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Senator LEHMAN. That is a little different from nuisance claims. I thought what you meant by that was the same thing that is I think included in some automobile policies that if a man has his car damaged he bears the first $50 or $100 and then the balance, of course

Mr. PENNY. That is deductible. Yes, sir. That is a little bit different from coinsurance, but it is a deductible insurance.

Senator LEHMAN. What you propose is just coinsurance? In other words, a man has a house that is worth $10,000, but on, let's say, 60 and 40 percent, as you just mentioned, he could only collect $6,000? Is that correct?

Mr. PENNY. Yes, that is right. If he had 60 percent of coinsurance, he would have to carry enough insurance in order to carry that amount, 60 percent. If he didn't, he would be penalized just like he would be on any mercantile building.

Senator LEHMAN. I am not clear on that. Suppose he has a $10,000 house? Would he have to take, say, $16,000 worth of insurance out before he could collect $10,000?

Mr. PENNY. No, sir.

Senator LEHMAN. He would take a $10,000 policy on a $10,000 house, and if the house was destroyed what would he get?

Mr. PENNY. He would collect 60 percent of his amount. In other words, he would be penalized if he didn't carry the full coinsurance, which would be the 60 percent.

Senator LEHMAN. Of course, that extra 40 percent, the cost of that 40 percent, would have to be added to the cost of the policy, would it not?

Mr. PENNY. That's right. If he knew he was going to lose $4,000, I think he would give much more concern to his residence.

I might cite you a personal case. I had a cousin whose house was completely washed away during Hurricane Hazel. They built back, and they built the house up on 23-foot poles. I think they sunk the poles in the ground about 7 or 8 feet. This year when the three hurricanes came along, their house was not damaged at all.

So I think if those who build their homes would give consideration to the storms that are apt to come upon them, I don't think the losses would be near as great.

Of course, a loss sufficiently high to eliminate nuisance claims I think is very easily understood. Nobody wants to fool with $10 and $25 and $50 claims. We would suggest about a $100 deductible there to do away with nuisance claims. It just takes too much time and is too expensive for adjusters to handle these nuisance claims.

Senator LEHMAN. What do you mean by "proper encouragement of adequate building codes in storm areas"?"

Mr. PENNY. Well, that is just along the lines I was talking on. I think there should be building codes set up by the counties whereby people would have to abide by them in building their homes, particularly along the seacoast or the waterfront. That would, of course, have to be worked out by the different counties, or maybe the State could make out a code whereby people would have to build according to that code. That is no more or less than a protection against storms that we might have.

Senator LEHMAN. No. 6 is the inclusion of all catastrophe perils, including flood, in any insurance policy offering protection of prop

erty.

How far would you go in that? How much would that cover in the way of catastrophe!

Mr. PENNY. Well, I think, Senator Lehman, that we of North Carolina are not selfish enough to feel that only North Carolina should be protected on these hurricanes, because every State along our coast has suffered from them. Connecticut had the floods. We feel that it should cover all catastrophies, including war-risk insurance. Senator LEHMAN. Including manmade?

Mr. PENNY. That's right.

Senator LEHMAN. Including atomic attack?

Mr. PENNY. That's right; yes, sir.

Senator LEHMAN. Would it include earthquake and tornado?

Mr. PENNY. That is one of my pet subjects. I have always been strong for earthquake insurance. I think we should have it, because we do have earthquakes.

Senator LEHMAN. I didn't get the last.

Mr. PENNY. I say earthquake is one of my pet subjects. I have always been strong for earthquake insurance, and I think we should have it because we do have earthquakes.

Senator LEHMAN. Those are all covered in the bill I have drafted.
Mr. PENNY. Yes, sir.

Senator LEHMAN. Then you say that insurance can best be afforded to the public through the private insurance system rather than directly through Government and that you offer your full support to such a program. Would you feel that the work of writing these policies and adjusting claims should be the responsibility of the insurance companies?

Mr. PENNY. I certainly do; yes, sir.

Senator LEHMAN. Would you feel that they should be given a fee? They wouldn't be entitled to a fee if there was reinsurance. I mean a fee outside of what they may get as part of their writing of the policy.

Mr. PENNY. Are you speaking of the agents now? A fee to the agent?

Senator LEHMAN. Well, of course, they would get the fee as agents. There is no doubt about it. But they wouldn't get that necessarily from the Government; would they?

Mr. PENNY. No: I wouldn't think so. I think that would be paid by their companies.

It's the general belief by the public that insurance companies cannot write catastrophe insurance. I go way back to one time they thought they couldn't write wind insurance, but they finally did. This thing can't be worked out overnight. It's going to take some time. But I think that the companies can handle it under the sugges tions that we have laid down here, and I believe they would handle it. Senator LEHMAN. I am going to ask you one more question which you may or may not be able to answer. Obviously at some stage of the game we'll have to sit down with the insurance companies and try to work this thing out.

Mr. PENNY. That's right.

Senator LEHMAN. Even after we arrive at a general policy. There are a great many different kinds of insurance companies. There is the mutual insurance company. There is the privately owned insurance company. I suppose there is the fraternal insurance company.

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There are different types of insurance companies. We have heard in a general way from a number of them. Yours is a mutual?

Mr. PENNY. That's right.

Senator LEHMAN. But you have nothing at all to do with the private ones?

Mr. PENNY. No.

Senator LEHMAN. Is there any organization-outside of the Commissioners of Insurance in the States-which represents all the insurance companies that you know of?

Mr. PENNY. No, sir, I don't think so. I think the American Mutual Alliance represents the mutuals-all the mutuals. And one of the stock

Mr. MCKENNA. National Board of Fire Underwriters.

Mr. PENNY. That's right, the National Board of Fire Underwriters. Senator LEHMAN. Do all these insurance companies write the same kind of policies? For instance, do they all write tornado insurance, fire insurance?

Mr. PENNY. Well, it's more or less of a standard policy that all companies write at this stage. We operate under the New York State 1943 contract I believe it is.

Senator LEHMAN. But there is no one headquarters?

Mr. PENNY. No, sir.

Senator LEHMAN. I was thinking about Mr. Herd, who I think represents the mutual companies; doesn't he?

Mr. PENNY. He represents the stock companies; the stock.

Senator LEHMAN. The stock companies. He represents the stock companies. He has submitted a memorandum. A number of these other insurance people like yourself represent mutual companies. I find the mutual companies vary to some extent among themselves. The stock companies certainly do. I was simply looking for information, because it would be so much easier to discuss this thing intelligently and rapidly with some one accredited group that could represent all the different kinds of insurance companies.

Mr. PENNY. Yes, sir.

Senator LEHMAN. But you don't know of any?

Mr. PENNY. I don't know of any at all, Senator.

Senator LEHMAN. Have you questions, Mr. Edelstein?

Mr. EDELSTEIN. I have a couple. I don't think you ever answered precisely what we in the commitee family call the Yaffe idea. Do you see any objection on the part of the agents of North Carolina to the idea of selling insurance that would cover the top area and let the Government write $15,000 and $100,000 policies and the private insurance companies write $15,000 deductible and $100,000 deductible? Would you see any objection to that from your point of view?

Mr. PENNY. Well, I don't think I could answer that intelligently because I haven't really discussed it with the members of the association. I could not answer for them.

Mr. EDELSTEIN. As an insurance man yourself, sir.

Mr. PENNY. Well, I'm "insurance" enough to believe that under the suggestions that we have laid down here that the insurance companies could write up to a certain percentage of insurance. I don't think the agents would object to the companies reinsuring with the Government at all, if that answers your question.

Mr. EDELSTEIN. Well, that is the proposal that is laid down in your memorandum, the reinsurance.

Mr. PENNY. That's right.

Mr. EDELSTEIN. But I think you testified, did you not, that you expected that the rates even under such a plan would be a little on the high side?

Mr. PENNY. I think they would, yes.

Mr. EDELSTEIN. Then if the Congress should decide-and, of course, the committee has not come to any kind of meeting of the mindsbut, hypothetically, if the Congress should decide that in order to assure a lower rate, which admittedly would be a subsidized rate, for this lower component of the insurance, would you see any difficulty in the insurance companies selling the top, above $100,000 and above $15,000?

Mr. PENNY. None whatever.

Mr. EDELSTEIN. Again from your experience in North Carolina, do you think-putting aside this question of what kind of insurance there would be, of how it would be managed, whether by reinsurance or by coinsurance-there would be widespread demand in North Carolina for a disaster insurance?

Mr. PENNY. I think I could answer that without any hesitancy. There would be, yes.

Mr. EDELSTEIN. I gather, and I just want it for the record, that you think that the policy ought to be a comprehensive policy, so that you could sell it to the hilltop people as well as the valley and the seaside people?

Mr. PENNY. That's right.

Mr. EDELSTEIN. Just to clarify one other point that I think is pretty clear in the record but I'd just like to make sure, your association's recommendation-that is, the North Carolina Association of Mutual Insurance Agents-is that there would be a certain figure set, and, of course, it would have to be set by law or by the administrative agency, of the total liability for each catastrophe for the insurance companies.

Mr. PENNY. That's right.

Mr. EDELSTEIN. All above that would be absorbed by the Government through reinsurance.

Mr. PENNY. That's right.

Mr. EDELSTEIN. Do these views reflect the views of the National Association of Mutual Insurance Agents or just the North Carolina Association?

Mr. PENNY. Mr. Hugh Murray of the National is a scheduled witness here today, and I think he could answer that better than I could.

Mr. EDELSTEIN. All right.

We did not have listed as a witness a Mr. Stringfellow, but there is a statement here from him. He is of your same asssociation! Mr. PENNY. I think I could explain that. Mr. Murray had to leave, and he was afraid if he did not get back in time he could not appear, so he asked our executive secretary to read his statement.

Mr. EDELSTEIN. This, then, will represent the national association? Mr. PENNY. Yes.

Mr. EDELSTEIN. Mr. Stringfellow will read it if Mr. Murray isn't here?

Mr. PENNY. Yes.

Mr. EDELSTEIN. That is all my questions.

Senator LEHMAN. Mr. Rogers?

Mr. ROGERS. I would like to ask a couple of questions.

One difficulty we have had, I think, in going around the country is trying to find out what exactly is available now in insurance coverage. For example, in North Carolina could a person buy earthquake insurance today?

Mr. PENNY. No, sir.

Mr. ROGERS. Nobody would write it?

Mr. PENNY. NO. I don't know whether Lloyds of London would, but that's about the only one, if they did.

Mr. ROGERS. What about hailstorm?

Mr. PENNY. We have hail insurance on crops and damage to houses, of course.

Mr. ROGERS. Your extended coverage is a standard policy which takes care of mostly wind damage?

Mr. PENNY. It has about nine coverages. Wind, I think, is the main one.

Mr. ROGERS, Since you have had in the beach area so many hurricanes in the last 2 years, so much damage, will those people in that area now be able to get extended coverage when their present policies expire or new homes are built in that area? Or will the companies not write that type of insurance any more because it is too risky?

Mr. PENNY. I don't think I could answer for all companies. I would say, in general, yes; they could get it. Some companies may not want to write it.

Mr. ROGERS. Should we take that in consideration then when we draft our disaster bill? To take care of these instances where the present insurance companies write it but after a certain number of risks and damages they will cease to write it? Shouldn't we take care of that situation also, such as in an area that has been hit by hurricanes so many times?

Mr. PENNY. I think there was some talk about one or two companies pulling out from the beach areas just before the last hurricane came in, but I think that was misconstrued. I think the companies had decided against writing windstorm before the last hurricane came in. That just applied to two companies, as I recall. But, of course, all companies have their underwriters. Some of them are more lenient than others. Some of them are real hardboiled, and some of them will write anything.

Mr. ROGERS. As I get your thinking on this, you would have a comprehensive policy which would take the extended coverage and extend it further and include these things that are not now covered, such as earthquake and water damage and so forth.

The only problem that comes to my mind is this: Don't we have to be careful as to how far we go so that we don't get into fields where there is insurance now available in other words, not get into competition with the private insurance companies with a Government program?

Mr. PENNY. Of course, there is always danger of that. But right at present the extended coverage, as I said a moment ago, covers about nine coverages. That could be enlarged. They could include wavewash, manmade catastrophe, as well as earthquake. It could be.

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