Mr. HUNGATE. In your body shop, you have a place where probably the man elected to come under workmen's compensation. I suppose if your plant or operation should be in one of these inner city areas and you had, let's say, 10 or nine whatever the requisite number of employees would be, you would be required to carry workmen's compensation. I think you have raised a very interesting problem as to who would have the responsibility-the small businessman or whether the company would be entitled to project it. Mr. SAGAN. And certainly when it comes to problems like fire or theft, or the particular illustration I started with, our construction project, essentially a good project in a reasonably sound community, the lines on the map have been drawn. Our net trouble in that project was a broken window of a black merchant at the time of the riots of Dr. King's death. That is the extent of our problem, and yet, we were unable to obtain fire insurance in the normal manner because some insurance vice president 2,000 miles from the scene had drawn some lines on a map, and this problem extends itself into all insurance fields. I used the workmen's example, because it is horrendous. It is clearly awful. If you are sophisticated enough, you have the pool to find your way out of fire insurance problems. But in some areas there is nothing to get, no way out, no pool and nothing available. Mr. HORTON. There is an article in the current issue of U.S. News & World Report, September 21, 1970, called, "Why Is It Harder To Get Insurance?" The author of that article points out it is becoming more difficult along the lines of what your problems are, and they elaborate on some of the instances they investigated. The first one they talk about is a businessman in Atlanta who paid $6,500 in burglary loss before his insurance paid. In other words, he had to pay $6,500 before his insurance went into effect. And after he made the public statement, after he was interviewed, his insurance was canceled. So after that, he didn't get any at all. [Laughter.] Mr. Chairman, I think this is a fairly good article pointing out what the problem is, and I would like to have it made a part of the record. Mr. KLUCZYNSKI. Without objection, it is so ordered. (The article follows:) [From U.S. News & World Report, Sept. 21, 1970] WHY IT IS HARDER TO GET INSURANCE People in suburbs, as well as city folk, face mounting insurance problems. As crime and violence spread, rates shoot skyward on homes, businesses, schools. Homes and businesses in many center-city neighborhoods go without insurance. Campus violence has forced insurance rates sky-high. Colleges now pay as much as a million dollars in damages before insurance coverage begins. Thefts from expensive homes in wealthy neighborhoods are rising. Insurance on homes worth $50.000 or more carries a surcharge in some areas. Federal plan begun since 1967 riots covers some risks, hasn't ended firms' insurance woes. It is becoming harder and harder for many Americans to get and keep insurance on the property they own. Insurance companies are increasingly reluctant to insure homes and businesses in a number of areas where crime and disorder remain a serious problem. In city after city, cancellations of policies on all sorts of property are becoming commonplace, often leaving owners nowhere to turn for protection. Other inner-city property holders, especially businessmen, must pay exorbitant rates or severe penalties to keep some protection. The suburbs are feeling the pinch as well. Even homes in some of America's wealthiest suburbs are now considered poor insurance risks because of the sharp increase in burglaries. RISING RATES These conditions are forcing up insurance costs for all property owners, as State after State approves rate increases requested by insurance companies. In recent months, private-home rates have gone up 25 per cent in Illinois; in New York, 16 per cent; Nebraska, 13 per cent; Arizona, 12-15 per cent. And several other States have had similar increases. Universities are paying stiff penalties to keep insurance in force, as campus violence continues. Many school systems also face having to pay higher premiums because of the rise in vandalism in high and grammar schools. Churches may feel the pressure soon. Insurance officials are concerned about the way many churches serve as gathering places for militant groups. STORE OWNERS' PLIGHT To discover how critical the nation's insurance problems are, "U.S. News & World Report" staff members made spot checks of developments in various sections of the country. Among the findings: On Atlanta's southside, liquor-store owner Donald S. Azar surveyed the smashed plate-glass window in his store-fire-bombed before dawn on August 17. "I had about $5,000 damage and loss," said Mr. Azar, "but my insurance policy doesn't pay any of it. I can't get glass insurance. I have to pay more than $6,500 burglary loss before insurance pays. I've got 100 per cent coverage here--if the place burns down for a total loss-but it's got to be arson." The day after he was interviewed, Mr. Azar's insurance was canceled. Gabriel Rich, owner of William S. Rich & Son, Newark, N.J., told this story: "We require $125,000 of sprinkler-leakage insurance. All we have been able to get is $25,000 coverage for the same price as we had to pay for the full $125,000 before. We have two holdup-insurance policies. We have to split the risk between two companies. The rate charged by one company has gone up 50 per cent. The rate charged by the other company is five times what we paid before the 1967 riots." COVERAGE UNAVAILABLE The Watts Studio Camera Shop, Los Angeles, has changed its whole way of doing business because it cannot get insurance on windows and merchandise. It no longer stocks photographic equipment. A customer is required to order from a catalogue and wait for the merchandise to be delivered. In Houston, businessmen in sensitive areas often do not report small losses for fear their insurance will be canceled and they will not be protected against possible big losses, such as those caused by fire. The insurance of the owner of a row house in Washington, D.C., was canceled even though his home was in excellent condition. When he asked why, the company said the house next door was dilapidated and made the good house a poor risk. In Detroit, an officer of a major insurance company said two kinds of homes face increasing difficulty and expense in getting insurance; low-priced dwellings in high-crime areas, and very expensive residences that are obvious targets for thieves. From a Southern insurance agent : "Some companies take the position that the $50,000-and-up homes are more unprofitable than those in the $15,000-to-$30,000 range. The high-priced homes seem to lose more things or are victimized by thefts. One company came out with a graduated surcharge for homes insured for $50,000 or more. The surcharge on a $100,000 home was 25 per cent." BLOW TO COLLEGES Premiums paid by the University of California, hit by disturbances on many of its campuses in recent years, are five times as high as last year's. And the university must pay out of its own pocket the first million dollars in damages to its property. At Stanford University, the deductible figure for damages shot up from $1,000 a year ago to $500,000 today. The same story is true at colleges and universities all around the country, and some officials fear that the deductibles and premiums will go even higher since the recent bombing of a building at the University of Wisconsin. One insurance man put it this way: "This whole business of social unrest on campuses has caused a lot of companies to pay many claims not anticipated when the policies were written several years ago. In those days, riot insurance was thrown in for an infinitesimal amount. But the riots have changed that. Now a lot of companies will not write college policies." Public schools are encountering the same sort of problem. Chicago schools lost half a million dollars from fires, vandalism and burglary in the first half of 1970-a 50 per cent rise over previous years, according to their insurance firm. Similar reports crop up in every section of the U.S. MORE CANCELLATIONS If evidence of damage to property continues to accelerate, insurance officials say, they will be forced to move even faster in canceling policies or making terms stiffer. "You can't insure a business against burglary when weekly theft is practically a foregone conclusion," explained one insurance-company official. He added: "Homeowners insurance cost us 2.7 million dollars in losses last year, and it's worse this year. That's true all across the country." Insurance companies back up their position with statistics such as these compiled by the industry: Robberies in the U.S. last year rose 13.7 per cent; larcenies, 19 per cent; burglaries, 6.6 per cent. Thefts of all kinds total more than 3.5 billion dollars annually. About half of the stolen goods is never found. The average ghetto retailer can expect at least one burglary a year. Suburban retailers average 29 burglaries for each 100 stores. Loses from fires hit nearly 2 billions in 1969. While riot damage dropped somewhat, it still cost companies more than 31 millions. As loss statistics such as these continue to rise and insurance companies back away from high-risk business, the Federal Government is trying to share some of the burden. Since August of 1968, the Department of Housing and Urban Development has sponsored a program called FAIR (Fair Access to Insured Responsibility), which takes over some of the high risks. It works like this: Any person, business, school or the like that cannot get regular insurance can apply to FAIR. An inspector from the federally backed plan examines the property. If it passes inspection, fire, vandalism and malicious-mischief insurance at a fair rate must be issued by one of the private firms operating through a high-risk pool. If the property fails inspection, the owner must be told what is wrong. By making the required adjustments to pass inspection, he automatically qualifies for insurance. In return for participating in the FAIR plan, insurance companies get from the Government reinsurance on all of their policies covering claims for civil disturbances such as riots. This high-risk program is in operation in 26 States, the District of Columbia and Puerto Rico. All insurance companies in each area must participate, sharing both premiums and claim payments, California has 40.000 policyholders covered by the plan, as does Illinois, Both New York and New Jersey estimate 10 per cent of the fire and property insurance written in these States is under FAIR. Nationally, about 7.5 billion dollars' worth of property is covered. Insurance companies, careful to avoid any federal interference in their business, now concede that subsidies such as FAIR may be the only way to cope with the demands being placed on them. Illinois Insurance Director James Baylor, expressed it this way: "Insurance has been handled on a State-by-State basis, and we'd like to see it stay that way. "We're thinking of forming our own riot reinsurance program, possibly including crime insurance, to replace the present federal program. We think we can do it ourselves." Nevertheless, the efforts of private firms and Government to solve the insurance problem have not been effective to date. Rates keep going up. Cancellations are widespread. Often insurance is not available at all. Mr. KLUCZYNSKI. Bruce, did you read this magazine article? Mr. SAGAN. Yes. In the vandalism area they have started setting deductible provisions, so much percent deductible, like in the auto collision problem. There are problems in the FAIR pool fire insurance. You have a half a million dollars limitation. You know, for a medium-sized department store in the inner city that limitation is impossible, and if you go to a regular insurance company and want to place the other half, and they say who has the first half, you say the pool, that ends it. No more conversation. We lost a major department store on the west side of Chicago precisely because they were unable to hold their insurance position. Mr. KLUCZYNSKI. Bruce, you are not only a good newspaper publisher, you are a very fine witness, and maybe in some of our other investigations in other cities we will have you with us. Mr. SAGAN. Thank you. Mr. KLUCZYNSKI. Mr. Hungate, do you have any questions or comments? Mr. HUNGATE. NO. Mr. KLUCZYNSKI. I imagine that completes the witness list this morning. Is there anybody here who wants to request something of the committee? We are going to meet at 2 o'clock this afternoon. Is there anything to take care of before we go to lunch? Mr. WEIR. The two witnesses in Mr. Dwyer's report, Mr. Hall, from Hall Bros. Furniture and Mr. Wilson Alexander, of Alexander's Exclusive Fashion for Men, are here. Mr. HORTON. Do you gentlemen substantiate the testimony that was given? Mr. ALEXANDER. I am Wilson Alexander, from Alexander's Clothing. Yes, I substantiate it, I substantiate it completely. The mention that was made about insurance, the ability to acquire insurance is bad. To cite an example, the 22d of January of last year, I sustained a $5,000 cost loss on a robbery without a nickel's worth of insurance. Mr. HORTON. You were shot in that robbery, weren't you? Mr. ALEXANDER. At the present time I have sustained four robberies and burglaries. Mr. HORTON. How much have you lost during these four burglaries? Mr. ALEXANDER. The burglaries and robberies have sustained a loss of about $7,500, without a single penny recovery. Mr. HORTON. And you are still staying in there fighting? Mr. ALEXANDER. Well, yes; plus the insurance, plus the extortionit is extortion attempts, because after what happened to me in 1968, I swore that I would never take another chance and let it happen again. I intend to take mine, and I am going to do it to the best of my ability. Mr. HORTON. Mr. Alexander, you are a great American, and I think you have a lot of courage. I want to commend you. If there is any way that this committee or the Small Business Administration can ever help you, you just let us know and I am sure we will do everything that we can to help you. Mr. ALEXANDER. Congressman, gentlemen of the committee, thank you very much. Mr. KLUCZYNSKI. Mr. Hall? Mr. HALL. No, I don't have anything. Mr. KLUCZYNSKI. Mr. Hungate. Mr. HUNGATE. From the testimony I heard this morning, it seems to me that the committee might be advised to question some of the vice presidents in drawing the lines on the map. Do you think that would be a good idea? Mr. HALL, Yes. Mr. HUNGATE. How they justify taking a good risk area and other times not the other risk, and sometimes seemingly arbitrarily declining to write insurance on other areas. Thank you very much. Mr. KLUCZYNSKI. Gentlemen, I want to thank you. We are going to recess until 2 o'clock this afternoon, at which time Sgt. John Kearnes, of the Oakland, Calif., Police Department will be here. So we will recess until 2 o'clock this afternoon. Thank you. (Whereupon, at 12 o'clock noon, the subcommittee recessed, to reconvene at 2 p.m., the same day.) AFTERNOON SESSION Mr. KLUCZYNSKI. The hearing will come to order. The Chair recognizes Mr. Dwyer, the regional director of the SBA. Mr. Dwyer. FURTHER TESTIMONY OF ROBERT DWYER, REGIONAL DIRECTOR, SMALL BUSINESS ADMINISTRATION, REGION V; ACCOMPANIED BY WILSON ALEXANDER, OWNER AND OPERATOR, ALEXANDER'S EXCLUSIVE FASHIONS FOR MEN, CHICAGO, ILL. Mr. DWYER. Mr. Chairman, in my statements this morning I talked about a number of situations that we are personally acquainted with as a result of making financial commitments to various businesses. And on page 14, I will read this description with respect to Mr. Wilson Alexander, for the purposes of introducing him to this committee. Wilson Alexander, who is owner and operator of Alexander's Exclusive Fashions for Men, 8233 South Cottage Grove, Chicago, worked as a clothing salesman for a clothing store on Chicago's South Side. Subsequently, he was employed as the manager of a clothing store at 8233 South Cottage Grove. This store was the outlet of an established clothing store located in the Hyde Park shopping center. On October 21, 1968, the Small Business Administration guaranteed a $50,000 loan from the Hyde Park Bank & Trust Co., to Mr. Alexander to enable him to purchase this store. A SCORE counselor |