in the State will participate in the plan. Separate distribution quotas will be established for commercial and habitational properties.

Upon receipt of an assignment for the industry placement facility, a company may accept the risk or may reject it conditionally-unless the property is improved to bring it up to minimum standards or if the risk is subject to an abnormal environmental exposure, may cede it-that is, the company may cede it-to the joint underwriting association. All companies writing property insurance in the District of Columbia must also be members of the joint underwriting association.

The bill provides for a fund for reimbursement to the national reinsurance fund as a first layer over insurance company losses. This is in line with the strong recommendation in the Hughes Panel report that such a sharing of riot and civil disorder over a certain stop loss would make local governments, throughout the country, cognizant of their basic responsibility of providing law and order in the land.

Other bills in the Senate and House have been introduced which would appear to implement the Federal legislation on the local level. The contents of other pending bills are many and varied and while supporting H.R. 18541 and the concept of this legislation generally, I would be more than happy to spend as much time as possible either here at the hearing or in private conference with interested staff, in answering any questions relating to this subject.

With that I thank you very much for letting us appear on behalf of Mr. McMillan's bill.

Mr. SISK. Mr. Chairman, I would like to briefly inquire as to some of the differences in some of these approaches. Do I understand you are in support of the legislation as incorporated in the omnibus Housing Bill, referred to as the Patten Amendment?

Mr. NANGLE. I will answer that by saying we prefer H.R. 18541.
Mr. SISK. Why?

Mr. NANGLE. I guess we do get into the basic differences between the

two.

Mr. SISK. That is what I want to get at, the differences in approach. Mr. NANGLE. The amendment to the Housing Bill Mr. Patten introduced on the floor, among other things but the primary objection, would be the complete and limitless authority of the Mayor or his designated agent in the setting up of the requirements and the setting up of the plans, et cetera, that the insurance companies must abide by whether they like it or not.

Mr. SISK. To what extent is that approach different from the rest of the country? Isn't it in effect putting the District of Columbia on all fours with the rest of the country?

Mr. NANGLE. No. In fact, very few plans of this nature have been promulgated. I believe New York has promulgated a plan, but I believe very few States have enacted legislation of that sort. That is why the District of Columbia bill is important to the industry. We project that over 40 States may require this type of legislation, and they will certainly be looking to the District of Columbia as a model

city.

Mr. SISK. Actually, do you understand that there is a difference between the position you take and that of the American Insurance Association on this matter?

Mr. NANGLE. Mr. Sisk, I have a problem speaking for another association.

Mr. SISK. I am trying to find out what the basic difference is we are talking about here, because I had understood the American Insurance Association, which I understand represents a pretty large segment of the industry, was in support of the language of the so-called Patten Amendment. I am not defending that procedure because I think this Committee does have a responsibility and I think it should meet that responsibility, but I am trying to determine what the basic differences are and whether or not there is justifiable reason why we should oppose that approach as compared to the approach here.

As I understand it, you have some fear of the power of the Mayor in that approach, is that right?

Mr. NANGLE. Let me get back to your original question. I think the American Insurance Association and the other two trade associations are pretty much in line as to what we should have. I think it is a question of how far we should go to not disturb other things in the Omnibus Housing Bill that we all require so desperately. Our companies need Federal riot insurance and we don't want to disturb that, but we feel this is a serious thing here too.

Mr. SISK. I am not arguing with you. I know my mail very substantially reflects that everyone is interested in Federal legislation in this area. I have received quite a bit of mail on this as I am sure all Members have.

Let me ask you this question in conclusion: Do I understand you are opposed to the so-called Patten Amendment to the Omnibus Housing Bill which is now in conference?

Mr. NANGLE. I am not hedging, sir. We support and we prefer this bill, H.R. 18541. I find myself, representing our trade association, riding two horses. There is one galloping down the stretch and we are still trying to get the one out that we think should win. I think we have cooperated as much as we could with the various staffs to improve the Patten bill. What stage the improvements are in at this time I am not too sure, but the Patten Amendment is in better shape now than it was when first introduced, and certainly the Tydings bill is in better shape than it originally was. It is not in 100 percent shape we think it should be. We are in favor of the concept of the legislation. The thing we come out with, though, has to fly, and if it does not fly the business community of the District of Columbia are the losers because the whole concept is to provide adequate insurance protection to these people. Mr. SISK. That is all, Mr. Chairman.

Mr. Dowdy. If I understand what you say, all of your people feel something should be done and that the Patten Amendment is not as apt to do the job as H.R. 18541?

Mr. NANGLE. We find H.R. 18541 is the more desirable piece of legislation. When you suggest we feel something must be done, that is true. Under the national legislation the States must take some action. Mr. DOWDY. Before 1970.

Mr. NANGLE. Before 1970, that is correct.

Mr. DowDY. And when you say "States" that takes in the District of Columbia?

Mr. NANGLE. That is right.

Mr. Dowdy. Mr. Fuqua.

Mr. Fuqua. I do not want to take up too much time because we have some other witnesses, but why do you think this approach is better than the Patten approach?

Mr. NANGLE. First of all, it attaches the Hughes Panel recommendation where the whole concept has emanated. Therefore, it is logical. Secondly, it does the job. I have heard fears from particular segments of the industry that they will not be adequately covered. This bill provides adequate insurance for all risks that are meeting minimum insurable standards. That includes insurance for a business next to a dynamite factory, et cetera. Third, it allows the insurance industry to do its job and do its duty to the public by providing these plans subject to the approval of the Insurance Commissioner, and allows private industry to adequately do the job with the public in mind and not give this power to the Mayor-and I have nothing against the Mayor, believe me, I think he is a fine man-or his designated agent.

Mr. FUQUA. Don't you think he might designate the Superintendent of Insurance to do this function?

Mr. NANGLE. He may or he may not.

Mr. FUQUA. In my State, and in most States, we have an Insurance Commissioner, and many times we delegate to the President or to Governors various responsibilities; but in the normal course they refer them to people such as, in this case, the Insurance Commissioner.

Mr. NANGLE. I think we are belaboring something that is not too important. The question is, shouldn't there be some guidelines? The way the Patten Amendment was introduced it was complete carte blanche authority to take it or leave it.

Mr. FUQUA. This is one of the strongest points of contention you have?

Mr. NANGLE. The powers of the Commissioner? Absolutely.
Mr. FUQUA. The rest of it you can live with?

Mr. NANGLE. I think so. We have a problem with the assessment function. We have a 2 percent then another 3 percent loss, which means 5 percent, and before insurance comes we have to pay another 5 percent, so all told there is a 10 percent or 8 percent deduction.

Mr. FUQUA. Why wouldn't the rest of the insurance industry feel apprehensive about this?

Mr. NANGLE. I feel they would take any bill. I am not so sure they care whether we have any bill, but I don't want to discuss any other trade association. I think they are sincere that they will take it because they feel there may be something else, but we feel more strongly than they do and that is why I am here testifying for Congressman MeMillan's bill.

Mr. FUQUA. That is all.

Mr. Dowdy. Thank you, Mr. Nangle.

The next witness is Mr. Wallace M. Smith, representing the American Mutual Insurance Alliance.

STATEMENT OF WALLACE M. SMITH, MANAGER, MID-ATLANTIC OFFICE, AMERICAN MUTUAL INSURANCE ALLIANCE, ACCOMPANIED BY: LEE B. HOLMES, COUNSEL, MID-ATLANTIC OFFICE, AMERICAN MUTUAL INSURANCE ALLIANCE

Mr. SMITH. Mr. Chairman, my name is Wallace M. Smith. I am Manager of the Mid-Atlantic Office of the American Mutual Insurance Alliance located in Washington. Our home office is located in Chicago. With me is Mr. Lee B. Holmes, who is Counsel in our Mid-Atlantic Office.

I am sorry I do not have a prepared statement. I do have several observations to make regarding this legislation, and then we shall be glad to try to answer any questions members of the Committee may have.

I think, as stated by Mr. Nangle, our organization desires the proper type of bill that will provide a stable insurance program for the District of Columbia. If we get a proper type bill to take care of the problem here, it will benefit the insurance industry as well as the citizens of the District of Columbia in that it will allow us to provide proper insurance for the citizens and businesses of the District of Columbia. This we desire to do. We are in the business of selling insurance and we want to do it.

I want to call the attention of the Committee to this fact: There was no sizable problem in the property insurance business in the District of Columbia prior to the April riots. In a situation where there is a breakdown of law and order, I think everyone would be agreeable that hardly any industry can operate successfully in a community. This has happened in the District of Columbia and I think it is a recognizable fact. There has been no assurance to our industry, to our Association's knowledge, that the governmental leaders of the District of Columbia have given any assurance that law and order will be or can be maintained in the District of Columbia, and, frankly, I think this is what is causing some of the insurance companies to cancel policies, and this is creating a larger problem. I believe this is the basis of the problem here. When you have such a situation as exists here, we think there is all the more necessity for legislation to assist in taking care of the insurance problem, specifically.

The bill on which the industry has worked we think will take care of the problem. This bill, which we term as a model bill for the industry, has been worked on for a number of months by three associations and their representatives.

Mr. DOWDY. That is H.R. 18541?

Mr. SMITH. That is correct. There has been a great deal of expertise from the insurance ranks, there have been consultations with public officials, with the State Insurance Commissioners, whom I think all of us would recognize as being highly knowledgeable in the insurance field, and we have come up with something we think is a superior type bill and one that will take care of the problem locally in the District of Columbia.

There have been questions on how we differ with the position of the American Insurance Association in reference to this bill and the Tydings bill. I think, in regard to the questions of Mr. Fuqua and Mr. Sisk, we see two major distinctions in those bills.

Mr. Dowdy. You mentioned the Tydings bill and what other bill? Mr. SMITH. H.R. 18541, the model bill.

Mr. Dowdy. You mentioned the Tydings bill and some other bill. What was that?

Mr. SMITH. The Tydings bill and H.R. 18541, the model bill.

Mr. Dowdy. Is the Tydings bill the same as the Patten Amendment? Mr. SMITH. It is my understanding they are the same.

Mr. Dowdy. That is what we need the comparison with.

Mr. SMITH. The Tydings bill and the Patten Amendment to the Omnibus Housing Bill, in my understanding, are one and identical

bills.

Mr. Dowdy. And now you are comparing the Tydings bill and this bill?

Mr. SISK. Mr. Chairman, while we are on that subject, we have a bill here by Mr. Brasco, H.R. 18149, and one by Mr. Diggs, H.R. 17647, and one by Mr. O'Konski, H.R. 17607, and of course Mr. McMillan's bill, H.R. 18541, which we have considered at some length. I don't know if the witness has compared these other bills. I don't know the difference between these bills.

Mr. Dowdy. I don't either. Are either of these bills identical to the Tydings bill or the Patten Amendment?

Mr. SMITH. I am not familiar with the bills except Mr. O'Konski's. Mr. Dowdy. I understand his is different from the Tydings bill. Mr. SMITH. Yes, in some aspects.

Mr. Dowdy. All right.

Mr. SMITH. The two major distinctions between the Tydings bill and H.R. 18541, the so-called model bill of the industry, are these in our observations and studies: Mr. Nangle hit upon one of them, and that is the all-encompassing power lodged in the Commissioner of the District of Columbia. In the States where similar type programs have been created and exist today-the automobile assigned risk insurance plan, the inspection insurance plans with large urban areas-all of these have been drafted by the industry, proposed by the industry, and operated by the industry, with the regulation and the approval and the supervision of the State Insurance Department. All we would ask in this bill here or in the District of Columbia is a similar situation. Simply because the insurance industry, we believe, over the years has more expertise in the insurance field in the providing of policies or coverages, the market generally, we would say certainly the regulator, whether at the Federal level, State level or local level, should have the authority to approve or disapprove of any unreasonable or unfair operations of any industry, whether it be the insurance industry or otherwise. But we think the operation, because we here in this particular instance are putting our money in it-the basic money is the insurance companies' money- -we think we should have some say-so in it. This is one of the major differences.

Another difference between the Tydings bill and the model bill is the funding arrangement for paying off these claims and the losses which will occur under the program. In our bill we call for appropriations. This would be, I think, the most optimum type of operation because you know the money is there, there is no inequitable assessment against anyone else, and it could be administered.

Mr. DownY. What do you mean by appropriation? Do you mean out of the Federal Treasury?