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FEDERAL SUPERVISION. The President, in his message to Congress of December 6, 1904, expressed his opinion with regard to this vital topic in the following pregnant sentences :
“ The business of insurance vitally affects the great mass of the people of the United States, and is national and not local in its application. It involves a multitude of transactions among the people of the different states, and between American companies and foreign governments. I urge that the Congress carefully consider whether the power of the Bureau of Corporations cannot constitutionally be extended to cover interstate transactions in insurance."
No insurance company in the United States transacting its business according to legitimate methods objects to the widest publicity with regard to its affairs. It is only those companies that seek to cheat the public by prostituting the sentiment of fraternalism and through extravagant prospectuses, and those companies that are doing what is known as an underground or wildcat business that object to publicity. This statement is not aimed at those beneficent fraternal organizations whose business is honestly conducted according to legitimate methods. Publicity as related to corporations that have or seek either public franchises or public favor means more than a newspaper advertisement of an unsworn statement of assets and liabilities. It means that each company must show to that department of government, state or federal, vested with power in that regard, what it is doing with the money it receives; that its affairs are conducted honestly and economically, and that its business is operated upon a plan which experience has shown will enable it to afford the protection it offers to its policy holders.
NECESSITY FOR FEDERAL SUPERVISION. If Congress has the power to regulate the insurance business under the commerce and general welfare clauses of the Constitution, a preliminary inquiry arises whether such regulation is desirable. If the business, in either its origin or
development, is national in character, it should be regulated and controlled by the national government. No question of state rights is involved. The mere circumstance that many of the states annually exact from insurance companies money by way of taxation and otherwise, that they do not find it convenient to collect by ordinary means, and that they may be deprived of revenues to which they have no right, is no argument against national control and regulation of the business. The officials of the leading companies, life, fire and accident, recognize the steady growth of the sentiment in favor of national supervision, and they generally favor it if thereby the forty-nine state departments to which they now must make returns will be superseded. The leading state insurance commissioners are also in favor of federal supervision. Hon. W. H. Hart, Auditor of State of Indiana, presiding over the National Convention of Insurance Commissioners at their Thirty-second Annual Convention at Buffalo, said:
“In my judgment the time must speedily come, in the very nature of things, when it can be done consistently, that the insurance interests of this country shall pass from state to federal supervision.”
In his address at Columbus, September 23, 1902, President Hart said:
6. I believe the eclectic interest of insured and insurer demand federal supervision with incidental state authority. This would be the solution of uniformity in laws and practice and free the companies of a mountain of expense. It would place this largest utility of the republic on a skilled business basis free from the periodical upheavals of change in politics. An interest aggregating billions, the intimate relation borne to so many thousands of our countrymen, should not have any impediment to the best supervision that can be given.'
Hon. Arthur I. Vorys, of Ohio, was president of the National Convention of State Insurance Commissioners at their 1903 session at Baltimore, and in his address, September 29, 1903, said:
“Speaking for myself, I venture the assertion that federal supervision is inevitable; that it will be established at no very distant day and under federal laws of then unquestioned constitutionality.”
No one has offered any substantial reason against federal supervision, and it is advocated by the President of the United States, many state insurance commissioners, favored by leading insurance officials and numerous able insurance journals. Besides these, the general press is in favor of any movement in the direction of greater corporate publicity, and the patrons of insurance—the people—favor federal supervision of the business as the national banks are supervised.
There are three factors in the problem of insurance supervision: the public, which furnishes the money to conduct the business; the companies, which are the trustees of this money; the state, whose province it is to see that good faith is observed between the public and the companies. The end of supervision should be to see that companies are safe financially and honest in their dealings; but while there are in many states capable and efficient commissioners or superintendents who are engaged in the conscientious performance of their duties, the principal occupation of these officials in other states is to draw their salaries and accept the certificates issued by the standard insurance states, such as New York, Massachusetts and Connecticut, of the solvency, etc., of companies of those states.
The figures furnished by Senator Dryden in his recent address before the Boston Life Underwriters' Association (November 22, 1904) show the startling fact that the life insurance companies in the United States pay for state supervision several million dollars more than the supervision costs the states. According to tables compiled in the Bureau of Corporations, twenty-eight states in the year 1902 received from insurance companies, exclusive of taxes, over $5,000,000 more than they expended in the supervision of those companies. The iniquity of such a condition is obvious, for it lays an unnecessary burden upon all who seek to provide for their families and to avert disaster from fire through insurance. It is estimated that the expense of federal supervision would not be over ten per cent. of what it now costs.
Federal supervision will also go far toward the solution of the vexed problem of taxation. All insurance is, in a broad sense, a tax, and a tax upon a tax is opposed to sound policy. Many states tax foreign companies at a higher rate than they do their own, thereby making the policy holder pay that much more for his insurance. Some states, apparently overlooking the fact that this nation is a union of states, have enacted laws under which that species of tax known as “retaliatory” is exacted; for instance: if Pennsylvania requires companies created under the laws of other states to pay taxes at a higher rate or on a different basis than Pennsylvania companies, Indiana follows suit and requires all Pennsylvania companies doing business in Indiana to pay taxes on the same basis and rate that Pennsylvania exacts of outside companies; and the circumstance that Indiana has no companies doing business in Pennsylvania is unimportant. These statutes are sheltered under the police power and have been sustained on the theory that the state may impose terms upon corporations of other states (State vs. Insurance Co., 115 Ind. 265, and cases cited), but they are in their spirit hostile to the federal compact and increase the cost of insurance in the retaliating state.
The centralization of supervision in the hands of qualified experts employed by the federal government would encourage a greater degree of publicity than is possible at the present time, when the annual report blanks represent the compromise ideas of nearly fifty different supervising officials. The required reports to the national government would doubtless be far more analytical and inquisitorial than those required in any of the states. A federal statute or regulation requiring an accounting of the uses made of the immense sums accumulated through the prudence, sacrifice and thrift of millions of policy holders will prevent improvident and improper investments and extravagant management. Assuming that federal supervision is constitutional, practicable and desirable, the plan by which it can best be accomplished must necessarily be left to the judgment of Congress. Various schemes have been suggested by students of the problem, but whether the best supervision can be had from a plan providing for federal franchises or national reincorporation is a matter upon which your committee do not express an opinion.
Is INSURANCE INTERSTATE COMMERCE ?
The apparent obstacle in the way to either a congressional or judicial declaration that interstate insurance is commerce among the states is found in a series of decisions of the supreme court beginning with the famous case of Paul vs. Virginia, 8 Wall. 168 . (See Liverpool Insurance Co. vs. Mass., 10 Wall. 566 ; Hooper vs. California, 155 U. S. 648 ; New York Life Ins. Co. vs. Cravens, 178 U. S. 389 ; Nutting vs. Mass., 183 U. S. 553 .)
In all these cases, except New York Life Ins. Co. vs. Cravens, the principal question involved was whether a corporation of one state may transact its business in another except by compliance with the terms prescribed by the latter, and the inquiry in them all was as to the validity of the several state statutes involved imposing the terms with which corporations of other states must comply before transacting their business in those states whose legislation was attacked; and the statutes were sustained as within the legitimate exercise of the police power. In the Cravens case the question was whether a statute of Missouri, providing for the non-forfeiture of a policy of life insurance under certain conditions, fixed the rights of the parties contrary to the provisions of the contract as written, and the supreme court upheld the state statute and read it into the contract. In none of these cases was there involved the validity of an Act of Congress. In none of these cases did the decision hinge upon the constitutional classification of the business of insurance. In none of these cases was there apparently in the record any accurate and