Few in Riot Area Used Federal Crime Insurance

A little-known government insurance program targeted at crime-ridden inner cities might have saved Los Angeles riot victims millions of dollars in losses.

But the program appears to have been rendered virtually useless for residents and business owners who suffered losses in the unrest--itself the victim of disinterest on the part of state and federal officials and the insurance industry.

The Federal Crime Insurance Program is designed to provide protection against theft and robbery to inner-city residents and small business owners like those who lost hundreds of millions of dollars in merchandise to looting in the riots.

Yet only about 1,200 of the policies exist in Southern California and only 19 policyholders have filed claims resulting from riot losses, according to federal officials. Almost as surprising, only 18 new policies have been written since the riots.

Although the crime insurance program is managed by the Federal Emergency Management Agency, federal disaster centers set up after the riots are not providing information about it as a matter of routine. A receptionist who answered the agency’s riot information hot line said she did not know about the program.

Experts can offer no definitive explanation of why the insurance--established in 1971, after the urban riots of the 1960s--has not caught on in California, where big-city crime rates would seem to make it desirable.

Speculation ranges from the presumption that many urban business owners have chosen to take a chance and forgo insurance to the conclusion that private insurance is so readily available that the federal program is not needed.

Federal officials contend that many riot victims who complain about uncovered losses are suffering the consequences of their earlier business decisions.

“Insurance is always a tough sell,” said C. M. (Bud) Schauerte, head of the Federal Insurance Administration, which manages the crime insurance program. “The attitude is: ‘Why should I buy insurance when the federal government is going to come in and bail me out?’ So they don’t buy it.”

But there is evidence that residents of riot-scarred communities who might have benefited from the insurance did not know of its availability. Critics fault government and the insurance industry for the lapse.

“Clearly, they must have known that no one was buying into the program,” said Robert Gnaizda, chief attorney for Public Advocates, a public interest law firm in San Francisco. “It is likely the program wasn’t intended to work.”

Indeed, federal officials--contending that the program is not working--may scuttle it if it continues to lose money.

New regulations, implemented without public debate and published last month in the Federal Register, allow commercial rate increases of 15% in each of the next five years to bring the program in line with private sector rates for business coverage.

The program is one of three federally sponsored national insurance programs, along with flood insurance and Medicare. Since its inception, it has lost $140 million. It costs taxpayers $130,000 a month, federal officials said.

But government critics say that by hiking premiums as much as 75%, the Federal Emergency Management Agency will price out those who most need the coverage. The rate hikes, they say, will mean the virtual abandonment of the program’s mandate to provide an affordable option in areas where it has been determined that there is a critical lack of crime insurance.

“It’s absolutely inappropriate,” said Robert Hunter, director of the National Insurance Consumer Organization in Alexandria, Va., who managed the crime insurance program from 1974 through 1980. “They’ve ignored the congressional intent of the program.”

If statements made after the riots about charting a new course for urban America are sincere, Hunter said, thought should be given to expanding the program rather than making it more expensive.

The potential benefits of the insurance for Los Angeles riot victims and the degree to which it could have filled the insurance void in the inner city might have been significant.

A state Department of Insurance survey of 1,859 business owners after the riots found that half of those who suffered losses said they were uninsured, either because they could not find insurance or because it was too expensive.

The respondents reported uncompensated damages of at least $421 million. Many destroyed businesses may never reopen, and the losses are likely to prove a significant barrier for rebuilding efforts. Uninsured business owners are filing claims for federal disaster grants and loans, a portion of which would have been avoided if more had insurance coverage.

No one argues that the crime insurance program is a panacea, nor would it have covered all the losses. It provides a maximum of $15,000 in coverage for business owners, and $10,000 for those who own or lease homes. But the federal program must sell to anyone, offers guaranteed renewal and has generally been cheaper than private insurance.

And, government critics note, something is usually better than nothing.

Ryan Song, executive director of the Korean-American Grocers Assn., testified at a state Insurance Department hearing that nearly half of his organization’s 3,300 members were uninsured. Song said few, if any, grocers were familiar with the crime insurance program

“I think that if they had known about this program, they would have utilized it,” Song said in an interview. “But it is not (information) that would ordinarily come their way.”

Burt Corona, director of Hermandad Mexican Nacional, a Latino rights organization, said the insurance industry and government have made little effort to communicate in inner-city minority neighborhoods.

“This lack of knowledge is typical,” said Corona. “These government officials sit in their high-rises and don’t make themselves available.”

Two seminars were held in Los Angeles after the riots to promote the program among insurance agents and brokers. The gatherings replaced programs that had been scheduled for later in the year, and the federal government plans no other promotional campaigns, Schauerte said.

“Why promote a program so you can sell a lot of policies at great cost to the taxpayer?” he asked.

Consumer advocates cite such comments as evidence that the program has been ignored under the Reagan and Bush administrations--considered a money-loser and allowed to shrivel away.

“I do think the federal insurance program changed dramatically after the Carter Administration,” said Hunter. “There has been an effort to dump it since then, because it is a tax drain.”

Schauerte conceded that the program is alive mainly because of the clout of the New York congressional delegation, whose constituents hold the vast majority of policies nationwide. Despite that pressure, Schauerte said that if the program cannot rebound from its losses, he will recommend that it be dismantled.

Schauerte places most of the blame for underutilization of the program in Los Angeles on insurance agents and brokers, who he said may reason that they can make more money selling private insurance policies. And even critics of the federal government fault insurance agents for putting their pocketbooks ahead of their clients’ needs.

“They are supposed to be professionals and are supposed to help their clients find what is right for them, but it turns out quite frequently they want to help themselves,” said Hunter.

However, agents contend that they are being made the scapegoats for a variety of complex societal problems.

Herb Jones, president of the Alliance of Inner City Agents and Brokers, concedes that few commercial crime insurance policies have been sold in Los Angeles. But that, he said, is because most business owners place a higher priority on fire and liability insurance. Business owners who cannot obtain private fire coverage are usually eligible for insurance under the state’s high-risk FAIR plan.

But Jones also acknowledged that many agents are not familiar with the federal program--in part because they have given up trying to sell commercial insurance of any kind. Most major insurance companies will not underwrite commercial policies in high-crime urban neighborhoods, he said.

“If the (commercial) market was available, I don’t believe we’d be seeing the losses we are seeing now,” Jones said. “It doesn’t make any sense to go out and push the federal program, because from the agent’s point of view it is just not cost-effective. We are suffering financial segregation that . . . has had a devastating effect on the community.”

Insurance companies hotly dispute the allegation that they discriminate or “redline” in urban areas--a charge that also has been leveled by state Insurance Commissioner John Garamendi.

Top officials of Garamendi’s department also were unfamiliar with the program. In any event, they say it is not their responsibility to promote it.

“We are continuing to look at ways of expanding the availability, accessibility and affordability of insurance, and we will make the federal program a part of that effort,” said Insurance Department spokesman William Schultz. “But FEMA has to take some responsibility for marketing itself. We can’t be the lead for a federal program.”

In the end, community leaders say, the crime insurance program epitomizes the kind of official neglect suffered by inner-city residents--at great cost to the rest of society.

“It’s a very disheartening and disappointing panorama,” said Hermandad’s Corona. “People have been protesting--the Koreans, blacks and now Latinos. And now they come around saying: ‘Yes, we have this or that program.’ But why weren’t they around before? When people have lost everything, it is very difficult for them to be learning what they could have had.”

How It Works

Here is a look at the Federal Crime Insurance Program:

Origins: Established in 1971, the program is designed to fill gaps in the availability of affordable coverage against losses resulting from burglary and robbery.

Where it is available: California, New York, Florida, Illinois, Kansas, Maryland, New Jersey, Pennsylvania, Alabama, Tennessee, the District of Columbia, Puerto Rico and the Virgin Islands.

Who qualifies: Homeowners, those who lease homes and business owners.

Maximum coverage: For residential policies, $10,000. For business owners, $15,000.

Policies outstanding: In California: 238 commercial; 1,569 residential. In Los Angeles County there are 1,202 total policies.

Premiums: For residential policies, $10,000 in coverage costs $126 yearly. For business owners, the cost of $15,000 in coverage against both burglary and robbery ranges from $1,215.90 to $7,839 annually, depending on gross receipts.

How to purchase: Coverage may be bought through any licensed property insurance agent or broker.

For more information: Write the Federal Crime Insurance Program, P.O. Box 6301, Rockville, Md. 20849-6301, or call (800) 638-8780.