STATEMENT THE NATIONAL ASSOCIATION OF INDEPENDENT INSURERS HOUSING AND URBAN AFFAIRS COMMITTEE 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 casualty/property regulatory laws in the post-McCarran Act period, #405 members and 204 statistical subscribers. and its member companies have provided a major share of the rate competition 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 McCarranFerguson 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 elimination 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 and inefficient. (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, a constantly expanding market capacity in the insurance busi- need for a federal fund. (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. The actual effect of S-1710 will be to rewrite and substantially repeal the McCarran-Ferguson Act (P. L. 15, 79th 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 regulation..." in the words of the U. S. Supreme Court. 1 Both the text and the history of the McCarran Act denote a stronglymanifested 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, 1. 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 companies themselves. 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 government 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 decisionmaking 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 courses and dictate the destinies of their smaller competitors. It seems clear that S-1710 would substantially repeal the McCarranFerguson 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 of competition by the elimination of many small insurance companies from the market. 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 insurance economy. Under S-1710 the only real "freedom of choice" would repose with both as to the regulatory arena they the large insurers. Their decisions 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: 99-073 0 - 78 - 28 |