business. The Council could use the facilities of the Federal agency to make such factual studies as it required as the basis for its reports. The annual reports from the Insurance Advisory Council to the Congress should be of great value in many different respects. First, such reports would serve to point out to insurance company managements conditions requiring their attention, thus providing an opportunity for correcting abuses from within the business itself. Second, the reports would serve to call attention to areas where State supervisory activities could be strengthened in order to promote the efficiency of the insurance regulatory process generally. Third, the reports might be used on occasion to call attention of the Congress and policyholders generally to conditions in the life-insurance business considered harmful and possibly requiring legislative correction. It is clear that the activities of the Insurance Advisory Council would not only do much to obviate the necessity of additional legislation, but also they would be of great value in the determination of many matters of national policy where the interest of insurance companies are vitally, though sometimes indirectly affected. The Insurance Advisory Council would also serve to strengthen State regulation. Having at its disposal the facilities of the designated Federal agency, it would be well equipped to advise the States on many important matters. For example, the Council might, among other things, consider and suggest the best means for integrating the Federal and State examination systems; it might make recommendations looking toward the revision and standardization of life insurance accounting practices; and it might from time to time give technical suggestions to the States as to what concrete steps they should take to better integrate their statutes. INDUSTRIAL INSURANCE In outlining the foregoing proposals no reference has been made to industrial insurance. This important problem requires special consideration. The committee will recall that industrial insurance is a type of life insurance sold in small amounts primarily to people of little means. Premiums are paid weekly or monthly to collectors who call at the homes of the insured. A considerable amount of time was spent in the study of this type of insurance which is held by approximately 50,000,000 people in the United States. It will not be possible to make a detailed review of the facts disclosed through the hearings. Only a few aspects of the problem may be mentioned at this time. For many reasons, including its high agency expenses and mortality experience, this type of life insurance is the most expensive form of life insurance sold. It is sold almost entirely to low-income families. When sold by stock companies it has resulted in enormous profits many times over the shareholders' original investment. By reason of the method used to compensate agents, sales contests, quota systems, prizes, and other devices, industrial insurance is frequently sold by undesirable high-pressure methods. Many agents selling this type of insurance are untrained or for other reasons unqualified to deal with the public. Because of their high cost and the selling practices employed, industrial policies are rarely kept in force long enough to accomplish their essential purpose. In the 10-year period ending 1937 only slightly more than 5 percent of the policies terminating, terminated by death or maturity. The selling procedure is characterized by a “squirrel cage" operation where the public is sold policies which lapse only to be sold again. Moreover, the policies are often poorly distributed within the family group with protection on infants overemphasized and protection on the breadwinner underemphasized. The companies have not provided satisfactory means for readjusting policyholders' programs to meet changing economic circumstances. The fact that a single family may frequently hold policies in several different companies adds to the confusion. State laws for this form of insurance are inadequate. Industrial-endowment policies, for example, though outlawed in New York are still frequently sold by companies not subject to the jurisdiction of that State. Finally the number of policy forms available and variations in policy provisions are highly undesirable and conducive to misrepresentation and misunderstanding on the part of the policyholder. The three largest companies selling this type of insurance and several smaller companies have, partly under the pressure of public opinion and partly at their own volition, instituted many industrial-insurance reforms. The quality of their service in this field is far better than the other one-hundred-odd companies and indeed many of the abuses indicated above are less apparent in their operations. About 50 percent of the new business is being written by companies not in this category, however, and as to all companies the evils apparently of necessity inherent in industrial insurance remain. The Armstrong report stated over 30 years ago that from its study of industrial insurance, there remained but two alternatives, to permit the continuance of that type of business with the weaknesses inherent in the system or to prohibit its sale altogether by private companies. The alternatives which were then so frankly recognized remain in our opinion the only alternatives today. The question is again presented as to whether the sale of industrial insurance should be prevented since the number of reforms in this field which might be made by the States would, though desirable, be insufficient in our opinion to eliminate the basic difficulties In this connection, it should be acknowledged that if industrial insurance is to be eliminated, satisfactory substitutes must first be found. In spite of its high cost, excessive lapsation, maldistribution, and other evils, industrial insurance now provides a type of protection earnestly desired by great segments of the population. Private companies cannot provide a substitute. True, the situation will be alleviated to some extent by the development of monthly debit ordinary insurance and an extension and development of savings-bank life insurance. It appears to us that the only adequate substitute can be obtained either through extension of Federal and State socialsecurity programs to provide a lump-sum death benefit for all the populace in an amount sufficient to cover burial and to compensate for expenses attendant upon the last illness, or through the development of a system for selling burial benefits through the facilities of the postal system. Such programs are feasible and would give wider protection at far less cost than is now possible under industrial insurance. In the light of these considerations, we recommend the extension of socialsecurity benefits or the development of some other program such as the sale of insurance through the postal system, to the end that industrial insurance would gradually disappear. Nothing should be done to cancel existing policies to cause a serious dislocation in the insurance programs of policyholders now holding this type of insurance. Furthermore, the plan should not be so drawn that it would place the Federal Government in competition with those companies selling ordinary life insurance. The problem is complex and will require careful study. It would be a proper subject for consideration of the Insurance Advisory Council should such a body be created. FIRE, CASUALTY, AND MARINE INSURANCE Finally, it is recommended that the appropriate committee of Congress or some designated agency of the Federal Government be directed to conduct a thorough investigation of all forms of fire, casualty, and marine insurance. CONCLUSION As we have stated, these suggestions and recommendations are not to be considered as an attack on life insurance. The life-insurance business has had a remarkably consistent development and has, in most cases, fully justified the confidence of its policyholders. In bringing a greater measure of security to millions of policyholders, the life-insurance business has performed a useful service which makes its continuance a social necessity. Indeed, there can be no question of the soundness of the basic principles upon which the institution of life insurance is founded. There is no desire on our part to place the Federal Government in a position to tamper with insurance investments, to control investment policies, or to interfere in any way with the companies' free exercise of managerial judgment. That certain practices and tendencies have developed in the business which, upon objective analysis, appear undesirable from the point of view of broad public interest is, after all, not surprising. One would expect to find that certain procedures and types of insurance inaugurated many years ago would, with changing times, have a different effect and emphasis than was originally expected and, of course, the great growth of the companies would create new regulatory as well as new operating problems. Furthermore, the activities of a particular company may have an entirely different aspect when viewed, not from the point of view of an individual company, but from the point of view of the combined effect of insurance practices generally upon the national economy. In broad outline, our recommendations sum up as follows: First. That the respective States make strenuous and prompt efforts to strengthen their existing machinery for regulating and supervising life-insurance companies. We have offered several specific suggestions to guide State commissioners and State legislatures. In most cases, if not all, the commissioners will, we believe, be ready to accept the proposals provided they receive adequate financial support and backing from their respective legislatures. Second. That the Federal Government assist the States in their efforts to strengthen their existing regulatory machinery by giving advice, disseminating information and exercising some slight supervision over certain primarily interstate aspects of the business. The Federal Government should render such assistance without supplanting the basic jurisdiction of the States. Third. That the gradual disappearance and eventual elimination of industrial inurance be encouraged by developing a plan for paying lump-sum death benefits under social-security programs or by making arrangements for the sale of insurance providing such benefits through the facilities of the postal system. We do not recommend or suggest any form of strict, all-inclusive Federal regulation. On the contrary, the entire purpose of our proposals is to demonstrate that such regulation can be avoided by strengthening the existing State regulatory machinery. If realistic steps are taken by State officials, State legislatures, and company managements acting in cooperation with the Federal Government, we may expect not only the continuance of State regulation but may look forward to increased efficiency and public usefulness in the life-insurance business. The VICE CHAIRMAN. I am sure that the committee is very grateful to Mr. Pike for his most excellent paper, and may I say to you-I probably shouldn't say it now-that I think you might possibly add, probably largely as a substitute, that the Federal Government protect the States from the violations from without of State policy. You have mentioned specific instances where people, by the use of mail and radio, have violated the State policy. Mr. PIKE. Yes, sir. The VICE CHAIRMAN. And it seemed to me in view of the fact that the Federal Government has responsibility with regard to commerce among the States, and the States by reason of their having surrendered certain elements of their sovereignty to the Federal organization, no longer maintain protection of their frontiers, that it is a perfectly logical and proper responsibility for the agency of Government to which the surrender has been made to guard their frontiers. Mr. PIKE. I quite agree, sir. I think the idea is inherent The VICE CHAIRMAN (interposing). It is a part of the sovereignty that the State shall run the business that is within their governmental capacity, and in order to protect that sovereignty, it seems to be the duty of the agency to which the surrender has been made to make that sovereignty effctive by preventing anybody from without doing within the State that which is against the State policy. Mr. PIKE. I believe, sir, that is inherent in the proposal that we have here. The VICE CHAIRMAN. If you people will formulate some tentative bills to send down, drawn from the standpoint of the problems involved, I think Congress will pass those bills. Mr. PIKE. I am very cheered to hear you say so, sir. The VICE CHAIRMAN. Yes; I think so; especially your speaking of the West Virginia situation. I think they will do it. I am inclined to think that one of the reasons why we are having so much difficulty in preserving State responsibility has been that our courts and Congress have become too impatient and have failed to recognize that the processes of democracy are a little slower than those of a central government, that in order for a democracy to do anything it must first have the consent and support of the people, and that bringing about the result is not nearly so important as the development of the people who struggled to bring it about. Looking around, seeing how powerful God is, it seems to me that He could have made everything all right so nobody would have had to do anything, and there wouldn't have been any necessity to struggle. Mr. PIKE. If he had just worked that seventh day. The VICE CHAIRMAN. Yes. Mr. PIKE. I think that is more or less what we have here. The VICE CHAIRMAN. I am serious about it. The thing that is important to me in all this investigation, and all this business, if I know anything about where we stand now, we stand at the crossroads, and we have either got to move the power and the responsibility back toward the people so that the people will continue to develop governmental capacity by exercising their responsibility, or we continue to move up here. Whenever that time comes, when the governmental capacity of the people is smaller than the governmental problem, it doesn't make any difference how much we blah-blah about democracy, we can't preserve it because the people govern the democracy. I think there are a lot of people beginning to think that. I don't believe the people in America are quite ready yet to surrender the responsibility of government to a great Federal bureaucracy, and that is without any reflection on the people connected with the operation of these departments. I have discovered this, if I may say so-and I think I may be excused for saying it: It is a mistaken notion that a great many people have in this country that the people who are connected with the operation of the machinery of the Federal Government don't recognize that something has to be done about it. I mean, while there are a few people reaching out for power because they love it, the big part of the men connected with the administrative agencies of the Federal Government know that the job is bigger than human beings can do through any agencies of government which the people can control. I appreciate your attitude. I appreciate the attitude of these other people. Dr. ANDERSON. Mr. Chairman, there are two other things. There is a meeting of the committee, of course, tomorrow morning, with the Federal Trade Commission summarizing its testimony. And the other thing that I want to bring to the attention of the committee, and have in the record, is that the only new material in part 28 of the hearings on life insurance has to do with the statement made by the life insurance companies subsequent to the taking of their testimony here, at which time they made some protest of the conduct of the hearings, signed by 150 companies; and then the answer to that statement by the inclusion of a memorandum by Mr. Gesell. That new material ought to be brought to the attention of the people concerned. (Whereupon, a 12:58 p. m., an adjournment was taken until Saturday, March 1, 1941, at 10 a. m.) Hon. EMANUEL CELLER, House of Representatives, METROPOLITAN LIFE INSURANCE CO.. Washington, D. C. DEAR MR. CELLER: This is to acknowledge receipt of your letter of September 23 and the galley proof of my testimony during the hearing before the Subcommittee on Study of Monopoly Power on August 1, 1949. This morning we received your letter of September 27, 1949, and the galley proof which is devoted to the appendix. We have reviewed the galley proof which contains my testimony and are returning it herewith. Changes in punctuation are indicated at the appropriate places in order that the galley may conform with the original material. It is noted that your letter of September 9 to me is incorporated in the galley containing the minutes of the hearing, but my reply of the 15th is not included although I so requested. I wonder if this is an oversight. Perhaps this was because the material was sent to press before my letter was received. However, it is important that this be included in the record in order that those interested may have my views as to the significance of the changes which you incorporated. In addition, this is important because one of your changes referred to Mr. Pike. As this was the first time that mention was made of him as the source of some of your statements, it seems essential that the reader of the record should know that these were Mr. Pike's personal views, and did not represent the views of the Temporary National Economic Committee. As to the material, which we saw for the first time in your galley, with reference to company connections of insurance commissioners after their terms of office expired, let us briefly examine the record on this point. This reads as follows: * The CHAIRMAN. "In general, almost all the State superintendents of insurance of the States of New York and New Jersey, with few exceptions, became affiliated with insurance companies after their retirement." The CHAIRMAN. "I will say that they are fine, upstanding men. There was no imputation of moral turpitude attached to them with reference to what I say except this: It may be that the State superintendents of insurance always have the idea that after their term of office expires they may successfully apply to an insurance company for a job." As indicated in my testimony and in my memorandum of August 25, the "innuendo" which reflects upon the integrity of the fine citizens of New York and New Jersey who have served as insurance commissioners of these States is unwarranted. The material which is incorporated to support this allegation does not change my views, nor does it alter the accuracy of my statement on this subject which was subsequently incorporated in the record. The charge that the insurance commissioners of New York and New Jersey may have been influenced in their official duties in the hope of getting "a job" with an insurance company is certainly untenable when one recollects that the common acceptance of the meaning of the word "job" is a principal means of livelihood. Certainly serving as a director of an insurance company cannot be so viewed. The fact is that in many respects it may be viewed as a public service because the compensation paid for attending a directors' meeting is so nominal that it cannot possibly be viewed as providing a livelihood, nor even remotely as an incentive for official actions which are not in the public interest. The most that can be said about the material in support of your observation about insurance commissioners of New York and New Jersey is that a number of insurance companies invited them to serve as directors at one time or another after their terms of office expired. Some insurance companies, life or fire or casualty, realizing the value of the experience which an insurance commissioner would gain during his term of office, sought their services in the capacity of a director after they had terminated their official position. I want to thank you for the opportunity to review the galleys. I will appreciate your having my letter of September 15, 1949, and this present letter included in the galley which contains the record of the hearing. This will enable any interested reader to get the full facts on the issues raised. In addition, may we be favored with a dozen copies of the printed testimony when copies are available. Sincerely yours, Hon. EMANUEL CELLER, Chairman, House Judiciary Committee, LEROY A. LINCOLN, President. ARMSTRONG CORK CO., Lancaster, Pa., October 31, 1949. House of Representatives, Washington, D. C. DEAR MR. CHAIRMAN: We are pleased to learn that the Federal Trade Commission's letter of October 27 acknowledges there is a substantial overstatement in its report of last August as to the degree of concentration of fixed assets in the linoleum industry-especially with reference to the Armstrong Cork Co. The Commission's letter admits (1) that instead of three companies owning in 1947 92.1 percent of the net capital assets of the industry, as asserted in its report, 77 percent is more nearly the correct figure; and (2) it now calculates that of the net capital assets in the industry, Armstrong Cork Co.'s share is 36.6 percent rather than the 57.9 percent shown in the Commission's report. There are, however, other statements in the Commission's letter to which we are constrained to take exception for the purpose of keeping straight the record of the committee's hearings on this subject. First, the Armstrong Co. said in its communication of September 27 addressed to the Commission that it believes "it probably stands second to its principal competitor from the standpoint of investments in net fixed assets for the production of linoleum and felt base." The Commission denies that this is true. The published statement of our largest competitor states that its net fixed assets for 1947 were a total of $16,245,000. Since this company manufactures primarily linoleum, felt base, and other products included in the "linoleum universe," we estimated that only $1,000,000 of these assets should be excluded from the study, leaving $15,245,000 as the probable correct figure. The amount of our own net fixed assets properly attributable to the production of linoleum and felt base was $13,839,000 for 1947. We estimate that we and this largest competitor are not far apart in the total yardage production. Thus, we believed, and we still believe, that there is no large difference in the amount of the net fixed assets of the Armstrong Cork Co. in the linoleum and felt base industry and that of our largest competitor. 96347-49-pt. 1—43 |