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communities are discouraged from doing so by the fact that they can only get partial insurance coverage, none at all, or are forced to pay exorbitant rates for insurance. The results are obvious: Higher prices, lower quality goods and/or lack of adequate shopping facilities in black communities."
I have talked with businessmen, agents and brokers and other representatives of insurers. They all tell the same story. Insurance is often unavailable in the damaged areas of the city, at any price. Insurance in the surrounding areas is available often only at extremely high rates. High-risk rates average five times the authorized rate and in some cases range as high as seventeen times the authorized rate. Cancellations of policies have reached serious and unprecedented proportions.
The latest estimate of the Superintendent of Insurance, as of this morning, is that there have been 2,900 cancellations since the riots.
Four bills are being considered by this Committee which were intended by their authors to help improve the insurance market in the District. These are H.R. 17607, introduced by Congressman O’Konski; H.R. 18149 introduced by Congressman Brasco; H.R. 17617 introduced by Congressman Diggs, and H.R. 18541 introduced by Congressman McMillan.
H.R. 17607 and H.R. 18149 are very similar to legislation adopted in New York State April 8, 1968, 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 essence these bills would create a joint underwriting association which would provide insurance to property covered directly, that is it would issue policies in its own name, and would provide reinsurance to District insurers.
The principal problem with these two bills is that they do not authorize the Commissioner to adopt rules and regulations designed to improve the operations of the normal insurance market in the District through a FAIR Plan as contemplated under the national reinsurance program.
The purpose of a FAIR Plan is to assure that no property owner is denied basic property insurance at an unsurcharged premium without an inspection of his property by a fire rating bureau inspector or other expert and a careful evaluation of the inspection report by an insurer. It thus is designed to eliminate the possibility that a person might be denied property insurance without consideration of the condition of his property merely because the area in which the property is located is regarded as "blighted".
The inspection discloses the condition of the particular property. If there are defects in the property such as bad wiring, a faulty chimney, or a dangerous accumulation of rubbish, the owner is informed and given an opportunity to repair the property to bring it up to insurable standards.
Where a property owner is refused insurance, a copy of the inspection report, listing the specific reasons for the refusal, is sent to the applicant for insurance and the Department of Insurance.
The FAIR Plans thus should encourage property improvement and lossprevention by responsible owners. The statistics available as a result of such inspections will keep District officials informed of the nature of the problems that the urban core property owner has in obtaining insurance. Further, these statistics will give them information essential for carrying out programs designed to revitalize blighted areas.
Under a FAIR Plan insurers are to be prohibited from penalizing agents and brokers for soliciting applications for insurance on properties which are inspected.
In addition, H.R. 17607 and H.R. 18149 do not authorize the establishment of an Industry Placement Facility as contemplated by the National reinsurance program. Such a Facility is designed to seek to place applications for insurance upon the request of a property owner or an insurance agent or broker. The Facility would apportion these applications for property insurance equitably among all property insurers in the District. This Facility is most likely to be called upon to help an insurance agent or broker who can not place, or does not want to place, a risk with the particular companies which he represents or where his companies are unwilling or unable to insure fully a particular property.
It is, of course, important that a property owner be given the opportunity to insure his property for its full insurable value, subject only to such deductibles, percentage participation clauses or other underwriting devices which are employed to meet special problems of insurability. Without insurance to cover the full value of his property the property owner may be left exposed to considerable loss. Indeed, if the owner has a substantial mortgage on his property, he may stand to lose his entire equity in his property. Equally important, the inability to obtain full insurance may prevent some persons from being able to obtain needed credit to purchase or improve property.
The FAIR Plan and the Industry Placement Facility are integral parts of programs that must be carried out by insurers to be eligible for national reinsurance under Title X of the Housing and Urban Development Act of 1968 which has been adopted by both the House and Senate. While that title does contain provision for the Administrator of the program, the Department of Housing and Urban Development, to waive these requirements if other adequate provision is made, we cannot be certain that they will do this. Personally, I seriously doubt that the Joint Underwriting Association authorized under H.R. 17607 and H.R. 18149 would be adequate to justify the elimination of a sound FAIR Plan and Industry Placement Facility. Consequently, I doubt that these bills are adequate to permit insurers in the District to be eligible for national reinsurance unless they adopted these plans on a voluntary basis.
It is questionable, however, whether a voluntary industry program which only meets the minimum standards set forth in Title X would be adequate to resolve the critical insurance problems of the District. Indeed, the National legislation was designed to rely upon the ability of the local insurance authorities to build upon the minimum national standards as needed to meet local problems. It contemplates that the local insurance authority will be authorized to initiate and develop meaningful programs tailored to local conditions. This is an essential element for the success of the national program.
I might also point out that the FAIR Plan and Industry Placement Facility were recommended by the President's National Advisory Panel on Insurance. These recommendations were unanimously supported by representatives of the industry in hearings on the national reinsurance program before both the Senate and House.
There are numerous technical errors in these two bills which I will not go into but which were fully described in a leter from the District to the Chairman of this Committee.
I would now refer to H.R. 18541. This bill while authorizing an Industry Placement Facility and Joint Underwriting Association does not permit the District of Columbia to develop a FAIR Plan. This plus other deficiencies in the bill could mean that insurers in the District would not be eligible for national reinsurance under the bill. Consequently insurers would be required to perform certain obligations under the national program on a voluntary basis and in contradiction to H.R. 18541 to qualify for national reinsurance. For example, the Bill does not provide for agents and brokers to utilize the services of the Industry Placement Facility as required under the national program. Further it permits the placement Facility to establish limitations on the amount of insurance that can be placed through the Facility. This too is contrary to the requirements of the national program.
In addition, H.R. 18541 requires an applicant for insurance to make a diligent effort to obtain insurance coverage before he is entitled to an inspection of his property, or industry assistance in locating insurance. This requirement is contrary to the requirements of the national reinsurance programs which provide that no person is to be denied insurance without an inspection. Requiring a property owner to make a diligent search for insurance would undermine the philosophical base of the national program and the recommendations of the Presidents' Insurance Panel. As Congressman Moorhead, one of the sponsors of the National Reinsurance Program has said, that program represents "a major step forward in consumer protection programs by helping to assure that no property owner will be required to pay a higher insurance premium than the nature of the risk requires". It also represents "a dramatic new concept in consumer assistance programs by placing on the private insurance industry the responsibility for locating insurance".
The "diligent effort” requirement as embodied in H.R. 18541 is entirely inconsistent with this philosophy.
Section 9 of the Bill (H.R. 18541) creates a Fund to provide monies for such payments as may be required by the District of Columbia to make reimburse. ments under the national program.
Such a provision is, of course, necessary.
Under the national reinsurance program each State, including the District of Columbia, has the responsibility of assuming a portion of the losses reinsured by the proposed National Insurance Development Corporation in excess of the
amount of premiums paid by the insurance industry for reinsurance in the particular State. The amount to be assumed by the State is not more than 5 percent of the annual property insurance premiums earned in the State by all insurers there on those lines of insurance reinsured under the national program. The purpose of this provision of the national reinsurance program is to give recognition to the fact that maintaining law and order is primarily a local responsibility. The national program further provides that national reinsurance shall not be made available in a State if the State does not assume this obligation, retroactive to the enactment of the national program, within one year thereafter, or by the close of its next regular legislative session, if the legislature does not meet in regular session during that year. The method used to finance this obligation is left to the States.
H.R. 18541 provides for this Fund to be created by appropriations. The District of Columbia objects to creating a fund solely by appropriations. This fund would be utilized at the time of extensive damage in the District from riots and civil disorders when extensive use of District funds would be necessary as they were during the disorders of last April. We do not feel that the Federal treasury should be called upon to provide national reinsurance for riot and civil disorder losses and at the same time meet the District's obligations. Instead we believe that the Congress should authorize the District to assess its insurers to meet its obligation to the national reinsurance program and then permit insurers to recoup this assessment from policyholders through the premium structure.
In addition the District of Columbia Insurance Development Fund appears to be available to pay ordinary losses sustained by insurers and the Association in excess of amounts of retention of such losses as shall be provided for by the Commissioner. We do not believe that the District should be expected to pay ordinary insurance losses of the insurer or Association. We believe that this is the responsibility of private industry.
There are other technical objections to H.R. 18541 which I would be happy to discuss with the Committee staff.
The deficiencies of these three bills are not present in H.R. 17647 introduced by Congressman Diggs. The District of Columbia has strongly supported the counterpart of that bill, S. 3556, before a Senate District of Columbia Subcommittee. S. 3556, with modifications added by the Senate District Subcommittee, of which we approve, was adopted by the House as Title XI to the Housing and Urban Development Act of 1968. Although the District was not aware that the Bill approved by Senator Tydings' Subcommittee was to be adopted by the House as Title XI, the District believes that that title is of critical importance to permit the District to resolve its insurance problems.
It authorizes the Commissioner to adopt a FAIR Plan. It establishes an Industry Placement Facility and it authorizes the Commissioner to establish a Joint Underwriting Association, if necessary.
Under that bill the Insurance Industry would have responsibility for drafting the rules and regulations relating to a FAIR Plan, an Industry Placement Facility and a Joint Underwriting Association.
These draft rules could then be adopted by the Commissioner. If the Commissioner disapproves the draft rules the Industry would be authorized to make appropriate revisions as deemed necessary by the Commissioner.
If they failed to do so, the Commissioner would then be authorized to adopt such rules as he believes are necessary.
The regulatory approach followed in Title XI, added by the House, is similar to that adopted recently by the legislatures of New York, New Jersey and Virginia.
Moreover this regulatory approach is consistent with the recommendations of the President's Advisory Panel which-as I noted before-were unanimously supported by the insurance industry in asking Congress to authorize a national reinsurance program.
For example, in connection with the FAIR Plans the Panel recommended as follows:
"FAIR Plans should be subject to regulation by the State Insurance Departments. An Insurance Department may promulgate rules and regulations applicable to the Plan to limit cancellations, assure prompt issuance of policies and establish other procedural requirements to assure the successful operation of the Plan."
In summary, the District strongly endorses Title XI added by the House to the Housing and Urban Development Act of 1968. It alone of all the alternatives is consistent with the requirements of the national reinsurance program.
It alone of all the alternatives is consistent with the recommendations of the President's National Advisory Panel, which has received the unanimous endorsement of the insurance industry.
It alone of all the alternatives will enable the District of Columbia to more forward to effectively solve its insurance problems.
I cannot emphasize too strongly that time is of the essence. As President Johnson said in releasing the Insurance Advisory Panel's Report :
“One of the most urgent needs in American cities today is to assure that the property of businessmen and homeowners is adequately protected by insurance."
Mr. Dowdy. I will make part of the record a statement from Mr. William H. Press, executive vice president of the Metropolitan Board of Trade. I believe his statement supports title 11 (the Patten amendment) of the national act.
(The statement referred to follows:)
STATEMENT OF WILLIAM H. PRESS, EXECUTIVE VICE PRESIDENT,
METROPOLITAN WASHINGTON BOARD OF TRADE
I am William H. Press, and I am Executive Vice President of the Metropolitan Washington Board of Trade. Our membership of over 6,000 business and professional leaders represents all segments of activity in this community. A great many of our members are deeply concerned about the large number of insurance cancellations in the District mainly, but not limited to, riot affected areas since the civil disorders which occured in early April of this year. It is quite clear that immediate remedial steps must be taken or the whole effort to rebuild and revitalize the District will be impossible.
The Board of Trade strongly supports the District of Columbia Government's efforts to rebuild our community. A special task force of the Board of Trade and highly respected consultants are engaged in computing a new concept for rebuilding at least some of the riot destroyed areas of our city without delay. These programs cannot proceed unless a District law consistent with the provisions of the proposals for national law which are now in conference is adopted.
We have reviewed and considered H.R. 17607, H.R. 18149, and H.R. 18541, under consideration by this committee this morning. We are advised by technical experts that these bills are inconsistent with the provisions of the national reinsurance program and would therefore fail to make available to insurors in the District the benefits of the national program.
We are advised, however, that Title 11 of the national act proposal now in Congress is consistent with the national reinsurance program provisions and therefore feel that it should be adopted. Its passage will enable the District to create a healthy insurance market which will redound to the benefit of the public, businessmen, home owners and the insurance industry. We are confident that any delay in giving the District the authority provided in title 11 will cause unprecedented cancellations, nonrenewals and continued tying up of the insurance market.
Mr. Dowdy. Mr. Schulberg, do you have a statement you can put in the record ?
Mr. Hilliard SCHULBERG. No. I can make it very brief.
(Whereupon, at 11:00 a.m. the hearing was adjourned subject to call of the Chair.)
There will be filed in the record a letter to Chairman McMillan from Mr. Nathan Gutwerk. (The letter referred to follows:)
Washington, D.C., May 2, 1968. Hon. John L. MCMILLAN, U.S. House of Representatives, Washington, D.C.
DEAR SIR: We are writing to you for help. We are licensed liquor merchants, who were looted and burned out of the building we were in for 23 years. All our life's work was in this business and property.
We got no protection from the police and as a result have nothing to go back to. We still have to earn a living. We don't have a retirement income.
We think we are entitled to help from the government in the form of low interest loans. We would like you to use to your good offices to recommend legislation for re-insurance and protection so that we can conduct our Business in the manner of free enterprise and safety for which we have paid taxes all these years. Respectfully yours,
NATHAS GUTWERK. (Whereupon, at 11:00 a.m. the hearing was adjourned subject to call of the Chair.)