again that the owner carry insurance with a private insurance carrier. That is so, is it not? Mr. BERRY. Yes, sir. Mr. MULTER. I think you have pointed out here that the FHA in trying to sell its properties gives the prospective purchaser a statement of its expenses. Obviously the cost of carrying the insurance. while FHA owns the property is going to be less than that of a private insurer. Mr. BERRY. If it goes into this self-insuring. Mr. MULTER. That is right. Otherwise there would be no point to it if they couldn't save any money. So then they would give the prospective purchaser a statement of expenses, part of which would be insurance at a low rate, and then require this man to go out and buy insurance at a higher rate. And as you point out, there is very grave danger that many of the prospective purchasers may be misled when they read the costs of operation, as to what their costs will be, and I think we ought not to permit any such possibility to occur. Now, you indicate on the last page of your statement, alternative language for this section. Do you think there is any danger that if we don't insert that language, that the FHA may stop insuring these buildings? Mr. BERRY. I would be very surprised, Congressman. I don't think the danger is serious; no. I merely didn't want to be coming before you with an entirely negative position. I wanted to be constructive, if I could. Mr. MULTER. In addition to the fire loss that you insure ordinarily, what other losses are covered by these policies? Mr. BERRY. Conventional extended. Mr. MULTER. Wind, storm damage, water damage? Mr. BERRY. Well, now, water damage, only if the water comes in through an opening. Mr. MULTER. I am not referring to floods. Mr. BERRY. That is correct. Wind, tornado, and the damage consequent from that, plus the conventional other extended coverage. Mr. MULTER. I think you indicated that the agency said that they would not insure their big projects, but that this was intended to cover only the small projects. Doesn't that create a greater risk of loss to the agency by excluding the large projects? Mr. BERRY. Well, I gather they weant they were going to continue to insure them with us. Mr. MULTER. That is the large projects? Mr. BERRY. Yes, sir. Mr. MULTER. Well, if they eliminate the large projects from the self-insurance, and take only the small projects, aren't they creating a greater risk to themselves? Mr. BERRY. Well, they have only then a series of small projects where I think the total mount of premiums is $12,000. I don't think their losses would be very great, but by that time the excuse for this legislation disappears, if they are only going to save $12,000, or that is the most they could save, then, the loss to the States in taxes equals that. 77603-56-26 Mr. MULTER. A single loss could easily wipe out the $12,000 saving. Mr. BERRY. Easily. Mr. MULTER. I do not know who suggested this, but I can't see that it would do anything except cause trouble. I don't think the agency can say there is a saving. There may be a paper saving on the dollars of premiums paid, but then they will have to set up an agency within the department; they will have to have people to run it; and, if the prospective saving is $12,000 a year, I would venture to say their payroll would increase by $25,000 a year. Mr. BROWN. Will you yield? Mr. MULTER. Yes, sir. Mr. BROWN. I concur in what you say. Mr. VANIK. Mr. Chairman. The CHAIRMAN. Mr. Vanik. Mr. VANIK. I feel as the witness does that the Government should refrain from the insurance business if it can be avoided, but what would be your opinion as an underwriter with respect to the plea that is now being made with respect to atomic reactors. The Government is being urged to get into the insurance business for the excessive amount of loss that might be involved in the shifting of an atomic reactor. Is Government to get into the bad business, and avoid the good business? Isn't the insurance industry of this country competent to handle insurable risk with respect to the atomic reactor damage? Mr. BERRY. Congressman, I speak only for property insurance companies; I say that at the outset because there are different kinds of insurance. Now, as to the property-insurance field, we are not asking the Government to furnish insurance on reactors. We expect to cover them. Mr. VANIK. That plea has been made. Travelers and a number of other companies have asked the Atomic Energy Commission to take over liabilities beyond $65 million. Mr. BERRY. Liability insurance? Mr. VANIK. Yes, sir. Mr. BERRY. I am talking about insuring the property. Mr. VANIK. Well, it seems to me that we should either have Government in or out of the insurance business. We can't ask Government to take the bad risks and have private industry ask for the good I think the private insurance industry of this country ought to be able to handle that problem, and face up to it. Mr. BERRY. Congressman, property-insurance business has created a pool of capital-the organization meeting will be the 23d of May——— Mr. VANIK. What would be that pool at the present time? Mr. BERRY. The amount of it? Mr. VANIK. Yes, sir. Mr. BERRY. We expect to have facilities for about $60 million to $70 million, which will be more than enough to cover any reactor that is on the drawing board today, as to any destruction of that reactor. The thing you are talking about is outside the field we are talking about this morning. That is where, as a result of a reactor incident you get a nuclear cloud which causes damage to a great many people. of a large area. That is a form of liability coverage. As I understand the casualty companies' position, they have also set up a pool which will run to some $65 million, where they are perfectly willing to insure that, but because the exposure goes beyond $65 million, because the companies who are going to run these reactors feel that $65 million would not cover what those companies might be exposed to in liability claims, they are asking for protection above that $65 million. But don't get the idea the companies are not willing to write it. They are. It is a question of how much they can write. Mr. VANIK. Let me ask you the same question with respect to flood insurance. There again we have an effort being made in this Congress to get the Government in the flood-insurance business. Do you feel that that is a proper province for governmental activity, as an insurance underwriter? Mr. BERRY. We have some hesitation, about telling Government what we think Government ought to do. If you would phrase your question, do we think that flood insurance is an insurable hazard and leave out any idea that we are telling Government what to do, I would like to answer the question. Could I have it phrased that way? Mr. VANIK. Yes, sir. Mr. BERRY. We don't believe that flood insurance is an insurable hazard for us or anybody else. It is not sound. Mr. VANIK. And that would apply to the Government, too? Mr. BERRY. Yes, sir. Mr. VANIK. In other words, flood insurance would amount to a subsidy or grant? Mr. BERRY. Yes, sir. Mr. VANIK. Thank you very much. The CHAIRMAN. Are there further questions? Mr. WIDNALL. Mr. Chairman. The CHAIRMAN. Mr. Widnall. Mr. WIDNALL. The thought occurred to me that in connection witn the foreclosure of these properties, and the procedure that takes place at that time, wouldn't any savings on insurance actually go to the former mortgage lender, 90 percent of it, rather than to the Government? Mr. BERRY. I don't know. I doubt it. Let's see, the Government acquires the property. At that time the Government is insured, through this insurance company association. We have an automatic pickup to cover the Government. Now, the Government subsequently sells that property. Then that insurance goes off completely. I don't see where the prior owner would come into it. Mr. WIDNALL. How do they base the amount of debentures? Would that include insurance costs? Mr. BERRY. I don't know, sir. Mr. MULTER. May I suggest this with reference to what happens on foreclosure? When the mortgage is placed, the owner of the property, who borrowed the money and gave the mortgage to the lender, buys the insurance, and pays for it. It is his policy, although a policy or certificate may be given to the mortgagee or the lender. Upon foreclosure, that policy is actually the property of the owner of the building, and upon foreclosure he will cancel the policy, and if there is rebate of premium due, it does not go to the mortgagee or the FHA as the insurer of the mortgage, but to the owner of the property. That is why they step in under their automatic policy, the minute the foreclosure takes place, they cover. For a premium, of course. They are supposed to get immediate coverage to avoid any lapse of the insurance. Mr. WIDNALL. How do they fix the amount of debentures involved? Mr. MULTER. That is dependent upon the amount of reimbursement, the balance due for principal and interest and cost of foreclosure, if any. Mr. WIDNALL. It wouldn't include the insurance. The CHAIRMAN. Does the Government issue a policy on this? Mr. MULTER. No; the Government doesn't. The CHAIRMAN. The policy would be issued to itself. Mr. MULTER. If this provision is enacted, then there would be no certificate or policy of insurance. They would simply pay a certain sum into the insurance fund. The CHAIRMAN. When the property is disposed of, there would be nothing to cancel. Mr. MULTER. That is right. The CHAIRMAN. So the Government wouldn't go into insuring property that it doesn't own itself. We are all opposed to that. But it seems to me there is a little distinction. This is the Government carrying the insurance on its own property. Whether that is desirable or not is something for us to consider, but there is no contract of insurance. And there is no insurance on the property when it is disposed of. It is just as though an individual was carrying his own risk. I don't think that could be disputed. Mr. BROWN. Does the Government carry insurance on post office buildings? Mr. BERRY. I understand not, Mr. Brown. The CHAIRMAN. I think the Government carries its own insurance on Federal buildings. Mr. BERRY. It doesn't insure privately. Mr. MULTER. And they have no reserve for losses. The properties are not covered with any insurance, and if there is a loss, the Government merely writes it off. Mr. BERRY. But I would like to take this opportunity to say that that is far from a one-way street. The State of Michigan didn't carry insurance on its own properties either, and one day, with a perfect loss ratio record over a period of years, the State library went up and I have forgotten what the losses were, but they were prodigious. The CHAIRMAN. We are glad to have your views. They will be considered. Mr. VANIK. Mr. Chairman, I want to take this opportunity to express my appreciation to your industry for the very prompt handling in the Cleveland area for the wind and storm damage losses which resulted from last Saturday's heavy storm in Cleveland. Your representatives in Cleveland established special offices to collectively handle all complaints and process adjustments. It was a commendable way of handling the problem. A Government insurance agency would never have acted as expeditiously. Mr. BERRY. I appreciate that. Could I pass that word back to the adjustment bureau? Mr. VANIK. Yes, sir; I think they have been very prompt. Mr. BERRY. Thank you. The CHAIRMAN. Call the next witness. The CLERK. Mr. Morton V. V. White, representing the National Association of Insurance Agents. The CHAIRMAN. Mr. White, you may proceed. STATEMENT OF MORTON V. V. WHITE, MEMBER OF THE EXECUTIVE COMMITTEE, NATIONAL ASSOCIATION OF INSURANCE AGENTS Mr. WHITE. Mr. Chairman, ladies and gentlemen, my name is Morton V. V. White. I am secretary-treasurer of Patt, White Co. of 1142 Hamilton Street, Allentown, Pa. The corporation is engaged in the business of real-estate sales, general insurance, and the placement of mortgage loans. We represent certain life-insurance companies as correspondents and are certified to as FHA mortgage lenders. I am also a member of the executive committee of the National Association of Insurance Agents, an organization comprised of some 32,000 member-agencies upon which not less than 200,000 people depend for their livelihood. It is that group that I represent. I speak in reference to the housing bill of 1947, having been given to understand that section 102 of that bill would amend title I of the National Housing Act by adding a new section 10, as follows: Notwithstanding any other provision of law, the Commissioner is hereby authorized to establish a fire and hazard loss fund which shall be available to provide such fire and hazard risk coverage as the Commissioner, in his discretion, may determine to be appropriate with respect to real property acquired and held by him under the provisions of this Act. Now, gentlemen, for something over 25 years, with the beginning of the functioning of the Home Owners Loan Corporation which worked to the benefit of mortgagees and property owners, the hazard insurance upon properties which fell to the ownership of the Federal Government has been placed through the facilities of a bona fide, qualified, local insurance agent, with the actual coverage being provided by member companies of the Stock Company Association. And incidentally, there are 154 member companies. It is obvious that this practice become so precedented that with the operation of Federal Housing Administration in later years the same procedure was used. It is also pretty obvious that the servicing of the business and the payment of losses have been provided in a satisfactory manner. I should like to talk a bit to the point of servicing. Out of every premium dollar that has been paid by FHA for insurance protection, a certain percentage has gone to the agent in the form of commission for his services. At first blush it might appear that the agent pockets his commission and is through with the proposition as soon as the policy has been delivered and the premium paid. Such, however, is not the case. If you will think with me for a moment, you will understand that an agent has not earned his full commission until the day that the insurance contract is either canceled or has expired. During the policy period he will perform many |