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.. STATEMENT

OF
THE NATIONAL ASSOCIATION OF INDEPENDENT INSURERS

BEFORE THE SENATE BANKING,
HOUSING AND URBAN AFFAIRS COMMITTEE

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

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,

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,

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 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

of con

ion 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

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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