Mr. DOBBINS. While the author is here, I should like to ask this question, if it is fair. If you do not want to answer, that will be all right. I have been informed, but not really reliably, that one of the purposes of this bill is to prevent the operation of insurance companies in this country by foreign insurance organizations on the theory that they do not compete on equal terms with our domestic companies which must pay license fees, State taxes, income taxes, and so forth. Is that one of the purposes of the bill?

Mr. HOBBS. Yes; but not the primary purpose. That is merely coloring matter that goes into the picture. My information is that Lloyds of London qualifies in only one State in the Union, yet it does business in all States of the Union. It has no tangible capital in any State where it might incur a loss. The things you point out are true, but they make only a darker shade in the same picture.

I should like to say that this bill was introduced by me at the request of the chairman of the full committee, and before we introduced it it was submitted to and approved by the Post Office Department. I presume that the Department's approval is here. This is not a hastily-drawn measure. It is carefully drawn up to fill what we conceive to be a very large hole in the wall of insurance regulation.

In my private practice of law I have had any number of instances where insurance was utterly worthless. I presume that every member of this committee has had similar experience, and it was with that background that I became interested in this matter.

I am delighted by the privilege of introducing the bill, but it was done at the suggestion of the chairman of the full committee and with the sanction and approval of the Post Office Department.

Mr. ROMJUE. Yet if one is denied use of the mails to transmit soliciting material, he may quit that line of endeavor and go to the newspapers and periodicals to do his soliciting.

Mr. HOBBS. Yes; I agree. I do not claim that the bill is perfect. I simply believe that with a few clarifying amendments it will be a good law.

Mr. ROMJUE. I think it seeks a good objective. Only recently I received a letter from a woman constituent who was worried about her legitimate activities as an agent for a certain insurance company. She acted in good faith and thought that the company by which she was employed was a good one. It had several deaths and did not pay. She said that she had quit the company when she learned what it was. Evidently she had fallen into the hands of one of the kinds of companies we have in mind here.

Mr. HOBBS. I obtained a judgment against an individual in Alabama who had public-liability insurance in a company that was thought to be perfectly good. We learned that the insurance.company had changed its name four times within 12 months, and its office. and post-office box were closed every time it had a serious claim.

Mr. ASHBROOK. Its president must have been an actress from Hollywood.

Mr. HOBBS. We found that the original qualifying deposit in the State of original organization was obtained in this way: The president individually owned an apartment house in a western city for which he paid $40,000. He sold that apartment house to one of

his stenographers for a greatly enhanced price, say, $80,000; and she resold it to another stenographer for $120,000; and it went on that way pyramiding until it got to be worth $300,000. That was supposed to support a bond issue of $150,000, which was the amount of the required deposit. The $40,000 apartment house was mortgaged to secure a first-mortgage bond issue for $150,000, and those bonds were used as a deposit to qualify this insurance company to do business. After it had sustained losses running into hundreds of thousands of dollars, all those who had judgments against it got only the equity in the $40,000 apartment house, which, of course, had depreciated greatly in value by reason of the depression. It had changed its corporate name four times within 12 months. I ask that you hear Mr. Marshall at this time.

STATEMENT OF J. A. MARSHALL, SUPERINTENDENT OF
INSURANCE, DISTRICT OF COLUMBIA

Mr. ASHBROOK. We shall be glad to hear Mr. Marshall at this time.

Mr. MARSHALL. All who are familiar with the practice of unlicensed insurance companies agree the regulation as proposed in H. R. 6452 is much needed legislation. All supervising insurance officials are confronted daily with the problem of curbing the activities of the organizations who use the mails to solicit premiums on contracts that are so limited in their scope as to afford practically no protection to the unsuspecting buyer.

At the meeting of the Insurance Commissioners' Convention, December 1934, Commissioner E. A. Smith, Jr., of the State of Utah, made the following statement:

This convention should take definite action in calling to the attention of Congress the evils that beset us and should urge legislation as to the use of the United States mails by companies or associations for insurance solicitation in States in which they are not legally entered.

The provisions contained in H. R. 6452 will in nowise work a hardship upon those legitimate companies now using the mail as a medium of solicitation.

I believe it can be said truthfully, that all members of the Insurance Commissioners' Convention are in accord with the provisions contained in this bill.

Your attention is invited to this fact: Under existing conditions, an insurance contract is purchased through the mail and the premiums thereon are collected through the same agency. When a contested claim arises, and there are many of them, it is necessary for the claimant to enter suit in the State where the company is domiciled. This, in most instances, is impossible. All insurance commissioners, I believe, agree on this point. Any insurance organization which holds itself out to the public in good faith should have no objection to meeting the requirements of the community in which they propose to do business. It is impossible to estimate the loss sustained by the citizens of the United States who obtain policies of insurance from wildcat companies. One of the greatest losses arises from the fact that many of our citizens believing they are protected, fail to take out coverage in well-regulated companies and,

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consequently, when death occurs, the widow and orphans are left destitute.

The crisis which our country has just passed has taught our people to have faith in insurance. This faith must be protected, and can be if H. R. 6452 becomes a law.

I should like to say to you that there is no thought in the minds of the various insurance commissioners of the United States to work any hardship whatsoever upon any organization doing business in good faith, and most certainly we have no desire to work a hardship or throw any restrictions around any of those organizations that confine their activities to the members of the various religious organizations or any other such group; but we do feel that conditions particularly in the life-insurance field in which I include accident and health insurance, have reached a stage where we are compelled to ask for legal help.

There are in this country probably 150 organizations operating from various States and who make all sorts of improper claims as to payments of sick, death, and accident claims; and, as is related in the case of offering $1,000 of life insurance to a man at the age of 50 for $6 a year, we know from our actuarial experience that such is absolutely impossible even if the whole $6 be converted into the channel of a mortuary fund. The method of soliciting is that upon the signing of the original application, $6 is collected, $5 of which goes to the solicitor or is applied to acquisition costs regardless of how it is expended, and $1 goes into the so-called "mortuary fund." That process does not meet the requirements of law. One cannot get service at law on them, and I venture that in 90 percent of all cases they have no idea of meeting a claim on the basis of the original contract. That is why the insurance commissioners as a convention feel that some sort of legislation of this character is needed to enable us to carry on our work in protecting the insurancebuying public.

Mr. HOBBS. Please amplify your statement by giving an indication of the attitude of the insurance commissioners of the several States of the Union if you know it.

Mr. MARSHALL. The convention is heartily in accord with it. They have discussed legislation of this character over a period of many years and have always sensed the real need. The need is more apparent today than ever before. I may say that the insurance commissioners" convention was unanimous in its approval of legislation of this character.

Mr. ASHBROOK. I have received a telegram from the superintendent of insurance of the State of Ohio approving this bill and urging its passage. I presume that you did not take into consideration the picture presented here this morning of the exemptions of church and fraternal organizations in the operation of this bill? Mr. MARSHALL. I may say to you, sir, that I knew nothing about this bill until after it had been presented. I did know, however, that an effort would be made to have some such sort of legislation presented at this session of Congress. Personally, and I am sure that all the other commissioners of insurance would agree with me in this statement, I know that there is absolutely no desire upon our part to work a hardship upon the legitimate concerns, those

organizations, societies, and associations, call them what you choose, who are faithfully meeting their obligations and holding themselves out in good faith. Those who are not doing that are the ones for whom we are reaching out. We do not want at any time to work a hardship upon those who are conducting business legitimately and in good faith.

Mr. DOBBINS. The name of Mr. Palmer, director of insurance of the State of Illinois, has been mentioned here. I had in mind to write to him to get his reaction to this bill, but I received a letter from him only this morning, and I should like to present that letter for the record.

It says:

Hon. DONALD C. DOBBINS,

DEPARTMENT OF INSURANCE, STATE OF ILLINOIS,
Springfield, March 11, 1935.

House of Representatives, Washington, D. C.

MY DEAR CONGRESSMAN: My attention has been called to H. R. 6452, which is before the Committee on the Post Office and Post Roads.

I want you to know that I believe it to be a good bill, which if enacted would help remove some of the abuses of recent years on the part of unauthorized and unsupervised companies.

One of the greatest problems we have from a department viewpoint is handling the activities of unlicensed insurance companies which do business by mail. There is no way we can prevent them from sending mail into the State to our citizens, and further, there is no way we can stop them under the present law from having an office here so long as they do not solicit or sell insurance in this State. It isn't possible to handle the situation in any way except through the Federal Government restrictions on the use of the mails.

If you have not already done so, you will be interested in reading an article in the March issue of the Readers Digest on page 77, entitled "The Flood of Insurance Rackets". I have read this article carefully and I do not believe it is overexaggerated.

We are enacting a complete insurance code at this session of our legislature, which has been very carefully drawn but obviously the problem above discussed cannot be met by State legislation.

With my personal regards,

Very truly yours,

ERNEST PALMER, Director of Insurance.

Mr. DOBBINS. I do not assume that we shall hear from all insurance commissioners, but Mr. Marshall, being the insurance commissioner for the District of Columbia, can perhaps, speak for them. I should like to inquire of him whether among insurance commissioners there is any feeling that an insurance company should not be permitted, if otherwise qualified, to conduct its soliciting and agency work on a mail-order plan.

Mr. MARSHALL. No; we have no quarrel with the method of soliciting. That is a matter of company practice. If a company meets the qualifications of the various States and offers itself for the service of legal processes, we are not a bit concerned as to the method of soliciting. If they prefer to do it by mail, that is their affair.

Mr. DOBBINS. The reason I made that inquiry is that I have heard the bill characterized as an insurance agent's bill, as though it was designed to prevent that sort of competition.

Mr. MARSHALL. That is not true. It will have a secondary effect upon insurance men as agents. That is true; but it will be only a secondary effect.

Mr. DOBBINS. That would be a proper and commendable effect so far as shutting out illegitimate insurance is concerned?

Mr. MARSHALL. Yes. What I am about to say is simply a personal opinion. I believe that any man in the insurance business in any community who is meeting the requirements of that community, paying his license fee for the purpose of doing business in that community, is entitled to some consideration and protection against the one who is not meeting any requirements. I think that is only fair.

Mr. DOBBINS. Let us say that an insurance company is licensed to do business in Maryland and Utah only. Do you think it would be proper for the company licensed in Maryland to solicit prospects in Utah and vice versa?

Mr. MARSHALL. Right.

Mr. GOODWIN. Are the qualifications for obtaining a license in every State of the Union similar?

Mr. MARSHALL. Company licenses?

Mr. GOODWIN. What is the license plan that would be necessary for a company to do business under the proposed bill? Suppose, for instance, that the license requirement of New York State is different than the license requirement for the State of Illinois. Is there any degree of comparison between the State? Are the requirements greater in one State than in another?

Mr. MARSHALL. There is a slight difference, but by agreement through the medium of insurance solicitors' convention we accept compliance certificates in the various States. In other words, the company that has compiled with all the insurance laws of the State of Illinois, for instance, gets from the State a certificate of compliance which may be filed elsewhere.

Mr. GOODWIN. Would the same condition prevail in the State of Texas?

Mr. MARSHALL. Yes. We in the District of Columbia would accept the certificate of the State of Texas and the State of Texas would accept the certificate of the District of Columbia in accordance with a reciprocal agreement. The discrepancies existing among most States as to company requirements is so small that it merits very little, if any, consideration in the various insurance depart

ments.

Mr. GOODWIN. I am thinking of the chaotic condition which might face a company attempting to obtain a license in every State if those basic principles for obtaining a license should be different in every State.

Mr. MARSHALL. There is not enough difference to work a hardship on anybody. The practice of administering the conduct of insurance companies is rather standardized. We use the same type of report blank, which is a standard form approved by the convention. It is rather simplified. I do not believe that would work any hardship whatsoever.

Mr. DOBBINS. Each company seeking to do business must in addition to supplying the certificate of compliance from its own State furnish the data necessary to show that it meets the requirements of the State in which it seeks to do business.

Mr. MARSHALL, Yes.

Mr. ASHBROOK. I should like to incorporate in the record a letter received from the superintendent of insurance of the State of Ohio.