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BEFORE THE SENATE BANKING,
IN RE: S-1710
September 13, 1977
The National Association of Independent Insurers is appreciative of this
opportunity to present its views on the subject of federal chartering and
regulation of insurance companies as embodied in S-1710.
NAII is a voluntary national trade association of more than 600 insurers. *
Our organization provides a representative cross-section of the casualty and
fire insurance business in America.
Our members range in size from the
smallest one-state companies to the very largest national writers: they comprise
both stock and non-stock corporations and reflect all forms of merchandising -
independent agency, exclusive agency, and direct writers. They include insurers
serving a general market and those that specialize in serving particular
consumer groups such as farmers, teachers, government employees, military
personnel, and truckers
Since its founding in 1945, NAII has been dedicated to fostering healthy
competition in rates, coverages and services under sound state regulation.
The Association has played a leading role in broadening the channels of competition
under the state casually/property regulatory laws in the post-McCarran Act period,
$405 members and 204 statistical subscribers.
and its rember companies have provided a major share of the rate compe
tition and product and marketing innovations under those laws.
The record of more than 30 years of healthy competition and continued
growth by our industry under state regulation dictates that we must oppose
any unwarranted federal intervention in the regulation of insurance, such
as that proposed by S-1710.
Our principal reasons for that position are:
(1) S-1710 in actual effect will substantially repeal the McCarran
Ferguson Act and establish a dual system of regulation in which
vital legislative responsibilities are abdicated into private hands.
(2) S-1710 will not promote competition but will invite the destruction
of competition in the insurance business through climination of
many small business enterprises.
(3) S-1710 will deprive consumers of many vital regulatory safeguards,
rights and remedies they now enjoy under state law, and will weaken
overall regulatory effectiveness.
(4) The system created by S-1710 will be unduly costly, wasteful
(5) The banking regulatory system which has been cited as a precedent
for S-1710 provides an inappropriate and unconvincing example.
(6) Enactment of S-1710 is unneeded and unwarranted because the
state insurance regulatory systems have proven fully respon
sive to the public needs by promoting competition and solvency,
fostering product development and innovation, and assuring
a constantly expanding market capacity in the insurance busi
ness, while the state insolvency guaranty funds obviate any
need for a federal fund.
(4) S-1710 in actual effect will substantially repeal the McCarran-Ferguson Act and establish a dual system of regulation in which vital legislative responsibilities are abdicated into private hands.
The actual effect of S-1710 will be to rewrite and substantially repeal the
McCarran-Ferguson Act (P.L. 15, 79 th Cong. ) under which the Congress in
1945 after much study and debate reaffirmed that "the continued regulation and
taxation by the several states of the business of insurance is in the public
interest''. Amazingly, S-1710 contains absolutely no reference to that monu.
mental statute under which "Congress has posited a regime of state
1 regulation..." in the words of the U. S. Supreme Court.
Both the text and the history of the McCarran Act denote a strongly
manifested Congressional intent that no future federal inroads were to be made
upon state regulatory jurisdiction by implication or by inadvertence. Any move
by Congress to take back any of the regulatory prerogatives it reaffirmed to the
states under the McCarran Act must therefore be both studied and explicit,
State Board of Insurance v. Todd Shipyards Co. (1962) 370 U. S. 451.
and, we believe, founded only upon a clearcut finding that in some way the
states by failing to "regulate" our business have violated the trust reposed
in them under the Act.
As will be pointed out later in this statement, no such finding would
be possible. Indeed, the case for continuation of state regulatory jurisdiction
over our business is immeasurably stronger today than it was 33 years ago.
It may be argued that S-1710 does not really impact the McCarran Act
because the decision to go the federal route is "optional" with the insurance
We disagree. A system which empowers members
of our industry to choose who shall and shall not regulate them in such vital
areas as rates, reserves and investments is certainly a drastically different
one than is embodied in the McCarran Act, which clearly reserved to govern
ment the power to make that choice
state government in the first analysis
and Congress in the last.
In adopting S-1710 Congress would abdicate
the ultimate legislative responsibility and authority for determining who shall
regulate insurance, and would vest it in the hands of the regulated.
In actual effect, as will be more fully demonstrated, this pivotal decision
making power would gravitate to a handful of the very largest insurance companies.
Not only would they be able to choose which regulatory arena they consider
advantageous for themselves, but by their decisions they could very largely chart the It seems clear that S-1710 would substantially repeal the McCarran
courses and dictate the de
tinies of their smaller competitors.
Ferguson Act and substitute a radically different system of regulation than
that Act contemplated. It seems equally clear that the dual system sought
to be substituted is so fraught with defects, deficiencies and dangers that it
should not be given serious consideration by the Congress.
(2) S-1710 will not promote competition but will invite the destruction of competition in the insurance business through elimination of many small business enterprises.
In our considered judgment, the ultimate effect of S-1710 would not
be to increase competition (as is perhaps intended), but to invite the destruction
ion by the elimination of many small insurance companies from the
As written, S-1710 may be well suited to the operations, needs and
wishes of certain very large insurers with countrywide operations. What it
ignores is the total structure of the property/casualty insurance industry and
the vital role that small and medium-sized companies play in it. These many
hundreds of companies provide much of the basic competition that generates
reasonable and stable prices and new products. They are a key part of the
Under S-1710 the only real "freedom of choice" would repose with
the large insurers. Their decisions -- both as to the regulatory arena they
consider advantageous and as to their future rating and market practices
would largely determine the ultimate destinies of their smaller competitors.
Some ways in which this could come about include the following:
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