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Federal Trade Commission Acts apply to insurance agents of federally chartered insurers?” He replied, "Yes." We would assume agents, therefore, would face different situations with regard to the different type of carriers which they represent. They would be exempt from the Federal antitrust laws insofar as they were representatives of State chartered insurers, but subject to them insofar as they were representatives of federally chartered insurers.

It seems unavoidable that the conflicting demands of two distinct systems of regulation existing side by side will lead insurers and agents to gravitate to either one or the other.

As far as the insurance companies are concerned, under a system in which some carriers enjoy antitrust immunity, while other carriers do not, we must ask what would be the status in relation to the antitrust laws of pooling mechanisms, composed of both federally and State chartered carriers? It seems clear the least that can be expected is a considerable amount of confusion. While S. 1710 provides for no regulation of insurance pricing of federally chartered insurers, it seems naive in the extreme to believe that the Federal Insurance Commission could long remain aloof from the pricing practices of the carriers under its supervision.

Given the significant increase in insurance costs over the past few years, as a result of inflation and the inevitable pressures which would be exerted by the public through its elected representatives and consumer groups, probably the Commission would shortly find itself involved in some regulation of rates of federally chartered carriers rather than relying solely on enforcement of the antitrust laws.

If such regulation were performed primarily to hold down rates to what is considered an affordable level, as has been the case in a few States, a severe disruption of the market and aggravated problems which have occurred in those States could occur on the national level.

It is the opinion of our association that the combined effect of the considerations discussed thus far would be the demise of State regulation of insurance.

We realize it is not the intent of the bill to substitute Federal for State regulation, but merely to prove an option. We suspect, however, that regardless of the intent, this is the probable result.

It seems to us that the proposed legislation would operate to the disadvantage of smaller carriers, would lead to increased concentration of the insurance business in the hands of large national companies, would unnecessarily split the industry into two segments, would result in confusion for all segments of the industry, as well as for the public which it serves, and over the long term would bring about the gradual replacement of the State regulatory system with a system of total Federal regulation.

The objections which we have made to the legislation under consideration by the committee should not be interpreted as meaning that we are defending the status quo in the State regulation of insurance. Considering the record of regulation by the States, there is no doubt that there is room for improvement. We do not feel, however, Federal legislation in this area and the establishment of a Federal regulatory mechanism and Federal guaranty fund is the preferred method of dealing with the problems which exist in State regulation. These problems can and should be dealt with at the State level. It is clear that some changes should be made in the State guaranty fund laws, in order to better prepare them to respond to insurers' insolvency.

Various suggestions have been put forward, including immediate access to the assets of the insolvent company, prior credit status for the guaranty association, and a provision to offset guaranty funds assessments against insurers' premium taxes and several States have acted to improve their guaranty funds laws accordingly.

While such improvements should increase the ability of State guaranty funds to respond to such situations, the best method of dealing with the insolvency problem is to prevent insolvency from occurring.

PIA has supported improved regulation for insolvency at the State level through the return of more of the premium tax collected by the State to the operating budget of the insurance department, so it can be adequately staffed to carry out its primary regulatory responsibility.

We also feel there is another method of improving the quality of solvency regulations, which deserves serious consideration by the various States. This involves the active participation of the association members in assisting the insurance department to monitor the companies under its charge. Such an approach is used in Kentucky and has been successful there.

Mr. O'Rourke has prepared a statement describing the performance of this function by the Kentucky Insurance Guaranty Association in some detail. This statement is an appendix to my full statement.

Mr. Chairman, this concludes the statement of position of the Professional Insurance Agents in regard to S. 1710. We appreciate the opportunity to express our views to the committee.

Mr. O'Rourke and I will be happy to respond to any questions you may have.

The CHAIRMAN. Thank you very much.
Mr. Kremer.

STATEMENT OF EDWARD J. KREMER, CHAIRMAN FEDERAL AFFAIRS COMMITTEE, INDEPENDENT INSURANCE AGENTS OF AMERICA, ACCOMPANIED BY JEFFERY YEATES, ASSOCIATE

, GENERAL COUNSEL

Mr. KREMER. Thank you, Mr. Chairman. My name is Edward J. Kremer, and I am chairman of the Federal affairs committee of the Independent Insurance Agents of America, Inc.

I am accompanied today by our associate general counsel, Jeffery Yeates.

[The statement read by Mr. Kremer follows:]

Statement of

EDWARD J. KREMER
CHAIRMAN OF THE FEDERAL AFFAIRS COMMITTEE

OF THE
INDEPENDENT INSURANCE AGENTS OF AMERICA, INC..

before the

COMMITTEE ON BANKING , HOUSING AND

URBAN AFFAIRS

of the

UNITED STATES SENATE

on s. 1710

September 14, 1977

Mr. Chairman and Members of the Committee:

My name is Edward J. Kremer and I am Chairman of

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chartering alternative for insurance companies similar to

the Federal chartering alternatives available to banks and savings and loan associations under the current system of dual regulation of financial institutions.

I.

Introduction

IIAA is a national association of independent

property and casualty insurance agents. The association is composed of 51 state associations (including the District of

Columbia) which represent more than 34 ,000 insurance agencies

representing approximately 126,000 insurance agents across

the country.

IIAA's member agencies vary in size.

Most are

small businesses having gross incomes of less than $60,000 per

year.

The agents are proud of being part of an industry where

small business organizations have been able effectively to serve the insurance needs of the public.

Our industry is highly complex and diverse.

There

exist large and small insurance companies which do business in

a variety of ways.

Some sell their products by mail.

Others

use salaried employees.

Still others operate through independent

agents such as those who are members of IIAA.

In light of the complexity and the competitiveness

of the insurance industry, any legislative proposal which would

radically restructure the industry should be approached with

great care.

IIAA is concerned that the Federal Insurance Act

of 1977 has the potential of seriously undermining the present competitive structure of the property and casualty insurance industry. Furthermore, the Act carries with it this danger

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of the structure of the property and casualty insurance industry

and the role played by the agent in it. We will also briefly

summarize some of the reasons why we believe the Act would not

provide the public protection it is designed to achieve.

We will also explain some of the possible effects that the Act

would have upon the marketing (as opposed to the underwriting)

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the property and casualty insurance industry and the public that

industry serves, a brief overview of the industry and how it

operates is appropriate.

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