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My name is Andre Maisonpierre. I am a vice president of

the Alliance of American Insurers (formerly the American Mutual Insurance Alliance). The Alliance is one of the major national associations of property and casualty insurance companies.

Its

member companies write property and casualty insurance in all

states and the District of Columbia.

I.

INTRODUCTION

We appreciate the opportunity to testify on S. 1710, the

Federal Insurance Act of 1977.

Conceptually, the stated purposes

of S. 1710 are to create a "dual system" for the regulation of

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Thus, the bill poses important issues with respect to the desirability of federally chartered insurance companies; pricing considerations under the federal antitrust laws; federal regulaand the creating of a federal guarantee fund

tion of insurance;

mechanism. The bill, in many respects, is not as comprehensive as

comparable state insurance codes.

Nevertheless, certain con

clusions can be drawn concerning the effect of the legislation.

Certainly, its potential impact, in creating two competing

regulatory systems, raises a host of unanswered questions concerning

its effect in major areas.

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A.

Advantages Conferred On Companies Electing Either

A Federal Charter Or Participation In Federal
Insurance Mechanism

The bill ostensibly does confer certain clear benefits to individual insurance companies electing a federal charter:

1.

2.

3.

A federal chartering option does provide an oppor-
tunity for escape to those companies which believe
they are being oppressed in their states of domicile
by certain laws or regulations applicable to domestic
companies only. This is particularly true as regards
state tax statutes which can place a heavier burden on
domestic companies.

The bill does allow federally chartered insurance
companies to escape politically inspired state rate
regulation.

The bill also provides a specific escape for federally
chartered companies from state retaliatory taxes.

There is another aspect of the proposed legislation which will accrue to federally chartered companies, but this is also available to state chartered companies who become members of the Federal Guarantee Fund. S. 1710 relieves these companies who join the federal guarantee fund from continued participation in state insolvency programs and concomitant insolvency assessments by the state funds.

Nevertheless we are convinced that the contemplated concept of dual regulation of insurance would be unweildy and duplicative and that it would breed competition among regulators that would lead to increased economic regulation. To place this issue in perspective,

one should keep in mind that in its recent report on Insurance Marketing and Pricing (1976) the Justice Department called for less economic regulation and more open competition in insurance We echo the views expressed by Robert Hunter, the recent Acting Federal Insurance Administrator that "the public is best

markets.

In a

served by an insurance system under which private enterprise remains the principal provider, and the states, the regulators of insurance. This time, honored position is philosophically sound, but requires innovative approaches to assure its continued success over the congressional voices espousing federal takeover." speech to the Independent Insurance Agents of Wisconsin (5/6/76), Mr. Hunter said further, "I yield to no one in the belief that the insurance industry should remain in private hands under state regulation... I stress the Federal Insurance Administration's position that a state regulated system of privately provided insurance can best serve the needs of all Americans. I view with

great concern the apparent disposition on the part of many in
Congress to propose federal solutions, to the real insurance problems
of today... It is important for those...of us in Government to
take the lead in explaining why a state regulated private system
works best."

B. Disadvantages Imposed On Companies Electing Either A
Federal Charter Or Participation In Federal Insurance
Mechanism

It must be well understood, that federally chartered and

state chartered companies who are members of the Federal Guarantee

5

Fund would pay a price for these potential aforementioned benefits. Furthermore, a substantial impact would be felt by companies electing not to participate in the federal insolvency program. In fact, the total fabric of insurance regulation would be radically realigned if this legislation were to be enacted.

While the bill has been described as providing a "federal chartering alternative" for insurance companies, it is apparent that the overall effect of the legislation is to bring about "dual" regulation. This is particularly true in the area of potential discrimination based on age, sex, marital status, etc. It would also subject state chartered companies participating in the federal insolvency plan to concurrent federal and state financial examinations. Dual regulation would also lead to increased economic regulation in regards to insurance investments and reserving practices.

Finally, with state insurance departments responsible for residual market insurance programs and the proposed Federal Insurance Commission actively involved with insurance availability matters, it seems certain that confusion will prevail and the insurance consumer may well end up the ultimate loser.

This concern about the effect of a dual regulatory system was proposed by the Acting Federal Insurance Administrator

in a comment

to the Justice Department; relative to the Antitrust Division Report on Insurance Marketing and Pricing:

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