13 title II are mutually consistent.

14 SEC. 109. REPORT TO CONGRESS.

15 The Director shall submit an annual report under

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

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

18 carried out under this title and evaluate any progress

19 achieved in such activities during the preceding fiscal year.

20 SEC. 110. REGULATIONS.

21 (a) DIRECTOR.—The Director may issue any regula22 tions necessary to carry out this Act, pursuant to the pro23 visions of subchapter II of chapter 5 of title 5, United

24 States Code.
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1 (b) FEDERAL AGENCIES.—Each Federal agency or

2 instrumentality responsible for the supervision, approval,

3 regulation, or insuring of banks, savings and loan associa4 tions, or similar institutions, shall, in cooperation with the

5 Director, issue any regulations necessary to implement the

6 responsibilities of such agency under this Act, pursuant

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

8 United States Code.

9 TITLE II—PRIMARY INSURANCE

10 PROGRAM

11 SEC. 201. BASIC AUTHORITY AND PROGRAM ORGANIZA12 TION.

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

14 this Act, the Director shall establish and carry out a na15 tional earthquake, volcanic eruption, and hurricane insur16 ance program to provide insurance against loss resulting

17 from physical damage to or loss of real property or per18 sonal property related thereto, in the United States, aris19 ing from any earthquake, volcanic eruption, or hurricane,

20 including any fire associated with a volcanic eruption.

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

22 Insurance Program under this title, the Director shall ar23 range for participation, on other than a risk-sharing basis,

24 by private insurers, insurance agents and brokers, insur25 ance adjustment organizations, and other persons. The
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1 Director may take any actions reasonably necessary and

2 appropriate to carry out this title, including the making

3 of contracts, the employment and compensation of per4 sons, and the acquisition of real and personal property.

5 (c) INSURANCE PRACTICES.—Any actions of the Di6 rector under this title shall be consistent with standard

7 insurance practices and generally accepted accounting, ac8 tuarial, and underwriting principles.

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

10 (or employees of the Federal Emergency Management

11 Agency) in connection with activities under this title shall

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

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

14 insurer or reinsurer against the Director (or employees of

15 the Federal Emergency Management Agency) shall be

16 brought in the United States District Court for the

17 District of Columbia.

18 (e) PLAN OF OPERATION.—

19 (1) DEVELOPMENT.—The Director shall de20 velop a plan of operation under this subsection to

21 ensure the fair, reasonable, and equitable adminis22 tration of the Insurance Fund, the Reinsurance

23 Fund, and other activities under this title and title

24 III.
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1 (2) CONTENTS.—The plan of operation shall set

2 forth the specific policy and programmatic details

3 for operating the Primary Insurance Program and

4 the Reinsurance Program, and shall include—

5 (A) all guidelines, criteria, definitions,

6 clarifications, and procedures necessary to carry

7 out this title;

8 (B) procedures for implementing the miti9 gation incentives under section 206; and

10 (C) standards for insurers to retain ex11 pense allowances from premiums collected

12 under this title.

13 (3) STUDY OF LOW-INCOME RATES.—In devel14 oping the plan of operation, the Director shall con15 sider options for charging less than actuarial rates

16 for residential property occupied by low-income pol17 icyholders and may include in the plan any such op18 tion the Director considers necessary, appropriate,

19 and practicable, subject to the requirements under

20 section 205(c).

21 (4) ESTABLISHMENT.—

22 (A) SUBMISSION OF DRAFT TO ADVISORY

23 COMMITTEE.—Not later than the expiration of

24 the 12-month period beginning on the date of

25 the enactment of this Act, the Director shall
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1 submit a draft of the plan of operation to the

2 Insurance and Reinsurance Advisory Committee

3 established under section 207. Before issuing

4 any proposed regulations under subparagraph

5 (B), the Director shall consider any rec6 ommendations made by such Advisory Commit7 tee regarding the draft plan of operation.

8 (B) PROPOSED REGULATIONS.—Not later

9 than the expiration of the 18-month period be10 ginning on the date of the enactment of this

11 Act, the Director shall issue proposed regula12 tions establishing the plan of operation under

13 this section, subject to the provisions of sub14 chapter II of chapter 5 of title 5, United States

15 Code. In issuing proposed regulations under

16 this paragraph, the Director shall cause to be

17 published in the Federal Register a description

18 of any differences between the recommendations

19 of the Insurance and Reinsurance Advisory

20 Committee and the final regulations (including

21 the guidelines, criteria, definitions, clarifica22 tions, and procedures under the plan) developed

23 by the Director. The description shall contain,

24 for each such difference, an explanation of why
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1 the recommendations of the Advisory Commit2 tee were not included in the proposed regula3 tions.

4 (C) COMMENTS.—After the regulations

5 have been issued under subparagraph (B), the

6 Director shall request comments from the In7 surance and Reinsurance Advisory Committee

8 regarding any changes to the regulations.

9 (D) SUBSEQUENT CHANGES.—Any

10 changes to the plan of operation contained in

11 final regulations shall be made pursuant to reg12 ulations issued in the manner provided in sub13 paragraphs (B) and (C).

14 SEC. 202. SCOPE OF PROGRAM.

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

16 Primary Insurance Program, the Director shall make

17 earthquake, volcanic eruption, and hurricane coverage

18 available only for residential property. The Director shall

19 make such coverage available in earthquake-prone States,

20 volcanic eruption-prone States, and hurricane-prone

21 States.

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

23 basis of studies and investigations undertaken and carried

24 out and information received or exchanged under section

25 204, and such other information as may be necessary, the
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1 Director determines that it would be feasible to extend the

2 Primary Insurance Program to cover other properties, the

3 Director may recommend to Congress that earthquake,

4 volcanic eruption, and hurricane coverage under this title

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

6 (1) other properties in residential areas;

7 (2) small business properties that are owned or

8 leased and operated by small business concerns;

9 (3) religious properties;

10 (4) agricultural properties;

11 (5) properties occupied by primary nonprofit or12 ganizations; and

13 (6) properties owned by State and local govern14 ments and agencies thereof.

15 SEC. 203. TERMS AND LIMITATIONS OF INSURANCE COV16 ERAGE.

17 (a) TERMS.—Pursuant to the plan of operation es18 tablished under section 201 and after consultation with

19 the Insurance and Reinsurance Advisory Committee, the

20 Director shall establish, by regulation, the general terms

21 and conditions of insurability for properties eligible for

22 residential property insurance coverage under section 202.

23 Such regulations shall meet the requirements of this sec24 tion and may include—
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1 (1) the type and locational classification of such

2 eligible properties;

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

4 by such insurance;

5 (3) appropriate minimum premiums;

6 (4) appropriate loss-deductibles including vari7 able deductibles based on the existence of loss-reduc8 ing measures that affect the risk of loss;

9 (5) appropriate limits on coverage for each clas10 sification of eligible properties;

11 (6) appropriate minimum coverage amounts

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

13 eligible properties, which may not be less than the

14 outstanding principal balance of the mortgage loan

15 securing the property or the maximum coverage

16 limit for the property under paragraph (5), which17 ever is less; and

18 (7) any other terms and limitations relating to

19 such residential property insurance coverage that

20 may be necessary to carry out the purposes of this

21 title.

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

23 and hurricane coverage under this title shall cover—

24 (1) any damage to covered eligible property

25 proximately caused by—
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1 (A) an earthquake, volcanic eruption, or

2 hurricane;

3 (B) a tsunami associated with an earth4 quake, volcanic eruption, or hurricane;

5 (C) a fire associated with a volcanic erup6 tion; and

7 (2) coverage for debris removal and additional

8 living expenses incurred as a result of direct damage

9 to the premises by—

10 (A) earthquake, volcanic eruption, or hur11 ricane;

12 (B) a tsunami associated with an earth13 quake, volcanic eruption, or hurricane; and

14 (C) a fire associated with a volcanic erup15 tion.

16 The coverage shall not include coverage for any fires asso17 ciated with an earthquake.

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

19 issuing residential property insurance coverage in any

20 earthquake-prone, volcanic eruption-prone, or hurricane21 prone State may provide the coverage under this title, on

22 behalf of the Federal Government, to residential property

23 policyholders of the insurer. Any private insurer electing

24 to participate in the Primary Insurance Program shall
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1 make coverage available to all residential property policy2 holders of the insurer in earthquake-prone, volcanic erup3 tion-prone, or hurricane-prone States. Any private insurer

4 electing to purchase the excess reinsurance coverage pur5 suant to title III shall make the coverage available, on be6 half of the Federal Government, or at equivalent coverage

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

8 policyholders of the insurer.

9 SEC. 204. ESTABLISHMENT OF ACTUARIAL PREMIUM

10 RATES.

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

12 Director may undertake and carry out such studies and

13 investigations and receive and exchange such information

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

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

16 territorial, or other appropriate basis, actuarial premium

17 rates for types of classes of property eligible for residential

18 property insurance coverage and the terms and conditions

19 under which such rates apply.

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

21 such studies, the Director shall consult with the Loss Miti22 gation Advisory Committee and the Insurance and Rein23 surance Advisory Committee and may enter into contracts,

24 agreements, or other arrangements to utilize the services

25 of the United States Geological Survey and other relevant
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1 Federal, State, and local governmental agencies, and other

2 persons.

3 (c) CONSIDERATIONS.—The Director shall establish

4 actuarial rates under this section based on—

5 (1) considerations of the risks involved, includ6 ing—

7 (A) the severity and frequency of earth8 quakes by seismic zone and States in which the

9 insured property is located, including known

10 differences in risks from active faults and

11 known susceptibility to landslide, site amplifi12 cation, and liquefaction;

13 (B) the risk of damage associated with a

14 volcanic eruption by volcanic zone and States in

15 which the insured property is located, including

16 proximity to known lava flows;

17 (C) the severity and frequency of hurri18 canes by hurricane zone and States in which

19 the insured property is located;

20 (D) the value of the insured property;

21 (E) the age of the structures located on

22 the insured property;

23 (F) the construction type of the structures

24 located on the insured property, including

25 woodframe, masonry, and masonry veneer;
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1 (G) the architectural type of the structures

2 located on the insured property, including soft

3 first floor, box construction, and split level;

4 (H) earthquake or hurricane loss-reduction

5 measures, including measures described in sec6 tion 103, followed in the construction or subse7 quent retrofitting of residential property struc8 tures; and

9 (I) any other relevant criteria; and

10 (2) application of accepted actuarial and rate11 making principles that reflect the risks involved, an12 ticipated insurance related administrative and oper13 ating costs and loss and loss-adjustment expense

14 payments, and provide for adequate reserves.

15 (d) LIMITATION.—Any rate classification system

16 used by the Director to establish actuarial rates under this

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

18 for the initial establishment or the subsequent administra19 tion of the rate plan that are disproportionate to the size

20 of the insurance premiums.

21 SEC. 205. CHARGEABLE PREMIUM RATES.

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

23 rates established under section 204 and such other infor24 mation as may be necessary, the Director shall from time

25 to time, and after consultation with the Loss Mitigation
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1 Advisory Committee and the Insurance and Reinsurance

2 Advisory Committee, establish and prescribe, by regula3 tion—

4 (1) chargeable premium rates for any types and

5 classes of properties eligible for earthquake, volcanic

6 eruption, and hurricane coverage; and

7 (2) the terms and conditions under which such

8 rates shall apply.

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

10 the maximum extent practicable, such chargeable rates

11 shall be actuarial rates over an extended period of time

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

13 reasonably reflecting the risk of damaging earthquakes,

14 volcanic eruptions, and hurricanes in total and for each

15 subclassification of policyholders. In setting and adjusting

16 chargeable rates under this section, the Director shall pro17 vide that, over an extended period of time, expected ex18 penditures from the Insurance Fund under section 208(c)

19 do not exceed expected receipts of the Fund under section

20 208(b).

21 (c) LOW-INCOME RATES AND MITIGATION INCEN22 TIVES.—The Director may, pursuant to the plan of oper23 ation under section 201, establish chargeable rates under

24 this section for (1) residential property occupied by low25 income residents, and (2) residential properties described
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1 in section 206(4), that are less than the actuarial rates

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

3 such rates do not prevent compliance with the last sen4 tence of subsection (b).

5 SEC. 206. INSURANCE MITIGATION INCENTIVES.

6 In carrying out the Primary Insurance Program

7 under this title pursuant to the plan of operation, the Di8 rector shall provide for the following insurance mitigation

9 incentives:

10 (1) Charging lower deductible amounts for any

11 residential property meeting the seismic and hurri12 cane building standards under the loss-reduction cri13 teria.

14 (2) Requiring under earthquake, volcanic erup15 tion, and hurricane coverage that repairs to residen16 tial property sustaining earthquake damage in ex17 cess of the deductible include, at a minimum, an18 choring the dwelling to the foundation and the addi19 tion of bracing to cripple walls.

20 (3) Requiring under earthquake, volcanic erup21 tion, and hurricane coverage that repairs to residen22 tial property sustaining hurricane damage in excess

23 of the deductible include such structural or other re24 pairs as the Director considers appropriate to miti25 gate against future hurricane damage.
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1 (4) Requiring under earthquake, volcanic erup2 tion, and hurricane coverage that residential prop3 erty suffering damage in an amount greater than 50

4 percent of the replacement value of the property

5 shall be rebuilt to at least the minimum standards

6 under the loss-reduction criteria under section 103

7 and applicable to the State.

8 (5) Charging lower premiums or deductible

9 amounts for any residential property located in a

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

11 hurricane zone in a hurricane-prone State that

12 passes an earthquake or hurricane inspection that is

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

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

15 (6) Charging lower premiums or deductible

16 amounts for new residential property not con17 structed in volcanic zones in a volcanic eruption18 prone State.

19 SEC. 207. EARTHQUAKE, VOLCANIC ERUPTION, AND HURRI20 CANE INSURANCE AND REINSURANCE ADVI21 SORY COMMITTEE.

22 (a) ESTABLISHMENT.—There is established an inde23 pendent advisory committee within the executive branch

24 to be known as the Earthquake, Volcanic Eruption, and
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1 Hurricane Insurance and Reinsurance Advisory Commit2 tee (in this section referred to as the ‘‘Committee’’). The

3 Committee, its members, and its functions shall be sepa4 rate from the Loss Mitigation Advisory Committee estab5 lished under section 102. To the extent not contradicted

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

7 subject to the provisions of the Federal Advisory Commit8 tee Act.

9 (b) MEMBERSHIP.—

10 (1) APPOINTED MEMBERS.—The Committee

11 shall be composed of 5 members appointed by the

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

13 Senate. The members shall be chosen from among

14 citizens of the United States and shall include—

15 (A) 2 individuals who represent the inter16 ests of private insurers;

17 (B) 1 individual who represents the inter18 ests of private reinsurers;

19 (C) 1 individual who represents the inter20 ests of insurance agents; and

21 (D) 1 individual who is a State insurance

22 regulator.

23 (2) EX OFFICIO MEMBER.—Notwithstanding

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

25 Advisory Committee under section 102 shall serve as
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1 an ex officio member of the Committee under this

2 section.

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

4 be filled in the manner in which the original appointment

5 was made.

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

7 chairman of the Committee from among members selected

8 for appointment to the Committee.

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

10 date of the enactment of this Act, the President shall sub11 mit to the Senate nominations for appointment to the

12 Committee.

13 (f) FUNCTIONS OF THE COMMITTEE.—The Commit14 tee shall review the draft plan of operation established

15 under section 201. Within 120 days after receiving the

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

17 Director written comments and recommendations for any

18 changes to the plan. After final regulations establishing

19 the plan of operation have been issued, the Committee

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

21 days to the Director and the Congress evaluating the oper22 ation of the Federal earthquake, volcanic eruption, and

23 hurricane insurance and reinsurance programs under this

24 title and making recommendations for any actions relating

25 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,
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1 or hurricane excess catastrophe reinsurance pur2 chased from the Federal Government) with respect

3 to the event is—

4 (A) more than 0 but not more than 5 per5 cent, by 0 percent of such uncollectible reinsur6 ance amount;

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

8 than 15 percent, by 33.33 percent of the

9 uncollectible reinsurance amount above 5 per10 cent;

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

12 than 25 percent, by—

13 (i) the amount determined under sub14 paragraph (B); and

15 (ii) 66.66 percent of the uncollectible

16 reinsurance amount above 15 percent; and

17 (D) more than 25 percent, by—

18 (i) the amount determined under sub19 paragraph (C); and

20 (ii) 100 percent of the uncollectible re21 insurance amount above 25 percent.

22 (d) OTHER ELIGIBILITY.—

23 (1) IN GENERAL.—Notwithstanding the re24 quirements of subsections (b) and (c), a private in25 surer or private reinsurer shall be eligible for excess
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1 reinsurance coverage and reimbursement from the

2 Federal Government if the insurer or reinsurer has

3 incurred losses, prior to any reinsurance coverage,

4 from a single event that are included in the lines

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

6 of their countrywide subject direct written premium

7 or their countrywide subject net written premium,

8 whichever is greater.

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

10 private reinsurer has sustained losses described in

11 paragraph (1), the Federal Government shall be lia12 ble for 95 percent of qualifying losses, as defined in

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

14 insurer’s or the private reinsurer’s countrywide sub15 ject net written premium.

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

17 the Federal Government under this subsection shall

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

19 countrywide subject direct net written premium and

20 600 percent of the private reinsurer’s countrywide

21 subject assumed net written premium. In the event

22 a company is both a private insurer and a private

23 reinsurer, the liability limits shall be 200 percent of

24 their subject direct net written premium and 600
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1 percent of their subject assumed net written pre2 mium. Intracompany or intragroup reinsurance ar3 rangements or contracts shall not be considered as

4 reinsurance in the calculation of insurance and rein5 surance subject direct or subject assumed net writ6 ten premium under this subsection.

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

8 (1) The term ‘‘subject assumed net written pre9 mium’’ means premiums received from other insur10 ance companies for reinsurance less ceded reinsur11 ance, for all lines of coverage listed in section 302.

12 (2) The term ‘‘subject direct net written pre13 mium’’ means the aggregate amount of recorded

14 originated premiums, other than reinsurance, issued

15 during the year whether collected or not at the close

16 of the year (plus retrospective audit premium collec17 tions) after deducting all return premiums and ceded

18 reinsurance premiums, for all lines of coverage listed

19 in section 302.

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

21 means direct and reinsurance premiums received by

22 private insurers and private reinsurers, less pre23 miums paid for ceded reinsurance, for all lines of

24 coverage listed in section 302.
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1 (4) The term ‘‘uncollectible reinsurance’’ means

2 reinsurance proceeds due and payable in accordance

3 with the terms of the reinsurance contract which are

4 not paid within 12 months of the due date.

5 SEC. 302. LINES OF INSURANCE.

6 (a) COVERED LINES.—The Director shall provide re7 insurance coverage to private insurers for all of the follow8 ing lines of insurance appearing in the National Associa9 tion of Insurance Commissioners Fire and Casualty An10 nual Statement filed with the applicable State department

11 of insurance:

12 (1) Fire.

13 (2) Allied Lines.

14 (3) Farmowner’s Multiple Peril.

15 (4) Homeowner’s Multiple Peril.

16 (5) Commercial Multiple Peril.

17 (6) Ocean Marine.

18 (7) Inland Marine.

19 (8) Earthquake.

20 (9) Workers Compensation.

21 (10) Other Liability.

22 (11) Aircraft (All Perils).

23 (12) Glass.

24 (13) Burglary and Theft.

25 (14) Boiler and Machinery.
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1 (15) Reinsurance.

2 Reinsurance coverage must be purchased for all covered

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

4 hurricane rating zones in earthquake-prone, volcanic erup5 tion-prone, or hurricane-prone States with the rates for

6 such coverage set by the Director, pursuant to section

7 303.

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

9 provide reinsurance coverage to private reinsurers for all

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

11 well as other lines of insurance appearing in the National

12 Association of Insurance Commissioners Fire and Cas13 ualty Annual Statement, as determined by the Director

14 in the plan of operation and in consultation with the

15 Insurance and Reinsurance Advisory Committee.

16 SEC. 303. RATES.

17 (a) ESTABLISHMENT.—The Director shall establish

18 the rates for the excess reinsurance coverage and adjust

19 the rates when necessary using generally accepted actuar20 ial principles. To the maximum extent practicable, such

21 rates shall be actuarial rates which produce a minimum

22 degree of cross-subsidization over an extended period of

23 time consistent with the infrequency of catastrophic earth24 quakes, volcanic eruptions, and hurricanes. In setting and

25 adjusting the rates, the Director shall provide that, over
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1 an extended period of time, expected expenditures from

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

3 expected receipts of the Reinsurance Fund under section

4 305(b).

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

6 rates, the Director shall also provide for a minimum de7 gree of cross-subsidization among classes of reinsureds by

8 reasonably reflecting the differences in risk of and vulner9 ability to loss from earthquakes, volcanic eruptions, and

10 hurricanes that would be subject to payment from the

11 Reinsurance Fund, by giving due consideration to the

12 following:

13 (1) The premium volume of the reinsured by

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

15 volcanic, and hurricane zone or State in which the

16 risks insured or reinsured by the reinsurer are lo17 cated.

18 (2) The proportion of the total expected amount

19 of payments for qualifying losses and loss adjust20 ment expenses by line of insurance under section

21 302(a) by seismic, volcanic, and hurricane zone or

22 State expected for each reinsured.

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

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

25 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.
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1 (b) INTEREST RATE.—Obligations under subsection

2 (a) shall bear interest at a rate determined by the Sec3 retary of the Treasury, taking into consideration the cur4 rent average market yield on outstanding marketable obli5 gations of the United States of comparable maturities.

6 (c) DEPOSITS.—Any amounts borrowed by the Direc7 tor under this section shall be deposited in the Reinsur8 ance Fund.

9 (d) REPAYMENT.—Any amounts borrowed pursuant

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

11 borrowed funds, in future rates for excess reinsurance cov12 erage pursuant to the plan of operation. The Secretary

13 of the Treasury shall liberally grant extensions in repay14 ment schedules that the Director advises the Secretary are

15 necessary.

Æ