Table Of Content/
'
THE AVAILABIUTY OF INSURANCE IN AREAS
AT RISK OF NATURAL DISASTERS
Y4.B 22/1:103-92
The ftvailabilitg of Insurance in Ar...
FIELD HEARING
BEFORE THE
SUBCOMMITTEE ON
CONSUMER CREDIT AND INSURANCE
OF THE
COMMITTEE ON FINANCE AND
BANKING,
URBAN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
NOVEMBER 1993
1,
Printed for the use of the Committee on Banking, Finance and Urban Affairs
Serial No. 103-92
U.S. GOVERNMENT PRINTING OFFICE
73-548CC WASHINGTON : 1994
ForsalebytheU.S.GovernmentPrintingOffice
SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402
ISBN 0-16-046026-3
THE AVAILABIUn OF INSURANCE IN AREAS
AT RISK OF NATURAL DISASTERS
y 4.B 22/1:103-92
The Availabilitg of Insunnce in Ar...
FIELD HEARING
BEFORE THE
SUBCOMMITTEE ON
CONSUMER CREDIT AND INSURANCE
OF THE
COMMITTEE ON FINANCE AND
BANKING,
URBAN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
NOVEMBER 1993
1,
Printed for the use of the Committee on Banking, Finance and Urban Affairs
Serial No. 103-92
--~»
/ .?
U.S. GOVERNMENT PRINTING OFFICE
73-548CC WASHINGTON 1994
:
ForsalebytheU.S.GovernmentPrintingOffice
SuperintendentofDocuments.CongressionalSalesOffice,Washington.DC 20402
ISBN 0-16-046026-3
HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
HENRY B. GONZALEZ, Texas, Chairman
STEPHEN L. NEAL. North Carolina JAMES A. LEACH, Iowa
JOHN J. LaFAIX;E, New York BILL MCCOLLUM, Florida
BRUCE F. VENTO, Minnesota MARGE ROUKEMA, New Jereey
CHARLES E. SCHUMER, New York DOUG BEREUTER, Nebraska
BARNEY FRANK, Massachusetts THOMAS J. RIDGE, Pennsylvania
PAUL E. KANJORSKI, Pennsylvania TOBY ROTH, Wisconsin
JOSEPH P. KENTSTEDY II, Massachusetts ALFRED A. (AL) McCANDLESS, California
FLOYD H. FLAKE, New York RICHARD H. BAKER, Louisiana
KWEISI MFUME, Maryland JIM NUSSLE, Iowa
MAXINE WATERS, California CRAIG THOMAS, Wyoming
LARRY LaROCCO, Idaho SAM JOHNSON, Texas
BILL ORTON, Utah DEBORAH PRYCE, Ohio
JIM BACCHUS, Florida JOHN LINDER, Georgia
HERBERT C. KI.EIN, New Jersey JOE KNOLLENBERG. Michigan
CAROLYN B. MALONEY, New York RICK LAZIO. New York
PETER DEUTSCH, Florida ROD GRAMS, MinnesoU
LUIS V. GUTIERREZ, Illinois SPENCER BACHUS, Alabama
BOBBY L. RUSH, Illinois MIKE HUFFINGTON, California
LUCILLE ROYBAL-ALLARD, California MICHAEL CASTLE, Delaware
THOMAS M. BARRETT. Wisconsin PETER KING, New York
ELIZABETH FURSE, Ort^on
NYDIA M. VELAZQUEZ, New York BERNARD SANDERS, Vermont
ALBERT R. WYN'N, Maryland
CLEO FIELDS, Louisiana
MELVIN WATT, North Carolina
MAURICE HINCHEY, New York
CALVIN M. DOOLEY, California
RON KLINK, Pennsylvania
ERIC FINGERHUT, Ohio
Subcommittee on Consumer Credit and Insurance
JOSEPH P. KENTs^EDY II, Massachusetts, Chairman
HENRY B. GONZALEZ, Texas ALFRED A. (AL) McCANDLESS, California
LARRY LaROCCO, Idaho MICHAEL CASTLE, Delaware
LUIS V. GUTIERREZ, Illinois PETER KING, New York
BOBBY L. RUSH, Illinois DEBORAH PRYCE, Ohio
LUCILLE ROYBAI^ALLARD, California JOHN LINDER, Georgia
THOMAS M. BARRETT, Wisconsin JOE KNOLLENBERG, Michigan
ELIZABETH FURSE, Oregon DOUG BEREUTER, Nebraska
NYDIA M. VELAZQUEZ, New York CRAIG THOMAS, Wyoming
ALBERT R. WYNN, Maryland RICK LAZIO. New York
CLEO FIELDS, Louisiana ROD GRAMS, Minnesota
MELVIN WATT, North Carolina SPENCER BACHUS, Alabama
MAURICE HINCHEY, New York RICHARD H. BAKER, Louisiana
PAUL E. KANJORSKI, Pennsylvania
FLOYD H. FLAKE, New York BERNARD SANDERS, Vermont
MAXINE WATERS, California
CAROLYN B. MALONEY, New York
PETER DEUTSCH, Florida
(II)
CONTENTS
Page
Hearingheldon:
November 1, 1993 1
Appendix:
November 1993 43
1,
WITNESSES
Monday, November 1, 1993
Alvarez, Jose M. 'Tepe," President, Union America Insurance 28
Cisewski, Sharon, President, Space Coast CondominiumAssociation, Inc 6
Cosgrove, Hon. John F., Representative, Florida House ofRepresentatives 10
Fraynd, Paul, President and ChiefExecutive OfTicer, Aires Insurance Co 30
Machnic, John A., Director, Florida ConsumersAction Network 32
McWilliams, Tim, President, McWilliams Marketing, Inc 23
Schlitt, Louis L., President, Schlitt Insurance Services 7
Taylor, Patricia Bums, Executive Vice President, Bamett Mortgage Co 25
APPENDIX
Prepared statements:
Kennedy, Hon. Joseph P., II 44
Alvarez, Jose M. "Pepe" 232
Cisewski, Sharon 46
Cosgrove, Hon. John F 58
Fraynd, Paul 240
Machnic, JohnA 243
McWilliams, Tim 224
Schlitt, Louis L 48
Taylor, Patricia Burns 226
Additional Material Submitted for the Record
Bacchus, Hon. Jim, miscellaneous material submitted fortherecord 247
Cosgrove, Hon. John F.:
Florida Hurricane and Catastrophe Fund, Legislation and Legislative
Analysis/Economic Impact Statement (HB 31 C) 66
Summary ofHurricane Catastrophe Fund Bill (HB 31 C) 78
TextofHB 31 C 83
Hurricane Insurance Solvency and Coverage Package, Legislation and
LegislativeAnalysis/Economic Impact Statement (HB 33 C) 95
STeecxttioonf-HbyB-S3e3ctCion SummaryofProperty Insurance Bill (HB 33 C) 112165
Graphic Illustrations I-XI 193
"AfterThe Storm: AYear In Review", An Intergovernmental Perspective . 205
Schlitt, Louis L., resume 57
(III)
THE AVAILABILITY OF INSURANCE IN AREAS
AT RISK OF NATURAL DISASTERS
MONDAY, NOVEMBER 1993
1,
House of REPRESEhfTATivES,
Subcommittee on Consumer Credit and Insurance,
Committee on Banking, Finance and Urban Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 9:30 a.m., at the
Florida Institute ofTechnology, Melbourne, FL, the Hon. Joseph P.
Kennedy [chairman ofthe subcommittee] presiding.
Present: Chairman Kennedy and Representative Deutsch.
Also present: Representative Bacchus of Florida.
Mr. Weaver. Good morning. My name is Lynne Weaver and I'm
the president ofthe Florida Institute ofTechnology.
It's a pleasure for Florida Tech to host this congressional hearing
upon such an important topic as pertaining to the property liability
insurance brought about by recent national disasters.
We extend a special welcome to the Members of the Congress
and their staff and I commend Congressman Bacchus for his hard
work in putting together this hearing and the work he's doing to
support his congressional district. For that we appreciate that very
much, Jim.
I also want to welcome those who have been on our campus be-
fore and hope that you will return again for other events that we
hold here at Florida Tech.
Again, I welcome each of you and I hope that this hearing will
be very productive for you.
Chairman KENNEDY. The subcommittee will please come to
order.
First of all we thank Dr. Weaver for his opening and welcoming
remarks. We appreciate very much Florida Tech's willingness to
host this important meeting ofthe Consumer Credit and Insurance
Subcommittee here in Florida today.
I also particularly want to thank Jim Bacchus for asking the sub-
committee to come here to central Florida and to investigate many
of the problems that have occurred within the insurance industry.
Peter Deutsch, a new Member of Congress, also deserves tremen-
dous credit for the work that he's done in just a few short months
in the Congress in raising the issue ofinsurance.
I want to particularly thank Jim Bacchus for all ofthe fine work
that he has done on the committee over the course of the last sev-
eral years. I think Jim Bacchus is really one of the finest Members
of Congress that I have had the pleasure to work with. He is so
knowledgeable about every issue, from trade matters to the con-
(1)
cems of residents here in central Florida. He is also very knowl-
edgeable about our subcommittee issues that deal with the banking
industry, with housing loans and with homeowners insurance.
Given the many problems the people across the State have expe-
rienced due to hurricanes and other flooding problems, both Peter
Deutsch and Jim Bacchus have really been tremendous advocates
for working people and for the ordinary citizens of this State. It's
a great pleasure to have both of them on the committee and we're
very much looking forward to their insights here this morning.
This is the second hearing that the subcommittee has held in the
last 6 months on the topic ofinsurance availability in areas at risk
of natural disasters. Today we want to examine what has changed
and what still needs to be done to ensure that Floridians receive
the insurance they need to build stable and secure lives for them-
selves and their families.
I want to thank President Weaver and all ofthose at Florida In-
stitute ofTechnology for hosting the subcommittee and we're grate-
ful for their hospitality.
I particularly want to thank all of the witnesses that are coming
before us today for their testimony. We understand that the entire
State of Florida and all of its legislature is going to be focusing on
the issue ofinsurance this week. I've read about it in several ofthe
newspapers already today and understand the grave concerns that
people have with the huge increase in rates and also with the po-
tential that exists for people to lose their policies.
We also want to acknowledge that many of our witnesses have
traveled far to be here. I understand that Mr. Cosgrove is on his
way and I'm going to ask the panelists to jump right in as the sec-
ond panel, but when Mr. Cosgrove does arrive I'm going to call a
temporary halt to the second panel's testimony. I will then go back
to the first panel, let Mr. Cosgrove testify, and then continue with
the second panel.
It's been said that the only people who can get decent insurance
in this country are the people that don't need it. That has certainly
been true in the area of health insurance. Many now fear that it
is becoming true in the area of property and casualty insurance.
1992 was trie worst year of natural disasters in our Nation's his-
tory. Hurricane Andrew, Hurricane Iniki, and the December storm
that ravaged much of the east coast destroyed over $23 billion
worth ofproperty.
These events have triggered an insurance crisis of unprecedented
size and scope. Millions of Americans in Florida and other States
have faithfully paid their premiums for years and even decades,
and yet they now find themselves feeling abandoned and gouged by
the companies that they trusted for so long. They are being
dropped by the good hands people and the good neighbors are act-
ing more like the McCoys and the Hatfields.
Here in Florida over a half a million residents face the imminent
cancellation oftheir homeowners insurance when the current mora-
torium expires on November 15, and millions more face premium
increases ofanywhere from 40 to 65 percent.
This same pattern of massive dislocation and sticker shock is
emerging throughout the rest of the country, from New York to
California, from Kansas to Massachusetts, and it's having a dev-
astating consequence on the ability ofcommunities to maintain eco-
nomic stability. This is not simply a Florida problem. It's a national
problem. Finding a solution to this crisis will not be easy and vsdll
require all ofus, insurers as well as consumers, and State and local
as well as Federal Governments to work together.
Florida officials, particularly Governor Chiles and Commissioner
Gallagher and Representative Cosgrove, have taken important
steps by imposing the 6-month moratorium on cancellations and
establishing a blue ribbon commission to help shape a permanent
solution.
The commission has recommended several steps that should be
taken if we are going to protect homeowners. First and foremost,
companies should not be allowed to drop customers like hot pota-
toes. Any withdrawals from a State should be capped at 5 percent
of policies enforced for any one year. This is the best way to avoid
a panicky overreaction by insurers to a natural disaster. I'm
pleased to see that this proposal will apparently be submitted by
Chairman Cosgrove to the legislature's special session.
Second, States should require companies to submit business
plans that explain mass cancellations. These plans should be made
public and subjected to public debate. At the very least people
should have a right to know why they are losing their policies en
masse.
Third, insurance company claims about the need to cancel poli-
cies and raise rates should be tested against scientific and impar-
tial standards. Too often State regulators are forced to rely on in-
formation submitted by insurers themselves in deciding whether
they ought to be allowed increased premiums. That's like letting an
accused wrongdoer pick his own judge and jury. States need some
objective standards to test industry claims.
In this regard the Federal Government can be very helpful. Fed-
eral risk assessment and management authorities, such as the Fed-
eral Insurance Administration, the National Hurricane Center, and
the National Oceanographic and Atmospheric Administration have
developed sound computer models to predict the size and frequency
of disasters. Several months ago I asked the National Association
of Insurance Commissioners to consider, locking arms with the Fed-
eral Government to give the States the tools they need. Thus far
the NAIC has been unresponsive and I intend to keep pushing
them.
Last, many people, including several ofour witnesses today, have
called on the Federal Government to establish a national disaster
insurance and reinsurance program. This proposal merits careful
consideration, which we all intend to give it. However, we must
caution against the view that such a program is a cure-all for the
country's insurance ills. If we're not careful it could become a
poison pill for the taxpayer, a massive bailout of the insurance
industry.
As we already know from the savings and loan crisis we do not
want to create a situation where the private sector gets all the
profits and the taxpayer takes all the risk. If we create a program
where the industry gets the gold while the taxpayer gets the shaft,
then all we'll have done is simply replace one problem with another
and solved nothing.
That said, let me now turn to Congressman Bacchus for any
opening statement that he may have.
Congressman Bacchus.
Mr. Bacchus. Thank you very much, Mr. Chairman, and thank
you especially for your kind words. Let me assure you that the feel-
ing is mutual.
Those of my constituents who have taken time to come here
today appreciate your presence as I do and I want them to know
that Joe Kennedy is one of the brightest and hardest working
Members we have in the House ofRepresentatives and he has gone
far out ofhis way to be here with us today.
Chairman Kennedy. The only trouble is, Jim, I've brought Bos-
ton weather with me today.
Mr. Bacchus. We wanted you to feel at home, Joe.
And I'm also very happy to be here with my good friend and col-
league, Peter Deutsch, from Fort Lauderdale in Broward County,
who also represents Monroe County and part of Dade County, in
one ofthose sinewy new districts down there.
Peter Deutsch is new to the Congress this year but he is not in
any way new to the issue of insurance reform. Congressman
Deutsch has formerly served in the Florida Legislature and in the
House ofRepresentatives in Tallahassee. He served as chairman of
the Insurance Committee. He's been a leader already on Chairman
Kennedy's subcommittee on insurance reform issues and we look to
him increasingly in the House ofRepresentatives.
To my knowledge this is the first time a field hearing of the Con-
gress has ever been held in Melbourne, Florida. This is not a town
meeting. This is a field hearing of the Congress. This is what you
would see on C-SPAN except for the fact that it's happening here
and not in Washington. What I've tried to do is bring a part of the
Congress here to my constituents. And Joe Kennedy, through his
kindness and through his interest and passion for this issue, has
made that possible and for that we're grateful.
The witnesses we'll have testifying today are not testifying solely
for themselves. In many respects they are testifying on behalf of
literally tens of thousands of other citizens who live here on the
space coast or somewhere throughout Florida. This is an issue that
is of concern to us on the space coast but also in south Florida,
throughout Florida and throughout the Nation. And, we believe
that our problems are urgent here and that urgent action is needed
in Washington.
I appreciate, again, very much the fact that Chairman Kennedy
has taken the time and gone way out of his way to be here with
us and next time you come, Joe, we'll try to have a little warmer
weather.
Chairman Kennedy. Terrific.
Mr. Deutsch.
Mr. Deutsch. Thank you, Mr. Chairman. And, again, I also want
to thank you and your staff and also Congressman Bacchus. We in
Florida and south Florida like to consider Congressman Kennedy
a Member of our delegation; his family has spent time in south
Florida and I know he spends a great deal of personal time in
south Florida.
