benefiting from price competition unencumbered by any state rating law. This has been confirmed by the 1977 report of the Illinois Insurance Department,17/ which

concludes:

17/

"In light of the data gathered
in this study and supported by the
findings of the others cited, perhaps
the most significant conclusion one
can draw is that competition is a good
and viable market force. The price
variances documented in the Tables
certainly illustrate that the larger
companies are competing on a nationwide
basis. Further, competition among
insurers in this State does, for the
most part, exist and Illinois automobile
insurance rates do, in general, compare
favorably with rates in other states
of similar size. Left to their own
initiative, companies operating in
Illinois have, on the whole, soundly
applied their rate structures since

August 1971. .

"Illinois Automobile Insurance Rate Study," State of Illinois, Department of Insurance, May, 1977, at P. 6.

18/ This Departmental report squares with the impression of the former Illinois Insurance Director, set forth in the Justice Department Report, pp. 33-34, that in Illinois:

"The effect on insurance availability
has been favorable from the public's
point of view. The low population
of our assigned risk plan for automobile
insurance demonstrates this;

"As far as one can tell, there has
been a reasonable dispersion of price
of personal lines of insurance
coverages;

"There appears to have been a diverse
timing of price changes evidencing

Similarly, the New York Department found in

its 1977 report:

"The competitive pricing law has
continued to demonstrate that reliance
on the forces of the marketplace can
provide an orderly insurance market
at prices which are reasonable in
relation to other goods and services
and at profits which are not excessive
in relation to both equity and risk.
The Department believes that a total
return to prior approval would be
retrogressive, impairing the efficiency
of the Department and stifling the
marketplace. Further, the public
interest would best be served by
returning the automobile lines to open
competitive rate regulation."

We believe that an analysis of the industry's experience clearly demonstrates that in good times and

[Footnote continued]

independence of pricing, innovation,
experimentation and risk taking;

"There appears to have been an increase
in the number of uninsureds in the
Illinois automobile market, presumably
due to afordability [sic] problems;

"Most insurers appear to have adapted
well to thenew legal climate and to
like it; and

"No noticeable diminution of market
share of small companies has occurred."

bad, rate regulation has imposed price rigidities to the detriment of both the consumer and the insurer.

Thoughtful studies demonstrate that the public is best served by relying upon competition, rather than regulation, in the pricing of personal lines of insurance.

These studies, together with the Justice

Department report, demonstrate conclusively, we believe, the great benefits to the insurance consumer flowing from competition in the pricing of insurance. То maximize those benefits of competition, we support an amendment to the McCarran Act to deregulate insurance rate making, making it subject only to the pressures of the marketplace and the strictures of the federal antitrust laws.

7. State Farm's McCarran Act Proposal

Although we have long worked for so-called open

competition state rating laws and continue to do so, by the late 1960's we had become convinced that in most states competitive rating laws would not be enacted or administered to maximize the benefits of vigorous In 1967, State Farm first publicly called

competition.

for the consideration of an amendment to the McCarran

Act to deregulate and apply the federal antitrust laws to the pricing of automobile insurance.19/ This position of State Farm was again expressed in testimony before the Senate Antitrust Monopoly Subcommittee in 1969. We now believe that the considerations which led us, in 1967, to propose an amendment to the McCarran Act covering automobile insurance are equally applicable to all personal lines of property and casualty insurance.

Rather than the approach taken by S. 1710 and the approach suggested by the Justice Department, in achieving these kindred objectives we propose the following:

1. The McCarran Act should be amended

so as to deregulate insurance pricing
rating plans, rating territories, rating

rates,

classifications and policyholder dividends
for the personal lines of property and casualty
insurance, including automobile insurance and
homeowners insurance, and for very limited,
related commercial lines. Deregulation would

be accomplished by necessary preemption of state

19/ Donald P. McHugh, Address to S. S. Heubner Foundation of the University of Pennsylvania (1967).

rating laws. Our amendment to the McCarran Act would leave intact the authority for states to regulate comprehensively the business of insurance in almost all respects, including regulation relating to solvency, licensing of companies and agents, the insurance contract, complaints and unfair trade practices.

The federal antitrust laws would be applicable to activities involving rate making in these lines of insurance. The enforcement responsibility under the antitrust laws would be the only federal involvement. Essentially, this would mean prosecution by means of criminal or civil suits in federal court against insurance companies or organizations which act collusively to unreasonably restrain interstate commerce in the sale of proeprty and casualty insurance. There would be no federal regulatory bureaucracy created to review, approve, or disapprove rates.

2. Although the federal antitrust laws would be made to apply to rating activities

for these property and casualty lines, we would exempt joint collection of loss statistics and