from the form of lack of financial investment back into the commu-
nities and especially from the larger insurance companies that are
out there today.
Again, I think that the insurance companies and bonding compa-
nies that are associated from a public perspective as well as from
a business perspective should also be included in the Community
Reinvestment Act for the entire good of those that tend not to be
able to benefit.
Chairman Barrett. OK. I appreciate your testimony.
Juckem, to be followed by Sue Gramling.
STATEMENT OF ELWOOD JUCKEM, INSURANCE
UNDERWRITER [RETIRED], WAUKESIIA, WI
Mr. JucKEM. Grood afternoon. It is aflernoon, isn't it. I thank you
for hearing me. My name is Elwood Juckem, J-u-c-k-e-m. I live in
Waukesha, Wisconsin. I am a retired insurance person that has
been proximate to this issue for about 42 years. Eighteen of those
years were as a company underwriter with a big company, the
Aetna Life and Casualty, 24 of those years subsequently were on
the consumer side in the agency business of one of the largest
agencies in the city.
I will read this fast; it takes about 5 minutes.
The word "redlining" requires that we try to identify when prop-
er underwriting selection becomes discriminatory and the allega-
tion of redlining emerges. Lest we forget very quickly, the theory
of insurance and insurance companies involves a pooling of assets
by groups of people to enable them to undertake the risks of busi-
ness of driving autos, flying planes, of living in general.
I think we forget that the insurance company is the trustee of
those pooled funds, the people's funds, that must be available for
The insurance company is all of us. We are all the insurance
company. If the insurance company is to do business and exercise
its fiduciary responsibility, it has a duty to both sides of the issue:
One, to provide a product available to all normal, not necessarily
perfect, but normal insurance risk situations; two, on the other side
of the coin, to protect the assets entrusted to it by the public from
abnormal or fraudulent situations; three, to devise a method to
identify price and insure abnormal situations, while providing a
product on a reasonable basis to as many as possible within the pa-
rameters of viable cost. It has a duty to reframe from imposing pre-
dictably adverse results upon the experience of the group.
It is a fact that certain geographic areas, such as urban inner
cities, rivers, and coastal flood planes, dry mountain areas, hurri-
cane areas, and so on, have persistently produced abnormal, even
catastrophic insurance results, and I would submit, sir, that as our
population increases and there is more and more pressure to build,
locate, and live in highly vulnerable areas, a problem of alleged
redlining is going to increase, not decrease. We have recognized
that condition with Federal flood insurance, disaster relief, and the
Now, the use of ZIP Codes or some sort of area identification is
a useful, if imperfect, attempt to identify experience by geographic
area. It attempts to prevent the adverse results of one area being
shifted to areas of good experience.
Now, the idealistic solution would be to spread all results across
the entire populace. I can assure you, sir, from many years of deal-
ing with the individual public, that the rural insured will not sub-
sidize the suburban insured, the suburban insured will not sub-
sidize the inner-city insured voluntarily. If you do it, you are going
to have to do it forcibly.
It would be nice if we could spread the risk across the entire pop-
ulation on a general basis, but my assessment of longstanding is,
as of now, I don't think the political climate exists to get that done.
In any event, if you do force the adverse experience of one group
or area upon the general population, which is probably the ideal
thing to do in some ways, it is just another form of social taxation
using insurance as a conduit. So if we are going to do it, lets get
it up on the table and identify that is what we are doing.
Now what to do? There were some discussions here about areas,
and using the format of flood insurance which maps and predeter-
mines flood risk by degree, I suggest that the State, along with the
insurance industry and the fire and law enforcement people, pool
their statistical information literally by making map overlays and
they will identify and agree to areas of abnormal risk.
This would relieve— in fact, it would take away from the insur-
ance companies the burden of area designation and standardize the
evaluation of risk and prevent excessively tight selection or what
I used to call when I was in the agency business cherry-picking,
which is predilection of insurance company underwriters to try to
pick the best rates or best risks in order to justify the low rates
that they are trying to keep alive. , ,. • r, . a
The company that has been under discussion here today was
very, very good at that. They always have had good rates, but they
were always fairly picky.
Chairman Barrett. OK. If you could conclude.
Mr JUCKEM. Very quickly, once mapped, several options might
be considered. Mandated insurance, if eligible by set standards,
would allow a premium surcharge by mapped area If that sur-
charge was excessive, the rates would quickly reflect it. Ihat sur-
charle would disappear. That is the history of i-js^^^^ce. Provide
some sort of reinsurance of loss, or, if you wanted to, provide some
sort of reinsurance function of loss above X level, either directly by
eovemment or by a bid let contract. „ , ^
To obtain experience spread-there is some talk about narrow or
microfocus of territories. To obtain experience spread requires that
not less than two adjacent areas be used to determine experience^
That would eHminate a lot of problems and one guy fitting on one
side of the street and one guy on the other with totally different
''^Force-fitTnlurance-a^ right. To force insurance groups in a free
society to absorb the impact of abnormal experience is not the
American way. Force-fit insurance onlv panders to the slumlords,
fhTdmnkeT^drivers, the careless, ancT those who create unneces-
sarily physical risk by building high values in high-risk areas. It
win only really delay the rebuilding of our cities and allow the
chariatans to shift responsibility. ,
I have just a couple of comments about what I heard this
"^7stro^nHv urce that you do not put racial characteristics on an
applfcat^nThft will only exacerbate the problem. The statistics I
am tafking about polling are color-free; they do not know of race
or reco^fze race.'rhey^would strictly reflect the dynamics of a
^Som^e'of the agents I've heard, quite frankly, those agents arot
doing their job. It has been my experience over the years that a
good agent-and I want to defend the agents to this extent, that
norma? good agents, many good agents out there do much more for
the consumer than they are ever given credit for, I think you would
recognize that, I hope.
Chairman Barrett. Thank you for your testimony.
Just a couple of comments and observations. I agree with you in
terms of flood insurance, for example, that you have a situation
there where I don't think it is good public policy to build million-
dollar homes in areas that are likely to be hit by floods. But I do
think that there is a different socioeconomic issue when you are
talking about central cities, because you are not dealing with an
area where, frankly, people are flocking to. More often than not,
you have people who want to move away from that area.
I do think that there are societal areas that come into play, and
I think government recognizes that in other areas, for example, in
health insurance. I think if you were going to build an actuarial
perfect health-care system, you would have the oldest members of
our society paying the most, and we have determined as a society
that that is not good public policy.
I think what you are seeing here is the discussions that insur-
ance is not just like going out and buying a television set, that be-
cause of the close ties with insurance to homeownership, to being
able to move in this society with a car, that it goes beyond a luxury
item. Maybe we are being more forthright by having a hearing like
this and saying, yes, there are societal issues that we want to ex-
plore as to that.
Mr. JucKEM. Exactly. I agree with you. All I am saying is let's
map it, let's identify it, let's quantify it, and make more insurance
available by allowing a surcharge if necessary. But have that infor-
mation compiled by neutral people. Don't let the fox watch the
chickens. Have that information compiled by a neutral group of
people so that you know it is true and it is not tilted in any way.
Chairman Barrett. OK, Well, thank you for your testimony. I
Sue Gramling. Ms. Gramling is the final witness today. Thank
you for your patience.
STATEMENT OF SUE GRAMLING, HOMEOWNER
Ms. Gramling. Thanks, Congressman Barrett.
Chairman Barrett. Good afternoon.
Ms. Gramling. I came to listen today, but there are a couple of
things that I just feel, for the record, I would like to state.
I live in an integrated neighborhood on the near northwest side,
roughly the equivalent of 42nd and North Avenue, and I own my
My first point is about the methods of gathering information. I
definitely would agree that it would be better and urge those who
can to consider using census tract definitions, because I know of
people in my — I am in the 53210 ZIP Code. I know for auto insur-
ance, it is dififerent on the east side of Holly Road than the west
side of Holly Road. My car is older, and my sister lives just to the
west of Holly Road and her car is brand new, and I pay about $200
a year more insurance with the exact same company.
Related to that, in terms of gathering general information about
the kinds of claims made, I am wondering about the personal in-
jury claims and whether there is a relationship between the higher
personal injury claims in the central city and the lack of com-
prehensive nealth insurance, and whether or not, you know, some-
one who has a rather minor injury may make a claim if they were
in an accident because perhaps their HMO does not cover physical
therapy on an ongoing basis or whatnot. So I think that would be
an important thing to look at.
The other information, and I don't know enough about it to know
if it is being gathered, is whether or not there is any information
about the number of claims that are not pursued relative to dif-
ferent areas or different economic levels of folks.
For example, my home was broken into twice in the summertime
and very relatively minor things were taken, but I did put in
claims, and I was told on the second claim by my insurance agent
that maybe I better not do it. But it was my lawnmower. I did not
have the money to buy a new lawnmower and I needed a lawn-
mower; therefore, I put in a claim, I paid the deductible. Both
claims were less than $350. My insurance was canceled.
I am wondering if someone who lives in the central city or in a
neighborhood where they are really struggling and it's a working
class neighborhood and they can't afford to absorb those kind of
losses, where other people say I am not going to put in a claim, my
insurance may go up or be canceled, so I will buy a new lawn-
mower and I won't — ^you know. So I think that would be interesting
data to try to collect through some sort of a targeted survey or
something, which brings me to my last point.
As a result of those two little claims, I was unable to get private
homeowner's insurance. I just wanted to go on record, I am in the
Wisconsin Insurance Plan. My house is not dilapidated. I live on
a very solid block with
Chairman Barrett. A beautiful street.
Ms. Gramling. With all individual homeowner-occupied homes,
and the Wisconsin Insurance Plan is costing quite a bit more and
has less coverage, and I am very anxious to put in my time and
try to get out from under it.
So I just wanted to go on record in that respect.
Chairman Barrett. OK. I appreciate your testimony.
Ms. Gramling. Thanks a lot.
Chairman Barrett. Thank you very much.
There being no other witnesses to testify, that will conclude the
hearing. We will leave the record open for a period of 4 weeks from
today so that additional views may be submitted. The panel is ex-
cused and the subcommittee stands in recess. Thank you to all
those who attended today.
[Whereupon, at 2:13 p.m., the hearing was adjourned.]
January 4, 1994
THOMAS M BARRETT
Sth District. Wisconsin
BANKING. FINANCE AND
Congress of the Bnited 3tates
inODse of Utprtstntatiots
Washington, ©C 20515-1905
313 Cannon Office Building
Washington, DC 20515
135 West Weils Street
Room 6 1 8
Milwaukee, WI 53203
STATEMENT BEFORE THE SUBCOMMITTEE ON CONSUMER CREDIT AITO INSURANCE
Congressman Tom Barrett
January 4, 1994
INITIALLY, I WOULD LIKE TO THANK CHAIRMAN KENNEDY FOR COMING
TO MILWAUKEE TO HEAR TESTIMONY ON THE TOPIC OF INSURANCE
REDLINING. AS A MEMBER OF HIS SUBCOMMITTEE, I CAN ATTEST TO THE
FACT THAT CHAIRMAN KENNEDY HAS PLACED THE EFFORT TO FIGHT
INSURANCE REDLINING AT THE TOP OF HIS LEGISLATIVE AGENDA. HE IS
A STRONG AND ARDENT VOICE ON BEHALF OF THE FIGHT TO ENSURE THAT
INSURANCE IS BOTH AVAILABLE AND AFFORDABLE FOR ALL AMERIC7WS. WE
ALL OWE HIM A DEBT OF GRATITUDE FOR HIS TIRELESS DEDICATION TO
I WOULD ALSO LIKE TO THANK OUR DISTINGUISHED PANEL MEMBERS
WHO HAVE AGREED TO TESTIFY TODAY. I APPRECIATE YOUR WILLINGNESS
TO SHARE YOUR EXPERTISE AND PERSPECTIVE WITH US. I LOOK FORWARD
TO YOUR TESTIMONY.
I HAVE ASKED CHAIRMAN KENNEDY TO COME TO MILWAUKEE BECAUSE
THE PEOPLE OF THIS AREA CAN PROVIDE THE SUBCOMMITTEE WITH AN
INTERESTING AND INFORMATIVE PERSPECTIVE REGARDING INSURANCE
AVAILABILITY AND AFFORDABILITY. THE PEOPLE OF MILWAUKEE KNOW HOW
IMPORTANT IT IS TO HAVE INSURANCE AVAILABLE IN ALL AREAS OF OUR
FIGHTING INSURANCE REDLINING IS IMPORTANT BECAUSE OBTAINING
INSURANCE IS A NECESSARY STEP TO ACHIEVING THE AMERICAN DREAM OF
OWNING A HOME. IT IS ALSO AN IMPORTANT PART OF PURCHASING AN
AUTOMOBILE OR STARTING A BUSINESS. BEING ABLE TO AFFORD
INSURANCE COVERAGE CAN MEAN THE DIFFERENCE BETWEEN SUCCESS OR
FAILURE, HAPPINESS OR UNHAPPINESS IN LIFE.
THE AVAILABILITY OF AFFORDABLE INSURANCE IS NOT JUST A
PERSONAL MATTER. IF PEOPLE IN A GIVEN AREA ALL HAVE DIFFICULTY
OBTAINING INSURANCE, IT CAN MEAN THAT THE ENTIRE AREA WILL
CONTINUE TO FACE SEVERE ECONOMIC DISTRESS. A REPORT ISSUED IN
THE WAKE OF THE 1968 URBAN RIOTS FOUND THAT, "WITHOUT INSURANCE,
BUILDINGS ARE LEFT TO DETERIORATE; SERVICES, GOODS AND JOBS
DIMINISH. EFFORTS TO REBUILD OUR NATION'S INNER CITIES CAN NOT
MOVE FORWARD. COMMUNITIES WITHOUT INSURANCE ARE COMMUNITIES
WITHOUT HOPE. "
FOR MORE THAN 25 YEARS, THE PRACTICES OF INSURANCE COMPANIES
IN DISTRESSED COMMUNITIES HAVE BEEN SCRUTINIZED AND DEBATED.
COMPANIES HAVE BEEN CRITICIZED FOR REDLINING - FOR REFUSING TO
INSURE OR VARYING THE TERMS OF INSURANCE BASED ON RESIDENCE OR
LOCATION OF A PERSON SEEKING INSURANCE. THE TERM REDLINING
ORIGINATES FROM THE ALLEGED PRACTICE OF SOME BUSINESSES OF
OUTLINING GEOGRAPHIC AREAS IN RED INK AND THEN REFUSING TO DO
BUSINESS WITH PEOPLE LIVING IN THOSE AREAS. STUDIES HAVE SHOWN A
NUMBER OF WAYS IN WHICH PEOPLE ARE REDLINED BY INSURANCE
WE ARE CURRENTLY AT A CROSSROADS IN THE DEBATE OVER
INSURANCE REDLINING. EARLY THIS YEAR, THE DEBATE OVER ANTI-
REDLINING LEGISLATION WILL MOVE TO THE FLOOR OF THE HOUSE OF
REPRESENTATIVES. TWO BILLS, ONE AUTHORED BY CHAIRMAN KENNEDY,
WILL BE DEBATED AT THAT TIME. BOTH BILLS WOULD REQUIRE INSURANCE
COMPANIES TO DISCLOSE DATA ON THEIR ACTIVITIES. THE IDEA BEHIND
THE MEASURES IS THAT SUNLIGHT IS THE BEST DISINFECTANT AND THAT
INFORMATION SUCH AS WHERE A COMPANY DOES AND DOES NOT SELL
POLICIES WILL PROVIDE A POSITIVE INCENTIVE FOR COMPANIES TO SERVE
ALL NEIGHBORHOODS IN A COMMUNITY.
THE BILLS WOULD OPERATE MUCH LIKE THE HOME MORTGAGE
DISCLOSURE ACT, WHICH REQUIRES LENDERS TO PRODUCE DATA ON
MORTGAGE LOANS. IF REDLINING DOES NOT OCCUR, AS INSURANCE
INDUSTRY OFFICIALS CONTEND, THEN THE STATISTICS WILL PROVE THEM
CHAIRMAN KENNEDY'S BILL WOULD REQUIRE DISCLOSURES ACCORDING
TO CENSUS TRACTS AND WOULD APPLY THE REPORTING REQUIREMENTS TO
THE NATION'S 150 LARGEST METROPOLITAN AREAS, PLUS 50 RURAL AREAS.
IN ADDITION, IT WOULD MANDATE THE DISCLOSURE OF HOW MUCH IS PAID
OUT IN CLAIMS. THE BILL WOULD ALSO GIVE CONSUMERS THE RIGHT TO
KNOW WHY THEY WERE TURNED DOWN FOR INSURANCE, MUCH LIKE THE RIGHT
THEY NOW HAVE IF THEY ARE TURNED DOWN FOR CREDIT.
THE OTHER BILL WOULD MANDATE DISCLOSURES BASED ON ZIP CODES
AND APPLY THE REPORTING REQUIREMENTS TO JUST THE 2 5 LARGEST
CITIES. CHAIRMAN KENNEDY'S BILL WOULD BE MORE EFFECTIVE AT
ZEROING IN ON REDLINING BECAUSE CENSUS TRACTS PROVIDE A CLEARER
SNAP SHOT OF SALES PRACTICES. BY USING CENSUS TRACTS AS THE
STANDARD, WE WOULD BE BETTER ABLE TO DETERMINE IF A GIVEN
NEIGHBORHOOD HAS BEEN REDLINED.
IT APPEARS THAT THERE COULD BE AN ANTI -REDLINING LAW AS
EARLY AS THIS YEAR BECAUSE PRESIDENT CLINTON HAS SAID THAT HE
WOULD SIGN AN ANTI -REDLINING BILL INTO LAW IF IT IS PASSED BY
AGAIN, I WELCOME CHAIRMAN KENNEDY AND THE PANELISTS. I LOOK
FORWARD TO THE DISCUSSION. ' '
Testimony of Marvin Pratt
before the U.S. House of Representatives
Subcommittee on Consumer Credit and Insurance
of the Committee on Banking, Finance and Urban Affairs
January 4, 1994
To the Honorable Joseph P. Kennedy, II, Chairman; to my
Congressman, Thomas Barrett of the 5th Congressional District of Wisconsin; to
two of my neighboring Congressmen from the state of Illinois, Mr. Gutierrez and
Mr. Rush; and to other members of the Subcommittee on Consumer Credit and
Insurance; Members of the 103rd Congress.
I am pleased to appear before you and pleased that you have scheduled
hearings in the city of Milwaukee on the adequacy, affordability, and availability of
insurance here in our city.
My name is Marvin Pratt and I am one of seventeen aldermen in the city of
Milwaukee. I have been in my present position since May 1987, representing a
district of 38,000 people on the north side of the city. My district is approximately
72% African Amencan, 25% white and 3% other racial minorities.
My wife, Dianne, and I are part of a group of eight plaintiffs who are charging
American Family Insurance with insurance redlining here in the city of Milwaukee.
In 1990, the NAACP, ACLU, and Legal Action of Wisconsin filed briefs in our
behalf outlining what we believe are sfrong cases of racial discrimination and
demographic discrimination in the insurance field by American Family.
I believe American Family is representative of the overall insurance industry
in discriminating agamst racial minorities in the selling of homeowner's, auto, and
also life insurance.
Testimony of Marvin Pratt
I believe that racial minorities and others, based on where they live
(demographic discrimmation), pay more for insurance. In other words, in most
urban areas of this country that generally are predommantly minonty, people who
live there pay more for insurance— if they are able to get insurance at all—and they
normally receive an inferior product.
My specific expenence, which is the basis for my claim against Amencan
Family is that we (my spouse, Dianne, and 1) received less coverage from American
Family when we moved from a predominantly white area of the city to our present
home which is located in a predominately black area of the city. At our previous
residence on the northwest side of the city (from 1978-1983), we were given the
best homeowner's policy that American Family had to offer. When we moved in
1983, and on filing a claim in 1988, we found out that the policy had been
downgraded to a lesser policy that covered only up to $1000 of lost or stolen
articles from our household. At out previous address, the total replacement cost
would have been covered.
The policy was lessened and we were not informed. Upon inquiring why this
had occurred, we were told that because of our new address we did not and could
not receive the best insurance policy coverage—mearung that out new address was
less desirable by American Family's standards because there were more blacks.
Based on my nearly seven years in public office as a local elected official and
calls that I have received before and after my experience with American Family, I
believe that minority neighborhoods in the city of Milwaukee suffer because of the
lack of available, affordable, and adequate insurance coverage. Residents in the
central city in Milwaukee probably pay more for less coverage, receive inadequate
coverage or receive no coverage from most of the major insurers.
H.R. 1257, the Insurance Consumer Protection Act, would serve similarly to
the Home Mortgage Disclosure Act in that where insurance is written and not
written would be documented by census tract. If the companies are identified that
are writing policies, then that would be even better. Public disclosure and possible
embarrassment over the lack of writing of policies in certain census tracts would
Testimony of Marvin Pratt
make the industry more receptive to do the right thing.
Sometliing has to and must be done. The high cost of insurance, poor
coverage, and no insurance contribute to deterioratmg neighborhoods, not only here
in the city of Milwaukee, but throughout our urban centers nationwide.
Mr. Chairman, Ladies, Gentlemen, I wish you success in your attempt to
address tliis most serious problem. Thank you.
TESTIMONY OF JAMES H. HALL, JR.
Regarding H.R. 1257
January 4, 1994
Mr. Chairman and Honorable Committee Members:
I appreciate the opportunity to appear before this committee
today to speak with respect to H.R. 1257. We appreciate the
continued efforts of our own Congressman Barrett aimed at
addressing inadequacies in the insurance industry. I believe that
insurance reform legislation initially proposed by him is presently
pending in the current session of the Wisconsin legislature.
We are very pleased that this Committee, in its deliberations,
has come to Milwaukee to gather testimony. We know that the
Committee is aware of an effort underway in Milwaukee to obtain
some industry reforms through litigation which is presently pending
in Federal Court here in the Eastern District of Wisconsin in the
care of NAACP et al., vs. American Family Mutual Insurance Co. I
am one member of a team of lawyers representing plaintiffs in that
case and my comments today are derived, at least in part, from my
experience and involvement in that matter.
I . Availability, af f ordability and adequacy of insurance in
minority neighborhoods in Milwaukee
Recent studies show that 97% to 99% of homeowners across the
nation have some form of homeowner's insurance. It is significant,
however, that recent studies also show approximately 90% of African
Americans, as compared to 3% of whites, are not insured by private
companies, and instead must obtain insurance through some version
of a "fair" plan. Almost all fair plan policies in the City of
Milwaukee (and other coiranunities around the nation) are issued in
minority areas. There is clear evidence of unwillingness on the
part of agents and insurers to offer the same level of services and
products in minority neighborhoods as in other neighborhoods, and
that the products available in minority neighborhoods are inferior.
So, the real issue has changed from total unavailability of
insurance to availability of quality insurance at an affordable
II . Adequacy of existing law to remedy discriminatory
Existing law provides very limited remedies to persons who are
victims of discrimination by insurance companies. A variety of
regulations, of varying strength, exist among the various states
concerning discrimination by insurance companies. Wisconsin's
regulations are undoubtedly some of the most protective of consumer
interests in the country. For example, in Wisconsin, regulations
explicitly forbid discrimination on the basis of race, on the basis
of age of the dwelling [check this], and on the basis of