Independent Insurance Agents of America, Inc., letter to Senator Proxmire Page from Edward J. Kremer, chairman, Federal Affairs Committee.. International Co-operative Insurance Federation, report of the Commission on Inflation and Insurance_ 777 674 Kentucky Department of Insurance, memorandum to Senator Proxmire from Harold B. McGuffrey, commissioner of insurance. 533 Kentucky Insurance Guaranty Association, statement of Edward H. 529 League Insurance Group: Letter to Senator Proxmire from Dennis F. Reinmuth, director of special projects---- 672 Letters and memorandums from Jack E. Birkinsha, secretary and 647 662 Legal and General Insurance Company (United Kingdom), indexed family income plan.-- 754 Life Insurers Conference, comments on S. 1710.. National Association of Insurance Commissioners: Answers to subsequent written questions of Senator Proxmire.... Reprint of the McKinsey study of the early warning system and explanatory materials. 782 366 789 197 202 National Association of Mutual Insurance Cos., statement received for the record____. 795 New England Mutual Life Insurance Co., statement of Edward E. Phillips, president 798 New York Life Insurance Co., letter from R. Manning Brown, Jr., chairman of the board... 804 Securities and Exchange Commission: Letter from Chairman Williams to Senator Brooke, enclosing litiga- State Farm Insurance Cos. of Bloomington,, Ill., attachments to state- Model policyholder security account statute.. Section-by-section analysis – – Washington Post, reprint of article titled "How an Insolvent Firm Keeps 48 40 593 616 630 506 CHARTS AND TABLES Average annual inflation rates 1965-70 and 1970-74 in percent.. 747 Average delay of settlement.. 698 Breakdown of the expenditure incurred by nonlife insurance companies. 696 actual State guarantee fund experience. 420 Current investment practices, selected countries, 1975.. 761 691 Indices relevant to automobile repair costs. 729 Industry profitability all lines countrywide property and liability insurance. 153 746 Stock market indices_-_ 753 FEDERAL INSURANCE ACT OF 1977 MONDAY, SEPTEMBER, 12, 1977 U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, D.C. The committee met at 9:40 a.m., in room 5302, Dirksen Senate Office Building, Senator William Proxmire, chairman of the committee, presiding. Present: Senators Proxmire, Sparkman, Brooke, and Lugar. OPENING STATEMENT OF CHAIRMAN PROXMIRE The CHAIRMAN. The committee will come to order. The committee today begins 3 days of hearings on S. 1710, the Federal Insurance Act of 1977. In the past couple of years there has been increasing concern about the financial condition of insurance companies. The GEICO situation received a great deal of press attention and caused much anxiety to policyholders. It raised considerable doubts about the ability of the present system to cope with a major insurance insolvency. The bill before us today seeks to bolster the financial stability of the property casualty insurance industry by offering on a voluntary basis a Federal alternative to the present system of State regulation of insurance companies. S. 1710 would, in effect, create a dual insurance system similar to the dual banking system which has long existed in this country. We do this in the following ways. First, by establishing a Federal insurance guarantee program similar to the Federal Deposit Insurance Corporation for financial institutions as an alternative to the present network of State guarantee funds; and, second, by providing a Federal chartering alternative for insurance companies similar to that which is available to banks and savings and loan associations under the dual banking system. I am reluctant at this point to take yet another step toward involving th Federal Government in private business and toward encouraging more bureaucracy and more red tape. The burden of proof in this case must rest with those that argue that more Federal intervention in the insurance industry is needed. They will have to make a strong case that the problems arising in interstate insurance transactions threaten the interest of policyholders and the public generally, and that State legislation alone cannot deal with these problems. I'm sure that points will be made on both sides of the issue in the course of these hearings. Senator Brooke is the author of S. 1710. He and his staff have done an excellent job of drafting the legislation and arranging this initial set of hearings to air the basic questions. Senator Brooke, I understand you have an opening statement. OPENING STATEMENT OF SENATOR BROOKE Senator BROOKE. Thank you, Mr. Chairman. Mr. Chairman, on June 16 of this year I introduced S. 1710, titled The Federal Insurance Act of 1977. This bill is a revised version of S. 3884 which I introduced at the end of the 94th Congress. The bill grew out of my concern about the financial condition of the property casualty insurance business. In 1974 and 1975 property casualty companies experienced the 2 worst years in their history with combined underwriting losses totaling $7 billion for the 2 years, and there was a considerable concern at that time that one or more major insurance companies would be declared insolvent. A year ago newspaper headlines were speculating on the possibility of the failure of the Government Employees Insurance Co., GEICO, and the effect of such a failure on the policyholders of that company. The New York Times on June 11 of last year reported that there was a consensus that the already strained guarantee fund pools could not handle the intense claim activity of a GEICO portfolio. The weakened financial condition of the property casualty industry and the possibility of a major company failure prompted me to consider what steps might be taken to insure protection for policyholders and to improve the quality of regulation for solvency. Since last year the outlook for the property casualty insurance industry has improved. According to Best's Review, in 1976 underwriting losses totaled $2.2 billion. While preliminary first quarter figures for 1977 indicate underwriting losses in the range of $484 million, it is expected that second quarter figures will show a turnaround in underwriting results. Also, the GEICO situation appears to have turned around. But the mere fact that the $2.2 billion in underwriting losses can be regarded as an improvement shows how deeply troubled the property casualty industry has been. Of course, I hope that the worst is over and that the industry will make a strong recovery, but the trauma of the last few years has brought home to me the need to improve the protection available to insurance policyholders before the next brush with disaster. On May 25 the Washington Post carried a story entitled, "How an Insolvent Firm Keeps Selling Insurance." According to that article, as of last May, the approximately 175,000 policyholders of New South Life Insurance Co. of Columbia, S.C., were unable to exercise their rights to obtain the cash surrender value of their policies or to borrow against their policies because since 1971 New South had been insolvent and policyholders' funds are being used, interest free, to bail out the company and its owners. Yet New South salemen are still selling policies to unsuspecting buyers who apparently are unaware of the company's financial condition. According to the Washington Post, about. |