Senator WILLIAMS. What companies do you speak for that might do business in the State of New Jersey for example?

Mr. LEMMON. I suppose some 85-75 or 85. I do not have a list. I will be glad to

Senator WILLIAMS. No, that is not important. I just wanted toMr. LEMMON. Some of the larger ones, some of the domestic companies

Senator WILLIAMS. Give me a name or two I might recognize.
Mr. LEMMON. Allstate, State Farm, Nationwide.

Senator WILLIAMS. They are part of the

Mr. LEMMON. Motor Club of America Insurance Company, in Newark. Government Employees, and others.

Senator WILLIAMS. Those companies were listed under the proposed Association of Flood Insurers.

Mr. LEMMON. Some of them. Not all of them.

Senator WILLIAMS. Well, you mentioned State Farm.

Mr. LEMMON. Yes sir.

Senator WILLIAMS. And Allstate?

Mr. LEMMON. Yes sir.

Senator WILLIAMS. So in part they have been spoken for by our first group?

Mr. LEMMON. That is true. We have cooperated in the discussion of this pool arrangement.

Senator WILLIAMS. I have never seen such a community of interest. It is very reassuring.

Have we got a chair for you, Mr. Coates?

Mr. COATES. I can bring one with me.

Senator WILLIAMS. You are on the panel. This is Mr. Coates from the National Association of Insurance Agents. You are the fellows that do the work; right?

Mr. COATES. Yes sir.

Mr. LEMMON. Mr. Chairman, my name is Vestal Lemmon, and I am general manager of the National Association of Independent Insurers with headquarters at 30 West Monroe Street, Chicago, Ill.

Senator WILLIAMS. Where is your home, sir?

Mr. LEMMON. I beg your pardon?

Senator WILLIAMS. Where is your home? Where are you from? Mr. LEMMON. Wilmette, Ill. You would think from my accent I am probably from New Jersey.

Senator WILLIAMS. Well, no. As a matter of fact, your name sounds like it comes from North Carolina.

Mr. LEMMON. I am from Texas originally.

The National Association of Independent Insurers is an insurance trade association with membership of 350 insurance companies of all types including stock and nonstock companies writing property and casualty insurance.

I have with me today on my left Arthur Mertz, general counsel for the NAII, and on my right P. G. Buffinton, vice president of the State Farm Fire & Casualty Co., Bloomington, Ill., who is chairman of our flood insurance committee.

Our association has a vital interest in flood insurance. Many of our companies insure private dwellings under fire, allied lines and homeowners policies and one or more of our companies is providing such

coverage in every State and in the District of Columbia. Our interest, therefore, is not regional but encompasses all areas of the United States.

Our association and a number of our member companies have been active during recent years in trying to find a solution to the flood insurance problem. Hopefully, the passage of suitable legislation by the Congress of the United States will make it possible for the insurance industry, in cooperation with the Federal Government, to make flood insurance available to a large number of persons. Our purpose here today is to lend our support to such an effort.

A great deal of time could be spent in reviewing our association's activity in the flood insurance field during recent months and years, Others have testified or will testify in greater detail concerning such activity by industry groups with which we have been closely associated, and in the interest of brevity we will refrain from a complete discussion at this time. However, we do wish to call the committee's attention to the following points:

1. Our association has cooperated with the Department of Housing and Urban Development in their present study of the flood insurance problem. In this connection, we were represented on the Advisory Committee on Studies of Natural Disasters which worked with the Department on this study.

2. In an effort to acquaint our member companies with the flood insurance problem and to solicit their support of a workable program, we canvassed our membership early this year to determine their interest in the writing of flood insurance. Their responses indicate that a substantial number of our companies will participate in a flood insurance program which involves a joint effort by the insurance industry and the Federal Government.

3. The National Association of Independent Insurers has cooperated with the National Association of Insurance Commissioners in their efforts to develop a workable flood insurance program. Our representatives have worked closely with the hurricane-flood and related insurance subcommittee of the NAIC-the most recent meeting of this subcommittee having been held on June 12, 1967 in Boston, Mass.

4. A number of our member companies have been active in the organization committee of the proposed Association of Flood Insurers and our association has been represented at the meetings of this organization committee.

Although the National Association of Independent Insurers has worked actively with other industry groups in seeking a solution to the flood insurance problem and although we are in basic agreement with many of the proposals submitted to this committee, we would like to briefly describe the basic structure of a flood insurance program which our association favors at the present time.

1. Because of the catastrophic nature of floods, the insurance industry will require strong Federal support including a Federal program of excess loss reinsurance. Necessary legislation should include provision for the prompt payment to the insurers of any funds due from the Federal Government.

2. The insurance industry participation in this joint endeavor should be through an insurance pool. Our association has a diversified membership in terms of size of company-large, medium, and small--and we

favor a plan which would permit the widest possible participation in the pool.

3. The excess loss or stop loss reinsurance provided by the Federal Government should limit the total underwriting loss which the flood insurance pool can sustain in a single year. Such arrangements will require further study and negotiation, and we would favor legislation which would provide the responsible governmental agency with authority to negotiate such terms.

4. Premium rates must be based on sound actuarial principles and should be established by joint industry and Government effort after a careful review of all available data. The method of rating the individual dwelling properties should be kept as simple as possible to keep expenses at a minimum.

5. Provision should be made to allow the pool an adequate profit in those years when premium income exceeds losses and expenses so that the pool participants can establish reserves for those years when an underwriting loss is sustained.

6. We favor a program which would initially limit coverage to oneto four-family residential properties with provision for possible extension to other properties at some future date. In order to provide the widest possible spread of risk and, at the same time, limit the total amount of outstanding insurance, we favor an initial limit of liability per risk—perhaps in the order of $15,000 for a single-family residence. 7. A broad interpretation of "flood" is desirable in order to eliminate as many conflicts as possible with existing dwelling coverage forms and to make the coverage readily understandable by the public. Adequate deductibles are needed to eliminate small water damage claims and keep the cost of insurance as reasonable as possible. A standard flood insurance policy form should be promulgated by the flood insurance pool in consultation with the Federal agency.

8. We contemplate a plan which will permit our companies to use their existing facilities including their present marketing, claims and policyholder service organizations.

Before testifying specifically with respect to the administration bill or any other particular measure, we of course will want to have an opportunity to review such measures carefully.

Mr. Chairman, this statement was prepared last Friday. I had the opportunity to see S. 1985 for the first time last evening. And I noticed in hurried review of that bill that

Senator WILLIAMS. Everything you mentioned is in the bill.

Mr. LEMMON. I believe many of the basic points are covered in it, Senator.

Senator WILLIAMS. You either wrote it or you are very clairvoyant. Mr. LEMMON. Well, I appreciate the compliment. I am fearful that I had nothing to do with the writing of it though, Senator.

Senator WILLIAMS. Where did you get the $15,000 ceiling coverage? Mr. LEMMON Well, that had been discussed.

Senator WILLIAMS. That is in the bill.

Mr. LEMMON. I had not seen the bill until last evening. We had discussed it. I think some of our people had. You had to Mr. Buffinton. Mr. BUFFINTON. It has been in the insurance press, Senator. Senator WILLIAMS. Mr. Kaplan

Mr. KAPLAN (HUD). Yes, sir?

Senator WILLIAMS (continuing). You have listened to the key testimony. Wouldn't you say most of the points covered by Mr. Lemmon are in the legislation?

Mr. KAPLAN. Yes. I believe a good deal are. And they probably reflect, sir, the discussions which have been going on between Government and industry.

To that extent, while the precise language may not have been seen, because of certain restrictions under which the executive department has been placed, there was a good deal of discussion about the substance of the legislation itself.

Senator WILLIAMS. I am beginning to get a little uneasy about this bill. Everybody seems to agree. That is dangerous around here. Because normally we have to have a little controversy to sort of hone the edges of our legislative sword.

Mr. LEMMON. Well, you stay around in the insurance industry a few months, Senator, and I think you will be able to find a little controversy in certain areas.

Senator WILLIAMS. Where is that going to come from?

Mr. LEMMON. Within the industry there has always been-in a competitive industry there is bound to be controversy.

Senator WILLIAMS. But not on this bill?

Mr. LEMMON. Not on this bill.

Senator WILLIAMS. Competition on the basis of writing business. Mr. LEMMON. There may be some details we would like to discuss. Basically it seems all right. We would certainly want to check it further. We have not had an opportunity to do that.

I would suggest, Mr. Chairman, that the committee I note that you have a provision in there for encouraging the provision of a pool arrangement, which we suggest is one of our points and others in the industry. I think, Mr. Chairman, that your committee should explore or determine if possible if private participants in this pool would be free of infringement of the antitrust laws.

Senator WILLIAMS. I'm glad you raised it, because the administration has analyzed that point, and it is a worthy point, and it is their conclusion that the antitrust laws would not apply. Am I right, Mr. Kaplan or Mr. Meletzke

Mr. MELETZKE. That is right. And I believe the Department of Justice may file a statement with the committee. (The statement appears on p. 247.)

Mr. LEMMON. That will be fine, because that is the next thing I was going to suggest.

Senator WILLIAMS. I'm glad you raised it.

Mr. LEMMON. That perhaps you would want an opinion on that point.

Senator WILLIAMS. All right, sir.

Mr. LEMMON. I think we would hate to get into doing something good and find ourselves in violation.

Senator WILLIAMS. There is precedent for this type of approach where the insurance companies work together to make insurance available. I do not know if it has ever been tested before in the courts, but it is working.

Mr. LEMMON. I want to thank the committee for the opportunity to present our views, and we will be glad to cooperate with you at any

Senator WILLIAMS. Well, it is an excellent statement, and we are grateful to you.

You came from Chicago for this hearing?

Mr. LEMMON. Yes, sir.

Senator WILLIAMS. One of your independent members is the Allstate Insurance Co.?

Mr. LEMMON. We have about 350 or 360 companies, Senator.
Senator WILLIAMS. Allstate is one?

Mr. LEMMON. They are a member; yes, sir.

Senator WILLIAMS. A lot of people in insurance seem to end up in Wilmette. My first administrative assistant is with Allstate and lives in Wilmette, Fred Gassert. Do you know him?

Mr. LEMMON. I know him very well.

Senator WILLIAMS. Do your colleagues have anything to add?
Mr. LEMMON, No.

Senator WILLIAMS. Now, Mr. Neil D. Coates, speaking for the National Association of Insurance Agents.

We are pleased you are with us.

You came all the way from Miami, Fla. for this hearing?

STATEMENT OF NEIL D. COATES, NATIONAL ASSOCIATION OF INSURANCE AGENTS; ACCOMPANIED BY MORTON V. V. WHITE, VICE CHAIRMAN, FEDERAL AFFAIRS COMMITTEE

Mr. COATES. Yes, sir.

Senator WILLIAMS. You know, I think it should be noted in the legislative process people really extend themselves and travel long distances at your expense, not ours. We did not voucher you in, did we?

Mr. COATES. No, sir. We are glad to be here.

Senator WILLIAMS. This kind of cooperation obviously is necessary, and we greatly appreciate it.

Mr. COATES. Mr. Chairman, my name is Neil D. Coates. I am an independent, contract, insurance agent of Miami, Fla. My firm represents six different fire and casualty companies, some of which have -expressed their intent to participate in the Association of Flood Insurers Pool which would be created by S. 1985, some of which have not.

I am here today as a special representative of the National Association of Insurance Agents, a federation of 50 State associations with a total membership of some 36,000 member agencies, and approximately 165,000 duly licensed individuals.

I am accompanied by Morton V. V. White, of Allentown, Pa., vice chairman of this association's Federal affairs committee and Maurice G. Herndon, Federal liaison of our national association.

For the record, an independent, contract, insurance agent places the insurance which he sells with the company of his choice from among those which he represents, and acts as fiduciary agent for his principals. He maintains the office of his choice and finances the cost of his operations from the commissions he derives from his sales efforts. Since the mid-1950's we agents have watched with interest the attempts made by industry and Government to accommodate the need of the public for indemnity for loss through the hazard of flood. The