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Here is a press release from the California Department of Insurance.

 California Insurance Commissioner Endorses Federal Legislation to
Protect Consumers from Scam Insurance Companies
 To: Business Desk, California Correspondents
 Contact: Bill Schulz, 213-346-6456, or Elena Stern, 213-346-6371,
          of the California Department of Insurance

   WASHINGTON, April 1  -- Calling the tens of millions of dollars 
in unpaid insurance claims from last year's Los Angeles 
disturbances suffered by inner-city Los Angeles business
owners who put their faith in unlicensed insurance companies "a
terrible tragedy," California Insurance Commissioner John Garamendi
today endorsed legislation by U.S. Rep. Joseph Kennedy (D-Mass.) to
establish federal regulation over foreign insurance companies that
will protect consumers who are defrauded with increasing frequency by
these unscrupulous insurers.
   Noting that in the past three years complaints filed with the
California Department of Insurance against unlicensed companies have
increased more than 100-fold, Garamendi said that the proliferation
of these problem companies resulted from redlining by licensed
companies in major inner-city areas of California.
   Garamendi presented maps of central Los Angeles showing that
licensed major companies sell almost no insurance policies in
low-income areas, yet over-serve high-income areas.  "Insurance
redlining in the inner-city by licensed companies has meant that
business owners have been forced to turn to what are often scam
insurance companies for coverage," said Garamendi.
   "When these businesses went to collect in the wake of last
spring's disturbances, many were wiped out when they found their
policies to be worthless."
   The Department of Insurance has estimated unpaid claims for such
companies in the wake of last year's disturbances to be $20 million
to $30 million.  Among the recommendations made for strengthening
Congressman Kennedy's HR 1257, Garamendi suggested that insurance
companies could be required to either directly invest in distressed
area or purchase packages of loans made in these communities.
   Garamendi also recommended several amendments to the bill's
minimum solvency and certification standards, including a requirement
that companies have U.S.-based investments that may be used to pay
claims if they become insolvent and providing individual states the
ability to pursue enforcement in either state or federal courts.
   In California, Garamendi has adopted tough regulations cracking
down on unlicensed companies.  These companies are required to:
demonstrate an audited minimum of $15 million in capital and surplus;
have an American-based trust fund of at least $5.4 million; have at
least three years experience selling the line of insurance; and sell
their products through brokers licensed by the state for that line of
insurance.
   To discourage redlining, Garamendi has proposed regulations that
would provide financial incentives to licensed companies that
increase service to traditionally under-served communities.
   To date, Garamendi has banned more than 60 unlicensed companies
from California after having determined them to be financially
unstable.
   ------
     Testimony of John Garamendi Subcommittee on Consumer Credit
    and Insurance Committee on Banking, Finance and Urban Affairs

 April 1, 1993

   Good morning, Mr. Chairman and Members of the Committee.  I am
California Insurance Commissioner John Garamendi.
   I am delighted that you have responded to the information which
was provided at your Feb. 24, 1993, hearing on redlining by
introducing H.R. 1257.  I am supportive of your effort and would like
to continue to work with you and your staff on the bill.  My
statement today will focus on the issues of solvency and redlining
which are addressed in Title II and Title IV of your bill.

 TITLE IV

   I have brought maps to demonstrate the problems of availability
and affordability of auto insurance in the city of Los Angeles.  The
first map shows the distribution of family income by zip code.  The
second map shows the distribution of policies sold by zip code by
insurers which control 90 percent of the market share of auto
insurance.
   You will note that in low income areas there are very few policies
sold.  There is almost a direct relationship between the affluent
areas and the areas with a higher percentage of policies.
   These maps are consistent with the data I shared at your last
committee hearing, which showed that the city of Los Angeles was the
least-served of the 10 largest cities of the State.
   The other two maps show the distribution of policies sold by
Farmers and State Farm Insurance Cos. in the city of Los Angeles.
Again, although these companies deny redlining, the distribution
of their policies sold by zip code present a different picture.
   The maps show redlining exists in California -- particularly in
Los Angeles.
   Since H.R. 1257 contemplates using the Home Mortgage Disclosure
Act Depositories for dissemination of the insurance company data, it
seems to me that your bill would be further enhanced if you also
borrowed a feature from another banking law, the Community
Reinvestment Act.
   Insurance companies are among the largest financial institutions
in the United States.  Because of state regulation, they have escaped
Federal regulations which require banks to be good corporate citizens
and invest in all communities.  Insurance companies may not make
direct loans like banks, but they could purchase packages of loans to
invest in targeted areas or directly invest in these areas.
   This feature, if added to your bill, could make capital more
available for rebuilding the central cities and other distressed
communities.

 TITLE II

    H.R. 1257 establishes a federal insurance administration which
would regulate foreign insurers.  In the state we refer to these
insurers as aliens -- perhaps because of the problems our consumers
have had with the useless products sold by fly-by-night
organizations.
   I acknowledge that there are legitimate alien insurers.  However,
in California we have had incredible growth in auto insurance sold by
surplus lines brokers who sell products by out-of-state (foreign) and
out-of-country (alien) insurers.  Along with this growth, there has
been a 10,400 percent growth in complaints about these non-admitted
insurers.
   These written complaints do not reflect the many phone calls made
to our hotline by frustrated consumers who do not submit a formal
complaint because of our limited authority over these insurers --
particularly alien insurers.
   The department recently conducted a study on auto insurance
purchased from non-admitted insures.  This study describes the scope
of these problems, and I would like to submit it for the hearing
record.
   One of the tragedies in the Los Angeles Riots was that many small
businesses purchased insurance which turned out to be worthless.
They paid their premiums and did not get their claims paid.  We, in
California, are unable to protect them since we do not license alien
insurers; and, because they are not licensed in California, consumers
are not protected by the California Insurance Guaranty Association.
   H.R. 1257 establishes minimum solvency, certification and other
requirements for foreign (alien) insurers.  I support your efforts to
protect the consumers from illegitimate companies.
   H.R. 1257 could be strengthened by:
   a) Clarifying if your reserve in Section 203 should be a trust
with investments in the U.S. which can be used to pay claims if a
company becomes insolvent;
   b) Providing for conservation and liquidation of foreign
companies.  As a department, we race to the court to conserve
insolvent alien companies so that we might gain title to their assets
before they are transferred out of our reach;
   c) Clarifying the preemption language.  It is written so that the
courts might have to clarify when a state is preempted.  In the other
provisions of H.R. 1257 it is clear that a state would not be
preempted.  In Title II, however, Section 212 reads "The title may
not be construed to preempt the law of any state, except to the
extent that such laws are inconsistent with the provisions of this
title, and then only to the extent of such inconsistency." My lawyers
worry that this provision will lead to litigation and may be read to
preempt a state with more stringent standards; and,
   d) Giving states the ability to enforce the law in federal or
state courts.  We are on the front lines and need the authority to
take action if we establish that there are violations of the law, and
the U.S.  Attorney is unable to take action because of other
priorities.  In California, the state has had to provide payments to
local district attorneys as encouragement for them to prosecute
automobile and workers compensation fraud cases.  In addition, we are
frequently frustrated when we refer complaints on ERISA preempted
health plans to the Department of Labor only to find that they do not
have the resources to protect California's consumers.  For states to
be effective, they should have the power to impose civil penalties.
   There are a number of other technical comments which my staff will
provide to the committee in written form.
   As I stated before, I am delighted that you are addressing two
major problems confronting the insurance consumer, redlining and
alien insurers, and will continue to work with you to refine your
bill.
 -0-
 /U.S. Newswire  202-347-2770/


-- 
Nigel Allen, Toronto, Ontario, Canada    ndallen@r-node.hub.org