CONGRESSIONAL RECORD -- SENATE

May 28, 1968

Page 15260

Mr. SPARKMAN. Mr. President, I am sorry that this amendment has been offered, because I believe that this is a vital portion of the bill.

I say to the Senator from Georgia that the Banking and Currency Committee had 2½ days of hearings on this specific proposal. I refer the Senator to the table of contents of the hearings, page VI. There were 2 complete days of hearings. Then, on the third day, Mr. James L. Bentley, president of the National Association of Insurance Commissioners, who is from the State of Georgia, appeared as a witness. His testimony consumed a good part of the third day. I believe we did go into this matter thoroughly.

Mr. President, the consideration of the insurance problem did not start in the Senate with this bill.

We began consideration of this problem more than a year ago. The Senator from Florida [Mr. SMATHERS] was the first to bring it up, when he introduced a bill and conducted hearings in the Select Committee on Small Business on the subject of crime in the city of Washington. He first considered the problem at the local level, in the District of Columbia. Witnesses appeared before the subcommittee and testified about their places having been robbed or subjected to burglaries and holdups. In many instances the owner had been shot and almost every crime against person and property that anyone could think of had been committed. That was the beginning of the study by the Senate of this subject.

The Senator from New Hampshire [Mr. McINTYRE], who is chairman of the Subcommittee on Small Business of the Committee on Banking and Currency, held hearings on proposed legislation to help alleviate the serious lack of crime protection insurance to small business.

Finally, this year's housing program, submitted by the administration, contained a proposal for insurance that would provide greater availability of essential property insurance to all property owners in all urban areas.

Mr. President, I say to the distinguished Senator from Georgia that I do not know of any subject in this bill or any other bill that has received more hard, concentrated thinking and work to develop it. The program was worked out with the insurance companies of America, with the State supervisors of insurance, and with officials of the Federal Government.

Something was said about the great call on the Treasury and about the amount of money involved. As a matter of fact, the best estimate of insured losses arising from the 1967 riots that could be arrived at was between $50 and $75 million. That represents the total insurance liability growing out of the riots of 1967. The bill requires this much to be raised by the reinsurance premiums. If this, along with the other financial responsibilities, is not ample and if there is any backup by the Federal Government, it should be remembered that the money borrowed from the Treasury for this purpose must be repaid. It is not a loss to the Federal Government. The Federal Government backs it up for the time being.

But this insurance corporation receives premiums from the insurance companies of America and, potentially, from the State governments. If the authority to borrow from the Treasury is utilized, the money must be paid back, primarily by reinsurance premiums received subsequently.

I yield to the Senator from New Hampshire.

Mr. McINTYRE. Mr. President, I wish to emphasize what the chairman of our committee has said. This proposal is not something new which was developed here in the last day or two, or in the last month or two.

The Senator from Florida [Mr. SMATHERS] held hearings on this problem over a year ago, in April of 1967.

My own Subcommittee on Small Business held hearings on similar legislation last fall.

I see in the Chamber the junior Senator from Illinois, who serves on the Subcommittee on Small Business. The Senator from Pennsylvania [Mr. SCOTT], the Senator from New York [Mr. JAVITS], and the Senator from Florida [Mr. SMATHERS], all of us found a pressing need to do something in this area.

It started originally, as the Senator from Alabama said, with the "mom and pop" type store, the small neighborhood business. Then we found it was involved with the riot problem. I do not see this title as a big city bill. I do not see it as an attempt to take the money of rural taxpayers and rebuild the ghettos.

In my small but great State of New Hampshire we have had two riots in the last few years, one of serious proportions at Hampton Beach. This was brought out in the hearings.

This program is absolutely essential to the small bakery shop, the small food store, and the other little businesses which find themselves without any ability to obtain any insurance. Even where insurance is available, the rates are so intolerably high that they cannot afford it, and so they crumble away. They leave the ghetto, which becomes a more hopeless part of the community without them.

Mr. President, there is a strong desire among the members of the committee to retain this part of the bill.

Mr. MUSKIE. Mr. President, will the Senator yield?

Mr. SPARKMAN. I yield.

Mr. MUSKIE. Mr. President, I think that from my point of view the persuasive consideration that led to my support of this provision of the bill is stated in one paragraph on page 87 of the report. It reads as follows:

The facts developed during the various hearings point out the insurance crisis in our cities. The deterioration of many inner city areas is threatening the economic and social health of the cities as a whole. This deterioration has, in too many cases, caused the owners of well-maintained properties and businesses to be unable to obtain adequate property insurance against fire, crime, and other perils because of the general location of the property in a high-risk area or because of its proximity to dilapidated or hazardous structures.

In other words, here is a risk against which the resources of the private insurance companies are inadequate.

I wish to point out that, with respect to the private power companies of this country and the construction of nuclear powerplants, private insurance was similarly inadequate and so Congress has provided Government-subsidized insurance to protect the private power companies against a risk which the private insurance industry is unable to cover.

So the private power companies, with the help of Government-supported insurance, are protected and given insurance at a fraction of the cost they would have to pay to private insurance companies.

Now, Mr. President, if it is appropriate for us to provide this kind of protection for an industry with such resources as the private power industry of this country, it seems to me a perfectly appropriate precedent for the kind of protection we are seeking here for businesses which are essential to the vitality and development of the ghetto areas of our cities. This is one of the reasons I support this provision of the bill.

Mr. SPARKMAN. Mr. President, I wish to ask the Senator this question: Is the manner in which the Federal Government underwrites private power companies with insurance similar to the provisions in this bill?

Mr. MUSKIE. I do not know the details sufficiently to make that comparison, but it is Government-supported insurance, to the best of my knowledge, and it is not paid for by private power companies, except perhaps a fraction of the cost.

I was hoping that the distinguished Senator from Rhode Island would be in the Chamber, because he knows this provision of the law in much greater detail than I do.

Mr. SPARKMAN. Is it not true that in the provision we are now considering, the Federal Government must be repaid any money it expends to pay reinsurance losses?

Mr. MUSKIE. The Senator is correct. I wish to emphasize in connection with private power companies that insurance is Government subsidized. I do not have the details on which the subsidy is provided.

Mr. PROXMIRE. Mr. President, will the Senator yield?

Mr. SPARKMAN. I yield.

Mr. PROXMIRE. Mr. President, I wish to follow up what the distinguished Senator from Maine has said so well and I wish to emphasize that there was a study, to which the Senator referred, made by a panel headed by Governor Hughes of New Jersey. He made a significant observation in his opening remarks when he appeared before the committee, as is shown on page 541. He said:

We note first in our committee, and I think that it is a valid conclusion and I think many people are coming to share it, that the real issue confronting this insurance panel was not one that grew out of the riots as though the riots in our cities had created this problem, but one that was highlighted by these disorders. And the real problem was the unavailability, and it has existed for some years, and shortage of insurance.

Governor Hughes continued and said, “It is a historic fact, Senator, and I am delighted that you commented on it. Many of us are inclined to believe that all these things occurred just recently. That is not so at all. We have seen over these years our urban centers deteriorate and our structures decay and decline, as the criminal rate grows, and the insurance losses increase. As the loss ratios increase, the desirability of center-city business has decreased until it is most difficult, if not impossible, for the homeowner and the small businessman to obtain adequate coverage at a reasonable cost, or often at any cost.”

Mr. President, it is very important that we note that this is not something that grew up because of the riots in 1967. This is a continuing problem and this is the way the Hughes committee tried to deal with it.

Mr. PERCY. Mr. President, will the Senator yield?

Mr. SPARKMAN. I yield to the Senator from Illinois.

Mr. PERCY. Mr. President, I wish to say to the distinguished Senator from Georgia that, as the ranking minority member of the Subcommittee on Small Business, I found throughout the hearings that many of the points the Senator raises are perfectly valid.

The question is whether we would be discriminating against those who do enforce the law as distinguished from those who do not enforce the law. I am the first person to defend the mayors of our great cities. I do not believe the analysis can be made with respect to the riots. We have much to learn with respect to riots and civil disobedience on a massive scale, but it is my impression that the cities have invested a tremendous amount of money in law-enforcement agencies and law-enforcement officers, in increasing their budgets substantially to maintain law and order, and they have moved swiftly and they have not hesitated to call in the National Guard and the Federal troops, if necessary.

This is not the great problem. The question which must be raised is whether insurance should be available to small businesses to maintain protection against their inventories. It simply was

not available and until such time as there is insurance available to the private sector, something must be done with respect to the thousands of people living in riot areas who were the victims of the riots and who did not participate in them.

I walked down the streets of Newark, N.J., a year after the riots there, and I have talked to many of the people. Even today many of the small businesses there have not been restored and as a result the families many times have to walk a mile to get groceries or to do their laundry, when formerly they had these facilities within a block or two of their homes. These people are the victims of the disorders. We have to find ways to get small businesses back into the area to service them as before.

Furthermore, the small businesses need the help of insurance companies. They have to have incentive to take protective measures to guard against riots, vandalism, or whatever it may be.

I think they are learning a great deal about how to protect their businesses. By enabling them to pool their resources and by having the Government back them up as a last resort, and by not establishing Government corporations in the first instance, but by using all the facilities of the private sector first, I think we have developed a very good bill which is in the public interest, and one which I firmly support as a former businessman and now a public office holder.

Mr. McINTYRE. Mr. President, will the Senator from Alabama yield?

Mr. SPARKMAN. I yield.

Mr. McINTYRE. I would like to emphasize, as the Senator from Georgia [Mr. RUSSELL] has stated, if a State does not desire to come into the program, it does not have to. Is this your understanding?

Mr. SPARKMAN. Yes. It is a voluntary undertaking. Each State that comes in undertakes to form a State fair plan.

Mr. McINTYRE. I thank the Senator.

Mr. RUSSELL. It is clear that the Senators opposing this amendment have simply raised and then destroyed a straw man here in regard to the need for insurance in the riot areas, because I very clearly and expressly recognized this need in my opening statement. However, my basic objections still stand. I do not like to see any program predicated upon anything so vague and uncertain as this. There is nothing in the testimony to which the Senator refers about it. I ask the Senator from Alabama now, what would it have cost if it had been in effect over the period of the last year? There are absolutely no figures given on it that we could find in the hearings.

Mr. SPARKMAN. For 1967?

Mr. RUSSELL. Yes. This is too vague and uncertain, in the conditions we face today. We have had reinsurance programs before, but I think the Senator will find, if he looks into it, that they are more definite than this. This is not only voluntary to a State but it is also voluntary to an insurance company. They do not have to participate if they do not wish to. They can refuse to write this kind of policy altogether. If they do write it, they have to come into the program. I say this with all deference and respect, but it seems to me that the way this is presented is rather half-baked.

Mr. SPARKMAN. The Senator is correct about the voluntary matter, but that is the only way it should be. I am not sure he would be in favor of having enforced participation.

Mr. RUSSELL. No, I would not object to having it enforced if the insurance companies did not want to insure in a State.

Mr. SPARKMAN. That is all right if they do it State by State.

Mr. RUSSELL. They can withdraw from this high liability provision, but they do not have to do it.

Mr. SPARKMAN. Every major insurance company in the United States is strongly in favor of this program. The program has been worked out carefully with them, with the State insurance supervisors, and with Federal officials.

ORDER OF BUSINESS

Mr. SPARKMAN. Mr. President, I ask at this point that I may yield to the Senator from New Jersey for a brief time, for the purpose of introducing some visitors to the Senate, without the time being charged to either side.

The PRESIDING OFFICER. Is there objection to the request of the Senator from Alabama? The Chair hears none, and it is so ordered.

VISIT TO THE SENATE BY THREE MEMBERS OF THE PARLIAMENT OF MALI

Mr. CASE. Mr. President, I ask unanimous consent that the Senate stand in recess for 3 minutes for the purpose of greeting our distinguished guests.

The PRESIDING OFFICER. Without objection, it is so ordered.

Thereupon, at 3 o'clock and 24 minutes p.m., the Senate took a recess until 3 o'clock and 27 minutes p.m.

During the recess, the distinguished guests were greeted by Members of the Senate.

On expiration of the recess, the Senate reassembled and was called to order by the Presiding Officer (Mr. SPONG of Virginia).

HOUSING AND URBAN DEVELOPMENT ACT OF 1968

The Senate resumed the consideration of the bill (S. 3497) to assist in the provision of housing for low- and moderate-income families, and to extend and amend laws relating to housing and urban development.

Mr. SPARKMAN. Mr. President, the Senator from Florida [Mr. SMATHERS], who really originated this insurance idea so far as action by the Senate is concerned, unfortunately is not able to be present in the Chamber today. However, he prepared and left with me a statement that he would like to have given to the Senate in the course of this debate, and I ask unanimous consent to have it printed in the RECORD, together with a letter to the editor, referred to in the statement.

The PRESIDING OFFICER. Without objection, it is so ordered.

The statement of Senator SMATHERS and the letter to the editor are as follows:

Mr. SMATHERS. I wish to direct my remarks to Title XI of S. 3497, which would by amendment of the National Housing Act create a National Insurance Development Corporation within the Department of Housing and Urban Development.

In its report on this bill, the Banking and Currency Committee graciously acknowledged the pioneer work done by the Senate Small Business Committee in spotlighting the almost total lack of insurance protection for small businessmen and other property owners in the high-risk and low-income neighborhoods of our inner cities.

The Small Business Committee did indeed hold extensive hearings in April, 1967 in an effort to evaluate the impact of urban crime on small businesses located in or adjacent to the ghetto areas of our cities. This inquiry necessarily included an examination of the extent to which insurance protection is available to small firms.

As a result of our Committee's finding that small businessmen in high-risk localities either were unable to obtain insurance or were forced to pay prohibitive premiums, a year ago I introduced S. 1484, a measure designed to bridge this insurance gap which has such a crippling impact on small store owners in our low-income metropolitan neighborhoods.

Hearings were then held on my bill by the Small Business Subcommittee of the Banking and Currency Committee. Subsequently, the Subcommittee reported S. 1484. with amendments, to the Banking and Currency Committee. The insurance provisions of S. 3497, then, are the product of careful study by the Small Business Committee, by the Small Business Subcommittee, and by the full Banking Committee.

Title XI of S. 3497, Mr. President, has my full support. It is more than a good amendment. It is an imperative legislative proposal -- if this Congress has any intention of making it possible for merchants and other property owners in the poverty-areas of our cities to continue in business. And continue they must, or we will surely witness further deterioration of these blighted localities and all our efforts directed at the physical and economic rehabilitation of these areas will come to nought.

It should be borne in mind, Mr. President, that the hearings of the Small Business Committee on the impact of crime on small businessmen were held prior to the recent riots which devastated so many of our inner cities. Last year, we were concerned with more or less routine criminal acts; the around-the-clock burglaries, robberies, and senseless acts of vandalism which make life a nightmare for small merchants in the poor and run-down neighborhoods of our cities.

We sought answers to three basic questions:

Does small business need insurance protection against crime?

Is such insurance available at reasonable rates?

Is there a need for a Federal factor to assure the availability of insurance in highcrime neighborhoods?

We found that following a single robbery or burglary, a small businessman's insurance premiums jumped as much as 100 percent. Just as often, the policy was canceled outright.

We found that only 11 percent of all business units have insurance against glass breakage.

We were told that in the Fillmore district of Chicago, almost a third of the merchants questioned stated that they met with outright refusals in their efforts to buy insurance policies against thefts.

Furthermore, Mr. President, statistics of the National Bureau of Casualty Underwriters reveal that between 1964 and 1966, premium rates in the District of Columbia for burglary and robbery rose an average of 61 percent. The increase for small retailers increased 87 percent, and mercantile safe insurance rose more than 100 percent.

These are the hard facts. Inner-city small businessmen simply cannot afford property insurance even when such protection may be available. More often than not, such protection cannot be purchased at any price.

Our experience of the past few months, with its widespread destruction of property cries out for a promptly implemented cooperative effort by the Federal Government, by the States, and by the private insurance industry to provide that insurance protection which is an absolute prerequisite of maintaining and of rehabilitating the economic life of our inner-city neighborhoods.

At this point in my remarks, Mr. President, I request that there be printed a letter which appeared in the Washington Star of May 24, 1968, headed "After 44 Years in Business." This letter to the editor tells the tragic story of a family which operated a hardware store in the District of Columbia for almost half a century. After recounting the losses which this business suffered since April 5 of this year, the letter states: "Now we receive word that the insurance on our building is to be canceled."

AFTER 44 YEARS IN BUSINESS

Sir: We are owners of a hardware store in Northeast Washington. We write in behalf of the many who share our problems. We have obeyed the laws, paid our taxes, and insured ourselves, though it was expensive. We are more than equal-opportunity employers, as the majority of our help is Negro, and has been for years. We have been father-confessor, banker and adviser to our customers, with whom we have dealt honestly and fairly. We are charter members of the Business and Professional Association of Far Northeast, and have worked diligently for local improvements and closer cooperation between consumers and merchants. We are for civil rights for all men.

Prior to April, 1968, we had lost money on bad checks, burglary, shoplifting, and vandalism, all repaired or replaced at our expense. We have taken needed hours from our business to set in court at the request of the police, only to see the judges postpone the cases or dismiss the defendant. We are constantly in need of more reliable help. We have had trouble for years.

Since April 5, 1968, we have been the victims of repeated looting, and vandalism. Our store was closed for two weeks in order to repair the major damage done to us on that date. Since we reopened for business, we have been broken into twice and have had numerous broken windows and doors.

Insurance may or may not cover a portion of these expenses. The bills for repairs to our property, and merchandise and equipment that was damaged or stolen are arriving daily. We have lost our expected busy spring season. We are frustrated with the past and pessimistic about the future.

Now, we receive word that the insurance on our building is to be canceled. Since conditions in the District are so bad, this could be the end of our business. We can obtain jobs in the suburbs and lower our standard of living. We can do without the responsibilities of owning a business and all that entails. We can manage. We will not need welfare.

But the taxes the District collects will be lost. All of our years of endeavor will be wasted. Our employees will probably need some financial assistance. Our customers will lose the convenience and service they depend on.

To our way of thinking, this benefits no one and hurts many. Is this what is to become of us after forty-four years in business? Is that what is to become of our employes who have been responsible supporters of their families? Is the city to be left an empty shell of families living on relief?

Citizens must be protected. Criminals must be jailed. The police must have the men and the methods to do this. Businessmen must be able to obtain insurance. We are willing to pay for it. Of all the groups now clamoring for help, how many are offering to help themselves as we have done and hopefully will continue to do?

We and all the others in our predicament are watching our life's work go down the drain, along with our children's education and our Security.

ABRAHAM and IDA WOLF HARVEY and FREEDA WOLF.

Mr. SMATHERS. Title XI of S. 3497, Mr. President, should meet with the approval of all who are concerned with preventing our inner cities from becoming economic wastelands. The National Insurance Development Corporation which would be created by this amendment places the responsibility of maintaining the economic viability of our inner cities where it should be – upon the States and upon the insurance industry, with the full cooperation of the Federal Government as a reinsuring agency.

Thus we have in this amendment a blueprint for a workable partnership to provide insurance protection for the innocent victims of criminal acts.

This legislation is desperately needed by those whom it will serve and I urge its favorable consideration.

Mr. MUSKIE. Mr: President, the distinguished Senator from Georgia has expressed concern as to the impact of the provisions of the bill upon the Treasury Department. I think we do have some experience which is relevant to that point which should be made a matter of record.

For example, I understand that the insured riot losses which occurred in 1967 were between $50 million and $75 million. The bill provides that the reinsurance premiums charged by the National Insurance Development Corporation must be sufficient to collect this amount, so that if the riot losses do not exceed the experience of 1967, the reinsurance premiums would cover that loss, as I understand it.

Mr. SPARKMAN. That is correct.

Mr. MUSKIE. In addition, it is estimated that the potential retention of losses by the industry on a nationwide basis will amount to another $75 million. Finally, the bill as it now stands would provide that the States would be potentially responsible for another $75 million. That is a total of $200 million worth of coverage without the Treasury's borrowing authority being relied upon at all.

I understand that these figures are the product of staff research into the question. Do I correctly understand that?

Mr. RUSSELL. If the Senator from Alabama would allow me to answer that, we must be reading different bills. The bill I have been reading, and the one I am seeking to amend, is that the State pays 5 percent of the premium under the losses, and all the insurance companies have to pay is on the premiums, and not $75 million. It has no connection whatever with what the distinguished Senator from Maine has said.

At least, the bill and the committee report that comes out of the Banking and Currency Committee referred to the premiums paid on the policies, and not the amount of the policies.

Mr. SPARKMAN. I think, though, that the figures are arrived at in retrospect of the 1967 losses, and the 5 percent is calculated to bring that much on the premiums.

Mr. RUSSELL. In the report it says 5 percent of the premiums, not of the amount that is paid out in losses.

The Senator from Maine does not give the figures as to what is collected in premiums. He speaks only of the losses. What is the amount of the premiums? That is what the bill deals with.

Mr. MUSKIE. May I say to the Senator that, as I understand it from the staff assistant who gave me these figures, the $75 million that I attributed as the responsibility of the States represents 5 percent of the insurance premiums generated within the country. This is the 5 percent of those insurance premiums for which the States are responsible under the provisions of the bill. Those premiums are available for the losses that exceed the amount of insurance, the excess held against losses.

Mr. RUSSELL. In the first place, it does not apply to all the States, and it cannot, because some of their constitutions will not allow that. So the figures the Senator gives are almost meaningless.

Mr. MUSKIE. I disagree. The Senator is speculating in the wild blue yonder about the cost to the Treasury. I think it is perfectly permissible, the Senator having raised this question, which lies in the field of speculation, to suggest what the impact will be on the insurance companies, on the States, and on the Treasury.

Mr. RUSSELL. Can the Senator give us what was the total of the premiums paid on this type of insurance policy last year, and where is it in the record?

Mr. MUSKIE. The $75 million that I have been referring to here as the amount the States would be responsible for, if all the States participated, is 5 percent of the insurance premiums generated by reinsured lines of property insurance. So the total of the premiums would be 20 times that.

Mr. RUSSELL. I am not skilled enough in the science of insurance to know whether that is correct.

Mr. MUSKIE. It is a simple problem of mathematics. I will be glad to work it out.

Mr. RUSSELL. In other words, the premium is one-twentieth of the amount of the policy?

Mr. MUSKIE. No. I gave the amount that would be generated by the States by retaining responsibility up to 5 percent of the premiums. I am trying to work backwards on the floor to arrive at an answer which is responsive to the Senator's question, and that would be one-fifth.

Mr. RUSSELL. How much?

Mr. MUSKIE. One-fifth of the premiums.

Mr. RUSSELL. On this type of insurance? I hope the Record will be left that way, so I can check into it. I cannot believe it will be that amount.

Mr. MUSKIE. That is the information from the staff who worked on that.

Mr. RUSSELL. The Senator says one-fifth is paid in premiums on this particular type of insurance. I will be very surprised–

Mr. MUSKIE. All property insurance.

Mr. RUSSELL. I am not talking about all property insurance. This bill does not go to all property insurance. It only goes to this high-cost insurance that applies to riot risks.

Mr. MUSKIE. As I understand it, the percentage is based upon the premiums earned on all reinsured lines of property insurance, and not just in the ghettos.

Mr. RUSSELL. So the Federal Government is now preparing to reinsure all property insurance in the United States?

Mr. MUSKIE. No. The proposal is to provide reinsurance to cover only riot losses. But, the formula for determining the responsibility of the State is related to all property insurance coverage which is reinsured. I emphasize what the Senator from Alabama pointed out -- that this was worked out with the insurance companies. It is worked out with the State insurance authorities. There are no surprises on this.

Mr. RUSSELL. There are surprises, because those figures do not appear in the record, or if they do, I could not find them, and I looked it over.

Mr. MUSKIE. The staff says the Senator is correct, that they do not appear in the hearings, and that is the purpose of providing them on the floor. I have to rely on the staff as well. I was not involved in the subcommittee hearings on this bill, and so I am trying to provide information that is available through the staff.

Mr. RUSSELL. I would imagine one-fifth on all, the total insurance coverage in the country might be about right.

Mr. MUSKIE. The Senator is correct.

Mr. RUSSELL. But the coverage of the reinsurance that we are dealing with here cannot possibly cost any one-fifth. It is a very small proportion of the total insurance in the United States.

Mr. MUSKIE. May I say to the Senator, to make it perfectly clear, and I understand this is reinforced by the staff, that these figures of the revenues that are generated -- and that is the formula of the bill -- relate to all insurance. Five percent of the revenues generated amount to $75 million. That relates to all insurance. But the reinsurance relates to riot losses, and not all property losses.

Mr. RUSSELL. Of course, the staff may find it, but I have been unable to so find, in the bill or in the record, just how much the insurance companies are going to contribute to the fund. As I understand the bill, it is left to future negotiation and contracts, and here the Senator gives us a definite figure when we have no contract and we do not even know who is going to make it.

Mr. MUSKIE. Those contract negotiations are aimed at a figure of $75 million.

Mr. RUSSELL. How can the Senator predict that?

Even if he knows who is going to be named head of this corporation, that is purely an assumed figure. There is no 5 percent in the bill, except as to the amount to be contributed by the States.

Mr. MUSKIE. The guidelines on this subject, may I say, are found on page 95 of the report, the second full paragraph. I ask unanimous consent that that paragraph be inserted in the RECORD at this point.

There being no objection, the extract was ordered to be printed in the RECORD, as follows:

Section 1222(b) of the proposed new title would provide that the reinsurance offered shall reimburse an insurer for its total proved and approved claims for losses resulting from riots or civil disorders during the term of the reinsurance contracts, in excess of the amount of the insurer's retention of such losses as provided in the reinsurance contract. The typical insurance company retention of loss arrangement is expected to involve two features: (1) An initial retention of losses, equal to a percentage of premiums earned in a State on lines reinsured, plus (2) the assumption of an additional percentage of total losses, above and beyond the initial retention. For illustrative purposes, the first percentage might be assumed to be 3 percent. Assuming that premiums earned in the State on reinsured lines amounted to $100 million, the insurers' initial retention would be $3 million ($l00 million times 3 percent). If the second percentage is assumed to be 10 percent, and the total insured claims from riots and civil disorders by companies doing business in the State in a calendar year amounted to $45 million, the additional insurers' retention of losses would amount to $4.2 million ($45 million less the $3 million initial retention times 10 percent). Thus, the private insurers' retention of riot losses from their own resources would be $7.2 million.

Mr. MUSKIE. One of the guidelines is this:

The typical insurance company retention of loss arrangement– this is directly responsive to the point made by the Senator from Georgia– the typical insurance company retention of loss arrangement is expected to involve two features: (1) An initial retention of losses– this relates to the insurance companies– equal to a percentage of premiums earned in a State on lines reinsured, plus (2) the assumption of an additional percentage of total losses, above and beyond the initial retention.

Those guidelines apply to the obligation expected to be assumed by the insurance company.

The PRESIDING OFFICER. The time on the amendment has expired.

Mr. RUSSELL. Mr. President, I am glad the Senator put that in the RECORD, because it does not say anything about any 5 percent.

The PRESIDING OFFICER. The time on the amendment has expired. Who yields time on the bill?

Mr. RUSSELL. Mr. President, that paragraph went into the RECORD, did it not?

The PRESIDING OFFICER. Yes.

Mr. RUSSELL. I invite the attention of all Senators to it to see if it confirms the statement made.

Mr. SPARKMAN. Mr. President, if the Senator is ready to yield back his time, I am ready to do so.

Mr. BYRD of Virginia. Mr. President, before time is yielded back, may I ask a question?

Mr. SPARKMAN. I yield time to the Senator from Virginia.

Mr. BYRD of Virginia. Mr. President, the latter part of page 181 of the bill states: "provide a Federal program of insurance," and so forth.

Mr. SPARKMAN. To what page does the Senator refer?

Mr. BYRD of Virginia. Page 181. My question is directed to, the next few words: "and placing approprate financial responsibility upon the States to share in such losses."

My question is: Will the Senator from Alabama interpret what the committee had in mind when it said "placing appropriate financial responsibility upon the States"?

Mr. SPARKMAN. Is that page 181?

Mr. BYRD of Virginia. Page 181 of the bill, the last two lines.

Mr. SPARKMAN. I see; right at the bottom of the page.

Mr. BYRD of Virginia. At the bottom of the page.

Mr. SPARKMAN. Yes. This is in the statement of purpose, and, of course, under the mechanism that is set up, we have been talking about the 5 percent that the States are responsible for. They bear that potential responsibility.

But, I reiterate, the State financial burden is contingent upon the industry retention and the reinsurance premiums in the State proving inadequate.

The insurance people tell us, and I believe they are the best authorities that we have, that they are confident that the reinsurance program will pay for itself, and that there will be no losses to the Federal Government. The State's responsibility is to assume the financial responsibility described, to set up the State fair plan and administer the program.

Mr. BYRD of Virginia. Then am I correct in understanding that the language saying "placing appropriate financial responsibility upon the States" merely applies to the cost to the State of establishing the plan?

Mr. SPARKMAN. The thing that the State has to do is to set up the program, the State fair plan, and administer it.

Let me refer to one further provision. I direct the Senator's attention to page 197, where we get to the conditions of reinsurance. It states, down near the bottom of the page

A ... fund established pursuant to State law, will reimburse the Corporation, in an amount up to 5 per centum of the aggregate property insurance premiums earned in that State during the preceding calendar year.

That is really the burden on the States.

Mr. BYRD of Virginia. That is the burden on the States?

Mr. SPARKMAN. That is right.

Mr. BYRD of Virginia. So the placing of appropriate financial responsibility is assumed to be 5 percent?

Mr. SPARKMAN. That is correct.

Mr. BYRD of Virginia. I thank the Senator.

The PRESIDING OFFICER. The question is on agreeing to the amendment of the Senator from Georgia.

Mr. MANSFIELD. Are the yeas and nays requested?

Mr. SPARKMAN. I ask for the yeas and nays.

The yeas and nays were ordered.

Mr. HOLLAND. Mr. President, I ask unanimous consent that an excerpt from the report, consisting of pages 95, 96, and 97 down to the heading "Recovery of Premiums: Statute of Limitations," on page 97, be printed in the RECORD at this point.

There being no objection, the excerpt from the committee report (No. 1123) was ordered to be printed in the RECORD, as follows:

REINSURANCE AGREEMENTS AND PREMIUMS

Section 1222(a) of the proposed new title would authorize the Corporation, during the first year following enactment of the title, to enter into reinsurance contracts in consideration of payment of such premium or other charge which the Corporation deems adequate to obtain an aggregate fund in excess of the estimated amount of insured riot losses during 1967, assuming a substantial proportion of property insurance written will be reinsured. Thereafter, the Corporation may increase or decrease such premiums for reinsurance if it is found, after full consultation with the advisory board and the National Association of Insurance Commissioners, that such action is necessary or appropriate.

Section 1222(b) of the proposed new title would provide that the reinsurance offered shall reimburse an insurer for its total proved and approved claims for losses resulting from riots or civil disorders during the term of the reinsurance contracts in excess of the amount of the insurer's retention of such losses as provided in the reinsurance contract. The typical insurance company retention of loss arrangement is expected to involve two features: (1) An initial retention of losses, equal to a percentage of premiums earned in a State on lines reinsured, plus (2) the assumption of an additional percentage of total losses, above and beyond the initial retention. For illustrative purposes, the first percentage might be assumed to be 3 percent. Assuming that premiums earned in the State on reinsured lines amounted to $100 million, the insurers' initial retention would be $3 million (100 million times 3 percent). If the second percentage is assumed to be 10 percent, and the total insured claims from riots and civil disorders by companies doing business in the State in a calendar year amounted to $45 million, the additional insurers' retention of losses would amount to $4.2 million ($45 million less the $3 million initial retention times 10 percent). Thus, the private insurers' retention of riot losses from their own resources would be $7.2 million.

Section 1222(c) of the proposed new title would authorize the Corporation to include such terms and conditions in reinsurance contracts as are necessary to carry out the purposes of the title, but that such terms and conditions shall be uniform throughout the country. Nevertheless, to take account of the significant variations between the needs of insurers, the Corporation, in its discretion, may permit insurers to select from different specified levels of retention of losses, provided that the premium rates adequately reflect each level so retained by each insurer, and further provided that the premium rate for any given retention is uniform for all insurers throughout the country.

Section 1222(d) of the proposed new title would provide that reinsurance contracts will be for a term expiring on April 30, 1969, and on April 30 each year thereafter and shall be entered into within 90 days of the effective date of this title or within 90 days prior to April 30 each year thereafter, or within 90 days after an insurer is authorized to write insurance in a State which it was not so authorized to write in the preceding year.

CONDITIONS OF REINSURANCE

Section 1223(a) of the proposed new title would set forth various conditions under which the Corporation will terminate existing reinsurance and will not offer new coverage on policies written after the termination date.

Paragraph (1) would provide that reinsurance will not be offered in any State if the State itself, its political subdivisions, or a governmental corporation or fund established pursuant to State law, does not assume a portion of the responsibility for assisting the Corporation to reinsure against losses resulting from riots or civil disorders, within 1 year after the effective date of the act, or if the appropriate State legislative body has not met in regular session during that year by the close of its next regular session. The State would not be called on to reimburse the Corporation until the reinsured losses paid by the Corporation in a calendar year are in excess of the total reinsurance premiums received in the State during the year, plus the excess of reinsurance premiums received in the State over reinsured losses paid by the Corporation during the preceding period measured from the most recent calendar year in which the State had reimbursed the Corporation for reinsured losses. After the Corporation has paid such amount of reinsured losses in a calendar year, the State would reimburse the Corporation for its additional reinsured losses in that State during the year, in an amount up to 5 percent of the aggregate property insurance premiums earned in the State during the preceding calendar year on those lines of insurance reinsured by the Corporation in the State. Under the foregoing formula, State sharing would not be required unless losses in a State exceeded the sum of (1) the premiums paid by the insurance industry for reinsurance in that State (premiums paid in the year in which the losses occurred plus premiums paid in previous years in excess of reinsured losses paid), and (2) the companies' retained losses. Assuming that the premiums earned in the State on reinsured lines amounted to $100 million and that the premiums for Federal reinsurance would be 2 percent of such earned premiums, the first amount would be $2 million. If the second amount of retained losses by the companies were $7.2 million, the total would be $9.2 million. Since total riot losses this amount, in this example (i.e., $45 million), the State's share would be $5 million ($100 million times 5 percent). There would remain to be paid $30.3 million ($45 million less $9.2 million less $5 million). This amount would be paid by the Corporation, from premiums received from companies for reinsurance in other States.

Paragraph (2) would provide that reinsurance will cease to be available on new policies written in a State after 30 days following the Corporation's notification to the insurer that the Corporation, after consultation with the State insurance authority, finds that a suitable program, in addition to the plan set forth in part A, is required to make essential property insurance more readily available in the State without regard to environmental hazards, and that such program has not been adopted. This paragraph, however, would not become effective until 2 years after the effective date of this act, or at such earlier date as the Corporation, after consultation with the State insurance authority may determine.

Paragraph (3) would provide that reinsurance will cease to be available on policies written in a State after 30 days following notification to the insurer that the Corporation or the State insurance authority finds that the insurer is not fully participating in the plan in the State, in an existing pool, or in any other existing program found by the Corporation to aid in making essential property insurance more readily available in the State. The Corporation could not make such a finding unless it has requested and considered the views of the State insurance authority, or the State authority has failed to respond to a written request for such views within a reasonable period of time.

Paragraph (4) would provide that reinsurance will not be available on new policies written by an insurer following a merger, acquisition, consolidation, or reorganization involving an insurer with reinsurance on one or more lines of insurance and an insurer with or without such reinsurance unless the surviving company meets the criteria of eligibility for reinsurance other than as provided in section 1222(d) and promptly pays any reinsurance premiums due.

Paragraph (5) would provide that reinsurance will terminate upon cancellation by the insurer.

Section 1223(b) of the proposed new title would provide that if reinsurance is terminated or canceled under this section coverage may continue for policies written during the time reinsurance was in force upon payment of an appropriate premium or other charge.

FINANCING THE REINSURANCE PROGRAM

The financing arrangement envisions a reinsurance program which can be self-supporting, drawing on reinsurance premiums paid by insurance companies and payments by the States to cover losses from riots and civil disorders which exceed the losses retained by the insurance companies. If riot losses throughout the Nation resulted in reinsurance claims in excess of the aggregate amount of reinsurance premiums received by the Corporation, the excess would be paid from funds borrowed by the Secretary from the Treasury, to be repaid from future reinsurance premiums. In the event that there is a need to borrow from the Treasury, the authorization in section 520(b) of the National Housing Act for mortgage insurance would be employed. This existing authorization for the Secretary to borrow funds for payment of mortgage insurance claims would be modified so that it could also be used for payment of claims under the reinsurance program. The similar financial requirements of these insurance programs makes this appropriate. The reinsurance program, like the mortgage insurance program, must provide an assurance of prompt payment of claims. In both cases the amount of claims cannot be determined in advance and in normal situations premiums are expected to be sufficient to pay anticipated losses.

The PRESIDING OFFICER. The question is on agreeing to the amendment of the Senator from Georgia. On this question, the yeas and nays have been ordered, and the clerk will call the roll.

The assistant legislative clerk called the roll.

The result was announced -- yeas 10, nays 62, as follows:

[Roll call vote listing omitted]

So Mr. RUSSELL's amendment was rejected.

Mr. SPARKMAN. Mr. President, I move that the vote by which the Russell amendment was rejected be reconsidered.

Mr. TOWER. I move to lay that motion on the table.

The motion to lay on the table was agreed to.