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Mr. Smith. From the District of Columbia Government, whether they get the money from the Federal Government or not. I am aware of the financial situation of the District of Columbia and we do not close our eyes to it. It is difficult to get sufficient money to operate the

District of Columbia Government. The changes made in the Tydings tien dit: bill as a result of talks we had with the staff

over there have brought ne.

about a situation where an assessment to pay losses would be levied rith

against the companies doing business in the District of Columbia. In

order not to make this too inequitable or distasteful or unfair to the me k insurance companies, there is a provision that states the insurance com

panies could recoup their assessments over a three-year period. Eingen:

Mr. FUQUA. By increased rates?
Mr. SMITH. By increased rates. As you know, the insurance com-

panies are continually being criticized for increasing their rates. We Tas E think the District of Columbia Government has some responsibility

here, as I said before, for maintaining law and order. It is the breakelim down of law and order that has created the whole problem here.

This approach provides that over a three-year period we are allowed

to recoup the assessments. It is no more equitable to assess us for these voor losses than any other industry. If we had riots each year—and there

is no assurance we will not, although we are hopeful we will notNovi how would we recoup our losses? This is one point we would like you The gentlemen to be aware of.

Mr. Dowdy. What you are saying is, if the District of Columbia

Government is unwilling or unable to prevent riots and you have riots he lost every year you would never recoup?

Mr. Smith. This is what we believe, yes, sir.

Mr. FUQUA. Is there a certain level of losses above which you can go under the Moorhead Amendment?

Mr. SMITH. This would come under the provisions of the Federal in law, yes, sir.

Mr. FUQUA. Under the basic law? Mr. SMITH. It is my understanding-I will give you an illustration of what happened in Newark. Or, let us take Detroit, which was bigger and better. They had somewhere around a $42 million loss as a result

of riots there. Under the programs the insurance industry would be this assessed 2 percent of the aggregate property premiums written in

the City of Detroit. Say it is $250 million, 2 percent of that first would be lodged against the companies writing insurance there. This would go into what is called the National Insurance Development Fund under the Federal bill. That would be $5 million. This is the first levy against the insurance companies. Bear in mind you have a $12 million loss. After that the companies would be hit by 10 percent of the

aggregate losses, $42 million. Let me back up a bit. The first step would be the 2 percent levy to go into the NIDF; then 3 percent of the premiums written. That would be 3 percent of $250 million or $7.5 million. Then the insurance industry is hit with 10 percent of the remaining losses above the $7.5 million they have already paid.

Mr. Downy. Is that only against the insurance companies operating in Detroit or against the insurance companies all over the Nation?

Mr. SMITH. The insurance companies writing insurance within the
State of Michigan. That would be the State.

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Then the second layer would come into play to pay off the losses. That would be under the national act the NIDF. They would pay the $5 million which that 2 percent that had been levied on us had put in that fund. Then the local government, the State of Michigan, would come into play and they would have to pay under the formula 5 percent of the premiums written. This would amount to $12.5 million. Then the fourth layer would come into play, which would be the Federal Government, which is the back-up part of this program, and they would pay the remainder of the losses that the other assessments had not taken care of, which would be $13.5 million, for a total of $12 million loss. This is my understanding of how it would work. We have not made a computation for the District of Columbia.

Mr. FuQUA. How would it work under the so-called model bill ?
Mr. Sytu. Exactly as this.
Mr. FUQUA. Exactly as under the Patten amendment ?

Mr. Satu. It would work the same way except we would be assessed for providing all of the local funds whereas before, in the other area, they would come in with their appropriations. Under the Tydings bill we would have to provide the appropriations which the District of Columbia Government, we think, should provide because of the local government not having met its responsibilities.

Mr. FUQUA. And under the Patten Amendment the local ment would not have to make any contribution to this!

Mr. SMITH. Yes, I think it would. There is a difference in how they would meet it and how we would recommend it should be met.

Mr. Dowdy. If I followed you on your example, first there is a ? percent and a 3 percent assessment against insurance companies that write business in that State?

Mr. SMITH. Yes.

Mr. Downy. Which would amount to $12.5 million in round figures in your example!

Mr. Smith. Yes.

Mr. Dowdy. The next $12.5 million, 5 percent, under the national bill, would come from the State Government to pay the losses ?

Mr. Smitu. No, sir. Let me back up a bit. Everything the industry is hit for would be around $15 million. First we would have to pay a 2 percent assessment on the premiums written to go into the VIDC. When we get up to the point after the insurance industry has paid, the money in that fund is brought out of NIDC to meet the losses above what the insurance companies have paid out. Then the State or local government would come in.

Mr. Dowdy. You said you had a loss of $42 million in Detroit? Mr. SMITH. Yes.

Mr. Dowdy. If this national bill had been in effect at that time how much would the insurance companies have had to meet of that $12 million loss before it would trigger the 2 percent plus 3 percent of premiums?

Mr. SMITH. Around $15 million it would have cost us before the Federal or local governments would have come into play.

Mr. Dowdy. In other words, about 30 percent of the loss, or is it a percentage of the premiums? How do you arrive at the $15 million you would have to pay?

Mr. Smith. This is a formula which is in the national act, Mr. Chairman, which has been arrived at and all the parties are agreeable that they think it is equitable.

Mr. Dowdy. The formula would make you pay $15 million before the national act came into play?

Mr. SMITH. Yes.

Mr. Dowdy. After that the 2 percent plus 3 percent paid in the national fund would be applied against the losses remaining?

Mr. SMITH. Yes. Mr. Dowdy. That brings you up to $27.5 million, which leaves about $14.5 million. At that point the local government would have to pay something!

Mr. SMITH. That is correct.

Mr. Dowdy. And as I followed your statement-and all of us should have in mind when this Housing Bill was debated, it was amended every time we turned around and it was hard to keep up with it

Mr. Smith. We certainly had a difficult time, too, Mr. Chairman.

Mr. Dowdy. At that point the State or local government would pay something and that would be equivalent to 5 percent?

Mr. Smith. Yes, sir.
Mr. DowDY. And that would be about $12.5 million?
Mr. SMITH. Yes.

Mr. Dowdy. Under the Patten Amendment how would that $12.5 million be raised?

Mr. Smith. This would be, as I say, the assessment against the insurance companies. We would have to pay it and then recoup it over a three-year period by increasing rates to the policyholders.

Mr. Downy. Under the so-called model bill, how would this $12.5 million be raised?

Mr. Smith. This would be through an appropriation by the District of Columbia Government.

Mr. Dowdy. For its failure or inability to enforce the law?

Mr. Smith. This is the basis for bringing the local governments into - the program, and I might say this was recommended by the Presidential panel.

Mr. Dowdy. That is the Hughes Panel?
Mr. SMITH. Yes, sir.

Mr. Dowdy. And that is the formula the Hughes Panel recommended ?

Mr. SMITH. Yes.

Mr. Dowdy. And is that the prime difference between the Tydings and the so-called model bill?

Mr. Smith. The prime difference between the Tydings bill and the model bill, which we support, is this over-all power of the Commissioner and then this funding. These are the two distinguishing features.

There is one other point I would like to mention about the authority of the Commissioner, and there is nothing personal about it. The States over the years have regulated the insurance industry.

Mr. Dowdy. Mr. Jordan is the Superintendent of Insurance in the District of Columbia ?

Mr. SMITH. Yes.
Mr. Dowdy. He seems to be very competent and able man.


Mr. Smith. The other point I wanted to bring to the attention of the Committee regarding this all-encompassing power under the Tydings proposal and the Patten Amendment would be that if a program is established under the law and it gives the Commissioner this power, you have your insurance companies coming in and operating under the program, and then under the Tydings bill or the Patten Amendment the Commissioner can change the rules of the game and we can't do anything about it, and we think this leaves the companies at a disadvantage.

Mr. Downy. Let me pursue that a little bit. Under the example you gave that leaves $2 million that has not been paid. Who pays that?

Mr. SMITH. I think my example brought it out so it came out on the nose $12 million, Mr. Chairman.

Mr. Dowdy. All right.

Mr. FUQUA. Do you have any breakdown as to how it would come out in the District of Columbia as a result of the April disorders?

Mr. Smith. We have not made a breakdown of that. There was something like a $20 million or $25 million loss here. But you could apply this formula to the District of Columbia and come out with the break down. I am sorry we have not done that for the committee.

I would add one further comment about the manner in which this Patten Amendment was brought about. The Tydings bill, as we understand, was hastily drafted in order to have it attached to the Omnibus Housing Bill when it came up in the Senate. We were given a one-day notice to comment on it. We indicated we would not have sufficient time to give proper consideration to the bill because, as you can appreciate, this is a highly complex situation. So the Senate District Committee did not clear the bill in time for it to be attached to the Senate Omnibus Housing Bill. Then further hearings were scheduled by the Senate District Committee and we had a chance to consult with the staff further and we had a chance to appear and present our views. As a result of these conferences—I am not saying just with us but with the entire insurance industry—the bill was improved. When we said we did not have a chance to study the bill we were told to come up any. how and it could be cleared up in the House. You know what happened in the House. I personally do not think this is the proper manner in which national legislation which affects an industry the size of the insurance industry or anyone else should be drafted, and it is not a proper process to bypass Committees of Congress. I offer that for whatever value it may have.

Mr. Sisk. The thing that concerns me a little bit on this—and I hope you understand there is no implication in the comparison I make but it seems to me one of the main concerns you have, as well as the main concern Mr. Nangle had, is really who will be the policeman in the case. I am not being critical of the insurance industry because they are a very necessary segment of American lives, but for the first time we have a situation where you are getting your hand in the Federal till—by "you" I mean the insurance industry—in meeting a need that we all know exists. If you will permit the use of a term that is perhaps not too good, you people are concerned about who will police this program. I, for one, have very strong feelings about it if we are going to put the Federal Government and the District of Columbia in the business of financing these programs. I share your concern about law

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enforcement and so on, but I will not support turning it over completely to the insurance industry.

Mr. Smith. We don't ask that at all, Mr. Sisk. I say over the years in the District of Columbia and in the rest of the 50 States, simply because of the expertise and knowledge in the insurance industry

Mr. Sisk. You haven't operated this type of program?

Mr. Smith. Very similar plans, such as the assigned risk automobile insurance plan.

Mr. Sisk. But for the first time we have a situation where the Federal Government is moving in to pay the losses and to guarantee, in essence, your people surviving in business. Is that right?

Mr. Smith. That is essentially right.

Mr. Sisk. Because you cannot meet a $50 million or $100 million riot damage and stay in business, is that correct! Mr. Smith. That is correct.

Mr. Sisk. I am basically in support of a back-up program to see to it these needs are met. I don't mind seeing the localities responsible for law enforcement made liable to a certain extent for riot damage, but I know you are aware of the statements Mr. Nangle made with reference to some fear of turning over to the Commissioner too much control. If the present Commissioner doesn't do his job we will get rid of him and get another one. I am not protecting any one of these people, but I think we have some real weaknesses that are probably no worse here than in other places. I don't want to prolong this, but I think we have in essence a very basic philosophy involved as to policy.

Mr. Smith. I would agree, and I would say this, that the insurance industry has a considerable amount of money at stake here too, and we have not caused the problem. We are meeting our losses here now. And I think it should be brought out there is a great deal of concern on the part of responsible Members of Congress and leaders everywhere about these cancellations, about the insurance problem brought about as a result of these riots, and concern as to how we are going to rebuild the burned out areas without letting the people who rebuild get loans, and about the small companies going out of business if they don't have insurance against riots. There is very little concern, though, that the insurance companies, because of these losses, might go bankrupt, and we are vitally concerned.

Mr. Sisk. Yes, but when we use the Federal Treasury we will have to have something to say about how the program is run.

Mr. Smith. I agree and I think there should be proper regulations. I might say, too, this is a reinsurance program and there was a great deal of talk and consultation with the Federal and State and private insurance representatives that tried to work out this national program about the reinsurance situation. If one of our companies has a reinsurance contract with Lloyds of London or with some local reinsurance company, they don't come in and have access to all our books and they don't have authority to tell us how to run the rest of our business.

Mr. Sisk. That is all, Mr. Chairman.

Mr. Dowdy. As I understand, you think the authority should be in the Superintendent of Insurance rather than in the Commissioner of the District of Columbia. Is that the difference?

Mr. SMITH. We really don't have any great concern over whom it will be placed with except historically and traditionally and custom

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