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to place any additional capitalization requirements on these companies unless they would broaden their scope of activity.
For instance two of the taxicab companies—we actually have three in the taxicab industry—I would not assume that they would move into any new fields. It is a speciality field, and two of the companies are dormant companies and having already become dormant because of the problems of surviving, I would think that it would be proper not to have them start up again, unless they were to be properly capitalized.
I know of no domestic or foreign company that has any objection to this increased capital limit. In fact, only six foreign companies are below the million dollar mark, and only one of those below the $600,000 mark, and that company is owned by a very large life insurance company and would not have any problem if it needed to perform capital into this company. So the domestic companies are aware of this change; they have no objection that I know of whatsoever.
Mr. STUCKEY. So, basically you are saying that there will not be any effect; that the increase in capital and surplus on the present companies
Mr. LOMBARD. It will not affect them unless it would broaden their authority, and they have not made a point that it would not affect them.
Mr. STUCKEY. And there have been no objections from any of your companies ?
Mr. LOMBARD. No objections whatsoever. Mr. STUCKEY. What is the claim experience for domestic companies? Can they presently pay their bills?
Mr. LOMBARD. We have had a history in the District of insurance company difficulty and problems, but they have not extended to the policyholders. During the period of 3 years, between 1965 and 1968, five of our domestic property insurance companies went out of business with substantial loss to their stockholders.
But, with a cushion, even the cushion we had of the surplus and capital requirements, the Department working with the companies was able to protect the policyholders, as in the case of one company here whose present resources are $137,000; 5 or 6 years ago they had resources of $700,000 or $800,000. Now, they have paid their claims. In fact, all of the companies that went out of business, five of them, paid their claims and managed to keep from going completely insolvent.
But an increased surplus requirement will provide more of a cushion than we had then, and should the same thing happen again, there would be more of a margin of safety for the public.
Mr. STUCKEY. I think this is one of the really worthy parts of the bill, and, of course, the bill was intended to do just that—to give a greater protection to the policy holders from any financial loss or insolvency on the down part of the insurance companies. And I would like to add that my knowledge is that no one has opposed the bill.
Mr. LOMBARD. That is correct, sir. The larger companies, especially State Farm, one of the largest mutual companies, at the beginning of this venture into these guarantee funds made the point that there should be a coupling of this bill with control by the regulator of large sums of monies from the companies, and there was a lot in their approach. They did not like to have their mutual policyholders pay for improper stock of mutual operations; but they are not pushing that, and in the District of Columbia, I think, the fact that we have a good record with respect to solvencies, and because of the nature of the structure of the industry here, they did not push their approach.
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So that was the only philosophical objection that I know of, and that has been withdrawn on that premise.
Mr. STUCKEY. Thank you, Mr. Lombard.
Does anyone else have any statements that they would like to make at this time; yes, sir?
STATEMENT OF ARNOLD W. WOLPERT, DIRECTOR, ECONOMICS
BENEFITS, SPECIAL SERVICES DIVISION, NATIONAL EDUCATION ASSOCIATION
Mr. WOLPERT. Congressman, my name is Arnold Wolpert; I am with the National Education Association. I have a prepared statement, which I would like to leave for replacement in the record.
We support the bill. We are interested in increasing or raising the limits on group insurance, which is the interests of our members nationwide. We are in full support of it.
Mr. STUCKEY. Thank you, Mr. Wolpert. You scared me for a minute; I thought finally we found some opposition to the bill.
(The prepared statement of Mr. Wolpert follows:)
STATEMENT OF ARNOLD W. WOLPERT, NATIONAL EDUCATION ASSOCIATION My name is Arnold W. Wolpert. I represent the National Education Association as Director, Economic Benefits, Special Services Division. In that capacity, I supervise the operation of insurance programs sponsored by the Association for its 1.2 million members.
I appear here as a representative of the consumers of insurance rather than as a representative of the insurance industry. I appear in support of HR 4083, a Bill dealing with the regulation of insurance in the District of Columbia. The particular matter of interest to the NEA and its members is Title III, Section 301, which provides that the ceiling on the amount of group term life insurance that persons may purchase be raised.
H.R. 4083 is a good Bill in that it proposes to raise the present ceilings of $20,000 flat, $40,000 maximum to $30,000 flat, $100,000 maximum. This is a needed change. In fact, HR 4083 would be even better if it raised those ceilings to an even higher level say, $50,000 flat—or removed them entirely.
Limits on the amount of group term life insurance that could be offered or purchased were first placed into state insurance codes 30 to 50 years ago when group term insurance began to be popular. The theory was that persons should not depend entirely on group term insurance to satisfy their life insurance needs. We agree. However, experience has shown that even when there are no limits on the purchase of group term life insurance, people tend to take care of their life insurance needs with a balanced program.
The recent trend among states has been to remove or to substantially raise the limits on group life insurance sales and purchases.
Since this Bill was first introduced in the 92nd Congress, three states have liberalized their group term insurance limits. North Carolina raised the limit to a flat $100.000. Maryland and Pennsylvania removed their limits altogether. Virginia has already removed that State's limit entirely several years ago. Thirtyone states now have no limits on the amount of group term life insurance its residents may purchase. Four more states have limits which are already higher than the ones being proposed by H.R. 4083. Only three other states, Arizona, Arkansas and Montana limit as tightly as does the District of Columbia the amount of group term insurance that may be purchased or furnished. The District of Columbia limits have not been adjusted since 1951 and are among the lowest in existence anywhere.
The NEA is interested in this Bill and in a more realistic ceiling on group term insurance offerings because it wishes to provide adequate, up-to-date insurance and still keep its program here in the District of Columbia where the NEA is located. The NEA has developed a special Life Insurance Program for its members and their families. The Program is administered by the Prudential Insurance Company. It has been in operation for 12 years. It insures almost a quarter of a million lives. It has developed its own reserves and has improved its benefits on 11 different occasions. Association members have been asking for the opportunity to purchase larger blocks of coverage. We would like to be able to offer it to them. We are now in a position to increase the benefits of our two larger plans by an aggregate of ten per cent without having to increase the premiums.
The low ceiling on group term life insurance in the District of Columbia prevent us from offering to teachers nationwide the amounts of insurance they need and want.
On behalf of those teachers, our members, we urge early enactment of this Bill.
GROUP LIFE INSURANCE LIMITS
1 States having no limit (31): Alabama, Alaska, California, Connecticut, Delaware, Georgia, Idaho, lowa, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia, Washington, and Wyoming. 2 No limit. Note: Base higher than proposed for District of Columbia in H.R. 4803 (4): Kansas, North Carolina, Ohio, and Wisconsin.
Mr. PRICE. Sir, can I assume that all of the statements that I have submitted will be included in the record ?
Mr. STUCKEY. Right, all of the statements that have been submitted will be made a part of the record.
Mr. ROBINSON. As you know the Mayor has submitted a report on this bill and the companion bill; which at this time I would like to have included in the record. It points out certain discrepancy between the two bills and recommends a course of action to correct those.
Mr. STUCKEY. It will be made a part of the record, and the chairman also has a statement that I would like to make a part of the record at this time.
(The prepared statement of Mr. Price, the report from Mayor Washington and the prepared statement of Mr. Stuckey follow :)
PREPARED STATEMENT OF ROBERT N. PRICE, VICE PRESIDENT AND GENERAL COUNSEL,
PEOPLES LIFE INSURANCE Co.
I am Robert N. Price, Vice President and General Counsel of Peoples Life Insurance Company, Washington, D.C. This consolidated statement in support of H.R. 4083 is made on behalf of the following domestic District of Columbia life insurance companies :
Acacia Mutual Life Insurance Company
United Services Life Insurance Company H.R. 4083 is an omnibus bill divided into Titles I through V. This statement is principally concerned with Titles II and III which relate to life insurance and life insurance companies. We specifically support those Titles.
The amendment proposed in Title II would increase the capital and surplus requirements for stock and mutual life insurance companies authorized to do business in the District of Columbia. Over the years, various states have increased the capital and surplus requirements of life insurers as a further safeguard to the security of policyholders. It is particularly important that the policyholders be protected in the early years of a company's operation. The proposed increases in the capital and surplus requirements would bring the District of Columbia more in line with the requirements of the various other states and would provide greater safety to policyholders of companies authorized to do business in the District of Columbia.
Title III would increase the maximum amounts of group life insurance to the lesser of $100,000 or 300% of compensation with a lower limit of $30,000. More than half of the states currently have no limits on the amounts of group life insurance while a lesser number have higher limits than the District of Columbia, and a few have the same limits. The proposed amendment would offset the effects of inflation in the years since the last increase in the group life insurance limits and it would bring the limit more in line with those applicable in other states. Such an increase would permit the full employee benefits under the federal income tax laws which exclude from personal income tax the premiums paid by an employer for group life insurance up to $50,000.
We believe that there should be some limit on the amount if group life insurance and that the proposed limits are reasonable. Subject to a right to convert, group insurance terminates when the employment terminates, and an individual with only group insurance may find himself without adequate protection if his job terminates. At retirement, most group insurance either terminates or reduces to a paid-up amount. For these reasons, an individual may not find it advisable to have all his protection in the form of group insurance.
The present District of Columbia Code neither permits nor prohibits the assignment of group life insurance. The above companies firmly believe that said Code should include an amendment permitting the assignment of group life insurance. The exercise of an assignment of rights under a group life insurance policy would permit a covered individual to obtain valuable benefits under the federal estate tax laws. The Codes of forty-one of the states permit such assignments.
Titles I and IV are concerned with casualty insurance companies and the type of insurance written by them. Insofar as these Titles afford additional policyholder protection, the above named companies generally support the requested amendments.
The amendment requested in Title V would increase the amount of a contract with the District of Columbia for which no bond is required, and in view of the inflation in recent years, the higher amount would appear reasonable.
On behalf of the companies identified above, I wish to express my thanks to the Chairman and members of the Subcommittee for the opportunity to present their views.
THE DISTRICT OF COLUMBIA,
Washington, D.C., February 2, 1973. The HONORABLE THE SPEAKER, United States House of Representatives, Washington, D.O.
DEAR MR. SPEAKER: The Government of the District of Columbia has the honor to submit herewith for the consideration of Congress a draft bill “TO improve the laws relating to the regulation of insurance in the District of Columbia, and for other purposes."
The purpose of the proposed legislation is to amend existing law in the District of Columbia relating to insurance in order to provide a greater degree of protection to consumers from financial loss due to company insolvency; to increase the limitation on the amount of group term life insurance that can be issued in the District; and to increase the amount of a contract with the District Government for which a bond is required.
Title I is based on model legislation prepared by the National Association of Insurance Commissioners which has been adopted or is currently under active consideration in most States. This title would establish a post-assessment insurance guaranty fund to be administered by a nonprofit unincorporated legal entity known as the District of Columbia Insurance Guaranty Association. The Association would be obligated, in the event an insurance company became insolvent, to pay all covered claims of the policyholders of the insolvent company. The Association would have the same rights, duties, and obligations in regard to adjusting and settling claims that the individual company would have had if it had not become insolvent.
Funds for the insolvency fund as well as for operating experses would be provided through annual assessments to be levied on each member insurance company. All companies licensed to transact business in the District of Columbia and writing lines covered in the Act would be required to belong to the Association. The assessments would be proportional to the amount of insurance each member company writes in the District of Columbia. However, no member company would be assessed an amount greater than 2 percent of that member's net direct written premiums in any one year.
The Association would be administered by a Board of Directors chosen by the member companies and subject to the approval of the Commissioner of the District of Columbia. The Board would adopt a plan of operation, also subject to approval by the Commissioner.
In addition to its role as financial guarantor for policyholders, the Association would have the responsibility of aiding in the detection and prevention of insolvencies. The Board, upon majority vote, would notify the Commissioner of any hazardous financial condition of any member company; request the Commissioner to have an examination conducted at the Association's expense; and make general reports and recommendations to the Commissione on matters relating to the concerns of the Association.
The Commissioner would inform the Association of insolvencies not later than three days after receiving notice of a determination of insolvency. The Commissioner would be authorized to require the Association to notify all the insureds of the insolvent company of their rights under this title. The Commissioner would also report to the Board of Directors when he has cause to believe an insolvency is about to occur in any of the member companies.
Title I of the bill would provide for termination of the District of Columbia Insurance Guaranty Association in the event that legislation is enacted creating a national guaranty fund with benefits and protections as favorable as those that would be provided policyholders under this title, or in the event a voluntary plan is created which provides equally favorable safeguards to policyholders.
It is imperative that protection against company insolvencies be afforded District consumers as soon as possible. At the present there is no such protection and although the District's record in regard to insolvencies of companies domiciled here has been remarkable, we cannot fail to plan for the possibility of insolvencies occurring in a company operating nationwide which has District policyholders.
We feel that the approach taken in this title will provide adequate and