Toward Reasonable Risk

Riots in the wake of Martin Luther King's murder started a new exodus of business from the ghettos. In Washington, Baltimore, Chicago, Cincinnati and some other cities, many merchants whose stores were looted, vandalized and burned started pulling out. Most of them say they are leaving for good. "You can't get insurance around here," says Christ Boulahanis, whose hot-dog stand on Chicago's West Roosevelt Road was a total casualty. Near by, William Sheldon, the elderly owner of Sheldon Radio & TV shop, has nothing left after doing business in the same store for 34 years. "Anyone who reopens or rebuilds in this neighborhood must be crazy," says Sheldon sadly.

Many businessmen find that their losses are all the worse because their insurance was canceled after last summer's riots. Others canceled policies on their own because rates were raised be yond what they could afford. Morris Gordon, whose family owned a shoe store in Pittsburgh's Hill District since 1885, says that after his coverage was cut by one-third this year, he shopped around and got another policy--at almost double the $1,285.20 premium he had been paying. And he considers himself one of the fortunate few. His shop was wiped out.

Not Enough Dollars. Insurance companies are quick to explain that they are only being sensible in protecting their own businesses. "The right kind of people are still able to get insurance," says Dan Owen of Chicago's General Adjustment Bureau, which represents some 300 insurance firms. "Those who haven't got it are uninsurable anyway for some reason."

The American Insurance Association estimates that the first six days of the recent disturbances will cost the industry at least $45 million, with the biggest losses in Washington, Baltimore and Chicago. Last year the insured loss in Detroit alone was $45 million. Unless the Government steps in, there may soon be no insurance available in the ghettos, says Edward Rust, president of State Farm Insurance Cos. "There just aren't enough dollars if this rioting is to be an annual event."

The state of New York stepped in last week as the nation's first mandatory high-risk pool to provide insurance for ghetto businessmen and residents was signed into law by Governor Nelson Rockefeller. Starting Sept. 1, insurance companies in the state will contribute to a joint underwriting fund to share losses. A bill to establish federal riot reinsurance for slum areas, still pending in Congress, may lighten the insurance companies' burden even more.

Up from the Debris. While they look toward that kind of help, insurance companies plan to continue another phase of their operations in the ghettos. Since last September, when they pledged to divert $1 billion of their annual $16 billion flow of investments toward slum areas, over $350 million has been committed for a total of 26,588 housing units and 7,551 permanent jobs. Among the projects: a $4,500,000 low-income cooperative rising on nine acres of cleared land in debris-strewn Newark, $8,500,000 to construct 530 single-family houses in Chicago, and $15 million to $20 million to build apartments in Harlem.

Such contributions, to be sure, are no giveaway. Housing loans are insured against loss by the Federal Housing Administration, or backed by a state agency, and provide for a 6% annual return. But as slums are renewed with insurance company help, the insurers figure that slum businesses will once more become reasonable risks.

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