lems can and should be dealt with at the State level. It is clear that some changes should be made in the State guaranty fund laws, in order to better prepare them to respond to insurers' insolvency. Various suggestions have been put forward, including immediate access to the assets of the insolvent company, prior credit status for the guaranty association, and a provision to offset guaranty funds assessments against insurers' premium taxes and several States have acted to improve their guaranty funds laws accordingly. While such improvements should increase the ability of State guaranty funds to respond to such situations, the best method of dealing with the insolvency problem is to prevent insolvency from occurring. PIA has supported improved regulation for insolvency at the State level through the return of more of the premium tax collected by the State to the operating budget of the insurance department, so it can be adequately staffed to carry out its primary regulatory responsibility. We also feel there is another method of improving the quality of solvency regulations, which deserves serious consideration by the various States. This involves the active participation of the association members in assisting the insurance department to monitor the companies under its charge. Such an approach is used in Kentucky and has been successful there. Mr. O'Rourke has prepared a statement describing the performance of this function by the Kentucky Insurance Guaranty Association in some detail. This. statement is an appendix to my full statement. Mr. Chairman, this concludes the statement of position of the Professional Insurance Agents in regard to S. 1710. We appreciate the opportunity to express our views to the committee. Mr. O'Rourke and I will be happy to respond to any questions you may have. The CHAIRMAN. Thank you very much. Mr. Kremer. STATEMENT OF EDWARD J. KREMER, CHAIRMAN, FEDERAL AFFAIRS COMMITTEE, INDEPENDENT INSURANCE AGENTS OF AMERICA, ACCOMPANIED BY JEFFERY YEATES, ASSOCIATE GENERAL COUNSEL Mr. KREMER. Thank you, Mr. Chairman. My name is Edward J. Kremer, and I am chairman of the Federal affairs committee of the Independent Insurance Agents of America, Inc. I am accompanied today by our associate general counsel, Jeffery Yeates. [The statement read by Mr. Kremer follows:] Statement of EDWARD J. KREMER CHAIRMAN OF THE FEDERAL AFFAIRS COMMITTEE OF THE INDEPENDENT INSURANCE AGENTS OF AMERICA, INC.. before the COMMITTEE ON BANKING, HOUSING AND of the UNITED STATES SENATE on S. 1710 September 14, 1977 Mr. Chairman and Members of the Committee: My name is Edward J. Kremer and I am Chairman of the Federal Affairs Committee of the Independent Insurance Agents of America, Inc. ("IIAA"). We welcome this opportunity to present our views concerning the proposed Federal Insurance Act of 1977 (S. 1710) ("Act"). Title I of the Act would create a Federal insurance program whereby guarantee would be provided to insurance obligations. Title II would provide a Federal chartering alternative for insurance companies similar to the Federal chartering alternatives available to banks and savings and loan associations under the current system of dual regulation of financial institutions. I. Introduction IIAA is a national association of independent property and casualty insurance agents. The association is IIAA's member agencies vary in size. Most are small businesses having gross incomes of less than $60,000 per year. The agents are proud of being part of an industry where small business organizations have been able effectively to serve the insurance needs of the public. Our industry is highly complex and diverse. There exist large and small insurance companies which do business in a variety of ways. Some sell their products by mail. Others use salaried employees. Still others operate through independent agents such as those who are members of IIAA. In light of the complexity and the competitiveness of the insurance industry, any legislative proposal which would radically restructure the industry should be approached with great care. IIAA is concerned that the Federal Insurance Act of 1977 has the potential of seriously undermining the present competitive structure of the property and casualty insurance industry. Furthermore, the Act carries with it this danger without necessarily affording the insurance consuming public the increased measure of protection the legislation intends to provide. Finally, the Act would establish another tier of government involvement in an industry which is already highly regulated. For these reasons, IIAA opposes the proposed legislation. In this testimony we will provide a brief description of the structure of the property and casualty insurance industry and the role played by the agent in it. We will also briefly summarize some of the reasons why we believe the Act would not provide the public protection it is designed to achieve. We will also explain some of the possible effects that the Act would have upon the marketing (as opposed to the underwriting) sector of the industry. Finally, we will suggest various regulatory alternatives that we believe would better address the problems currently presented in the insurance industry. II. Overview of the Property and Before discussing the possible effects of the Act on the property and casualty insurance industry and the public that industry serves, a brief overview of the industry and how it operates is appropriate. 1. Description of the Industry The insurance business may roughly be divided into three broad categories: (i) life insurance, (ii) health 1 insurance, and (iii) property and casualty insurance. There are a total of approximately 5,000 insurance companies selling these various types of insurance. The property and casualty insurance industry is comprised of approximately 2,900 insurance companies selling fire, automobile, general liability, worker's compensation, inland marine, ocean marine, homeowners, fidelity, and crime insurance. In addition, some insurance underwriters also offer surety bonds. The total premium volume for the industry in 1975 amounted to slightly less than $50 billion dollars. From many points of view, the most important person in the entire insurance transaction is the agent. The agent works with the insurance consumer to establish the necessary coverages by type and magnitude through an analysis of the consumer's economic circumstances and existing insurance portfolio (if any). The agent is also a valuable link in the claims process should the need arise. In recognition of the important role played by the agent in the insurance distribution process, the marketing mechanisms of the industry generally revolve around him, The industry has evolved several marketing systems, each of which uses agents somewhat differently. However, each system has as its goal the attainment of efficiency and the distribution and servicing of the insurance product. |