any contribution from the industry in the form of management, or processing and handling assistance. One major segment of the insurance business is coyly supporting this proposal. I cannot understand why the Senate housing subcommittee would decide on a policy of appeasement to all that segment of the insurance business. The House Banking and Currency Committee has always scrutinized proposals of the big eastern banks very closely, and I am sure it will do the same with the big eastern stock insurance companies as will this Committee.

We are disappointed that any segment of the insurance business would shirk the responsibility to help arrange and administer the program. I understand that, under this proposal, private industry may be given government contracts to service policyholders, but the federal government will have to set up what would ultimately be the largest property insurance company in the world. The management of this enterprise would certainly entail creation of one of the largest new bureaus on record.

On the other side of the matter, we believe that the intrusion of a federal government subsidized corporation into a normal insurance line like burglary and robbery insurance is an extremely serious proposition, and could only be justified after all other means with a reasonable chance of success for solving a market shortage problem have been tried. We are offering a reasonable alternative, and there may be still others.

I should add that mercantile crime coverage is by no means the only insurance line in which there are market tightness difficulties. There is an assortment of such problems in automobile insurance, fire insurance, windstorm insurance, malpractice liability insurance, etc., but these can be and are being met. If the government had decided to write insurance for each of these, I don't believe we would have much of a private insurance industry today.

To those who believe that state government should play a greater role in meeting the crime problem. I suggest that the June 30th Report of the Federal Insurance Administrator, and state-controlled programs, such as the NAII proposes, are the most compatible with state initiative on the crime problem and continuation of state regulation of insurance. An alternative for the Senate version of the housing bill is now being discussed which would give the states a year to act and then provide federal insurance if state action was not taken. I can think of no surer way to sabotage state initiative than to let them know that the Federal Treasury will take over the burden if only they wait a year. This is the worst possible medicine for the inner city businessman because it virtually guarantees that neither a state level or federal level plan will be in operation for at least a year.

Gentlemen, that, in brief, is our position and our plan. We are trying to make a contribution to the solution of this important social problem, and I hope our remarks and explanation may have been of some service to the committee.

The purpose of this Article is to create a program to:

(1) Make basic crime loss indemnity available to persons unable to obtain crime insurance, by establishment of a Crime Indemnity Pool;

(2) Provide for operation of the Pool by licensed insurers, with a state reindemnity funds to enable such basic crime loss indemnity to be offered at standard rates on certain risks which would not otherwise be able to obtain insurance at such rates:

(3) To levy and provide for collection of a Crime Indemnity Tax and to provide for the investment, handling and disbursement of the accumulated funds.

SECTION 2. DEFINITIONS

As used in this Act, unless the context otherwise requires :

(1) "Commissioner" means the Commissioner of Insurance of the State of

(2) "Basic Crime Indemnity" means such coverages as are provided by the following standard policies up to the following specified maximum limits:

(a) Mercantile Safe Burglary, $2,500.

(b) Mercantile Robbery, $1,000.

(c) Mercantile Open Stock Burglary, $10,000.
(d) Storekeeper's Burglary & Robbery, $1,000.

subject to such deductibles as may be specified in the Plan of Operation:
(3) “Crime Indemnity Pool" or "Pool" means the pool formed pursuant to
this Act;

(4) “Basic Crime Indemnity Contract" or "Contract" means a one-year contract for Basic Crime Indemnity issued by or reinsured by the Pool;

(5) "Plan of Operation" means the formal plan of operation of the Crime Indemnity Pool adopted pursuant to this Act, including any duly adopted amendments;

(6) “Board of Governors" means that board designated under the provision s of Section 4 of this chapter;

(7) "Industry Administrative Committee" means that committee elected or appointed pursuant to the provisions of Section 5 of this chapter;

(8) "Premiums written" means gross direct premiums due and charged with respect to insurance including coverages against crime loss in this state excluding (a) policies written solely to cover aircraft, watercraft and motor vehicles and (b) Basic Crime Indemnity Contract writings or reinsurance thereo2. (9) “Fund" means the Crime Reindemnity Trust Fund.

SECTION 3. MEMBERSHIP IN POOL

(1) Within thirty days after the effective date of this Act, the Commissioner shall submit to each insurer licensed to transact property or casualty insurance in this state an agreement to accept membership in the Pool. Such insurers may accept the membership agreement at any time during the initial period, up to the date of issuance of the Pool's first Crime Indemnity Contract. Thereafter, licensed insurers shall be entitled to accept or decline membership in the Pool at the beginning of any Pool fiscal year.

(2) If the Commissioner shall find that an insufficient number of insurer: have accepted membership in the Pool to enable it to function efficiently and without undue burden on the member insurers, he may order all companies writing insurance subject to the Crime Indemnity Tax to become members of the Pool, under penalty of forfeiture of license to write insurance in the State.

SECTION 4. BOARD OF GOVERNORS

The Board of Governors shall be composed of the Commissioner of Insurance, who shall serve as permanent chairman. the State Treasurer, the Attorney General, a member of the Industry Administrative Committee designated by that Committee and a public member appointed by the Governor.

SECTION 5. INDUSTRY ADMINISTRATIVE COMMITTEE

(1) Within thirty days after the effective date of this Act, the Commissioner shall estimate the probable Crime Indemnity Tax of the larger licensed insurers, and shall appoint to the initial Industry Administrative Committee the insurer in each of the following categories having the largest estimated Crime Indemnity Tax:

(a) Insurer organized under the laws of the State of ...

(b) Member of the National Association of Independent Insurers.

(c) Member of the American Mutual Insurance Alliance.

(d) Member of the American Insurance Association.

(e) Insurer not affiliated with the aforementioned associations.

A designee representing the Insurance Commissioner shall also sit as a member of the Industry Administrative Committee.

(2) Thirty days prior to the beginning of the second fiscal year of the Pool, and each year thereafter, the Commissioner shall conduct a written vote of

member companies for election of the Industry Administrative Committee. Returns from members shall be counted by the Commissioner fifteen days after mailing, and an Industry Administrative Committee declared elected on the basis of the member in each of the categories enumerated in subsection (1) of this section receiving the highest number of votes. Members shall be entitled to vote in their aforesaid category, one vote for each dollar of Crime Indemnity Tax paid during the latest period of approximately one year for which records are available. An insurer eligible to receive votes in more than one category shall designate the category in which votes for it shall be tabulated. In the event any elected member should resign or decline to serve, the Commissioner shall appoint the insurer having the next highest vote in the applicable category,

(3) The Industry Administrative Committee shall elect its Chairman, Vice Chairman, and other officers as it shall deem necessary.

SECTION 6. CREATION AND AMENDMENT OF PLAN OF OPERATION

(1) The initial Industry Administrative Committee shall, within sixty days after its appointment, promulgate a Plan of Operation for the Pool, together with such supplementary administrative rules, forms and procedures as are needed, and shall submit them to the Board of Governors for approval. Amendments may be proposed by the Industry Administrative Committee to the Board of Governors from time to time. The Board of Governors shall approve or disapprove the Plan of Operation, any amendments and any supplementary administrative rules, forms and procedures submitted by the Industry Administrative Committee.

(2) The Board of Governors may initiate the Plan of Operation or amendments thereto, or any administrative rule, forms or procedure to supplement the Plan of Operation, which shall become effective either: (a) upon written concurrence of two-thirds of the Industry Administrative Committee or (b) upon publication of the proposed text, thirty days notice and hearing, followed by adoption of the proposal by a majority vote of the Board of Governors.

SECTION 7. CRIME INDEMNITY TAX

(1) A Crime Indemnity Tax is hereby levied on each insurance policy and each Crime Indemnity Contract covering crime loss, excluding policies covering crime loss solely to aircraft, watercraft or motor vehicles, in the following amounts:

(a) On each Homeowners of Farmowners policy, 85¢ per policy per year; (b) On each policy or Crime Indemnity Contract consisting primarily of coverage against crime loss, 6% of the premium ;

(c) On other policies insuring against crime loss, 6% of the premium multiplied by the fraction which the Commissioner determines by actuarial study represents the proportion, for each major type of policy, of policy premium attributable to crime coverage. After the initial study, the Commissioner shall review and update such study at least every three years:

(d) On any policy described in (c) of this section for which the Commissioner has not designated a fraction, % of 6% of the premium. (2) The tax levied hereunder shall be on gross direct premium payments made on insurance policies or endorsements and Crime Indemnity Contracts or endorsements on which premium becomes due sixty days after the effective date of this Act. Gross direct premiums do not include reinsurance or reindemnity premiums. Taxes paid shall not be refundable upon cancellation. Such taxes shall be separately stated on each policy and Contract and shall not be included in any statutory or contractual definition of premiums unless the context so requires.

(3) Each insurer shall be liable for the collection and transmittal of the tax payments received to the Department of Revenue, according to the Department's rules and regulations, within ninety days of the end of the month in which the tax was collected. Late remittances shall be subject to 7% per annum interest plus a penalty of 2% per month or fraction thereof.

SECTION 8. PARTICIPATION AND COLLECTION FEE TO MEMBERS OF POOL Members of the Pool shall be entitled to deduct from remittances for their own account, in reimbursement of the costs and expenses of participation in the Pool and of collecting the Crime Indemnity Tax, 6% of the taxes collected under this Act.

SECTION 9. CRIME REINDEMNITY TRUST FUND-STATE TREASURER TRUSTEE

(1) Taxes remitted shall be placed and held in trust in the Crime Reindemnity Trust Fund by the State Treasurer. Such funds may be invested by him in investments which are legally permissible for general funds of the State and earnings shall be added to the Fund. Upon dissolution of the Program created under this Act and the fulfillment of all reinsurance obligations, the Fund shall revert to the general funds of the State.

(2) Beginning after the report of operations of the Pool for its second full fiscal year, at any time the accumulated Fund exceeds $750,000 plus annual premium writings of the Pool in force at the end of the year plus incurred losses for the fiscal year, such excess shall be certified by the Commissioner and the State Treasurer, and such excess over the amount determined by the above formula shall be remitted by the State Treasurer to the general funds of the State.

SECTION 10. APPLICATION AND CRIME INDEMNITY CONTRACT

As regards application for and issuance of Basic Crime Indemnity Contracts, the Plan of Operation shall provide:

(1) Contracts only for Basic Crime Indemnity shall be provided under the Program. Each application shall be signed by the prospective indemnitee. No applicant shall be denied a Basic Crime Indemnity Contract unless the application is rejected on the basis of underwriting standards permitted by this section: provided further that no application shall be declined on the basis of race, color, ·creed or environmental hazard.

(2) Persons making proper application shall not be denied a Basic Crime Indemnity Contract without an inspection of the subject property by the Pool. Each applicant shall receive a copy of the inspection report with explanation of any improvements necessary to his property or in his procedures or operations in order to qualify for a Basic Crime Indemnity Contract.

(3) Rates for Basic Crime Indemnity Contract shall be the same as insurance rates for voluntary insurance writings of the coverage offered by the Contracts filed by the bureau whose members and subscribers write the largest amount of insurance solely against crime loss in the rating jurisdiction.

(4) Commissions to agents and brokers payable on Crime Indemnity Contracts shall be set by the Plan of Operation. Commissions shall be scaled to provide reasonable compensation to agents and brokers to defray their expenses in placing and handling such insurance but shall be less than commissions which would be paid for placement of such insurance in the normal market, in order to provide incentive for agents and brokers to attempt to place such insurance in the normal market.

SECTION 11. UNDERWRITING STANDARDS

Underwriting acceptance standards shall be included in the Plan of Operation not inconsistent with the following subsections:

(1) All exterior accessible openings shall be secured, subject to applicable fire regulations, to meet the following minimum standards:

(a) Single doors shall be equipped with heavy duty double cylinder deadlocks with case hardened baffle.

(b) Double doors, grate or grille type doors and over-head opening doors shall be secured with suitable angle-iron crossbars, bolts, guide tracks, chains, double cylinder deadlocks or padlocks to provide approximately the same security against ingress or egress as a single door with a heavy duty double cylinder deadlock and case hardened baffle.

(c) Doors, not lighted and readily visible from a street, shall be of heavy guage metal, tempered glass or of solid wood core construction not less than 1" thick, or shall be covered with metal sheeting or grillwork to give like protection.

(d) Outside hinge pins shall be welded, flanged or screw-secured, nonremovable pins.

(e) Padlocks shall be considered equivalent to heavy duty double cylinder deadlocks provided they are heavy duty case hardened with both shanks beveled locking both sides and have a minimum of four pin tumbler operation. (f) Casements, hasps, chains, bolts and other devices shall be of adequate design and be adequately installed, including recessing where necessary, to resist being opened, cut, broken or pried loose by common tools in a period of time reasonably anticipated for accomplishing felonious entry.

(g) Accessible openings exceeding 96 square inches area and 6 inches in the smallest dimension, not lighted and readily visible from a street, shall meet the standards for doors or shall be protected by inside or outside iron bars 1⁄2" in diameter or 1" x 4" flat steel material, spaced not more than 5'' apart and securely fastened, or by iron or steel grilles of "material of 2'' mesh, securely fastened.

(h) Notwithstanding the foregoing, roof top openings need not be secured to prevent opening from the inside.

(i) Exceptional situations, or situations not covered by the foregoing may be provided for by Rule of the Pool, to require comparable security. (2) Central station burglar alarm systems approved by Underwriters Laboratories or other national authority as UL grade A or equivalent shall be required on Mercantile Open Stock Burglary risks classified as Trade Group 5 or higher by the Insurance Rating Board.

(3) Additional reasonable underwriting standards may be adopted by the Pool including, but not limited to, restrictions regarding cash exposures not protected by safes or by independent guards, and restrictions on issuance of Contracts where premises or operations are owned or operated by a person who has been convicted of a felony within three years of the date of application.

(4) Notwithstanding the foregoing subsections, after the end of the second full fiscal year of the Pool, underwriting standards may be modified, based on the purposes of the program and the loss experience of the Pool.

SECTION 12. MANAGEMENT AND SUPERVISION OF POOL

(1) Issuance and servicing of Contracts by the Pool shall be by servicing carriers, which shall be members of the Pool. The Plan of Operation shall provide for 100% reinsurance by the Pool of servicing carriers, for appropriate servicing fees and for retention of reasonable balances by servicing carriers to defray expected cash flow on losses and expenses, and for prompt repayment of assessments on members, if any, out of reinsurance premiums received.

(2) The Industry Administrative Committee shall have supervisory responsibility over the Pool, and shall have the power:

(a) To approve servicing carriers on the basis of qualifications and experience, which approval shall not be unreasonably withheld; provided that the number of servicing carriers may be limited by unanimous vote of the Committee;

(b) To hire a manager and other employees, and to contract for any necessary or desirable services including the entire management of the Pool;

(c) To arrange and contract for inspections;

(d) To provide for servicing and management by regional or national boards or service centers;

(e) To exercise any other power of supervision granted by the Board of Governors.

SECTION 13. GENERAL PROVISION OF THE PLAN OF OPERATION

The Plan of Operation, rules, forms and procedures shall contain other necessary and desirable provisions not inconsistent with the foregoing sections, including but not limited to provisions for economical, fair and non-discriminatory administration of the Pool, for the prompt and efficient provision of Basic Crime Indemnity to applicants, for assessment of all member insurers to defray initial expenses, and for necessary accounting and audit procedures.

SECTION 14. STATE BASIC CRIME INDEMNITY REINSURANCE

The State Treasurer, as Trustee of the Crime Reindemnity Trust Fund, and the Pool shall enter into a contract of reindemnity which shall include provisions to the effect that:

(1) The Pool shall, within six months after closing its books on a fiscal year, pay as reindemnity premium to the Fund any accumulated amount of combined earned premium and investment income plus reindemnity payments received from the Fund, which is in excess of assessments repaid or to be repaid to members and accumulated losses and expenses incurred; provided, however, that the Pool shall not owe the Fund reindemnity premiums if and to the extent that payment of such premium would reduce the Pool's current assets in excess of