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GOVERYMENT OF THE DISTRICT OF COLUMBIA,

EXECUTIVE OFFICE,

Washington, D.C., May 31, 1968. The Honorable the SPEAKER, House of Representatives, Washington, D.C.

My DEAR MR. SPEAKER : The Government of the District of Columbia has the honor to submit herewith a draft bill "To establish a basic property insurance placement plan and joint underwriting association to improve the availability of basic insurance protection for residential and business properties against fire and other perils through the cooperative efforts of the District of Columbia and the private property insurance industry; to authorize the District of Columbia to assume a portion of the insurance losses resulting from riots and other civil disorders; and for other purposes."

The Congress currently is considering legislation, S. 3497, which among other things amends the National Housing Act so as to provide a national program to improve the availability of necessary insurance protection for residential and business properties against fire, crime, and other perils, through the cooperative efforts of the Federal and State governments and the private property insurance industry, and to authorize national reinsurance with appropriate loss-sharing by the States against insurance losses resulting from riots and other civil commotion. This legislation, which, if enacted by the Congress, is to be cited as the "National Insurance Development Corporation Act of 1968," defines the term “State" so as to include the District of Columbia.

The proposed National Insurance Development Corporation Act of 1968, contained in title XI of S. 3497, is designed to carry out the principal recommendations of the President's National Advisory Panel on Insurance in Riot-Affected Areas. One of the amendments of the National Housing Act which would be made by section 1103 of such title XI, designated as "Sec. 1223", provides that the Corporation created by the Act is not to offer reinsurance in a State nor is any such reinsurance to be applicable to insurance policies written in a State if, within one year following the effective date of the proposed amendments, such State has not dopted appropriate legislation retroactive to the effective date of such amendments, providing for the State to reimburse the Corporation

in an amount up to 5 percentum of the aggregate property insurance premiums earned in that State during the preceding calendar year on those lines of insurance reinsured by the Corporation in that State during that year, such that the Corporation may be reimbursed for amounts paid by it in respect to reinsured losses that occured in that State during a calendar year in excess of reinsurance premiums received in that State during the same calendar year in which the losses occurred plus the excess of the total premiums received by the Corporation for reinsurance in that State during a preceding period measured from the end of the most recent calendar year with respect to which the Corporation was reimbursed for losses under this Act over any amounts paid by the Corporation for reinsured losses that

occurred during this same period. Accordingly, if the District is to enjoy the benefits of the proposed "National Insurance Development Corporation Act of 1968," the enactment of the attached draft bill is necessary, since, among other provisions, it authorizes the District to reimburse the National Insurance Development Corporation as required by the Act establishing that corporation through a fund consisting of monies assessed from insurance companies and such funds as are appropriated by the Congress therefor.

Generally the purposes of the attached draft bill are to help the District of Columbia assure its property owners of fair access to basic property insurance and to make it possible for the insurers of residential, business and other property located in the District of Columbia, and for the Government of the District of Columbia, to take advantage of the provisions of the proposed National Insurance Development Corporation Act of 1968. As applicable to the District of Columbia as to any other major urban area is the statement made on the first page of the report of the President's National Advisory Panel on Insurance in Riot-Affected Areas that

Insurance is essential to revitalize our cities. It is a cornerstone of credit. Without insurance, banks and other financial institutions will not--and

cannot make loans. New housing cannot be constructed, and existing hous1 Introduced as H.R. 17647.

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ing cannot be repaired. New businesses cannot be opened, and existing businesses cannot expand, or even survive.

Without insurance, buildings are left to deteriorate; services, goods, and jobs diminish. Efforts to rebuild our nation's inner cities cannot move for

ward. Communities without insurance are communities without hope. In brief, the bill provides for the Commissioner of the District of Columbia to adopt rules and regulations implementing the industry placement facility required by the new section 1212 proposed to be added to the National Housing Act, on a voluntary basis if the insurers cooperate in such effort, or by order of the Commissioner of the District of Columbia if the insurers are unable to develop a plan of operation acceptable to him. The bill also provides for the creation of a joint underwriting association to take certain actions with respect to the plan of operation prepared by the Commissioner. The bill also, as noted above, authorizes the District to reimburse the Corporation ; establishes administrative and review procedures; authorizes the Commissioner to delegate any of the functions that are vested in him by the Act; and amends existing law in such manner as to authorize the District of Columbia Court of Appeals to take jurisdiction of appeals from orders and decisions of the Commissioner.

It is our belief that enactment of the attached draft bill is not only desirable but is necessary if the District of Columbia is to be able to take steps to assure that its property owners have fair access to basic property insurance. This assurance is vital to rebuilding and improving the District of Columbia. Further, this bill is necessary to allow the District of Columbia to take advantage of the provisions of the National Insurance Development Corporation Act of 1968, at the earliest possible time after that proposed legislation becomes law. The Government of the District of Columbia strongly urges the early enactment of the attached draft bill.

The Government of the District of Columbia has been advised by the Bureau of the Budget that the enactment of the legislation would be consistent with the Administration's objectives. Sincerely yours,

THOMAS W. FLETCHER,

Assistant to the Commissioner (For Walter E. Washington, Commissioner).

GOVERNMENT OF THE DISTRICT OF COLUMBIA,

EXECUTIVE OFFICE,

Washington, D.C., July 17, 1968. Hon. John L. MCMILLAN, Chairman, Committee on the District of Columbia, U.S. House of Representatives, Washington, D.C.

DEAR MR. MCMILLAN: The Government of the District of Columbia has for report H.R. 18541, 90th Congress, a bill "To authorize reinsurance with appropriate loss sharing by the District of Columbia against insurance losses resulting from riots and other civil disturbances, and for other purposes."

The bill requires the establishment of an Industry Placement Facility by all insurers licensed to write and engaged in writing in the District of Columbia, on a direct basis, basic property insurance or any component thereof in multi-peril policies. This Facility is to administer a program for the equitable apportionment among the insurers of basic property insurance which may be afforded applicants in urban areas whose property is insurable, without regard to neighborhood or area location, in accordance with reasonable underwriting standards. However, any such applicant must first make a "diligent effort" to procure such insurance through normal channels. In this connection, the bill fails to establish any standard for determining whether an applicant for insurance has made the required "diligent effort". The bill also requires the establishment of a Joint Reinsurance Association (hereafter, Association) by the same group of insurers, authorized to assume and cede reinsurance on risks written by insurers in conformity with the program formulated by the Industry Placement Facility.

Section 9 of the bill creates a fund to be known as the "District of Columbia Insurance Development Fund,” to provide monies for such payments as may be required of the District of Columbia to any Federal reinsurance entity, or to an insurer or the Association for losses sustained in excess of the amount of retention of such losses "as shall be provided for by the Commissioner" (presumably

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meaning 'Superintendent”, the term used elsewhere in the bill). The District of Columbia Insurance Development Fund is to consist of all monies appropriated to the fund and securities acquired by and through the use of monies belonging to the fund, together with interest and accretions earned thereon."

The Government of the District of Columbia is of the view that H.R. 18541 is deficient in a number of respects. While it purports to require insurers to establish an Industry Placement Facility and a Joint Reinsurance Association, the bill imposes no effective sanction against the insurers should they fail to establish such a facility and association. Further, the District objects to the establishment of an Insurance Development Fund comprised of appropriated funds, Rather, the District is of the view that any such fund should be comprised of monies derived from an assessment against the insurers participating in the program. Finally, the District notes that, notwithstanding the creation of a fund consisting of monies appropriated to it, the bill contains no authorization for the appropriation of such funds.

Most important, the District notes that the bill is inconsistent in certain respects with the pending national legislation. For example, it does not provide for the utilization by agents and brokers of the services of the Industry Placement Facility. Further, it places limits on the amount of insurance that can be placed through the Facility. It does not moreover, provide for the establishment of a FAIR plan, although section 2(4) indicates this to be one of the purposes of the bill. The District is of the view that these, and perhaps other provisions of the bill that are inconsistent with the pending national legislation, would preclude insurers in the District from participating in the national reinsurance program.

There is also pending before the Committee legislation sponsored by the Government of the District of Columbia and introduced as H.R. 17647. This bill contains the necessary provisions to allow the District to carry out the recommendation of the President's National Advisory Panel on Insurance in Riot-Affected Areas to improve the availability of insurance in urban areas and to carry out programs contemplated under the pending national reinsurance legislation. The District believes a broader and more effective program such as that authorized by H.R. 17647, or legislation substantially similar thereto, will permit the District to meet more adequately its insurance problems than does H.R. 18541, and, accordingly, the District recommends against the enactment of H.R. 18541.

The Government of the District of Columbia has been advised by the Bureau
of the Budget that, from the stand-point of the Administration's program, there
is no objection to the submission of this report to the Congress.
Sincerely yours,

THOMAS W. FLETCHER,

Assistant to the Commissioner (For Walter E. Washington, Commissioner).

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GOVERNMENT OF THE DISTRICT OF COLUMBIA,

EXECUTIVE OFFICE,

Washington, D.C., July 17, 1968.
Hon. JOHN L. MCMILLAN,
Chairman, Committee on the District of Columbia,
U.S. House of Representatives, Washington, D.C.

DEAR MR. MCMILLAN: The Government of the District of Columbia has for report H.R. 17607, 90th Congress, a bill "To establish a joint underwriting association to provide fire, extended coverage, and essential property insurance in the District of Columbia.”

The bill establishes a Joint Underwriting Association (hereafter, Association) to furnish "essential property insurance” in the District of Columbia directly; i.e., by the issuance of policies in its own name, or through reinsurance of policies written by its members. The term "essential property insurance" is defined in the first section of the bill as fire and extended coverage insurance and "insurance for such types, classes, and locations of property against the perils of vandalism, malicious mischief, burglary, theft, holdup, and robbery.” Apparently a phrase such as "as the Commissioner by rule may designate" was inadvertently omitted from the sentence.

The Association is to be composed of all insurers in the District writing essential property insurance directly. Expenses, losses, and profits of the Association would be shared by its members in the proportion that their premiums written in

the District during the preceding calendar year bear to the aggregate premiums written in the District of Columbia.

The Association would be governed by a board of eleven directors elected annually by its members and would be subject to supervision by the Commissioner.

The bill is very similar to legislation adopted in New York State April 8, 1968 (2 N.Y. Laws '68 Chap. 131), with amendments apparently designed to conform with the requirements of the pending national reinsurance legislation and the structure of the District of Columbia government. In principle, the Association to be created by H.R. 17607 is similar to the Joint Underwriting Association which would be authorized to be created by the Commissioner under H.R. 17647, also pending before the Committee. H.R. 17647, however, also contains provisions which would authorize the Commissioner to adopt rules and regulations designed to improve the operations of the normal insurance market in the District, and would create an Industry Placement Facility to help property owners and insurance agents and brokers place an application for insurance with insurers. These additional provisions are necessary to allow the District to carry out the recommendations of the President's National Advisory Panel on Insurance in RiotAffected Areas to improve the availability of insurance in urban areas and to carry out programs contemplated under the pending national reinsurance legislation. The District believes a broader program such as that authorized by H.R. 17647 will permit the District to more adequately meet its insurance problems than the limited program envisioned in H.R. 17607, and, accordingly, the District recommends against the enactment of H.R. 17607.

The Government of the District of Columbia has been advised by the Bureau of the Budget that, from the standpoint of the Administration's program, there is no objection to the submission of this report to the Congress. Sincerely yours,

THOMAS W. FLETCHER,

Assistant to the Commissioner (For Walter E. Washington, Commissioner).

AMERICAN INSURANCE ASSOCIATION,

Washington, D.C., July 18, 1968. Re H.R. 18541-District of Columbia Insurance Placement Act. Hon. JOHN L. MCMILLAN, Chairman, Committee on District of Columbia, U.S. House of Representatives, Washington, D.C.

DEAR MR. McMillan: The American Insurance Association is a trade group representing the interests of 160 capital stock insurance companies active in writing property insurance throughout the United States.

We have noted with interest your introduction of the captioned measure and have also noted the news report in the Washington Post of July 17, 1968, which quotes you as stating, “my committee staff has been working with the American Insurance Company and numerous other insurance companies in an effort to hare a bill prepared for the District ...". The American Insurance Company is a member company of our trade organization, and to our best knowledge has not been consulted or contacted with reference to this measure, nor have other members of our Association. We assume that this reference was an inadvertent error.

We, too, believe that enabling legislation for the District of Columbia is imperative to assure the swift restoration of a healthy insurance market. Our organization has worked with the American Mutual Insurance Alliance and the National Association of Independent Insurers to structure a model FAIR Plan statute which has received some preliminary circulation on a tentative basis, but has not yet been endorsed by the three trade associations for legislative submission.

Last week we indicated our support of the D.C. enabling legislation, as revised. now part of the omnibus housing measure (H.R. 17989—Title XI). This proposal seems to offer the quickest vehicle for accomplishing the purpose which your Committee and the entire insurance industry is anxious to achieve. Very truly yours,

MELVIN L. STARK, Manager. Mr. Dowdy. The first witness this morning is Mr. John J. Nangle, Washington Counsel of the National Association of Independent In

surers. Mr. Nangle, if you will come forward and give us the benefit of your views.

STATEMENT OF JOHN J. NANGLE, WASHINGTON COUNSEL,
NATIONAL ASSOCIATION OF INDEPENDENT INSURERS

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Mr. NANGLE. Thank you, Mr. Chairman.

The National Association of Independent Insurers is a trade asso

ciation of over 360 property and casualty insurance companies. The A primary purpose of our association is to foster and promote free combis petition in the marketing and rating of the insurance product.

The National Association of Independent Insurers has supported the recommendations of the Hughes Panel Report pertaining to the inner city insurance problem. Our association has worked diligently with HUD and the appropriate Congressional staffs to implement the Hughes Panel Report into the proper and necessary legislation at the Federal level.

This legislation has passed the House and Senate and is now in conference as part of the Omnibus Housing Bill. As a necessary condition precedent to the success of the programs contemplated, the States and the District of Columbia must pass appropriate legislation to realize the necessary benefits of Federal riot insurance back-up for the insurance companies willing to continue to provide adequate insurance in the inner city area. However, this local enabling legislation is not required until 1970 for the insurance industry to obtain the reinsurance facilities for riot losses.

The National Association of Independent Insurers feels that H.R. 18541 introduced by Mr. McMillan properly and appropriately implements on the local level the legislation heretofore mentioned in the Housing Bill of 1968. We further feel that this legislation is in the true spirit and intent of the Hughes Panel recommendations of the President's Commission on Civil Disorders. Therefore, we support H.R. 18541 and urge its favorable consideration by this Subcommittee. We feel that a brief explanation as to what this bill will do might be in order.

The purposes of the program are to make basic property insurance available to owners and tenants of property which meets certain minimum standards in the District of Columbia, regardless of area and exposure. This is to be accomplished by creation of a FAIR plan for distributing the risks. Also, a joint underwriting association will be created for reinsurance of those risks which cannot be distributed on account of either size of risk or for risks which should be pooled because of certain environmental hazards.

In accordance with the FAIR plan requirements, as stated in the Hughes Report and embodied in the Federal bill, any person having an insurable interest in real or tangible property, excluding automobile insurance, insurance on farms and manufacturing facilities, shall be entitled, after making an effort to procure insurance in the normal manner, to a free inspection of his property, upon making application to the industry placement facility.

After inspection the reports will be returned to the industry placement facility, which will assign them on a semi-rotational basis to the various companies. All companies authorized to write basic insurance

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