arily in the States and in the District of Columbia over many years these matters have always been handled under the direction and authority of the Insurance Commissioner. We think it would be much more efficiently handled under the Insurance Commissioner and the Insurance Departments rather than going through an extra step of the Commissioner and the governing body.

Mr. Dowdy. Is that on the basis you are another step removed from the political control and you are putting it more in the hands of employees of the Insurance Department who should have some knowledge about what they are doing, while the Commissioner doesn't necessarily know anything about insurance, being a political appointment. Is that right?

Mr. SMITH. To give you a perfect illustration, we have worked with the local officials—the Commissioner, the Insurance Department, et cetera--on what we have termed a voluntary inspection program for the District of Columbia to provide inspections for insurance properties throughout the City and to place these on a voluntary basis while waiting for this legislation. Letters were to go out from the Commissioner's Office to all the insurers doing business in the District of Columbia requesting them to enter into this program and to cooperate with it. I have had half a dozen inquiries from our companies saying they have heard about this program but have never received a letter asking them to be active in it, and yet the letter was supposed to go out to every insurer doing business in the District of Columbia. Why the letter didn't get to everyone, I don't know, but I think this is an illustration in point. The follow-up letter which came from the Insurance Department went to all companies. The original letter from the Commissioner did not.

Mr. Dowdy. Thank you, Mr. Smith.
Mr. Smith. Thank you, sir.

Mr. Dowdy. We will now hear from the District of Columbia Gorernment. We have Mr. John W. Hechinger, Chairman of the District of Columbia Council; Mr. Robert F. Kneipp, Assistant Corporation Counsel, and Mr. Herbert S. Denenberg, Consultant on Insurance for the District of Columbia. Who will do the talking ?




Mr. HECHINGER. I think I will lead off, if I may, Mr. Chairman. I want to make a brief statement, and I am sorry I do not have copies of my statement, concerning the critical need for an adequate property reinsurance program in the District of Columbia to protect against losses from possible civil disorder or other widespread environmental hazards.

In the several months following the April civil disorders in Washington and many other cities, Congress has moved quickly and responsibly toward passage of a national reinsurance program which will assure businessmen and homeowners the coverage that is so desperately needed in the District of Columbia and in other large cities.

If the trend of cancellation and inability to obtain new policies continues very much longer, the economy of this City will be seriously threatened. It will be impossible to rebuild areas which were destroyed as no business can open without insurance and no insurance company will be able to carry that insurance without some form of reinsurance as stated in the recommendations of the Hughes Panel.

Local enabling legislation to participate in the national reinsurance program is thus one of the top legislative priorities for the District. At the end of May the District Government, with the approval of the President, transmitted draft legislation which would create the reinsurance program we need in the District. This bill was introduced as H.R. 17647, which essentially followed what the Hughes Panel called for in its report and is what Governor Hughes has enacted in his own State of New Jersey. The substance of that bill for his State is the same program that was included in the House as Title XI of the Omnibus Housing Bill and is known as the District of Columbia Insurance Placement Act.

I want to reemphasize as strongly as I can the support of the District Government for a measure along the lines which we originally proposed. Our original bill, H.R. 17647, and Title XI of the House version of Omnibus Housing Bill enable the District to participate fully in the national reinsurance program.

Mr. Dowdy. Is this the same as the Patten Amendment ?
Mr. HECHINGER. Yes, sir.
Mr. Dowdy. Identical?

Mr. HECHINGER. Identical. It gives the Commissioner of the District of Columbia the administrative authority to assure such participation. Contrary to the popular impression, the American Insurance Asociation, which has been mentioned several times this morning, is an association of 160 companies which I understand write the majority of the insurance in the District of Columbia. Some estimates are as high as 75 percent. This association has endorsed this bill, and I would like to read, if I may, a letter from Mr. Melvin L. Stark, Manager of the Washington Office of the American Insurance Association, addressed to Chairman John L. McMillan of this Committee: Re H.R. 18541-District of Columbia Insurance Placement Act.

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 have 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 association for legislative submission.

Last week we indicated our support of the District of Columbia 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.

The alternate bill which is now being considered by this Committee does not contain the key features needed in an adequate reinsurance program for the District. I urge, therefore, that the original District Government Bill be enacted by Congress which the American Insurance Association has endorsed.

As far as I am able to determine, the House and Senate conferees have not yet completed their work on the Omnibus Housing Bill. I hope, therefore, that members of the House District Committee will do everything possible to assure that the District of Columbia Insurance Act included in the House passed version of the larger bill, is included in the Housing Bill presented to Congress for passage.

Mr. Chairman, Mr. Robert Kneipp of the Corporation Counsel's Office, and Dr. Herbert Denenberg, a professor at the University of Pennsylvania who is an expert consultant to the District on property insurance, will be able to provide more detailed information on the insurance needs of the District.

Thank you.

Mr. Dowdy. The State of New Jersey has passed a bill that conforms to the recommendations of the Hughes Panel. Does that New Jersey plan require the additional industry assessment as provided in H.R. 17647?

Mr. HECHINGER. It is my belief it is identical. I will ask Dr. Denenberg to reply to that.

Mr. DENENBERG. Yes. We have a copy of that bill and it follows the assessment approach. The Hughes bill follows the same procedure for assessment as was included by the House as Title XI of the Omnibus Housing Bill.

Mr. Dowdy. I have been informed that the District of Columbia Government, in the preparation of this bill, did not consult the Superintendent of Insurance of the District at all.

Mr. HECHINGER. I cannot answer that.

Mr. KNEIPP. Mr. Chairman, I would like to correct a number of misconceptions. First, the so-called Tydings bill and the Diggs bill were initiated by the Superintendent of Insurance of the District of Columbia. When this matter cames up the Superintendent of Insurance suggested that we draft legislation that would enable the District of Columbia to participate in the national legislation. He sent copies of the proposed Virginia and Pennsylvania legislation and a draft of legislation to enable him to participate. This developed into Title XI of the Housing Bill. Essentially this is what the Superintendent of Insurance recommended be done. He has been in on the process. It was proposed at his initiative.

Mr. Smith has indicated the insurance industry did not have an opportunity to consider the Tydings bill and the Diggs bill. Mr. Dowdy. Is the Diggs bill the same as the Patten Amendment?

Mr. KNEIPP. Essentially. The Diggs bill is identical with Title XI of the Omnibus Housing Bill except for some minor modifications that were made, but it is my understanding the Tydings-Diggs bill is identical with Title XI. The early drafts of the Tydings bill were personally delivered to representatives of the insurance industry and I think I took them myself to Mr. Smith's office. So when Mr. Smith informed the Committee they had only one day's notice, I am afraid that is not quite true. They had several day's notice of what is essentially before you today.

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Mr. Dowdy. I think he said he had one day's notice of the hearing.

Mr. Smith. That is right, Mr. Chairman, notice of the hearing, not the bill.

Mr. Dowdy. That was my understanding.

Mr. KNEIPP. I am sorry. I understood him to say he had only one day's opportunity to study the bill.

I wonder if I might state it is the District's position that of the bills under consideration H.R. 18541 is the least desirable. This is the socalled model bill being sponsored by Mr. Nangle and Mr. Smith. It is deficient in a number of respects. Most important, it has no teeth. There is nothing in H.R. 18541 that allows the District to require the insurance industry to provide the plan the bill purports to require. The bill does not require, it merely purports to require. If the insurance industry fails to establish the Industry Placement Facility, there is no sanction that may be imposed on them short of suspending the certification of registration.

Mr. Dowdy. Isn't that sufficient?

Mr. KNEIPP. Yes, but why should the Superintendent of Insurance suspend them and put them out of business?

The Committee has been informed the Superintendent of Insurance should be put in control. Under H.R. 18541 the Commissioner has no control. He has a veto but he cannot require them to come up with a plan that does the job. Title XI, the Diggs-Tydings proposal, does require the insurance industry to do the job they have not volunteered to do.

Mr. Dowdy. If they don't do it he takes away their opportunity to do business?

Mr. KNEIPP. No. Under Title XI if the insurance industry fails to come up with a plan, then the District of Columbia can submit a plan to them for review.

Mr. Dowdy. And if they don't accept it they can be put out of business?

Mr. KNEIPP. No. Mr. Dowdy. Suppose they were not doing business in the District of Columbia? Would they have to conform!

Mr. DENENBERG. The procedure of the Diggs-Tydings-Patten bill follows the procedure in New York, Virginia, and New Jersey. It provides the insurance industry comes up with a proposal and if they don't like it they come back again and if they don't come back the second time it gives the Commissioner a chance to promulgate it. That seems to be the thing that disturbs the representatives of the insurance industry.

Mr. Bowdy. Under the Patten Amendment they come up with two different plans?

Mr. DENENBERG. That is right.

Mr. Dowdy. I think the Superintendent of Insurance would know more about it than the Commissioner would, but if the insurance industry does not want to abide by the plan submitted by the Commissioner of the District of Columbia, what authority would he have to require them!

Mr. DENENBERG. They could, of course, leave the District of Columbia.

Mr. Dowdy. And after all you get down to the same sanction on the insurance company--either do as you are told, or do no business in the District of Columbia-actually the same thing under either bill?

Mr. DENENBERG. I think it might create an impasse. I think experience in other states demonstrates it is always better to give the Commissioner clear authority he can use rather than force him to rely on voluntary agreement.

I think the bill puts in all kinds of safeguards to give the industry a voice and let them come forward with their proposal. I am sure this ability of the Commissioner to promulgate these rules will be used only as a last resort in the same fashion as New Jersey, Virginia, and New York.

Mr. Dowdy. Then I think what you get down to is that if any insurance company does not want to follow the plans laid down by the Commissioner it can not write insurance in the District of Columbia. That is what it amounts to. Is that right?

Mr. DENENBERG. That is right.

Mr. Dowdy. Or whatever state. We are talking about the District here.

Mr. Sisk. If the Chairman would yield on that point.

Mr. DowDY. Actually there is not too much difference between these particular provisions. All right.

Mr. Sisk. When you get right down to it we have certain Federal laws under the regulatory agencies which states that the insurance company shall comply with those and if they fail to comply they will be out of business. I think we are quibbling over terms here.

I will agree with the Chairman that in essence this is all right. I think this is a matter of difference of opinion.

I think we will either have to say “You will comply or not do business in the United States" or something else. That is what we say in the Federal laws regulating the insurance industry. In a sense we would be saying the same thing here in the District or in any state.

This to me seems to be the power we have to have, though.
As I say, I may be wrong.

Mr. Dowdy. Whichever way you go that is what you are actually enacting here. I wanted to see if there was a difference among these bills. It appears on that point there is not a great deal of difference.

Mr. KNEIPP. There are other differences. The District report of July 17 which has been entered into the record points out that under the so-called model bill the District would not be able to participate fully in the national reinsurance program.

Again I will have to refer to Professor Denenberg on the technical aspects but there are some shortcomings in the model bill which would operate to prevent the District from taking full advantage of the national legislation of the Congress.

I would like to skip to the O'Konski-Brasco bill

Mr. Downy. Let us skip that. We might get that point worked out later.

You say your advisor has to explain. One of the bills would not let the District take complete advantage of this?

Mr. KNEIPP. The model bill. It does not provide for the establishment of a FAIR Plan, although the bill in one of the earlier sections. Section 2(4) indicates that is one of the purposes of the bill. Nothing in the bill requires establishment of a FAÎR Plan.

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