joint collection of data relevant to the

identification, prevention or reduction of

losses.

3.

The amendment would contain a

qualification which permits state regulation

and private joint action in the establishment
and operation of residual market plans for these
lines, with attendant antitrust immunity.

Residual market plans would be prohibited from
charging rates which could adversely affect
the voluntary market.

4. To assist in developing shopper's guides and otherwise making rating information readily available to consumers, states would be

authorized to require the filing of insurance
price information on these coverages after
insurance rates have been placed into effect.

This approach is somewhat different from the approach suggested by S. 1710 and the Justice Department. The major differences are:

1. Our plan would have mandatory

application to all insurance companies writing

covered lines of insurance.

We believe that

the public cannot get the full benefit of price competition if companies have the choice of either vigorously competing under the antitrust laws or remaining under state rate regulation.

2. Only personal lines of property and casualty insurance (and certain very closely related commercial lines) would now be covered

by our proposal.

At present, the greatest

consumer stake is in price deregulation in the

-

personal lines market the segment of the

market where rate regulation has done the most
mischief and where the public is least able
to protect itself.

Notwithstanding the views

of the Justice Department contained in its
report, 20/
some of the practices necessary for
effectively operating the commercial lines
insurance business do, in our opinion, raise
serious antitrust questions. We believe that
some additional consideration must be given
to these unique problems before a decision is
made on the extent and manner of price

deregulation in those lines.

20/ Justice Department Report, see pp. 188-249.

3. Certain limited joint activities in

the gathering of statistics should be

specifically allowed. Although the Justice Department states in its report that the gathering of pure loss statistics would not violate the antitrust laws, 21/ we believe the issue is somewhat clouded. The gathering of loss statistics is particularly important for smaller companies.

Even though for our major

lines we do not use loss data of others in
compiling our own rates, some companies rely
upon joint loss data in calculating their own
rates. As long as the joint gathering of
statistics and joint research is kept to a
minimum, we see little danger that this activity
will adversely affect the public interest, and
an appropriate exemption from the antitrust
laws should be provided.

4. Our proposal deals only with insurance pricing. It would be implemented without

21/ Justice Department Report, see pp. 167-87.

pricing. It would be implemented without

involvement of any federal agencies, other than those agencies which enforce the antitrust laws.

Our proposal would exploit the partnership benefits flowing from our federal system by entrusting to each partner responsibilities it is best equipped to discharge. Policing the marketplace to guarantee that competition works as it is supposed to is left to the federal government with its special expertise and long-established experience in enforcing the antitrust laws. On the other hand, the states would continue their regulation over the policy contract, insurance company relationships with policyholders, and preserving the solvency of the insurance mechanism.

Attached, as Exhibit 1, is the statutory language to implement our proposal to amend the McCarran Act.

II.

COMPETITION AND INSURER SOLVENCY

1.

Rate Regulation Is Not Essential
to Solvency

Sometime during the nineteenth century, the

myth appears to have grown in the fire insurance business that maintenance of "adequate" rates, enforced through

private concerted activities ultimately sanctioned by state law, was necessary to prevent ruinous rate competition and consequent insurer insolvency.22/

Recent history reveals that such a view is no longer valid, if, indeed, it ever was. There have, of course, been many insurer insolvencies during the past 20 years. A number occurred in Illinois, almost all of them during the period when a prior approval law was in effect not after the open competition rating law was enacted, nor later when there was no rating law. In the late 1960's, the Senate Antitrust Subcommittee reviewed the Illinois insolvencies and others; it concluded that fraud, corruption or mismanagement were the causes, not rate inadequacies. Insolvencies have occurred in California, but there was no indication that these insolvencies were caused by the vigorous competition which has existed there since 1947 under the open competition rating law. 23/

In 1975, the New York Department reviewed

22/ Wandel, "Control of Competition in Fire Insurance," 1935, p. 11.

23/ See comments in New York Insurance Department Report entitled "The Public Interest Now in Property and Liability Insurance" (1969) at 129.