REVISION OF DISTRICT OF COLUMBIA LAWS ON RATE REGULATION IN FIRE AND CASUALTY INSURANCE INDUSTRIES FRIDAY, MARCH 20, 1964 U.S. SENATE, SUBCOMMITTEE ON BUSINESS AND COMMERCE, Washington, D.C. The subcommittee met, pursuant to recess, at 9 a.m., in room 6226, New Senate Office Building, Senator Thomas J. McIntyre (chairman) presiding. Present: Senators McIntyre, Morse, and Beall. Also present: Chester H. Smith, staff director, and Richard Judd, professional staff member. Senator MCINTYRE. The committee will come to order. This morning we are continuing hearings on S. 2077. Before I call the first witness, without objection, there will be included in the hearing record the following communications opposing S. 2077: From Edmund T. Delaney, counsel, the National Association of Insurance Brokers, Inc., New York, N.Y. J. Raymond Berry, general counsel, the National Board of Fire Underwriters, New York, N.Y. Mr. Robert N. Gilmore, Jr., general counsel, Association of Casualty & Surety Companies, New York, N.Y. Mr. Donald P. McHugh, State Farm Insurance Companies, Bloomington, Ill. Mr. Barclay Shaw, secretary, the National Association of Insurance Brokers, Inc., New York, N.Y. Mr. Wiliam H. Press, executive vice president, the Metropolitan Washington Board of Trade. Mr. Bertram C. Dedman, associate counsel, Insurance Co. of North America, Philadelphia, Pa. (The communications referred to follow :) STATEMENT OF THE NATIONAL ASSOCIATION OF INSURANCE BROKERS, INC. My name is Edmund T. Delaney and I am a partner in the law firm of Palmer, Series, Delaney, Shaw & Pomeroy, New York City, who are counsel to the National Association of Insurance Brokers, Inc. The National Association of Insurance Brokers, Inc., is a nonprofit corporation whose membership is comprised of insurance brokers from coast to coast. Such members are individuals, partnerships and corporations and also State or local insurance broker associations. Our association has followed with interest the various hearings by the Senate subcommittee on the fire rating legislation for the District of Columbia. On June 21, 1962, we filed a statement with the subcommittee in which our association endorsed Senate bill 556, which would have eliminated the prior approval requirement in the District of Columbia fire rating laws. On July 16, 1963, filed a statement with the subcommittee in which we endorsed Senate bill 1184, which, in effect would repeal the mandatory bureau membership rating statute for the District, substitute a modified file and use statute based substantially on the present casualty rating act in effect in the District and, as amended, would give the District Superintendent the power of retroactive disapproval of deviations. We stated that our association felt that the elimination of the requirement of prior approval for fire rates would mark a significant step forward, and we were likewise in favor of repealing mandatory bureau membership. This is still the position of our association and we are accordingly opposed to S. 2077. We urge adoption of S. 1184 as amended. As stated above, our association consists of individuals as well as State and local broker associations. We wish to state that one of our constituent associations, the Insurance Brokers Association of Massachusetts, has advised us that they do not concur in the position which we are expressing insofar as it endorses the proposed elimination of prior approval. On the other hand, our California members generally not only approve of the elimination of prior approval, but also would approve the total elimination of filings as is presently the case under the California rating laws. THE NATIONAL BOARD OF FIRE UNDERWRITERS, New York, N.Y., February 4, 1964. Re S. 2077, a bill to regulate in the District of Columbia rates for casualty and fire insurance. Hon. ALAN BIBLE, Chairman, Committee on the District of Columbia, DEAR SENATOR BIBLE: The National Board of Fire Underwriters, an organization of approximately 200 stock property insurers, writing insurance in the District of Columbia and the 50 States, desires to go on record as being opposed to the above bill. Our basic reason is that the bill embodies the principle of "prior approval" of rates. We believe the experience of the last several years in States that have "prior approval" of rates has demonstrated that such statutes are unworkable; are expensive to administer; have a tendency to develop artificial rate levels and are unnecessary for the protection of the public. You have pending before you another rating bill for the District of Columbia, S. 1184. This is a "file and use" type of rate regulation and we have heretofore gone on record favoring the enactment of S. 1184 (see copy of letter attached). We still favor S. 1184 and we urge its passage. Yours very truly, J. RAYMOND BERRY, General Counsel. Re S. 1184. Hon. ALAN BIBLE, Chairman, Committee on the District of Columbia, DEAR SENATOR BIBLE: We have just finished reviewing the amendments proposed to the above bill (in letter dated May 9, 1963) by the District of Columbia Commissioners. The overall result of these amendments is to improve the bill. We are not in entire accord with some of the provisions of the present law and proposed amendments, but we are intensely interested in obtaining a "file and use" type of rating law and this legislation, with the above amendments, embodies that approach. In the interest of furthering its enactment, the National Board of Fire Underwriters, whose 200 members write approximately 70 percent of the property insurance premiums in the District, is prepared to withdraw its request for hearing on this measure if other insurance interests follow a similar course. This does not mean we are abandoning our position on the provisions of this legislation and amendments with which we are not in accord. Rather, it means that we believe enactment of the "file and use" legislation in the District is of maximum importance. We are apprehensive that we may endanger or postpone such enactment if we press now for further amendments, which probably are controversial. Since we are confident that future exeperience will show the need for them and thus, we hope, make them noncontroversial, we do not press for them now. Yours very truly, J. RAYMOND BERRY, General Counsel. ASSOCIATION OF CASUALTY & SURETY COS., Re S. 2077, a bill to regulate in the District of Columbia rates for casualty and fire insurance. Hon. ALAN BIBLE, Chairman, Committee on the District of Columbia, DEAR SENATOR BIBLE: We understand that hearings will be held shortly on the above bill, regulating casualty and fire insurance rates in the District of Columbia. The Association of Casualty & Surety Companies is composed of 125 capital stock insurance companies, almost all of which write casualty insurance and fidelity and surety bonds in the District of Columbia and the 50 States. Our companies have been regulated under the District of Columbia rating law for a number of years. This law is a file and use type law and has operated very satisfactorily from the standpoint of the insuring public and the industry. S. 2077 is a combined fire and casualty rating law, utilizing the principle of prior approval of rates. It is our position that prior approval of insurance rates is undesirable and does not serve the public welfare. There is considerable rate competition in the field of casualty and fire insurance. The concept of prior approval of competitive rates is, in our judgment, not only theoretically unsound, but is unworkable from a practical standpoint. We are therefore opposed to S. 2077. If the Congress wishes to consolidate the fire and casualty rating laws, we believe it should be done under a no-prior-approval type of law, such as S. 1184, presently pending in the Congress. S. 1184 would make some revisions in the present casualty insurance rating law and, as revised, would be made applicable to fire insurance and allied lines. It seems to us that this is a preferable approach and that the insurance buying public of the District of Columbia will be well served by such a law, which has proved workable and in the public interest in the years that it has been applicable to casualty insurance. Yours very truly, ROBERT N. GILMORE, Jr., General Counsel. CHESTER H. SMITH, BLOOMINGTON, ILL., March 17, 1964. Staff Director, Senate District of Columbia Committee, State Farm Insurance Cos. strongly endorse position of Insurance Superintendent Albert Jordan in supporting S. 1184 and opposing S. 2077. Present District of Columbia casualty rate law has worked successfully and its application with minor amendments to fire insurance would provide a single rate law for the District of Columbia, representing a balance between extremes of execssive competition and complete rate control. Only a file-and-use law can accomplish this objective. S. 2077 would needlessly handicap the rating process and prevent insurers from responding quickly to the needs of the buyers. We are particularly disturbed by the attempt in S. 2077 to apply a prior-approval-rate law to the casualty insurance business. Proposals for modifying District of Columbia fire rate law were based on Senate committee's criticism of District of Columbia fire rate law which required all companies to be members of rating bureau. No criticism has heretofore been expressed against the District of Columbia casualty rate law. It is respectfully suggested that committee consider only modification of the District of Columbia fire rate law. DONALD P. MCHUGH, CHESTER H. SMITH, Staff director, Committee on the District of Columbia. U.S. Senate, Washington, D.C.: We are opposed to S. 2077. Since we previously appeared before or filed statements with the Senate Subcommittee on the District of Columbia through Mr. Delaney as our counsel on June 21, 1962 (in favor of S. 556), on July 16, 1963 (in favor of S. 1184), and filed a statement in connection with the postponed hearings of February 5 and 7 this year in opposition to S. 2077, we believe our position is clear as favoring flexible rating procedures such as "file and use" of rates. Accordingly we believe it would serve no useful purpose to send a witness to the hearings scheduled March 19 and 20, but would appreciate your bringing our aforementioned statements to the attention of the Senate Subcommittee and having them made part of the record. BARCLAY SHAW, Secretary, the National Association of Insurance Brokers, Inc. THE METROPOLITAN WASHINGTON BOARD OF TRADE, Hon. ALAN BIBLE, Chairman, Committee on the District of Columbia, DEAR SENATOR BIBLE: Two bills have recently been introduced in Congress to amend the laws governing the regulation of certain insurance rates in the District of Columbia-S. 1184 and S. 2077. These bills have been studied by the Board of Trade's Insurance Committee, and upon the committee's recommendation, the board of directors has endorsed S. 1184 for passage and opposed in principle the provisions of S. 2077. S. 2077 would repeal both the present fire rate law and the casualty rate law and substitute a completely new insurance rate regulatory bill. S. 1184, on the other hand, would repeal the present fire rate law, amend the casualty rate law, and extend the provisions of the latter to include insurance rates. While there has been some criticism of the current District of Columbia Fire Rate Act (passed in 1944), there has not been any criticism of the current District of Columbia Casualty Act (passed in 1948). The latter act has been in operation for 15 years and is generally regarded as a most effective one for the regulation of casualty and inland marine insurance, one that has been, and can continue to be, effectively administered by the Superintendent of Insurance of the District of Columbia. The Board of Trade agrees with the Superintendent of Insurance that it would not be wise to remove the District of Columbia Casualty Act, which is satisfactory, tested, and tried, in order to correct the fire rating law. It feels that the present casualty law should be retained and extended to the fire and property insurance field (as proposed in S. 1184-amended in some particulars as suggested by the superintendent) rather than substituting a completely new and untried piece of legislation, as proposed by S. 2077. Substituting new legislation creates the possibility that, through oversight, inadvertant omission, or incomplete understanding of the operation of the insurance industry, undesirable and chaotic conditions to the disadvantage of both the industry and the public might result. The provisions of S. 2077, including prior approval, are of questionable value to the insurance public and are, at best, highly controversial. We respectfully request that the views of the board of trade on S. 2077 and S. 1184, as amended, as contained in this letter, be presented to the committee at the hearings on S. 2077 which are presently being held. Sincerely, WILLIAM H. PRESS, Executive Vice President. |