liabilities below $100,000 or below two-thirds of the reinsurance receipts of the Pool during the preceding fiscal year.

(2) The Fund shall pay the Pool any monthly underwriting loss upon receipt of the Pool's statement. For the purposes of this section, an underwriting loss occurs when the combined ratio of losses incurred to premiums earned and expenses incurred (including assessments against members) to premiums written exceeds 100%.

(3) In the event the Fund shall become insufficient to pay its full obligations to the Pool, the Pool shall cease issuing Contracts until such time as the Fund shall have paid all such obligations.

SECTION 15. IMMUNITY FROM CIVIL LIABILITY

There shall be no liability on the part of, and no cause of action of any nature shall arise against insurers, inspectors, any inspecting organization, the Pool, the Board of Governors, the Commissioner or his authorized representatives or the agents or employees, or employers, of any of the foregoing for statements made in any inspections, examinations, hearings, reports and communications concerning eligibility or underwriting standards regarding persons or property in connection with the operation of this Program and the Pool.

SECTION 16. NOTICE OF AVAILABILITY OF BASIC CRIME INDEMNITY

(1) The Pool shall take suitable measures to make known the availability of Basic Crime Indemnity to agents, brokers and the public.

(2) No agent or broker shall decline to place a crime insurance policy or notify prospect of an insurer's declination to write a crime insurance policy without notifying such prospect of the availability of Basic Crime Indemnity. No agent or broker shall decline to submit an application on behalf of a prospect for Basic Crime Indemnity.

(3) Any agent or broker who shall violate subsection (2) of this section shall be subject to suspension of license, and for repeated violations shall be subject to revocation or non-renewal of license, under the procedures of the Insurance Code dealing with licensing of agents and brokers.

SECTION 17. HEARINGS

(1) The Plan of Operation shall provide for prompt and fair hearings and rulings; provided that adjudication of claims under Crime Indemnity Contracts shall remain in the judiciary.

(2) Complaints by applicants and insureds requesting a formal hearing shall be heard by hearing officers designated by the Pool. Such hearings need not be conducted according to formal rules of evidence and no transcript shall be required. The hearing officer shall render a written abstract of the complaint and hearing, and a decision.

(3) Complaints by members shall be heard by the Governing Board or by a member of the bar designated by the Governing Board as hearing officer. Such hearing officer shall furnish a written abstract of the complaint and hearing to the Governing Board. The Governing Board shall render a written opinion.

(4) Hearings on adopting, approving or amending the Plan of Operation, or rules, forms and procedures supplemental thereto, and on petitions or rulings of the Commissioner or the Industry Administrative Committee shall be heard by a quorum of at least four members of the Governing Board.

(5) Hearings under subsections (3) or (4) of this section shall be conducted in accordance with procedures required under the Administrative Procedures and Review Act.

SECTION 18. JUDICIAL REVIEW

(1) Decisions under Sec. 17, Subsections (3) and (4) shall be reviewable under the Administrative Procedures and Review Act.

(2) Petitions for mandamus against the Commissioner, the Pool or its Board of Governors shall be subject to normal requirements for such petitions and, in addition, petitioner shall be required to exhaust the procedures prescribed under Sec. 17, subsection (2), if applicable, before a petition for mandamus shall be entertained.

PROPOSED AMENDMENT

SECTION 9

(3) If, at any time the State shall be obligated to make a payment to the Secretary of the Department of Housing and Urban Development under Section 1223 of the Urban Property Protection and Reinsurance Act of 1968, or any successor act, the Commissioner shall certify the amount of such payment to the State Treasurer, and twenty-five per centum of such amount shall be met by the State Treasurer out of the Crime Reindemnity Trust Fund: provided, however, that no payment shall be made out of the Crime Reindemnity Trust Fund which would reduce the accumulated Fund below $100,000 plus annual premium writings of the Pool in force at the end of the latest fiscal year plus incurred losses for the Pool for the latest fiscal year.

Mr. DEWOLF. I am George E. DeWolf, Jr.. assistant general counsel of the National Association of Independent Insurers. Our association represents over 350 stock and mutual property and casualty insurance companies, which write over half of the automobile insurance written in the United States.

Up to the present time, our companies have not been large writers of crime insurance as most of them got their start in the auto insurance field and have been spending their energies competing and growing in the automobile insurance line. Now, however, many NAII companies are expanding into the property insurance field and, in the writing of personal lines, as distinguished from commercial lines, our companies are bringing new competition to property insurance and becoming significant in the market.

Commercial property insurance has, over the years, been dominated by the old-line stock companies, and, to a lesser extent, by those mutual companies which got their start writing workmen's compensation insurance.

You might say, therefore, that prior to the Hughes panel report, we were only dimly aware that there was a growing demand for crime insurance from the urban merchants.

Over the years I worked for the insurance business, for many years I worked as a buyer prior to coming with NAII, a buyer for a grocery chain, in fact, so I recognize many of the things that some of these gentlemen have talked about. It is a strange thing and a bit bewildering to the insurance business that mercantile crime insurance was suddenly not only in demand but pronounced to be essential to the stability of our cities.

I am not finding fault with this, as I am always pleased to see grow ing awareness of the value of one of our products. Unfortunately, this new appreciation of mercantile crime insurance has come about when losses have turned so heavy that the insurance companies cannot get enough premium to cover them. The HUD Insurance Act, or more properly, the Urban Property Protection and Reinsurance Act of 1968 provided for a report by the Secretary of HUD by June 30, 1970, on the crime insurance availability problem. A few months before this deadline, it became apparent to us that the big writers of commercial crime coverage were not going to propose any new solution but, instead, would stand on the principle that inner city crime coverage would produce a sure loss at any feasible premium and, therefore, it was not truly insurance. It was, accordingly, their position that they could afford nothing, and the problem would have to be solved by the

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Federal Government. We recognized, too, of course, that much innercity mercantile crime coverage could not, practically, be charged a sufficient premium to cover its own losses. Therefore, it could not be written without some form of subsidization. But we felt that our industry was not fulfilling its responsibility to government, State or Federal, and more pointedly, to our citizens, if we did not attempt to apply our expertise to come up with practical suggestions.

Accordingly, our committee set about to develop a program. This program was ultimately approved by our board of directors and publicly announced by the NAII at the first of the meetings held by HUD to receive industry views in preparation for its June 30 report.

In fact, an earlier version of the NAII bill was actually introduced in the Maryland Legislature last year as a countermeasure to an earlier proposition that crime insurance be included under the Maryland FAIR plan. The NAII bill was so well received that even without adequate time remaining in the session for thorough hearings on the proposal; and even with the other insurance trade association asking, not without some justification, for additional time to study the proposal; and even with the confusion created by a mixup in the legislative drafting office which caused every section in the bill to be misnumbered; even with all this, it very nearly passed.

Very briefly, the general outline of the NAII program, which would be enacted on a State-by-State basis in those States where needed, is as follows:

Coverage to be provided will be mercantile safe burglary, mercantile robbery, mercantile open stock robbery, and storekeepers burglary and robbery, with appropriate limits for all merchants. Also, deductibles could be used to cut down on the expense of handling the very small occurrence.

A contract would be issued by regularly licensed insurance companies servicing carriers, and 100 percent reinsured in a pool. Business would originate through regular agents and brokers. Membership in the pool would be voluntary, with certain inducements in the State tax. The Commissioner would have the power, however, to order all licensed companies to join if an insufficient number volunteered. We proposed that coverage would be written with no surcharges for business in the pool. It would be written with the same standard bureau rates for the same coverage in the voluntary market would be used. Commission should be adequate to compensate the agent for his expense, but it should be less than for voluntary market business. I might add, that we deplore a situation such as just described, where the agent stalls around for weeks and weeks trying to place coverage in the voluntary market before they turn to the FAIR Plan. I would think that the State directors of insurance would take a look at this. Of course, business ought to be placed in the normal market if it can be readily placed there. These people shouldn't be delayed so long in getting their coverage.

Eligibility and underwriting standards will be as follows:

The plans will be statewide. Any person or corporation may apply. Initial underwriting standards are to be based on the successful city of Oakland crime reduction ordinance. Burglar alarms should be required for more hazardous occupancies. Experience may dictate additional requirements to avoid fraudulent or excessive losses.

An industry administrative committee, representative of all elements of the insurance industry, would hire employees to operate the pool, and supervise its operation. A board of governors, consisting of State officials, would have ultimate authority over the plan of operation, rules and regulations of the pool.

Funds would be generated by: One, a small initial assessment on members to meet organizational expenses, to be repaid out of subsequent income; two, premium income from coverage written; and, three, a State reinsurance fund, supported by a policy tax on all crime insurance and package policies containing an element of crime

coverage.

The State reinsurance fund would be administered by the State treasurer. It would reinsure the pool against a combined loss and expense ratio exceeding 100 percent. It would be paid a reinsurance premium by the pool equal to any profits of the pool after allowing for retention by the pool of working cash balances. In other words, the pool would not operate at a profit, would not operate at a loss; any surplus accumulated in excess of needs and reserves for future losses would be remitted to the general funds of the State.

To support the State reinsurance fund, a policy or premium tax would be levied on all crime policies and multiperil policies containing crime coverage, including the homeowners policy.

It is not often that a business advocates a tax on its own product, as I am sure you are all aware, but we feel that this is such a serious problem if this is the way-we recognize the difficulty of raising the money out of general funds of course, if this is the only way it can be financed in spite of the burden it would place on our product, our association would be willing to see this avenue used to raise funds.

As an incentive to join the pool, members of the pool would be permitted to keep a small percentage of the tax in reimbursement of their expenses in collecting it and their costs of participating in the pool.

Mr. Chairman, I have attached a copy of our draft bill to the written testimony submitted to you, and I ask that this too be included in the record.

I might add that this is subject to negotiations between ourselves and other associations or State officials and the FIA or whoever might want to talk about this.

We realize that others who are involved in crime insurance and urban crime problems may be able to improve upon our ideas, but we are proud to have taken the initiative in developing and advocating this solution to the crime insurance market problem. We were also pleased to find that when the June 30 HUD report, prepared by George K. Bernstein, Federal Insurance Administrator was published, our program was quite consistent with the fundamentals, if not all the details, of the HUD report.

We think that this report of Mr. Bernstein's is as balanced and as scholarly a statement of the problems and the practicalities for meeting these problems as anyone could hope to find.

We are, of course, aware that the Senate counterpart of this committee has studied the crime problem, too, in all its aspects, and thrown much light on the subject in its landmark report entitled "Crime Against Small Business."

In this report, based largely upon the work of Denenberg, who is a noted insurance professor, it was suggested that an entire metropolitan area should have a uniform crime insurance rate, so that the loss cost of crime in the core area would be spread over the whole.

Representative Annunzio, one of the distinguished colleagues of yours, Mr. Chairman, introduced a bill, H.R. 11512, proposing that the Small Business Administration enter the insurance business to write crime insurance for small businessmen. Later, Mr. Annunzio switched his thinking to his later bill, H.R. 13666 which called, among other things, for writing crime insurance in the FAIR plans, with the Federal Government entering the insurance business only if the States did not open up their FAIR plans to crime.

This provision has now been attached to the Housing subcommittee's recommended omnibus housing bill.

Just this morning I have heard that the Senate Housing Subcommittee is expected to vote out Tuesday its version of the housing bill which will provide that the Federal Government issue direct insurance policies against crime loss where crime insurance is not obtainable by businesses or persons at rates where they can afford. Personally-while we can all sympathize with this objective, I don't know anyone who feels he can afford his insurance, and we have to believe the size of this giveaway will far, far exceed its author's expectations. We believe this sleeper could ultimately prove to be one of the most expensive parts of the whole housing program.

But on a basic level, I am really surprised that after the admonitions the insurance business has received from legislators not to desert its social obligations, the Senate is now considering an insurance program which would obviously become a dumping ground for all the unprofitable crime business, without even requiring 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 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 a program. I understand that, under this porposal, private industry may be given Government contracts to service policyholders, but the Federal Government nevertheless will have to set up what should ultimately be the largest property insurance company in the world.

The management of this new enterprise would certainly entail creation of one of the largest new bureaus on record.

Now, I want to make it clear, gentlemen, that we believe if all other means of solving a serious problem like the crime availability problem are exhausted, then the Government has to step in. But we are offering a reasonable alternative and there may be others also. I should like to add that mercantile crime coverage is by no means the only insurance line in which there are market tightness difficulties.