AUTHORITY OF SUPERINTENDENT TO MAKE ADJUSTMENT Whenever it shall be made to appear to the Superintendent that there are reasonable grounds to believe that the rates on any and all risks * * * are not in accordance with the terms of this chapter, it shall be his duty, and he shall have the full power and authority to investigate the necessity for an adjustment of any or all such rates. SEC. 4 (c). After such investigation of any such rates, the Superintendent shall, before ordering any appropriate adjustment thereof, hold a hearing ***. If after the hearing the Superintendent determines that any or all of such rates are excessive or inadequate, he shall order appropriate adjustment thereof✶ ✶ SEC. 4(b). Every filing made under this section and every deviation filed under this Act, together with the information filed in support thereof, shall be open to public inspection from and after its designated effective date. Any filer may incorporate by reference into its filing or deviation all or part of any existing filing or deviation and supporting information. *** in the Superintendent's possession which is open to public inspection. Re S. 2077. Hon. ALAN BIBLE, AUTHORITY OF SUPERINTENDENT TO MAKE ADJUSTMENT (SEC.) 5 (C) ) If at any time subsequent to the applicable review period provided for in subsection (a) or (b) of this section, the Board finds that a filing does not meet the requirements of this Act, it shall after a hearing *** to every insurer and rating organization which made such filing issue an order specifying in what respects it finds such filing fails to meet the requirements of the Act, and stating when, within a reasonable period thereafter, such filing shall not be deemed no longer effective ***. Said order shall not affect any contract or policy made or issued prior to expiration of the period set forth in said order. STATE OF NEW YORK, INSURANCE DEPARTMENT, New York, November 27, 1963. Chairman, Committee on the District of Columbia, DEAR SENATOR BIBLE: I write in response to your letter of November 13, 1963, in accordance with the suggestion of Commissioner Kueckelhan, of Washington, president of the National Association of Insurance Commissioners, and on behalf of the Federal Liaison Committee of the NAIC. By memorandum of May 8, 1963, the NAIC furnished each member of the Senate Committee on the District of Columbia with five reports of the NAIC subcommittee concerned with review of fire and casualty rate regulatory laws, as adopted by the NAIC in 1960, 1961, and 1962. I will refer to those reports in furnishing the information which you have requested. Comparison of S. 2077 with the text of the NAIC consolidated model bill shows that S. 2077 is identical, in all substantial respects, with the NAIC consolidated model bill, a copy of which is annexed to the last of those five reports (December 1962). Before going further, I believe that the attention of your committee should be specifically called to the footnotes to the NAIC consolidated model bill which follow the text of the bill in that report at pages 12 and 13 of the copy which was furnished to you. Among other matters, those footnotes call attention to the possible need to vary certain provisions in the model bill in accordance with basic administrative law of the jurisdiction in which it might be considered for enactment. In addition, 21-993-64-pt. 2- -2 footnote 7 points out that an open question of public policy (i.e. with respect to the establishment of assigned risk plans) is presented by the broad scope of section 15 of the model bill (which is also sec. 15 of S. 2077). As far as I know, provisions for assigned risk plans have been heretofore specifically confined to automobile liability insurance and workmen's compensation insurance, i.e., insurance areas where specific coverage is required by statute or by administrative regulation. As you know, in 1945 and 1946 the NAIC undertook to develop model rate regulatory bills. NAIC committee which developed these bills stated in December 1945 (proceedings, 1946, pp. 364–365): "*** The committee makes no claim that the proposed bills represent the ultimate or last work in rating bills. It is recognized that the science of rate regulation is a progressive one and that changes in thinking will occur as our experience and stock of knowledge increase. "For those States which subscribe to the principles set forth in these bills the committee recommends the use of the bills as legislative guides." The result of this was two model bills-one for fire, marine, and inland marine insurance, the other for casualty and surety. Briefly put, these were procedurally identical in most important respects but varied somewhat in definitions and terminology. These were variations then believed necessary to reflect differences between problems presented by fire insurance ratemaking and those in casualty insurance ratemaking. In large part, these simply reflected patterns which had developed in those two different insurance areas up to 1946-and before extensive development of "multiple-line" insurance. In enacting or amending rate regulatory laws, many States followed the path indicated by the NAIC model bills. Some States, notably California, chose a different regulatory approach. Some States adopted legislation patterned after the NAIC model fire rating bill, but diverged from the NAIC model casualty rating bill, at least with regard to regulatory procedure. The NAIC has refrained from appearing before any State legislature to urge the adoption of its model bills and, as a matter of principle, would not wish to urge the Congress to adopt any specific bill for the District of Columbia. This position is reflected in the first of the five reports furnished your committee (see p. 4 of the Nov. 28, 1960, report). Nevertheless, the NAIC, representing collectively the insurance commissioners of the several States, has devoted careful attention to, among other matters, the need-in the light of "multiple line” insurance developments for a greater degree of uniformity in fire and casualty ratemaking and regulation than appeared to be advisable when the two separate model bills were developed by the NAIC. Certainly for those legislatures which enacted laws patterned after the two separate model bills and which now wish to unify such laws without other substantial procedural or regulatory change (except as hereinafter mentioned) the new NAIC consolidated model rate regulatory bill should be a satisfactory vehicle to accomplish that result. This conclusion (or recommendation, if you will) is inherent in the reports which the NAIC has adopted and which have been furnished to your committee. As those reports also reflect, the NAIC in 1959, 1960, 1961, and 1962 gave (through its subcommittee to review fire and casualty rating laws and regulations) attention to several important matters involving rate regulatory procedure. Among these was the so-called prior approval versus subsequent review methods of rate surveillance to which former Superintendent Thomas Thacher, of New York, as chairman of the NAIC Federal Liaison Committee, called attention in his letter of April 26, 1963, to the staff director of your committee. I attach a copy of that letter. As the NAIC reports referred to show, the NAIC, after consideration of that question, concluded in 1961 that, in the words of the reports on the matter (see second and third reports): "The subcommittee has made every effort to give careful and objective consideration to each of the various proposals involving abandonment of 'prior approval' of rates in favor of 'post-effective-date review.' While not wedded to existing procedures for rate determinations, the subcommittee believes that the advocates of change bear the burden of demonstrating that change is needed in order to serve the public interest better than existing procedures. This condition, in the subcommittee's view, has not been met; it accordingly records its unanimous opposition to the abandonment of 'prior approval' in favor of the proposals before it and its unanimous conclusion that adoption of such procedure would ultimately tend to the lessening of competition and the erosion of effective regulation in the public interest." Since this matter has already been called to your committee's attention, I refer to it here simply to emphasize that in developing the consolidated model bill, adopted by the NAIC last year, possible further attention to the "prior approval" versus "subsequent review" controversy was deliberately foregone, at least pro tempore. Representatives of the insurance industry who addressed themselves to the NAIC proposal for consolidating the two model bills cooperated with the NAIC by proceeding on such a premise-despite the fact that a number of industry groups differed with the NAIC's recommendations on the "prior approval" controversy. On the other hand, the consolidated model bill does incorporate certain procedural provisions (involving matters of substance) at variance with those inIcluded in the separate fire and casualty model bills of 1946. The reasons for these are set forth in first of the reports furnished you (November 1960). The changes are summarized in the fifth report which accompanied the consolidated model rating bill, as follows: "(1) amendment of the 'aggrieved party' section to carry out the recommendation that no rating organization should have the status of an aggrieved party with respect to any filing in effect or before an insurance commissioner for consideration; "(2) removal of the fixed maximum duration of 1 year on deviations from rating organization filings; and, “(3) denial to rating organizations of standing to require a hearing upon an applicaton for a deviation before it is acted upon by a commissioner." I believe that this letter, supplemented by reference to the material furnished by the NAIC to your committee last May, answers the questions raised by your letter of October 30, 1963, to NAIC President Kueckelhan, but I am sure that if you desire any further information with respect to the consideration which the NAIC has given to the matters involved in its consolidated model bill, the NAIC through its Federal Liaison Committee will be pleased to be as helpful as possible. Sincerely yours, Mr. CHESTER H. SMITH, SAMUEL C. CANTOR, Acting Superintendent of Insurance. STATE OF NEW YORK, Staff Director, Committee on the District of Columbia, DEAR MR. SMITH: As chairman of the Federal Liaison Committee of the National Association of Insurance Commissioners, I have received from Mr. Tollack, its executive secretary, a copy of your letter of April 3, 1963, to him with regard to S. 1184. Inasmuch as this proposal would apparently adopt a "subsequent review" method of fire and casualty insurance rates surveillance in lieu of a "prior approval" system, it occurs to me that the members of your committee may wish to consider those recent NAIC reports having to do with fire and casualty ratemaking, particularly those which set forth its position regarding arguments advanced at the various hearings before its "L(1)" subcommittee with respect to the "prior approval" issue. Accordingly, by copy of this letter to Mr. Tollack, I am asking him to send you sufficient copies of those reports to permit you to put a set in the hands of each member of your committee. Very truly yours, THOMAS THACHER, Superintendent of Insurance. Senator MCINTYRE. I have here a section-by-section analysis of S. 2077 prepared by the National Association of Insurance Agents, Inc., of New York City, N.Y., which I ask be incorporated at this point in the record. (The document referred to follows:) NATIONAL ASSOCIATION OF INSURANCE AGENTS, INC., New York, N.Y., September 11, 1963. RE S. 2077, A BILL TO REGULATE IN THE DISTRICT OF COLUMBIA RATES FOR ALL FORMS OF CASUALTY INSURANCE, INCLUDING FIDELITY, SURETY, And Guaranty BONDS, AND FOR CERTAIN FORMS OF FIRE, MARINE, AND INLAND MARINE INSURANCE, AND FOR OTHER PURPOSES A draft of this bill was adopted by the National Association of Insurance Commissioners in December 1962, after several years of intensive study by a subcommittee to review fire and casualty rating laws and regulations of the rates and rating organizations committee. As an expression of the thinking of the country's insurance supervisory officials, it should be given great weight in any consideration of insurance rating laws for the District of Columbia. This is especially true because the Congress has declared its intent in Public Law 15 of the 79th Congress that "the continued regulation and taxation by the several States of the business of insurance is in the public interest." The origins of this bill go back to 1946, when the National Association of Insurance Commissioners adopted two bills for the regulation of insurance rates; one for casualty and surety rating and one for fire, marine, and inland marine rating. The NAIC was assisted in its considerations by an all-industry committee made up of all leading organizations in the business formed after the 1944 decision of the U.S. Supreme Court in U.S. v. South-Eastern Underwriters, 322 U.S. 533, 64 S. Ct. 1162 88 L. ed. 1440 (1944), which declared that insurance was commerce, and the enactment of the McCarran-Ferguson Act, Public Law 15 of the 79th Congress, in 1945. Since adoption by the commissioners in 1946, these proposals were enacted into law, with variations in some States, by the overwhelming majority of State legislatures. After a fresh review in recent years, the commissioners agreed to consolidate the rating bills for fire and casualty into one rating bill in order to reflect the development of mulitple-line package policies. The only substantive changes were to eliminate the standing of rating organizations as aggrieved parties; to eliminate rating organizations of standing to require hearings on applications for deviations; and to eliminate fixed maximum duration of 1 year on deviations from rating organization filings. In a report adopted by the commissioners in 1961, it was unanimously decided by the subcommittee to review fire and casualty rating laws and regulations that the "prior approval" approach to rate regulations should not be abandoned. Among the several reasons for this decision was that "proponents of 'post-effective-date review' appear also to make light of problems of supervision in the interest of solvency." Section 1-Purpose of act ANALYSIS OF THE BILL The purpose of section 1 becomes clear when read in the light of the congressional debate preceding the enactment of Public Law 15 of the 79th Congress, the reports of the various congressional committees in connection with that bill, particularly Report No. 143 of the House of Representatives dated February 13, 1945, and the law itself. These sources of material indicate quite plainly that Congress was willing to permit cooperative action, including price fixing, in the insurance business on a State level providing such activity was regulated and at the same time was interested in seeing to it that reasonable competition was preserved. Section 2-Scope of act The wording of this section is generally self-explanatory. Section 3-Making of rates Subsection (a) recognizes the general principles to be considered in ratemaking. Subdivision 2 of subsection (a) is designed to recognize differences in the operating methods of insurers in the field of ratemaking and was specifically intended to preserve their independence in this respect. Subdivision 3 of subsection (a) is designed to provide added flexibility in the rate structure in the public interest. Subdivision 4 of subsection (a) sets forth the standards to be used in ratemaking and in rate regulation. Subsection (b) is incorporated in the bill to implement directly section 1, the purpose clause. In drafting these bills it was recognized that many companies desired to take independent action. It was recognized that uniformity, while authorized, should not be mandatory, thereby preserving freedom of action upon the part of those who desire to take action independently. Section 4-Rate filings Subsections (a) and (b) of this section contemplate that all material data on rates shall be a matter of public record and this result is accomplished by a mandatory provision for filing. In subsections (c) and (d), duty is imposed upon the Board to review filings as soon as reasonably possible after they have been made in order to meet the requirements of this act. This bill provides for the use of a waiting period between the time the filing is made and when it is to be used. The theory of the bill is that the Board will examine the filing during that waiting period. It provides a waiting period of 15 days plus an optional waiting period of 15 additional days, making 30 days in all. It was felt that this 30-day period under most circumstances would afford the Board ample time within which to review a filing before it took effect and at the same time would not unduly impede the expeditious transaction of business. Subsection (d) also contains a provision permitting acceleration of the effective date where the Commissioner has reviewed the filing before the expiration of the waiting period or any extension thereof. Subsection (e) is a clause designed to meet a problem peculiar to the fidelity and surety business. Certain forms of bonds are required to take effect forthwith and it would be impractical to suspend their effective date during the waiting period. Subsection (f) is designed to permit the Board to dispense with filing under certain circumstances. The language of this subsection is self-explanatory. Subsection (g) is designed to provide relief for those assureds which are unable to obtain insurance at normal rates. To prevent abuses the approval of the Board for any excess charge is required and the Board in giving such approval may, of course, be guided by the statutory yardsticks set forth in section 3(a)4 of this bill. Assigned risk plans are treated in section 15 of this bill. Subsection (h) contains a provision requiring insurers to observe the provisions of this act in connection with the issuance of policies. Section 5-Disapproval of filings The language of subsection (a) is generally self-explanatory. One phase of it requires the Board in disapproving a filing to set forth the specific grounds on which it relied in making the determinations. While the Board should consider the expense components of a rate in order to determine its overall correctness, the bill does not authorize the Board to regulate the actual disbursements made by an insurer for expenses. Subsection (b) is likewise self-explanatory. Since many of the bonds written under this section cannot be canceled by the insurer, it was necessary to incorporate in this subsection a provision that any disapproval shall not be retroactive. Subsection (c) is designed to meet two contingencies: (1) Where a rate takes effect under the deemer clause (sec. 4(d)) and the Board subsequently discovers that the rate does not meet the standards, it can review the filing; and (2) there are many filings which are proper when made but which subsequently, due to a change in the statistical or economic picture, do not meet the requirements of the act. This subsection enables the Board, after a hearing, to disapprove filings which do not meet the requirements of the act. It contains a provision which prevents the Board from making its order effective retroactively. Subsection (d) is designed to provide relief for designated persons or organizations aggrieved with respect to any filing. Section 6-Rating organizations This section deals with rating organizations and their activities. It provides for the licensing of such organizations and establishes standards therefor. Section 7-Deviations Under ordinary circumstances deviations have been granted because of demonstrated savings in the expense portion of the dollar. It is recognized, however, |