niques which are concomitant to prior approval include, among others, prior review by the regulator, a law which contains standards, and effective administration. These are presently in existence in the District of Columbia, and, in our opinion, should not be changed. Particularly when the original proponents (file-and-use theorists) for change, having failed to change the rate regulatory pattern in the several States, are looking for an opportunity to use the hoped for action of Congress as an example in the State legislature. If the rate regulatory laws of the District of Columbia are to be changed, however, as a matter of preference, the alliance would prefer S. 2077 to other measures pending. In considering S. 2077, it should be remembered that the NAIC "proposed consolidated casualty, surety, fire, marine, and inland marine insurance rate regulatory bill," dated November 21, 1962, and officially adopted in December of 1963, was prepared pursuant to one item on the agenda of the subcommittee of the Rates and Rating Organization Committee of the National Association of Insurance Commissioners. The agenda item (see 1961 proceedings, NAIC vol. I, p. 343) adopted at the December 1961 regular meeting, read as follows: "Because the separate fire and casualty rating bills were adopted prior to the recent extensive development of multiple-line package policies, and because of different standards of the two bills with respect to subscribership and deviations handicapped further beneficial developments of this kind, the subcommittee recommends that the fire and casualty bills be consolidated." The assignment which was given the NAIC subcommittee was to combine the then separate model rate regulatory bills and incorporate three substantive changes. This assignment was completed. The consequences of this action has left several questions unanswered and we feel compelled to comment with respect to them. The assignment given to consolidate the separate laws did not contemplate consideration by the committee of the desirability of a separate law for or a new approach to multiple line questions. The two bills in the first instance were separate as the all-industry committee developed separate approaches to the effective regulation of fire lines and casualty lines of insurance. Simply to combine the two measures, taking in many instances the more liberal provisions, deserves careful consideration. The changes which were made in the “aggrieved party" section so as to eliminate a rating organization from the status of an "aggrieved party” are, we believe, objectionable. As a practical matter, unless competitors are permitted to have the status of an "aggrieved party," enforcement for practical purposes becomes almost totally nonexistent. Congress has in the past recognized that within an industry where competition is regulated, a competitor has a vital interest in the administrative disposition of requests, applications, etc., by another competitor if the proposals will affect the former's markets. Further. commonsense dictates that the Superintendent should be interested in receiving the best information he can from any source to assist him in judging the merits of rating proposals. We feel compelled to comment further with respect to the deviation section of the combined bill, as it has been patterned after what was formerly the fire law. The effect of this, when it is applied to casualty lines, is to remove many of the sound limitations which are considered essential for the maintenance of stability in the casualty insurance field. We therefore respectfully submit that the present rate regulatory laws which are in effect in the District of Columbia, should be retained. However, if the law is to be changed, we submit that Senate bill 2077 is preferable to other measures currently pending. THE NATIONAL ASSOCIATION OF INSURANCE AGENTS, Hon. THOMAS J. MCINTYRE, DEAR SENATOR MCINTYRE: On March 20, 1964, at the close of the hearing held on S. 2077, you announced that statements by proponents and opponents, in rebuttal, would be received by the subcommittee provided such statements were filed not later than Friday, March 27. We respectfully submit the following additional points to supplement the presentation made on behalf of the proponents of S. 2077. I. The record lacks probative evidence to demonstrate that a change in the District of Columbia insurance laws is needed. (a) Testimony given by a representative of the District of Columbia Association of Insurance Agents in July 16, 1963, at a hearing on S. 1184, included the following: "Our association, in view of present effective regulation of the insurance business in the District, sees little need for change in legislation with the exception of the desirability of a single rate regulatory act. If Congress in its wisdom decides that the present laws should be liberalized, however, we would not oppose S. 1184, provided, that certain amendments are incorporated as proposed by our Commissioners." [Italic added.] This position was, in substance, reiterated by the District of Columbia Association of Insurance Agents on March 20, 1964, at the hearing held on S. 2077. The following is quoted from that statement: "We feel that there is no necessity for changing of the present laws of the District of Columbia unless there is a distinct benefit to the insurance public, particularly we feel there is no need for the legislation in S. 2077. We know of no complaints or problems from the insuring public or the industry arising from this administration. Are rates so accepted also inadequate in the District of Columbia to justify a change in legislation? "We do not identify ourselves as either opposing or approving so-called prior approval or file-in-use legislation or any other legislative concept of ratemaking or filing. We oppose this legislation purely on its merits. It is unneeded and may well prove to be unworkable for the District of Columbia. We do not wish to be placed in the position of either sponsoring or opposing legislation which is considered model. Any legislation considered for the District should be so drawn as to improve control of the ratemaking process so that the interests of the insurance buying public would be better protected than at present. It seems to us that the public interest in the District is being protected under the present law." We find ourselves in complete agreement with this position; namely, that there is no present need to change the insurance laws of the District of Columbia. We believe that the present laws of the District, as ably administered by Superintendent Jordan, have achieved, and continue to achieve the objectives of effective regulation of insurance rates in the District. The statements and testimony set forth in the record do not demonstrate or establish a contrary position. If, as has been asserted by some of the witnesses in opposition, a change is called for by reason of multiple lines insurance developments, then we contend that S. 2077 is the best vehicle to accomplish this purpose. This assertion will be more fully developed in the following subdivision. (b) Superintendent Jordan's testimony on March 20, 1964, suggested that the fire sections of the present District insurance law has grown somewhat obsolete since its enactment in 1945. He pointed out that the many changes which have occurred in the insurance field since that time, particularly multiple line and package policy developments, dictate the need for updating the present law. This could best be accomplished, he suggested, by consolidating fire and casualty regulation within the framework of a single bill. In his opinion. S. 1184 was to be preferred to S. 2077. Superintendent Jordan acknowledged, however, that the administration and regulation of insurance rates in the District of Columbia have been successfully carried out under the present laws of the District. In fact, Senator Morse made a particular point of praising the administration of Superintendent Jordan, and his effectiveness in achieving the purposes of regulation under the present statutes, calling attention to the fact that no serious complaints have been made to the operations of this important department in the District's government. It would be difficult to advance a more persuasive argument in favor of the status quo, and that no changes in the present laws are needed. If Superintendent Jordan's major concern is to amend the law so as to facilitate his administration and regulation of multiple line underwriting, then we respectfully call to the attention of the subcommittee, the prime purpose which guided the National Association of Insurance Commissioners in its development of the consolidated model bill. This bill is essentially identical with S. 2077. That purpose was specifically stated in NAIC Proceedings-1963. volume I, beginning on page 227, reading as follows: "Because the separate fire and casualty rating bills were adopted prior to the recent extensive development of multiple line package policies, and because of different standards of the two bills with respect to subscribership and deviations handicap further beneficial developments of this kind, the subcommittee recommends that the fire and casualty rating bills be consolidated." [Italic added.] Thus. S. 2077 is particularly designed to meet the precise problems contemplated by Superintendent Jordan. Moreover, the NAIC consolidated model bill represents the collective thinking of the insurance commissioners of the 50 States, based upon the experience actually encountered throughout this Nation, from the smallest to the largest States. We submit that the collective judgmen of the insurance commissioners of all the States is entitled to respect and the careful consideration of this subcommittee. There is still weight to the old dictum that "many heads are better than one." While we are firm in our conviction that the record discloses no substantive evidence to suport a change in the present laws of the District, if the subcommittee is convinced that a change is desirable, then we urge the favorable consideration of the principles of prior approval as contained in S. 2077, as the preferable vehicle for accomplishing the purposes of effective and positive rate regulation. II. A question has been raised as to why the NAIA now takes exception to proposed no-prior-approval legislation for fire insurance, yet did not register objection in 1948 to the passage of similar legislation applicable to casualty insurance. (a) In 1948, the proposed NAIC-all industry bills for fire and casualty insurance were thought to provide the legislative pattern most consistent with the mandate of the McCarran Act (Public Law 15) which followed as a consequence of the SEUA decision. As is well known, 23 industry organizations, including the National Association of Insurance Agents. cooperated with the NAIC in the development of these bills which provided for the prior approval of rates. In due course, these bills were recommended for consideration by the legislatures of the several States. Obviously, each State could accept, reject, or modify the recommendations as each saw fit. It is a tribute to the validity of the proposed bills that approximately 40 States did adopt, in substance, their basic provisions. It is also important, however, to recall the climate and circumstances under which these activities were taking place. The industry was faced with the reversal of a concept of State regulation which had been in effect for nearly 100 years. The all-industry bills were developed to meet this entirely new situation and no one could assert with confidence that a correct solution had been found. Only time and experience could establish this fact. (b) When the District of Columbia enacted its casualty rating bill in 1948, there were no firm precedents or adequate experience to enable the National Association of Insurance Agents to take a firm stand on this matter. Indeed, it is the fixed policy of the NAIA not to intrude upon local matters but rather to restrict itself to affairs of national import. At that time, at the inception of the legislative efforts of the several States to meet the mandate of Public Law 15. it was not clearly apparent that the casualty law enacted in the District of Columbia would have specific national significance. In the intervening years, the experience and precedents which were lacking before, have accumulated. Although the O'Mahoney committee conducted an extensive investigation into the subject of State regulation in 1959-60, the Congress has not enacted any legislation during this period which would reflect its views on the manner by which the States were discharging their responsibilities. If the Congress should now enact S. 1184, with its allowance of no prior approval, this would indicate that this feature had congressional blessing. Can anyone reasonably deny that the best indication of what Congress meant by the "regulation of insurance," within the purview of Public Law 15, is to be found in any rating law that it enacts for the District of Columbia? And, by the same token, such a law would be the standard for testing the effectiveness of the laws enacted by the several States. It is for this reason that the National Association of Insurance Agents regards the consideration of S. 1184 as having national import, far beyond the area occupied by the District of Columbia. These considerations were not clearly apparent in 1948 but are vital and compelling today. This, then, is the basis for our appearance at the recent hearings in contrast to our absence in 1948. III. The file-and-use provision of the New Hampshire law, coupled with the right to suspend a filing for 30 days, does not provide an adequate basis for a compromise between S. 1184 and S. 2077. (a) Notwithstanding the suspension right, the New Hampshire law is a "no prior approval" statute. It is believed to be the only State having such a suspension provision. If the right to suspend is not exercised, a rate might become immediately effective which had little or no actuarial justification. Thus, a loophole exists which could be detrimental to the public interest and the solvency of the companies. (b) It should also be noted that the present New Hampshire commissioner is a man of long tenure and enjoys an excellent reputation in the industry. He has found it necessary to rely upon a different provision of the New Hampshire law which permits an automatic disapproval of all deviation applications in order to gain sufficient time to give them adequate consideration. In effect, this would appear to be equivalent to prior approval. If the insurance commissioner in New Hampshire changed with the regularity found in many States (approximately every 21⁄2 years), then the administration of this law might follow a different course, depending on the differing policies of succeeding administrations. IV. A provision in a “file-and-use" bill, permitting retroactive disapproval of filings within 30 days from their effective date would not depart from the "no prior approval" concept. (a) Such a provision would not adequately protect the public against the use of excessive or inadequate rates, nor the damaging effects of unbridled competition. This is so because a rate, no matter how unsound, could be placed in effect immediately upon filing. (b) The retroactive disapproval of a rate would create a multitude of accounting, financial, and political problems. If a low rate were retroactively disapproved and a higher rate substituted therefor, how would the additional premium be collected? As a practical matter, would a commissioner find such a procedure politically epedient? If a higher rate were retroactively disapproved in favor of a lower rate, how would reimbursement of the excess be administered? Again, if a higher rate were substituted for a lower rate that had been retroactively disapproved, what are the contractual rights of the public who paid the lower rate at the time the policy was issued? Would it be necessary to hold all premiums in escrow until the expiration of the 30-day period? We respectfully request your favorable consideration of the foregoing points. Sincerely yours, Hon. THOMAS J. MCINTYRE, ROBERT W. STRAIN. GOVERNMENT EMPLOYEES INSURANCE CO., Chairman, Subcommittee on Business and Commerce of the Committee on the District of Columbia. DEAR SENATOR: At the conclusion of the hearings on Senate bill 2077 on March 20, you announced that the hearing record in these proceedings would remain open for rebuttal statements or any other statements until Friday, March 27. As part of the testimony of Dr. Robert W. Strain, executive secretary of the National Association of Insurance Agents, on March 19, Dr. Strain included a copy of a report dated June 5, 1961, of the NAIC Subcommittee To Review Fire and Casualty Rating Laws. That report, which is referred to on page 62 of the stenographic report of proceedings of your hearing, state some conclusions concerning the issue on prior approval versus no prior approval. At the meeting of the National Association of Insurance Commissioners on December 4, 1961, Mr. Vestal Lemmon, general manager of NAII, presented a comprehensive statement answering the questions raised in the June 5, 1961, report referred to by Dr. Strain. We respectfully ask leave to include, as an extension of the testimony of George Peery of our company before your subcommittee, that statement by Mr. Lemmon, copies of which are enclosed. We request that this statement be included in the printed record of the proceedings before your subcommittee. The courtesy and kindness shown to Mr. Perry in his appearance before your subcommittee is sincerely appreciated. Respectfully submitted. WARREN NIGH. 21-993-64-pt. 2- -10 STATEMENT OF VESTAL LEMMON, GENERAL MANAGER OF THE NATIONAL ASSOCIATION OF INDEPENDENT INSURERS Our association has on at least three separate occasions formally presented testimony and recommendations to this committee on various aspects of the important subject under study by the committee. (1) We believe that these statements have demonstrated both the compelling necessity for and the wisdom of the changes in the rating laws which we proposed, and which by now are well known to you. Nevertheless, we feel impelled to present this supplementary statement in view of the report of this committee at Philadelphia which admonishes the industry for an alleged failure to sustain the burden of "coming forward with concrete information bearing on the merits of their proposals" (2). Also, during the recent Condon committee hearings in New York, Superintendent Thacher, a member of your committee, observed that no response had been made to the Philadelphia report. Mr. Thacher indicated some willingness to reconsider proposals for elimination of prior approval if the objections enumerated in that report could be satisfactorily overcome (3). For these reasons, my statement today will deal with the matters discussed in the Philadelphia report. Our association has already filed a statement under date of October 6, 1961, addressed to the drafts of amendments pending before this committee on the aggrieved person question and the deviation procedure. The Philadelphia report sets forth a number of criticisms of the position or supposed position of those of us who favor elimination of prior approval. It also delineates certain areas of concern to which it asserts we have not given sufficient attention. Before dealing with these matters on a point-by-point basis, it is necessary first to come to grips with the conclusion announced by the committee at the close of its report; to wit, that elimination of the prior approval mechanism "would ultimately tend to the lessening of competition and the erosion of effective regulation in the public interest." This sweeping conclusion was the most deeply disturbing part of the entire report. If tenable. it not only obviates any further discussion of the proposals we have made, but, as I shall point out later, it undermines the existing rate regulatory statutes in a number of States. In our considered judgment the quoted conclusion is completely untenable. It is without warrant in the findings of the report, in the record of the committee's hearings, or in the history of State regulation. We are unable to find any credible support for this statement in the evidence adduced in the committee hearings. All that could be said to have any bearing on the question were the highly conjectural opinions of several witnesses to the effect that elimination of prior approval might somehow catapult us into an era of unrestrained "dog-eat-dog" price warfare. These predictions, while dramatic, were never documented. Moreover, several of the witnesses who made them also asserted that a rate war is already in existence under prior approval laws-poor support, indeed, for their argument that we must retain prior approval to prevent such eventualities. The suggestion that our proposal will somehow open the door to unsound pricing practices is not only lacking in a probative foundation, but it is directly contrary to past experience, to the provisions of our bill, and to the plain facts of life in the insurance business. This was made abundantly clear in the hearings before your committee. Certainly, the best evidence of whether a regulatory procedure does or doesn't have dangerous propensities lies in the experience under kindred procedures. The basic procedures of our bill are not new, radical, or untested. Nine States (4) have laws which do not require prior approval of rates for fire or casualty or both a fact which the Philadelphia report completely ignores, in spite of frequent emphasis and repetition in our testimony and that of other witnesses. If the horrors of a no-prior-approval procedure painted by some of our opponents were real, why haven't they materialized in the more than 15 years of existence of these laws? Why, indeed, have the opponents carefully avoided all reference to those nine statutes? The reason is obvious. The history of regulation under those statutes completely refutes their charges. Price structures have been every bit as sound and stable under the no-prior-approval laws as under the prior-approval laws, and in many instances more adequate. The public interest has been well served. companies of all sizes have thrived, and there is no discernible dissatisfaction with those regulatory systems from any quarter. This is as true of the Cali |